June 26 (Bloomberg) -- The company behind a chain of dental clinics that mistreated pediatric patients was caught breaking health-care rules so often that U.S. regulators threatened to expel it from Medicaid in March, according to newly released documents and interviews with federal officials.
The authorities backed off after the company, Church Street Health Management LLC, said eliminating its government funding might cause clinics to close and disrupt care to thousands of poor children. Nashville-based Church Street manages 63 dental centers under the Small Smiles, Wild Smiles and other “Smiles” brands in 21 states.
Now the troubled, closely held firm has emerged with a new name and new owners from a bankruptcy reorganization prompted by disputes with regulators. It still has to resolve an audit report from April that found children who visited a Maryland Small Smiles clinic allegedly were restrained improperly during dental treatments and subjected to medically unnecessary root canals on baby teeth, according to government officials familiar with the confidential review.
The Church Street case shows how federal efforts to protect poor children and crack down on fraud can be ineffective. Spending on Medicaid, the federal-state health program for the poor and disabled, is projected to more than double to $622 billion a year over the next decade. Some members of Congress and advocates of health care for the poor say that may make it even more difficult to rein in abuse.
“Individuals or entities that repeatedly fail to provide quality care should not be allowed to participate in Medicaid or other programs simply because they represent access points for services,” said James Crall, a professor of public health and community dentistry at the University of California, Los Angeles. “Sometimes, some care is not better than no care.”
Church Street is one of at least 25 dental management-services companies that have been bought or backed by private-equity firms in the past decade. At least three of them including Church Street have been probed by U.S. Senate investigators and state authorities over allegations they overbilled Medicaid for abusive practices. Medicaid spending on dentistry rose 63 percent to $7.4 billion between 2007 and 2010.
In the past 2 1/2 years, the Department of Health and Human Services’ Office of Inspector General has imposed sanctions on Church Street after “repeated and flagrant” violations of a 2010 compliance agreement not to charge taxpayers for substandard or excessive care, the newly released documents show.
The accord grew out of a federal probe going all the way back to 2007. U.S. officials say they declined to kick Church Street out because some clinics and dentists provided poor kids access to good care and because the company promised to make improvements.
Church Street, renamed CSHM LLC, has a “new vision” and is committed to “improving the quality of care,” the new company’s chief executive officer, David Wilson, said Sunday in an interview. He declined to discuss “events that happened on the watch of the prior company.” The reorganized firm is “very, very focused” on ensuring that “we don’t see a situation like what happened in the past.”
“It’s a culture change -- that’s what this company needs,” said Wilson, who said he has previously done “several rehabs” of troubled health-care companies. “The culture going forward is about the patient and patient outcomes. Period.”
Garrison Investment Group, a New York-based firm specializing in distressed debt, which acquired the firm, didn’t respond to e-mails or phone calls seeking comment.
Church Street filed for bankruptcy protection Feb. 20, citing the cost of defending itself against investigations and lawsuits. Debt included $17 million due the Justice Department and states under its 2010 settlement.
Last year, dental clinics affiliated with Church Street had more than 1 million patient visits. The company reported $161 million in revenue, more than 90 percent of it from Medicaid and the State Children’s Health Insurance Program, known as SCHIP.
Shortly after the bankruptcy filing in February, Martin McGahan, Church Street’s chief restructuring officer, called the company “a pioneer” in supporting dental centers that fill a void for low-income children, who suffer more dental decay than those in higher income brackets.
“The company has developed a successful business model that enables the dental centers to focus on providing high-quality dental care to Medicaid and SCHIP children, without having to worry about administrative and other factors that ordinarily deter dentists from treating these children,” McGahan said in an affidavit.
That business model has come under scrutiny by two U.S. senators and authorities and courts in at least six states over allegations that some dental management firms charge Medicaid for unnecessary procedures and get around laws that say only licensed dentists can practice dentistry.
In September 2006, the company -- then known as Forba Holdings -- was acquired by a group of investors including the private equity firms Arcapita Inc., Carlyle Group and American Capital at a valuation of $435 million. They are “no longer owners,” said Don Meyer, a CSHM spokesman.
Church Street said it became aware in 2007 that the Justice Department had opened a nationwide probe into Small Smiles clinics. An ABC affiliate in Washington, followed by other media outlets, reported that some children visiting the clinics were subjected to unnecessary procedures, including root canals on baby teeth (known as pulpotomies), and were restrained using devices called “papoose boards.” The company disputed the allegations at the time.
In 2009, Church Street sued its previous owners, a Colorado family including several dentists, in U.S. court. The firm, then also known as “new” Forba, accused the sellers of failing to disclose systemic problems, including a “culture within the Small Smiles Centers that emphasized production over quality care, in clear contravention of the applicable laws and accepted standards of dental care.”
The private equity group’s purchase price -- 10 times pretax income -- induced the sellers to exert “intense” pressure on clinic operators to increase volume by treating more Medicaid and SCHIP kids, inflating revenue, Church Street alleged in the lawsuit. After moving to dismiss the complaint arguing that the buyers knew “every detail,” the previous owners agreed to pay $7 million to resolve the case, according to an audit filed in the bankruptcy proceeding.
