Editor’s note: This is the first of a two-part series on Preferred Family Healthcare, the company at the center of Medicaid fraud and kickbacks to Arkansas legislators.
During the period when a Missouri healthcare nonprofit was doling out millions of dollars in bribes and kickbacks to Arkansas lawmakers, public officials and its own well-paid executive team, the troubled healthcare group was fleecing hundreds of lowly paid hourly workers out of overtime pay, according to allegations in a recent federal lawsuit.
In early April, Springfield, Mo.-based Preferred Family Healthcare (PFH) agreed upon a tentative settlement with former employee Frances Smith over allegations that PFH and its handful of Arkansas-based affiliates failed to pay the former healthcare worker and other agency employees overtime compensation for working over 40 hours per week, according to pleadings with the U.S. District Court for the Eastern District of Arkansas.
The lawsuit was originally brought by Smith in October 2017 against PFH and its assorted Arkansas affiliates – Dayspring Behavioral Health Services, Decision Point, Alternative Opportunities (AO), Health Resources of Arkansas, and Wilbur D. Mills Treatment Center – under the federal Fair Labor Standards Act (FLBA) and the Arkansas Minimum Wage Act.
Federal labor officials told Talk Business & Politics that violations of the federal FLSA can result in substantial penalties, fines and payment of back pay to affected employees, as well as criminal and civil charges. In the case of willful violations – a three-year statute of limitation applies and repeat offenders of minimum wage or overtime pay requirements can be subject to civil money penalties up to $1,000 for each abuse.
In Smith’s lawsuit, court filings state that PFH and its affiliates “willfully and intentionally” committed violations of the state and federal wage standards for failing to pay the mental health professional and other agency employees overtime compensation over 40 hours per week. Court filings also show that Smiths’ attorney at Sanford Law Firm PLLC in Little Rock had requested U.S. District Court Judge Leon Holmes to certify the lawsuit as a class action claim. They also stated they were unable to ascertain how many PFH employees were impacted by the wage dispute.
“Plaintiff is unable to state the exact number of the class but believes that the class’s membership is over 1,000 persons,” the lawsuit states. “(The) defendant can readily identify the members of the class, who are a certain portion of the current and former employees of PFH.”
Josh Sanford, Sean Short and Chris Burks, Smith’s Little Rock-based attorneys, all refused to comment on the settlement agreement reached between their client and the Missouri nonprofit.
“We are bound by confidentiality in this matter,” the Little Rock law firm said in a statement. “We must refer anyone looking for more information to the public pleadings.”
In the original complaint, Smith said she worked at PFH’s affiliate Health Resources of Arkansas from November 2014 to October 2017 as mental health professional at the nonprofit’s location in Salem. She said PFH classified her and other similarly-situation employers as hourly employees who regularly worked over 40 hours a week but were not paid time-and-a-half as required by state and federal law.
“It was defendant’s commonly applied policy to only pay plaintiff and other mental health professionals for the hours in which they bill (PFH’s) patients. The work that plaintiff and the class members performed was not all billable to defendant’s clients; therefore not all of the work was compensated,” the lawsuit states. “(PFH) knew, or showed reckless disregard for whether, the way it paid plaintiff and other mental health professional violated the FLSA.”
PFH officials also would not comment on the possible settlement agreement with their former employee.
“Unfortunately, we are unable to discuss pending legal matters,” said PFH spokesman Reggie McElhannon. “To our knowledge, there is no indication that this matter relates to the ongoing federal investigation.”
Arkansas Department of Human Services spokeswoman Amy Webb did not immediately respond to a request for comment concerning the PFH settlement and if the Missouri nonprofit has violated state and federal wage regulations regarding overtime pay.
What is significant about the Smith’s lawsuit is that PFH allegedly withheld overtime pay for the nonprofit’s frontline workers at the same time when top agency executives were receiving Wall Street-level compensation packages and pocketing millions of dollars more in kickbacks as part of a widespread bribery and corruption scheme.
Nearly four weeks ago, federal officials announced a plea deal with indicted former Arkansas lobbyist Milton “Rusty” Cranford that implicated Sen. Jeremy Hutchinson, R-Little Rock, for allegedly accepting more than $500,000 in cash and illegal inducements to provide services to Cranford and those associated with the community-based health care group.
