Small Smiles Dental Lawsuit: Fraud, Settlements, and Shutdown

The Small Smiles dental lawsuits ended in two major payouts and the collapse of the chain: a $24 million federal False Claims Act settlement in 2010 over unnecessary Medicaid procedures on children, and a $43 million global civil settlement that resolved abuse and malpractice claims for more than 3,000 children nationwide. The company was excluded from Medicaid in 2014, filed for Chapter 7 liquidation in 2015, and no longer operates.¹²

What Small Smiles Was Accused of Doing

Small Smiles operated as many as 69 pediatric clinics in 22 states, treating an estimated 500,000 to one million children a year, nearly all of them on Medicaid.³ The complaints against the chain were consistent across whistleblowers, families, and federal investigators.

Children who came in for cleanings were allegedly “converted” into patients receiving pulpotomies (baby root canals), stainless steel crowns, extractions, and fillings that were not clinically justified. In some instances, up to 16 pulpotomies were performed on a single child in one sitting. Stainless steel crowns were reportedly favored over fillings because Medicaid reimbursed $214 for a crown versus $58 to $104 for a filling.⁴

Families also alleged that children were strapped to “papoose boards” during procedures, whether or not they were uncooperative, and that parents were barred from treatment rooms on the false claim that their presence would violate HIPAA.⁴⁵ Complaints described children urinating, vomiting, or sweating through their clothes while restrained, with staff instructed to clean them up before returning them to parents. Nitrous oxide was sometimes administered by dental assistants without a dentist present. Staff were pushed toward daily billing goals of $20,000 per clinic and received bonuses tied to procedure volume.

The $24 Million Federal Fraud Settlement

Three whistleblowers filed qui tam suits under the False Claims Act in federal courts in Maryland, Virginia, and South Carolina, alleging that FORBA Holdings had billed state Medicaid programs for medically unnecessary dental work on children.¹

On January 20, 2010, the Department of Justice announced that FORBA would pay $24 million plus interest to resolve the allegations. The federal government took about $14.3 million and state Medicaid programs shared roughly $9.7 million. The three whistleblowers collectively received more than $2.4 million from the federal share. FORBA did not admit wrongdoing.¹³

Why the Company Was Kicked Out of Medicaid

As part of the 2010 settlement, FORBA signed a five-year Corporate Integrity Agreement with the HHS Office of Inspector General requiring an independent quality monitor, staff training, reporting of serious quality-of-care events, and notification of state dental boards.⁶ The company, by then renamed Church Street Health Management (CSHM), failed to comply.

In March 2012, the OIG issued a Notice of Material Breach citing seven violations, including inaccurate dental records and a false compliance certification signed by CSHM’s own compliance officer. To avoid immediate exclusion, the company was forced to sell off its Manassas, Virginia clinic, the first time the OIG had used forced divestiture of a subsidiary to enforce a CIA.⁷ Additional penalties followed: $230,000 in 2011 and $100,000 in 2012.³

On March 7, 2014, the OIG issued a formal Notice of Exclusion. Inspector General Daniel R. Levinson announced on April 3, 2014, that CSHM had signed an Exclusion Agreement barring it from Medicare, Medicaid, and all federal health care programs for five years, effective September 30, 2014. CSHM waived its right to appeal.⁶⁸ For a chain whose revenue came almost entirely from Medicaid, the exclusion was fatal. CSHM filed for Chapter 7 liquidation in February 2015 with $73.3 million in debt and just $78,337 in assets across its 53 remaining clinics.⁹

The $43 Million Family Settlement

Families brought their own civil cases in parallel with the federal action. A class action, Parnell v. FORBA Holdings, LLC, was filed on January 25, 2010, in the Northern District of Ohio, alleging fraud, assault and battery, Ohio RICO violations, and intentional and negligent infliction of emotional distress. The complaint estimated that upwards of 300,000 children across 23 states may have been affected.⁴ Consolidated litigation in New York named DeRose family members and other executives on claims including battery, malpractice, negligence, and false advertising.¹⁰

