American Addiction Centers: Even More Undisclosed Deaths, Jerrod Menz Indicted for Murder, and the start of real problems
Author’s note on additional undisclosed patient deaths:
Prior to March of 2015, there were no references to patient deaths at AAC facilities which could be found in the mainstream media. A Google search would turn up nothing. In March, Bleecker Street Research published a report which highlighted four (4) deaths which occurred in California, as disclosed in a report from the California State Senate. Last week, an article in Forbes highlighted an additional two deaths, bringing the number of known deaths to six (6). In this article, we have uncovered an additional two (2) patients declared dead in 2014 in Florida and California. This brings the total number of undisclosed deaths at AAC facilities to eight (8). This is what has been uncovered so far. However, finding this information has been very difficult and much of it remains hidden by AAC. As a result, we believe that there may be additional undisclosed patient deaths which are being hidden by AAC.
Following my first article on AAC in March, I ended up having direct contact from a number of former patients and employees of AAC. These parties have described in detail the illegal activities at AAC which resulted in multiple patient deaths. Unsealed court documents are provided below. I strongly encourage any other current or former patients or employees to contact me via SeekingAlpha or at BleeckerResearch@gmail.com with any additional information.
AAC Holdings, also known as American Addiction Centers (AAC), continues to deceive patients, investors and analysts about the extent of and the details of multiple patient deaths that have been occurring in its facilities as recently as 2014. First AAC goes to great lengths to cover up the deaths. In most cases, no one knows that they have even happened. When found out, AAC then tries to make the deaths appear as if they were from natural causes in an attempt to avoid liability for negligence.
Last week, there was a public criminal indictment of AAC’s president, Jerrod Menz, in the death of Gary Benefield. As a result, AAC was forced to disclose some details in this one death. However, AAC now insists that the death was due to natural causes. We will see below that this is demonstrably not the case and that this will be easily proven in a court of law. Beyond this, AAC continues to fail to disclose any details in seven (7) additional deaths which have occurred as recently as 2014.
AAC only made this disclosure on its quarterly earnings call. AAC’s quarterly results were incredibly strong, but the stock has already begun to sell off based on this news. But in reality, it now looks as if things may actually be far worse than they already appear.
There was some very relevant information which was left out by AAC management.
First, the specific charge leveled was “murder”, the most serious charge that could have come up. That news was only revealed by the press one day later, and not by AAC.
Second, not only was president Jerrod Menz (who has since resigned from the board and as president, but is still working with the company) indicted, but also the company’s Forterus unit was indicted as an organization. Clearly you can’t put the company in jail, but you can put it out of business. Forterus is the largest AAC division and is responsible for nearly 20% of AAC’s revenues.
Third, three independent medical doctors cited the actions of Forterus staff as having directly caused the death of the patient – it was not natural causes.
The summary is as follows:
AAC has stated that the patient died of “natural causes”. This is clearly not the case. Based on the facts below, Forterus and Mr. Menz ran an organization which repeatedly and consistently had low wage unlicensed employees (former addicts hired by Forterus) dispense controlled medications to patients without prescriptions. Medications were taken from a “house supply” of drugs. According to the independent medical examiner, this practice directly resulted in the death of Mr. Benefield (and others). Forterus also made it a practice to aggressively recruit unsuitable patients who had acute medical needs which could not be met by the company. This also directly resulted in multiple patient deaths. Together, it is these practices which are the basis of the “murder” charge against AAC’s president, Jerrod Menz, and its director of operations, Meg Dean.
So far there have been at least seven (7) additional undisclosed deaths of patients at AAC facilities in California and Florida. Some of these have occurred as recently as 2014. None of these has been disclosed by AAC to investors, to prospective patients or to analysts.
The murder indictment also included the charge of Dependent Adult Abuse and was handed down on exactly the 5th anniversary of the death of Mr. Benefield. This suggests that this initial indictment was done now, simply in order to be within the statute of limitations. In other words, it is highly likely that more indictments will follow for the additional deaths which occurred later.
Conversations with former employees reveal that the pattern of negligence and abuse (including with unlicensed dispensing of controlled medications) has continued at AAC facilities even after the deaths of multiple patients. According to employees, such practices are still ongoing today.
The impact on AAC is likely to be massive.
