Arizona Cracked Down on Medicaid Fraud That Targeted Native Americans. It Left Patients Without Care.

 by Hannah Bassett, Arizona Center for Investigative Reporting, and Mary Hudetz, ProPublica, photography by Adriana Zehbrauskas, special to ProPublica

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Reporting Highlights

• A Medicaid Crisis: A probe of substance treatment programs prompted Arizona authorities to end contracts with hundreds of clinics. This, in turn, left some patients without treatment.
• Unsheltered Patients: Data from a state hotline for displaced patients shows more than 575 callers ended up unsheltered, which further increased their chances of relapse or even death.
• Providers’ Struggles: Some clinics that were eventually cleared by the state tried to continue treating patients without compensation but said it pushed them to the brink financially.

These highlights were written by the reporters and editors who worked on this story.

Before her fifth birthday, Rainy had experienced a lifetime of trauma. As an infant, she witnessed violence at home before child welfare authorities intervened and her parents were incarcerated. Night terrors followed. Then, she endured the death of her great uncle who had taken on the role of dad.

She didn’t speak until she was nearly 5. Any separation from her great aunt-turned-adoptive mother, Lisa Enas, triggered panic attacks, and reminders of her great uncle’s death left her nearly inconsolable.

With counseling, however, Rainy, now age 7, with a long, thick braid and a bright smile, grew more joyful and independent. She could hold conversations and spend time away from Enas without panicking. She was selected for her school’s gifted and talented program. Home life on the Gila River Indian Community in Arizona, where her bedroom walls were lined with stuffed animals and family photos, steadied.

But that progress came to a halt last October, after a spiraling Medicaid scandal that targeted thousands of Native Americans exploded into public view.

Arizona officials announced they were investigating a massive fraud scheme in which people had been lured into fake substance abuse treatment programs, where providers exorbitantly billed Medicaid for treatments they did not deliver. Some were alleged to have kidnapped patients and held them against their will. The fraud has cost the state as much as $2.5 billion since 2019, state officials said.

In response, the Arizona Health Care Cost Containment System, or AHCCCS, terminated contracts with scores of facilities as authorities investigated them. The agency also swiftly suspended Medicaid reimbursements to hundreds of other providers that it accused mostly of overbilling or paperwork errors. Among those suspended was Desert Rain Behavioral Health Services, the Tempe provider that was treating Rainy and 260 other patients, all insured by the state Medicaid agency’s American Indian Health Program.

AHCCCS accused Desert Rain of overbilling and failing to have the license needed to treat children — allegations that the clinic would eventually resolve, but not before its ability to care for patients was disrupted.

When AHCCCS launched its investigation, officials said their top priority was the safety of patients like Rainy. Yet even as the agency says it considered whether people would lose behavioral health services before it took action, its efforts left hundreds without treatment or counseling, the Arizona Center for Investigative Reporting and ProPublica have found.

The agency told the very behavioral health providers it accused of fraud that it was their responsibility to ensure patients continued to receive treatment, despite halting their reimbursements. Some closed. Others scaled back services or paid out of their own pocket while they challenged the allegations against them.

For patients, the state established a hotline to connect them to treatment, housing or transportation back to their communities. But it too has fallen short in addressing the fallout from the crisis.

AHCCCS said it had no record of what happened to the majority of the hotline’s 11,400 callers, largely because after six months it stopped tracking outcomes for people who did not stay in a hotel at the state’s expense. Of 4,100 people who received temporary lodging after calling the hotline, the state said only about 150 requested referrals to behavioral health centers. According to call data obtained by the news organizations, more than 575 ended up unsheltered, increasing their chances of relapse or even death.

In an interview, Marcus Johnson, AHCCCS’ deputy director of community engagement and regulatory affairs, said AHCCCS conducted outreach to make sure patients knew about the hotline. Yet advocates say far more people were unaware of the hotline or could not call it because they did not have phones.

“There’s always opportunity for us as an agency to improve,” Johnson said. “But like I said, we’ve done a great amount of outreach to try to get the word out as much as possible, not only to victims and our members, but also to all of the providers.”

Enas, Rainy’s adoptive mother, said no one ever told her about it as she struggled to find counseling for her daughter. (AZCIR and ProPublica are identifying Rainy, who does not share a last name with Enas, by her nickname to protect her privacy.)

Thirty behavioral health providers that AHCCCS has accused of fraud since the spring of 2023 have been cleared to again receive Medicaid reimbursements, though the agency cautioned providers that it could pursue further actions against them amid ongoing investigations. Most reached settlement agreements or proposed corrective action plans, according to records provided to the news organizations by AHCCCS.

