Preferred Family ends fiscal year with $28 million in state contracts

Editor’s note: This is the second of a two-part series on Preferred Family Healthcare, the company at the center of Medicaid fraud and kickbacks to Arkansas legislators. Link here for the first story.
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Amid the suspension of Medicaid payments to a Missouri-based community health care group involved in a widespread bribery and corruption scheme, Arkansas will officially close out fiscal year 2018 with more than $28 million in contract awards and a lot of unanswered questions about the troubled nonprofit’s future.

According to state Department of Human Services (DHS) spokeswoman Amy Webb, Preferred Family Healthcare Inc. (PFH) and its affiliated partnerships provide multiple programs across three DHS divisions that outsource a variety of behavioral, mental health and substance abuse disorder treatment services.

On Friday (June 29) afternoon, the Office of Medicaid Inspector General (OMIG) notified the Department of Human Services (DHS) said after it determined there is a credible allegation of fraud against PFH, state and federal human service officials immediately suspended Medicaid payments to PFH and and former employee Robin Raveendren.

“When a credible allegation of Medicaid fraud exists, suspension of Medicaid payments is required by federal law,” said Medicaid Inspector General Elizabeth Smith. “I am carrying out my responsibilities as Medicaid Inspector General to protect the integrity of the Arkansas Medicaid program by issuing these suspensions.”

Financial and contract data provided to Talk Business & Politics show that the Missouri nonprofit was awarded 16 contracts valued at more than $28 million for the fiscal year ending June 30. Statewide, those services are provided at nearly 50 health care clinics across Arkansas, as well as numerous schools and other off-site locations.

According to list of current contracts, DHS suspended 11 of those contracts valued at nearly $7.9 million mainly for substance abuse and drug treatment and education programs and community-based services for high risk youth. State officials said they will notify PFH that it plans to exercise contract termination for the listed contract suspensions.

For the last several months, DHS said it has worked to identify alternative service providers to step in for PFH if necessary. In most locations, providers have been identified who can expand services into these areas, and it is DHS’s intent to work with those providers to transition existing beneficiaries. DHS anticipates that the transition of services and termination of current PFH contracts will be completed within a 30-60 day time period.

Altogether, following a merger with its Missouri rival Alternative Opportunities in 2015 that created one of the largest community-based health care organizations in the U.S., PFH and its affiliates in Arkansas have virtually cornered the market in the delivery of difficult community-based healthcare services largely funded by taxpayer-financed Medicaid and Medicare dollars.

“Most of the provided services involve behavioral health or mental health needs, in addition to foster care system resources,” said Webb. “In some areas of the state, Preferred Family Healthcare is the only provider available and willing to provide these services.”

In the past year, however, PFH’s five-state operations in Arkansas, Missouri, Oklahoma, Kansas and Illinois have come under scrutiny as the FBI and investigators from six different regulatory agencies examine possible illegal activities at the 501(c)3 charity, including a bribery and kickback scheme that has entrapped several Arkansas lawmakers, public officials and former PFH executives.

What makes that investigation even more difficult is PFH’s byzantine business structure that more closely mirrors a corporate shell game than a tax-exempt nonprofit with a federally-mandated charitable mission. In Arkansas, PFH operates under the affiliate names such as Alternative Opportunities (AO), Dayspring Behavioral Health Services, Decision Point, Health Resources of Arkansas, and Wilbur D. Mills Treatment Center.

At the health care group’s Little Rock offices just off Interstate 30 on Sibley Road, the Missouri nonprofit has signage at the entrance for PFH and Health Resources of Arkansas. According to a detailed review of DHS contracts at the Arkansas Transparency website, PFH and its associated affiliates have been awarded over $150 million in state contracts since fiscal 2015, mainly through DHS’ Youth Services, Behavioral Health and Children and Family Services divisions.

“Some of the affiliated organizations were originally independent, and already provided services with DHS, before they were acquired by Preferred Family Health,” Webb told Talk Business & Politics.

But because of the ongoing federal investigation that led to a June 6 plea deal for former PFH executive Milton “Rusty” Cranford and calls for Sen. Jeremy Hutchinson of Little Rock to resign, state lawmakers and others familiar with the inner workings of PFH are reluctant to speak on the record with. For its part, PFH officials have continued to quietly lobby state lawmakers to maintain its business with the state. Last month, a PFH spokesman said in response to a TB&P inquiry that the Missouri nonprofit is fully cooperating with federal investigators in the ongoing bribery and corruption probe.

“As Mr. Cranford’s court documents show, the efforts of former employees and representatives to use and abuse PFH for personal gain were extensive,” PFH spokesman Reggie McElhannon said in a statement. “The company continues to cooperate fully with agencies investigating this prior misconduct.”

McElhannon also said the government’s investigative work follows, in large part, the review work coordinated by PFH.

“PFH has worked hard to identify all issues and implement corrective action, while reinforcing the tremendous work being accomplished by our staff in their communities,” he said. “These dedicated individuals have diligently provided care and services for decades, even while the misconduct of a few was occurring.”

In early April, PFH hired former Arkansas Supreme Court Chief Justice Betty Dickey to help the agency add additional oversight and accountability controls. In her role, Dickey will serve as a special assistant and liaison to Michael Schwend, president and CEO, and the agency’s executive leadership team overseeing the nonprofit’s Arkansas operations.

For the fiscal period ended June 30, 2016, PFH’s revenue jumped 172% from $66.6 million to $181.2 million following the 2015 merger of PFH/AO merger. The Missouri healthcare group also has a healthy operating surplus, amounting to $79.5 million in rainy day funds in the agency’s budget coffers at the end of 2016.

Some lawmakers and lobbyists that Talk Business & Politics has queried about PFH’s niche healthcare operations said the nonprofit’s contracts in Arkansas are too expansive and complex for the state to extricate itself from unless the federal probe forces the company to close its doors.

DHS officials did not immediately respond to questions concerning whether any of PFH’s contracts have been altered since federal prosecutors began investigation the nonprofit’s operations, or if the state plans to claw back any funds that have been misappropriated.