If you’re a politically connected businessman who takes home a large chunk of the District’s Medicaid money and the city itself says you’re doing naughty things, don’t worry. The worst that’s likely to happen is you’ll pay a fine—and then no one will blink as you continue making gobs of dough.
That’s the moral of the story of Jeffrey E. Thompson, a well-connected accountant who was accused by the city’s attorney general’s office of defrauding the District of millions of dollars by overcharging on Medicaid bills, and lived to cash in on D.C. contracts again afterwards.
Thompson’s D.C. Chartered Health Plan, Inc., a managed-care organization that supplies Medicaid to District residents, was sued by then-interim Attorney General Peter Nickles in 2008; the case was settled later that year. The confidential settlement, obtained by Washington City Paper through a Freedom of Information Act request, shows that Thompson agreed to pay $12 million to make the lawsuit go away. Like most settlements, there’s no admission of guilt.
Though the $12 million payment likely stung, the allegations of fraud and the ensuing settlement haven’t hurt Thompson’s bottom line too much. Then-Mayor Adrian Fenty requested the D.C. Council approve a new contract with Chartered for $107 million four days after the city filed suit against the company in March 2008. Records show the city’s procurement office signed off on the contract in February, despite knowing about the pending legal action. An officer said Chartered had a “satisfactory record,” there were new safeguards in the contract to prevent future fraud, and the AG’s complaints against Chartered were “mere allegations.”
Since that contract was awarded in 2008, the District has come to Chartered for even more of its health care spending, due in large part to the city dropping or losing other Medicaid providers. Between May 2010 and April 2011, the District’s contract with Chartered was worth more than $322 million.
Chartered’s attorney, Fred Cooke Jr., says the District’s “improvidently filed lawsuit” was just another example of Nickles’ grandstanding ways (though LL couldn’t find any previous press coverage of the suit). “If he really thought that it had merit, it probably would still be in litigation,” Cooke says.
Thompson is also founder and CEO of Thompson, Cobb, Bazilio & Associates, one of the largest minority-owned public accounting firms in the country, which routinely wins District contracts. Various agencies paid the accounting firm $7.6 million from 2008 through 2010, procurement records show.
Thompson’s various companies have been prodigious donors to D.C. politicos, having given to almost every current elected official. Thompson and his companies spent more than $32,000 in the 2010 election cycle, and have donated more than $225,000 since 1999.
Even by the standards of a city where political connections carry an obvious advantage (see, oh, the messy lottery contract, or the city’s deals with Fenty’s frat brothers, or lobbyist David Wilmot’s ability to cash in on public health funding through his troubled group homes for the mentally disabled), Thompson’s track record is worth a second look. After all, it only took a short while for him to recoup the $12 million settlement Chartered paid in 2008. That the company kept getting District money, even after the District brought serious allegations of fraud against it, shows just how reluctant the city is to cut ties with the politically connected.
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The roots of the city’s lawsuit against Chartered Health are in an audit of the company’s 2005 books, ordered by the D.C. Council, that found a much-too-cozy relationship between the companies Thompson owns.
That audit, done by the Philadelphia-based accounting firm Milligan & Company, found that $12.2 million out of $92.7 million Chartered received in Medicaid money was, in turn, spent on firms also owned by Thompson. The audit also found $7.6 million in questionable spending.
Thompson’s companies include RapidTrans, a company that transports Chartered’s patients; Chartered Family Health Center, a clinic on Minnesota Avenue NE; and DC Healthcare Systems, which owns all three.
The audit found that Thompson’s clinic was charging Chartered more than double the highest rates paid to other clinics for the same services. Those costs were then passed on to the District, which negotiates and renegotiates rates with Chartered based on what the company pays.
The clinic charged $49.44 per member per month to Chartered, according to the audit. Chartered paid similar clinics without ties to the company between $12.50 and $21.50.
Similarly, the audit found that Chartered’s rate to RapidTrans, the sole contracted transportation provider, increased by 81 percent from 2002 to 2005, from $2.95 per member per month to $5.35. Another transportation provider charged $1.70, records show. Chartered also retroactively applied the rate increase back a year, to fiscal year 2004, resulting in an extra $489,000 payment to RapidTrans that the District ultimately covered, the lawsuit says.
Chartered also paid its parent company $1.8 million for “management and consulting services.” Much of that money went to Thompson or Francis Smith, then-general counsel to Chartered, who is now the company’s interim CEO, the lawsuit alleged.