First, it is a PR nightmare. Patients who research any of the AAC facilities will now immediately find that the president of the company was forced to resign after being indicted for the “murder” of a patient. They will also quickly learn about the dispensing of medications by low wage, unlicensed former addicts, without any prescriptions. They will also learn of the substandard care and aggressive marketing practices.
Second, there is a high likelihood that Forterus will simply be shut down in California. This is especially likely given the dangerous policies and procedures which resulted in deaths appear to still be in place. Forterus accounts for nearly 20% of AAC’s revenues.
Third, AAC may now be less able to conduct the acquisitions which it needs in order to grow. These charges put AAC in violation of their credit facility, which has been instrumental in allowing AAC to pursue its roll-up strategy.
How likely is it that Jerrod Menz and the Forterus unit will be convicted in the death of the AAC patient?
Readers can decide for themselves how likely a conviction will be. But it appears from the testimony laid out below that Jerrod Menz ran an organization and knowingly had in place policies which had a high potential to injure or kill patients. These practices and policies were both blatant and egregious and carried on for many years.
Robert Swensrud, a former driver and house manager is one of the witnesses in the criminal case, as shown on the indictment. He previously testified that he was instructed to follow the company “detox protocol” which included giving controlled medications (including Serax and Trazadone) to patients depending on what substances they were detoxing from.
According to Swensrud:
These medications would be given to patients at times prior to a patient seeing a medical doctor and without the patient having a prescription for the medication. The house managers were in charge of overseeing the care given to the patients…and dispensing prescription medications. The house mangers would typically be recovering addicts out of a six month clean and sober living program without any medical training.
Death of Gary Benefield
The name of the patient who died in the criminal case is Gary Benefield. Mr, Benefield was an alcoholic patient who needed external oxygen for his COPD. When the driver picked him up, he smelled of alcohol and his oxygen tank was empty. Swensrud testified that he called management to say that Benefield needed a higher level of care than could be provided at the San Diego facility and advised her about his lack of oxygen. He was advised to give Benefield two tabs of Serax and bring him to the Murrieta detox house.
Swensrud then gave Benefield the medication, dispensed from the “house supply” of controlled prescription medications.
According to testimony from another former employee Rodney Davidson, he had separately been advised to give Benefield two tabs of serax subsequent to the two pills provided by Swensrud. But Davidson was unaware that Swensrud had already given the man the medication previously.
Serax is a respiratory depressant and Benefield died shortly thereafter. He never saw any medical attention while he was at the facility (not even for his oxygen).
Did Gary Benefield die of “natural causes” or not?
AAC’s CEO Michael Cartwright maintained that Benefield died of “natural causes” and states that the coroner had even signed off on this. However, testimony from Dr. Frank Sheridan, the Chief Medical Examiner in San Bernardino County, shows that Forterus’ procedures directly contributed to Mr. Benefield’s death.
You can view the entirety of Dr. Sheridan’s testimony here.
Also named in the murder indictment is the Operations Director of the San Diego branch of Forterus, Meg Dean. Unlike Mr. Menz, Ms. Dean is still employed by AAC. According to the depositions, Ms. Dean was the individual who instructed Davidson to give Mr. Benefield the Serax.
This information comes from the declaration of Robert Swensrud, a driver.
Additional factors to consider
Additional testimony from the depositions may also play a role in the ultimate conviction of Mr. Menz and Forterus. From the deposition of Thalia Kirchwhem (a former intake specialist), Mr. Menz is on record with the following quotes:
Interestingly enough, the clinical director at Forterus seemed to need rehab more than the patients themselves.
Dr. Noreen Bumby served as the medical director at Forterus and held that post when Benefield died June 26, 2010. Bumby created the “detox protocol” that had Forterus personnel giving patients drugs without a prescription and before being seen by a doctor.
In December 2009, six months before Benefield died, California’s Osteopathic Medical Board filed a 17-page public complaint against Bumby arguing that her license should be revoked or suspended. Bumby was ultimately put on probation for multiple acts of “gross negligence” and for repeatedly being drunk.
ENFORCEMENT ACTIONS OCTOBER 1, 2011 THROUGH DECEMBER 31, 2011
BUMBY, Noreen A. D.O., Palm Desert, CA
Business and Professions Code sections 2234(b), gross negligence; 2234(c), repeated acts of negligence; 2239(a), use of drugs/alcohol in an injurious or dangerous manner; 2264, aiding and abetting unlicensed practice; 2266, failure to maintain adequate and accurate records; 2234, unprofessional conduct. Revocation stayed, five years probation with terms and conditions, ordered November 2, 2011, effective November 16, 2011.
