In a letter to state leaders Friday, the head of Vermont's largest inpatient mental health and addiction treatment center threatened to sell or close the institution if the state failed to come to its financial rescue.

Brattleboro Retreat president and CEO Louis Josephson wrote in the letter that the Windham County facility has an "unsustainable business model" and may soon have to "wind down our operations." He bemoaned a recent decision by Secretary of Human Services Mike Smith to deny additional funding to the Retreat, writing that "without that support we cannot continue to operate."

"The Retreat's Board of Trustees met in emergency session this morning to discuss the Secretary's conclusions, and want to convey that they have directed me to plan for the sale or closure of the Retreat in the very near future," Josephson wrote. "I have started that work."

Josephson's letter became public on Sunday when Smith issued a blistering press release criticizing the Retreat's leadership for failing to improve its financial position and asking the state for more money. "Make no mistake, any threat of closure is both the decision and the result of the Retreat's current leadership," Smith wrote.

The secretary argued that the state had repeatedly provided additional support to the institution — including as recently as November. "Despite the investment of millions of state dollars, Retreat management has failed to deliver fiscal stability to the institution," Smith wrote.

In an interview later Sunday, Josephson appeared to walk back the threat, telling Seven Days, "We're not planning to sell or close the Retreat." Those possibilities were merely "nightmare scenarios" that could come to pass without state assistance, he said. "We're optimistic we won't need to do that," he added.

The 186-year-old institution is a critical component of the state's mental health and addiction treatment system. It's also the largest employer in Windham County. The Brattleboro nonprofit serves roughly 105 patients a day, according to Josephson, and houses more than half of the state's inpatient mental health beds. It's the only residential mental health hospital for children and adolescents in Vermont.

In the Sunday interview, Josephson blamed the Retreat's woes on the state's low reimbursement rates for patients on Medicaid — and an unexpected, recent decrease in patients. According to Josephson, 70 percent of the Retreat's patients are on Medicaid and 50 percent of the facility's revenue comes from the program.

In November, Smith signed off on a rate increase for the Retreat worth a projected $5.3 million over two years. The state also recently agreed to build and maintain 12 additional beds for high-needs mental health patients. Smith estimated that the state had recently committed more than $16 million to the institution.

But early last week, according to both men, Josephson met with Smith to ask for another rate increase to cover a new shortfall. Smith rejected that request. In Sunday's press release, the secretary cited three reasons for his decision.

First, he wrote, "their financial strategy appears to be built on a flawed premise — that continued financial bailouts from taxpayers is an effective long-term solution" to the problem. Second, he continued, "the Retreat has not made any significant management or strategic operational changes." Third, Smith wrote, the institution's financial picture is not clear — and it owes the state $1 million in back taxes.

Smith appeared to direct his ire at Josephson and his leadership team, writing that management changes "are necessary to save it." He added, "It's the responsibility of the Retreat's board to accomplish this task or assemble a team that can."

Josephson took umbrage with that characterization, noting that agency officials had recently reviewed the Retreat's books. "I'm surprised that suddenly Human Services is saying there's a management problem. This is not Springfield Hospital," he said, referring to the bankrupt medical center. "We are managing it well."

The president and CEO criticized Smith for revealing the Retreat's closure threat in his Sunday press release. "I would remind him, he is the secretary of human services — human services," he said. "Real people here. It's not politics here."

Josephson declined to say how dire the cash crunch is — or how long the Retreat could survive without additional state support. "It's really unpredictable," he said. "I don't know. It's not imminent, but it's unpredictable and that's unfortunate."