Tuesday, December 11, 2012

2012 Small Smiles investigation by NBS shows abuse of children continues despite actions taken by HHS

By Talesha Reynolds and Lisa Myers
ssofdenver
It’s just over 5 years since HHS-OIG and DOJ began an investigation of Small Smiles Dental Centers.
It’s 3 years after the company was put under a Corporate Integrity Agreement.
Small Smiles abuse continues. In the new investigation -  HHS-OIG sound more like the company's PR firm than protectors of public health; Senator Grassley calls for the company to be closed down and says it’s all about the dollars.
today show
Click here for the full report.
Transcript of the video


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Visits to the dentist can be upsetting for little children, but when Autum Archuleta took her son Nathan to a Small Smiles dental clinic in February 2010, it was beyond anything she could have imagined. The dentist gave Nathan, then almost 3, three crowns, two baby root canals and six silver fillings in 25 minutes.
While in the waiting room, Archuleta says she heard her son screaming and burst into the treatment room. She says Nathan was crying and struggling to move while being held down by three clinic employees and wrapped from his head to his feet in a stabilization device called a papoose board. She thinks he wasn't properly numbed.
"He wasn't the same for a long time after we brought him home," Archuleta said. "He cried a lot...He wasn't my little boy. He didn't smile...The night terrors were the worst. I mean it was a lot of sleepless nights."
A dentist who later reviewed Nathan's records said the work was shoddy and many procedures unnecessary. A dentist who saw Nathan the following year wrote that he had "severe situational trauma."
"To me I think they did it for the money," Archuleta said of Small Smiles. "Flat-out did it for the money. Because it was Medicaid and Medicaid would pay them."
An NBC News investigation of the performance of Small Smiles' 63 dental clinics over the last three years found repeated allegations of substandard work and unnecessary procedures which drove up the cost to taxpayers. The allegations came from anguished parents, government investigators and former employees around the country.
Such practices violate a settlement the company reached with the Justice Department in January 2010, following allegations that it was bilking taxpayers by doing unnecessary and substandard procedures on low-income children.
At the time, Tony West, Assistant Attorney General for the Civil Division of the Department of Justice said, "We have zero tolerance for those who break the law to exploit children in need."
The company that managed Small Smiles and affiliated clinics agreed to significantly alter its practices and subject itself to independent monitoring. It also agreed to pay $24 million, without admitting wrongdoing.
But three years later, records show the company has not cleaned up its act.
"This company sees dollar signs in the eyes of every child they bring in," Senator Chuck Grassley told NBC News. Grassley has been investigating dental organizations whose primary source of revenue is Medicaid. He says Small Smiles practices assembly-line treatment, focused more on quantity than quality.
"This whole investigation kind of leads us to two things. To a conclusion that the tax payers are being fleeced, and children are being abused." Grassley said.
Small Smiles clinics are managed by a private corporation called CSHM, LLC, which was until June called Church Street Health Management.
The Department of Health and Human Services Office of the Inspector General (HHS OIG) is responsible for monitoring the clinics and rendering penalties when appropriate.
Lisa Re, a branch chief who heads an HHS OIG team of attorneys, says CSHM is improving since it emerged from bankruptcy in June 2012 with a new CEO and leadership.
"Recently, under new management, I would say that it is getting much better."
But according to letters from HHS OIG to Church Street, the compliance has been inconsistent and sometimes alarming.
In May, the office required CSHM to temporarily close a facility in Oxon Hill, Maryland to train staff on "the appropriate use of mouth props, patient stabilization practices, appropriate use and administration of anesthesia," among other things. Nine of 30 records the independent monitor reviewed "did not provide any documentation or radiographic evidence to support the medical necessity for the treatment provided. Six of those nine records showed baby root canals were performed "without medical necessity."
