Dozens Died In State Sober Living Homes As Officials Fumbled Medicaid Fraud Response

At least 40 Native American residents of sober living homes and treatment facilities in the Phoenix area died as state Medicaid officials struggled to respond to a massive fraud scheme that targeted Indigenous people with addictions.

The deaths, almost all from drug and alcohol use, span from the spring of 2022 to the summer of 2024, according to a review of records from the Maricopa County Office of the Medical Examiner. Over half died as officials ignored calls to address lax oversight later shown to have contributed to thousands of patients being recruited into sham treatment programs.

Patients continued to die even after Arizona officials in May 2023 announced a sweeping investigation of hundreds of facilities. By then, the fraud was so widespread that officials spent the next year seeking to halt Medicaid reimbursements to behavioral health businesses accused of wrongdoing.

The state's Medicaid agency, the Arizona Health Care Cost Containment System, acknowledged the fraud cost taxpayers as much as $2.5 billion. But it has not accounted publicly for the number of deaths tied to the scheme.

Many of the deaths in sober living homes reviewed by the Arizona Center for Investigative Reporting and Pro-Publica happened as officials - in at least five instances across Republican and Democratic administrations - failed to act on evidence that rampant fraud was imperiling Native Americans whose care was paid for by the agency, according to court documents, agency records and interviews.

A class-action lawsuit filed last month by families who allege the state's inaction harmed or killed loved ones seeking addiction treatment names three people who died outside of sober living homes or treatment programs.

Their deaths are not among the 40 fatalities tied directly to the facilities in medical examiner records.

Gov. Katie Hobbs, a Democrat who took office in January 2023, blamed her Republican predecessor, Doug Ducey, for failing to relay the scale of the scheme that persisted for years under his leadership. However, AZCIR and ProPublica found that the leader Hobbs appointed at AHCCCS also stalled a key reform the agency would later credit with helping to stem the fraud.

In a brief statement, Daniel Scarpinato, a Ducey spokesperson, did not comment on missed opportunities to detect and stop the fraud under his administration. But he said that the former governor went to great lengths to ensure a smooth transition for Hobbs and that members of Ducey's staff continued to make themselves available to her administration after he left office.

"All they needed to do was pick up the phone," Scarpinato said.

AHCCCS declined to comment or to make Director Carmen Heredia available for an interview because of the ongoing class-action lawsuit.

Reva Stewart, a community advocate who started a nonprofit to help victims and their families, estimates the crisis led to hundreds of deaths, extending beyond those that occurred in sober living facilities. She said many people recruited into programs were reported missing and some lost access to treatment or became homeless when the state's crackdown led to the abrupt closure of facilities that housed people.

Stewart and others fault AHCCCS for not acting sooner.

"I had family members who died in these group homes," said Lorenzo Henry, a member of the San Carlos Apache Tribe who said he was recruited into multiple inadequate treatment programs before finding a facility that helped him. "I would like to see at least AHCCCS take accountability for their actions, for how they let this fraud go on for so long."

Among the victims was Jeffrey Hustito, a 43-year-old uncle, brother and son from Zuni Pueblo in New Mexico. He had been a caretaker for his father when he was on dialysis and awaiting a kidney transplant. In the fall of 2021, Hustito sought treatment for alcoholism in Arizona, his family said.

His father, an Army veteran and custodian for the local Indian Health Service hospital, was relieved to learn about his son's decision. The two were close, living in the family's home in a historic tribal village surrounded by high desert and mesas.

But in Phoenix, the younger Hustito became difficult to keep track of. He was caught up in a murky network of treatment programs, according to interviews with his family, social media posts, and state and county records.

Sober living home operators always seemed to be moving him, his father said.

"We were really thrilled when he decided to get treatment," said Anders Hustito, who is slender and soft-spoken.

"He just got worse over there."

Jeffrey Hustito died in a sober living home on Dec. 27, 2022.

Skyrocketing reimbursements and fraud allegations

The fraud flourished for years under the state's American Indian Health Program, a Medicaid insurance option for tribal citizens that allowed providers to set their own reimbursement rates. This fee-for-service model, established as a result of federal requirements, aimed to ensure coverage for Native Americans living in areas not typically served by insurance companies. But with no limit on how much they could bill, some behavioral health providers claimed tens of thousands of dollars for a single counseling or treatment session.

The first uptick in behavioral health reimbursement claims came in 2019.

