What are sober living homes and what role did they play in Arizona's Medicaid fraud?

"Sober living home" recently has become an often-heard term in Arizona because of a multimillion-dollar scam of state Medicaid money, but some critics say the label has been misconstrued.

Because sober living homes in Arizona can't actually bill insurers, including Medicaid, some insiders in Arizona's recovery community think the term "sober living scandal" is a misleading way to explain a scam that could add up to more than $2 billion fleeced from taxpayers.

More precisely, the impropriety was about widespread billing fraud, primarily in the American Indian Health Program, a fee-for-service division of Arizona's Medicaid program, which is known as the Arizona Health Care Cost Containment System.

While it's true people victimized by the alleged bad actors were often living in sober living homes, the scam involved fraudulent billing for what in many cases was nonexistent outpatient treatment, explained Will Humble, executive director of the Arizona Public Health Association.

"It's not sober living home fraud. It's people billing outpatient treatment clinics for nonexistent services. ... They were warehousing them in sober living homes so that they could say they were giving them treatment," Humble said. "Because they were getting so much per hour, paying the rent at the sober living home was a sunk cost."

In other words, the scam was not technically sober living fraud, but sober living homes were central to the schemes set up by many of the fraudsters. That's because of the "assets" sober living homes offered in the form of patients to operators of phony or subpar outpatient behavioral health clinics, investigators have said.

Many of the people targeted by fraudsters, state officials say, were Indigenous people with substance use disorder who believed they were getting help with recovery. But instead, those vulnerable people sometimes found themselves in frightening situations. Reports have surfaced of people held against their will by bad actors who needed patients enrolled in AHCCCS in order to overbill Medicaid and reap huge paychecks for personal gain.

A vast majority of the Medicaid fraud that's under investigation by the state in connection with the scandal involves outpatient behavioral health clinics, Nick Klingerman, chief of the criminal division at the Arizona Attorney General's Office, told a legislative budgetary funding formulas subcommittee on Jan. 25.

As of Jan. 25, the state had issued 72 indictments involving 51 people and 21 entities in conjunction with the scandal, and 263 cases are under investigation, Klingerman said.

The fraud appears to have evolved over time. Some of the deceit involved billing Medicaid for services that were never provided in combination with illegal patient brokering that involved kickbacks for patient referrals, investigators have said.

Here are five things to know about sober living homes and how they fit into the Arizona Medicaid billing scandal:

Legitimate sober living homes typically charge residents a weekly fee

Some of the sober living homes in the alleged scams were giving patients free room and board because they formed alliances with outpatient clinics that overbilled Medicaid, but that's not how sober living homes typically work.

Insurance, including Medicaid in Arizona, can't be billed for sober living, so that's why operators of such homes locally usually charge a weekly amount for people to stay there. Most sober living homes are self-pay, and a common cost is $200 per week, though rates can vary, and food is usually not included. Sober living home operators typically help residents find jobs to pay their rent.

"If you are doing it the right way, it's not extremely lucrative," said Wade Mulhauser, owner and director of Plugged-In Recovery, which operates nine sober living facilities in the Valley. "If you got into this for the money, you got into this for the wrong reasons. You get into it to help people."

Mulhauser said some sober living operators will allow clients to live in their homes with a promise to pay, "though sometimes you get burned where you give people two weeks' free rent and they take off on you."

The tricky part is that people operating sober living homes have a valuable commodity: people trying to get sober who may need outpatient clinical treatment. It's against the law for sober living home operators to take kickbacks or other inducements for referring patients, but as the recent scandal showed, it happens anyway.

Undercover investigation: Arizona sober living home operators charged in patient referral kickback scheme

Complaints about unlicensed sober living homes in Arizona have more than quadrupled since 2021

The Arizona Legislature in 2018 passed legislation to license sober living homes that was signed into law by then-Gov. Doug Ducey.

The Arizona Department of Health Services began accepting applications to license sober living homes in 2019 and as of Feb. 14 there were 360 sober living homes licensed in the state, down from 470 in 2023, state records show. As part of the licensing oversight, the Health Department investigates complaints about both licensed and unlicensed sober living homes.