The OIG required the company to divest from a location in Manassas, VA in March because of "flagrant violations." A 2011 audit at that clinic found 104 of 244 baby root canals performed by the lead dentist to be medically unnecessary. In a sample of 34 records, 20 patients were restrained and given baby root canals with insufficient anesthesia. The monitor expressed concern that the children "were resisting treatment because they were being hurt."
In June the office fined CSHM 100,000 dollars after an audit found multiple breaches at an Ohio clinic, including treatments performed without medical necessity, incomplete or poorly done root canals, crowns places on "non-restorable" teeth and "poor techniques of administering local anesthesia." Six of seven dentists performed root canals on children that were not needed.
Last year, the agency issued a 230,000 dollar penalty, the largest it has ever levied, for multiple failures to comply with provisions of the government agreement. Among the breaches, the company failed to meet training and education requirements.
Still, Small Smiles continues to rake in millions in Medicaid dollars. Despite multiple threats to exclude the company from receiving federal funds, it made 150 million dollars in revenue from Medicaid in 2011.
The HHS OIG has given Church Street multiple chances to keep the clinics in business, levying penalties against the company and threatening to exclude them from receiving federal dollars. But the threats generally come with an out — a way to repair the breaches and avoid being exclusion.
Senator Grassley believes that cycle should come to an end.
"The inspector general has given this group a lot of second chances. Every time they get their hand in the cookie jar. All sorts of excuses. So you get back to how long can this go on — the fleecing of the tax payers, the abuse of children? And you get back to the point that maybe it's about time for the inspector general to disqualify this company from Medicaid."
DENTAL CARE VACUUMS CREATE LIMITED OPTIONS IN LOW-INCOME NEIGHBORHOODS
Small Smiles treats about 500,000 children a year. Jamier Brown, 4, was one of them. His mother Jasmine brought him to Small Smiles in Dayton, Ohio at the end of 2011 because she couldn't afford her other options.
"I knew that his mouth needed attention. And he was complaining that his teeth were hurting, so I just couldn't wait around to see when I could get the money. I had to go as soon as I could," she said.
Jamier received caps and fillings in most of his mouth in January.  Months later, he is still in pain.  The gum line is discolored where his front teeth we capped and Jamier says, "It hurts all the time."
Two dentists who reviewed Jamier's records said he should have been treated by a pediatric dentist, most likely in the hospital under general anesthesia. One called the treatment on his front teeth "inadequate."
At the time Jamier was treated, Jasmine was in Job Corps and living with her mother. She blames herself for what happened to her son.
"It's kinda my fault," she said as tears rolled down her face, "Because if I would have had the money, he probably wouldn't have felt any of that pain that he had to go through."
The guilt Brown feels is common among parents who spoke with NBC News and claimed their children were hurt at Small Smiles. They all said they didn’t know where else to go.
According to the Centers for Medicare and Medicaid Services, 31.5 million children were eligible for dental coverage through Medicaid in fiscal year 2011, but only 14.7 million children utilized a dental or oral health service.
Four out of five dentists don't take Medicaid, some because they just don't treat children but others complain of low reimbursement rates. Dr. Warren Brill is the president elect of the American Academy of Pediatric Dentistry (AAPD). He has his own practice in Baltimore, MD and 85 percent of his patients are on Medicaid.
"Reimbursement rates are a large factor in terms of dentists not accepting children on Medicaid, because the fees that they get are often times lower than the cost of providing the care," he said.
According to AAPD 70 percent of its members accept Medicaid. But only 3.5 percent of all professionally active dentists practice that specialty.
Nevertheless, Dr. Brill says parents of children on public insurance can find quality care.
"It's a question of learning how to make the appointment, getting referrals from state health departments, from dental associations, from friends and relatives. Parents that find those avenues should be able to find a dentist for their children."
DOES PROFIT MODEL PUT CHILDREN AT RISK?
Because Medicaid reimbursement rates are lower than what dentists charge other patients, critics say to make a profit, the clinics rely on volume.
Dr. Kianor Shah worked for Small Smiles briefly in 2011.  He says he left after witnessing disturbing practices. The dentist showed NBC News notes he took about treatments he observed during his time there. Scattered across several pages were words like "restraint brutal," "unnecessary" and "no way."
