The nonprofit route to profits isn't limited to a rogue Medicaid provider | Arkansas Blog

Sunday, September 16, 2018

The nonprofit route to profits isn't limited to a rogue Medicaid provider

Posted By on Sun, Sep 16, 2018 at 9:12 AM

VACATION HOME: This house in North Port, Fla., produced $63,000 in rent payments to lobbyist Rusty Cranford, according to a government information about improper spending by a nonprofit at center of public corruption scandal.
  • VACATION HOME: This house in North Port, Fla., produced $63,000 in rent payments to lobbyist Rusty Cranford, according to a government information about improper spending by a nonprofit at center of public corruption scandal.
The Democrat-Gazette's further examination today of ill-gotten gains in the corrupt activities of past executives of Preferred Family Healthcare glides over something worth emphasizing about nonprofits such as PFH. They can make huge profits and shield the windfall through arrangements with for-profit management companies.

Doug Thompson's reporting delved into the complicated and intentionally opaque sales and asset transfers that enriched a handful of insiders to the tune of $17 million.

That bottom line was revealed when one of the former executives, Keith Noble, pleaded guilty last week.

In his plea agreement, the government spelled out the windfall profits in detail, omitting only some specific names. The essence is simple:

The conspirators caused the Charity [Preferred Family Healthcare's predecessors] to pay unnecessary and excessive “management fees” to Entity A, and structured the sale of
Entity A to Company A so as to unjustly enrich themselves, to the financial detriment of the Charity.
It is a common  to find management companies receiving payment from organizations operated primarily with public money, such as Medicaid or general state revenue. Think nursing homes. Think charter schools.  The public records show only the management company payments on the public entity's books. The private management company records are shielded from public inspection. Such arrangements aren't illegal. But public accountability is reduced. And when that happens, well ......

The facts outlined against PFH illustrate. In addition to the ill-gotten $17 million, the Medicaid and other federal money generated sufficient extra money in excess of the costs of providing services to provide almost $5 million in bribes and illegal campaign contributions to politicians; millions in payments to top executives in "rental" of vacation homes (see the link to plea agreement, which spells out the list of subsidized retreats in Arkansas, Florida and Texas); private air travel for pets and people; enormous salaries of between $400,000 and $1 million for five top executives; jobs for 10 family members, and more.

It makes the Ecclesia College kickback scheme look like chump change, though former Sen. Jon Woods had a plan for much bigger rewards through cutting the college in on state higher education spending and, at one time, marijuana tax revenue.

Do other nonprofits (a tax designation under federal law) use private management company arrangements to shield windfall profits? Would a nursing home executive do that? A charter school operator? You tell me. Or, if you have inside knowledge of impropriety, tell the FBI.

PS: David Ramsey reminds me that the $17 million windfall is not "new" news. Indeed, questions about the money have persisted for some time in Missouri. Who knows if that wasn't the trigger that eventually brought grief to Arkansas players.

A commenter writing in to the Springfield News-Leader way back in 2010 pointed out Alternative Opportunities' abuses of its taxpayer-enriched nonprofit funds going to for-profit companies owned by AO's leaders, or set to benefit AO's leaders—including the $17M windfall from the sale to Providence, as well as other issues.

Also, it was a live issue in 2010, when AO had a separate controversy over an apparently corrupt bidding process whereby AO won some contracts for license offices (there was a lawsuit and I believe the bidding process had to start over—part of the scandal involved donations by Bontiea and Tom Goss and Marilyn Nolan to Gov. Jay Nixon.)

During that controversy, a candidate for Greene County prosecutor published a series of questions about AO ( and brings up the $17 million windfall from the sale of W.M. Management to Providence.

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