Plaintiff wants the court to freeze $8M it’s owed; ARC says doing so will disrupt its health care services
Addiction Recovery Care, once Kentucky’s fastest growing addiction treatment company, has had to close facilities and lay off employees amid reports of an FBI investigation into its business. (Kentucky Lantern photo by Matthew Mueller)
Addiction Recovery Care, or ARC, Kentucky’s largest provider of addiction treatment, has been hit by a federal lawsuit in New York, alleging it committed “massive fraud” in Medicaid and Medicare billing and is now scrambling to raise nearly $28 million for a civil settlement with the federal government.
The allegations are included in a lawsuit by Angelica Capital Trust against ARC and its owners Tim Robinson and his wife Lelia, of Louisa, claiming the company advanced ARC $8 million which ARC failed to repay as promised.
“ARC is wrongfully withholding this money because it is in desperate straits,” said the lawsuit filed Jan. 12 in U.S. District Court for the Southern District of New York.
It asks the court to freeze the funds it says ARC owes Angelica, incorporated in Delaware and based in the Bahamas. It also alleges ARC has threatened bankruptcy to avoid being forced to repay the money.
An ARC spokeswoman did not immediately respond to a request for comment. In a reply to the lawsuit, ARC and the Robinsons ask the court not to freeze the money, saying it would “disrupt the crucial health care services ARC provides to hundreds of patients.”
It does not mention the fraud allegations or the pending $27.7 settlement with the U.S. Department of Justice, as claimed in Angelica’s lawsuit.
But Angelica’s lawsuit claims that the federal fraud investigation began after certain parties in 2023 filed a federal “qui tam,” or whistleblower suit alleging fraud on the part of ARC. Such lawsuits typically are filed under seal while the government investigates.
The FBI has said as recently as this month an investigation of ARC is ongoing.
ARC, once Kentucky’s fastest growing addiction treatment company, has foundered in recent months amid reports of the FBI investigation into possible health care fraud and financial problems that have forced it to close facilities and lay off employees.
In October, ARC announced it had reached an agreement to sell the company to Ethema Health Corp. of Florida, but on Dec. 31, announced the deal had fallen through.
The potential sale was what prompted ARC to seek the $8 million from Angelica, its lawsuit claims. ARC wanted the money to improve its ability to sell the company, the lawsuit states.
So ARC entered into a contract with Angelica in which the trust firm agreed to buy from ARC about $8 million worth of tax credits ARC expected to receive from the IRS. The purpose was for ARC “to get cash quickly” to make it look better to the potential buyer. In turn, ARC would repay Angelica when it received the funds from the IRS, according to the lawsuit.
ARC received the $8 million from the IRS on Dec, 2, but ongoing efforts by Angelica to collect the money failed, and by mid-December, ARC told Angelica its deal to sell the company had failed and it was attempting to negotiate a sale with a new buyer, the lawsuit states.
On Dec, 30, ARC lawyer Jessica Burke said ARC hoped to close a deal with a new buyer by Jan. 31, and also “threatened that ARC would declare bankruptcy” if Angelica didn’t agree to a delay in repayment, according to the lawsuit.
By early January, “it was clear that ARC was playing a shell game of some sort,” the lawsuit states.
Online federal court records show a judge held a hearing Jan. 21 on Angelica’s request for a temporary injunction to bar ARC from “misappropriating” any of the trust company’s funds but do not show the judge has entered a ruling.