That same year, Ducey appointed Jami Snyder, a deputy director at AHCCCS and former head of Texas' Medicaid agency, to serve as director of AHCCCS.

She pursued new initiatives, like additional mental health services and housing options for Medicaid recipients.

She also had a more hands-off approach to agency operations, including fraud prevention, than her predecessors, according to former AHCCCS employees.

During the pandemic, Snyder enacted changes to increase access to care.

One allowed the state Medicaid program to bypass background checks for providers and in-person inspections of facilities. Another let providers continue collecting Medicaid payments after their health department licenses lapsed, meaning AHCCCS no longer had updated information on clinics' certifications or ownership. The changes were not communicated beyond Snyder's senior leadership team for nearly two years, according to documentation provided by an AHCCCS spokesperson.

Snyder declined requests for an interview or comment for this story.

Medicaid, which provides essential health care for lower-income people, was known to be susceptible to fraud, in part because of the breadth of services offered; the American Indian Health Program especially was at higher risk because providers could set their own rates with no cap. But the failure to communicate licensing changes to staff made the agency and program even more vulnerable. Markay Adams, former assistant director of the division within AHCCCS that administers the American Indian Health Program, said that had she known about the changes she could have advocated for more audits or staff to safeguard against fraud.

(Managed care organizations, which oversee services to 90% of Medicaid members, also were unaware of the changes.) Between 2020 and 2021, spending on the American Indian Health Program skyrocketed from roughly $690 million to nearly $1 billion, according to internal documents.

Behavioral health outpatient clinics drove the most significant increase, with officials later saying that many of these facilities were part of the multilayered scheme to defraud Medicaid. The clinics would often coordinate with unregulated sober living homes to house patients eligible for the program. The clinics would then pay the homes for supplying patients, using a cut of the outsize profits they made billing the American Indian Health Program.

AHCCCS did not appear to grasp the scope and complexity of the fraud scheme for another year, despite red flags and the spike in payments to treatment programs, Adams said. The Arizona Republic last year also reported that a medical director at the agency became concerned in 2021 about unsafe behavioral health settings.

In June 2021, AHCCCS terminated its contract with a facility that had unlicensed staff, overbilled for services and housed patients in a decommissioned hotel, a matter that Snyder was notified about in internal emails. However, the extent of the agency's probes, conducted by its Office of Inspector General, weren't fully shared with other AHCCCS divisions, and the executive team did not effectively coordinate or communicate its response within the agency, Adams said.

Mark Brnovich, then Arizona's attorney general, announced indictments in October 2021 of 13 people and 14 businesses accused of defrauding AHCCCS by billing excessively for treatments and claiming to treat patients never served by their behavioral health operations. (All entered plea agreements, except for L&L Investments, which was found guilty at trial last year.) Meanwhile, word spread on social media that white vans were appearing on reservations and people with addiction were disappearing, said state Sen.

Theresa Hatathlie, a Democrat from Coalmine Mesa on the Navajo Nation. Hatathlie said the behavioral health facilities' tactics of sending vans to tribal communities grew increasingly aggressive as they recruited clients with promises of free food, housing and clothing.

Police intervened but didn't yet fully understand what was happening, the state senator said.

'I thought everything would be OK'

Jeffrey Hustito decided to seek treatment in Phoenix based on a recommendation from friends at Zuni Pueblo.

In the fall of 2021, he entered a program paid for by Medicaid that offered a room at a sober living home, his father said.

Hustito believed treatment would provide a stepping stone to steady employment, maybe as a welder or a cook.

At home, he liked to make pasta and enchiladas, and he often had dinner ready in the evenings after his father's custodial shifts at the local Indian Health Service hospital.

"He was always helpful," Anders Hustito said.

The family knew they would miss him when he enrolled in the Phoenix treatment program. But they also knew he needed help.

The place where he stayed in Phoenix, a two-story house with a hot tub and swimming pool, looked like a mansion in the photos that Jeffrey Hustito shared in text messages, his sister, Katherine Hustito, said.

She was pleased he seemed happy, though she was surprised the treatment program operators had helped him get an Arizona identification card and sign up for Medicaid in the state.

"He was taking pictures of himself in the pool," his sister said. "I thought everything would be OK."

Hope eventually faded.

Around February 2022, Hustito called home scared, thirsty and unsure of his whereabouts, she said. His family believed he may have been kicked out of his sober living home, leaving him with no place to stay.