"I observed excessive use of the papoose board and excessive use of force to restrain children as well as overtreatment for procedures that could have been done with much less invasive approach."
Shah claims dentists were coerced into abusing children and overcharging Medicaid by the promise of bonuses and pressure from management.
"I was advised, quote unquote, 'The dentists eat what they kill.' That means that they're gonna get paid for as much work as they do on those Medicaid kids. And that was about the last straw for me."
Senator Grassley's investigation involves dental management companies that are controlled by corporate investors. Many states require dentists to own the clinics but the management companies, like CSHM, effectively control the operations.
"Our investigation has found a lot of private equity money being invested in companies that are doing everything they can in the most sophisticated way to take as much money out of Medicaid as they can. And in the process of just milking the Medicaid program, we're finding a lot of abuse of children."
PROGRESSIVE IMPROVEMENT AT SMALL SMILES
The Inspector General's office says the Small Smiles clinics have progressively improved, and while that improvement has been "uneven," the company is providing essential care to a vulnerable population. The agency maintains that it is better to aggressively monitor the company than to shutter it.
"If we had closed down Small Smiles last year, there would have been an uncontrolled shut down of this company leaving half a million kids scrambling for dental care," said Lisa Re.
The issue is further complicated by the states, which are responsible for administering Medicaid. The OIG surveyed states about the impact of closing the clinics and got a strong reaction.
"Some of the states were alarmed that we were even considering closing any of the clinics because they simply didn't have enough dentists to provide any care to these kids," said Re.
The attorney said in the last couple of years the office found five clinics to have the most significant problems.
"It's important to understand that not every clinic is providing bad care. If that were the case, this is an easy decision."
According to an affidavit in the Church Street bankruptcy filing earlier this year, "more than 1.5 million patients have been served during the past five years, improving overall dental health and access to care in many low-income areas in the 22 states in which the Company has had a presence."
Chris and Loretta Trujillo are grateful for the care the Small Smiles in Denver provides their children. They say it is very difficult to find dentists who take Medicaid and their children, Jordan, Jazmin and Faith, have never had a bad experience.
"My kids have never been scared coming here," said mom Loretta. "They're excited to come."
The Inspector General's office is taking on Small Smiles on a clinic-by-clinic basis, vigorously monitoring them and assessing penalties when appropriate.
"We have taken targeted and aggressive action against the clinics that provided bad care while allowing the company to provide good necessary care at the other clinics," she said, adding that the clinics are showing marked improvements since a new CEO, David Wilson, came on in June.
"The company as it operates today is simply not the same as the company that was repeatedly violating the agreement," Re insists.
In a statement to NBC News, CSHM's Wilson wrote, "Patients are at the center of everything we do at CSHM. CSHM LLC supports our affiliated dental centers so that they can continue to provide access to quality dental care. Our dental centers serve approximately one million patient visits per year, primarily to children in communities with under-served access to dental care."
Following an alarming audit of the Small Smiles clinic in Youngstown, Ohio that found substandard and unnecessary care, the new management company, which had just been formed, fired nine dentists there. The Inspector General's office called that action encouraging.
CSHM stressed its commitment to quality care. "Under the new management team, more than 50 new dentists have joined CSHM affiliated centers and the company continues to support their ongoing efforts to recruit qualified dentists."
That is simply not enough for Jasmine Brown. "I don't want anybody else's child to have to go through what my son went through, especially being that young. That's traumatic. That's something that could follow him the rest of his life."
Jasmine is now holding down two jobs — one as a pharmacy tech at CVS, the other as a security guard at a men and women's shelter. She says she can now afford to get Jamier the care he needs.

