MINNEAPOLIS — Recently filed tax records for Refocus Recovery have brought new revelations and raise critical questions about the ties between the Minneapolis nonprofit and its for-profit partner company, Kyros.
Both entities were founded by Daniel Larson and both are currently under state investigation for alleged Medicaid billing irregularities first exposed in a KARE 11 investigation.
The new tax records show nearly all the nonprofit’s revenue in 2022 ending up in the for-profit company’s coffers. A former federal prosecutor tells KARE 11 that raises “red flags” about how tax money is being used.
KARE 11’s investigation uncovered evidence suggesting that Kyros, through Refocus Recovery, billed taxpayers for addiction recovery services that were never provided. The records – and interviews with former clients and staff – also exposed questionable practices such as group billing, billing for watching movies, and billing for unauthorized phone calls – possible violations of state and federal laws.
LEGAL RESTRICTIONS
Under the law, for-profit companies like Kyros cannot bill Medicaid directly for what are known as peer recovery services – where people in recovery are paid to help mentor others battling addiction.
The nonprofit Refocus Recovery can bill the taxpayer-funded program. So, records show the nonprofit founded by Larson has hired his for-profit company to provide the peer services.
Although Kyros says the organizations operate independently, critics – including a prominent national organization – have questioned whether Refocus is using its nonprofit status to effectively serve as a pass-through for millions of taxpayer dollars to profit-making Kyros.
Kyros, meanwhile, bragged to investors it projected making nearly $30 million in gross profit by the end of this year through Medicaid billings, according to a copy of an “Investment Overview” obtained by KARE 11.
SEEKING ANSWERS
Refocus Recovery was, until late January, led by Blaine Mayor and former longtime state legislator Tim Sanders.
Secretary of State filings list Sanders as the president of Refocus and the nonprofit’s website listed him as executive director.
Sanders has for months deflected questions about the questionable Medicaid billing practices and did not respond to questions when approached by KARE 11 at a recent Blaine City Council meeting.
Tax records for nonprofits are public, but there’s a delay in filing and posting them. Refocus Recovery’s 2022 filings, signed by Sanders, recently became available and raise new questions about its relationship with Kyros.
RED FLAGS
“As a former federal prosecutor, there were a number of red flags that jumped out to me,” said attorney Doug Kelley.
KARE 11 asked Kelley, the former head of the U.S Attorney’s white collar crime section in Minnesota, to review Refocus Recovery’s 990 tax form.
He says the tax filing raises serious questions about the interlocking roles of Daniel Larson. He not only founded both Kyros and Refocus Recovery, but the tax records also say he owned “greater than 35%” of Kyros during 2022.
Although the Refocus filing says Larson did not participate in the vote to hire his for-profit company Kyros, Larson served on the nonprofit’s board of directors, and for several months of 2022, was also the acting executive director.
The filing reveals that more than 96% of the nonprofit’s revenue in 2022 went to subsidiaries of Larson’s for-profit company.
Refocus reported taking in $4.7 million – and then paying $4.5 million to two Kyros subsidiaries, Kyros Services, LLC and Kyros Staffing, LLC.
Even though the payments were reportedly made in 2022, Secretary of State records in both Minnesota and Delaware show neither Kyros subsidiary was properly registered until 2023.
“If it turns out that the nonprofit is a mere shell corporation to get the money into a for-profit, that’s a huge red flag,” said Kelley. “And I think that’s the main red flag here that everybody should be scrutinizing carefully.”
Kelley also said the filings may raise eyebrows at the IRS which has strict rules banning charitable organizations from operating for the inurement or benefit of private interests.
“The case law says when you’re looking at these kind of things on inurement or private benefit, the ultimate test is the reality of control,” explained Kelley. “Who is actually in charge of the corporation?”
In response to questions by KARE 11 about why the nonprofit appeared to be violating the IRS ban on private inurement, Refocus Recovery attorney Kimberly Lowe responded, “The concept of private inurement is a legal term for a determination of either a court of law or a governmental agency that has oversight. Your question assumes a legal conclusion.”