In 2005, Thompson charged $364,716 in consulting, and Smith charged $488,003, the audit found. The year before, the pair billed a total of nearly $1 million, with both averaging more than 40 hours a week on consulting solely for Chartered. In the District’s original complaint against Chartered, it noted that the contract between Chartered and its parent company wasn’t executed until after the consulting work had been done and said Chartered had only “extremely broad descriptions” of the work to justify costs.
The complaint also said Chartered had a contract to pay Thompson, Cobb, Bazilio, & Associates as much as $845,000 in 2005. And it goes on to report that “the invoices supporting these consulting services do not describe the nature of the services other than ‘file maintenance review.’”
The lawsuit said Chartered paid $470,000 in administrative expenses “that did not provide any obvious benefit to the Medicaid program,” and the audit found that the company’s profit rate for 2005 was 15 percent. The industry standard was 3 percent.
Chartered wrote in response to the audit that it had done nothing wrong, and the auditors didn’t know what they were doing.
The higher rate for the Chartered Family Health Center was justified because it was a full-service clinic in a high-need part of town, Chartered said. Also, the higher rates were needed to offset the potential risk of having to pay $7.5 million to settle a malpractice suit, though they never made the case why the District should have to pay. (Court records show that Chartered lost that case and was ordered to pay $26,000, but the plaintiff dismissed the suit shortly after the verdict.)
Chartered’s response also said the rates paid to RapidTrans were at or below market rates, though the audit found they were much higher. RapidTrans had to cope with the fact that its customers “are challenged to respond promptly to pick-up times,” the company wrote, and patients’ family members sometimes unexpectedly need rides, too. Chartered also said the hourly rates paid to Thompson and Smith for consulting were fair market prices.
Milligan said it stood “firmly” behind its reports. And when the District sued, a year after the audit was completed, officials said Chartered didn’t provide supporting documentation that would back up its claims.
Nickles originally asked that Chartered pay triple the amount of money lost by the District through Chartered’s alleged fraud and pay a $10,000 fine for each instance of false claims. LL doesn’t know how much that would have come out to, but it’s worth noting that the $12 million settlement is sizably more than the $7.6 million the auditors found in questionable spending.
KWAME BROWN, BUDGET MASTER?
Reporters love conflict, probably with the same intensity that they hate boring budget stories.
So it was inevitable that the narrative out of last week’s preliminary vote on the fiscal 2012 budget centered largely on the fact that the D.C. Council rejected, by a vote of 8 to 5, the mayor’s proposed income tax increase for residents making $200,000 a year or more.
That narrative has been solid gold to Council Chairman Kwame “Fully Loaded” Brown, who has been in need of an image adjustment ever since the District learned how picky he can be about the interior color scheme of taxpayer-funded luxury SUVs.
Cast as the protagonist in a showdown with the mayor by the city’s press corps, Brown now gets to play the part of the fiscally restrained budget hero.
“A big victory” for Brown, said the Examiner. A deal-making “Picasso,” said the Post. Brown hasn’t been shy about tooting his own horn, saying he is “confident that history will record this budget as a defining moment in this city.”
Yikes. LL does not like to second-guess his fellow reporters, but a closer look shows Brown’s so-called victory just wasn’t that big a deal.
First, the $18 million the increase would have raised is a mere speck compared to the $10.8 billion overall budget. It’s less than 6 percent of the $322 million budget gap the District had to bridge. So the stakes were pretty small.
Also, consider that the council voted last year against a similar proposal to jack up the income tax rates of the wealthy, in that case those earning $350,000 a year or more, also by an 8-to-5 margin. Mayor Vince Gray, then council chairman, voted against the proposal. New member Vincent Orange is strongly opposed to raising taxes. That Brown was able to muster the same number of votes opposing an income tax increase as last year’s vote hardly makes him the next LBJ, especially considering that what likely sealed the deal for Brown was offering Marion Barry tax abatements on a few churches in his ward.
Finally, consider the fact that Gray barely bothered to support his own proposed tax increase this year. As far as LL can tell, Gray spent next to none of his political capital advocating for the tax hike. Gray’s budget director told LL long before the council’s vote that enacting a income tax increase was not one of Hizzoner’s priorities.
One conspiracy theorist proposed to LL that Gray could have included the tax increase in the budget to give his friend Brown something to fend off and score some points. LL’s not that cynical, but if you’re going to classify Brown’s budget as a win, then it’s worth noting that he didn’t have much competition.
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Illustration by Jandos Rothstein. Sources: Milligan & Company audit, OAG lawsuit. Figures from 2005.