If an Arizona home provides a supervised setting to a group of unrelated individuals recovering from substance use disorders in a sober environment but doesn't provide clinical treatment, they need a sober living home license, state law says.

There may also be zoning requirements and occupational limits depending on the jurisdiction, said Tom Salow, assistant director in charge of licensing at the Arizona Department of Health Services. Salow said the public can check the state's website to figure out whether any particular sober living home is licensed, though the homes are listed by name only, and do not include addresses.

The state investigates complaints about sober living homes and also conducts annual inspections on licensed sober living homes. There's an exception for homes certified through the Arizona Recovery Housing Association, which by law handles its own initial and annual inspections and includes approximately 96 of the 360 homes licensed by the state.

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Complaints about unlicensed sober living homes rose to 446 in 2023, which was more than four times the 94 complaints Arizona health officials received in 2021. Complaints about licensed sober living homes more than doubled during that same time frame, from 26 to 68, department data shows.

While the department has a tool where members of the public can look up civil fines and state enforcement actions against sober living facilities, the tool as of Jan. 30 wasn't showing any. The 2023 annual state sober living report indicates at least three such actions against licensed homes and seven against unlicensed homes in 2023. The Arizona Republic requested the information via a records request on Jan. 24 and had not had a response as of Feb. 16.

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They were once known as halfway houses and are not a new concept

It's easy to get confused about exactly what qualifies a residence to be a sober living home, because the name for such homes used to be more widely known as a halfway house, and sometimes also as a recovery home.

The premise of sober living is that it provides a supervised setting to a group of unrelated individuals who are recovering from substance use disorders, but it's not a treatment facility. Sometimes it's a step down for people who have been in residential treatment.

Sober living homes exist across the country to serve the needs of an ever-growing population of people with substance use disorder who need a structured environment where they can be supported in remaining sober. It's common for people who live in sober living homes to have a roommate because it provides the accountability that helps prevent relapse.

Sober living homes can't provide treatment and their addresses aren't public

Except for providing testing to verify that residents aren't using drugs or alcohol, sober living homes can't provide treatment or any medication on-site.

A behavioral health residential facility, also regulated by the state, is a higher level of care from a sober living home and provides clinical treatment, and sometimes sober living homes are confused with residential treatment centers, known in the licensing department as behavioral health residential facilities, Salow said, but they are not the same thing. Arizona as of Jan 29 licensed 844 residential behavioral health facilities for adults and 138 for children.

The state recently moved its sober living licensing team into a newly created bureau for behavioral health licensing that also includes residential treatment centers. Often when people complain about sober living homes, the home is actually a residential behavioral health center or vice versa, Salow said.

A key difference between the two is that residential treatment facilities are required to provide behavioral health services, which means they are usually eligible to receive reimbursement for those services through the resident’s insurance or AHCCCS, Salow explained. Since sober living homes are prohibited from providing medical or clinical services on-site, they are not able to bill insurance or AHCCCS.

The addresses of residential behavioral health facilities are public, but by law the addresses of sober living homes are not. The secrecy about sober living home addresses creates problems for anyone who wants to figure out whether a particular residence in their neighborhood is a licensed sober living home.

It also creates a problem for anyone who is trying to cross-reference the addresses of Medicaid providers suspended because of suspected fraud against the state's list of licensed sober living homes.

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Sober living homes per state law are not the same as peer-run homes for sobriety

"If it's just a peer-run home where there's not actually someone acting as the house manager and supervising and it's a group of roommates and they are sober, we can't license under our statutes," said Megan Whitby, deputy assistant director of licensing at the Arizona Department of Health Services.

Sometimes such self-run, self-supported homes are known as Oxford Houses. The nonprofit Oxford House organization's directory lists more than 100 such homes in Arizona. The Oxford House concept is a "democratically run self-supporting and drug free home," the organization's website says.

While peer-run homes aren't subject to state licensing, they may need to comply with regulations imposed by the jurisdiction where they are located, such as a city or town.

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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: Sober living homes in Arizona: Here's what you need to know