Arizona leaders were warned of massive Medicaid fraud. It took them years to grasp the problem

A SOBERING SCANDAL

The victims | Timeline | Inside the scam | Arizona's failure | Rebuilding trust

Dr. Satya Sarma vividly remembers the moment she first had a feeling something was terribly wrong in Arizona's Medicaid program.

At a work meeting in spring 2021, Sarma saw a photocopy of a handwritten complaint from an Indigenous woman with an addiction problem. It was unlike anything she had encountered in her long career.

The woman, as Sarma recalls it, wrote that a mental health provider registered with Medicaid had housed her in an Arizona motel, didn't give her any treatment and at times prevented her from leaving. Sarma, a medical director for the state's Medicaid agency, was horrified.

The woman made the complaint after she left the motel, and Sarma worried that more people were at risk — or worse, had suffered harm and were unable to complain. Medicaid is a government health insurance program for primarily low income and vulnerable people.

"The only ones who complain are the ones who got out, and basically not everyone who gets out is going to complain or even know they can," she said. "It was alarming. I've done quality management. This is not what you see. … It really stood out for me."

Information from Sarma's five-member frontline team intensified her concerns — there were more such complaints and significant financial irregularities in the agency's American Indian Health Program.

The signs of a major problem appeared obvious, but leaders in the agency — the Arizona Health Care Cost Containment System, or AHCCCS (pronounced "access") — repeatedly deflected concerns raised by employees and ignored important warnings, Sarma said.

Sarma is telling her story for the first time to help the public understand how Arizona's Medicaid agency spent at least four years — from 2019 to 2023 — writing checks to scammers who were effectively buying and selling patients in need of drug and alcohol treatment. The scammers, who primarily targeted a Medicaid program for Indigenous people, used taxpayer money to purchase expensive homes, jewelry, clothing and cars for themselves.

Diana "Dede" Yazzie Devine, who was CEO of the Phoenix-based nonprofit organization Native American Connections when the fraud occurred, saw it in its earliest stages. She shared her observations of the crisis with The Arizona Republic because she bore witness to the way the scandal affected patients and providers in the Valley.

Sarma believes the state agency missed opportunities to curb the fraud and the harm that it caused.

The scope of the fraud is immense and stopping it earlier could have prevented dire outcomes, including the loss of as much as $2.5 billion in taxpayer money and a humanitarian crisis that targeted hundreds if not thousands of people at their most vulnerable, many of them Native Americans who were far from home.

The victims were promised help that never came. They were isolated from families and friends who feared they were missing or dead. They were lied to, threatened, blackmailed and plied with alcohol and drugs at their weakest moments. Some of them did die.

Using sober living homes to warehouse people under the guise of providing them treatment for substance use disorder is a known scheme and was rampant in Florida about eight years ago.

But in Florida, the fraud bilked private insurance, not a taxpayer-funded program. The scams proliferated in Arizona because of a state system with poor oversight, inadequate staffing, substandard resources and lax policies, dozens of interviews, hours of legislative testimony and information from hundreds of pages of court documents show.

"Even if they hadn't put together the extent of the financial fraud, they absolutely knew people were being hurt ... . They knew it from the public, they knew it from tribes, and they knew it from my team," Sarma said. "There is no way to call what these people were getting medical care. You do not treat people with substance abuse by locking them in a room."

The scandal has stained an agency that has earned national accolades for effectiveness and innovation. In terms of dollar losses to Medicaid, the Arizona fraud schemes are "the largest that have targeted a single demographic population in recent U.S. history," a spokesperson for the U.S. Department of Health and Human Services' Office of Inspector General wrote in an email to The Arizona Republic.

Sarma is also upset about what she calls a lack of accountability.

While Arizona Gov. Katie Hobbs says her administration has taken numerous steps to stop more fraud, some of the people who worked at AHCCCS while the scams occurred remain in executive positions and others left their jobs without any indication of repercussions, Sarma said.

"Without accountability there will be no learning," she said.