Desert Rain, however, was among a handful of providers that did not have to compensate the state or rectify their practice, according to documents. After a four-month suspension, Desert Rain was informed in a February letter that it could resume receiving payments from the state because it had addressed the accusations.

AZCIR and ProPublica spoke to six of the 30 facilities that had their suspensions lifted. The suspensions, delayed payments and enhanced billing requirements resulting from the state crackdown have jeopardized their ability to stay in business, they said. Almost everyone who operated behavioral health facilities and spoke to the news organizations asked to remain anonymous out of concern they would be targeted by AHCCCS for criticizing the agency.

AHCCCS has maintained that its actions were necessary and appropriate to ensure bad actors could no longer exploit Medicaid. It also told the news organizations that it is always willing to help patients find providers.

Desert Rain owner Alexis James said that since the clinic was cleared, the state has largely denied or not processed its claims for patients insured by the American Indian Health Program. As a result, she is unable to serve her former patients. She said she is concerned many people from the Gila River Indian Community — and other Indigenous communities — have gone months without treatment because so many facilities have shut down or are not accepting new American Indian Health Program patients due to financial uncertainty.

“There are no providers available to see these clients who are higher risk, who are suicidal, who are high trauma,” James said. “What makes me so angry is it’s not anyone but the Indigenous population.”

Enas said she recognizes the state had to stem the widespread fraud but regrets it came at such a high cost. Rainy regressed without counseling, while Enas unsuccessfully sought help from AHCCCS and the local hospital.

The grief Rainy was learning to manage now overwhelms her more frequently. On a recent afternoon, within a matter of minutes, Rainy turned from chattering happily about her school day to sobbing as she looked over a favorite photo collage of her late adoptive father.

“I miss him so much,” Rainy cried. “Why did he have to die when I was 3?”

Enas held Rainy until the wave of sadness eventually passed. When they sat down at the dinner table, where Rainy announced she was joining the school color guard, Enas looked on with a mixture of pride, exhaustion and worry.

“I need to know, who is gonna actually help me?” Enas said. “Who’s going to actually listen to me? Who’s going to help my child? Because I’m fighting for her.”

A Crisis Goes Undetected

As early as 2020, state data showed a spike in billings for behavioral health care covered by the American Indian Health Program.

AHCCCS’ contracts with managed care organizations, like Mercy Care and UnitedHealthcare, use fixed rates for Medicaid reimbursement. But the American Indian Health Program — available only to American Indians and Alaska Natives — was different. Federal requirements led AHCCCS to structure the program under a “fee-for-service” model, which allowed health clinics and other providers to set their own rates and directly bill the agency. It also broadened access in areas not served by the network of insurance companies for a population that has historically faced significant barriers to health care. But it left the program vulnerable to fraud, experts say, much like other fee-for-service plans offered at the federal level.

“It was a claims shop,” AHCCCS’ Johnson said, noting the plan lacked safeguards used by managed care organizations to prevent waste, fraud and abuse.

One behavioral health clinic collected more than $200,000 a day on average through the American Indian Health Program, according to an audit of AHCCCS. The flood of cash spurred predatory recruitment of new Native American patients from across the country just as the federal government’s COVID-19 public health emergency allowed Medicaid programs to relax enrollment and screening requirements.

Will Humble, a former director of the Arizona Department of Health Services, said AHCCCS’ failure to monitor its management of Medicaid billing and reimbursements allowed the American Indian Health Program to “completely detonate.”

Reva Stewart, a community advocate in Phoenix who is Navajo, was, in the fall of 2022, among the first to sound the alarm on social media about providers’ recruitment efforts in the city and on reservations. For months, she had observed white vans pull up to city parks in search of new patients. She learned fraudulent providers were also sending vans to reservations across Arizona, New Mexico and Montana in search of patients.

Newly elected Gov. Katie Hobbs announced an initial wave of provider suspensions in May 2023. As the agency continued reviewing billing records for irregularities, more followed. Community members, patients and employees of licensed behavioral health providers had alerted authorities to the suspected fraud, said AHCCCS Director Carmen Heredia.

When suspended providers ignored the agency’s calls to ensure ongoing care, the agency said it sent demand letters and threatened legal action. AHCCCS has not pursued any provider for failing to transition patients’ care, saying it hasn’t needed to take that step.

“When our legal office has reached out to providers in this situation, they have complied,” Johnson said. “They have worked with us to transition care for their members.”

