Court orders Medicaid fraud suit to trial

Previous rulings in case conflict with 1967 state Supreme Court decision

LITTLE ROCK — A Bella Vista taxpayer may attempt to recover $52.8 million paid by the state to a Missouri company involved in Medicaid fraud, the state Supreme Court ruled Thursday.

Preferred Family Healthcare Inc. of Springfield, Mo., suspended both its chief executive and its chief financial officers in November 2017 after federal investigators informed the company of bribes and kickbacks by its executives to Arkansas program administrators. Those two executives and others were later charged in the investigation and have since pleaded guilty. Federal and state investigators settled claims against the company itself in 2022 for $8 million and plan to recover more from the executives and state legislators sentenced in the corruption cases.

Medicaid is a health care payment program for low-income Americans largely paid for by federal taxpayers but with more than 20% of the cost in Arkansas borne by the state. Preferred Family was the largest Medicaid-funded provider of counseling to troubled youth and adults in Arkansas, with 47 locations statewide. The state yanked the company’s licenses to operate in Arkansas on June 29, 2018, after the federal investigation exposed kickbacks and other bribes. The company’s board received praise from federal and state fraud investigators for its cooperation.

Jim Parsons of Bella Vista filed suit June 1, 2020, before the $8 million settlement on behalf of Arkansas taxpayers, seeking to recover $52.8 million from Preferred Family. The figure is the total paid by the state to the company between 2011 and 2016.

Attorneys for Preferred Family argued the company did provide services appropriately paid for by the Medicaid program and that taxpayers would be reimbursed by the company in a settlement with the state.

Circuit Judge John R. Scott dismissed Parsons’ lawsuit on Feb. 19, 2021. Scott found suing for “illegal exaction,” the part of the law Parsons was suing under,

required some illegal action by the state in the use of taxpayer money for something other than what the money was intended for.

The state Court of Appeals upheld the dismissal.

The Supreme Court ruled both the lower court ruling and the appeals court upholding the case conflicts with a 1967 state Supreme Court ruling in Nelson v. Berry Petroleum Co. In that case, a supplier of asphalt sold the state Highway and Transportation Department a lower grade of asphalt than the contract required.

“With little limitation, almost any misuse or mishandling of public funds may be challenged by a taxpayer action,” the Supreme Court ruled in Nelson v. Berry, as quoted in Thursday’s ruling. “Even paying too much for cleaning public outhouses has been held by our courts as basis for a taxpayer’s right to relief. Any arbitrary or unlawful action exacting taxes or tax revenues may be restrained and annulled by a taxpayer affected by such procedure.”

Thursday’s ruling sends the case back to Benton County Circuit Court for trial.

Preferred Family is reviewing the Supreme Court ruling and has no comment at this time, a company spokesman said in an email Thursday. Neither an email nor telephone call to Parsons was returned Thursday.