State, DEA Probe Mismanagement in Methadone Clinics


In a massive probe of clinics that distribute methadone to California heroin addicts, government investigators have uncovered what they believe to be a pattern of shoddy management and rampant overbilling that has siphoned millions of dollars from state health insurance programs for the poor.

Over the last two years, almost half of the 117 privately owned methadone clinics in the state have come under scrutiny by the California Department of Justice or the U.S. Drug Enforcement Administration.

A key player in one chain of clinics targeted by authorities is the president of the California Organization of Methadone Providers. Another chain is owned by the former director of the National Football League’s drug-testing program.


The operators of both methadone networks say they have engaged in no wrongdoing and are victims of bewildering and unevenly enforced regulations.

Although many methadone clinics are run properly, the breadth of the state and federal inquiries suggests that a substantial portion of the industry may be rife with serious problems, including unaccounted for methadone, poor-quality treatment and questionable, if not fraudulent, billings to the government.

In fact, the state Department of Justice has initiated a preliminary investigation into the billing practices of yet a third chain of methadone facilities, but officials declined to reveal any details.

So far, state authorities have concentrated on clinics owned by a small partnership that includes Robert B. Kahn, president of the statewide trade association of methadone providers. The clinics allegedly have overcharged two government health insurance programs--Medi-Cal and Drug Medi-Cal--almost $10 million for treating indigent heroin addicts.

To date, agents from the state Medi-Cal fraud unit have raided 19 Southern California methadone clinics and business offices owned jointly or individually by Kahn, Joyce Howerton Ray and Galen E. Rogers. A treatment center in Oakland partially owned by Kahn also was searched. Thousands of patient charts and billing records were seized.

Although documents in the case have been sealed, the presiding justice of the state Court of Appeal in San Diego made public a portion of the legal filings at The Times’ request.

In one of those documents, Deputy Atty. Gen. Annie Featherman, a prosecutor in the Medi-Cal fraud unit, summarized the severity of the alleged wrongdoing. “The owners of the methadone clinics,” she said, “have engaged in a massive fraud scheme, including double-billing and triple-billing of government health care programs for methadone treatment services.”

Vitamin Packs for $13 Each

Among other things, the state is examining $800,000 that a single San Diego clinic owned by Kahn charged Medi-Cal for dispensing vitamins. The small vitamin packs cost no more than 45 cents apiece, authorities say, but the clinic billed the state $13--more than many addicts pay for their daily dose of methadone.

Through their attorney, Kahn and his partners dismissed many of the state’s allegations as honest differences in interpretations of what can be billed to the tax-supported health programs.

“I disagree completely with the attorney general,” said San Diego lawyer Michael Lipman. “There is no fraudulent scheme here at all.”

Meanwhile, on the federal front, DEA investigators have focused on the vast network of methadone clinics owned by Dr. Forest S. Tennant Jr. of West Covina, the NFL’s former director of drug testing, who is often relied upon by law enforcement and businesses for his expertise in drug treatment.

Tennant, a Republican activist in Southern California, owns Community Health Projects Inc., which operates 29 methadone facilities--the largest chain in the state.

In an out-of-court agreement with the U.S. attorney’s office in March, Tennant and his chain paid $625,000 to settle government allegations that many of his clinics violated record-keeping requirements, including those designed to deter the sale of methadone on the black market. Authorities say the civil penalty is the largest ever leveled against a methadone clinic operator.

Since the March settlement, Tennant’s facilities have been closely monitored by DEA officials, who have conducted at least five inspections to make sure the chain is moving toward compliance with federal law.

Tennant declined to comment on the case. But Jeff Schenkel, a spokesman for the methadone chain, blamed the controversy on a maze of federal rules that Tennant considers vague, inconsistent and contradictory to state law.

“Dr. Tennant feels it’s blatantly unfair that, as the largest chain in the industry, he is expected to follow regulations that no one else can follow,” Schenkel said. “Other clinics would turn out to be just as bad if they were given the same level of scrutiny.”