By the time his father drove the four and a half hours to Phoenix, Hustito had figured out he was in Maricopa, a bedroom community more than 30 miles south of the city.

"That's way out of Phoenix," Anders Hustito said.

"When I finally saw him, boy, I was so glad. We hugged."

He said he took his son home, only for him to go back to Phoenix a month later and enter a new treatment program.

Anders Hustito did not yet know about the fraud in Arizona or that the programs might be enabling his son's drinking, rather than helping him quit.

But according to public records, there were signs of trouble within facilities and problems with providers' licenses.

In early February 2022, Brnovich's office received a 107-page memo from a private citizen that spelled out alleged schemes of more than 30 sober living homes in the Phoenix area believed to be targeting Native Americans and billing for treatment services that were not provided. (Three of the four individuals named in the memo, including a state health department employee, would be indicted by Brnovich's successor, Kris Mayes, a Democrat, in September 2024.) At AHCCCS, staff received news in March of a death inside a residential treatment program, Adams said. In an interview, she could not recall details of the death or the facility where it occurred. But she said a health and safety committee reviewing the death discovered the facility did not have a health department license, a key detail that would repeatedly appear in later investigations.

Adams, who was present for the review, questioned how the provider could collect Medicaid payments without a license that's required of every health care provider. Soon after escalating the issue with senior leadership, a top AHCCCS manager disclosed the changes that allowed unlicensed providers to remain in AHCCCS' enrollment system. The agency would later find more than 13,000 unlicensed providers eligible to receive Medicaid reimbursements, though only a fraction were behavioral health or accused of wrongdoing.

The Office of Inspector General undertook a manual review of behavioral health residential facilities' licenses, Adams said, and Snyder began meeting that spring with AHCCCS' top managers to identify weaknesses that fraudsters could exploit.

'They didn't really teach us anything'

By the summer of 2022, Jeffrey Hustito was enrolled in Beyond4Wallz Health and Wellness. The new outpatient treatment program held classes in an office building in north Phoenix and placed its clients in houses throughout Phoenix, according to the owner.

State records show the business, which received a state health department license in April 2021, was reimbursed $3.5 million from Medicaid that year. The next year, Beyond4Wallz's Medicaid claims more than tripled, to $11.1 million.

At the same time, state health inspectors were discovering that Beyond4Wallz failed to supervise staff, according to state health department records.

Inspectors also said the company could not provide proof that its counselors were qualified to work with clients.

A former client, who said she was enrolled in the program at the same time as Hustito, recalled some clients smoked fentanyl in the treatment center's bathroom. (She asked not to be named out of fear of retaliation from the business' owner.) She said she slept on a mattress on the floor of a rundown house and didn't get the treatment she needed. "They didn't really teach us anything. It was just like a room-and-board thing," she said. Eventually, she left.

In a brief phone interview, Darielle Magee, the owner of Beyond4Wallz and a hairstylist, said she opened the business after losing loved ones to drugs. She built her clientele by asking people on the street and at her salon if they needed help recovering from addiction.

"Some people would say no; some people would say yes," Magee said, adding that she worked with property owners to find shelter for clients and also bought property to house them. Her former clients were "entitled to their own opinions" about the program, she said.

Magee didn't comment on accusations of substance use among clients in her program or the health department citations, which records show were initially resolved with plans to correct each violation.

She also would not comment on Hustito's time at Beyond-4Wallz, citing the "sensitive nature of the topic."

A Google listing for the business shows photographs of Hustito in a carpeted office with other clients, his husky, 6-foot frame wedged in a small classroom desk. Other photos show him on a trip to California in July 2022, wearing a neon green T-shirt that says "The Sober Life."

Hustito's sister described the trip as a high point for him that year. She keeps photos on her phone that he sent from the beach in Los Angeles. In one, he's wearing the "Sober Life" shirt and beaming with the ocean behind him.

"That's the Jeffrey we know," Katherine Hustito said.

"Always smiling."

But as the days passed in California, he no longer appeared to be sober in the photos he sent home. His father wondered if the trip was just a "big old party."

Resistance to reforms Even as AHCCCS struggled to stop the schemes, it was clear the behavioral health care industry was aware of fraudulent billing, according to agency documents.