A shift from Republican-led leadership under former Gov. Doug Ducey to Hobbs, a Democrat who assumed office in January 2023, has some blaming the previous administration, while others have accused Hobbs of politicizing the crisis.

Sarma says her concern is not political. Rather, it's making sure the fraud has stopped, and that it doesn't happen again, she said.

The Hobbs administration remains "prepared to hold accountable" any employee who is found to have participated in or neglected their responsibility to address the fraud, Hobbs' spokesperson Christian Slater wrote in an email.

"But as there are ongoing federal and state investigations, we cannot comment further," Slater wrote.

Promises, bribes, threats: How victims of Arizona substance abuse treatment scams were targeted

Tribe asked AHCCCS for help, was told to seek it elsewhere

Prosecutors and victims of the scams have said some of the wrongdoers gave patients drugs and alcohol so they would stay longer and so the fraudulent providers could continue to bill for them. People trying to get sober died of overdoses or alcohol poisoning, according to court documents and information from the Phoenix group Stolen People Stolen Benefits, which was created to help victims of the crisis.

Estimates on how many people have died vary. Navajo state Sen. Theresa Hatathlie, D-Coal Mine Mesa, said she is aware of reports that at least two dozen people died as a result of the crisis. Stolen People Stolen Benefits leader Reva Stewart said the number could be as high as 200 while the Navajo Nation has not shared a tally.

The state already faces three wrongful death lawsuits related to the fraud. Those who died were all Indigenous men — one from the Crow Tribe of Montana and two from the Navajo Nation, which has tribal land in Arizona, Utah and New Mexico. They were between 32 and 44 years old.

Criminal indictments related to the crisis are expected to continue into 2026, with dozens of staff members at the state Attorney General's Office working on investigations, according to Nick Klingerman, who heads the office's criminal division, including its 32-member Medicaid fraud unit.

"It's unprecedented fraud. … It is a lot for the Medicaid fraud unit and for the Attorney General's Office as a whole," Klingerman said. "For us it's a daily discussion about what we're doing daily to investigate and prosecute these cases. It's a major resource effort for the Attorney General's Office."

While the scale of the human trafficking is still unknown, the Navajo Nation as of mid-May said AHCCCS contractors had assisted nearly 1,500 members of the Navajo Nation alone who were affected. A state hotline set up for the victims has received more than 30,000 calls over the past year and has provided 3,756 affected people with temporary lodging, according to AHCCCS.

Victims came from numerous Arizona tribes as well as from other states, including Montana, New Mexico and California. Sarma maintains that state officials could have kept that number much lower.

She still has a copy of a July 29, 2021, complaint from a White Mountain Apache Tribe employee who emailed Arizona's Medicaid program about three women in a van offering to pay a case manager $150 for every client referred to their facility. That's a practice known as patient brokering, and it's illegal.

"Our case manager reports he did not talk to the women, but was triggered with very intense emotions, as tragically, he lost a family member last year to practices like these," the tribal employee wrote. "This facility does not have any type of contract to do business on reservation grounds. We respectfully request support reaching out to this facility and warning them against such practices."

It wasn't the first time the tribe alerted the state agency.

The White Mountain Apache Tribe "keeps sending us these scenarios" of residential behavioral health facilities "going on tribal land to recruit members," says an internal AHCCCS email from agency employee Leslie Short to Markay Adams, the agency's assistant director in the Division of Fee-for-Service Management, the day after the complaint was made.

Adams no longer works for AHCCCS. Short was promoted to a deputy assistant director position in 2023.

Short's email seeks advice from co-workers, but says that barring health and safety problems or issues with quality of care, AHCCCS would tell the tribe to take their complaints to tribal law enforcement and licensing officials with the Arizona Department of Health Services. That deflection was the agency's stock answer to the complaints, Sarma said.

Sarma provided a copy of the emails to The Republic, which the news organization shared with officials at AHCCCS. A written response from the agency says that when notified about quality of care or safety issues with a provider, AHCCCS investigates and, if necessary, takes appropriate actions against the provider, "based on the severity of the issues identified."