Because the corporate entities were insolvent, the money had to come from insurers. National Union Fire Insurance Company of Pittsburgh initially fought coverage, filing a declaratory judgment action arguing it had no duty to defend claims rooted in fraud and intentional misconduct.¹¹²¹²

Under a court order, settlement funds were placed into a trust account for the affected children, with each child’s share held in an individual trust until they turned 18. The court-imposed deadline to file a claim was May 13, 2016.¹³ That deadline has passed. The settlement also had a lasting effect on the dentists themselves: Houston attorney Jim Moriarty, who chaired the Trustee Advisory Committee, said the deal eliminated medical malpractice insurance coverage for 333 dentists who had worked for the chain. “If they’re sued in the future, their insurance company will not be there to protect them,” Moriarty said.²

What Happened to the Dentists and Executives

No criminal charges against the DeRose family members appear in the public record. In the New York civil litigation, the appellate court in 2013 allowed battery and certain false advertising claims to proceed against Daniel E. DeRose, Michael A. DeRose, Edward J. DeRose, and others.¹⁰ Before the 2006 sale of the company, Michael DeRose had his dental license suspended in North Carolina in 2005 over allegations of employees performing unnecessary pulpotomies, and in 2004 the Colorado Board of Dental Examiners ordered him to stop hiring dentists not licensed in the state.¹⁴

At the clinic level, the OIG pursued individual dentists after the corporate exclusion. Dr. Robert E. Hackley Jr. was excluded from federal health care programs for three years, effective August 12, 2015, after the OIG found he had performed medically unnecessary procedures and provided substandard care at the Colorado Springs clinic.¹⁵ Dr. Howard Sheldon Schneider was excluded on September 30, 2015, after voluntarily relinquishing his Florida dental license following patient abuse allegations.¹⁶ Some other dentists who worked at Small Smiles clinics may still hold active licenses and practice elsewhere.¹⁷

The Company Is Gone

Small Smiles no longer exists. The chain’s parent company went through Chapter 11 in February 2012, restructured, and then filed for Chapter 7 liquidation in 2015 after the Medicaid exclusion took effect.¹⁸⁹ The $43 million settlement was the last major legal event for affected families, and its claim filing window closed on May 13, 2016.¹³ Families who believe a former Small Smiles dentist harmed their child can still bring individual malpractice claims against that dentist, but because the global settlement eliminated malpractice coverage for the 333 dentists who worked at the chain, any recovery would have to come from the dentist personally.²

1
U.S. Department of Justice. National Dental Management Company Pays $24 Million to Resolve Fraud Allegations
2
DrBicuspid.com. Small Smiles Agrees to $39M Settlement in Mistreatment Lawsuit
3
NBC News / Today. Dental Chain Accused of Hurting Kids, Bilking Taxpayers
4
Quackwatch. Parnell v. FORBA Holdings Class Action Complaint
5
ABC News. Small Smiles Dental Chain Investigation
6
HHS Office of Inspector General. OIG Excludes Pediatric Dental Management Chain From Participation in Federal Health Care Programs
7
Moriarty Law Firm. Skadden Document Regarding CSHM CIA Compliance
8
SLP Healthcare Update. Small Smiles Dental Centers Excluded as Federal Health Program Provider for 5 Years
9
DrBicuspid.com. Owner of Small Smiles Dental Clinics Files for Bankruptcy
10
NY Courts. Matter of Small Smiles Litigation, 2013 NY Slip Op 06219
11
Moriarty Law Firm. National Union Fire Insurance Company Declaratory Judgment Complaint
12
Charles E. Boyk Law Offices. Small Smiles Dental Abuse Settlement Helps to Bring Some Closure to Families
13
Charles E. Boyk Law Offices. Small Smiles Dental Abuse
14
DrBicuspid.com. Small Smiles Faces Another Lawsuit
15
HHS Office of Inspector General. Colorado Dentist Agrees to Voluntary Exclusion
16
U.S. Senate – Senator Grassley. Grassley Welcomes Exclusion of Two Pediatric Dentists From Federal Health Care Programs
17
Streamline Verify. What Happened to Small Smiles Dentists
18
Bloomberg. Church Street Health Management Files for Bankruptcy With Plan for Sale