Affidavits in the Benefield trial underscored that it should have been obvious to Forterus management that Bumby was unfit for her job.
House manager Justin Craig, who worked at Forterus from November 2009 to September 2012, said, “I personally observed that Noreen Bumby…appeared too inebriated to walk and talk much of the time she was there. More than once clients told me that the doctor smelled like alcohol.”
House manager Helene Mary Leonard said, “Those who met with Dr. Bumby commented that she needed detox more than they did. I am personally aware that prescriptions for medications were written out in advance, without the client seeing a doctor, in the Corning office using Bumby’s prescription pads.
The fact that Dr. Noreen Bumby was even working at Forterus under Jerrod Menz is indicative of the type of operation that he ran and what his priorities were.
The ongoing pattern of deaths and what it means for AAC now
There are several reasons why we should expect additional criminal charges against AAC.
First, there have been (at least) seven additional deaths which AAC has not disclosed to investors or the public. In fact, there may be even more which have yet to be uncovered.
Second, there is an ongoing pattern of deaths being caused by overdoses due to the administration of drugs by unlicensed low wage employees without prescriptions.
Third, there is also a clear ongoing pattern of AAC admitted patients who are blatantly unsuitable for treatment at their facilities either due to medical or psychiatric reasons. AAC has made it a practice to aggressively recruit unsuitable patients even when it creates a grave risk to their safety. This has also contributed to multiple patient deaths.
Fourth, the criminal indictment handed down came at the exact 5 year anniversary of the death of Mr. Benefield. This indicates that it was a preliminary action taken to prevent a lapse under the statute of limitations. The DOJ will then seek additional indictments based on the subsequent deaths, and will use discovery from this case to bolster the subsequent cases.
The details of these deaths comes from the declarations of three different medical experts. The main and most detailed one came from Dr. Frank Sheridan, you can view the entire declaration here. The most important information comes on pages 4-14.
Death of James Sisk
James Sisk had a history of diabetes, weighed 300 lbs., had high blood pressure and used a CPAP machine. Mr. Sisk died within hours of his admission after he was dispensed Ativan without a prescription. Ativan (also known as Lorazepam) is a benzodiazepine and a CNS depressant.
Death of Roberta McMinn
According to the court depositions, Roberta McMinn was another medically fragile patient who was admitted to Forterus while taking the prescription drug Amitriptyline for a heart condition. It was the house policy to take away the patient’s prescription drugs from them, to be administered by house faculty of hired recovering addicts. According to her autopsy, McMinn died of an Amitriptyline overdose.
Death of Gregory Thomas
Gregory Thomas was deemed a severe suicide risk who was “severely intoxicated” on “bath salts” (a designer drug) when he was admitted to the program and picked up by a driver. Per the facility’s own policies, Thomas was not an appropriate candidate for the program.
According to the deposition:
“Mr. Thomas met with a counselor at the ABT facility and then left on foot. He was not followed or looked for by ABT, despite having been told by their own employee, Justin Craig, that he was suicidal and being urged to go after him. Mr. Thomas was found deceased by police, after hanging himself from a bridge approximately 400 yards from the ABT facility.”
Death of Shawn Reyna
Shawn Reyna is another example of a patient who was admitted to the program despite being an inappropriate candidate due to severe health and suicide risks. After being admitted, Mr. Reyna displayed severe withdrawal symptoms, including delirium tremens, paranoia and hallucinations. Staff raised concerns and thought that Mr. Reyna needed immediate psychiatric evaluation. This never happened and Mr. Reyna was found dead in his room after slitting his own wrist and throat with a razor. Mr. Reyna should have never been admitted to the program. Second, upon recognition of this, he should have been sent for immediate psychiatric care.
Death of Brian McCarthy
Brian McCarthy also died while under care from AAC’s facility. He was severely ill with end stage liver disease and severe jaundice. According to the deposition,”Mr. McCarthy was clearly in need of acute medical care and by ABT’s own licensing standards not appropriate for admission to ABT’s non-medical residential detox.”