AHCCCS officials also wrote that sending complaints about problems on tribal land to tribal law enforcement is appropriate. AHCCCS receives many referrals from tribes on a variety of issues and "the investigation of crimes perpetrated against tribal members on tribal land is the responsibility of tribal, state, and federal law enforcement, with whom AHCCCS cooperates to protect member safety," the statement from AHCCCS says.

Citing "pending litigation and the privacy of AHCCCS personnel," AHCCCS officials did not respond to any of Sarma's other specific allegations. They wrote that they take her allegations seriously and have made improvements to prevent future fraud.

Among other measures, AHCCCS officials said they have strengthened their vetting of providers by hiring more staff. And they plan to add a new position to the agency — a chief compliance officer to ensure all government regulations are followed.

AHCCCS officials say they've taken the step of terminating 79 providers from the program due to quality of care or health and safety concerns since the fraud was announced publicly for the first time at a multiagency news conference on May 16, 2023.

Sarma says AHCCCS could and should have terminated and suspended more providers years earlier. In 2021, her team repeatedly found some behavioral health providers were not safe for patients, she said. Sarma said her team recommended that AHCCCS stop paying some of those providers, but the agency did not adopt the recommendations.

Timeline: How Arizona's Medicaid program became a vehicle for fraud

'What is going on here?'

Sarma was not the only person to see warning signs of wrongdoing and harm to AHCCCS patients who were trying to get sober.

In early 2020, Diana "Dede" Yazzie Devine said the frontline staff at Native American Connections in central Phoenix, where she was CEO, began informing her of "strange" indications of trouble. Vans carrying groups of Indigenous people needing drug and alcohol treatment began showing up at the nonprofit social service agency, which among other things, provides housing help and treatment for people with substance use disorder. But the patients were hesitant to share other information about themselves. Some had no identification.

"We were aware of this thing from the very beginning," Devine said. "We'd see these vans and it was very unusual. We asked (the patients) where they were staying and they didn't know."

The clinical staff didn't want to push patients too hard so they did what the organization has always done — provided the patients treatment for alcohol and drug dependence, either three or five times per week for several hours per day, said Devine, who retired from Native American Connections in 2023 after 44 years there.

Native American Connections submitted bills for the care to AHCCCS, but that's when the situation got more strange: The state agency denied the claims.

Devine, one of the public members of Arizona's State Medicaid Advisory Committee, discovered that another Medicaid treatment provider already had enrolled the patients and was billing for their treatment.

The claim denials were an early sign of "duplicative billing" that the Arizona Attorney General's Office says was commonplace in the fraud schemes — billing for the same person at two health care facilities on the same day. Leaders at Native American Connections used the organization's money to pay for the treatment. They don't turn anyone away who needs help.

"Here we were the ones providing the care," Devine said. "It was, 'What is going on here?'"

What was happening was Medicaid fraud.

Providers with state licenses were billing AHCCCS for treatment they weren't providing. Initially, the claims came from licensed residential treatment facilities, a provider category the state agency had deemed "limited risk," which meant they had no regular onsite visits from AHCCCS.

The state agency also did not do FBI fingerprinting checks on administrators or employees in the limited risk category.

The strange activity continued. Sometimes the people in the vans were not Indigenous, but Native American Connections helped them anyway. They serve all populations.

Devine's staff told her some of the providers, who they didn't know, would arrive at community events hosted by her organization and try to recruit people into their addiction treatment programs. Devine saw some of the activity firsthand, too.

"They were always recruiting, which was very unusual. They would be really aggressive," she said. "You wouldn't know who they were and they'd want to set up a booth and then they'd bring these vans."

Devine said that the fraud appeared to shift away from inpatient treatment and moved increasingly to outpatient rehab and counseling facilities. AHCCCS at the time classified outpatient behavioral health providers as a "moderate" risk level that normally would require onsite visits from agency staff, except that during the COVID-19 pandemic, those visits were waived.

