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North Carolina could have saved up to $226 million if regulators had acted more quickly to contain costs in a program that provides non-medical care for mental health patients living at home, a legislative watchdog agency said Monday.

The report from the Legislature's Program Evaluation Division determined better planning and oversight was needed from the start for a series of new clinically based services designed to leverage more federal money from Medicaid. Enthusiasm over getting the services in place to the needy may have hindered those controls.

"This is a lot of money that we're talking about that seems to have been squandered," Rep. Paul Luebke, D-Durham, said after the report's release.

Nearly all of the problems stemmed from a lack of controls on individual "community support" services, which in their first year comprised 97 percent of the expenses out of 19 new treatment options for the mentally ill, substance abusers and the developmentally disabled, the report said.

The shortcomings of community support services have been scrutinized in the past two years after other reviews found overpriced or unnecessary care. Auditors found providers billed Medicaid to take children swimming or to the movies, or help with homework.

Monday's report provides another take on what went wrong with community support and a more exact explanation of the financial consequences.

Regulators and lawmakers have lowered reimbursement rates to providers and limited patient use. The General Assembly is considering in this year's budget negotiations whether to phase out the initiative and rebuild it.

The new treatment options began in March 2006 and costs began to escalate in October, but key agency decisions designed to control costs didn't occur until February 2007, according to the report. Individual community support services once served 63,000 patients, and at its height cost $108 million in March 2007.

A total of $2.4 billion has been spent on all treatment options through this February, of which $827 million the state paid because Medicaid is a combined federal-state program. The state could have saved from $177.4 million to $226.2 million during that time had controls been in place earlier to control costs for the treatment options, the report said.

Some early decisions with community support services encouraged the skyrocketing costs because regulators didn't want patients in need of assistance to fall through the cracks, said Carol Ripple, the report's chief author.

"The lessons of strong implementation really can't be overstated," Ripple said. "There's so much pressure to get services out in the community."

In a written response to the report, Health and Human Services Secretary Lanier Cansler said federal and state rules requiring public comment periods before changes are made and time for appeals when services are denied or reduced make it difficult for his agency to rein in costs immediately.

Cansler, who became secretary in January, also told lawmakers at a committee meeting that the agency is hampered by an aging Medicaid electronic billing system that doesn't automatically spit out data that target costs overruns for the $11 billion health plan.

"We're operating with 1970s technology and limited staffing," he said, adding that once a new billing system goes online within two years, "we'll be in a much better position to analyze these things."

The later cost controls and restrictions lower community support service expenses dramatically. Today, they have stabilized at around $30 million per month, the report said.

John Tote, executive director of the Mental Health Association in North Carolina, said community support today is providing the clinical services it was originally intended to provide to patients.

"If community support goes away and nothing replaces it, then these folks have nothing," Tote said.