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Arizona Medicaid agency's anti-fraud protections raise new concerns from lawmakers

By Camryn Sanchez
Published: Tuesday, March 12, 2024 - 5:05am
Updated: Tuesday, March 12, 2024 - 7:32am

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Arizona’s Medicaid agency is struggling to claw back hundreds of millions of dollars doled out to fraudulent sober living homes. 

But one lawmaker says he’s concerned the agency’s attempts to root out bad actors has caught up legitimate businesses.

Since at least 2019, criminals operating fraudulent sober living homes, mostly in the Phoenix area, targeted vulnerable Indigenous Arizonans in a scheme to defraud the Arizona Health Care Cost Containment System, Arizona’s Medicaid program. They signed up patients, billed the state for mental health treatment and addiction rehabilitation, then held patients — in some cases against their will — in facilities without providing treatment. 

There have been several reports that patients died in those facilities, like this one cited in a Fox10 story.

“I mean, some of the things that we've found when we did search warrants at the homes of some of these fraudsters were unbelievable,” Arizona Attorney General Kris Mayes said in December.

Woman in yellow shirt and blazer speaks into microphones
Howard Fischer/Capitol Media Services
Kris Mayes on Thursday, Feb. 29, 2024.

She added that recovering the massive amounts of money shelled out to bad actors, an estimated $1.5 billion to $2.5 billion or more, according to AHCCCS, has been a struggle.

“Very expensive cars, very expensive homes, closets full of very expensive shoes that I'd never heard of before. In some cases the state and taxpayers were defrauded out of millions of dollars by a single person,” Mayes said.

To date, the Attorney General’s Office has only recovered about $91 million, and that money is stuck in a frozen fund while litigation against those running fake rehab centers plays out. 

Eventually, money will be returned to the federal and state governments. Arizona Attorney General Criminal Division Chief Nicholas Klingerman suggested some will also be sent to the tribal communities most impacted by the schemes. 

“We have been setting aside a portion of that money, and we’re able to do that under our RICO statutes, to remediate the harm from racketeering, and what we've been looking at is an opportunity to work with our tribal partners across the state to return some of that money to them to provide services in their communities.” Klingerman told lawmakers in January.

AHCCCS officials say they’ve implemented several new policies to root out fraud, including a moratorium on approving new providers and suspensions for several existing operations.

Gov. Katie Hobbs’s proposed budget also includes enough funding to hire 202 new AHCCCS employees. The additional staff are intended to help the agency investigate fraud while still maintaining their normal operations.

Tom Salow headshot
Arizona Department of Health Services
Tom Salow is the assistant director of licensing and policy for the Arizona Department of Health Services.

Tom Salow is the assistant director of the Arizona Department of Health Services. At a recent legislative hearing, he estimated that the new AHCCCS and DHS practices have saved the state $200,000,000.

But Salow says state lawmakers can still provide stronger penalties to enforce the laws already on the books. For example, DHS is only able to charge health facilities $500 per incident, like if they discover liquor bottles on the premises of a sober living home. 

Salow said that’s not enough of a disincentive to curb fraud. And the agency struggles to force licensees to pay up when fined.

“Some of our current licensees have outstanding balances,” Salow told lawmakers.

Legislation has been introduced at the state Capitol to increase those fines, and require that licensees pay fines before getting their licenses renewed.

But for some, the changes AHCCCS has already made are a cause for concern.   

Matt Gress at podium
Howard Fischer/Capitol Media Services
Arizona state Rep. Matt Gress (center).

Republican Rep. Matt Gress says he’s worried policies targeting bad actors, like a moratorium on new licensees, will force some “good actors” into bankruptcy and displace Arizonans in need of care.

Gress says that could lead to an increase in the state’s homeless population.

“Our state is now facing a tsunami of misery if state government doesn't recalibrate its approach,” Gress said.

But AHCCCS Deputy Director Carmen Heredia said the agency has only suspended about one third of one percent of all providers. 

“We don’t feel that we’ve caused an access to care issue,” Heredia said in response to Gress’ comments.

But Gress said that following the hearing he’s heard from several more care providers who say they’ve been affected by policies intended to crack down on fraud.

“I've received a number of different providers who are on the suspension list, who have reached out to me. Saying that they have not been given  the evidence, or they've been asked questions or asked for documents, they've supplied them, and then there's been a period of radio silence,” Gress said.

He said he’s actively requesting more details from AHCCCS, and hasn’t specified what sort of legislative action he wants to take regarding the agency.

As for AHCCCS, the agency extended its moratorium on approving new providers in December.

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