Dan Gerlach, Gov. Mike Easley's senior policy adviser, called it a "a cash-flow issue" after The News & Observer found out about the deferral last month and began asking questions, Pat Stith reports.

"They're not saying, 'We're not going to pay,'" Gerlach said. "They're just saying, 'We need some questions answered about this.'"

But eight days later, Dempsey Benton, secretary of the Department of Health and Human Services, was singing a different song. In a letter to the federal Centers for Medicare & Medicaid Services, Benton said "a deferral of this magnitude is financially disastrous to the citizens of NC and any additional deferment threatens the sustainability of the entire N.C. Medicaid program."

Benton said his letter was "our first step in offering clarification" leading to release of the money.

"We are confident that we have effectively managed this program such that there is no unusual risk for abuse present today as mentioned in the deferral letter," Benton wrote.

More after the jump.

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Gov. Mike Easley called for changes to the state's mental health system.

At a press conference this morning, he said he would urge legislators to transfer direct supervision of the state's mental health system back to the state Department of Health and Human Services after a reform that aimed to decentralize control.

He also called for a streamlined process to cut off private contractors that have been charging exorbitant fees for providing support services.

And he said he would propose a $40 million initiative to provide more beds in local psychiatric facilities and set up mobile crisis teams to travel the state and set up mobile crisis teams.

Easley said he would submit the recommendations to legislators during the upcoming short session.

The 2001 legislative reform of the mental health system "went too far too quickly," Easley said. He was particularly critical of measures that eroded the power of the secretary of health and human services over the mental health system.

The assistant secretary of the Department of Health and Human Services has resigned.

Dr. Allen Dobson, who has been a state DHHS employee for a little more than two years, will leave his job at the end of this month, Lynn Bonner reports.

He was a chief lieutenant to Secretary Carmen Hooker Odom. She announced her resignation in May.

Dobson, who lives in Mt. Pleasant, was hired as the state Medicaid director in July 2005.

He has a long association with the department, having been an early champion of Community Care, a Medicaid program that seeks to control costs by coordinating patients' health care.

The Senate passed a bill to create more auditors.

Under the legislation, state agencies with more than $10 million annual budgets, more than 100 full-time employees or more than $10 million in annual receipts would have to hire internal auditors.

"Right now the only office of an internal auditor is in the Department of Health and Human Services," explained Sen. Kay Hagan, a Greensboro Democrat.

The internal auditors would review the need for programs; their effectiveness, costs and justification; and major systems and controls. Their work would complement that of the state auditor, who would sit on a council that oversees the new auditors.

The bill passed unanimously and heads back to the House. 

Former Raleigh city manager Dempsey Benton will join Gov. Mike Easley's Cabinet.

At the end of the legislative session, Benton will replace Carmen Hooker Odom as head of the Department of Health and Human Services. She is leaving to join a health policy think tank.

Benton, 62, previously served as chief deputy secretary of the state Department of Environment and Natural Resources and helped lead a task force investigating a chemical fire in Apex.

He served as Raleigh city manager from 1983 to 2000. 

Carmen Hooker Odom is leaving the state Department of Health and Human Services.

The longtime director of the state department will take a job with New York-based Milbank Memorial Fund, a nonpartisan think tank on health policy.

Hooker Odom was appointed by Gov. Mike Easley in January of 2001. She has been under fire recently for her handling of changes in the mental health care system.

According to a press release from her office, Hooker Odom has served on the Milbank board of directors since 2001 as well.