Memorandum
Date: September 16, 2025
To: The Honorable Lake County Board of Supervisors
From: Elise Jones, Behavioral Health Director
Subject: Consideration of Behavioral Health Fiscal Recovery Plan and Request for Loan Repayment Extension
Executive Summary:
Lake County Behavioral Health Services (LCBHSis bringing forward this item to provide context to the Department’s 9-month loan extension request.
This memorandum discusses recent cash flow challenges associated with statewide payment reforms, the County’s Electronic Health Record (EHR) transition, and the structural shift in how Medi-Cal services are financed under CalAIM. Additionally, this memorandum covers recent mitigation steps and proposed next steps, which include a proposal to return in 10-weeks with a comprehensive fiscal repayment plan.
As described in more detail in the following memorandum, while LCBHS’ core mission remains client care, the Department is laser-focused on achieving durable fiscal stability and independence. To that end, LCBHS is in the process of transitioning internal processes, contracts, and financial forecasting to stabilize cash flow, rebuild reserves, and repay the General Fund loan.
Background: Two Major Transitions in 2023
In 2023, two significant changes occurred simultaneously that depleted cash reserves:
• EHR Transition (March 2023): The Department implemented a new EHR system, requiring staff retraining and system reconfiguration before Medi-Cal claims could be billed correctly, resulting in an 8-month delay in billing reimbursement
• State Payment Reform (July 2023): In addition to new billing codes and requirements, the State shifted counties to a new Intergovernmental Transfer (IGT) reimbursement model, requiring significant cash on hand to receive revenues.
From March–December 2023, revenue totaled only $1.97 million, compared to $7–8 million expected, due to simultaneous billing delays from the EHR transition and the payment reform rollout.
Recent Insight: The True Ceiling Under CalAIM
As we have stabilized billing, a new structural reality of CalAIM has become clear:
• Under the old model, Medi-Cal fee-for-service appeared “open-ended,” with DHCS reimbursing the full cost of services.
• Under CalAIM, reimbursement is split, depending on the set service rate and an individual beneficiary’s Medi-Cal aid code. DHCS pays only the federal share, and the County must provide the local share (drawn from realignment and MHSA) before claiming the rest through the IGT process. In many instances, the federal portion is 50% and the county pays the other 50%,, , though federal match can be up to 90% and in some instances the state covers the non-federal share.
• Because these local funds are finite, they now set the real and enforceable ceiling on how much Medi-Cal service the County can sustain in a fiscal year.
Example: For a $100 service at a 50% federal match rate, thethe county contributes $50 in local match (realignment/MHSA) to receive the $50 federal match (+$50).
This means the Department must now carefully model and monitor the total amount of local match dollars available each fiscal year to avoid authorizing more services than can be supported.
How LCBHS Managed Through Disruption
Despite the unprecedented disruption, LCBHS:
• Maintained payroll growth and kept contractors whole
• Avoided service disruptions for clients, unlike several peer counties that were forced to suspend or reduce provider payments
• Made a strong recovery in early 2024, when Medi-Cal revenue returned to normal levels
• Increased total billable services provided by 66% since FY 23–24.
Consultative Support and Corrective Steps
Recognizing the statewide complexity of payment reform, DHCS engaged the Boston Consulting Group (BCG), nationally recognized experts in health care financing and delivery reform, to support counties in navigating CalAIM’s new fiscal mechanics and to assess system-level impacts of payment reform. Lake was one of six counties offered the opportunity to receive this free technical assistance and consultation.
LCBHS has been working with BCG since July 28, 2025, with the first in-person meeting held on July 30, 2025. The majority of these meetings have been in person, allowing for detailed, hands-on analysis and solution-building. With BCG’s guidance, LCBHS is:
• Refining fiscal modeling that sets annual service ceilings based on available local match
• Aligning contracts and fiscal procedures with State guidance
• Strengthening cash flow monitoring, including monthly internal reviews and quarterly Board updates
• Implementing a performance improvement plan to reinforce fiscal leadership accountability.
Current Status
The Department has stabilized billing and cash flow and, with BCG’s expert support, is embedding durable fiscal safeguards to ensure these challenges do not recur. Current projections show stability moving forward, though a $2 million balance remains outstanding from the original General Fund loan.
LCBHS is currently operating near break-even each month. Because Medi-Cal revenue now requires a cash match (and reserves were depleted in 2023) any surplus must be reinvested to unlock the following month’s revenue. Without sufficient match, revenue remains inaccessible, creating a cascade where even a “break-even” month can trigger a negative spiral.
To address this, the Department is considering implementing FY25/26 changes including revised provider terms, updated contracts, and enhanced liquidity monitoring. While the Department is confident in the positive impacts of these initial changes, we plan to bring a complete evaluation of business, financial, and service portfolio strategy to the Board in ten weeks time.
While LCBHS is committed to paying back the $2M General Fund loan as soon as is viable, doing so now would result in an inability to close out FY24/25. Additionally, paying back the loan in its entirety prior to sufficiently bolstering cash reserves would eliminate the ability to draw down revenue and achieve sustained financial independence. The Department requests an opportunity to provide more information on its go-forward plan to the Board in ten weeks’ time.
Alignment with Vision 2028 and County Goals
Approval of this loan repayment extension directly supports multiple pillars of the County’s Vision 2028:
• Well-being of Residents – Ensures uninterrupted access to behavioral health services for Lake County residents, particularly vulnerable populations who rely on Medi-Cal funded care.
• Public Safety – Stabilizes critical services that reduce jail overcrowding, emergency room boarding, and law enforcement involvement with individuals experiencing behavioral health crises.
• Economic Development – Protects jobs within the County’s contractor network and preserves local service provider capacity, preventing downstream costs associated with workforce loss and client displacement.
• Infrastructure – Supports the long-term viability of the Department’s electronic health record (EHR) and billing systems, ensuring reliable reimbursement flows under State reforms.
• County Workforce – Maintains payroll stability and avoids workforce disruption in the face of delayed reimbursements.
• Community Collaboration – Demonstrates the County’s commitment to honoring its contracts and sustaining partnerships with local nonprofits, hospitals, schools, and Tribal entities.
Potential Consequences of Non-Approval
Failure to approve this loan extension would have immediate and significant consequences, including:
• Service Disruption – Without temporary loan support, LCBHS may be forced to delay or suspend contracted services, creating direct gaps in mental health and substance use treatment.
• Public Safety Risks – Reduced behavioral health capacity would increase strain on law enforcement, the jail, and local emergency departments, driving higher systemwide costs.
• Contractor Instability – Providers that serve Lake County residents could face payment delays, layoffs, or withdrawal from County contracts, shrinking the service network.
• Fiscal Misalignment – A refusal to extend would undermine the County’s ability to align with DHCS’s ongoing Behavioral Health Payment Reform and CalAIM requirements, potentially jeopardizing future funding rates.
• Loss of Momentum – Without the extension, LCBHS would lose ground in stabilizing its fiscal base and implementing system improvements that are critical to long-term sustainability.
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☒ Well-being of Residents ☒ Public Safety ☐ Disaster Prevention, Preparedness, Recovery
☒ Economic Development ☒ Infrastructure ☒ County Workforce
☒ Community Collaboration ☐ Business Process Efficiency ☐ Clear Lake
Recommended Action: Approve and adopt Amendment No. 2 to Resolution No. 2025-74 extending the repayment period for a short-term loan in the amount of $2,000,000 from the general fund to lake county behavioral health services.