Treatment Advocates Fear Backlash

Although government officials have remained publicly silent about their investigations, some drug-treatment advocates have expressed concerns that the allegations will provide ammunition to critics of methadone treatment, who believe that the drug merely substitutes one addiction for another.

“This is a terrible shame because patients are going to suffer in the long run just as they always have,” said Diane Fluery-Seaman, executive director of Methadone as a Legitimate Treatment Alternative, a patient rights organization in California. “The drug is not the problem with the industry. It is a lot of the clinics.”

When properly administered, methadone is generally regarded as one of the most effective weapons against heroin addiction and the diseases associated with intravenous drug use, such as AIDS and hepatitis.

It was first developed as a painkiller in Germany during World War II. In the 1960s, researchers in New York City discovered that the powerful analgesic, which acts like an opiate in the human body, could block an addict’s craving for heroin without producing euphoria.

Most patients report daily to a designated clinic where, under the watchful eye of a dispensing nurse, they drink a mixture of liquid methadone and fruit juice from a paper cup.

Today, treatment facilities in California can accommodate about 32,000 people. Patients either pay for care with their own money or rely on government funding through Medi-Cal and Drug Medi-Cal, a separate program created in 1995 for indigent methadone recipients.

At the heart of the two-year state investigation of Kahn, Rogers and Ray is whether--and by how much--their clinics have excessively tapped into the pool of government funding.

Although no criminal charges have been filed, court documents reveal that the clinics are suspected of improperly billing the state at least $9.9 million between 1991 and 1995.

Among other things, authorities contend that the chain charged Medi-Cal for services already paid by the clients or by Drug Medi-Cal.

Investigators say that $3.3 million of the questionable billings came from Kahn’s San Diego Reference Laboratory, which does medical and drug testing for the clinics. That figure amounted to 70% of the lab’s total billings at the time, according to court documents.

Another $1.1 million in alleged overbillings was found by auditors from the state Department of Health Services, who examined operations at one of Kahn’s clinics for an 18-month period ending in January 1996.

“This is a lot of money to be in dispute at one clinic,” said Stephan J. Edwards, chief of the medical review unit at the state health department. “We believe there are a large number of services that were not necessary and that you cannot bill for.”

Auditors say they discovered that C Street Community Clinic in San Diego collected payments twice for some services--including the taking of vital signs, office visits and electrocardiograms.

It was during the audit, they say, that the $800,000 billed to Medi-Cal for daily vitamins was also uncovered. Besides the huge markup, the Medi-Cal program may not even allow reimbursements for vitamins, no matter what the cost, authorities say.

Speaking on behalf of the clinics and their owners, attorney Lipman blamed the state for much of the controversy involving the billings.

Lipman said, for example, that Kahn’s staff was told by state officials that it could charge Medi-Cal for vitamins. He said clinic employees even wrote “vitamins” on the bills they submitted.

“Now they say we should not be doing this,” Lipman said. “The billings for the vitamins indicated precisely what the state was being charged for. Why did the state pay the bills for so long if there was a problem?”

As for the other alleged improper billings by the clinic chain, Lipman said the state’s methadone reimbursement rules are so confusing that they invite misinterpretation. He declined, however, to provide specific examples.

Overbilling Alleged

From 1991 to 1995--the years central to the state investigation--many counties limited or denied Medi-Cal benefits to indigent addicts seeking methadone, forcing them to pay for treatment on their own. Under state regulations, the fee they paid was supposed to cover methadone doses, routine medical care, treatment plans and counseling.

The state alleges that Kahn and his partners improperly billed Medi-Cal for the services already covered by the addicts’ fees. But Lipman said the clinics only sought reimbursement for treatment that “went above and beyond” that coverage.

Lipman also blamed the billing dispute on what he called the “hastily conceived” Drug Medi-Cal program.” While again providing no specifics, he said the new methadone funding is filled with confusing reimbursement rules.

In the end, Lipman predicted, a significant portion of the alleged $10 million in excessive charges will be deemed justified.

“There might be some service that got billed improperly,” Lipman said, “but it is minimal.”

