Options D.C. charter school’s Medicaid billing is at center of investigation


Officials say three former senior managers developed an elaborate scam that led to improper payments at the Options Public Charter School for at-risk youths, seen here in Washington. (Marlon Correa/The Washington Post)

Federal investigators are looking into whether former leaders of the District’s Options Public Charter School committed Medicaid fraud by, among other things, exaggerating the needs of its disabled students and paying students with gift cards to ride school buses, according to several people familiar with the criminal investigation.

Court documents filed in a related civil case, combined with numerous interviews, indicate that city officials and criminal investigators are examining the school’s busing program and other ways it obtained nearly $2 million in Medicaid reimbursements from June 2012 to June 2013. That included a sharp one-year increase in the number of Options students classified by the school as having the most intensive special education needs.

Increased bus ridership and elevated special education needs would have allowed the school to increase the amount of local and federal taxpayer dollars it could claim. Court records show that a for-profit company founded by school leaders received hundreds of thousands of dollars in contracts from Options, including a fee of 25 percent of all Medicaid reimbursements.

The school — which serves about 400 at-risk teens, most of whom have disabilities — was thrust into turmoil in October, when the D.C. attorney general filed a civil complaint alleging that three Options managers and others created a contracting scheme to divert more than $3 million from the school to two for-profit companies they founded. Those allegations spurred the criminal probe, according to people familiar with the case.

Criminal investigators are examining Options’s Medicaid reimbursements, which funnel tax dollars to schools so they can recover some of the cost of educating students with disabilities. But there are strict rules about which students and services are eligible for reimbursement, and experts said that willfully breaking those rules to inflate payments could constitute fraud.

Options is now overseen by a court-appointed receiver, Josh Kern, who has assumed control of operations and finances and who placed a hold on all Medicaid billing pending evaluation of reimbursable expenses. “We are aware of reports that there is an ongoing criminal investigation that may include issues concerning Medicaid billing,” Kern’s attorney, Jonathan Stoel, said in a statement.

No one has been criminally charged in the Options case, but a grand jury is investigating, according to people with knowledge of the case. William Miller, a spokesman for Ron C. Machen Jr., the U.S. attorney for the District, declined to comment on the existence of a grand jury but confirmed that federal officials are continuing to investigate Options.

The D.C. Public Charter School Board voted Monday to take the first step toward closing Options.

Each of the defendants named in the civil lawsuit has denied any wrongdoing, and they are seeking to be dismissed from the case, arguing that the city’s complaint is sensationalized and riddled with errors. They also have said that they followed the city’s rules for charter operators and managed Options responsibly, leaving the school with a $4 million surplus.

William Lawler — an attorney for Donna Montgomery, who was the chief executive of Options and the executive director of Exceptional Education Services (EES), a for-profit Options subsidiary — said that his client was driven by a desire to serve children and did not do anything, or direct anyone to do anything, to get money that Options was not entitled to.

“There was never any intention to do anything fraudulent,” Lawler said. “There was an intention to ensure that students received the educational resources that they needed.”

The civil lawsuit does not specifically allege Medicaid billing improprieties, but it does draw attention to several issues that people familiar with the case said are among those of interest to criminal investigators, including a dramatic increase in 2012 in the number of special education students at Options with the most intensive needs.

The complaint also details a fast-growing bus transportation program that the school sought Medicaid reimbursement for; students and parents said students were encouraged to ride Options buses and received $50 weekly gift cards from the school if they did.

Options received $1.9 million in Medicaid reimbursements between June 2012 and June 2013, according to a spokeswoman for the D.C. Department of Health Care Finance, which administers the city’s Medicaid program.

Court records filed with the civil complaint show that during that same period, Options paid about $450,000 to EES. The company, which Options leaders created, handled Medicaid billing for the school in exchange for 25 percent of its reimbursements, according to contracts and invoices filed in court.

Pamela Marple, an attorney for EES, did not return requests for comment for this article. Previously, she has said that the company and Options managers did nothing wrong, disclosed their actions to the city’s charter board and managed the school in a fiscally responsible way.

Schools may bill Medicaid to recover part of the cost of providing certain medically necessary services to students with disabilities, including counseling, speech therapy, and some transportation to and from school. But schools can bill only for transportation on days when the student also receives a medically necessary service — such as counseling or speech therapy — at school, according to D.C. Medicaid rules.

Transportation was a key service that EES and Options sought federal reimbursement for, according to court records.

In the District, the daily billing rate for a student’s round trip to and from school is $79.64, according to the D.C. Medicaid fee schedule. The federal government reimburses 70 percent of that cost, or $55.75 per child.