Criminal recruiting practices
The point is that AAC has made it a practice to deliberately and aggressively recruit new patients at all costs, even when it means jeopardizing lives of at-risk patients. The facility purported to provide drug / alcohol detox however the company is in no way staffed or equipped to handle such medically fragile patients.
Thalia Kirchwhem was a former intake specialist at the AAC unit. She quit over frustration with the recruiting tactics required by CEO Jerrod Menz.
According to Ms. Kirchwhem’s deposition.
- Intake work was a high pressure environment, with a “boiler room” atmosphere
- I was expressly instructed by Mr. Menz [the current CEO] and Ms Scarella to offer potential clients anything they asked for – homeopathic treatment, gym, spa, pool, beach, 24 hour medical care, doctors or psychiatrists on staff, medications – anything the client wanted in terms of rehab services
- Mr. Menz took me to some of the different residential facilities while he was explaining the goals of the intake department. I learned that the house managers were handling the detox program, and that most house managers were former addicts, many of whom were only 6 months sober.
- Mr. Menz stated to me that he hires people cheap, who have little sober time, in exchange for rent, and that is how he makes all his money.
- I started getting uncomfortable because I had become aware that many of the services and amenities I was instructed to offer were not actually available, and the intake staff was expected to lie to people who called to inquire about the services offered
Again, keep in mind that these are her official statements from her court deposition under penalty of perjury.
From the court documents and Ms. Kirchwehm’s declaration it should be clear that AAC was telling patients that it could provide a level of medical-care that it’s not equipped to handle, a practice which continues today.
To see if AAC’s marketing practices had changed at all I used the chat feature on their website, posing as someone addicted to Xanax consuming 14mg of it per day with a history of seizures. Xanax is one of the hardest drugs to withdraw from, and someone taking that high of a dosage with a history of seizures would need a closely monitored medical detox.
The AAC representative was quick to recommend inpatient treatment and was just as quick to ask the “Are you insured?” question. I have spoken with several addiction center operators who have all stated that someone with a history of seizures and taking 14mg of Xanax per day (again, an enormous dose) would need a medical detox. The problem is that Forterus is not licensed for a medical detox, and is instead licensed for “Residential-Detox.”
You can view a list of all the “non-medical alcoholism and drug abuse treatment facilities licensed and/or certified by the Department of Health Care Services” here.
As you can see, Forterus is licensed for “Res-Detox” which is not the same as a medical detox.
This information comes from the California Department of Health Care Services Licensing and Certification Section Status report, which can be found here. At the top of that document it says that “This is an alphabetical list by county of all non-medical alcoholism and drug abuse recovery or treatment facilities licensed and/or certified by the Department of Health Care Services.”
The point is that Forterus is clearly not a medical detox, but even to this day is still willing still accept patients who are medically in need of a detox in a medical environment.
More deaths in 2014 could ensnare Michael Cartwright
At the Forterus unit, Jerrod Menz was not the individual who handed Gary Benefield the pills that killed him. Instead, he has been indicted for murder because he was the individual who set up the incredibly dangerous policies and procedures that killed Benefield. Likewise, Michael Cartwright may now be on the hook due to the more recent deaths that have occurred in California and Florida.
Very little is known about these most recent two deaths because they have not yet found their way into any public court filings. AAC is certainly not sharing any of the details with anyone.
What we do know is that 16 year old Billy Patient went missing from AAC’s Singer Island facility while out on a day trip to the beach. He was declared dead on March 4th 2014.
My conversations with multiple employees also reveal that another patient died in California
According to two former employees, there was another death at Forterus in July 2014. Below is a copy of the email that was sent out by Forterus after Mr. Caetano’s death.
This particular death occurred at the Symeron House, one of the Forterus houses. I have spoken with two former employees who worked there at the time of the death, and both told the same story. The story coming from both of these employees is notably different than the details contained in the email.
When Mr. Caetano was found struggling, the house manager (who still works at Forterus) fainted. It was the patients who called 911 and performed CPR and Mr. Caetano until the paramedics arrived. It is unclear at the moment exactly what lead to Mr. Caetano’s death, but according to both employees there was an empty pill bottle found under his bed.
Again, both of these deaths occurred in 2014 and (as with the previous deaths) neither has been disclosed to the public, to investors or to analysts.
What will be the impact on AAC going forward of these deaths and criminal charges?
