In 2023, Arizona uncovered one of the largest behavioral health fraud schemes in the United States. The scheme targeted homeless individuals and/or Native Americans for fraudulent substance use treatment. Organizers of the scheme bribed victims by providing them housing in unlicensed “sober living” homes. They also enrolled victims into Arizona’s American Indian Health Program, even if they were not Native Americans. The victims were then sent to behavioral health treatment centers, not for the purpose of receiving proper treatment, but simply so that the treatment centers could bill for services to the Arizona Health Care Cost Containment System (AHCCCS). The fraud fell into two major categories: (1) fraudulent billings by behavioral health treatment providers and (2) patient brokering (referring patients to addiction treatment providers in exchange for payment).

The scheme generally involved managers of unregulated sober homes, patient brokers, substance use disorder treatment providers, and vulnerable individuals.1 For example, a treatment provider may pay a patient broker $150 for each patient that the broker referred to an AHCCCS-approved outpatient treatment facility. The treatment provider would pay the patient broker for the referral because the amount it would receive in reimbursements from AHCCCS for each patient far exceeded the broker fee. To attract patients, the patient broker would often target homeless individuals or Native Americans and transport them to live in “free” illegal sober homes. While the illegal sober home was free to the patient, the treatment provider paid the patient broker a sufficient amount such that it paid for both the referral as well as for the sober home, or it would directly pay the organizer of the sober home. Alcohol and substance use were rampant in the sober homes, and the treatment by the providers was often nonexistent, as the goal for many of the providers and organizers was not to provide rehabilitation services, but rather their own financial gain, according to the allegations.2 The behavioral health treatment provider, who was reimbursed by AHCCCS, often engaged in fraudulent billings including billing for excessive hours of services in a 24-hour period for a single member, providing for multiple services for the same member at the same time, billing for patients that were not present for services, or billing for medically unnecessary services.3

The scheme has had significant emotional, geographical, and financial impact. Some individuals that have been taken to these homes have been reported dead or missing, leaving their family members distraught. The scheme was far reaching and impacted citizens of multiple states including Florida, Minnesota, Montana, New Mexico, North Dakota, Oklahoma, and South Dakota. Certain tribes were significantly impacted, and the Navajo Nation and the Blackfeet tribe of Montana declared a public health emergency over the fraud.4 Further, this scheme may have cost the state of Arizona as much as one billion dollars.

Arizona has made great efforts to immediately gain control of this situation. It implemented a moratorium on the enrollment of Behavioral Health Outpatient Clinics, Integrated Clinics, Non-Emergency Medical Transportation, Community Services Agencies, and Behavioral Health Residential Facility providers for six months. The moratorium was set to expire last December, but Arizona has now extended it to June 8, 2024.5 It also eliminated the ability for a Medicaid member to switch enrollment from a Medicaid managed care health plan to the American Indian Health Program over the phone, as that promoted fraudulent enrollments.6 In addition, it hired a forensic auditor to review all claims by behavioral health treatment providers since 2019. Further, AHCCCS has accused more than 300 treatment providers of fraud and suspended their licenses and reimbursements.7 It also implemented emergency rules to enhance and expand AHCCCS authority to exclude providers affiliated with bad actors.8

AHCCCS also announced a “system overhaul” and took steps to make numerous long-term changes to its policies and procedures. For example, it now requires behavioral health providers to submit additional assessment, treatment plan, and medical records documentation with their claims. AHCCCS also now requires fee-for-service providers billing more than two units of hourly codes or four units of 15-minute codes on a single date of service to provide additional documentation9: Fingerprinting, onsite visits, background checks, and additional disclosures are being required by all new behavioral health provider registrants. 10 Further, it eliminated the ability for providers to bill on behalf of other providers. ll Finally, it set billing thresholds and imposed prepayment review based on the age of patients or for various scenarios including multiple providers billing the same client on the same day for similar services or billing excessive number of hours per day.l2

AHCCCS also plans to strengthen the agency’s ability to detect and prevent fraud by requiring visual attestation of individual billers and requiring third-party billers to disclose terms of compensation. In addition, it plans on hiring additional staff to ensure proper implementation of these changes and greater monitoring.

Unfortunately, behavioral health treatment providers engaging in fraud schemes is not limited to Arizona. In 2021, the Department of Justice (DOJ) prosecuted a series of cases in California relating to substance use disorder facility owners and patient recruiters who provided kickbacks for the referral of patients to substance use disorder treatment facilities, recovery homes, and laboratories.l3 Also in 2021, DOJ prosecuted and convicted two operators of addiction treatment facility operators in Florida for a $112 million scheme involving false billings and patient brokering.14 Further, in a nationwide takedown in 2020, DOJ charged more than a dozen individuals in connection with more than $845 million of allegedly false and fraudulent claims for tests and treatments.15 The subjects of the charges include physicians, owners and operators of substance use disorder treatment facilities, as well as patient recruiters.

Based on this history, states should use the Arizona matter as a case study, and they should consider a thorough review and assessment of their current policies and practices. Arizona is making programmatic changes in direct response to fraudulent practices in the addiction treatment industry, and other states can benefit from Arizona’s experience and deter similar schemes. As each state has its own rules and regulations, it must consider the effectiveness of its current regulations, policies, and practices, identify loopholes and gaps, and proactively address issues that may later cause the state great emotional and financial toll.

This article is brought to you by AHLA’s Behavioral Health Practice Group.

Copyright 2024, American Health Law Association, Washington, D.C., Reprint Permission Granted. AHLA ‘s Behavioral Health Practice Group thanks Jéna Grady (Nixon Peabody) for editing this article.

Reddy’ Rule #3:
Simply because a provider is getting reimbursed does not mean that the government believes that the provider’s actions were lawful or compliant. The statute of limitations for the federal government to bring an action under the False Claims Act (FCA) is six years from the FCA violation or three years from when the government knew or should have known the violation. Thus, the federal government has a lengthy period of time to bring a False Claims Act action, and providers should not relax their compliance or practices simply because they are not facing any immediate scrutiny for their billing.

Be well.

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