Health Provider Accused of Bad Business Practices

     (CN) — A mental health provider breached its contract with a Michigan agency by giving big bonuses to executives while running its business in the red, the agency claims in court.
     The Detroit Wayne Mental Health Authority provides mental health services for 80,000 poor citizens living in Detroit and the surrounding area.
     The state agency contracted with Gateway Community Health for over a decade to provide services for Medicaid or Medicare recipients.
     But it received an anonymous tip last year that Gateway had improperly paid several hundred thousand dollars to top executives in bonuses and severance payments, according to a lawsuit filed by the agency in Wayne County.
     An audit reportedly found that Gateway’s CEO received $70,000 in bonus payments, plus $41,000 in expense reimbursements. Another executive received an $80,000 bonus for undetermined reasons, and the company’s former COO was given a severance payment of $62,500 only to be rehired five months later.
     It also found that Gateway paid vendors nearly $1.5 million without a contract, and without validating whether the services were properly completed, according to the complaint.
     Gateway conducted its own audit of its financial reports at the same time, which found the company in the hole by $7.5 million dollars, the mental health authority claims.
     “In other words, GCH’s auditors effectively concluded that GCH was insolvent,” the complaint states. The auditors also allegedly found significant deficiencies in the company’s internal controls.
     The authority canceled its most recent contract with Gateway, worth $120 million, last week, and in a lawsuit filed Tuesday, it demanded the repayment of $7.5 million that Gateway allegedly owes.
     The agency also claims Gateway breached its contract, which required the provider to maintain minimum reserves of $3.5 million, and was negligent for failing to implement proper internal controls.
     Gateway did not immediately respond to a request for comment, but indicated in a letter to providers that it would fight the contract termination, according to a Crain’s Business report.
     The Detroit Wayne Mental Health Authority is represented by James P. Allen, Sr. in Detroit.

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