An Operator of Group Homes Keeps State Aid Despite Faults

The state has had plenty of reasons over the years to end its relationship with the Federation of Multicultural Programs of Brooklyn.

During the 1990s, the federation, which provides care for developmentally disabled people, filed for bankruptcy protection twice, once while owing the Internal Revenue Service over $3 million. Its executive director and chief financial officer were charged with embezzling over $2 million.

In 2006, the federation’s board hired as chief executive a retired police officer without experience in the field. It later gave him annual compensation of $350,000 and allowed him to put his son, two sisters and a sister-in-law on the payroll.

And in the years since, the federation has amassed more citations for serious lapses of care than any other organization in the state licensed to run group homes for developmentally disabled people — those with autism, Down syndrome or cerebral palsy. An analysis by The New York Times of state inspection data from 2004 to 2010 found that the federation had been cited 27 times; most providers of similar size were cited no more than twice.

Like a spouse trapped in a bad marriage, however, the state never sought to extricate itself. It continues to pay the federation about $20 million a year in Medicaid money.

The relationship underscores the degree to which New York State has given control of its system to nonprofit providers, who receive more than $5 billion a year in Medicaid money to house and care for developmentally disabled people.

The problem stems from hasty decisions made four decades ago, when New York faced a court order to stop warehousing developmentally disabled people in huge institutions. The state turned to then-small nonprofit groups, many led by parents of developmentally disabled children, to open group homes quickly.

State officials saw the groups as allies, in need of support more than supervision. And as the organizations matured into multimillion-dollar enterprises, the state’s oversight system did not keep pace.

As a result, from the 1970s until this fall, the nonprofit providers, unlike nursing homes or hospitals, never faced fines when their care was found lacking. The state conducts inspections of their facilities, but the visits are rarely a surprise and are intended to be a collaborative learning experience.

Speaking of the state’s Office for People With Developmental Disabilities, Walter E. Saurack, a former official of a state watchdog agency, said: “They don’t view themselves as an oversight agency. They view themselves as a conduit of money to the nonprofits.” Mr. Saurack was chief of the fiscal investigations unit of the Commission on Quality of Care and Advocacy for Persons With Disabilities.

Another significant factor is that taxpayers underwrote the nonprofits’ purchase of buildings to house their group homes. That complicates any move to shutter a poor performer. A better approach, people who have studied the issue say, is to have independent landlords or the state own the real estate, so that providers can be quickly replaced if problems persist.

That is the way Community Living Services, a nonprofit organization that oversees group homes and other services for the developmentally disabled in the Detroit area, structures contracts. “We were pretty bright in the early days in not letting the providers own the homes,” Jim Dehem, its chief executive officer, said.

To be sure, many of the nonprofit organizations in New York provide exemplary care, using the state’s generous reimbursement rates to devise and operate excellent programs.

Courtney Burke, commissioner of the Office for People With Developmental Disabilities, said she had taken steps to “shore up oversight” of the providers. In March, amid an investigation by The Times into problems at the agency, Gov. Andrew M. Cuomo appointed Ms. Burke to overhaul the office.

This fall, for the first time in its history, the office fined four nonprofit providers. Ms. Burke also tightened the process through which nonprofits appeal for more money. She described the changes as “reforms that were long overdue,” but as only initial steps while she pursues federal approval for a sweeping plan.

Perhaps no nonprofit group has benefited more from the lax oversight than the Brooklyn federation, which was called the Federation of Puerto Rican Organizations of Brownsville until 2003 and operates 21 group homes in the city for about 200 people.

After it filed for bankruptcy in 1990, state auditors found that a major cause of the deficit was $900,000 in questionable expenditures, including a trip to Puerto Rico for its leaders and no-interest loans to employees, much of it funneled through a hidden bank account used by Victor Medina, the chief executive officer.

Yet the state still awarded the federation $1.7 million in 1991 on an old administrative appeal it had filed for more subsidies. A report by the Commission on Quality of Care later found that apparently the payment was made to “rescue this provider from bankruptcy.” The creditors included the I.R.S., which said the federation owed $3.4 million in employee withholding taxes.

