Small Smiles faces another lawsuit

2009 11 18 10 18 09 377 Gavel 70

The Small Smiles chain of clinics, which in January settled a U.S. government lawsuit for $24 million, now faces a class-action suit alleging that the treatment of children at the chain's 50 clinics amounted to battery.

"We have filed a claim on behalf of the individuals," said attorney Charles Contrada. "Civil law is there to put people in a position as if the events never happened. It's eye for an eye, tooth for a tooth -- literally tooth for a tooth in this case."

“It's eye for an eye, tooth for a tooth.”
— Charles Contrada, attorney

At the same time, the company's insurer, National Union Fire Insurance, is suing to avoid paying claims for wrongdoing by Small Smiles, which specializes in treating patients covered by Medicaid and similar programs. And the clinic chain just lost a suit in which it sought more than $150 million from former owners whom it blamed for its current problems.

A Small Smiles spokesman stated in an e-mail to that the company, which also uses the name FORBA Holding, could not comment on the lawsuit. But the company's new owners have undertaken "initiatives to improve quality of care," he noted.

Patient 'conversions'

The class-action suit, filed by Contrada along with the law firm Zoll, Kranz and Borgess in the U.S. District Court for the Northern District of Ohio, Western Division, alleges that employees at the clinics were taught to "convert" patients who came for cleanings and exams to patients who could be billed for much more extensive procedures whether or not they needed them.

During the children's first visit, the parents were typically shown x-rays -- taken whether or not the patients needed them -- then asked to sign consent forms, after which their children were immediately treated with multiple pulpotomies and stainless steel crowns, according to the complaint. It alleges that the procedures were done immediately so that patients would not have time to reconsider or get second opinions.

The complaint also alleges that Small Smiles employees strapped their patients down on papoose boards whether or not any restraint was needed; barred parents from entering the operatories; and washed the children's clothing to hide the evidence that the patients had vomited or urinated from stress and fear. And it charges that unlicensed employees administered nitrous oxide.

The lawsuit seeks unspecified compensation for anyone who suffered from such practices. "We can also sue for punitive damages, which is to tell everyone not to do similar things," Contrada said.

Helping the poor?

In another lawsuit, originally filed in the U.S. District Court for the District of Colorado, the chain's current owners blamed the previous owners for the clinics' most recent problems.

The complaint for that suit traced the chain's history to a single clinic in Pueblo, CO, established in 1928 by dentist Bruno DeRose. In 1961, his son, Edward J. DeRose, D.D.S., joined the practice, and nine years later the clinic began treating children under Medicaid, it stated.

The clinic expanded gradually at first, opening other clinics as more family members joined the business, according to the complaint. It said the expansion accelerated in recent years, with the business growing from 12 clinics in 2002 to 50 by 2006, and that the clinic chain adopted the name FORBA as an acronym for For Better Access.

In a 2004 article in the Gazette of Colorado Springs, Edward's son Michael DeRose, D.D.S., described himself as "just a simple little Pueblo kid that wanted to help poor kids."

He saw the clinics as filling a desperate need. "There is an epidemic in the United States, and it's hard to believe we can put a man on the moon and yet there are thousands and thousands of poor children that cannot find dental treatment," he reportedly told the newspaper.

The article described colorfully painted operatories with themes based on TV and movie characters and dentists wearing shirts with "Dr. Mike" or "Dr. Nate." It portrayed the clinic's financial success as a happy coincidence resulting from its efforts to do good.

$435 million sale

But a few months before the Gazette article, the Colorado Board of Dental Examiners had ordered Dr. Michael DeRose to stop hiring dentists not licensed to practice in the state. That year, according to the lawsuit by current owners, the DeRoses began trying to sell their company.

The following year, Dr. Michael DeRose's license was suspended in North Carolina based on allegations that dentists he had employed were performing unnecessary pulpotomies followed by placing stainless steel crowns.

Then, in 2006, the Daily Record of Rochester, NY, reported that the director of a Small Smiles clinic in Irondequoit, NY, had surrendered his license on charges of submitting false Medicaid claims.

The family found a buyer for FORBA in 2006. The new owners are a consortium of investment firms, including the Carlyle Group, Arcapita Corporate Investments, and American Capital. The new owners are calling themselves the Small Smiles Holding Company, but also retain the name FORBA.

Under the terms of the agreement, the family agreed to sell FORBA for a price equal to 10 times the company's earnings before interest, taxes, depreciation, and amortization, according to the complaint, specifying that using this formula the purchase price worked out to be $470 million in June 2006.

But the company struggled to meet the $47 million in income required to justify that price and began to "threaten and berate" employees to squeeze more money from the clinics, specifically tracking the production of each dentist, according to the complaint. "Our focus needs to be on increasing production per patient," one e-mail read, the complaint states. Nevertheless, the purchase price was lowered to $435 million before the deal closed on September 26, 2006.

Dr. Michael DeRose and his father personally received $58 million each from the sale, while Michael's brother Dan DeRose got $80 million, the complaint states.

In 2008, the company's centers in North Carolina agreed to pay $10 million to the U.S. government and the state of North Carolina to settle more claims of fraudulently billing Medicaid. Then in January 2010, FORBA settled a suit brought by the U.S. Department of Justice and several states for $24 million.

The new owners' lawsuit attempted to hold the former owners responsible for these liabilities, which they claim were hidden from them. But in a February 26, 2010, ruling, the court dismissed their suit.

Polishing an image

If business continues as it has at the FORBA clinics, the new owners could still earn back these settlement amounts pretty quickly. According to the new owners' lawsuit, each clinic was paying the former owners a monthly fee of at least $158,400 each -- which multiplied by 50 would equal $7.92 million.

But business practices have changed at the clinics, according to the new owners. "FORBA takes seriously any concerns raised by parents whose children receive care in its associated dental centers," spokesman Don Meyer stated in an e-mail. "The company works hard to ensure that parents can communicate those concerns and seek resolution if required. Resources and options available to parents include an 800 number, a patient advocate, and of course, speaking directly with the center's staff."

The patient advocate and hotline were required under the terms of a corporate integrity agreement imposed by the U.S. attorneys general lawsuit. FORBA must additionally employ a compliance officer with liaisons at each clinic to ensure it strictly follows the law, and a chief dental officer to develop procedures ensuring "professionally recognized standards of healthcare."

As chief dental officer, the company has hired Steven Adair, D.D.S., M.S., a former professor of pediatric dentistry at the Medical College of Georgia, who has served as editor-in-chief of the American Academy of Pediatric Dentistry (AAPD) journal and is a member of the AAPD Board of Trustees.

The company has also gone after its critics; in November 2008, it sued blogger Debbie Hagan, who had posted internal company documents on her blog, Dentist The Menace, and described the company in harsh terms. She agreed to an injunction requiring her not to post any such documents in the future.

Now the company must defend itself against the class-action lawsuit -- and try to hang onto its insurance policy. Its liability policy is retroactive, but it does not "provide coverage for a 'dental incident' arising out of any dishonest, fraudulent, criminal, or knowingly wrongful acts, errors, or omissions committed by or at the direction of any insured," according to National Union Fire Insurance.

And the Ohio Attorney General's office will continue to investigate any Medicaid patient complaints, spokesman Ted Hart said.

Clearly the company has work ahead as it struggles to repolish its image.

Copyright © 2010

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