Addiction recovery company under FBI investigation reducing staff, blames reimbursement cuts

Kentucky's largest provider of drug and alcohol treatment is cutting staff and restructuring some services, citing significant cuts in Medicaid reimbursement from the government health plan that covers almost all of its clients.

Addiction Recovery Care, or ARC, based in Louisa, said in a statement that, as a result of cuts in payment for addiction and mental health services, "we have had to make difficult decisions impacting some of our staff members."

The staff cuts come after a dispute with the private insurance companies that process and pay most of Kentucky's Medicaid claims.

ARC declined to say how many of its 1,350 employees would be affected but said "we are doing everything we can to support the affected individuals during this transition." It provided no further details.

"Out of respect for our employees we do not discuss personnel matters," the company said.

ARC also is reorganizing some of its operations in Louisa, the small Eastern Kentucky town where the for-profit company is based and the home of its founder and CEO, Tim Robinson.

Robinson, a lawyer and recovered alcoholic who started the company that became ARC in 2010, has emerged as a politically well-connected figure and major political donor.

A Lantern analysis by Tom Loftus showed that Robinson, his corporations and employees have made at least $570,000 in political contributions over the past decade as his for-profit company grew from a single halfway house to about 1,800 residential beds and outpatient care for hundreds more clients.

Except for money given to political committees supporting Gov. Andy Beshear, a Democrat, virtually all of the rest went to Republicans like former Gov. Matt Bevin, Attorney General Russell Coleman, U.S. Rep. Hal Rogers and candidates for the Kentucky legislature.

Beshear has praised ARC for its role in helping the state deal with the wave of addiction that engulfed Kentucky in recent decades.

"With the help of organizations like ARC, we are working to build a safer, healthier commonwealth for our people," Beshear said, speaking at a ribbon-cutting in March for a new ARC facility in Greenup County at the former Our Lady of Bellefonte Hospital in Ashland.

A spokesman for the state Cabinet for Health and Family Services, which administers Medicaid, said that the Beshear administration supports Medicaid services for those in need of addiction or mental health treatment and is seeking ways to expand them.

As for the rate dispute between ARC and the managed care companies, those companies "are contractually obligated to ensure members have access to appropriate medical care," the spokesman said in a statement, adding: "We have no comment on the operational structure of Addiction Recovery Care (ARC) but these provider types are an essential resource to help individuals break the cycle of addiction."

Robinson, a lifelong Republican, has praised Beshear as a skilled political leader saying, "I hope he runs for president."

Enter the FBI

The cuts are the latest setback for the fast-growing company that last year took in $130 million in state Medicaid funds and has expanded from a single halfway house to a statewide network of recovery programs and residential centers in 24 counties across Kentucky.

In July, the FBI announced it was investigating ARC for possible health care fraud and asking anyone with information to contact the federal agency.

An FBI spokeswoman in a statement Tuesday said it has no new information to share about the status of the investigation but said the agency is still accepting information through an online site on its website.

ARC has said it is cooperating.

"We are confident in our program and in the services we offer," the statement said. "We, and our legal counsel, are cooperating fully in the investigation."

A few days before news of the FBI investigation became public, Coleman, the attorney general and law school classmate of Robinson at the University of Kentucky, said he was recusing himself from any investigation of ARC, according to Louisville Public Media. It reported Coleman's top deputy, Rob Duncan, a childhood friend of Robinson who previously has done legal work for ARC, also was recusing himself.

Coleman's office investigates Medicaid fraud.

Robinson, his corporations and employees gave at least $37,700 to Coleman political committees since late 2022.

'Significant strides' threatened

News of the FBI investigation became public just a few days after ARC executives appeared before a Kentucky legislative committee to protest cuts in reimbursement from some of the six national health insurance companies known as managed care organizations, or MCOs, that oversee most of the state's $1.6 billion a year Medicaid program.

ARC, in a statement, stressed that cuts in reimbursement are driving the staff reductions and facility reorganizations.

"These difficult decisions are a direct result of impending and significant reimbursement cuts for many addiction and mental health service providers in Kentucky," it said.

The MCOs contract with the state to manage care and provide payments for health services for most of the state's around 1.5 million residents insured through Medicaid, which gets most of its money from the federal government.

In turn, the MCOs are paid a fixed rate per Medicaid member for overseeing that care.

People with knowledge of the situation have told the Lantern insurers had become concerned about aggressive billing practices and rising costs associated with some addiction treatment companies including ARC.

At the July hearing, ARC officials told lawmakers they and a handful of other providers in Kentucky had been notified they faced cuts of 15% to 20% in reimbursement from some of the MCOs.

Increased access to Medicaid funds and a growth in the treatment industry have helped Kentucky expand to the most treatment beds per resident in the country, an accomplishment touted by Beshear.

That progress could be threatened by the pending cuts, Matt Brown, ARC's chief administrative office, told members of the interim joint Health Services Committee on July 30.

"Kentucky has made significant strides in access to treatment," Brown said. "With these cuts it could completely set back addiction treatment in our state 20 years."