Thousands Call Asking for Help

State housing officials warned AHCCCS leadership nearly a year before it began suspending providers that reforms could trigger a surge in homelessness, according to emails reviewed by AZCIR and ProPublica. Indeed, many people faced homelessness as the state suspended behavioral health payments because some unscrupulous providers had housed patients just so they could bill for them, advocates say.

Patients in the roughly 25 suspended facilities outside the Phoenix area had few options for assistance once AHCCCS took action; the state hotline’s offer of temporary housing was limited to three hotels in the metro area.

Stewart said the state’s response has been inadequate for such a massive crisis that has rendered people homeless. She and other advocates, organized under the name Stolen People, Stolen Benefits, regularly traverse the Phoenix metro area with meals and sanitary kits to assist unhoused people who haven’t been helped. Many contact her directly.

Raquel Moody, who is from the Fort Apache Reservation in northeastern Arizona, recounted how at the height of the crisis she bounced from one fraudulent treatment home to the next. She had achieved sobriety in the past, before relapsing, and such treatment programs had helped her, including Another Level of Community Service, which served people just released from prison. (Another Level of Community Service is one of the 30 behavioral health providers that had its suspension lifted by AHCCCS after a monthslong investigation.)

From December 2022 to the end of 2023, Moody spent time in more than a half-dozen programs in the Phoenix area that promised, but never provided, treatment. Soon after arriving at each new facility, she realized legitimate treatment classes would not be offered. When she spoke up about it, the operators would kick her out.

Not only was there no treatment, she said, but lax operators made it more challenging to get sober. The owners of one facility downplayed her complaint that alcohol was being consumed in the house, claiming the drinking wasn’t harming other residents. They asked her to leave. Once, providers left her for days in an unfurnished home with nothing to do, which she described as a nightmare scenario for someone trying to overcome addiction.

“Some of us, we were looking for the right programs,” she said. “But during this whole scheme and everything, it was really hard. It was really hard to get sober.”

After the final home she was in was suspended in December 2023, no one from the state stepped in to help, she said.

She’s now in recovery and conducts homeless outreach with Stewart.

“I’m Still Being Punished and Not Paid”

Following Desert Rain’s suspension in September 2023, James, the clinic’s owner, said she continued serving patients for as long as she could.

The clinic was roughly two years into treating Rainy, who had been diagnosed with prolonged grief, anxiety, attention-deficit/hyperactivity disorder and obsessive-compulsive disorder. It was a two-hour round trip to each appointment, but her progress made the drives worth it, Enas said.

Desert Rain, which opened 13 years ago, was one of several clinics that AHCCCS accused of treating children without the necessary state health department license. The Medicaid agency also said the treatment center had billed for some patients after their deaths and overbilled for certain mental health assessments and rehabilitation services.

As she fought the allegations, James laid off all but three of her 35 employees and coordinated with Gila River case managers to transfer most of the facility’s 260 patients to other providers. Many of the patients found that nearby facilities were also facing fraud allegations from the state and couldn’t treat them. James offered limited services at no cost to roughly half a dozen high-need clients, including Rainy.

Nearly every provider who spoke with AZCIR and ProPublica and had resolved their fraud allegations said they tried to serve clients for as long as they could without Medicaid reimbursements. James said she almost went bankrupt. She drew on personal funds to cover Medicaid patients’ treatment and took out high-interest loans that left her in financial peril.

State records show James cleared the allegations by providing evidence of an active license to work with kids and documentation explaining the handful of claims that were inadvertently submitted after a patient’s death during the height of the COVID-19 pandemic, when it often took days for word of a patient’s passing to reach outside the reservation’s hospital.

The agency also imposed a moratorium on new provider enrollments and enacted administrative reforms that included capping reimbursement rates for intensive outpatient treatment, and fingerprinting and background checks for more behavioral health providers under contract with AHCCCS. The agency also adopted more stringent billing procedures and revamped its process for reviewing claims.

Since the agency implemented the reforms, spending on American Indian Health Program services has declined by two-thirds, according to data released by AHCCCS in July.

“While there is still work to be done, this data reflects that our efforts to combat fraud are working,” Heredia said in a news release. “We have transformed AHCCCS into a new agency that puts our members first, and always strives to get them the help they need.”

This abrupt decrease in payments to providers also reflects the inability of patients like Rainy to get treatment.

In February, AHCCCS paid Desert Rain more than $140,000 for care provided prior to the suspension. But the agency has not reimbursed the clinic for any services billed under the American Indian Health Program since its reinstatement, according to James.