PRIOR RED FLAGS
It’s not the first time questions have been raised about who controls Refocus Recovery.
To participate in Minnesota’s peer service payment system, the state typically requires organizations like Refocus to meet accreditation standards.
The most common standards are set by the Alliance for Recovery Centered Organizations, or ARCO, a program run by a nonprofit based in Washington, D.C.
Refocus applied for accreditation in 2021, and ARCO granted it.
But a year later, ARCO was tipped about Refocus’ relationship with Kyros.
In July 2022, a few months after taking over from Larson as Refocus’ executive director, Blaine Mayor Tim Sanders received a letter from ARCO stating the nonprofit was being decertified.
The letter explaining the decision cited, “concerns around the business practices of Refocus Recovery; undue influence on Refocus Recovery by Kyros, a for-profit entity; and autonomy of Refocus Recovery from Kyros.”
As examples of those concerns, ARCO pointed out that in addition to Daniel Larson’s overlapping roles, two other board members were employed by Kyros and at least one staff member worked for both entities, which also share the same address.
The decision threatened to prevent Refocus from billing Medicaid – and to disrupt Kyros’ multi-million-dollar business model.
Records show Refocus appealed directly to DHS Commissioner Jodi Harpstead.
Two months later, on Sept. 16, 2022, Commissioner Harpstead sent a letter to a lawyer representing Refocus and Kyros, former Minnesota judge and U.S. Attorney Erica MacDonald, granting certification for Refocus to keep on billing Medicaid.
DHS never addressed the organizational red flags raised by ARCO but encouraged Refocus Recovery to enhance its policies and procedures by obtaining 501(C)(3) status, making its calendar of events public, formalizing a diversity, equity, and inclusion plan, and using more recovery-friendly language in its literature.
NEW INVESTIGATION
Just months later, in November 2022, DHS’s Office of Inspector General began receiving complaints that Refocus Recovery was improperly billing “in groups” and “for peer recovery services that are not occurring.”
The agency then conducted an investigation so cursory it later led Senator Jim Abeler (R-Anoka) to say DHS appeared “asleep at the wheel.”
Records obtained by KARE 11 through a public records request raise additional questions about whether Refocus Recovery and Kyros are truly independent.
When a DHS investigator looked into complaints about Refocus in 2023, records show he received a reply from Kyros employee Jason Lennox. The company’s website lists him as the vice president of revenue operations for Kyros.
In August of 2023, DHS closed its investigation after agreeing to a settlement of just $850.
In a February 2024 joint legislative hearing called in response to KARE 11’s on-going investigation, DHS Inspector General Kulani Moti told state lawmakers there’s now once again an active investigation into both Kyros and Refocus Recovery.
Sources have confirmed to KARE 11 that the Minnesota Attorney General’s Office also has open investigations.
THE MAYOR
Tim Sanders has repeatedly declined KARE 11’s interview requests to discuss the allegations of potentially fraudulent Medicaid billing on his watch and the questions raised by the tax records he signed.
Instead of responding to questions or agreeing to an interview, he emailed a statement that says, “On January 30, 2024, I voluntarily left my role as the executive director of Refocus Recovery, as other opportunities I have pursued require more attention. I care deeply about Refocus Recovery's mission and the people it works to support, and I will be forever thankful for the opportunity to improve people's lives.”
When approached by KARE 11 outside a public Blaine City Council meeting to ask what he knew about the suspicious Medicaid billing and when he knew it, Mayor Sanders responded, “I already sent you a statement, I already sent you a statement.”
Daniel Larson and Kyros did not respond to questions about the Refocus tax records.
Kimberly Lowe, the attorney for Refocus Recovery wrote in an email, “… if any claims for reimbursement are found to have been made in error, any such funds received will be refunded to the payors. I appreciate this answer doesn’t exactly give you what you want given your style of reporting.”
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