In 1994, Ismael Betancourt Jr., who had replaced Mr. Medina for four months during what he said was a power struggle on the board, wrote a 30-page letter to city and state officials accusing Mr. Medina of using off-the-books bank accounts and credit cards for personal expenses, and making seemingly excessive payments to a cleaning company.

“Something smells,” Mr. Betancourt wrote. “An investigation is needed.”

The city heeded the warning, and in about 1997, five city agencies canceled or declined to renew contracts.

The federation then filed again for bankruptcy protection.

In 1999, Mr. Medina and the federation’s former controller were arrested and charged by the United States attorney’s office in Brooklyn with stealing $2.3 million in government-provided funds through kickbacks and other schemes. Mr. Medina died two years later, before the case was concluded; the controller, Charles Gibson, reached a plea agreement and avoided prison time.

The federation did little to improve its financial position in the next several years, and by 2006 a state audit said the organization was “not fiscally viable.”

But the state accepted a proposed recovery plan from a newly appointed C.E.O., Danny King. And the following year it again propped up the federation with extra money, giving it $780,000 for losses it claimed on its group homes.

Mr. King had spent the 21 years before his hiring as a New York City police officer. Although he had been on the federation’s board for several years, he had no experience managing social service programs. He had filed for personal bankruptcy in 2002, and his final police salary was under $60,000.

His fortunes quickly changed.

In his second full year as C.E.O., Mr. King’s compensation from the federation and its affiliates was $350,000.

Mr. King agreed to respond to questions only in e-mails through his lawyer, Paul Bleifer. Mr. King said his compensation, which has typically included a $50,000 annual performance bonus, was warranted by his long hours and his success. Asked about the four family members he put on the payroll, he declined to comment.

Despite the federation’s assertions that it has greatly improved its management in recent years, its performance has been found severely lacking: From 2004 to 2010, its Intermediate Care Facilities, which house about three-fourths of the people in its group homes, were cited 27 times for failing to meet minimum federal health and safety standards. Eighteen of those citations were issued during Mr. King’s tenure.

The problems included the federation’s failure to investigate accusations that developmentally disabled people were being physically abused in its group homes, failure to provide adequate medical care, and medication errors.

Still, those infractions are not enough to shut down a provider, said Travis Proulx, a spokesman for the Office for People With Developmental Disabilities.

Mr. Proulx said federal rules limited the state to revoking a license on a group home only after a provider had failed a follow-up survey.

But the state and its inspectors have broad discretion over what violations they cite and how often they return to reinspect a troubled program.

Generally, even when conditions are egregious, the most severe action the state takes consists of persuading a provider to turn over a single group home where problems have arisen to another nonprofit organization. That is what happened to a federation group home on Ryer Avenue in the Bronx in 2008.

There, because of insufficient supervision, a resident had fallen, requiring hospital treatment. A nursing post was vacant for seven months. State inspectors reported a “pattern of failures to administer medications” and “continued problems with the deployment of sufficiently trained staff.”

After each finding, the federation submitted a plan to do better. But after problems went unaddressed, the state put pressure on the federation to turn over the home to another nonprofit provider.

The lapses identified by state inspectors, and the loss of the group home, did not reduce Mr. King’s compensation. He still received a $50,000 performance bonus that year.

“Although the Ryer premises was lost during Mr. King’s time at the federation,” the statement provided by his lawyer said, “the overall picture of his services and improvement of the agency warranted the bonus.”

Similar problems have lingered at a federation group home in the Hunts Point section of the Bronx. Seven years ago, inspectors noted numerous examples of missed medical treatments, a continuing lack of nurses and several medication errors, including one that led to a staff member’s suspension.

The problems continued, and in June the state agency issued the federation an “early alert” notice, placing it on a list of troubled providers with problems so severe they could face fines or even revocation of their license.

Mr. King, in his statement, said he was confident that such sanctions would never come to pass.