Introduction to Mental Health Reform in North Carolina

Mental Health Reform began in North Carolina partially out of economic necessity. Other states had had to do so in the Midwest during the decade of the 1990’s for similar reasons, the decline of manufacturing in the so-called “Rust Belt,” but one example used mental health reform undeniably as a nearly vindictive budget slashing measure, singling out more than any other major expenditure category of a state budget for drastic cuts.

North Carolina’s impetus was truly largely driven by a perfect storm [no pun intended but it is one unfortunately nonetheless as the reader will quickly see below] confluence of unexpected and massive budgetary hits to the NC state coffers. In 1999-2000 along with a number of other segments of the economy, the “Dot Com” bubble burst nationally. This affected NC severely as North Carolina had long been building an information economic powerhouse through especially the Triangle area’s [Durham, Chapel Hill and Raleigh which are all within 8 or 15 miles of each depending on which leg of the triangle connecting the three cities you measure] universities, Duke, UNC-Chapel Hill, and North Carolina State University, respectively. NC State at the time and still is the most technically driven of the three and is now beginning to rival Rensselaer, MIT, Georgia Tech and Cal Poly in terms of research, award winning faculty, technical centers and spin off high tech companies. In fact, NC State had already established a new technical campus, the Centennial Campus adjacent to NC State’s campus and on the way to Research Triangle Park toward Durham. That campus has continued to massively grow in the years since the dot com recovery, for instance now housing the headquarters of Red Hat, the world’s leading commercial Linux distribution. This illustrates how much of an economic vortex the RTP {Research Triangle Park) is, generating hundreds of millions of dollars into the state economy. When the Dot Com bubble burst in those days when idiotic Internet companies were starting up, having no real product but promising getting groceries delivered to your house (now perhaps closer to reality), being overvalued in the stock market by unimaginably inflated multiples, the RTP of North Carolina suffered greatly, more so than Silicon Valley which was older, more established, larger and deeper. Jobs by the thousands were lost which were very high paying. High tech personnel left the state, state income tax revenues took a substantial hit. All this was a preview on a mini-scale of what was to come in the 2008 mortgage housing and financial derivatives scandal and bubble/Great Recession, partially still with us.

North Carolina also took another hit that was not well publicized, appreciated for its gravity and now all but forgotten except in political and governmental collective memories. North Carolina had been taxing the retirement income-pensions of retired federal employees who lived in North Carolina. A class action suite was brought in the early 1990’s by large numbers of such retirees. In 1999 the case had made it all the way to the United States Supreme Court. North Carolina lost the case in 1999 and was required to repay over $900 million to the federal government. North Carolina had to do this within a year. North Carolina had to act quickly within that year, borrow money, and start to revise its budgets with cuts unheard of in this state’s long progressive approach to public services and expenditures.

North Carolina, like many states, is required by its state constitution to balance its annual budget. North Carolina has retained a prime bond rating for decades since the 1930’s of so, no small feat considering that it has been one of the most progressive and supportive in its spending of education, healthcare and infrastructure in the South. But one final economic hit took its dire toll in September of 1999 that broke its economic back, and that was Hurricane Floyd. Pictured below is a meteorological map of the rainfall amounts sustained when Floyd swept through the eastern half of the state especially.

Hurricane Floyd rainfall amounts Sept 1999
Hurricane Floyd rainfall amounts Sept 1999




Floyd cost the state one billion dollars in less than a year. Entire communities were devastated and wiped away, most famously the town of Princeville. Farmlands and crops such as tobacco, then still a huge cash crop for the entire state’s economy were wiped away in two days. NC residents were reminded of scenes of people rescued from rooftops when Katrina hit New Orleans over five years later. NC’s response was immediate and enormous to residents, communities and institutions such as schools, county governments, hospitals and numerous other facilities disabled for months or entirely destroyed. Thousands of families were displaced and had to be given housing through the later infamous FEMA providing new entire communities of mobile homes, and temporary housing. Relief funds were provided quickly to families, local governments, hospitals, small businesses with emergency state and federal small business administration loans and so on. It was a massive, largely well organized effort that cost the state dearly but was done without hesitation. But the strain on the state budget was immediate and huge.

From that month on the General Assembly of North Carolina had to raise revenues, defer payments and expenditures temporarily and reduce spending programs. At that time, consideration had been ongoing for nearly two years to overhaul the then long established county by county based mental health clinic system. Reports of mismanagement and wasting of funds had begun to appear in the state media. One compelling and somewhat overdone, and perhaps seized upon, story was that of the former county mental health center in Hendersonville NC in western NC, south of Asheville. At that time until approximately 2003 it was called “Trend Mental Health Center.” It had come under state scrutiny from a state auditor who found financial mismanagement to the tune of slightly over $400,000. But it was not embezzlement or criminal malfeasance as most readers would instantly assume. Rather, the clinic was  $400,000 behind in its filings for reimbursements for services. The story came to somewhat emblematic of what was considered and utilized as evidence of the defects in the decades old county by county statewide system of delivery of public mental health services. Heads rolled and those in charge had to resign etc.

Consequently, out of this perfect storm of financial setbacks, NC undertook to completely reorganize its statewide mental health care delivery system. It was clear and openly acknowledged that part of the motivation to do so was to save monies which the state had to do in order to balance its budget by the following July of 2000, just as the Dot Com bust accelerated nationally and in North Carolina. Another impetus was the dissatisfaction in multiple quarters with the levels of service provided under the old system. Legislators and state level health care planners had observed the then nascent but growing efforts in other states to contain costs and overhaul service delivery through their own “mental health reform” efforts. A consultant firm was brought in to NC, a comprehensive plan tried and implemented in a few other states earlier in the 1990’s was put together and presented to the “Oversight Committee” in NC’s legislature, the General Assembly. A period of public comment and input was undertaken statewide inviting input from the “stakeholders,” the new buzzword for affected parties. The new law was passed in October 2001, House Bill 301, the “Mental Health System Reform” to implement the statewide plan on a massive scale. For a summary review of this plan and its early implementation, and a focus on the use of the later “Medicaid Waiver Program,” please refer to the Wikipedia article on “Mental Health Reform in North Carolina” revised October 3, 2014.

In further articles for the interested reader, I will take one through how this massive effort fared, through its difficult conception, birthing and childhood, to its “adolescence” now and evolving present young adulthood, hopefully in even handed objective fashion as this subject is still fraught with enormous controversy.



Author: Frank

I am a older child, adult, geriatric teaching psychiatrist with over 30 years' practice experience in North Carolina, first at Duke as clnical teaching faculty, then in Western NC as a primary child psychiatry specialist. I have taught and supervised child psychiatrists and psychiatrists in training and many other mental health professionals and taught at two medical schools. I have served in many public and private practice settings. My primary interest is in observing and documenting the ongoing mental health reform efforts in the State of North Carolina and documenting its sucessess and failures at all levels. My favorite pastime among many others is spoofing my friends and kids with my deadpan sense of humor.

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