"They wanted to keep patients in some programs for months and months and months, and if you are in residential care, (AHCCCS) will begin to question and deny," Devine said. "The whole fraud thing shifted more to outpatient services. Nobody told us there was fraud, we just knew. We knew it wasn’t right. Every day it would just get worse and worse."

Arizona Medicaid officials won't make complaints public

When she saw the Indigenous woman's complaint, Sarma had worked at the agency for a little more than a year — a dream job, she said, because it offered the chance to affect the lives of millions of people. Sarma previously worked as a sole practitioner in Sun City West and then as a physician in charge of quality management for several health plans.

Suspicious about what she was finding, Sarma requested a financial analysis in June 2021. It showed the American Indian Health Program comprised about 6% of all Medicaid enrollees in Arizona but accounted for a full one-third of the agency's total outpatient behavioral health claims for the prior year.

Alarmed, Sarma sent the report to her bosses, but no one took action, she said. And Sarma said she was admonished to stop pulling reports. When she became insistent, she said her boss accused her of insubordination and disrespect.

With each year that the agency did not act, behavioral health claim amounts within its American Indian Health Program, often known as "Indian AHCCCS," kept climbing to levels far beyond what Sarma saw in the analysis she requested.

By 2022, AHCCCS paid nearly $800 million in outpatient behavioral health claims for about 140,000 people in the American Indian Health Program. By contrast, those types of claims for about 2 million people on general AHCCCS totaled just $420 million in billing, according to a Republic analysis of public records.

Sarma's concerns about the program culminated in stress, sleepless nights and worry for both patients and her employees. She felt stymied by agency leadership.

The Republic verified the financial report Sarma requested, as well as evidence that she sent it to others within AHCCCS, but was unable to verify the handwritten complaint from the Indigenous woman. AHCCCS refuses to share copies of complaints or grievances from when the fraud occurred and Sarma's former co-workers did not respond to requests from The Republic seeking confirmation of the complaint.

Last October, The Republic requested copies of any "fraud tips" made to the AHCCCS Office of Inspector General. AHCCCS officials denied the request March 29. The denial is "in the best interest of the state, as their release would compromise ongoing criminal investigations and would have a chilling effect upon future individuals making reports of fraud," agency officials wrote.

AHCCCS officials also said disclosing any complaints about fraud may cause harm because the tips contain "unsubstantiated and sometimes false allegations of wrongdoing against innocent individuals or entities."

Hobbs says the state is still uncovering the extent of the scam, which suggests the money fleeced from taxpayers could exceed current estimates. Indigenous communities are angry about the human trafficking and are demanding answers as they continue to find people who are victimized, though fraudulent activity appears to have significantly decreased over the past year.

"Their anger is absolutely justified. This is coming on the heels of centuries of mistreatment of Indigenous people in our country," Hobbs said in an interview with The Republic.

How did it happen? Scammers took billions in taxpayer money through biggest fraud in Arizona history

'It was so easy to exploit the system'

Investigators now say suspected criminals primarily preyed on an area of Arizona's Medicaid program called the Division of Fee-For-Service Management, where Sarma worked as a medical director between December 2020 and October 2021.

The American Indian Health Program is part of that division, meaning providers bill the agency directly for individual services rather than offering managed care services under a fixed budget. The vast majority of AHCCCS enrollees are in managed care plans, which typically have extra layers of oversight.

The fraud targeted AHCCCS managed care plans, too, but state leaders say the American Indian Health Program was particularly vulnerable to continued abuse.

"We had so little involvement in the claims that we were processing (in the American Indian Health Program)," said Carmen Heredia, who assumed her role as leader of AHCCCS in January 2023. "It was so easy to exploit the system."

Robert Becsey, a federal investigator, told a grand jury June 6, 2022, that since the American Indian Health Program at the time did not require prior authorization like managed care, "it’s a cash cow."

“You can bill it and there’s little oversight," Becsey testified.