As a roll-up story AAC is reliant on its access to capital to acquire other addiction facilities. AAC has known about the potential for a criminal charge in the Benefield case since at least August 2013 when Hardy Gold stated, “I anticipate criminal charges will be filed shortly.” This was more than a year before AAC went public. Yet AAC has raised $200 million ($75 million in the IPO, and $125 million in the debt offering) from investors without ever disclosing the pending criminal investigation.
In AAC’s Credit Agreement on page 59, the credit agreement states:
Promptly and in any event within five (5) Business Days notify the Administrative Agent and each Lender of:
(a) of the occurrence of any Default;
(b) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect;
(c) of the occurrence of any ERISA Event;
(d) of any material change in accounting policies or financial reporting practices by any Loan Party or any Subsidiary thereof;
(e) after receipt of written notice of (i) the institution of any investigation, review or proceeding against the Borrower or any Subsidiary to suspend, revoke or terminate any agreement of participation with a Payor, (ii) the institution by any Payor or Governmental Authority of any investigation, review or proceeding against the Borrower or any Subsidiary that could reasonably be expected to result in the Borrower’s or such Subsidiary’s right to participate with or receive payment from any Payor or (iii) any loss accreditation, participation under any Payor or Medical Reimbursement Program, or any license if such loss could reasonably expected to result in a Material Adverse Effect
AAC’s president Jerrod Menz and Forterus itself being charged for murder is certainly a “material adverse effect” and I believe this puts AAC in violation of its credit agreement.
More importantly, this harms AAC’s ability to raise money in the future. While Jerrod Menz has stepped down, Forterus was also charged with murder and that is a key part of AAC. While analysts have defended the stock after the initial news, will they continue to defend it in the face of murder charges against Jerrod Menz and the company itself?
AAC has done a remarkable job of covering up the fact that the charges were murder. But the news is slowly trickling out. Once this news become more widely public, it will become a public relations nightmare for AAC and it will be much more difficult for AAC to fill their beds. If you are looking to put a family member in an addiction center, and you Google that addiction center, news that the facility that you are looking at is being charged with murder will likely lead you to chose another facility for you or your loved ones.
This could potentially lead to a “death spiral.” AAC has used a tremendous amount of capital to acquire these facilities, and just as they are beginning to come online, a major press nightmare will make the beds they have acquired much harder to fill.
Even when AAC is attempting to tell the truth, they just cannot seem to come clean.
AAC has known that criminal charges were pending against the company since 2013. In August, 2013, Hardy R. Gold was the Deputy Attorney General BMFEA in the California Attorney General’s division when he provided a signed and publicly available affidavit in a civil complaint filed by AAC itself which nearly promised criminal charges against AAC. Speaking of the June 2010 death of Gary Benefield at one of the Forterus group homes, Gold said, “I anticipate criminal charges will be filed.” You can view Mr. Gold’s statement here on page 3 of the document.
AAC claims in the July 29th press release that “The Company is not currently aware of any evidence that the Company or any of the individuals charged were responsible for the resident’s death.” The civil lawsuit filed by Gary’s widow Kelly Benefield includes thousands of pages of signed declarations and depositions from numerous Forterus employees with firsthand knowledge of what happened to Mr. Benefield while in the care of AAC as well as affidavits from three different medical examiners who blamed AAC for Benefield’s death.
I have posted most of the key documents on Scribd.com which you can view on this site.
Perhaps most importantly, the July 29th press release says “we are just now having the opportunity to review this indictment.” But in fact, the indictment was issued Tuesday July 21st and Menz’s arraignment happened first thing Thursday morning California time.
|Case Number||Name||Filing Date||Charges||Next Hearing||Jurisdiction|
|SWF1501351||MENZ, JERROD NATHAN||07/21/2015||PC 368(B)(1)PC 187(A)||Arraignment07/29/2015 AT 8:30 AM DEPT. S204|
You don’t get notified you’re going to be arraigned for murder without being shown a copy of the indictment. The fact that AAC rescheduled its earnings call on Friday the 24th strongly suggests they knew about the indictment by then if not earlier.
These facts underscore the fact that AAC management is not to be trusted. Not many companies have a 25% shareholder that is being charged with murder. Not only being charged with murder, but being charged with murder because of the company’s standard operating procedure. It’s that bad.
Note: AAC IR has not returned any of my questions since my first article. I have attempted to get questions answered on numerous topics, but have not received any responses.