State health investigators disclosed Wednesday that they have uncovered evidence of "fraud or willful misrepresentation" by an Eastern Shore drug treatment and mental health clinic, including overbilling and charging for the work of physicians who were not at the facility.
The inspector general of the state health department sent a letter Wednesday to Warwick Manor Behavioral Health Inc., near Cambridge, saying the state has suspended all Medicaid payments to the clinic. Warwick Manor treats roughly 2,000 patients a year and billed the state's Medicaid program $1.5 million last year.
Separately, The Baltimore Sun found that Warwick Manor has been paying its chief executive, L. Wesley Fuhrman, an annual salary of up to $398,000, far higher than similar organizations nationwide. The clinic also has made $309,000 in loans, largely without collateral, which a former top Internal Revenue Service official called "unusual" for a nonprofit company and "highly risky."
Together the state's Medicaid investigation — which began with a tip — and The Sun's findings point to possible insufficiencies in the state's oversight, which lawmakers say they plan to address in coming weeks at hearings in Annapolis. The hearings were called in response to a Sun investigation last year that found questionable practices at one of Baltimore City's largest mental health clinics.
"The legislature's job is to make sure regulators have all the tools and direction they need," said Del. Dan K. Morhaim, a member of the House Health and Government Operations Committee. "If it's a management problem [at the health department], we'll attempt to deal with that. If it's a change in law, we'll hopefully make those changes, too."
Fuhrman did not respond to e-mail and phone messages Wednesday, and the clinic's lawyer did not return a message.
On Wednesday, Dr. Joshua Sharfstein used his first day as secretary of the Department of Health and Mental Hygiene to stress the importance of monitoring. In a memo to top department officials, he said he has asked Wendy Kronmiller, chief of staff and assistant secretary for regulatory affairs, to conduct a review of the department's oversight capabilities.
"It's a really important responsibility," Sharfstein said in an interview, "and we've got to make sure the system is working as well as possible."
With the state looking to close a projected $1.6 billion shortfall, the health department is expected to be a target for cuts because it spends nearly 40 percent of Maryland's $13 billion general fund. The department has been cut repeatedly in recent years, angering providers and advocates.
Morhaim, a Baltimore County Democrat and a physician, said he respects most providers who treat drug addiction and mental illness. "They are working hard in very tough jobs," he said. "They are underfunded, which makes it all the more important to make sure every dollar is spent wisely."
Still, Morhaim said, he hopes to address the issue of state oversight of healthcare providers at legislative hearings that his committee chairman, Del. Peter A. Hammen, plans to hold in Annapolis.
Hammen, a Baltimore Democrat, called for hearings in November after a Sun investigation of Baltimore Behavioral Health Inc., a mental health clinic that is among the city's largest drug treatment providers. That investigation found high Medicaid billings and documented how six family members who controlled the nonprofit's board collectively earned $1.4 million last year.
State health officials have forced the family members to cede control of BBH's board, fined the nonprofit $90,000 for employing a doctor who had been convicted of Medicaid fraud and required BBH to draw up a detailed corrective plan.
The letter from Inspector General Thomas V. Russell suspending Warwick Manor's Medicaid payments allows the clinic to continue treating Medicaid recipients and to submit new claims. Russell wrote that all Medicaid payments will be withheld, however, unless state officials determine there is "insufficient evidence of fraud or willful misrepresentation," or until any state legal actions are completed.
In the last fiscal year, Warwick Manor received $1.5 million from Medicaid for mental health services. Its tax filing last year shows it had total revenue of $7.2 million, much of it from private insurance and self-pay clients.
The health department's Mental Hygiene Administration oversees several hundred mental health providers that are eligible to bill Medicaid, the state-federal health program for the poor and disabled.
Each provider is supposed to be reviewed every three years by the Office of Health Care Quality. Also, ValueOptions, the private firm that administers Medicaid in Maryland, must review 60 programs a year.
In addition, the department's inspector general conducts audits and can refer findings to the attorney general's Medicaid fraud unit. A state law passed last year allows the state to collect triple damages for Medicaid fraud and for whistleblowers to seek a share of damages.
But Mental Hygiene deputy director Lissa Abrams acknowledged a need for greater auditing capacity. In the cases of both Warwick Manor and BBH, details of questionable management and billing practices were contained in public records — some of them in the state's own files. Yet reviews were not initiated by regulators. The Medicaid probe at Warwick Manor resulted from a tip provided by someone familiar with its practices, according to department sources.
"Are there enough resources to look at every program as much as needed?" Abrams said. "The answer is no."
The health department's own data show that between fiscal years 2006 and 2009, Warwick Manor's outpatient mental health Medicaid billings jumped fivefold, from $380,000 to $2 million, before falling last year. Abrams said she isn't sure why there was such a sharp increase but noted that the Eastern Shore lacks mental health services.