Most D.C. students with disabilities who require busing are transported by the Office of the State Superintendent of Education, but Options handled its own transportation arrangements. The school paid EES — the same company that did its Medicaid billing — nearly $1 million to run its school buses in 2012-13, according to court records.

EES was originally supposed to receive a $450,000 payment, with the possibility of a $100,000 bonus if at least 150 students rode the bus regularly. But far more students rode the bus than anticipated, leading to a new agreement with EES for $750,000, according to court records.

The higher rate was meant to reward “EES’ ability to generate more income for Options through transportation billing through DC Medicaid,” according to the agreement.

Bus ridership increased about the same time that the school promised $50 cash gift cards to students if they rode the bus to school each day.

School officials have described the payments as part of an anti-truancy initiative, but students did not receive the gift cards unless they rode the Options-provided bus, according to teachers and parents.

One parent said her daughter received the payments until she decided to take a Metrobus. “They told her if she doesn’t ride the yellow bus, they wouldn’t give her the money,” Dell Brown said.

Thomas E. Zeno, a former prosecutor for the U.S. Attorney’s Office for the District of Columbia who specializes in white-collar crime, including health-care fraud, said it’s illegal to pay anyone to use a Medicaid-funded service.

“It could be a kickback,” Zeno said. “It is against the law to either give or receive an incentive to use Medicaid.”

EES sought to provide therapy for students aboard the bus via an “on-board therapeutic program . . . required to better service student ridership and increase Medicaid billing proceeds,” according to an Options document submitted as part of the city’s civil complaint.

An Options employee who was paid extra to ride the bus with students each morning and afternoon said the therapy consisted of making conversation with students to get their day off to a good start. The employee said she was not a therapist and did not have the kind of professional license — such as in social work, counseling or psychiatry — that is required for Medicaid reimbursement.

The number of special education students, and their level of needs, also has drawn scrutiny from investigators.

According to court records, Options revised its budget in the middle of the 2012-13 school year to reflect a dramatic increase in the number of special education students with the most intensive needs, whose numbers rose 42 percent — much faster than the school’s 15 percent enrollment growth overall.

Such students bring additional local tax dollars to the schools they attend — an extra $28,284 each on top of the regular per-pupil funding of about $9,000. And Options could probably seek federal Medicaid reimbursement for some of the services it provided to those students.

Wrongly identifying students for special education services or inflating the services students need — and then billing Medicaid for them — could constitute federal fraud, said Zeno, the former prosecutor.

But evaluating students’ levels of need is a judgment call, a gray area that can be hard to prosecute unless there is evidence that someone plainly lied, Zeno said. Fraud cases are difficult to pursue, he said, because a person generally can’t be found guilty just for making a mistake. It has to be proved, beyond a reasonable doubt, that they willfully broke the rules.

“There has to be some sort of corrupt intent,” Zeno said. “You have to show somebody’s lying about something.”

A. Scott Bolden, an attorney for David Cranford, Options’s former clinical director, said his client had only limited involvement with the evaluation of student needs. “But to his knowledge, there was never any inflation of students’ special education needs for any reason, much less to increase Medicaid billing opportunities,” Bolden said.

Bolden said his client was not involved in Medicaid billing and could not comment on the school’s billing practices.

Many charters don’t bill for reimbursement because it is technical and time-consuming and — particularly for small schools with few disabled students — often doesn’t bring in a lot of money, according to Monica Lesperance, of the D.C. Special Education Cooperative, a consortium of charter schools that offers its members technical assistance and training.

The Options managers who founded and ran EES hoped that the private company could reap significant profits by selling its Medicaid billing services to other schools, according to minutes of a March 2012 Options board meeting. “Through EES, we hope to become the Medicaid biller for other schools and get additional income for Options,” said Paul Dalton, director of EES and the school’s provost and general counsel, according to the minutes, which were filed in court. An attorney for Dalton did not respond to requests for comment.

But Options officials also appeared interested in bringing in additional income for themselves and other Options employees. In an April 2012 e-mail obtained by The Washington Post, a senior Options official — who was not named in the civil complaint — asked the school’s attorneys at Covington & Burling for advice on a proposed bonus structure for Options staff and administrators.

The size of the bonuses, as proposed, would have been tied to the amount of Medicaid reimbursements Options received, with bigger payouts as reimbursements increased.

It is not clear whether the bonuses were ever approved or paid. An attorney for Covington & Burling declined to comment, citing attorney-client confidentiality.

Emma Brown writes about D.C. education and about people with a stake in schools, including teachers, parents and kids.
Ann covers legal affairs in the District and Maryland for the Washington Post. Ann previously covered state government and politics in California, New Hampshire and Maryland. She joined the Post in 2005.
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