Since 1999, the non-profit Bluegrass Regional Mental Health-Mental Retardation Board has used a for-profit subsidiary, Bluegrass New Directions, to sell software based on expertise it developed from decades of running public mental health programs.

Scott Gould, chairman of the Bluegrass board of directors, initially declined to reveal much to the Herald-Leader about Bluegrass New Directions, other than that it employs retired Bluegrass CEO Joseph Toy and reports to the Bluegrass board.

Tax returns show that the for-profit and its non-profit owner share financial resources, although the for-profit maintains a separate office at Hamburg Place, away from the Bluegrass campus.

"It has zero public funds and does not do business with the government," Gould wrote in an email. "Our financial department and auditors make sure we are following all IRS regulations properly and have the proper processes in place to be in compliance. Beyond this, you should have no further questions."

However, the Herald-Leader determined through tax records and interviews that Bluegrass New Directions sells its wares to other state-funded regional mental health boards. Clients include Communicare in Elizabethtown, which says it pays the company $260,000 a year, and Four Rivers Behavioral Health in Paducah, which last year reported paying $219,788.

James Hillman, Communicare's finance director, said his agency buys billing, scheduling and payroll software from Bluegrass New Directions.

"The real secret to Bluegrass' success is in their billing expertise. We've been very satisfied with this," Hillman said.

After the Herald-Leader identified these public clients to Gould, he provided more information. Other than Toy, "nine or 10" employees of the non-profit Bluegrass also have done work for Bluegrass New Directions, he said. The company generated $641,534 in revenue last year, with net profits going back to the non-profit, he said.

"This private venture has allowed for diversification of revenues outside the public sector," Gould said.