There's a good reason why the American Indian Health Program is flexible. It enables those enrolled to receive health care services from Indian Health Service facilities as well as from AHCCCS-registered providers, and gives Indigenous people, particularly those who live in remote areas of the state, the ability to get health care from a wide range of providers.

"There's a rule that you cannot mandate managed care for American Indians," Heredia said. "This is a federal rule across the nation. You could do it if there is a tribally-owned managed care organization but we don't have a tribally-owned managed care organization. That could be a solution or a path in the future. ... in lieu of that we have to at least offer a fee-for-service program to the American Indian population."

When Sarma started at the Division of Fee-For-Service Management, she said her primary function was to focus on quality, though what she found in the division was "more like Law & Order" — often involving possible criminal activity rather than common quality of care complaints like incorrect diagnoses, drug errors and unnecessary treatment. Stories about white vans recruiting patients on tribal land were commonplace, she said.

She also soon learned employees in the division raised concerns within the agency about onsite visits to certain behavioral health providers dating as far back as at least January 2020, nearly a year before Sarma assumed her role there.

Sarma said even then AHCCCS employees knew that there was a "whack-a-mole" situation happening. Providers would get in trouble with the state, then open a new facility under a different name. It was another example of a missed opportunity to take action, she said.

"They were able to make these connections that the minute one shuts down, another one is popping up," Sarma said. "The quality management team was doing the research ... they wanted to build up the quality management team but they (AHCCCS leadership) weren't resourcing it."

People across multiple states 'rounded up' into sober living homes

By the time the COVID-19 pandemic hit in March 2020, drug and alcohol rehab providers in the Phoenix area recognized a problem.

"In the community of recovery health care, we knew all the providers, the quality of their care. We'd work together, we'd do referrals. We knew who had a cultural component to their service," Devine said. "This was something completely new and different ... . Some of the programs only took the American Indian Health Program. We saw flyers. They would tell you that you have to enroll in this health plan."

A 48-bed inpatient treatment facility that Native American Connections built due to extremely high demand opened in March 2021. Devine and other organization employees were surprised that it was only half full.

Devine suspected the low capacity was the result of the unfamiliar providers her employees told her about, who were heavily recruiting patients. And some Native American Connections employees were getting lucrative job offers from providers Devine had never heard of.

"It surprised us. We didn’t understand it," Devine said. "Then we started hearing about other programs bringing in people from out of state. People were just being rounded up and taken to these sober living homes."

The Medicaid fraud appeared to morph into a scam that generally involved unlicensed sober living homes that didn't receive Medicaid money but formed liaisons with licensed behavioral health clinics and used patients in a way that was "almost like leasing a person to one of these fraudulent providers," taking kickbacks for the referrals, Klingerman at the Attorney General's Office explained.

The recruiters in Arizona lured people into sober living homes, registered them for the American Indian Health Program and billed AHCCCS at a rate that could exceed $1,000 per patient per day. That meant a clinic with 20 patients billing for five days of treatment per week could get $400,000 or more in payments every month, which left the bogus providers with plenty of money to pay for patients' housing.

Native American Connections was billing AHCCCS roughly one-tenth the amount per day of some of the other providers.

Even as the pandemic wound down, Devine said Native American Connections' patient load stayed much lower than expected. Some other longstanding providers saw the same thing, she said.

"It had a huge impact on us. We were feeling it financially. We'd just opened this new facility and were wondering why we weren't getting patients," she said. "Our outpatient program significantly dropped as well."

Timeline: How Arizona's Medicaid program became a vehicle for fraud

'Red flags were going off for me'

About nine months into her time in the Division of Fee-for-Service Management, Sarma learned AHCCCS was sending her employees on law enforcement raids, which was "totally inappropriate," she said.

While some of the onsite visits were for "health and safety inspections" by AHCCCS, others were "raids" conducted by then-Arizona Attorney General Mark Brnovich's office on providers engaging in suspected fraudulent activity, Sarma said. She found out about the raids in August 2021, began asking her employees more questions and took notes, which she shared with The Republic.

"Red flags were going off for me," Sarma said.