Monday, December 10, 2012

S & P down grade of Smiles Brands put it a step closer to bankruptcy, hopefully



S & P cuts Smile Brand Group rating, revises outlook
Overview
-- U.S. dental practice management services provider Smile Brands Group Inc. had negative free operating cash flow after elevated capital spending for the past four quarters, resulting in depleted liquidity.
-- Early in 2013, we expect Smile Brands to bring capital expenditures, mainly for new dental offices, into line with internally generated cash flow.
-- We are lowering our corporate credit rating on Smile Brands to 'B-' from 'B' and revising our rating outlook to negative. At the same time, we are lowering our rating on the company's senior secured debt to 'B-' from 'B'.
-- The negative rating outlook reflects the possibility that Smile Brands will exhaust the $13.5 million of funds available from its revolving credit facility as of Sept. 30, 2012, or breach a loan agreement covenant.
Rating Action
On Nov. 21, 2012, Standard & Poor's Ratings Services lowered its corporate credit rating on Irvine, Calif.-based Smile Brands Group Inc. to 'B-'from 'B'. At the same time, we revised the outlook on the rating to negative
In addition, we lowered our rating on Smile Brands' senior secured debt to 'B-', in conjunction with the downgrade, from 'B'. Our recovery rating on this debt remains unchanged at '3', indicating our expectation for meaningful (50% to 70%) recovery of principal in the event of payment default.
Rationale
The rating on dental practice management (DPM) services provider Smile Brands Group Inc. continues to reflect its "vulnerable" business risk profile (according to Standard & Poor's Ratings Services' criteria), characterized by its narrow scope of operations in intensely competitive markets with low barriers to entry.

Smile Brands had negative free operating cash flow (FOCF) after elevated capital spending for the past four quarters and we expect this to continue in the fourth quarter of 2012. Our downgrade is based on the expectation that early in 2013, Smile Brands will stem the trend of negative FOCF by reducing spending for new dental offices or taking other actions, such as paying interest on its holding company debt in kind, rather than in cash. 
We also expect adjusted debt to EBITDA will rise to about 8x by the end of 2012, significantly higher than our prior expectations, but still consistent with a "highly leveraged" financial risk profile. As of Sept. 30, 2012, debt to EBITDA was 7.7x, adjusted to capitalize operating leases and including holding company debt. We have lowered our expectations for Smile Brands' revenue growth, EBITDA generation, and cash flow over the next one to two years.

We expect revenues will grow at a mid-single-digit annual rate, somewhat faster than the total U.S. dental services industry over the next few years, primarily fueled by Smile Brands' geographic expansion and a slowly strengthening economic climate. Our prior growth expectations were mid- to high-single-digit annual growth. 

