A state effort to dramatically reduce the number of Oregonians with severe mental illness in locked facilities has been plagued by problems, including serious injuries to three vulnerable patients discharged to lower levels of care.

Family members and advocates contend that the state and its private contractor have been too aggressive in denying individuals eligibility for care, and the state's internal reviewers warned that a mass of former patients entering the community all at once could leave many homeless.

"We keep kicking over rocks in this program and finding snakes," said Patrick Allen, director of the Oregon Health Authority. "And I'm not confident we're done kicking over rocks."

The agency has placed a key employee involved in the project on paid leave pending the conclusion of an investigation. But that employee says he is being punished after raising detailed concerns about his agency's handling of the project with Allen and the Oregon Department of Justice.

Chad Scott told The Oregonian/OregonLive that the agency's actions against him were "classic whistleblower retaliation."

As of April, more than 600 mentally ill people were notified they no longer qualified for the treatment they were receiving. But the Oregon Health Authority sent some of those notices to the mentally ill patients, rather than their guardians. In addition, the agency found that the notices did not comply with federal law because they didn't adequately explain why a person was losing eligibility.

The newsroom found three cases of patients hurt after the state moved them to less structured care, two of them despite warnings from health care providers that such a move put the patients at risk.

"People have been harmed, and needlessly so," said Chris Bouneff, executive director of the Oregon chapter of the National Alliance on Mental Illness.

Central to the state's current review is the design and handling of its $27 million contract with Kepro, the company hired to decide which Oregonians with severe mental illness should receive Medicaid benefits.

The contract included ambitious targets for reducing the average length of stay in locked residential facilities starting in 2016, and bonuses for Kepro based on the number of people moved out after the company found them ineligible for the care they were receiving.

Nearly two and a half years later, health authority officials can't say how many of the hundreds of patients Kepro identified for removal may have ended up hospitalized, homeless or dead.

The health authority said it stopped denying care on July 31 and placed Scott on leave the following month. Scott helped design the contract and he oversaw it.

Allen said he believes few people have been harmed by denials of care, citing broad data the health authority analyzed after questions from The Oregonian/OregonLive. It shows that the percentage of people hospitalized within three months of discharge from locked facilities decreased in the first year after Kepro's contract began, and that the overall number of discharges changed little.

The agency's data includes both patients Kepro recommended for less intensive care and those discharged for other reasons.

Kepro's executive director in Oregon, Jared Nyagol, declined an interview request. He said in a statement that his company follows state guidelines for assessing people's medical needs and that the health authority makes the final determination.

Allen said he's re-evaluating the contract incentives but doesn't think they've influenced Kepro's medical experts to make bad decisions.

"Those professionals' licensure and credentialing are on the line if they were to make inappropriate decisions," Allen said.

Allen was tapped to direct the health authority in August 2017.

The company's work has come under scrutiny before. A year before Oregon signed its contract with Kepro in 2016, a federal judge ordered Illinois to restore in-home nursing care to children with severe medical needs whom Kepro had deemed ineligible for the care.

In Oregon, the health authority has moved at least 215 people out of locked facilities following a Kepro medical review. As of April, more than 600 people in all types of facilities for mentally ill people, not just locked ones, got notices that they didn't qualify for care at a facility.

Interviews and agency documents reveal numerous troubles along the way. For example:

The Oregon Psychiatric Security Review Board, which supervises people found guilty of crimes except for insanity, has kept people in care despite Kepro decisions that they should be downgraded. An internal health authority report written in February said Kepro found 198 people under the board's jurisdiction to not qualify for care. Providers have had to pay for some residents out of pocket until the state pays them back. Residential facilities can house up to 213 people under the board's jurisdiction.

The agency has struggled to gain control over the pace of Kepro's work. A health authority spokeswoman said that the agency's director in January ordered staff to tell Kepro to slow down its reviews, yet records show the number of people found ineligible for care in a facility continued to grow. The health authority also proceeded to pass temporary rules that made it harder to qualify to stay in a locked facility.

The process will cost taxpayers money. The health authority is seeking $3 million from the Legislature to keep patients in higher levels of care than Kepro has recommended because the state cannot find housing for them elsewhere. In the past year, the agency has already paid to extend stays for 281 people whom Kepro told they no longer qualified for their existing levels of care.

Some people with severe mental illness caught in the system have faced disastrous consequences, families and advocates say.

