After experiencing back-to-back deficits, the Brattleboro Retreat — Vermont’s largest provider of mental health care — is telling state lawmakers it needs a Medicaid rate increase.

“It has to happen,” Human Services Secretary Al Gobeille told members of the House Health Care Committee last Tuesday. “If we did nothing with rates and nothing to improve their business position, Brattleboro Retreat would go bankrupt.”

Retreat CEO Louis Josephson moderated Gobeille's prognosis during an April 20 interview but acknowledged that without a rate increase, the facility would likely have to “shrink dramatically” to stay in business.

That could have a catastrophic impact on what's already considered a mental health crisis in Vermont.

The 119-bed Retreat, which operates on a budget of approximately $70 million, serves both children and adults. Since Tropical Storm Irene destroyed the Vermont State Hospital in Waterbury in 2011, Vermont has contracted with the private psychiatric hospital to reserve 14 beds for patients who are in state custody and tend to be severely ill.

According to Josephson, half of the Retreat’s revenue comes from patients on Medicaid, the health insurance program funded by the state and federal governments. The rates set by the state to pay for those patients have remained essentially flat for eight years. Expenses, meanwhile, have steadily risen.

Compounding its financial problems, the Retreat has been admitting more patients who have greater needs. Accommodating these patients sometimes requires leaving nearby beds vacant, and “nobody pays us for an empty bed,” Josephson said. Nursing shortages — which stem from the Retreat's inability to pay competitive wages — have also prevented the Retreat from filling its beds, he added.

The Retreat ended 2016 $500,000 in the red, and it had a deficit in 2017, too, although Josephson declined to provide an exact figure, citing an unfinished year-end audit.

“I’m not looking to make a penny on this service,” Josephson said. “We’re just looking to cover our costs.”

The institution doesn’t have much of a cushion. It has $7 million in reserves, which Josephson acknowledged is less than he'd like. The Retreat also has $12 million in debt, although Josephson described this as a “relatively low debt burden for an organization of our size.”

The CEO, who took the helm two and a half years ago, told lawmakers that the Retreat has worked hard to reduce expenses. “We don’t spend anything like we did on marketing and all the other things you can get away with not having," he said. "But at some point, you hit the wall, and that’s the wall we’re at right now.”

Gobeille agreed that the Retreat’s financial difficulties are a product of insufficient state funding — not mismanagement. “This is a partnership between the state and them, and we need to make sure it’s a good one,” he said.

The Retreat is facing another existential financial threat: The federal government has said that starting in 2021, it will start phasing out its Medicaid contributions to mental health facilities with more than 16 beds, a policy designed to discourage the "warehousing" of mentally ill patients.

During the past two weeks, Josephson and Gobeille have been making their case for a rate increase to multiple legislative committees. They are seeking money in the 2019 budget, but have yet to put forth a specific dollar amount.

At the same time, Gobeille is pitching a new plan for the state to temporarily contract for another 12 beds at the Retreat.

This would require the state to pay $5.5 million to renovate space at the Retreat, but, according to Gobeille, it would be cheaper than his previous plan to add temporary beds at the Northwest State Correctional Facility in Swanton.

Josephson said the Retreat is willing to add beds, but it needs a rate increase to take on more of the state's Medicaid patients. He dismissed the suggestion that this proposal was designed to prop up the Retreat, as did Gobeille, who said in an interview that "the fact that the future of the Brattleboro Retreat is cloudy isn’t part of that equation."

However, the secretary has said that he hopes the state-funded renovations will help stabilize the Retreat. “We are fixing up the facility so that Brattleboro Retreat could use [the beds] for other things in the future," he told the House Health Care Committee, "and so it puts them in a strategically stronger position than where they are right now."