“I’m still being punished and not paid,” James said. “Essentially, we’re still suspended.”

Records reviewed by AZCIR and ProPublica showed that AHCCCS repeatedly pressed the facility to submit additional documentation required for claims to be approved. The agency also arranged a meeting to discuss the billing process. AHCCCS did not respond to questions about the agency’s billing decisions.

In a survey of 229 providers by the Arizona Behavioral Health Providers Association, an industry trade group, half of respondents reported anonymously this spring that they were close to shutting down due to issues with AHCCCS since the spring of 2023, including delayed reimbursements. Another 20% reported they had either already closed or were filing for bankruptcy. The data was presented to AHCCCS earlier this year.

Lynn Janson, a co-founder and CEO of the treatment center Milestone Recovery, described to lawmakers this year how a suspension had threatened the business she and her husband opened in 2021 with help from their daughter, a licensed clinician. Janson’s son had struggled with a methamphetamine addiction, she said, and it had been difficult to find a treatment program that would help him address childhood trauma that fueled his drug use. She opened the business to fill that void for others.

“My husband and I decided to move forward by creating a space focused on treating the trauma that is the root cause” of addiction, she said. “Fraud was never a motivating factor for us to enter this field.”

This spring, the state lifted Milestone’s suspension.

Twenty providers, not including Milestone, have filed notices of claim — precursors to lawsuits — against AHCCCS and state officials for wrongful suspension or termination. Four families have sued the Medicaid agency since April over the deaths of their loved ones while they were in the care of treatment centers. The state has denied culpability, saying state agencies, including AHCCCS, responded appropriately to past concerns about patient safety based on the information they had. AHCCCS declined to comment about the lawsuits.

“It’s Like She’s Never Even Been to Counseling”

In April, James paused Rainy’s therapy altogether. She could no longer afford to provide counseling without reimbursement.

When AHCCCS learned that James was no longer providing care to Rainy, the agency sent a message reminding her that agency policy prohibits providers from turning away patients based on their enrollment in the American Indian Health Program. James replied, saying that she and her staff wanted to accept new patient referrals but couldn’t without payment. She never heard back.

To stay in business, James began accepting patients insured by plans other than the American Indian Health Program. Claims were promptly reviewed and reimbursed, James said, including by other Medicaid plans. Only AHCCCS’ American Indian Health Program has not reimbursed her claims.

The transition to working with patients outside of the Gila River community was bittersweet, James said, especially knowing that many of her former patients like Rainy were still searching for reliable treatment. “When I hear about the constant need that is still going on out there, it’s just really frustrating,” she said.

Enas said it has been painful to watch Rainy’s grief and trauma resurface over the past 10 months. She has tried her best to help Rainy process her emotions but said she isn’t equipped to address her daughter’s behavioral health challenges on her own.

“It’s like she’s never even been to counseling,” she said.

Rainy’s night terrors returned, with recurring dreams of her adoptive father dying. She continued to excel at school, but her teachers noticed worsening mood swings. On a visit to her adoptive father’s grave to bring him offerings of flowers and home-cooked food, Rainy lay by his headstone for hours, until dark. Unwilling to leave, Rainy cried and asked Enas how she could die so she could be with him again.

Enas tried everything she could think of to find care for her daughter. She contacted lawmakers, AHCCCS officials, health care administrators, school caseworkers and providers.

At one point, a patient advocate with the Gila River hospital in Sacaton, on the reservation, encouraged Enas to disenroll Rainy from the American Indian Health Program. The idea was that by switching to insurance provided by managed care organizations, Enas and Rainy would avoid issues related to AHCCCS’ handling of the insurance plan.

But changing her daughter’s insurance would be tedious and have broader repercussions. Enas would have to find a new allergist and primary care doctor because those providers, based on the reservation, accept only the American Indian Health Program. Switching back and forth also was not feasible when a single afternoon could involve juggling appointments or calls with multiple health care providers.

“We shouldn’t have to switch our plans so that way our kids can get the service that they need. That’s not right,” she said.

Enas and Rainy’s search has led back to where it began: Desert Rain. Recent income from privately insured patients has given James enough cushion to resume providing some services for free. In mid-August, Rainy returned for grief counseling sessions with James. Rainy’s other mental health disorders remain largely untreated.

Desert Rain is the best place for Rainy, Enas said, but she doesn’t know how long the treatment will last.

“Alexis is going to carry her for a little bit, and then she’s going to have to drop her again, because she’s not getting paid,” said Enas.

“How can AHCCCS do this to these kids, do this to my child?”