They include a 54-year-old woman with schizophrenia who was moved out of a locked facility she'd lived in for about ten years despite warnings from clinicians. She went missing for a week, stopped taking her medications and was found catatonic and severely dehydrated. She was hospitalized repeatedly and is now in the Oregon State Hospital, an even higher and more costly level of care than the facility Kepro said she didn't qualify for.

Within two months of being moved out of a locked facility in Grants Pass and into an adult foster home, a Roseburg man with schizophrenia tried to get to a neighbor's backdoor and got bitten in the face by a dog, requiring a visit to the emergency room. Caregivers at the foster home wrote that the man's needs were "too high & home can't ensure safety," and he was evicted soon after. The man also made violent threats against staff and other residents.

Despite warnings from medical professionals, a man with schizophrenia living in an unlocked but specialized facility in Enterprise was moved into an apartment. Within weeks, the man was airlifted to a Portland hospital, going in and out of consciousness after being off of all his medications and drinking bleach, his father said.

In addition to those three cases, a professional guardian, Nancy Doty, said six of her mentally ill clients who had to move out of facilities following a Kepro review of their cases ended up back at a higher level of care or worse. One is in jail after assaulting multiple people, including a police officer, she said.

"There have been some fairly magnificent failures," said Kevin McChesney, director of residential programs at Columbia Care, which operates facilities in nine Oregon counties.

"At great risk"

For more than 40 years, Patty Bagley-Hill, 74, fought for her daughter Ruane Oliverio's safety as her schizophrenia worsened. Oliverio had been in and out of hospitals and facilities for decades, gradually losing her ability to function.

But there were nine years of relative stability, Bagley-Hill said, when Oliverio, 54, moved to Faulkner Place, a locked facility in Portland.

The peace ended in August 2017, when Oliverio got a notice from the state saying she had improved enough to move out of Faulkner Place. Despite Bagley-Hill's attempts to appeal the decision, she said she was told in May that Oliverio had no choice but to leave.

Oliverio's records painted a bleak picture of the potential consequences for her if she lived in an unlocked facility.

"She has little awareness of her physical condition and cannot or refuses to report health concerns as they arise," one of Oliverio's assessments said. "This could lead to serious and potentially life-threatening situations."

Family of Ruane Oliverio struggles to stabilize her after mental health facility relocations 13 Gallery: Family of Ruane Oliverio struggles to stabilize her after mental health facility relocations

Oliverio was at particular risk, clinicians wrote, because she had a history of walking away and putting herself in danger. She took such poor care of herself that she could end up hurt, they said.

The day after she moved to Andrea Place, an unlocked facility in Portland, Oliverio went missing for five hours, was found by police and was taken by ambulance to Providence Medical Center, Oliverio's medical records show.

Oliverio told a doctor that "people were following me and I had to get away," records show. She didn't want to go back to Andrea Place, and her plan was to walk back to her mother's home.

Doctors once again said that Oliverio needed to be in a locked facility.

One wrote that Oliverio was "too disorganized without the structure of the hospital setting to function at any lower level of care." Another doctor wrote Oliverio is "a chronic elopement risk," using a healthcare term for a vulnerable person wandering off without telling anyone.

A social worker wrote that Oliverio was "at great risk for putting herself in a life threatening circumstance."

Doctors also noted Oliverio was at high risk of seizures if she suddenly stopped taking her psychiatric medications.

Oliverio was moved to a locked facility for a few weeks and then back to Andrea Place.

Within a month, she walked off again.

This time, she was missing nearly a week. People saw her lying on a lawn for hours, medical reports say. Somebody called 911 when she didn't move even after the sprinklers came on.

Oliverio was taken by ambulance to the Legacy Mount Hood Medical Center emergency room, in Gresham. A nurse wrote that she arrived soaked in water and what appeared to be urine. She was disheveled and "hyper religious." Her left big toe was fractured, doctors wrote, her face was sunburnt, she was dehydrated, and she had an overly high white blood cell count.

Oliverio is now at the Oregon State Hospital. Kepro said she didn't qualify to be in a locked residential facility like Faulkner Place because she qualified for hospitalization.

A move to independence

Oregon for years has faced repercussions from a 1999 Supreme Court ruling that found people with mental illness shouldn't be locked up in facilities if they don't absolutely need to be.

In 2010, a survey commissioned by Oregon found that about 60 percent of residents in facilities for mentally ill people could move to a lower level of care.

