Arizona Medicaid fraud scheme: What we know

(NewsNation) — A class action lawsuit representing thousands of alleged victims accuses the state of Arizona of ignoring warning signs and failing to stop fake sober living homes. The homes allegedly exploited vulnerable people and were responsible for numerous deaths.

The lawsuit is tied to a group of bad actors who defrauded Arizona’s Medicaid system of an estimated $8 billion over the last seven years. They did so by exploiting a loophole in the American Indian Health Plan.

While arrests and charges have been made, victims and their families say it’s too little, too late, alleging state agencies knew about the fraud as early as 2019 after a whistleblower came forward.

So how did something this massive go on for so long?

What was the scheme?

Scammers were targeting eligible Native Americans after discovering a loophole in the American Indian Health Program, which is part of the Medicaid system. AIHP provides medically necessary services to enrolled members, including preventive and behavioral health care.

The scammers learned that registered providers can bill Medicaid directly for services, such as therapy sessions, addiction services or behavioral health treatment.

Once a scam provider was able to get an eligible patient into their fraudulent sober living homes, they’d start billing Medicaid for treatments the person would never receive. As they brought in more people, they were able to make more money. Some facilities were charging upwards of $8,000 a day.

Who was targeted?

The scam targeted Native Americans from tribal communities in Utah, Arizona, New Mexico and Montana, as well as North and South Dakota.

The scammers were allegedly recruiting, and in some cases kidnapping, vulnerable people with promises of free addiction treatment.

The Associated Press reports that as many as 7,000 Native Americans were recruited and scammed into moving into these fraudulent sober living homes in recent years.

How were patients recruited?

According to the National Indian Council on Aging, recruiters allegedly approached people who appeared to be addicts in a variety of locations, including gas stations, grocery store parking lots and even bus stops. They’d promise them food, shelter and addiction treatment.

There are even reports that some people were being picked up in unmarked vans in remote areas of the Navajo Nation and driven to these fraudulent facilities.

However, it wasn’t just people struggling with addiction these recruiters were seeking. Advocates say Native American elders who had no prior drug or alcohol addictions were being brought to these homes.

“It clearly is human trafficking, and not just a Medicaid fraud scheme,” attorney John Brewer told NewsNation’s Jesse Weber on July 15. Brewer and his law partner, Dane Wood, are representing the victims in the class action lawsuit.

Brewer says the victims were given drugs and alcohol and were lured to the fraudulent sober living homes with unkept promises of hope and sobriety.

What happened at the fake sober living homes?

Victims claim that as soon as they entered those homes, their phones were taken away, and they were effectively held prisoner by the scammers. Some say they were sexually assaulted and physically harmed.

Other victims have said they would arrive with an alcohol addiction, but left addicted to meth and fentanyl.

“These are programs … so-called sober living programs, they were just the opposite,” said Dane Wood. “They were feeding their addictions to control them with alcohol and drugs to keep them addicted so they could continue the billing for longer periods of time.”

Wood recalled one victim who allegedly had a blood alcohol level of 5.43.

“There’s more alcohol than blood in his bloodstream, and they dumped him in the street in front of a sober living home.”

Multiple reports of missing patients

There have also been multiple reports of people who have gone missing or even died under the care of these fraudulent facilities. Advocates and attorneys claim as many as 2,000 people may be missing or have died in connection to the scheme.

“Many of them are in unmarked graves that were never accounted for,” Wood said. “That’s just the stories we’ve heard have just been horrific.”

He noted victims sharing stories of people overdosing in the homes, and some people who were shot at while trying to escape.

What has happened since?

To date, Arizona‘s Attorney General Kris Mayes has indicted 280 people in the scam. Their charges range from unlicensed medical practices to money laundering and conspiracy to commit negligent homicide.

They claim their office has helped drive a 92% drop in fraudulent Medicaid billing since 2023. However, Wood says the convictions haven’t been tough enough, with only 400 fraudulent providers being suspended by the state.

“There’s convictions, mostly sweetheart plea deals,” he said, “and another is given probation for this. … You’re talking billions of dollars, thousands of people harmed, and there’s about three people in

prison for this.”

NewsNation’s Jesse Weber and the Associated Press contributed to this report.

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