Mass. Medicaid fraud case settled for record $25 million, AG’s office says

A private equity firm and two former top executives at a Massachusetts chain of mental health centers have agreed to pay $25 million in a whistle-blower lawsuit brought by the attorney general’s office, marking the largest MassHealth fraud settlement in state history, officials said Thursday.

South Bay Community Services (formerly known as South Bay Mental Health) has operated facilities in more than a dozen Massachusetts communities, including Boston, Brockton, Fall River, Lowell, Pittsfield, and Worcester, the office of Attorney General Maura Healey said in a statement.

South Bay has provided services to some 30,000 people receiving benefits through MassHealth, the state’s Medicaid program for low-income residents. But many of the staff at its mental health facilities were unqualified, unlicensed, and lacked proper supervision, violating MassHealth regulations, according to the AG’s office.

“It’s vital that people who need mental health services receive treatment from qualified individuals,” Healey said in the statement. “We took action against these defendants for leaving thousands of MassHealth patients with unlicensed and unsupervised care, while MassHealth paid millions of dollars for fraudulent services.”

Under the agreement, which includes no admission of wrongdoing or liability, H.I.G. Capital, a global private equity firm with offices in Boston that acquired South Bay, and its subsidiary H.I.G. Growth Partners agreed to pay $19.95 million, according to the statement.

Peter J. Scanlon, South Bay’s founder and former chief executive, and Kevin P. Sheehan, another former South Bay chief executive, will pay the remaining $5.05 million. South Bay agreed to pay $4 million in February 2018 and began a five-year compliance program overseen by an independent monitor, according to the statement.

Attorneys for Scanlon and Sheehan did not immediately respond to requests for comment Thursday evening. A spokesman for H.I.G. declined to comment. Officials at South Bay could not be reached.

The agreement is “the largest publicly disclosed government health care fraud settlement in the nation involving private equity oversight of health care providers,” the AG’s office said.

Healey’s office took over the case in early 2018, after former South Bay employee Christine Martino-Fleming filed a federal whistle-blower lawsuit. Martino-Fleming said in an interview Thursday that she worked for South Bay from 2008 to 2014, beginning as a job coach and being promoted about two years later to coordinator of staff development and training.

“It was there that I started to become aware of unlicensed clinicians working at the company,” Martino-Fleming said. “I raised that awareness to my supervisor. I thought maybe it was just a mistake . . . but then it continued to happen, and then I started realizing that these people were also not supervised by somebody properly licensed.”

The company had a consistent pattern, she said, of hiring people who had master’s degrees in fields related to mental health, but no license to practice and often no clinical training.

“They didn’t have the proper courses that would lead to licensure; they didn’t have the proper experience to lead to licensure,” Martino-Fleming said. “Anything that remotely sounded like psychology, people would be hired.”

An investigation showed that South Bay “had a widespread pattern of employing unlicensed, unqualified, and unsupervised staff at its mental health facilities in violation of MassHealth regulations,” according to the AG’s office.

Martino-Fleming’s attorney, Jeffrey A. Newman, said he hopes the settlement will “help deter other companies doing a similar thing from doing this again.”

“South Bay treated between 35,000 and 37,000 people a year,” Newman said. “These are children, these are adults, and these are elderly with the most difficult disorders. … That’s a huge number of people to be treated by individuals without the proper education or training.”