Under pressure from the U.S. Department of Justice to ensure more people live in community settings, Oregon with the federal agency in 2016 agreed on a set of targets. The average length of stay in locked residential facilities would be reduced by 10 percent by 2017 and 20 percent by 2018. Other goals applied to patients in the Oregon State Hospital.

The health authority hired Kepro in July 2016 to help it achieve its move-out targets, through reviews of mentally ill people's medical needs.

But the language of the contract seems to set even more aggressive targets than the state agreed to with the Department of Justice. It tells Kepro to maintain an average length of stay in locked facilities at 180 days. That would be a 64 percent reduction from the 502-day average reported by the agency in 2017.

A spokesman for the health authority could not say how the 180-day goal was chosen.

Troubles with the effort to move people into lower levels of care emerged late last year.

Agency officials said Allen was briefed in January on the fact that hundreds of people had been told they no longer qualified for services. This was a problem, officials wrote in an internal document sent to Allen at the time, because there were few places for them to go. The health authority had failed to develop enough community housing to accommodate all the people who were deemed to be at a medically inappropriate level of care.

Officials presented three options in their memo to the director: Keep paying for people to stay in facilities even if Kepro says it's unnecessary; tell Kepro to slow down reviews, potentially risking a lawsuit from the company because its income is based on the number of reviews it does; move people deemed ineligible out of facilities.

In response to questions from the newsroom, health authority officials said the agency had planned to resolve the issue by telling staff to prioritize the safety of patients, asking Kepro to slow down its reviews, and paying to extend stays for people whose care Kepro had recommended for a downgrade.

But Chad Scott, the 10-year agency employee who helped write the Kepro contract and was assigned to administer it, challenged the state's characterization of the problem in writing.

On Dec. 28, 2017, Scott had sent a strikingly blunt six-page email to Allen, the health authority director, detailing fundamental problems with the program and the state's failure to address them or even take steps to do so. Scott provided a copy of the email to the newsroom.

In it, he blamed other parts of the agency for failing to adequately prepare for the large movement of people from facilities that Kepro's reviews would cause.

The request to slow down Kepro's work, Scott wrote, seemed like an attempt to change medical decisions to compensate for the health authority's failure to develop services, "even after being given many years and many resources to do so."

"It may even be an attempt by OHA leadership to deflect attention or excuse away how deficient they have been in managing their own program outcomes," Scott wrote.

And he warned that Kepro's work would speed up in the upcoming months because of changes to their contract.

In the days after that email, Scott said he discovered he was excluded from meetings and told to stop voicing complaints in writing.

"The day I sent that email in December, my career ended," Scott said.

The authority declined to comment on Scott's claims of whistleblower retaliation.

Regardless of Allen's January decision to order Kepro's medical reviews slowed down, agency officials said the message wasn't delivered to Kepro. They said why that happened is part of the state's ongoing investigation.

The number of people who received a denial of eligibility for care grew from 410 in January to 482 in February to 608 in April, records show.

The agency itself also seemed to make it easier for Kepro to find people ineligible for care despite its director's decision. In May, the health authority enacted stringent requirements to qualify for a stay at a locked facility. That meant that people who had been stable for a month no longer qualified.

Bouneff, the advocate for people with mental illness, said the new rules "opened up the floodgate" on denials.

Kepro cited the new rules in July when it decided James Stancliff couldn't stay in Ramsey Place, a locked facility in Grants Pass, even after having a serious breakdown when he was moved to an adult foster home.

Emails provided by Stancliff's mother, Donalee Hargis, show that a mental health specialist involved with her son's case challenged Kepro's decision. Staci Bryan seemed incredulous, saying lower levels of care for Stancliff had already proven "disastrous."

"What can we do on this end to ensure this client's safety as well as the safety of others when he is denied the level of care he needs?" she wrote.

Scott, the state contract administrator, told Bryan in an email the same day that he had reviewed Kepro's decisions and confirmed that regulations didn't qualify Stancliff for Ramsey Place.

The health authority loosened those regulations six months later, following complaints from healthcare providers. Stancliff was allowed to stay at Ramsey Place.

But there were other serious problems with the effort to move people into less restrictive care.

Problematic paperwork

Federal law requires states to tell patients why they are being denied eligibility for Medicaid.

In August, Allen wrote in a monthly written report to Gov. Kate Brown that his agency believed the denial letters previously sent to mental health patients "may not be legally sufficient" under the law.

The health authority told the newsroom that officials later determined the notices indeed did not pass legal muster. The notices didn't have enough information about why the person was denied or the fact that people have the right to choose where they live.