Church Street settled with the Justice Department in January 2010. Without acknowledging wrongdoing, the company agreed to pay $24 million plus interest to the Justice Department and 22 states and the District of Columbia. The settlement covered September 2006 to January 2010, a period when the management company was under private-equity ownership.
At the time, Assistant U.S. Attorney General Tony West said the settlement sent a clear message to those who sought to put “corporate profits ahead of patient safety.” Church Street said it settled to put the investigations behind it. The deal triggered a round of malpractice lawsuits from parents claiming their children were abused.
As part of the accord, the company signed a five-year corporate integrity agreement with the HHS Office of Inspector General. It struck a separate deal with the Medicaid inspector general of New York State. Church Street promised to hire external reviewers to monitor care and reimbursement claims and to develop policies ensuring good care.
On May 5, 2010, Church Street’s compliance officer certified that new policies had “been developed, are being implemented and have been distributed.”
That wasn’t true, according to Gregory Demske, chief counsel to the HHS inspector general. In a letter to the company dated May 13, 2011, Demske detailed “false statements” about patient care policies allegedly made by the compliance officer and by Church Street’s chief dentist.
Citing alleged false statements and four other alleged “breaches” of the corporate integrity agreement, the inspector general’s office levied $230,000 in fines, Demske wrote to then-chief compliance officer Lorri Steiner. The government could have sought more than 10 times that amount but demanded less because its goal was to promote compliance, Demske said in an interview. The “stipulated penalty” was still the largest imposed by the office, he said.
Church Street “invested significant resources in its compliance program,” said McGahan, the restructuring officer, in his affidavit to the bankruptcy court this year. Church Street acknowledged deficiencies, paid the fine and agreed to make improvements.
That wasn’t the end of abusive practices, according to a 10-page letter to Church Street’s Steiner from Demske, the inspector general’s counsel, obtained under the U.S. Freedom of Information Act. On Sept. 22, 2011, Church Street’s independent monitor issued an audit report with what the company acknowledged were “alarming findings” at a Small Smiles clinic in Manassas, Virginia, the letter said.
Details of the findings were redacted from the copy obtained by Bloomberg. Two lawyers familiar with the uncensored letter said the clinic allegedly billed for services that weren’t rendered, inappropriately restrained children during dental treatments, failed to provide enough anesthesia for proper pain control and performed unnecessary procedures or too many procedures during a single visit. The lawyers asked not to be identified because they weren’t authorized to discuss the contents.
A review of 244 root canal procedures performed at the Manassas center found that 104, or more than 40 percent, were medically unnecessary, according to the lawyers familiar with the matter.
Church Street vowed improvements. In March, 17 days after Church Street’s bankruptcy filing, the HHS inspector general’s office issued a “notice of material breach and intent to exclude” Church Street from participating in federal health-care programs.
“Given the severity of quality-of-care concerns identified by the monitor at Manassas center, the OIG finds CSHM’s conduct to be a flagrant violation” of the corporate integrity agreement, Demske wrote to the company on March 8.
According to Demske, Church Street executives told the inspector general’s office that if the government carried out the threat, some of their affiliated clinics could shut down quickly, and care would be disrupted.
“Any time you’re thinking about an exclusion,” Demske said in an interview, “the foremost question in your mind is what is in the best interest of the federal program and the beneficiaries?” Although inspectors “found a lot of issues about care that do not meet pediatric standards” and put “patients at risk,” he said that at many Small Smiles clinics, “care has improved and dentists are doing a pretty good job.”
The company was given 30 days to “cure” the breaches, and Demske’s staff negotiated a deal in which Church Street agreed to transfer the Manassas center to “an unrelated third party.” The company agreed to more site reviews.
Five weeks later, federal monitors issued a site report on Church Street’s Oxon Hill dental center in Maryland that also turned up “alarming findings,” according to a letter Demske wrote to the company on May 15. That letter didn’t provide details, but two officials familiar with the report said it found allegedly improper use of restraints, overuse of root canals and tooth extractions and inadequate monitoring of patients during treatments requiring anesthesia.
In New York, Church Street left the state, and its affiliated clinics in Syracuse and Rochester were closed after tough anti-fraud efforts, including a review of claims before they were paid, made it difficult for the company to operate, according to Wanda Fischer, a spokeswoman for the New York Office of Medicaid Inspector General. Church Street paid New York the total amount due under its settlement agreement, $2.3 million, she said.
Charles Miller, a spokesman for the Justice Department, said Church Street still owes the federal government $10.8 million. The U.S. agreed to waive expedited payments. The next payment, $369,000, is due June 30.
Wilson, the new CEO, said he met with U.S. inspectors last week and “their objectives and the new company’s management objective are aligned.” He said site visits to two clinics in South Carolina went “very well.”
If federal inspectors discover the reorganized company isn’t doing what it promised, it could still be kicked out of Medicaid, Demske said.
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