Even if the government concludes there is sufficient evidence to press charges, the prospect of a trial could be in doubt.

In September, an appeals court ruled that state authorities violated laws protecting the confidentiality of methadone recipients when they seized records from the 14th Street Clinic in Oakland, including almost 6,600 client charts. The court ordered that the records be returned.

Because medical files were involved, the court said, investigators needed a judicial officer called a special master to oversee the raid. One was never sought, the state argued, because the records were under the control of the clinic owners, not the medical director.

Ultimately, the state dropped 14th Street Clinic from its ongoing criminal investigation after the owners paid $20,000 to settle a handful of disputed Medi-Cal payments.

Lawyers for the clinics still under investigation have not pursued similar legal challenges. But The Times has learned that settlement talks have been initiated for those facilities too.

Record-Keeping Called Poor

In the investigation of Forest Tennant’s methadone clinics, federal authorities pursued one of the oldest and most visible drug-treatment providers in California.

He has worked as a substance abuse consultant for the state Department of Justice, the California Highway Patrol and hundreds of private companies, such as Texaco and Southern Pacific Railroad.

He also has served as a councilman and mayor of West Covina.

Despite Tennant’s professional and political standing, he has been dogged by controversy for years.

In 1990, he resigned from the NFL’s drug-testing program after former employees and players claimed that the work at his lab was shoddy and that test results were inaccurate. Similar accusations would later drive him from his position with NASCAR, the national stock car racing association. In both cases, he denied any improprieties.

His serious involvement with methadone clinics began in 1972 when he took over UCLA’s program. Building on that experience, he struck out on his own, creating the nonprofit Community Health Projects.

Over the years, his methadone clinics have been repeatedly cited by the state and federal government for serious and continuous deficiencies.

Among other things, state inspections have uncovered inadequate counseling, shortages of medical services and poor record-keeping. In some cases, treatment records appeared to have been falsified by stating that clients had received counseling when in fact they had not, state reports show.

Federal prosecutors say it was the long history of uncorrected violations that forced Tennant and his chain to pay the U.S. government $625,000 and avoid a civil lawsuit involving at least 14 clinics. The amount was half of what the government could have collected if it had prevailed on all 50 counts it was prepared to file in court.

Missing Doses of Drug

Assistant U.S. Atty. Lori Richardson Pelliccioni, who handled the case, said record-keeping was so poor at the clinics that methadone supplies could not be tracked adequately. In many cases, the required documentation was either incomplete, inaccurate or missing, she said.

During their investigation, DEA officials discovered that at least 95,000 milligrams of methadone, the equivalent of 1,580 60-milligram doses, were unaccounted for. Authorities say they have been unable to determine if any was sold illegally.

Although not as popular as many illegal drugs, a typical dose can command $50 to $60 on the street, DEA officials say.

Heroin addicts buy black market methadone to stop withdrawal symptoms when they cannot get their usual fix. For those who do not use opiates, the drug can produce a powerful, but potentially lethal, high.

The settlement agreement ordered Tennant and his clinics to work directly with the DEA to develop a compliance plan. His spokesman, Schenkel, said the chain produced a three-volume set of guidelines to fulfill that obligation.

Apart from the settlement, Schenkel said, Tennant is advocating that state legislation be passed to clarify methadone regulations and eliminate problems he insists contributed to the federal case against his organization.

“We have continued to do everything in our power to make sure there are accurate records and adequate training on the front end and maximum compliance on the other end,” Schenkel said. Tennant “wants his clinics to represent the standard in the industry.”


Facts About Methadone

* THE DRUG: Methadone is a powerful analgesic that blocks an addict’s craving for heroin without producing euphoria.

* THE TREATMENT: Patients receive a single daily dose of methadone, taken orally. About 32,000 people can be accommodated at facilities throughout California.

* THE CONTROVERSY: Critics believe that the drug merely substitutes one addiction for another. Supporters say methadone is relatively cheap and, because it is taken orally, avoids risk of disease caused by using needles.