Arkansas state government is keeping a major health care provider under tightened scrutiny as an illegal-lobbying scandal unfolds, the state Department of Human Services and the governor's office confirm.
Preferred Family Healthcare Inc. of Springfield, Mo., is a nonprofit provider of substance abuse and behavioral health treatment in five states. It has 47 locations in Arkansas in various clinics and treatment centers it operates. Other states served are Missouri, Kansas, Oklahoma and two clinics near the Missouri border in Illinois.
Former Arkansas House member Eddie Cooper of Melbourne pleaded guilty Feb. 12 to helping embezzle $4 million from Preferred Family, starting in 2011, while he was employed by one of its Arkansas subsidiaries. The plea revealed allegations of illegal lobbying in Arkansas.
Also in February, the Human Services Department set up enhanced monitoring of the company's Arkansas operations, governor's spokesman J.R. Davis confirmed Friday. The department also said last week that safeguards are in place.
The department "implemented enhanced service monitoring and enhanced financial monitoring of PFH's administration on a monthly basis," Davis said in a statement. "As such, they must provide DHS's Medicaid regulatory arm data each month and are subject to at least one unannounced visit each month to both the administrative sites and program services sites.
"The governor is aware of this enhanced oversight and is monitoring this story as it continues to develop."
Preferred Family attributes a nearly $20 million increase in payments it receives from the state of Arkansas over the past five years to a large expansion of services and acquisitions of other providers.
The increase also coincides with what federal prosecutors say was an illegal lobbying and kickback scheme involving former company executives.
Preferred Family and a number of its affiliates in Arkansas saw receipts from Medicaid and other state-administered health care programs rise from about $24 million to about $43 million from 2013-18.
The company also receives payments from non-Medicaid sources, such as appropriations from the state's general revenue and federal block grants administered by the state, state contracts with the nonprofit show.
Those payments increased almost 2,000 percent in almost the same five-year period. In addition, the company is paid through fees levied by state courts, those contracts show.
Lawmakers who oversee contracts with the company say they've been assured that Preferred Family has "cleaned house" and continues to provide hard-to-find health care services to Arkansas residents.
Arkansas currently has contracts with Preferred Family affiliates worth $28 million.
"Preferred Family Health has established infrastructure, staff and provider relationships -- including two residential substance abuse programs -- that would make it extremely difficult for another provider to step in and provide those services," Davis said in his statement
"The employees of Preferred Family Health -- the ones who are on the ground doing the work every day -- have continued to provide critical services to Arkansans who need it most. Preferred Family has changed its leadership team as a result of wrongdoing that occurred sometime ago."
PAYMENTS RISE
The nonprofit's increased payments accompanied a large expansion of services, according to both Preferred Family and the state Human Services Department, which oversaw more than 99 percent of the spending, state records show.
For instance, Preferred Family acquired Decision Point, a substance abuse treatment nonprofit, in August 2011. It acquired Health Resources of Arkansas in May 2014.
"In acquiring these entities, we expanded from 23 service sites to 45 in Arkansas," according to a statement from the company in response to questions about the increased state spending.
Both Decision Point and Health Resources were struggling financially when Preferred Family took them over, according to news accounts at the time.
How much of the growth in Medicaid receipts can be attributed to Preferred Family's acquisitions is not something the department has been able to calculate, a Human Services spokesman said.
Taxpayer money from Arkansas state agencies accounts for about one-fourth of Preferred Family Healthcare's total revenue, according to figures in federal court filings and state financial records.
Executives of Preferred Family embezzled about $4 million from 2011 through early 2017, according to charges filed against three former lobbyists for the company.
Two of those former lobbyists have entered guilty pleas, and a third awaits trial. The two pleading guilty are Cooper and Donald "D.A." Jones, who is based in Philadelphia and lobbied Congress.
The one awaiting trial in Springfield is Milton Russell "Rusty" Cranford of Bentonville, who employed Cooper as a lobbyist. The U.S. attorney's office for the western district of Missouri filed charges against all three.
The embezzled money largely went to pay for lobbying to increase the amount of taxpayer money going to the company from the federal government and the states it serves, including Arkansas, the federal government alleges.
Nonprofits that receive federal taxpayer funds are barred from lobbying for more taxpayer money.
Federal court documents made public do not name the Preferred Family executives implicated in the scheme. Three members of the nonprofit's senior management were put on leave Nov. 9 and later dismissed, according to the company. The nonprofit's board voted unanimously to suspend the three executives after government attorneys briefed Preferred Family's attorneys Oct. 26 on the investigation, court records show.
The first public disclosure of the illegal-lobbying allegations came Dec. 18, when Jones pleaded guilty to one count of conspiring to defraud Preferred Family.
Most of the state's current contracts with Preferred Family were signed seven months earlier in May, before the start of the state's fiscal year, contract records show.
In a statement, the Human Services Department said it cannot, on the advice of its legal counsel, disclose when it found out Preferred Family executives were under investigation.
At least two amendments to contracts were approved after Dec. 18, adding $3.3 million to the total paid to the company, records show.
ANOTHER ARKANSAS TIE
Preferred Family's name came up in January 2017 in a matter that did not involve any state contracts.
The staff at one of Preferred Family's affiliates had helped fill out a state grant application for another company, AmeriWorks, in 2014. That Bentonville company was founded by Cranford, who used Preferred Family's offices, staff and accounts in applying for and receiving the grants, according to grant documents.
There was and is no connection between AmeriWorks and Preferred Family, according to statements by Preferred Family.