That summer, AHCCCS staff were wrestling with how to keep providers from reaping huge profits with a single billing code meant for serving people in need of intensive outpatient help for addiction, including counseling. Reimbursement claims had ranged from roughly $150 to $2,500 for the same service, according to interviews and internal records. Staff would later find one provider charged AHCCCS $60,000 for one treatment session with a single client.

In July 2022, AHCCCS publicly posted a proposal to set a reimbursement rate of $138 per claim for intensive outpatient addiction treatment.

The team responsible for setting rates had determined that amount was in line with industry standards.

Yet Snyder heard concerns from more than 10 facility operators, some of whom acknowledged certain clinics were abusing billing rates but said capping reimbursements could put them out of business and trigger a surge in homelessness.

The Arizona Council of Human Service Providers, a group with influential board members, complained the proposed rate change was "premature" and "insufficient" to cover costs of treatment. Among them: Heredia, CEO of Valle del Sol, a behavioral health and primary care organization.

She would later replace Snyder as head of AHCCCS, with the agency touting her experience with the two nonprofits.

The agency scrapped the rate change.

'Are you sure you're in a safe place?'

In the fall of 2022, Hustito spent a week at home in Zuni Pueblo. His sister recalled asking him to stay in New Mexico for good. But he was anticipating another California trip with his treatment program, she said.

A white van pulled up to the Hustito family's house to take him back to Phoenix. Anders Hustito couldn't believe the driver had the nerve to show up at the family's home, shaded by a cottonwood tree along a quiet gravel road.

Things didn't go as Hustito hoped. The California trip didn't happen. He was cited for shoplifting. He left Beyond-4Wallz, according to the owner.

She did not say why.

Hustito listed three addresses that fall, a medical examiner reviewing his health records said. One was a gray one-story house on the far west edge of Phoenix. Anders Hustito said his son gave the impression that the different sober living homes he stayed in were run by the same family, though he did not say who they were.

In November, Katherine Hustito noticed a warning on Facebook from the Zuni Police Department. It said to beware of scammers from Arizona who were trying to recruit tribal members into sham treatment centers. She sent it to her brother. "Are you sure you're in a safe place?" she recalled asking.

"I just want to know you're OK."

Jeffrey Hustito responded that he was fine, though that fall he also cried on a phone call with his sister and told her that he hated where he was.

He was homesick and said he wanted to return home for an annual tribal ceremony. When that event came and went, he said he would be home by Christmas. He continued sending his sister texts each day to say good morning. She wondered what he wasn't telling her.

A medical examiner would later note that in his final weeks, Hustito made multiple emergency room visits. One trip to Banner Desert Medical Center was on Dec. 9, a day after he turned 43. Authorities said he drank a half bottle of rum and smoked fentanyl at his sober living home. He was treated and released.

Two days later, he needed medical treatment again, for alcohol poisoning. He was taken to another hospital and released to his sober living home.

On Dec. 23, AHCCCS published for the first time an alert on its website warning of fraudulent sober living homes recruiting Native Americans from reservations.

'We let them drink a little bit to calm down'

Anders Hustito last heard from his son on Christmas.

Jeffrey Hustito was upset about not getting to see the NFL's Arizona Cardinals play that day, even though he believed his behavioral health provider planned to give him tickets. His family said they sent him money for the game, only for him to learn he was being disciplined and wouldn't attend the game after all.

His father couldn't reach him after that.

According to police, Jeffrey Hustito checked into another sober living home on Dec. 26, this one in the suburb of Glendale.

He later smoked fentanyl with another resident and laid down to sleep around 1 a.m.

People in the house found him unresponsive 45 minutes later, police said. In addition to the drugs, he had alcohol in his system.

Authorities called Anders Hustito on Dec. 27 to tell him his son had died. He blamed himself for not driving to Phoenix a day earlier to search for his son.

But he was also angry with the sober living home owner.

When Anders arrived to collect Jeffrey's belongings with his oldest son and daughter-in-law, Anders asked a man who came to the door how residents could have access to alcohol while seeking treatment.

The answer infuriated him.

"He said, 'Since they have an alcohol problem, we let them drink a little bit to calm down,'" Anders recalled.

'It was obviously a systemic issue'

Jeffrey Hustito was one of at least two Native Americans to die in sober living homes in December 2022 as AHCCCS tried to root out fraud by suspending payments to providers.

At least 10 behavioral health providers, including Beyond4Wallz, received suspension notices from AHCCCS that month.

