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rvlaw, Attorney
Category: Business Law
Satisfied Customers: 8386
Experience:  NYC Trial Attorney 30+ years; Law professor ; BUSINESS LAW; CONTRACTS; TORTS; Arbitrator
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Dispute related to: XXXXX XXXXX business purchase contract (fail

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Dispute related to: XXXXX XXXXX business purchase contract (fail to disclose critical info)
Misled/inflated revenue to allure buyer to sell business
Healthcare false claim
DEA (Drug enforcement agency) license violation
Arbitration clause in purchase contract


Business entity: Dental Inc
Owner: Dr. F – A licensed dentist who retired and not practice at Dental Inc.
Working contractors: Dr. C and Dr. D - both are licensed dentists who work at Dental Inc for Dr. F.

Dental Inc. is a dental clinic. About 90% of the patients treated by the dental clinic are in government Medicaid program. The dental clinic treats patients first, and then files claims (sending bills) to receive payment from the government’s Medicaid program.

The sole owner of the clinic, Dr. F is a retired dentist who does not practice at this clinic. He is an absentee owner for years. But he keeps his dental license and DEA(for prescribing controlled substance of pain management) license active.

Dr. C works as a contractor for owner Dr. F. Dr. C is paid on commission, a percentage of collected revenue from the patients he treated. Although Dr. C is a licensed dentist, he is not credentialed by the Medicaid program. In KY, in order to treat Medicaid patients and receive payment from Medicaid program, a doctor has to be credentialed and then assigned a medical provider identification number (PIN). According to the above Medicaid regulation, Dr. C cannot treat Medicaid patients and get paid. To get around this, Dr. F uses his own medical provider identification number (PIN) to bill Medicaid pretending he treats patients who were actually treated by Dr. C.

There is another issue. Normally dental doctors have DEA license allowing them to prescribe controlled substance for pain management. For example, if a patient needs to extract many teeth, he/she needs strong pain management medicines which are controlled substances that can only be prescribed by a doctor with DEA license. Dr. C does not have DEA license. In order to have Dr. C treat patients who need pain management medicine, Dr. F uses his DEA license to prescribe controlled substance for the patients of Dr. C. This practice had been done at least for a couple of years. Government Medicaid program paid some controlled substances under Dr. F’s prescription without knowing Dr. F actually does not work at the clinic.

Should the government Medicaid program know the above provider identification number (PIN) or the DEA issue, the program would not have paid the dental clinic.

After consultation of Medicaid program integrity and DEA office, it is clear that the above conducts by Dr. F violates program regulation and are considered as false claim and fraudulent billing. Dr. F also does the similar conduct at another clinic he owns (just sold recently).

The business dispute:
Dr. F sold Dental Inc. to a buyer. Dr. F failed to disclose false billing when buyer asked whether the business and doctor have the licenses, and the earnings are legitimate or not.
Dr. F presented net business profit of $120k to $360k through IRS tax filing. Based on that number, the government guarantee small business loan (SBA loan) provided financing to the buyer. Almost 40% of the above revenue reported to IRS is obtained through false billing to Medicaid program and violation of DEA license by Dr. F.

What the buyer tried:
After the business purchase is closed, the buyer discovered the Medicaid provider number issue of Dr. C. Dr. C then left the clinic and started to work at another clinic owned by Dr. F. The buyer also tried to hire other dentists to replace Dr. C but has not been successful in retaining them. By the way, in KY, the owner of dental clinic is not required to be a dentist. The buyer is not a dentist. The buyer will not and cannot in anyway to duplicate what Dr. F did (i.e. bill under different doctor’s name or prescribe controlled substance using another DEA license).

What the buyer is considering:
To bring legal settlement with Dr. F. But the business purchasing agreement has arbitration clause which requires buyer/seller to seek arbitration in the case of dispute.
But the arbitration just mentioned “any disputes go arbitration according to the rule of American Arbitration Association”. In particular, the clause does not mention “the arbitration must be held in KY”. LLC v. Chauvin, 274 S.W.3d 451 (Ky. 2009).

Other factor and questions the buyer need to clarify:

1) The case may need at least one of the dentist contractors (Dr. C or Dr. D), or the office manager/clerk to testify that Dr. F was an absentee owner who does not practice at the clinic. However, Dr. C or Dr. D may cite 5th amendment not testify for fearing being involved (i.e. they received Medicaid payment or revenue generated by DEA from Dr. F). Furthermore, the

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