Federal Trade Commission Penalizes For-Profit Medical School

The federal agency says Saint James School of Medicine lured medical students with deceptive marketing practices.

Citing deceptive marketing practices and violations of credit law, the Federal Trade Commission (FTC) has levied a $1.2 million penalty against a for-profit medical school in the Caribbean that is based in Illinois.

Saint James School of Medicine (SJSM) operates two Caribbean campuses: one in Anguilla and one in St. Vincent. The medical school also does business as Human Resource Development Services Inc. (HRDS), which has headquarters in Park Ridge, Illinois. A complaint filed recently in U.S. District Court names HRDS and Delta Financial Solutions Inc., which is affiliated with HRDS and shares the same headquarters, as "corporate defendants." Kaushik Guha, MBA, executive vice president of operations at HRDS, was also named as a defendant.

The $1.2 million penalty will go toward refunds and debt cancellation for students harmed by deceptive marketing, the FTC reported in a prepared statement.

The complaint features three primary allegations, the FTC prepared statement says:

• The defendants misrepresented the pass rate of SJSM students on a key medical exam: "They lured consumers with false guarantees of student success at passing a critical medical school standardized test, the United States Medical Licensing Examination Step 1 Exam. In their sales calls, presentations, and marketing materials, the defendants falsely claimed that the first time USMLE Step 1 pass rate for Saint James students was very high. For example, the defendants distributed a brochure at their open houses that stated: '96.77% FIRST TIME USMLE STEP 1 PASS RATE.' … Since 2017, only 35% of Saint James students who have completed the necessary coursework to take the USMLE Step 1 exam passed the test."
   
• The defendants misrepresented the residency match rate of SJSM students: "The defendants touted Saint James students' residency match rates and advertised the Saint James educational opportunities as 'the same' as American medical schools. For example, their telemarketers were instructed to tell consumers the match rate for Saint James students is 85-95%. … The defendants have also stated on their website that the residency match rate for Saint James students was 83%; in reality, the match rate for Saint James students is lower than touted, and lower than that reported by U.S. medical schools. Since 2018, the defendants' average match rate has been 63%.
   
• The defendants used illegal credit contracts: "The defendants also marketed financing for tuition and living expenses used for attending their classes. The financing contracts contained language attempting to waive consumers' rights under federal law and omit legally mandated disclosures. Specifically, the defendants failed to provide a Holder Rule notice in their credit agreements, which requires that any seller that receives the proceeds of a purchase money loan include, in the underlying credit contract, a specific notice informing the consumer of their right to assert claims against any holder of the credit contract. The defendants also failed to provide a [Credit Practices Rule] disclosure in their credit agreements, which requires creditors to inform cosigners of their liability prior to obligating the cosigner, in a separate document using specific language."

Medical school's response to penalty

HRDS felt compelled to settle the case, Guha said in a prepared statement.

"We have chosen to settle with the FTC over its allegations that disclosures on our website and in Delta's loan agreements were insufficient. While we strongly disagree with the FTC's approach to this matter, we did not want a lengthy legal process to distract from our mission of providing a quality medical education at an affordable cost. However, we have added additional language and clarifications any time the USMLE pass rate and placement rates are mentioned. We are committed to being an industry leader for transparency and accountability and hope that our efforts will lead to lasting change throughout the for-profit education industry," he said.

Guha said SJSM provides value to students, many of whom who otherwise could not afford a medical education.

"Saint James School of Medicine will continue to provide a high-quality medical education at a tremendous value, opening the door to a medical career to students who would otherwise find it impossible to become a doctor. Over 600 of our alumni are serving as licensed physicians in communities across the United States and Canada. Many are working to bridge the health equity gap in underserved areas in North America," he said.

Tuition at SJSM is relatively affordable, according to the FTC complaint. "Defendants charge consumers tuition ranging from about $6,650 to $9,859 per trimester (depending on campus and course study). Between 2016 and 2020, Defendants have had approximately 1,300 students enrolled in their schools each year."

Saint James has an ethnically diverse student population, which includes many U.S. citizens, the FTC complaint says. "Defendants market enrollment at their Caribbean medical schools primarily to consumers from the United States; they state that 68.64% of the student body are American citizens. SJSM brochures provide a demographic breakdown of the student body and state that 60% of SJSM students are African American, Asian, or Hispanic or Latino."

Related: Medical Schools Failing to Increase Representation of Minority Groups