PROVIDENCE, R.I. (WPRI) – With Gov. Dan McKee poised to unveil his first state budget Thursday, one of the biggest financial challenges he must address has little to do with the pandemic.

Rhode Island has been hemorrhaging tens of millions of dollars a year in general revenue at the Eleanor Slater Hospital since the second half of 2019, when the state-run facility fell out of compliance with federal billing requirements. As a result, the hospital stopped billing the U.S. Centers for Medicare & Medicaid Services to reimburse some services.

Eleanor Slater — a division of the R.I. Department of Behavioral Healthcare, Developmental Disabilities and Hospitals (BHDDH) — provides psychiatric services in multiple units at its Cranston campus, as well as complex medical care at its Zambarano campus in Burrillville. Zambarano was founded in 1905 as the Rhode Island State Sanatorium, but became part of Eleanor Slater in 1994 as part of a broader merger of state institutions.

The sudden elimination of federal support for Eleanor Slater has been a headache for budget officials, particularly since the system is not cheap to run: the cost of hospital operations and services totals about $550,000 per patient, according to recent estimates.

“This didn’t happen overnight,” said Sen. Lou DiPalma, who has chaired the Senate Finance Subcommittee on Health and Human Services for more than a decade. “This is the result of mismanagement over many years – really on many fronts.”

The Medicaid problems at Eleanor Slater happened under Gov. Gina Raimondo’s administration, but they appear to be coming to a head just as her successor finalizes his first tax-and-spending plan, for the 2021-22 fiscal year that begins July 1. McKee and his advisers have been working with budget officials from the Raimondo administration to figure out a way forward.

Over the past month, doctors, elected officials and union groups have voiced increasing concern about the situation, claiming state officials are barreling forward with a downsizing and reorganization effort that will hurt patients who are receiving care at a facility of last resort. Much of the focus has been on Zambarano, which is also a major employer in Northern Rhode Island.

“The frontline workers at Zambarano are dedicated to their patients and have been ringing the alarm bell about the troubling changes to patient care at this critically needed state facility for months,” Cynthia Lussier, president of the United Nurses and Allied Professionals Local 5019, which represents employees at Zambarano, said in a statement Wednesday.

UNAP’s president, Linda McDonald, penned a letter in November to R.I. Department of Health Director Dr. Nicole Alexander-Scott. The union has argued any significant changes at Zambarano would require regulatory approval under the state’s Hospital Conversion Act, a law that more commonly comes into play when hospitals merge or convert between nonprofit and for-profit setups.

The state stopped accepting new patients into Zambarano last spring.

“The previous administration turned its back on Zambarano patients and nurses and it is well past time for Dr. Alexander-Scott to initiate a full and formal review of the effort underway to eliminate services at this vital health care facility and leave vulnerable Rhode Islanders with nowhere else to turn,” Lussier said Wednesday.

Asked about the union’s concerns, a spokesperson for Alexander-Scott said Health Department officials “are in conversation internally on the matter,” but declined to comment further.

State officials have pushed back on the criticism, arguing Rhode Island is long overdue to get out of the business of institutionalizing patients at state-run facilities. Some patients have been living at the Rhode Island-run hospital for several years.

The state is aiming to move more patients and resources to community-based care centers, an approach known as deinstitutionalization that began gaining traction nationally in the 1960s under President John F. Kennedy.

“Patients who stay in hospitals over long periods may lose life skills,” BHDDH spokesperson Randy Edgar told Target 12. “Minimizing the length of stay, in any hospital, is rooted in national best practices and in federal law and regulations that state individuals must live in the least restrictive setting possible.”

While some of the critics have accused the state of pressuring patients to leave Zambarano, data from BHDDH obtained by Target 12 shows the Burrillville campus had only five discharges in all of 2020 and none so far this year. In Cranston — where some psychiatric patients are admitted by court order — there have been 10 civil discharges and 68 forensic discharges.

Edgar insisted the discharges were spurred by legal obligations, not financial concerns.

“Like other hospitals, ESH is legally obligated to release patients who do not need a hospital level of care to less restrictive settings,” Edgar said. “This is in the best interests of patients and the hospital. Discharging patients to more appropriate settings means placing them in settings that encourage continued recovery and greater independence.”

‘An ongoing problem for decades’

Still, it’s clear the debate over how best to treat Eleanor Slater’s patients has heated up because of the hospital system’s money woes.

The issue began to draw public attention around the start of 2020, a few months after a state employee had blown the whistle to the federal government.

The problem: the overall patient census at Eleanor Slater had become too lopsided toward psychiatric patients, in violation of a federal law that prohibits states from using Medicaid funding for non-elderly adults housed in so-called “Institutions for Mental Disease,” or IMDs.

“The exclusion was designed to assure that states rather than the federal government maintained primary responsibility for funding inpatient psychiatric services,” the Congressional Research Service explained in a 2019 memo. The document noted that the rule had been in place since the creation of the Medicaid program in 1965.

“Rhode Island is the only state that does not run a psychiatric hospital and that makes us unique, and it also makes us particularly confusing when it comes to CMS regulations and laws surrounding what we’re supposed to do,” R.I. Office of Management and Budget Director Jonathan Womer said during a House Finance subcommittee hearing one year ago this week.

