What's known about AZ's Medicaid fraud investigation

PHOENIX — Hundreds of millions of dollars in Medicaid money was fleeced from Arizona taxpayers as part of a scheme that preyed on Indigenous people, according to a massive multiagency fraud investigation.

Agency leaders and tribal officials shared their findings on May 16. Gov. Katie Hobbs called the situation a "humanitarian crisis." Attorney General Kris Mayes called it "tragic and outrageous" and said Arizona owes an apology to its tribal nations.

Tribal leaders and state officials said Indigenous people were aggressively recruited and, in some cases, kidnapped from rural areas and taken to sham facilities in the Phoenix area where they often weren't allowed to leave or to contact their loved ones. At the same time, fake clinic leaders were getting paid government money for providing so-called mental health and substance abuse treatment, officials said.

Collaboration among health care, tribal, state, federal and law enforcement entities in combating the Medicaid fraud "will allow us to protect the most vulnerable in our state," said Andy Stone, chief of the financial crime and public corruption section of the U.S. Attorney's Office for the District of Arizona. "In addition, it helps send a message to these unscrupulous providers that their fraudulent activity will not be tolerated."

Here is what we know so far:

How were Indigenous people harmed?

Indigenous people were picked up in rural tribal areas by people in unmarked vans and taken to sham facilities in the Phoenix area, according to multiple reports.

"It's gotten so brazen where we call it the 'white van syndrome' ― the predatory recruitment," said Hopi Tribe Chairman Timothy Nuvangyaoma.

Some people died in those facilities, according to testimony during a Feb. 14 hearing for the Arizona Senate Health and Human Services Committee. State Sen. Theresa Hatathlie, D-Coal Mine Canyon, introduced Senate Bill 1661 in this legislative session as an attempt to strengthen the admission policies into behavioral health residential facilities.

"Overall, there's a huge operation that's going on," Hatathlie told the committee. "It's very sophisticated, to say the least. … Many of the victims are afraid to come forward."

How much money was bilked from Medicaid?

The fraud cost the government "hundreds of millions of dollars," Mayes said, explaining since the investigation is ongoing, she could not be more specific.

"I believe it is in the hundreds of millions of dollars, but it could go well beyond that," Mayes said.

The alleged fake clinics were claiming to provide behavioral health and alcohol and drug use treatment.

In fiscal year 2019, the behavioral health outpatient billing code, which was one of the main codes the alleged perpetrators were using, billed $53 million to AHCCCS, Mayes said. In 2020, it went up to $132 million; in 2021, up to $291 million; and in 2022, up to $668 million.

That's more than 12 times the 2019 amount.

"That is exponential growth in this program. Now I can't stand here and tell you exactly how much of that growth represents fraud, because some of it is legitimate providers," Mayes said. "But our agents, who are standing here in the room, will tell you that that is extraordinary growth. It is unusual. It is suspicious and it's why we indicted more than 40 people over the last three years. It's why we seized and recovered $75 million from these fraudulent actors."

The money was allegedly taken under false pretenses from the state's Medicaid program, which is called the Arizona Health Care Cost Containment System. Medicaid is a government insurance program for people with low incomes and, as of earlier this year, provided health coverage to one in every three Arizonans.

Some of the fraud occurred during the height of the COVID-19 pandemic when demand for behavioral health and substance use disorder treatment was increasing, and the health system in general was trying to improve access for patients.

How will authorities attempt to block future bad actors?

Effective May 29, AHCCCS will require three behavioral health provider types ― behavioral health residential facilities, integrated clinics and behavioral health outpatient clinics ― to undergo heightened scrutiny and to register as high-risk providers.

The requirements will apply to all new applicants and all existing providers on their revalidation date. Classification as a high-risk provider means that providers wishing to register as one of these provider types will be required to have a site visit, submit to fingerprinting, undergo background checks, and pay an additional registration fee, along with additional disclosures, AHCCCS officials said.

AHCCCS is putting more identification checks in place, too, including matching the identities of people who want to or who are registered Medicaid providers with "visual attestation" (verifying faces), which means visual confirmation of the individual billing AHCCCS on behalf of a provider.

Visual attestation can happen either through identity verification software or a live side-by-side comparison of an individual and their government identification, AHCCCS officials said last week. Similar systems are used by the Arizona Department of Economic Security for individuals claiming unemployment insurance, officials said.

How were the alleged fraudsters able to do this in the first place?

It appears that some of the alleged scammers lied to AHCCCS officials when they registered to become Medicaid providers. Hobbs said the ability to defraud AHCCCS was ingrained in the system for years and that proper corrective action wasn't taken.

Who are the people behind the alleged phony clinics?

Mayes said her office believes the fraudulent billing scheme began with a criminal syndicate that came to Arizona from Nevada, where it was engaged in similar activity.

"Nevada shut it down up there. They came down here, realized we had the same vulnerabilities, and then it just metastasized from there," Mayes said. "It's very much like a franchise business where they have expanded and expanded and expanded, knowing that this pot of money is available."

Some of the people and entities that have been indicted as a result of the scheme have ties to Nevada, federal and state court documents show.

Were the providers licensed?

Some 102 registered providers have had their AHCCCS payments suspended so far this month due to credible allegations of fraud related to the case.

It appears the providers were licensed, although AHCCCS officials say there was evidence that some providers suspected of fraud used unlicensed branch locations while billing claims out of a licensed clinic.

"Providers cannot register with AHCCCS without being licensed, for this reason, there were no unlicensed providers on the suspension list," AHCCCS spokesperson Cliff Summerhill wrote in an email.

Registered Medicaid providers with AHCCCS are supposed to be licensed by the Arizona Department of Health Services or by another "appropriate licensure board" and disclose ownership and employee information, among other requirements, Summerhill wrote. An example of another "appropriate licensure board" would be the Arizona Board of Nursing, he wrote.