In some cases, Allen wrote in his letter to Brown, the notices were sent not to legal guardians but to patients themselves.

The health authority stopped issuing denial notices to patients July 31, fixed one of the legal issues identified by the agency, and started sending them again in October, said Saerom England, a spokeswoman for the health authority.

Scott said he and other health authority officials met with two Oregon Department of Justice attorneys in August to discuss the problem of the notices of denial.

At that meeting, Scott said, he broached his concern that the problem could run deeper than simply notices sent to mental health patients by the state -- potentially encompassing all Oregonians on Medicaid. He also raised a variety of issues that he brought up in his December email to Allen.

Two days later, Scott said, he was asked to hand in his employee badge and told not to return to the office.

Past problems

Oregon isn't the first state to face serious scrutiny after hiring Kepro to review people's medical needs.

The Illinois agency that pays for medical care signed a contract with the company in 2014 to decide whether medically frail children should be eligible to receive in-home nursing care under Medicaid.

Within a year, the state faced a lawsuit alleging that the state made bad decisions when disqualifying patients. The state said in court filings Kepro made all the medical determinations.

One three-year-old boy had been getting 56 hours of nursing care per week most of his life, according to the lawsuit. He was fed through a hole in his stomach, had a tube that drained fluid to his abdomen from his brain, was incontinent, and took seizure medications. Both his parents worked full-time to provide for him and their four other children.

But after Illinois hired Kepro to review children's eligibility for in-home nursing services, the family was told the boy's nurse hours would be cut to zero, the lawsuit said.

That boy was one of 175 medically frail children whose state-paid nursing care Kepro found to be unnecessary. In total, 98 percent of the children whose needs Kepro reviewed had their care either eliminated or reduced, a judge wrote.

In a May 2016 opinion, a federal judge wrote that there is "significant risk" that without the in-home nursing care, the children "can and will likely suffer severe life-threatening medical episodes." The judge ordered the state to reinstate all in-home nursing hours.

In Oregon, advocates for people with mental illness say they fully support efforts to move patients into more independent settings. But both health authority officials and advocates for people with mental illness say the language in the Kepro contract needs to be re-examined.

Advocates and providers point to provisions that give the company more money the more people it denies Medicaid eligibility. Kepro can make an extra $1,000 for each person it disqualifies for care, up to $10,000 a month. It has been awarded at least $215,000 in incentive pay so far, state records show.

McChesney, the residential program director at Columbia Care, said determining medical need "should be a completely independent process, and it should be strictly based on clinical data."

Bouneff, the director of Oregon's mental illness alliance, said Kepro isn't held accountable if its decisions cause harm.

"If Kepro's going to get a financial incentive to get people out, they better get penalized if they do it poorly," said Bouneff.

Asked what guarantees there are that Kepro's decisions aren't driven by incentive pay, the health authority pointed to a clause that says Kepro must "foster and promote" healthcare with an eye to keeping clients "active, healthy and independent members of society."

Scott, who helped design the contract, said adding the incentive wasn't his decision. Scott said he disagreed with the decision at the time because the incentive undermined Kepro's position as an entity that makes independent medical decisions.

Allen acknowledged that some people may have slipped through the cracks.

"Those are clearly terrible outcomes," Allen said, when told about the cases documented by The Oregonian/OregonLive.

But he noted that data show a drop in hospitalization after discharge from a locked facility. The number of people who were hospitalized within 90 days of discharge from a locked facility declined from 9 percent before Kepro's contract started to 6 percent in the year after, the health authority's data show. The same data showed emergency room admissions went up slightly, from about 18 percent pre-Kepro to 23 percent after.

"We think that their track record is very strong," Allen said.

The health authority also said in cases where there isn't an appropriate place for someone to go, it has paid out of pocket to grant them extensions.

A decision to move someone out "isn't strictly based on, 'Well, Kepro said they need to be out so we're kicking them out,'" said Mike Morris, the health authority's interim behavioral health director.

Right now, the state is reviewing the incentive pay offered to Kepro, Allen said. And the agency has approved two analyst positions to help it improve the program.

He blamed his own agency for many of the problems that have arisen, including a poorly worded contract with Kepro.

"There's a whole bunch of stuff on our end that's very weak," Allen said.

Have a tip about Oregon's mental health services? Get in touch.

-- Fedor Zarkhin

desk: 503-294-7674|cell: 971-373-2905|@fedorzarkhin