3 years after sober living scandal rocked Arizona, Medicaid fraud is still happening

It’s been nearly three years since Arizona’s state government was rocked by a massive Medicaid fraud scandal that cost an unprecedented $2.5 billion — and left countless Indigenous people without the help they need.

And now, after criminal investigations, lawsuits, policy changes and more, Jasmine Demers — an investigative reporter for the Arizona Center for Investigative Reporting — found the fraud continues.

Demers spoke more about it with The Show.

Jasmine Demers

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Full conversation

JASMINE DEMERS: It's been nearly three years now since the state sort of acknowledged that this fraud was happening. And they say that the crisis has really stabilized and that investigations have dropped significantly, but that there are still recruitment tactics going on and that the billing practices that were happening before are still happening, just at a smaller scale.

So according to state data, those fraud investigations have dropped from about 1,400 at the peak of the fraud in 2023 to around 270 cases as of August of last year. But that's still a significant amount for the people who are being harmed. And that's still hundreds of cases more than it was before the fraud started, prior to 2019.

LAUREN GILGER: So back up, Jasmine, for a moment and remind us how these fraud schemes worked. Like, you've basically got sham providers luring patients into treatment programs, mostly Native Americans, and then billing the state's Medicaid arm for it and for services they never provided.

DEMERS: Yes, absolutely. So this was starting in around 2019, and it was hundreds of behavioral health providers who were sober living home operators that began exploiting gaps in the system. And that was particularly within the American Indian Health Program. So recruiters would specifically target Native Americans struggling with substance use, and they would promise them treatment and housing and transportation. But in many cases, those services either weren't being provided or were extremely minimal.

And at the same time, providers were billing Medicaid for intensive behavioral health services that often did not happen. So because of weak oversight and billing controls at the time, the system paid out billions of dollars before the fraud was actually fully recognized in 2023.

GILGER: Right, right. And people died because of this. And like you said, it's to the tune of billions of dollars. There was swift reaction when this all came to light a few years ago. As you're pointing out, a criminal investigation by the attorney general in the state, a class action lawsuit is underway from the victims.

There have been a series of reforms announced at the state level. What does the state have to say about the fact that this is still going on even though all of these things have happened?

DEMERS: Right now there's lots of oversight hearings going on. So since August, there's been about four of these oversight hearings at the state Legislature under the Senate Health and Human Services Committee. And it was at one of these hearings where a senior leader at AHCCCS pointed out that we're not completely out of the woods. We are still still being billed for fraudulent services. We know that recruitment is still happening.

So they recognized that during those committee hearings. But then in responses to our newsroom via the public information officer, they sort of glossed over that and basically said that the fraud that proliferated during the previous administration had effectively ended.

But based on the numbers and based on what was said during some of these committee hearings, we know that that's not true.

GILGER: So at the same time, you've got this other kind of problem, this almost mirrored problem, which is that real providers who are doing real work for this community say they can't get paid out now for their legitimate services.

DEMERS: Yeah, absolutely. So the state's crackdown, which at the time they were sort of applauded for — they shut down a bunch of facilities, suspended a ton of providers and tried to stop the fraud in that way. But that sort of led to a lot of other problems. There were a lot of legitimate treatment providers who say that they have been really mixed up in the fraud crackdown.

They have been suspended themselves. They've experienced delays in reimbursements. And a lot of these providers say that it's forced them to reduce services or treat patients without being paid altogether.

And that's really concerning because it creates this sort of cycle, right? It's making it so that those people can't get the support and help that they need. So it's really creating an access of care issue on top of sort of retraumatizing a community that has already been traumatized by the fraud itself.

GILGER: Let me ask you lastly, Jasmine, about the attempts from state lawmakers — and there are many — to try to fix these issues. As you mentioned, there have been hearings on this, state lawmakers trying to get to the bottom of how to address these systemic issues. What are some of the legislative proposals on the table?

DEMERS: Yeah, so after they've held these oversight hearings, lawmakers — and particularly Sen. Carine Werner (R-Scottsdale) — has come forward with several bills. I think there's eight or nine of them aimed at restructuring how our state oversees behavioral health care.

One of the biggest proposals would be to shift the administration of the American Indian Health Program to an outside managed care organization. AHCCCS would technically still have oversight power over that, but the day-to-day administrative work would be left to a managed care organization.

And that would be a very significant shift. Other states in the country have done this. There's not very many that have done it, but it's been done. This obviously requires some significant input from tribal communities as well as state leaders.

So things could definitely change as they debate this bill this session, but it would be a pretty significant shift.

GILGER: And what does the state have to say about proposals like that? Are they commenting?

DEMERS: The state has told me that they were sent the bill ahead of its announcement at the Senate committee hearing. However, they have concerns. They say that it would cost quite a bit to implement. And then also they have concerns about the timeline of the implementation of the bill.

So this would be an emergency measure as it's written now at least. So AHCCCS would have a very limited amount of time to get feedback from the federal Medicaid agency as well as tribal partners. So I think that's their biggest concern right now. It doesn't seem like they're super on board with it.