According to Sarma's notes, the employees described arriving to scenes with officers wearing tactical gear and carrying battering rams. Those conducting the raids would "swoop in and get the records, but then they were ignoring the people," Sarma said.

Sarma said she recommended AHCCCS send mobile crisis teams on the raids to help patients and protect staff, but she said Adams did not adopt her recommendations.

"There's a level of negligence involved because people were being hurt in front of our eyes," she said.

Total AHCCCS spending rose by nearly 70% in four years

Pandemic policy changes likely made it easier for nefarious billing activity to go unnoticed by AHCCCS. Among those was a federally-imposed freeze on disenrolling members that brought record-high enrollment and huge agency spending increases.

During the pandemic, AHCCCS officials also tried to minimize barriers to treatment for problems like opioid and alcohol dependence, which soared during COVID-19. And the alleged schemes to defraud Medicaid evolved over time, as did the people they targeted.

Arizona state Rep. Matt Gress, R-Phoenix, was the budget director for Ducey. Gress said "none of the billing irregularities" within the American Indian Health Program came to his attention and no one in the agency asked for increased state funding for AHCCCS.

"I was not aware of a shortfall of money," Gress said.

Overall agency expenditures rose 69% between 2019 and 2023 — from $13 billion to $22 billion, agency numbers show. Yet Gress said that the freeze on disenrollment meant expenditures were expected to significantly rise. Enrollment in the program rose 33% between 2019 and 2023, reaching a record-high of 2.5 million people in January 2023.

While Arizona Attorney General Kris Mayes, a Democrat, has called the Medicaid fraud a "stunning failure of government" — and said members of the Ducey administration were "asleep at the wheel" — Gress disputes that characterization. He notes that many of the indictments related to the fraud that happened under Mayes were initiated under Brnovich, a Republican who, like Ducey, left office in December 2022.

Fifty-one indictments related to the fraud have occurred under Mayes' leadership.

Twenty-eight indictments related to the fraud occurred under Brnovich, and his office sent out a news release for one case that involved 13 individuals and 14 entities in October 2021. The following year, Brnovich indicted a man in his 20s named Johnwick Nathan on 18 felony counts, including fraud and money laundering in connection with bilking AHCCCS out of nearly $200,000. Nathan has since pleaded guilty to two felony counts.

In a statement to The Republic, Brnovich wrote that the Medicaid Fraud Unit under his leadership was consistently ranked as one of the best in the nation and that most of the people who worked on the AHCCCS fraud cases that were part of the scandal are still part of the Attorney General's Office under Mayes.

"If Hobbs and Mayes want to appear tough on crime, comparing their records to mine is a very poor strategy," Brnovich wrote.

Mayes stands by her comments that former political leaders, including Ducey and Brnovich, were asleep at the wheel, her spokesperson Richie Taylor wrote in a recent email. The exponential increase in behavioral health claims in the American Indian Health Program "should have set off alarm bells and spurred action in the Ducey administration budget office and among former AHCCCS leadership," he wrote.

"For whatever reason, it didn’t, and the fraud grew into what Attorney General Mayes has called one of the greatest government scandals in state history," Taylor wrote.

Sarma agrees. AHCCCS leaders should have paid attention to the financial irregularities earlier than 2023 and taken action. State leaders were not only asleep at the wheel, they were "dozing while careening into a wall," she said.

'Our bosses wouldn't listen to us'

On July 30, 2021, Sarma said she attended a meeting with Adams, who was her direct supervisor, and AHCCCS Office of Inspector General Sharon Ormsby to review the report about exploding costs in the American Indian Health Program. Sarma recalled that Adams told her that she didn't need to concern herself, something to the effect of "stay in your lane."

Ormsby did not respond to requests for comment. Sarma emphasized that she does not hold Ormsby responsible. Adams was the person who deflected AHCCCS employees' concerns, Sarma said. Adams reported to Shelli Silver, whose was deputy director of health plan operations at AHCCCS and Silver reported directly to agency Director Jami Snyder, according to an organization chart from that time. Silver and Snyder did not respond to requests for comment.

