The state is warning mental health service providers that it has run out of money for a slew of contracted services — ranging from case management and crisis outreach to group home care — and in many cases won't be able to pay organizations for their work until the new fiscal year starts in July.

The four-month lag in payments, mental health providers say, could put some organizations out of business or force them to lay off more workers and cut programs. It could also leave thousands of mental health clients without some critical services or with deep cuts to others, including case management to monitor medications.

"It's a devastating blow. It's really a four-month time period of trying to do without," said Tina McLaughlin, chief executive of CARE Hawaii, which provides a variety of adult mental health services, including crisis outreach. "The primary concern is for our clients and the impact of this on ... public safety."

The news hits as providers are raising red flags about the state of the safety net for those suffering from mental illnesses in Hawai'i. Many say further reductions will result in more clients going without help and monitoring.

And they add that the case of Tittleman Fauatea, who has a history of mental illness and has been indicted in the stabbing death last month of Wai'anae High School teacher Asa Yamashita, should be a wake-up call for the state as it tries to make its way through a worsening budget crisis.

In addition to a payment lag, the shortfall also spurred the state Adult Mental Health Services Division to cut in half to 16 the number of overflow beds it contracts at Kahi Mohala Behavior Health for patients from Hawai'i State Hospital.

The contract cut led Kahi Mohala to lay off about 30 people yesterday.

Janice Okubo, state Department of Health spokeswoman, said the cost-saving measure was taken because there is more space at the state hospital. She said there currently are about 160 patients at the hospital, down from as many as 190 in the past.

"We're able to accommodate a number back at the hospital," she said.

Providers were informed in a letter Monday that AMHD, which is in the Department of Health, had used up all of its funding for the year. In previous years, the division skirted budget shortfalls by requesting emergency appropriations from the state Legislature. Last year, for example, it asked for $10 million.

But this year, no emergency funds are being approved.

The division took steps at the start of the year in hopes of dodging a budget shortfall. Officials capped the reimbursable case management hours per client at 3.5 hours a month (from three hours a day), reduced programs and cut services to those with private insurance. The measures are aimed at saving $25 million.

And officials expect they will likely hit that target.

Still, AMHD expects to end the fiscal year with a $10 million deficit.

KNEW IT WAS COMING

Michelle Hill, AMHD acting chief, said in her letter to providers that the department is "endeavoring to find additional sources of funds from other areas" so it can continue paying providers. But, she added, "due to the departmental and statewide deficit, it is not realistic to anticipate" that those funds will come through.

Hill said yesterday that though no more AMHD funds are available, federal money continues to trickle in. Though it's not much, it will help pay some bills, she said.

"We're going to do our best to try to pay as many people as we can," she said, adding that she is looking for other funding sources to try to address the deficit.

"At some point, people will be paid."

Hill added that service providers have been warned to brace for a slowdown or lag in payments.

"We have expressed our business problems quite openly for a number of months with our providers," she said. "We are working to try to ensure business operations (at providers) go on."

Some 16,000 people statewide receive mental health services through dozens of organizations that have contracts with the state. Providers say they were already cash-strapped before the Adult Mental Health Services Division announced it had run out of money.

They also say that budget cuts are not only causing layoffs and program reductions, but affecting public safety. Many have pointed to the stabbing of Yamashita, the high school teacher, as an example of how important it is for the state to have a strong mental health safety net.

Fauatea, the suspect in the crime, has a history of mental illness, according to court documents, and had been hospitalized repeatedly and diagnosed as a schizophrenic. Yamashita's killing Feb. 27 came three months after Fauatea was taken from the Hawai'i State Hospital in Kane'ohe to serve a six-day sentence at O'ahu Community Correctional Center.

"We all need to be aware of this," said Beth Giesting, Hawaii Primary Care Association chief executive officer. The organization works with community health centers, which provide mental health services along with other medical care.

"Not to be alarmist ... but people need to be concerned about public safety," Giesting said. "We (assume) ... there is some sort of system that is going to protect us. In fact, I would not say that there's a good system out there."

Okubo, of the Department of Health, said the state has been working with providers for months to prepare them for the possibility of a deficit and many had been looking for alternative sources of funding.

She said clients are also being readied for the reductions in services.

"A lot of providers have been really helpful in trying to find alternate funding and also preparing ... the individuals that they manage to try to get more self-sustaining and more independent," Okubo said yesterday.

TRYING TO FIND WAYS

Officials said that despite the AMHD deficit, clients who get court-ordered services will be helped. It's unclear, though, whether some might have to seek out other service providers if the one they were going to decides to cut back programs.

Lawmakers and mental health service providers met with health department officials Wednesday to discuss the shortfall and look for solutions. State Sen. David Ige, D-16th (Pearl City, 'Aiea), the chairman of the Senate Health Committee, said the prospects of closing the deficit don't look promising. He did say the federal economic stimulus package should be looked at as a possible option.

Ige added that the AMHD shortfall is putting mental health service providers in a big bind, and threatens to chip away at the safety net put in place to try to ensure that the mentally ill are cared for and can stay out of institutions if they are well enough.

"We are obviously very concerned," he said.

The extent of the shortfall's impact will likely play out over the next several months, as providers figure out what needs to be cut for their organization to survive.

Brian Schatz, executive director of Helping Hands Hawaii, which offers behavioral health programs in addition to other services, summed up the shortfall this way: "It means that we're essentially going to be loaning money to the state."

Schatz said that for smaller agencies — and some bigger ones — without access to credit, the lag in payments could be devastating. But he said he is hopeful that the state will come through for providers, perhaps with economic stimulus funds.

"It's time we get creative and try to find additional resources," he said.

Leonard Licina, chief executive of Kahi Mohala, which made the layoffs yesterday, said he had anticipated the AMHD deficit for months.

"We kind of saw the writing on the wall," he said yesterday.

Still, that doesn't make it any easier, he added.

"It's just tough all around," he said.

Kahi Mohala has had the contract to provide overflow beds for Hawai'i State Hospital since 2001. Kahi Mohala, a nonprofit psychiatric hospital, has 88 beds and is situated on 14.5 acres in 'Ewa Beach. Licina said those in the state hospital overflow beds being cut will be sent back to the state hospital if they are still in need of care.

If they're not, they will be transitioned back into the community.