Embattled Firm Accretive Tied to Debt Collection Arbitration Scandal

The chairman of medical revenue cycle management and ARM firm Accretive Health was an investor in the National Arbitration Forum (NAF), a company that was forced to abandon consumer debt arbitration cases after a scandal involving lopsided results in credit card debt collection cases.

J. Michael Cline is the managing director of Accretive, LLC, a New York-based private equity firm founded in 1999. In 2003, the firm teamed up with another investor to create the predecessor company of Accretive Health, Inc., the company now embroiled in controversy over its debt collection and billing practices in hospitals. Cline has served as Accretive Health’s chairman since 2009.

In 2006, Accretive, LLC invested in NAF, the nation’s largest consumer debt arbitration body.  According to an October 15, 2009, Wall Street Journal article, by utilizing a strategy of expanding arbitration into the realm of disputes between hospitals and patients, Cline believed consumer debt arbitration could become a multi-billion dollar business.

In 2007, the private equity firm rolled the non-legal business of several large legal collection firms into one, Axiant LLC. Axiant was a part of the arbitration award collection model.

The business plan started to unravel in September 2009 when the law firm of Milberg LLP filed a class action lawsuit in the United States District Court for the Central District of California on behalf of all persons who used NAF’s arbitration services since June 1, 2006.

The complaint alleged that NAF, Mann Bracken, LLP, Accretive LLC, Axiant, and other firms falsely held NAF out to be independent and unaffiliated with any persons or entities within or outside the collections industry and falsely presented its arbitration services as neutral. According to the complaint, “Mann Bracken is a law firm that claims to specialize in consumer debt collection matters, but is a debt collector in its own right. NAF and Mann Bracken are both owned by Defendant Accretive who owns and controls both NAF and Mann Bracken, and their related entities.”

In the wake of the lawsuit and subsequent investigations from law enforcement officials, NAF was forced out of the consumer debt arbitration business, Mann Bracken closed down, and Axiant filed for bankruptcy protection and was to be acquired by NCO Group before the ARM giant backed out of the deal. Large banks, such as Bank of America, were later forced to abandon some arbitration awards from NAF.

In a statement to the Chicago Tribune, Accretive LLC said, “We are proud of our role in co-founding the company [Accretive Health] in 2003 and helping to build it over a period of years. We remain very impressed with the results that Accretive Health generates for healthcare providers and patients — identifying coverage for the uninsured and improving quality of care, while strengthening providers’ efficiency and financial stability.”

Cline’s company is not principally focused on the ARM industry. In fact, it was Accretive LLC that helped launch online movie ticket portal Fandango in 2000.