Womer added, “This has been an ongoing problem for decades.”

Rhode Island had been receiving about $60 million in annual federal funding from CMS at Eleanor Slater, but that stopped in September 2019. No federal reimbursement has been received since, forcing the state to backfill last year’s budget for Eleanor Slater with at least $60 million in general revenue, according to state budget documents.

Lawmakers called for hearings upon learning about the loss of federal funding.

Raimondo assigned senior staff to oversee the issue and the then-director of BHDDH, Rebecca Boss, resigned and was replaced by Kathryn Power, who had previous experience leading the agency. A few months later, Eleanor Slater CEO Cynthia Huether also resigned.

Then the pandemic hit, and the problems of Eleanor Slater were largely drowned out by the public health crisis that so far has killed more than 2,550 Rhode Islanders. But the budget woes persisted, and the state still hasn’t come back into federal compliance, despite having applied for reinstatement last May.

Under Power’s leadership, the state last July decided to hire the prominent hospital consulting firm, Alvarez & Marsal, in a no-bid agreement to create transition and redesign workplans for Eleanor Slater. The consultant, which holds multiple state contracts, was similarly hired by Lifespan in 2019 to help the state’s largest hospital group restructure operations and cut costs.

By October, Alverez & Marsal delivered a report to the state with various options, including a proposal to close the hospital’s Regan and Adolf Meyer units in Cranston; create a step-down care center; and eventually relicense Zambarano into a long-term and intermediate-care facility in Burrillville.

“The state would save $788 [million] in General Funds over the next ten years by discharging individuals and downsizing the physical footprint,” Alvarez & Marsal consultants wrote in a report presented to House and Senate lawmakers.

The estimated $550,000-per-patient cost of running Eleanor Slater is about five times the average cost of services provided in nursing facilities and community-based placements, according to the consultants.

During the review process, state officials have argued many of the patients currently living at the hospital could be receiving a similar level of care at private or nonprofit nursing homes, or other community-based care facilities.

“With or without financial challenges, the discharges would have to take place,” Edgar said.

‘It’s just a shame’

Despite the potential savings, the proposal to downsize and change the facility in Burrillville hasn’t sat well with Republican lawmakers who represent the area.

Sen. Jessica de la Cruz and Rep. David Place have been calling attention to the issue for months, including when de la Cruz delivered the GOP response to Raimondo’s State of the State address last month.

“We also have a long history of inadequately funding core government services and departments like our Veterans Home, Zambarano Hospital and DCYF,” de la Cruz said during the speech. “Just like our family budget, our state must put its needs before its wants.”  

More recently, the lawmakers appeared on Fox Providence’s “Dan Yorke State of Mind” program to criticize the restructuring effort, with Place suggesting the Raimondo administration had been trying to shut down Zambarano entirely.

“It’s just a shame that whenever we’re going after – looking for ways to cut the budget and everything like that — we can spend money on free college, but we can’t take care of the people who can’t take care of themselves,” Place said.

Raimondo’s spokesperson, Audrey Lucas, rejected that assertion prior to the former governor leaving office. “Governor Raimondo is committed to keeping Zambarano open,” Lucas said last month, saying her administration had been working “to further invest in the campus and provide patients with the highest quality, most appropriate level of care.”

The call for more government spending may sound unusual coming from Republican lawmakers who are traditional more financially conservative, especially when it comes to spending taxpayer money. But Zambarano is also a major job center in a more rural part of the state where big employers are scant, meaning any downsizing or potential closures could negatively affect the local economy.

Place also pointed out that the people living in the hospital might have originally come from other parts of the state, but they are registered to vote in Burrillville – making them his constituents.

And it’s not just Republicans. General Treasurer Seth Magaziner, a Democrat who is expected to challenge McKee in next year’s gubernatorial primary, issued a statement last week calling the reports about Zambarano “troubling.”

“In addition to providing much needed care for some of Rhode Island’s most vulnerable citizens, Zambarano Hospital is an important economic anchor for Northwest Rhode Island and supports hundreds of jobs,” Magaziner said. “We must ensure it remains fully operational.”

Place and de la Cruz said they have met with McKee, who told them he was committed to keeping an open mind about the facility. And the new governor’s aides told Target 12 he has no plans to close Zambarano. They also cited a newly disclosed decision by Disability Rights Rhode Island, a federally mandated nonprofit, to launch an investigation into the hospital’s discharge protocols.

“Last week, Governor McKee’s office became aware of the ongoing investigation into Eleanor Slater Hospital by Disability Rights Rhode Island,” McKee spokesperson Andrea Palagi said. “We will do our due diligence and carefully review the matters surrounding discharge practices that surfaced last week.”

How McKee manages the financial problems, however, will be answered at least in part with his budget proposal – which is being watched closely by everyone with ties to the facilities.

DiPalma, a Middletown Democrat, said he plans to hold a Senate Oversight Committee hearing about Eleanor Slater on March 22, when he will ask hospital administrators, state officials, doctors and union members to testify.

“We want to know what worked, we want to know what didn’t work and we want to know what should change,” he said.  

Ted Nesi contributed to this report.