"It did not make sense to me that (Adams) was shutting this down. I was so shocked by that. Why would you not want to know?" said Sarma, who kept the email she wrote later that day to Adams, summarizing the meeting. "Our bosses wouldn't listen to us. Not only that, they would fail to act to mitigate the human cost. … It was really bad. It was malfeasance."

Adams has worked as a manager for Blue Cross Blue Shield of Arizona since May 2023.

She did not respond to Sarma's individual allegations, but provided The Republic with a written statement.

"First, I understand the justified concerns relating to the investigation into the fraud. Second, it is my hope that the tribes receive justice and that public interest remains strong so that there is a true accounting of what occurred," Adams wrote.

"I believe a thorough and fair investigation will bring to light what happened, including my role, and hope that we all may learn from this investigation so that it never happens again."

In the fall of 2021, Sarma worked on a proposed protocol for handling the raids by adding mobile crisis services and presented it to her department, including Adams, she said.

"They all listened to me and it never changed," she said. "That was basically when I said, 'I have to get out of here.'"

By Oct. 31, 2021, she'd quit.

"They treated me as though I was a troublemaker but we were really trying to do the right thing," she said. "I don't want frontline people thrown under the bus. That incenses me to no end."

Sarma is no longer working in Arizona.

"I do feel AHCCCS does amazingly good work," she said. "I'd still be there if not for the experience I had."

Document outlining fraud scheme sent to attorney general in 2022

Toward the end of the pandemic, Native American Connections employees increasingly heard what Devine calls "horror stories" about Indigenous people getting kidnapped, held against their will and not given treatment. Some had gone missing from their tribal communities.

"People weren't getting the care they needed. It was just money. … They had their ID, their money and phones confiscated or lost — that really happened," Devine said. "They would get enrolled in the American Indian Health Program even though they'd been brought in from another state."

The organization also saw people who acknowledged they weren't Indigenous but were enrolled in the American Indian Health Program anyway, Devine said. Indeed, the program accepted enrollments by phone and required no documentation that the person was Indigenous or a member of a tribe, other than verbal attestation. That practice has changed — phone enrollments stopped in 2023.

By 2022, signs of fraud and patient harm grew increasingly blatant.

On Feb. 7, 2022, more than 10 months before Brnovich left office, a document from an unnamed private citizen that outlined the scam was hand-delivered to Brnovich's office, according to lawyers from the Phoenix-based Brewerwood law firm, who are representing families in all three wrongful death lawsuits against the state.

The Republic obtained a copy of the 107-page original document, as well as a seven-page redacted version via a public records request to the Arizona Attorney General's Office. The document outlines how the American Indian Health Program was targeted, and calls the fraud "a tragedy for the Native American people."

The document, headed with the word "urgent," describes "rampant patient brokering" and housing of Indigenous people in "unsafe" situations. The writer urges investigators to "follow the vans" and "follow the money" to uncover billing fraud. The document claims one fraudulent provider was receiving $1,800 per day per patient.

"The scheme is simple: send vans to the reservations to pick up Native Americans and house them in unlicensed homes (less than six to avoid attention), drive them to a center for group each day with no licensure, oversight or credentialed staff, then bill AIHP (no contract necessary) and continue to build an enterprise with a network of people who will find the Native Americans," the document reads.

Later that year, a legislative committee focused on missing and murdered Indigenous people heard numerous stories about Indigenous people going missing and found in treatment facilities in the Valley where they weren't getting help.

But Hobbs told The Republic that the Ducey administration never warned her about the scandal.

"This was not something that the previous administration had alerted us to at all," Hobbs, a Democrat, told The Republic. "We were angry and knew that we had to take action really quickly, and just really frustrated that more hadn't been done before."

Daniel Scarpinato, former chief of staff to Ducey, did not directly respond to Hobbs' comment, but provided a statement that said the transition from Ducey to Hobbs was "unprecedented in its level of cooperation" and that members of the Ducey administration have continued to make themselves available and accessible since leaving office.