Former state Sen. Jon Woods of Springdale goes to trial April 9 on allegations that he and former state Rep. Micah Neal, also of Springdale, took kickbacks in return for arranging state General Improvement Fund grants to AmeriWorks. Neal pleaded guilty for his part in the plan on Jan. 4, 2017.
Soon after, Cranford was suspended from his role as an Arkansas manager for Preferred Family. His replacement by the end of that month was Charles Green, who resigned as director of the Human Services Department's Division of Behavioral Health to take the job.
Green's hiring prompted a Jan. 26, 2017, letter from the chief legal counsel of the Human Services Department to Preferred Family, state records show.
That letter warned Preferred Family of "potential conflicts of interest" under state ethics standards. Former state employees are supposed to have cooling-off periods of at least one year after leaving state employment before accepting positions "with regard to matters connected to their former duties," the letter said.
Green is no longer employed by Preferred Family, lawmakers were told at a meeting of the Legislative Council earlier this year.
MEDICAID MONEY
State and federal records show most of the money from Arkansas to Preferred Family comes from Medicaid, a state-administered health care assistance program for the poor. The program includes both state and federal taxpayer money.
Medicaid payments to Preferred Family entities in Arkansas went from $22.9 million in the 2011 calendar year to $33.4 million in 2016, according to figures in the February guilty plea of a former lobbyist who had also served on the company's board.
Medicaid spending by all states is tracked by the Henry J. Kaiser Foundation, a charitable trust. According to figures published by the foundation, spending on Medicaid nationally grew by 28.3 percent from 2011-16.
Preferred Family's increase is largely explained by its acquisitions, the nonprofit said. For instance, the Health Resources acquisition added behavioral health services for children in 90 school districts.
The company also began offering residential treatment for substance abuse, expanding from none to 189 beds. Those programs include the adult residential programs in Bentonville and Searcy, and an adolescent program which began last year in Little Rock, Preferred Family said in its statement.
Preferred Family also saw growth in demand, fueled in part by greater access to its programs by both federal and state changes in health care during this time, the statement said. Besides a greater share of Medicaid, Health Resources and Decision Point were also recipients of state and federal grant money that started before they were acquired, Preferred Family's statement says.
Preferred Family or organizations it acquired are "the only willing providers offering the contracted services in those areas" in some places around the state, a statement from the Human Services Department said.
"These are vulnerable populations being served with high needs, and we at DHS want to make sure and meet those needs even in areas with low access availability," it said.
OTHER INCOME
Preferred Family receives taxpayer money from sources other than Medicaid. The Northwest Arkansas Democrat-Gazette sought records of non-Medicaid payments to Preferred Family through the state's Freedom of Information Act.
Payments to Preferred Family from non-Medicaid state accounts totaled $469,024 in the fiscal year ending June 30, 2012, Department of Finance and Administration records show. The payments grew to $9.66 million in fiscal 2017.
So far this fiscal year, the nonprofit had received $5.62 million by early March.
Non-Medicaid payments to Preferred Family had been in decline between 2010 and 2012, dropping from $751,007, records show. After fiscal 2013, the amount increased every year. The smallest of those increases was 19.5 percent.
Finance department records show 99.5 percent of the non-Medicaid money paid to Preferred Family from state agencies came from Human Services.
The newspaper requested copies of all current contracts between Human Services and Preferred Family. Human Services provided copies of 16 contracts and amendments to them worth a total of $28.9 million.
Sources of payment on the contracts included $9.8 million in federal taxpayer funds such as block grants, $14.9 million in state taxpayer funds and $4.2 million in fees imposed by state courts.
The contracts show the nonprofit is paid for a range of services, including therapy and counseling for foster children, court-ordered drug and alcohol addiction treatment, and professional consulting to Human Services.
All but one of the contracts were competitively bid, according to statements from Human Services. The exception was a contract for community mental health centers for $5.49 million.
That contract will be competitively bid in the future, according to Human Services. The process for competitive bidding is being revamped within the department, the statement said. Bidding is expected to begin this year with more changes coming in January.
LAWMAKERS' REACTION
Preferred Family assured Arkansas lawmakers afterward that it had cleaned house, both the state House and Senate chairmen of the Legislative Council said. The council reviews state operations while the Legislature is out of session.
In January, the Legislative Council reviewed six contracts with Preferred Family worth an estimated $14.2 million. Cooper pleaded guilty on Feb. 12. On Feb. 20, a federal grand jury in Missouri indicted Cranford.
Another former Arkansas lawmaker told the FBI on Feb. 22 that he accepted $100,000 in bribes from Cranford in exchange for his support in the Legislature from 2011-15, according to a March 16 federal court hearing. Jefferson County's County Judge Henry "Hank" Wilkins IV, who had served in both the House and the Senate in a legislative career spanning 2000-14, resigned last month after federal prosecutors disclosed his statement. Wilkins was a member of the Joint Budget Committee during his last term.
"I wouldn't be surprised if all that comes up at our next meeting in April," Sen. Bill Sample, R-Hot Springs, and Senate chairman of the Legislative Council, said in a telephone interview about the disclosures. "The council doesn't meet while the Legislature's in session, so that will be our next meeting."
Lawmakers were in a special session that ended March 17, as news broke about Wilkins and the $100,000 in bribes.
"It is one of the few companies that provide those very specialized services to school kids with either developmental disabilities or behavioral problems," Sample said of Preferred Family.
The company's counseling and electronic monitoring are alternatives to putting young people in juvenile lockups, the Human Services Department says.
Preferred Family also provides services needed for foster children, including emergency shelter. The nonprofit's help is especially valuable in cases where it would be difficult to find foster homes, the Human Services Department's statement said.
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