State Health Department spokesperson Jesse Lewis wrote in an email that the state agency is "working through information provided to us, reviewing licensure history, and determining next steps" in connection with the Medicaid fraud case.

Asked whether some of the providers involved in the fraud were unlicensed and if so, why, Lewis deferred to AHCCCS and the Governor's Office and added that the best resource for the public to determine the licensing status of a facility is to use AZCareCheck.com.

Has anyone been charged related to the allegations?

Dozens of people, plus some corporate entities, have been indicted on fraud charges related to the scheme, beginning with some indictments under former Arizona Attorney General Mark Brnovich and some under current Arizona Attorney General Kris Mayes.

Mayes said she's taking a more proactive, synchronized approach to the scams than her predecessor.

There has been at least one federal indictment, according to the U.S. Attorney General's Office in Arizona, which is prosecuting a woman who reportedly bilked more than $22 million from AHCCCS.

While the indictments to date have focused on the financial aspects of the case, Mayes said her office will prosecute suspected perpetrators of other crimes related to clinic operations, such as negligence, kidnapping and assault, "to the fullest extent of the law."

Some of the indictments happened under Arizona Attorney General Mark Brnovich. Shouldn't he get some credit?

Mayes and Hobbs, both Democrats, who have been in their jobs since January, said the previous administration led by former Gov. Doug Ducey, a Republican, was not proactive enough against the alleged fraud. Mayes did acknowledge that her predecessor, former Arizona Attorney General Mark Brnovich, also a Republican, was prosecuting and investigating the problem. But he was not doing enough to shut down the flow of money from AHCCCS to the fraudulent billers, she said.

"You can't prosecute your way out of this problem," Mayes said, explaining that Brnovich's office would prosecute one of the "bad actors," but then that bad actor would open a new limited liability company and start billing AHCCCS as that new entity. "The attorney general's staff, lawyers, investigators, would tell AHCCCS about this, and AHCCCS for three years refused to do anything about it."

Mayes said the AHCCCS Office of Inspector General also had been raising alarm bells about the problem "to no avail."

Jami Snyder, the AHCCCS director under Ducey, did not return a phone call from The Arizona Republic for this article.

Brnovich also did not return a call asking about Mayes and Hobbs' comments.

A former Ducey aide emphasized that the investigation into the problems began during Ducey's tenure, "well before the current occupants took office." Former Ducey chief of staff Daniel Scarpinato characterized the multiagency news conference led by Hobbs as "grandstanding."

What is AHCCCS doing to prevent more financial fraud?

AHCCCS officials shut down the billing codes that were being abused, which cut off a flow of money that had been fueling fraudsters, state officials said.

"Have we plugged all of the holes? Perhaps not. It may be a process that plays out over two weeks, maybe a month. But we've put cement in a lot of holes," Mayes said.

"What was happening was you'd just bill the code and you'd be sent by AHCCCS a physical check. And you can imagine, that makes it even harder for law enforcement to trace the money. So these are very antiquated systems that AHCCCS is now in the process of shutting down and reforming."

The agency has suspended payments to 102 of its Medicaid providers based on "credible allegations of fraud," and officials say there could be more.

AHCCCS Director Carmen Heredia said her agency has a systemwide strategy to prevent fraud, including flagging high-volume claims. AHCCCS is also hiring a forensic auditor to review fee-for-service claims since 2019 to "identify other bad actors in the system, suggest policy changes, and train staff."

The suspicious billing trends began in 2019, Heredia said.

State officials, led by Hobbs' office, have pledged to work in a more coordinated way, including sharing information among law enforcement, tribal officials, AHCCCS and the state's Adult Protective Services program when responding to problems that the investigation uncovered.

Those problems include people going missing, not getting treatment they were promised and getting recruited for substance abuse and mental health treatment that wasn't recommended by a health provider.

What is fee-for-service? What does it mean in the context of this case?

AHCCCS can be billed two ways, either directly or via managed care. Most of the health care covered by AHCCCS is handled by managed care organizations.

But an AHCCCS American Indian Health Program is fee-for-service, which means providers bill AHCCCS directly for individual services, and services aren't bundled. The program is flexible and enables those enrolled to receive health care services from Indian Health Service facilities as well as from AHCCCS-registered providers.

The AHCCCS audit is focusing on fee-for-service claims, Heredia said, because that's where the problem appears to have been the most severe, although managed care was targeted, too.

Based on data and other facts, the AHCCCS managed care organizations "caught onto the fraud" and made changes in their systems, Heredia said.

Should AHCCCS switch its American Indian Health Program to a managed care model?

A change to a managed care model for the state's American Indian Health Program is possible, but AHCCCS officials said that would be subject to the review of tribal officials.

"A change like that is going to take advisement of our tribal leaders and tribal health directors and consultation with AHCCCS," Heredia said. "But I'm looking for solutions such as that so we have a program that is better built to serve the community and give them the services they deserve."

Where can I find a list of the fraudulent clinics?

AHCCCS maintains a regularly updated list of registered providers subject to payment suspension or termination. It is posted on the AHCCCS Office of Inspector General Provider Suspensions webpage.

The 102 providers whose AHCCCS payments were suspended in connection with credible allegations of fraud connected with this case have an effective suspension date of 05/15/23. The effective date of the suspension is on the list next to the provider's name.

"All payment suspensions are under active law enforcement investigation and no further details can be provided," AHCCCS spokesperson Summerhill wrote.

Is there help available for affected families?

Arizona has set up a hotline for those affected. Call 2-1-1 and then press 7.

The Navajo Nation said it is setting up a command center to assist affected family members. The effort is called Operation Rainbow Bridge.