"Some individuals within the Hobbs administration seem obsessed with pointing fingers backward, but their focus should really be on doing their job — especially in this situation," Scarpinato wrote.

How new AHCCCS leader, Hobbs learned of fraud scandal

Hobbs said she learned about fraud in early 2023 from Heredia, the newly-appointed AHCCCS leader, who said she only found out about the schemes from Devine, who took her aside on the day of Hobbs' public inauguration at the state Capitol in January of that year.

Devine told Heredia stories about human trafficking, about people kidnapped from reservations, transported to Phoenix under the guise of drug and alcohol treatment and not receiving the treatment they needed, Heredia said.

"It sounded wicked and outlandish. It was alarming," she said. "My initial reaction in hearing it was that there has to be something inaccurate here, that it can't really be Medicaid."

Devine says she's not certain about dates and can't say precisely when she understood the seriousness and size of what was happening, which is also why she's hesitant to place blame on any one person or entity. Putting it all together was a process, she said.

What she does remember is the day of Hobbs' inauguration, when she took Heredia aside because the situation "was getting so bad." Heredia previously was the CEO of a trusted health provider near Native American Connections — Valle del Sol — and is a "quality person," Devine said.

"Why would I go up to her? Because I was probably feeling desperate," Devine said, recalling the moment. "It makes me almost want to cry. … I just didn't think it was being addressed and we were seeing it was still a significant issue."

In addition to malicious bad actors, Heredia believes there also were people earning money from the scams who merely saw a good business opportunity and built a business model on patient brokering — activity that had gone under the radar for so long that it became a kind of industry standard.

"I asked a lot of questions about this and kept hearing more and more concerning reports from the community," Heredia said, recalling the first few months of 2023. "It was almost like a thread to unravel."

Heredia says former agency Director Snyder, who left her job in January 2023, is no longer in Arizona. She is now a commissioner on the Medicaid and CHIP Payment Access Commission, which makes recommendations to Congress on issues that affect Medicaid.

Snyder most likely knew about the schemes before she left her job.

On Dec. 23, 2022, AHCCCS posted a news release on its website warning enrollees about unlicensed health providers who were targeting Indigenous people living on tribal land. The news release linked to articles that were published about the legislative House Ad Hoc Committee on Missing and Murdered Indigenous Peoples meetings in the fall of that year and to a Nov. 17 Facebook post from the Navajo Police Department warning about recruiters from behavioral health facilities in Phoenix and possible criminal activity directed at Navajo people.

Heredia says she found there was "some knowledge" about the fraud within the agency under Snyder, but that it was "very piecemeal" and there were investigations happening, but "it didn't seem all connected."

On the one year anniversary of the May 16, 2023, news conference, Heredia told reporters that AHCCCS is now a "completely new" organization with multiple reforms, including pre-payment reviews for fee-for-service claims that hadn't previously been in place.

"We are a new AHCCCS," Heredia said, but it's "still going to be a long journey ahead."

Heredia told The Republic in an interview that it appears prior to 2023, "the data wasn't being pulled in a way that really highlighted the size of the issue," but Sarma disputes that.

"What about my report?" she said. "The one that they ignored?"

Report AHCCCS provider fraud

If you want to report suspected fraud by a medical provider, please call the number below:

• In Arizona: 602-417-4045

• Toll Free Outside of Arizona Only: 888-ITS-NOT-OK or 888-487-6686

Report AHCCCS member fraud

If you want to report suspected fraud by an AHCCCS member, please call the number below:

• In Arizona: 602-417-4193

• Toll Free Outside of Arizona Only: 888-ITS-NOT-OK or 888-487-6686

Republic reporter Richard Ruelas contributed to this article.

Reach health care reporter Stephanie Innes at Stephanie.Innes@gannett.com or at 480-313-3775. Follow her on X, formerly known as Twitter, @stephanieinnes.

This article originally appeared on Arizona Republic: How AZ leaders missed warning signs of Medicaid sober living fraud