According to federal health and census data, addiction treatment is expected to be a $42 billion industry in 2020. It has doubled in size since 2003 when it was a $21 billion business. The opioid crisis has fueled the growth of the industry by increasing the demand for residential drug treatment programs and sober living homes. The industry has also become less fragmented in recent years with the infusion of capital from investors eager to consolidate web sites, call centers, rehabilitation facilities, drug-testing labs, and sober living homes under one corporate roof. Astronomical growth of an industry, however, often invites bad actors.
Bad actors have swarmed the residential drug treatment industry. One prominent example is Kenny Chatman, who ran several treatment centers and sober living homes in South Florida. His goal was not to help addicts become sober. Instead, his facilities encouraged drug use and prolonged treatment so that he could collect insurance reimbursements. Further, his centers ordered drug-addicted patients to provide urine samples for fictitious patients so that he could continue to collect insurance payments. In total, he collected at least $16 million in reimbursements from insurance companies for treatment that was never aimed at helping his patients overcome their addiction. In 2017, Chatman pled guilty to federal charges of health-care fraud, money laundering, and human trafficking. He was sentenced to twenty-seven years in prison. After the case, two hundred additional sober homes were shut down in Florida. But, that was just the tip of the iceberg. Indeed, the crackdown in Florida simply encouraged fraudulent treatment centers to relocate to other states.
Chatman was able to defraud patients and insurance companies due to insufficient regulation in the residential drug treatment industry. There is a lack of uniformity amongst the states concerning the accreditation and licensing requirements to open and maintain a residential drug rehabilitation facility. Some states have adopted the standards of care put forth by the National Alliance for Recovery Residences (NARR). Others have adopted standards put forth by the American Society of Addiction Medicine (ASAM). Nevertheless, there are still many states that do not have standards of care that govern the operation of residential drug treatment centers. Fraudulent treatment centers, like the ones run by Chatman, thrive in these states. It is very difficult for a consumer to know whether they are going to a legitimate treatment facility or a fraudulent one.
This Article deals with fraudulent practices in the residential drug treatment industry. It will principally focus on the two related issues of quality of care and patient brokering. With respect to quality of care, this Article will address fraud and overutilization as well as poor care. The Mental Health Parity Act and the Affordable Care Act expanded coverage for residential drug treatment. As with other medical expenses, insurance companies cover the costs of drug rehabilitation on a traditional fee-for-service basis. Relapses, which are a normal part of recovery, are also covered. Importantly, health insurance plans cover urinalysis to test for drugs as an essential service, with a very low deductible. Unfortunately, unethical treatment centers, like those run by Chatman, are not incentivized to provide cost efficient and effective care. To the contrary, their incentives are to drag out treatment for as long as possible and rack up insurance claims. Some treatment centers charge insurance companies $1,000 or more per drug test and test patients repeatedly to ensure a steady stream of income for the treatment center. This practice constitutes overutilization. Other treatment centers charge insurance companies for drug tests or other services that were never performed, which is fraud.