Although Smile Brands' revenue growth slowed in the second and third quarter of 2012, revenues increased 4.2% for the 12 months ended Sept. 30, 2012. 
We believe an unsuccessful marketing strategy, which was subsequently abandoned, contributed to the growth slowdown. Still, we believe underlying industry fundamentals remain sound and relatively resistant to downturns. During the 2008 to 2010 recession, when revenue for the total U.S. industry was nearly flat (according to data from the Centers for Medicare and Medicaid Services), Smile Brands grew modestly, supporting our expectation for continued, albeit modest, growth.
As newer offices mature, we expect the lease-adjusted EBITDA margin (11.7% in the third quarter of 2012, compared with 12.8% in the third quarter of 2011) to gradually recover to the 12% to 14% range, with some quarter-to-quarter variation. 
Smile Brands' profitability is supported by its infrastructure, economies of scale, and supplier discounts. More rapid office expansion in recent quarters contributed to lower profitability. Smile Brands' EBITDA margin (adjusted for leases, stock compensation and nonrecurring items) began to dip in the fourth quarter of 2011, after rising substantially and steadily from 8.9% in 2005 to 14.8% for the 12 months ended Sept. 30, 2011. Our lowered expectations for 2012 and 2013 EBITDA also affect cash flow generation Smile Brands' affiliated dental practices operate a network of approximately 350 dental offices that offer general and specialty dental services. 
The $110 billion U.S. dental practice industry is extremely fragmented and highly competitive, contributing to our vulnerable business risk assessment.
Treatment volume, especially for more discretionary services such as orthodontics, and patient financial capacity exhibit some sensitivity to economic conditions. The availability of financing for patients influences demand. 
We also see vulnerabilities in the nature of the DPM structure. While we believe potential changes in state or federal laws, regulations, or accounting rules could hurt the DPM industry, we do not currently incorporate any adverse developments in our base-case scenario.
The DPM business model has many retail industry attributes, and so carries risks associated with advertising and promotion, branding, and real estate selection, among others. Smile Brands markets its brands, selects high-traffic office locations, and offers customers convenient hours, comprehensive treatment, financing, and prices typically 15% to 25% below those of traditional dentists. It targets middle-income patients in growing metropolitan areas. Affiliated offices operate in 18 states, but there are material concentrations in Texas and California.
The company provides administrative, financial, and operating services to affiliated professional corporations (PCs). Although the company does not own the affiliated PCs, its financial statements consolidate them. Smile Brands generally owns the dental office assets, but dentists and hygienists generally are not employees of the company, in accordance with state laws. 
We analyze the consolidated financial statements on the basis presented (adjusted for the capitalization of operating leases and other standard adjustments) because we believe they best reflect the economic substance of the company's business model.
Liquidity
We revised our assessment of Smile Brands' liquidity to "less than adequate" (according to our criteria), reflecting its diminished liquid resources.
As of Sept. 30, 2012, Smile Brands reported a negative cash balance of $0.5 million, and $13.5 million was available from its $35 million revolving credit facility. We believe Smile Brands may borrow an additional $1 million to $5 million in the fourth quarter of 2012.
We estimate Smile Brands will generate about $20 million of funds from operations (FFO) in 2012 and $25 million in 2013. We expect small, if any,annual increases in working capital. We project about $32 million of capital expenditures in 2012 (actual spending for the first nine months was $27.5 million), including the recently completed roll out of digital x-rays. In 2013, we expect Smile Brands to bring capital expenditures, mainly for new dental offices, into line with internally generated cash flow. We believe annual maintenance capital spending is less than $10 million.
Our assessment of Smile Brands' liquidity profile incorporates the following assumptions and expectations:
-- Over the next 12 months, we expect sources of liquidity, including potential borrowing under the revolver, to exceed uses by 1.2x. Even if EBITDA is 15% below our projections, we estimate liquidity sources would cover cash needs, although in that scenario the revolver could be fully drawn.
-- Debt amortization is only $2.4 million annually through 2014.
-- Our analysis of Smile Brands includes unrated holding company notes with a face value of $100 million ($87 million after the original issue discount). Smile Brands has been paying the 10% coupon in cash. To conserve cash, we believe it may begin to pay interest in kind at 13%.
-- We expect Smile Brands to remain in compliance with its loan agreement covenants, notwithstanding requirement tightening. As of Sept. 30, 2012, there was a 17% cushion under the tightest covenant.
-- We assume Smile Brands will not make any acquisitions over the next two years.
Recovery analysis
For our complete recovery analysis, see our recovery report on Smile Brands, to be published following this report on RatingsDirect.
Outlook
Our negative rating outlook on Smile Brands reflects the possibility that it will exhaust the $13.5 million of funds available from its revolving credit facility as of Sept. 30, 2012, or breach a loan agreement covenant. We would consider lowering the rating if negative FOCF persists in the first quarter of 2013 or we expect the covenant cushion to approach 5%.
We would consider revising the outlook to stable if Smile Brands generates discretionary cash flow (through a combination of improved EBITDA and lower capital spending), restores availability of its revolver, and we expect the covenant cushion to stay above 15%.

Report on Small Smiles Dental Centers to air

 

today show Tomorrow morning, Tuesday December 11, 2012 the Today Show will air a piece on Small Smiles Dental Centers – scheduled to air between 7:30 – 8:00 AM Eastern Time.