Dallas County’s largest provider of mental health services sold its software division at a significant loss, divested properties, and saw at least two high-ranking executives head for the exits during a financially tumultuous stretch over the last year.
The financial situation got so bad at Metrocare Services that, for a time, the agency ran out of prescription stock and had to send patients elsewhere, the result of vendor relationships put on pause due to the agency’s inability to pay.
The difficulties at Metrocare, a government agency that serves more than 57,000 people at various facilities across the county, stemmed from two primary factors: a loan that CEO Dr. John Burruss says fell through at the worst possible time, and a once-hefty cash reserve that has sunk millions of dollars into the red during Burruss’ five years at the helm.
With a budget north of $100 million and a business model in which 20 percent of revenue comes in once-a-year chunks, Burruss says, Metrocare has to ensure year-long stability either through cash reserves or loans. With the cash long gone, Metrocare had lined up a $22 million loan for 2017. But then the bank pulled the financing a week after President Donald Trump’s inauguration. Under the new administration, Burruss was told a Medicaid-reliant agency was no longer considered an appealing borrower, he says.
Without the financing, 2017 became a challenge. While Burruss says the organization has turned a corner in 2018, it currently finds itself off-budget for the fiscal year.
Burruss’ current, three-year contract expires in April, and he’s the subject of an ongoing review for a new contract by an ad hoc committee of Metrocare’s board. A Metrocare spokesperson, however, characterized the contract renewal as a matter of when rather than if, saying the committee “was assembled to work out the details of a new contract as they do routinely.” The committee is scheduled to meet on Thursday, March 1, at 8:30 a.m.
XenatiX Sale
Meanwhile, financial struggles have come along with issues within the organization. Chief Financial Officer Kyle Munson left his job on Jan. 12 after 15 years; two separate HR directors had departed before him, the most recent leaving last May.
Additionally, an anonymous letter that went out to local media and government agencies from a group that says it’s made up of former and current employees alleges mismanagement at Metrocare. The allegations range from a lack of financial preparation to questionable handling of an internal software development team called XenatiX, which was sold to Kansas City-based Netsmart in September.
The group says that XenatiX was run as a private company backed by Metrocare, which is both a government agency and a 501(c)(3) nonprofit. It also claims that resources poured into XenatiX to no avail have put significant financial stress on the agency, impacting its ability to care for patients.
Burruss says XenatiX was developed as an internal project of Metrocare after leadership identified a need for an electronic health record provider that would better suit its needs. Metrocare planned to license it out, and quickly received interest from similar facilities in Tarrant and Harris counties. Each later used the software.
XenatiX was sold to Netsmart last year for 40 percent of the cost that was put into it, Burruss says, and in September Metrocare entered into an agreement to outsource its IT department to Netsmart. The IT team Metrocare previously employed is now technically under the purview of Netsmart, even as it’s contracted by Metrocare and remains based in the Dallas office.
Burruss says Metrocare continues to make strides to “accomplish the kinds of modernization you need with modern IT technology.” He didn’t provide specifics as to how moving the team under Netsmart’s ownership would achieve that objective.
“As part of that [goal], we transitioned the folks to NetSmart employment to continue doing exactly what they’re doing under contract to us,” he said.
Metrocare hopes to recover additional funds through royalties written into the deal with Netsmart, Burruss said.
Physical Assets
For this story, calls and emails went out to a handful of Metrocare’s board members, who are appointed by Dallas County commissioners. Two of the board members declined to comment, while others couldn’t be reached. Munson, the CFO who departed in January, declined to comment on the financial difficulties. He said Chief Administrative Officer Richard Buckley—who has since assumed CFO duties—had been reporting financials to the board since March 2017.
“For the first 10 or 11 years, we had a different operating perspective,” said Munson, who joined the agency in 2002. “New leadership, new direction, and I had considerable experience with the previous leadership. I think to better serve the current one, I needed to make myself happier and them happier and move on.”
Burruss addressed the letter’s claims during a phone conversation. He called calendar year 2017 “really difficult,” and acknowledged several decisions with regard to Metrocare’s physical assets.
The company sold the building that used to house its administrative offices and the Pathways Clinic in favor of leasing a space for offices nearby. The clinic didn’t reopen. Burruss said two other buildings were sold to a foundation in New Mexico, which had already owned one of Metrocare’s facilities and which subsequently agreed to enter into a lease agreement that gives Metrocare the option to buy back the additional two properties down the road. The agency is finalizing an additional deal, Burruss said, and also chose not to renew its lease on the space that housed the Adapt Clinic, which Metrocare had taken over from Adapt USA after the St. Louis-based mental health provider exited the market.
“Metrocare has about 47 buildings that we operate out of, so we have a lot of square footage and capacity,” Burruss said. He added that staffers worked to ensure clients were redirected to other convenient facilities.
He framed the financial boost from the clinic closures as welcome side effects to moves that made sense for the agency.
Looking Ahead
The most recent financial troubles can be attributed to a cybersecurity breach and a “dramatic rise in medical claims expenses,” according to the minutes from Burruss’ CEO presentation at a recent meeting.
That, plus a lack of revenue from the agency’s pharmacy services, has knocked FY 2018 off-budget for the time being. Metrocare has, however, secured financing from JPMorgan Chase to “support our immediate financial needs,” according to the recent monthly report. It also negotiated a four-week financing deal with McKesson Corp., a drug distributor, in December, which served to boost January sales and was paid off in full after lump sum payments came through earlier this year. Yet for FY 2018, pharmacy revenue remains forecasted to come in $4 million lower than expected.
Burruss told the board he’s confident the agency will be profitable at year’s end, which would mark a second straight year above water. The agency lost money in fiscal years 2014, 2015, and 2016, dipping cash reserves to a total of more than $11 million in the red in August 2016. Metrocare was nearly $8.7 million in the red as of January 2018, according to the most recently available monthly report.
Burruss says the cash depletion that contributed to 2017’s woes was a necessary side effect of turning around an organization headed in the wrong direction when he took over in 2013. He said it took dipping into reserves to strengthen the organization’s rotting infrastructure, which included a shoddy computer system and delapidated buildings.
“The point was to revitalize the company, to stop the downward track,” he said. “It has actually been really successful. When I got there we were in the $70 million total revenue [range]. This year, we’re budgeted at $126 [million].”
According to a 2013 job description for the position Burruss would eventually fill, Metrocare at the time actually had around $80 million in revenue and was operating with a $10 million surplus. The description said 2012 marked the agency’s 10th straight positive year. Even as that streak soon ended, Burruss maintains he’s put Metrocare in a better position.
“What we had was an opportunity,” he said. “In Dallas at that time, there was an opportunity to grow if we spent some money on revitalizing the buildings, revitalizing some of the computer systems. I would argue that we’ve been enormously successful.”
