Department of Justice Targets Fraud and Corruption within Substance Abuse Disorder Treatment Industry

Late last week, the U.S. Department of Justice announced criminal charges against 10 defendants for alleged kickback schemes at substance abuse disorder treatment facilities in Orange County. These charges are part of “The Sober Home Initiative”—a coordinated effort among federal and state law enforcement to investigate and prosecute fraud and corruption within licensed rehab and sober living facilities. In connection with the DOJ’s announcement, a lead prosecutor ominously told the Orange County Register, “This is the beginning, not the end.”

As alleged by the Justice Department, the newly-charged defendants associated with treatment facilities assigned values to patients based upon insurance coverage—values derived from the expected reimbursements the patients’ insurers would pay the respective facilities for providing treatment services. The DOJ further contends that the patient recruiters were paid kickbacks for each patient they referred.

Among the defendants are facility “controllers,” including an employee. As such, the Justice Department appears to be expanding its reach beyond facility owners. This is consistent with the broad language of EKRA, as well as California state law, both of which allow prosecution of any person or entity involved in alleged improper kickbacks. Consequently, facilities should be mindful of any actions their employees take that relate to marketing or attracting patients. Indeed, well-intentioned facilities should be on high alert if they suspect employees or independent contractors are violating EKRA or state law.

Another interesting development brought to light by way of the DOJ’s prosecution is that one of the alleged recruiters was also charged with possession with intent to distribute fentanyl, which is an entirely new—and dark—dimension to these cases.  The press release linked above also repeatedly uses the word “purported” with reference to treatment services rendered, suggesting that investigators are also focused on fraudulent billing in addition to body brokering.

As a testament to the strength and thoroughness of the government’s investigation, four of the 10 defendants have already pleaded guilty and are awaiting sentencing.  In fact, ongoing charges like these were anticipated in our previous reporting and discussed during our webinar last week titled, “Billing and Marketing In the Addiction Treatment Industry: Staying on the Right Side of the Law.”

We expect more cases like these as the federal and state governments coordinate their efforts and continue their intense scrutiny on the substance use disorder treatment industry. Those within the industry who seek advice on responding to criminal charges or investigations should contact Scott Tenley at [email protected] and Kelly Hagemann at [email protected].

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.