The Warwick Manor campus sits on 11 acres in rural East New Market. Its main single-story brick building emerges at the end of a long, tree-lined drive that cuts through farmland. Out back, chairs dot a spacious lawn with sweeping views of the Warwick River where it meets the broad Choptank River.
Founded in 1979, it has been run by Fuhrman since 1999, corporate records show. The center offers residential and outpatient treatment. The Mental Hygiene Administration provides outpatient Medicaid coverage only for patients whose primary affliction is psychiatric. Warwick also gets about $630,000 a year in state drug treatment funds.
Many Warwick Manor patients come from the Baltimore area. In the last fiscal year, 748 of 1,986 patients with drug problems came from Baltimore, Baltimore County or Anne Arundel County, while 641 were from the Eastern Shore, according to state Alcohol and Drug Abuse Administration data.
"Generally speaking, people are really satisfied," said Holly Ireland, acting executive director of Mid-Shore Mental Health Systems Inc. in Easton, referring to surveys of Warwick Manor patients.
Several of Warwick Manor's business practices raise "red flags," said Marc Owens, a Washington lawyer who for 10 years led the tax-exempt division of the IRS.
One area is Fuhrman's salary. Last year he was paid $395,000, Warwick Manor's tax filings show. He also received $36,000 as a board member at Baltimore Behavioral Health, where he was once an executive. (The two clinics often refer patients to each other, say former BBH staff and patients, and have employed two of the same doctors.)
Fuhrman's wife, Alison, works for Warwick Manor and previously served with her husband on its board. Last year she made $47,000 in an administrative job. She did not respond to messages.
GuideStar, a Virginia-based organization that tracks nonprofits nationwide, compared Wesley Fuhrman's compensation to those of chief executives at 20 nonprofits around the country with similar revenue, mission and programs. In 2008, Fuhrman's pay of $399,000 was more than three times the median pay of $120,000.
While there is no law capping compensation for officials at nonprofits, Owens, the former IRS official, said the agency can determine an executive's pay to be "excessive," impose a 25 percent tax and require him to compensate the nonprofit.
"The key factor in evaluating compensation is what similar institutions pay for similar services under similar conditions," he said, though other factors are considered as well.
Then there are the $309,500 in loans. Since 2003, seven recipients have borrowed between $15,000 and $100,000 from Warwick Manor, with reported interest rates of 3.5 percent to 8 percent. The security for five of the loans was a "personal guarantee." A loan to the nonprofit's accountant, Dawson Management Inc., listed "stock" as security as well. (Dawson's Nancy Beams did not return calls for comment.)
Court records show that two of the loan recipients defaulted. In 2005, Warwick Manor won a judgment against a man named Donald W. Burton for failing to repay $10,275 of $15,000 he borrowed for "business endeavors." Burton could not be located through public records.
A year later the nonprofit sued another nonprofit to which it had loaned $52,000, claiming it failed to repay $32,000.
Owens called the loans "highly risky," adding, "The sorts of loans that Warwick made do not appear to have a return that is commensurate with the risk inherent in an unsecured loan to an individual."
Daniel Kurtz, a New York lawyer who specializes in nonprofits, said the loans were "troubling." "They're not a bank or a finance company," he said. "Why are they lending money to insiders?"
The management practices criticized by Kurtz and others are reflected in annual public tax filings known as Form 990s. Abrams' agency does not review those documents. "We don't look at them," she said. "It's just never been something we've done."
Meanwhile, groups that track nonprofits say the IRS does an inadequate job ensuring that nonprofits follow federal regulations and act in accordance with the charitable mission for which they got tax-exempt status.
"The IRS doesn't have the staff to monitor all the 990s that come in," said Rob Reich, co-director of Stanford University's Center on Philanthropy and Civil Society.
That isn't surprising, he said, given the huge volume of nonprofit tax forms filed — several hundred thousand a year nationwide. Moreover, the IRS's primary mission is to collect tax revenue, he said, and nonprofits don't pay federal taxes.
Reich said nonprofit regulation often falls to state attorneys general. But Maryland's attorney general lacks authority to oversee nonprofits. Maryland's secretary of state keeps a registry, but registration is required only for those that solicit donations, a group that does not include many health providers.
Henry Bogdan, director of policy for the Maryland Association of Nonprofit Organizations, said the group promotes self-compliance but also said nonprofits "obviously" need greater government oversight. The association disseminates best practices for nonprofits, which are voluntary. Neither Warwick Manor nor BBH is among its 1,530 members.
Fuhrman, the Warwick Manor CEO, has not responded to multiple phone messages or e-mails from The Sun since last week. A receptionist directed a reporter to staff member Mary Errickson. She declined to comment without hearing any questions, then hung up the phone.
The nonprofit's lawyer, J. Phillip Keller, who borrowed $40,000 from his client, has not responded to several messages left at his Easton office.