In a letter sent the day after Hustito died, officials accused Beyond4Wallz of billing excessively for services that could not have been provided to patients. Magee, the Beyond4Wallz owner, said she tried to address the state's allegations and stay open, but eventually closed. Despite the timing, there's no indication the letter was spurred by Hustito's death. Magee said she had no ties to sober living homes Hustito entered after he was no longer her client, including the one where he died. And Magee is not facing charges related to the defrauding of AHCCCS.

"So many people were being closed, and we were just one of the first," said Magee.

Meanwhile, Native Health and Native American Connections, two well-established providers in Phoenix, pressed authorities to do more. As Hobbs took office in January 2023, the organizations held a meeting with other community health centers, law enforcement, AHCCCS and state health officials to discuss human trafficking and Medicaid fraud.

"It was obviously a systemic issue," Walter Murillo, chief executive officer of Native Health, said in an interview.

"I assume that they had to be aware of it by then."

Snyder did not mention the fraudulent facilities several days later when she went before a legislative committee to discuss a recent audit shortly before stepping down as AHCCCS director. The audit, conducted every 10 years, is used by legislators to evaluate the future of state agencies.

It determined, among other findings, that AHCCCS could have made more than $1.7 billion in improper payments between 2019 and 2020 because it did not properly determine providers' eligibility before making reimbursements. The audit did not indicate if this was related to the growing crisis. Snyder defended the agency's handling of Medicaid funds.

"It has nothing to do with member abuse," she said of the payments.

The Hobbs administration began to grasp the scope of the fraud scheme in the weeks that followed, said Christian Slater, the governor's spokesperson.

Hobbs asked the health department to develop a plan to address it, and asked AHCCCS to prepare for a humanitarian response and create a list of providers suspected of fraudulently billing Medicaid.

But if Arizona's top leaders had made a response to the fraud a priority, key staff members within AHCCCS said the recommendations they provided AHCCCS' new director were dismissed. Adams and another former staffer, who helped prepare AHCCCS' financial records but asked not to be named for fear of retribution, said they each presented Heredia with financial reports that showed skyrocketing spending under the American Indian Health Program.

(Adams resigned from AHCCCS in April 2023.) Heredia then briefly blocked another attempt by AHCCCS's billing experts to cap reimbursement rates, this time at $158, records obtained by AZCIR and ProPublica show. Public responses to the proposed change, including from long-standing community health organization Native American Connections, said capping the existing rate would help curtail massive amounts of fraud and the exploitation of Native Americans.

On April 17, 2023, Heredia emailed the CEO of the Arizona Council of Human Service Providers, the industry group where she had been a board member. The proposal was "completely being pulled off the table for the time being," she said.

"I apologize for the confusion and stress it caused," she added in her email. "In the event that anything similar is rolled out, we will do so in collaboration with the Arizona Council and with other stakeholder input."

At the same time, records show, the human toll of the crisis was escalating. At least five people died in sober living homes in April 2023 from drug and alcohol use, medical examiner records show. And at the end of the month, AHCCCS and health department officials found a distressing scene at a former hotel where a treatment program operator was housing dozens of patients, including children.

Armed guards patrolled the exits to keep people from leaving, the governor's office said.

In May, the cap on reimbursement rates went into effect, though it's not clear what prompted AHCCCS to address vulnerabilities that staff had identified more than a year earlier.

Within weeks, Heredia and the governor stood with tribal leaders and law enforcement officials to announce a sweeping investigation into fraudulent facilities. AHCCCS also created a hotline that victims displaced from shuttered programs could use to request temporary housing, transportation back to their tribal communities and treatment. More than 11,700 people called it over the next year and a half, state figures show.

But many people still became homeless as facilities closed their doors with little notice or coordinated care for patients, according to advocates.

"The state of Arizona owes our tribal nations an apology," Mayes, the attorney general, said during the May 2023 press conference. In November 2024, her office announced a $6 million grant program for tribal nations affected by the sober living home fraud. A spokesperson said only tribes and nonprofits in Arizona can apply for the money.

The Hustitos never received an apology. Nor have they received an acknowledgment of their loss - not from AHCCCS or the owners of the sober living homes where he stayed. Anders Hustito said he continues to grieve.

"I'm still hurting," he said.

"We owe it to him to get justice for him," Katherine Hustito said.

--- This article first appeared on Arizona Center for Investigative Reporting and is republished here under a Creative Commons license.