That ongoing investigation has roiled the Arkansas State Capitol and led to calls for ethics reform in both chambers of the General Assembly following reports that identified the Little Rock senator, a nephew of Gov. Asa Hutchinson as the previously unnamed “Senator A” in federal court pleadings.
According to details of the former lobbyist’s plea deal, Cranford and “Person #1, Person #2, Person #3, Person #5, and others known and unknown … devised and executed multiple schemes to embezzle, steal and unjustly enrich themselves at the expense of the (Missouri nonprofit) by misapplying mostly taxpayer funds for unlawful contributions to the campaigns of elected public officials.”
The first shoe to drop in the federal government’s investigation of Missouri health group occurred a year ago when the acting U.S. Attorney for the Western District of Missouri announced that PFH accountant David Carl Hayes had pleaded guilty to two embezzlement schemes totaling more than $3 million. He also failed to pay more than $2 million in taxes over a six-year period, federal prosecutors said.
Under Hayes’ guilty plea, he admitted to embezzling nearly $2 million from Springfield, Mo.-based Alternative Opportunities, which merged with PFH in 2015 to create one of the largest behavioral health organizations in the U.S. Doing business as Dayspring Behavioral Health Services in Arkansas, AO operated dozens of health care clinics across the state in mostly rural areas and key urban markets.
Federal prosecutors said Hayes embezzled from Dayspring from early 2011 to April 2014 by causing Dayspring to issue checks payable to himself and an unknown person not identified in court documents. Hayes, a former AO board member and the nonprofit’s internal auditor and bookkeeper, then deposited the funds into his personal checking account.
Since then, Missouri prosecutors have indicted several Arkansas lawmakers but no other PFH officials have faced prosecution. However, in early 2018, PFH’s board placed the former AO Chief Executive Marilyn Nolan, COO Bontiea Goss, and her husband and company CFO Tom Goss on unpaid administrative leave. All those executives, who are no longer with the nonprofit, took home more than $490,000 in annual compensation in fiscal 2016, according to PFH’s most recent 990 tax filings and financial statements with the IRS.
On June 12, PFH announced that it had obtained “additional information” relating to longtime AO executive Dr. Keith Noble follow an internal review. In response, Dr. Noble was also placed on immediate leave. The Missouri nonprofit has not since provided any details beyond its earlier brief statements as to why the former executive with Arkansas ties was pushed to the sidelines.
And like most other PFH and former AO executives, Noble’s annual salary is higher that most C-level executives at publicly-held companies with annual budgets substantial larger than the Missouri nonprofit. In fiscal 2016, PFH’s financials show that Noble had an annual compensation package of more than $506,000.
Other members of PFH’s executive team also have outsized compensation packages. For example, Cranford’s salary at the end of fiscal 2016 as the nonprofit’s executive vice president of Arkansas operations amounted to nearly $275,000 annually, the 990 tax filings show. The indicted lobbyist’s Little Rock-based lobbying firm, Cranford Coalition, also pocketed $547,000 for public relations consulting fees during the same period.
Michael Schwend, the nonprofit’s longtime president and CEO, received an annual compensation package at the end of fiscal year ended June 30, 2016 at more than $986,000, IRS tax records show. Companywide, more than $127 million of the nonprofit’s $170 million in expenses was used to pay salaries of 4,927 employees on the nonprofit’s payroll, federal tax filings show.
The nonprofit’s board of directors also allowed Schwend to schedule personal business flights through PFH Aviation, a for-profit, wholly-owned subsidiary of the tax-exempt Missouri healthcare group that is closely tied to the PFH chief executive. Missouri corporate filings show that Schwend is the president of the PFH affiliate.
Minus the more than $13 million paid out to the nonprofit’s top executives and paid consultants with close ties to those same officials, the rest of PFH’s workforce averaged a tidy $24,000 in annual salary, although TB&P does not have payroll information on how many of the company’s 5,000 employees are temporary or part-time workers.
PFH nor any of its affiliates have filed taxes for fiscal year 2017 or 2018 with the IRS. Fiscal year 2019 for the state of Arkansas begins on July 1.