California hands Sequel a major setback

Sequel Youth & Family Services, the youth treatment company at the center of a recent APM Reports investigation, suffered a significant financial blow late last week when the state of California, one of its most loyal customers, announced it would no longer send children to the company’s facilities. 

The decision by officials at the California Department of Social Services came amid a difficult month for the company. Hours after the California decision was announced Friday, Sequel lost its license to run a lucrative residential treatment center in Ohio. The previous week, Washington announced it would stop sending children to Sequel facilities, joining three other states that cut ties with the company earlier in the year. 

With the closure in Ohio, the company now operates 28 residential treatment centers in 14 states. Sequel provides treatment to children with behavioral problems from the juvenile justice, foster care and mental health systems. Its facilities have served as a destination of last resort when states can’t find places for children in their home communities. As of 2019, the company said about a quarter of its residents crossed state lines for treatment.

The APM Reports investigation, published in September, found dozens of cases of abuse and neglect at Sequel facilities around the country. Government records documented physical violence, sexual assault, filthy conditions, and improper restraints that led to numerous injuries and one death. 

California vowed last week to bring home all its children living in out-of-state treatment centers. State officials said they decided to review their use of those centers following the death of Cornelius Fredrick Jr. The 16-year-old Michigan boy died in May after he was held down by staff at Sequel’s Lakeside Academy in Kalamazoo. 

Washington gave a similar rationale for launching its review of Sequel months after the incident. Both states were under pressure from youth advocacy organizations to sever ties with the company, amid growing public scrutiny and media coverage. 

Washington still has 13 kids living at residential treatment centers in other states. Five are at Sequel facilities. California has 116 children at out-of-state facilities. It has committed to bring them all home by the end of January. 

California’s Department of Social Services said a review of the 12 out-of-state institutions it certifies “found violations in all facilities, such as patterns of improper and/or unwarranted use of manual restraints, which are inconsistent with California licensure standards and are grounds for decertification.” 

Sequel did not respond to an interview request. 

“Sometimes, despite our best intentions, we do not live up to our high standards,” the company said in a statement to the San Francisco Chronicle, which published its own investigation into Sequel last week, contributing to the pressure on the state. “But there are also many, many successes at Sequel — and we will continue to find our purpose, energy and passion in the stories of those we will help, while working hard to improve in areas where we fall short.” 

California has been one of Sequel’s biggest customers over the years, though the company has no facilities there. The state has sent more than 1,000 children to Sequel facilities since 2014 — more than it sent to any other single provider. More than 40 percent of California children sent out of state for treatment during those years went to Sequel, according to state data. The steady flow of California kids came despite a state law requiring such providers to operate as nonprofits. 

Sequel is a for-profit company, but some of its facilities are owned by closely affiliated nonprofit organizations that hire Sequel to staff and operate them. The APM Reports investigation found the boards overseeing the nonprofits in Utah and Wyoming had multiple members with ties to the company, its executives or founders. 

California’s decision became public Friday. Just hours later, Ohio forced Sequel to relinquish its license to run a 74-bed residential treatment center there. Those beds have been vacant since July 28, a little more than a month after the state gave notice it wanted to revoke Sequel’s license. 

Ohio cited a litany of problems at Sequel Pomegranate, including a pair of riots in March, a Covid-19 outbreak in April and a rash of incidents throughout the spring that the state said indicated “seriously inadequate staff monitoring, supervision, and staffing levels.” 

The acute psychiatric wing has been vacant since February, a spokesman for the Department of Mental Health and Addiction Services said. The state threatened its license last year after a nurse slapped and punched a 14-year-old girl there while holding her down on the floor. 

It is the ninth facility that the company has closed in the past two years, often under pressure from state regulators.

The financial impact on Sequel of Ohio and California’s actions could be significant. Sequel acquired Ohio’s Pomegranate Health Systems in 2016 amid an unsuccessful bid to go public. At the time, Pomegranate was one of the biggest revenue generators in the company’s portfolio, pulling in more than $19 million in the previous year, according to a presentation to potential investors in 2017. The company reported overall revenues of $238 million over the same period. 

California was also a major source of revenue for the company. In the 2017 presentation, the company said it earned $17 million from state agencies there the previous year. Only Iowa, where Sequel was founded, and Florida, where almost one-third of its facilities are located, paid Sequel more that year. 

As troubling reports about Sequel emerged in recent years, California remained a faithful customer. In 2018, Disability Rights Washington published a scathing report on Sequel’s Clarinda Academy in Iowa, raising concerns about the treatment program and the use of physical restraints. In response, Washington state stopped using the facility, though it continued to send foster children to other Sequel programs. 

The number of residents at Clarinda Academy plummeted over the next two years from 192 to just 55 as of September. Ten of those remaining residents were from California. 

At the time, California’s Department of Social Services gave no indication it was contemplating bringing its children home. In response to questions from APM Reports in late August, the department noted that the company’s facilities in Iowa remained in good standing with state regulators there. 

The states’ actions likely would not have happened without the heightened media attention Sequel has received over the past two years. In addition to APM Reports’ national investigation, local media including the San Francisco Chronicle, Investigate West in Seattle and 10TV in Columbus published extensive coverage of the company, putting pressure on regulators to hold Sequel accountable.

“This was a victory,” said Jennifer Rodriguez, executive director of the San Francisco-based Youth Law Center, which has been pushing California for years to end the practice of sending children to other states for treatment. “But this is not over.” 

Rodriguez said her organization is monitoring what happens to the children once they return to California. The goal, she said, should be to place them with families and not in large institutions.