Ocean SunsetA Missouri-based nonprofit became Arkansas’ largest provider of state-funded mental health services by milking a flawed system that has drawn the attention of federal prosecutors, an Arkansas Democrat-Gazette investigation found. The state’s Rehabilitative Services for Persons with Mental Illness (RSPMI) program rewarded service providers with handsome reimbursement rates, limited competition and little oversight. 43.9 million from the RSPMI program in 2016 — one in every seven dollars Arkansas spent on the program that year. 245 million in Medicaid payments, a third more than the state’s second-largest provider over that span, according to state data. Now, the nonprofit’s former executives are targets of a federal political corruption investigation. And Preferred Family sold its Arkansas subsidiaries in October. State officials already had identified the RSPMI program’s weaknesses in 2008, when they adopted a moratorium on new clinics to try to curb ballooning costs. But they failed to resolve fundamental problems that made the program susceptible to abuse, the Democrat-Gazette found.

For instance, Arkansas’ outpatient mental health program allowed providers to decide which treatments and how many a client received without requiring that a third party meet directly with the patient to verify that the care was needed. The state paid firms like Preferred Family based on the number of treatments they provided rather than the quality or necessity of care. Working within this system, Preferred Family Healthcare/Alternative Opportunities billed taxpayers for costlier treatments and more treatments per patient on average than other providers, the newspaper’s investigation shows. That way the company boosted its income even while seeing fewer clients. The company’s Arkansas lobbyist and state director, Milton “Rusty” Cranford, worked to preserve the system by bribing key legislators to introduce friendly legislation or block bothersome rule changes, according to court records. He also worked closely with state officials to keep rules favorable to his employers — including the RSPMI moratorium that barred new competitors.

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He helped the company deliver campaign contributions at key moments, the newspaper found. Cranford pleaded guilty in western Missouri federal court in June to bribing Arkansas legislators to increase the nonprofit’s revenue. 4 million each from the nonprofit. Federal court filings implicate two other top executives in widespread wrongdoing, but no charges have been filed against them. The Democrat-Gazette’s report is based on more than 25 interviews with current and former state officials, mental health care providers, advocates and lawmakers. It draws from thousands of pages of public documents — including state agency emails, court records, Medicaid spending data, tax returns, campaign finance reports, legislative records and archived web pages. Initially, Arkansas’ 2008 RSPMI moratorium, which blocked outside companies from providing mental health treatment to Medicaid patients, was set to expire in one year. Instead it lasted 10 years, until July, when a program overhaul finally took effect. John Selig, who was director of the Human Services Department from 2005-15, declined to comment for this article.

Former state officials said the ban stood so long because influential provider groups blocked their proposals to change the system. Federal charges first publicly referred to the RSPMI program and moratorium in February, in the guilty plea of former Arkansas Rep. Eddie Cooper, D-Melbourne, who also worked for Alternative Opportunities as a regional director. Federal investigators also questioned former Arkansas Department of Human Services deputy director Steven Jones about the moratorium and seemed “very interested,” Jones said in an interview. Jones, who did not oversee RSPMI, pleaded guilty in 2014 to accepting bribes in a separate federal investigation. U.S. Attorney Duane “DAK” Kees, of the Arkansas Western District, said in an interview that prosecutors in western Missouri are looking into the RSPMI moratorium. A spokesman for the Missouri Western District declined to comment. For decades, only 15 or so state-designated “community mental health centers” were certified to provide Medicaid-funded mental health services in Arkansas. But in 2000, a coalition of private mental health treatment providers accused state officials of allowing community centers to monopolize the Medicaid market.

Arkansas’ system was illegal, they claimed. They threatened a lawsuit. In response, state officials opened the RSPMI program to all private providers, including for-profit companies from out of state. And they kept the high payment rates. In 2007, the Missouri nonprofit then called Alternative Opportunities entered Arkansas’ outpatient mental health treatment market for Medicaid patients. 4.1 million to acquire Dayspring Behavioral Health Services, according to the purchase agreement. An Oklahoma-based for-profit company, Dayspring had been one of Arkansas’ Medicaid mental health providers for about five years. About two dozen Dayspring clinics operated in the state by mid-2008. Alternative Opportunities was only part of the rush into Arkansas’ newly opened marketplace. Tom Petrizzo, former chief executive for the provider Ozark Guidance, when asked why so many flocked to Arkansas. 254 million in 2008, up 29 percent, according to a Human Services Department analysis. The Human Services Department enacted the moratorium in late 2008 in response to the rapid growth.

The agency later extended that freeze, which allowed for exceptions in cases of client hardship, until the end of 2010, records show. In a letter, the state chapter of the American Academy of Pediatrics harshly criticized the RSPMI program and state officials’ “preferential treatment” of providers like Alternative Opportunities. The group pointed to exploding costs of antipsychotic medications and inpatient psychiatric care. If RSPMI outpatient counseling services “are providing any benefits to patients, their impact is not obvious,” the group said in its March 8, 2010, letter. The pediatric group also highlighted inequities in how much Medicaid paid RSPMI providers, saying those rates were closer to “fair market” than rates for primary care doctors. Meanwhile, the moratorium on new RSPMI providers did have an important effect. Growth in Arkansas’ Medicaid spending for mental health slowed dramatically, the Human Services Department analysis shows. Alternative Opportunities and other providers already doing business with the RSPMI program in Arkansas wanted to keep the moratorium in place to protect their pieces of the pie. In this environment in mid-2010, Cooper sounded an alarm.


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