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Valley Mental Health has returned $1.3 million to Salt Lake County because it didn't provide enough care to low-income mentally ill patients last year.

And it may have to hand over another $725,000 for providing fewer services than expected in the first quarter of its new contract, said Tim Whalen, director of the county's behavioral health system.

"They just don't have the encounters to support the prepayment," Whalen said.

The payback comes six months into a major change in how the county runs mental health services for people with Medicaid insurance. For decades, Valley oversaw the county's $50 million in Medicaid funding, and kept any savings.

On July 1, OptumHealth began administering the money and contracting with providers such as Valley Mental Health.

Optum prepaid Valley $6.7 million for the first quarter, Whalen said. If Valley returns the full $2 million, that represents about 30 percent of its first-quarter budget.

According to a county fiscal manager, Valley must now justify its Medicaid income. In the past, it was paid based on what it spent the previous year, said Zac Case, who added that Valley had little incentive to keep costs down. Costs per services provided increased, he said.

Valley CEO Debra Falvo, who will become a consultant in February when a new leader takes the helm, said she wasn't surprised the organization had to return funds.

In the past it focused more on intensive day treatment programs, which cost more money, she said. The new model, which Valley embraced some time ago, is based on wellness and recovery, which requires less money.

The savings — Valley and Optum are in negotiations about the additional $725,000 — is in a county account. It will be spent on additional mental health services, Whalen said.

"We want to make sure Valley gets paid for everything they can provide," he said. At the same time, "We want to make sure we get those dollars back out into services."

Some of the money will go to the University of Utah's Neuropsychiatric Unit (UNI) to expand outreach to people in crisis.

In addition to treating hospitalized patients, UNI started running the county's mental health crisis line in July. It has a limited outreach team that the county wants to expand in March with Valley's leftover money, Whalen said.

Anticipating additional savings from Valley, the county also expects to build a crisis triage center to help prevent hospitalizations.

Valley also hopes to use the left over funds to expand programs like peer support and start other programs, Falvo said.

The leftover $2 million doesn't include any additional savings that may be tallied from the second quarter of the 2012 fiscal year, which ended Dec. 31.

Since July, Valley said its caseloads have dropped by nearly 500 clients, leaving it caring for around 7,500 people. Optum said around 100 people sought services at other providers. It sent the remaining "missing" 375 a letter last week, urging them to call Valley or Optum to find another provider if they still needed services.

The county says it has not seen an increase in hospitalizations or incarcerations — except some expected seasonal changes — of mentally ill patients.