Mental health rehabilitation and addiction treatment center Baltimore Behavioral Health Inc. has filed for bankruptcy protection because it owes more than $5.5 million to creditors and estimates its assets are less than $500,000, according to federal court filings.
The center will continue to operate during the Chapter 11 restructuring, said CEO Terry T. Brown.
The bankruptcy will allow BBH to get out from under debt that has built up over the years, he said, and get the company's finances in order. The case follows a series of problems for the treatment center, including a lawsuit by employees over retirement contributions, the dismissal of several members of the board of directors and several accusations of default.
The bankruptcy case is the result of mismanagement by prior directors, said Brown, who has been working for BBH for 12 years and took over as CEO in May. Before a major recent management overhaul, the clinic's finances were largely controlled by members of the family that started the company, none of whom returned voice mail messages left by The Baltimore Sun on Monday.
"We cleaned up house pretty well," Brown said, of the family's removal after a series of tumultuous events.
In 2010, a Sun investigation revealed unusually high Medicaid billings and six-figure salaries paid to family members who controlled the nonprofit company. Former patients and employees, as well as some outside doctors, said BBH had been diagnosing some patients with mental illness instead of their primary affliction, drug addition — leading to more lucrative payments.
The billing scandal led to a demand by state regulators that voting privileges on the board of directors be taken away from relatives of BBH employees, as required by Maryland law.
Six relatives — Morris and Sandra Hill, William and Victoria Hathaway and Nicholas and Susan Scotto — were removed from or lost their voting privileges on the BBH board in late 2010. It wasn't until the middle of this year, though, that the family was completely separated from BBH, Brown said.
The 2010 board shake-up was followed by several lawsuits claiming BBH had improperly handled funds.
Last year, former employees at the clinic filed a lawsuit alleging that BBH failed to put money deducted from paychecks into retirement accounts as required. The claims spurred an inquiry by the U.S. Labor Department.
BBH and its former CEO, William Hathaway, never responded to the suit, according to court records, and several weeks ago a federal magistrate judge recommended that roughly $50,000 be reimbursed to the employees for the unpaid retirement contributions.
BBH did resolve a lawsuit brought by Bank of America filed in April 2011 that claimed the treatment center defaulted on loans of up to $2.5 million. In the suit, Bank of America said the company refused to provide "critical financial information" as required under their agreement, among other complaints.
In the past year, BBH has cut payroll from $5.8 million to $2 million — a reduction in staff from about 200 staff members to fewer than 60, Brown said. Late last year, the center also sold its West Pratt Street building to an affiliate of the Abell Foundation and leased space from the new owner.
But those adjustments have been insufficient to meet the claims made against the company, Brown said. In fact, the Abell affiliate, West Pratt Holdings LLC, is one of BBH's creditors, seeking $138,000 for back rent.
And in recent years, BBH's revenues have been flagging. In 2010, the nonprofit had revenue of $9.6 million; last year, that number was down to $5.9 million, according to federal tax filings.
Among the bills owed by the not-for-profit company is a claim by the Internal Revenue Service for $4 million in payroll taxes, according to the filings, which were submitted Friday to the U.S. Bankruptcy Court for the District of Maryland.
BBH is disputing the amount it owes the federal government in payroll taxes, only because its own financial records are so poor it has not been able to verify the accuracy of the IRS claim. Auditors need time to reconstruct its payroll tax amounts from the past few years, Brown said.
This year's financial records will be the first in the nonprofit's 15-year history to go through an external audit, Brown said. "The books are very compromised," he said.
BBH owes money to roughly two dozen companies and individuals, according to the court records: Baltimore Gas and Electric Co. is owed more than $40,000; a Towson attorney has a $20,000 claim; and Sandy Hill Associates Inc., a Baltimore-based behavioral health consulting firm operated by one of BBH's former executives, has a tab of $900,000, which BBH also disputes.
Several of the creditors, including Sandy Hill Associates, have filed suits in recent months to resolve contract claims.
Jessup-based Sysco Baltimore LLC, a division of the international food service provider, has a claim pending in Howard County. According to court records, that company is owed nearly $50,000 by BBH.
In early December, a Baltimore County judge entered a judgment in favor of Maxim Healthcare Services Inc., a medical staffing company based in Columbia, for nearly $40,000. That finding has been recorded on the bankruptcy filings and is being challenged by BBH.
A meeting of the creditors has been scheduled for early February.
Baltimore Sun reporter Scott Calvert contributed to this article.