Bennington School: Personal Bills in the Price of a Student’s Care

The Bennington School officers fraud case produced a $4.3 million civil recovery over allegations that former officers put personal expenses into residential-treatment cost reports, inflating the daily rate paid for students. The government’s account traced cars, home heating oil, personal credit-card bills and salaries for family members who did no school work into the financial reports used to price care. For someone inside a residential program, the connection is concrete: what the school paid for, how it recorded the expense, and what it told the agency setting its rate.

The U.S. Attorney’s Office for the District of Vermont reported the recovery on February 6, 2014. It described an earlier resolution under which the former officers had paid to settle civil health care fraud claims. The same announcement reported their criminal guilty pleas.

How School Expenses Set the Medicaid Per Diem

Bennington School’s reported allowable expenses helped determine how much the government paid for each student’s day. Higher allowed expenses meant a higher per diem, the daily payment rate.

During the period at issue, Bennington School, Inc. was a for-profit, closely held corporation operating a residential program in Bennington, Vermont. It offered therapeutic and educational services to boys and girls with social and emotional difficulties. Vermont placed students there and paid their tuition and other expenses.

The money came through Vermont Medicaid and state agencies, including the Department of Education, Department of Mental Health, and Department of Children and Families. The Medicaid portion was approximately 60% federally funded and 40% state funded. The same school’s financial reporting therefore mattered to both federal and state taxpayers.

Vermont’s Division of Rate Setting, within the Agency of Human Services, determined the annual per diem after reviewing the school’s application materials, accounting reports and budgets. The formula for Medicaid and Education payments used the school’s reported allowable expenses.

That is the feature an accounting employee would recognize. An expense entered into the books could move into a budget or report, then into the calculation of what the school would receive for a student’s day. The government’s allegation followed that chain from personal spending to public payment.

Personal Benefits Became Reported School Costs

In its account of the criminal case and guilty pleas, the U.S. Attorney’s Office described a compensation system run by the school’s president and executive director, assisted by its chief financial officer and plant manager.

The benefits included cars, gasoline, oil for personal residences, payment of personal credit-card expenses, salaries for family members who did not work at the school, and reimbursements for other personal expenses. The government said this compensation never appeared on the recipients’ individual tax returns.

The president, plant manager, chief financial officer and executive director each pleaded guilty to federal tax fraud. The former president also pleaded guilty to engaging in a scheme to defraud a health care program.

The civil claims concerned how those benefits entered the rate calculation. The government alleged that unallowable expenses were embedded in the school’s books and records, then presented to the Division of Rate Setting in reports and budgets as accurate and allowable costs.

We see the absurdity in the civil allegations: an officer’s home heating bill could become part of the public price of a child’s care. A private perk, priced into care.

A Request for a Different Rate Opened the Books

The investigation began after Bennington School requested a rate change in 2011 because enrollment had fallen. While processing that request, Division of Rate Setting auditors examined the submitted financial information more closely and decided an audit was needed.

The audit, completed in 2012, recalculated the school’s rates for 2003 through 2012. The division concluded that the state had overpaid the school. The defendants disputed its calculation and settled the civil matter.

For an insider, that is the useful connection: a request about today’s enrollment can put the accounting behind the requested rate into view.

The announcement credits the investigation to the U.S. Attorney’s Office, the Vermont Attorney General’s Medicaid Fraud and Abuse Unit, the Internal Revenue Service, the FBI, and the U.S. Department of Health and Human Services Office of Inspector General.

What the Former Officers Paid

The former president, his son who served as plant manager, and his son-in-law who served as chief financial officer paid $3 million together to settle civil healthcare fraud claims. The executive director separately paid $1.3 million for that purpose.

The officers’ $4.3 million civil recovery exceeded the more than $3.6 million in overpayments calculated by the state auditors. The government cited the False Claims Act’s provision for tripling damages and adding penalties for false claims as part of the potential civil liability. The officers settled the disputed claims, and both Vermont and the United States received payment.

The Accounting Firm Faced a Separate Civil Claim

The cost-report issue also reached an accountant and the accounting firm Kushi and Myers, PC. In a separate announcement on May 16, 2016, the U.S. Attorney’s Office for the District of Vermont reported that they paid $105,000 to settle allegations that they shared responsibility for Bennington School’s rate-setting submissions containing unallowable costs.

Those allegations covered at least 2002 through 2011. The accounting settlement was separate from the former officers’ recovery. It addressed another part of the same payment chain: responsibility for the information submitted to the rate-setting agency.

That gives an accountant’s knowledge a particular importance in a cost-report case. The person who understands how an expense became a reported cost may be able to explain the connection between the underlying spending and the public payment.

The Program Changed Hands

Management and ownership of the Bennington School programs transferred to Vermont Permanency Initiative Inc., part of the Becket Family of Services, on January 1, 2013. The federal announcement reported that the former president had resigned as president and trustee, and the other three officers had left the school’s employment.

Who Inside a Residential Program Sees This

Someone handling compensation may know what benefit a payment actually bought. Someone preparing or reviewing the reports may understand where that payment entered the rate calculation. We work with insiders to connect those views to the decisions behind a potential false claim.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know What the School Actually Paid For

If you know how personal spending found its way into a residential program’s cost reports, talk with our whistleblower experts about what you saw. We work beside you to build your strongest Medicaid cost-report whistleblower case, and bring in Medicaid fraud whistleblower lawyers who understand the expenses, the rate submissions and the decisions behind them. We stay with you as partners throughout the case.