Addiction Recovery Care to Pay $16.2M for Medicaid Fraud in Kentucky

Addiction Recovery Care, the largest addiction treatment provider in Kentucky, has agreed to a $16.2 million civil judgment in favor of the United States to resolve allegations that it defrauded the state Medicaid program for years, the U.S. Attorney's Office for the Eastern District of Kentucky and the Kentucky Attorney General's Office announced July 27. The judgment lands as a joint investigation by the Lexington Herald-Leader and ProPublica, published Monday, lays out how Kentucky's pandemic-era decision to suspend Medicaid spending controls let billing abuse flourish across the state's drug treatment industry.

What the government alleged

The settlement resolves a False Claims Act case filed in April 2023 by current and former ARC employees under the statute's qui tam provisions, which allow private citizens to sue on behalf of the federal government. The case — United States ex rel. Rikki Pope, et al. v. Addiction Recovery Care, LLC — was recently unsealed.

According to the settlement agreement, from January 2018 through March 2024 ARC falsely represented the qualifications of some clinicians on claims to Kentucky Medicaid, billing psychotherapy, psychiatric evaluations, and mental health assessments performed by lower-level workers as if higher-licensed employees had delivered them. From July 2019 to mid-June 2021, the company allegedly billed for individual therapy sessions — reimbursed at a higher rate — while actually providing cheaper group therapy, a practice known as upcoding. ARC affiliates Pioneer Health Group and Science Hill Family Care also allegedly billed duplicate office visits and charged for care management services performed by employees lacking required credentials.

During the investigation, ARC self-disclosed that it should not have billed for some of the services identified by the whistleblowers. The judgment will be paid over several years, reduced in light of the defendants' financial condition, and the whistleblowers are eligible for a share of the proceeds. The settlement resolves the allegations without a determination of liability.

A pandemic experiment that outlasted the emergency

The fraud case unfolded against a policy backdrop that investigators describe as a missed succession of warnings. In 2020, Governor Andy Beshear joined more than 40 states in lifting Medicaid prior authorization requirements so people with addiction would not avoid treatment out of fear of COVID-19. By 2023, most states had restored the controls. Kentucky did not — and that year providers offered more than 1,100 residential treatment slots, a state record and the most per capita in the nation.

Spending ballooned. Kentucky Medicaid Commissioner Lisa Lee told lawmakers in February 2025 that the previous year's behavioral health and addiction treatment spending had reached an unprecedented $2.3 billion. State data showed behavioral health providers were paid more than $147 million for peer support services in 2023 and 2024, while payments for psychoeducation — normally part of a routine clinical appointment — jumped from $40.4 million to more than $168 million, most of it going to ARC. At its peak, ARC treated roughly one-third of Kentuckians seeking drug treatment and received a record $103 million from Medicaid in 2024 alone.

Stuart Owen, who works for a Kentucky Medicaid insurer, told a state advisory committee that much of the spending was driven by the drug treatment industry, including "unscrupulous providers who are exploiting the heck out of that for money."

Warnings that went unheeded

In August 2024, the Kentucky Association of Health Plans warned the state Cabinet for Health and Family Services in writing that weak oversight had allowed "unnecessary" spending on services that were not improving outcomes. A month later, Somerset Mayor Alan Keck wrote that treatment centers in his region were recruiting patients from out of state and using company addresses to establish Kentucky residency for billing purposes. "Our communities are seeing an influx of sober living facilities that are taking advantage of Kentucky's Medicaid system and the lax requirements that linger from the Covid-19 pandemic," Keck wrote to then-health Secretary Eric Friedlander. Officials from Anthem and WellCare reinforced the concerns in late 2024, and by December 2025 the attorney general's Office of Medicaid Fraud and Abuse Control told lawmakers that Medicaid fraud in drug treatment had become a primary "area of concern."

Shelby Steuart, a University of Maryland professor who studies health policy, told investigators that suspending prior authorization removed the only check on overbilling for low-quality care. "It just became an opportunity for people to make money," she said.

Collapse, indictment, and a veto override

The consequences have reshaped Kentucky's treatment landscape. ARC, which disclosed what it called billing errors in 2024 and saw Medicaid insurers begin severing contracts, has closed most of its facilities over the past two years — contributing to a 56 percent decrease in long-term residential treatment beds statewide. Former CEO Tim Robinson was indicted earlier this year on separate wire fraud and money laundering charges tied to an alleged scheme to defraud lenders; he has pleaded not guilty, with trial set for August 10. ARC said in April it "has never knowingly or fraudulently billed Medicaid for services."

In 2025, the Republican-controlled legislature reinstated prior authorization over Beshear's veto. The governor argued the bill "will put up barriers to and delay healthcare for Kentuckians." Senator Chris McDaniel, who championed the measure, said the administration "had to be one of three things: willfully ignorant, derelict in their duties, or complicit. It was just too much money in one space for them not to have known better."

What it means for people seeking help

Beshear remains unapologetic, pointing to four consecutive years of declining overdose deaths as vindication. "If we'd gone back in time too early and changed things too drastically, how many more people would have died that we've saved?" he said in a June interview. Experts note, however, that states which never loosened billing rules — including Tennessee and West Virginia — saw similar declines, which academic studies attribute largely to falling opioid prescriptions, wider naloxone availability, and shifts in the fentanyl supply.

For Kentuckians with opioid use disorder, the practical fallout is real: the state's largest provider has contracted sharply, and residential capacity is down by more than half. Advocates say the episode underscores the importance of verifying a facility's licensing and accreditation before enrolling — and of rebuilding oversight that protects both patients and the public funds meant to serve them.