LITTLE ROCK AP) — Medicaid funding requirements are driving up expenses at the Arkansas State Hospital, which budget projections show will end the 2012 fiscal year with a $6 million deficit.

The forecast is based on higher-than-usual first-quarter spending, though spending is expected to slow as the hospital adopts changes needed to keep the federal funding, officials told a state newspaper.

The facility had to increase staff, close a special adolescent wing and hire private consultants to answer concerns from the Centers for Medicare and Medicaid Services about treatment at the psychiatric hospital.

If the hospital does not raise enough revenue to cover its costs, those additional expenses will be absorbed into the budget for the Arkansas Department of Human Services, which operates the hospital, said Janie Huddleston, the department’s deputy director.

It’s not unusual for the hospital to spend more than it takes in, but expenses this year are elevated as the hospital goes through a transition.

"We expect it to change," Huddleston said of the budget projection.

Hospital officials anticipate reducing the deficit projection to less than $4 million later in the year. The budget projections were based on revenue and expenses in the first portion of the state’s fiscal year, which started July 1.

Department of Human Services spokeswoman Amy Webb said the hospital has operated within its budget for each of the past three years, and she didn’t know the last year the hospital had ended a fiscal year with a deficit.

Some of the added expenses stem from more patients being sent to the hospital under court orders, Webb said.

Those patients are criminal defendants who were either deemed incompetent to stand trial, whose competency is in question or those acquitted of a crime based on a mental illness diagnosis.

The 226-bed hospital has four 20- to 24-bed units for such patients, according to its website. The state gives the hospital a flat appropriation that doesn’t increase if it takes in more forensic patients than expected, Webb said.

Other additional expenses are related to salary costs for 27 new staff members, she said.

Chief Financial Officer Rebecca Jones, who presented the financial report to the Arkansas State Hospital Governing Authority this week, said the hospital’s revenue is lagging behind projections because it has admitted fewer self-insured and Medicare patients than expected.

"We don’t admit based on an ability to pay," she said. "It can be kind of a gamble."

Medicaid revenue also declined when the hospital recently closed a unit for "dually diagnosed" adolescents who were treated for mental illnesses and developmental disabilities, Jones said. The unit was the focus of several critical reports by site reviewers from the Centers for Medicare and Medicaid Services.

The federal agency threatened to pull the agency’s Medicaid funding after those site reviewers documented problems that threatened the life and safety of patients, such as improper restraints for a physically violent and suicidal child.

In July, department officials signed a one-year agreement with the federal agency that will allow the hospital to maintain its eligibility as a provider of Medicare and Medicaid funding, which makes up about a third of its budget.

The agency has contracted with a third-party agency to review of its policies, facilities and patient care and come up with a plan to bring the hospital back into compliance with federal standards.

Proceeds from the sale of a portion of Ray Winder Field to the University of Arkansas for Medical Sciences covered the $1.2 million contract Compass Clinical Consulting received to perform the review, Jones said.