Deceptive Business Practices in Addiction Treatment

Posted on by Emma McGinn

The prevalence of drug and alcohol addiction in the United States is no secret. In a 2018 study, about 11% of people 12 years and older reported illicit drug use within the past month, while “[a]bout 16% of the [US] adult population reported binge drinking” within the same period.1 Therefore, it is not surprising that the addiction treatment industry is big business in the U.S. Addiction rehabilitation brought in $42 billion in 2020 with over 14,000 treatment facilities serving a total of 3.7 million people.2

In spite of the clear need for addiction treatment centers, and their apparent commercial success, certain industry practices have been subject to significant criticism and national attention. There are concerns that the continued commercialization of the addiction treatment industry has compromised the integrity of many centers:

[W]hat was once an industry dominated by family run organizations by people in recovery looking to aid people and families through their darkest hours has become a burgeoning business landscape with patients seen as dollar signs, business practices that only value ‘heads in beds’ and patient needs coming second (or worse) to what type of insurance policy a patient has and the reimbursement the facility will see because of it.3 There have long been concerns about unethical business practices in the relatively unregulated addiction treatment industry. These practices include deceptive online marketing and illegal means of patient enticement.4 Another illegal practice that some treatment centers utilize is patient brokering, in which centers pay third parties for referring individuals with insurance who are suffering from substance use disorder.5 Often, centers will pay the patients directly or will provide them with drugs or other incentives in exchange for admitting themselves into treatment at a particular facility.6

Effects of the Lack of Regulation of Deceptive Business Practices

The lack of regulation of deceptive business practices, partnered with increased demand for service fueled by the opioid crisis, has led to the proliferation of bad actors in the addiction treatment industry.7 Accreditation and licensing requirements for drug and alcohol rehabilitation facilities are inconsistent throughout the states.8 Some states follow standards of care published by the National Alliance for Recovery Residences, others follow those established by the American Society of Addiction Medicine, while still others have no standards of care regulating the operation of these centers.9 Corrupt centers have contributed to significant economic costs by failing to properly treat patients suffering from addiction. These centers have also, more importantly, contributed to mortality rates among patients receiving insufficient care who are then released with a lower tolerance for drugs which increases the likelihood of overdose.10

Rampant abuse in the addiction treatment industry can make it harder for reputable centers to gain trust. “Longtime treatment organizations said they welcome tighter regulations for an industry flooded with newcomers seeking to profit off the addiction crisis.”11 However, Mark Covall, the CEO of the National Association of Behavioral Healthcare, argued that treatment centers are subject to sufficient oversight in in the form of state licensing requirements and third-party accreditation.12

Regardless of the current checks in place, fraudulent treatment centers have undeniably profited off the system. This is evidenced by the case of Kenny Chatman, who ran “fraudulent treatment centers and ‘sober homes’ in South Florida.”13 Rather than helping patients overcome their addictions, Chatman designed his establishments to facilitate continued drug use.14 By prolonging patients’ stays in this manner, Chatman gained at least $16 million in insurance reimbursements.15 The subsequent “crackdown on sober homes in Florida” led the state to shut down around 200 facilities and arrest 50 people.16

Federal Legislation Prohibiting Patient Brokering 

Congress has taken action in recent years to combat patient brokering, one of the common deceptive practices utilized by fraudulent addiction treatment centers. Congress passed the Eliminating Kickbacks in Recovery Act (EKRA) of 2018 to establish criminal penalties for “[i]llegal renumerations for referrals to recovery homes, clinical treatment facilities, and laboratories.”17

This statute was passed as “part of the Substance-Use Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act, which . . . [former President Trump] signed into law . . . on October 25, 2018.”18  The purpose behind establishing EKRA was “to address . . . the growing opioid crisis in the United States.” 19

Violation of EKRA is a felony, which can be punished by “a maximum fine of $200,000, a [maximum] prison sentence [of] . . . 10 years, or both.”20 Unless the defendant meets one of the safe harbor provisions of the Anti-Kickback Statute of 1972 (AKS) and EKRA, then he or she can also face liability under AKS.21 AKS prohibits “offering, paying, soliciting, or receiving anything of value in exchange for patient referrals or items or services that are considered to be reimbursable by public healthcare programs such as Medicare and Medicaid, while EKRA applies to all payors.”22

Criticisms of the Eliminating Kickbacks in Recovery Act of 2018

Critics have argued that EKRA is overly broad, particularly as applied to the laboratories industry. There is concern about EKRA applying to all clinical labs, rather than strictly regulating labs that conduct drug-testing, despite the Act’s focus on substance use treatment.23 There is also confusion over the intersection of EKRA and AKS safe harbors and exceptions.24 Finally, there is concern that ERKA could render common lab business practices criminal acts although they have been allowed under the AKS.25

Others have urged that, while ERKA is an important first step in regulating the addiction treatment industry, it is not sufficient to address the full breadth of deceptive business practices that fraudulent treatment centers utilize.26 EKRA does not, for example, in any way “address the informational asymmetries that exist in the market or ensure quality care.”27

Room for Additional Legislation

Concerns over deceptive business practices in addiction treatment and the lack of oversight have resulted in calls for greater governmental regulation of drug and alcohol treatment centers. There is no federal agency charged with overseeing treatment provided by drug and alcohol treatment centers.28 

There is room for additional regulation of drug and alcohol treatment centers. One proposal urges legislation to increase the oversight of treatment centers, as well as to establish “an outcomes-based insurance reimbursement model and/or alternative payment models” that would promote quality care.29

The Hazelden Betty Ford Foundation advocates for legislation to do the following: require the Secretary of Health and Human Services to publish reports assessing the adequacy of various “licensure, accreditation and clinician education requirements”; allow the Federal Trade Commission “to investigate and prosecute [addiction treatment centers’] deceptive marketing practices”; and instruct “the Secretary of Health and Human Services to assess the adequateness and uniformity of addiction treatment education and training in medical schools,” among other measures.30 Finally, an additional potential avenue for legislation is the establishment of “mandatory accreditation and licensing standards that require evidence-based treatment at facilities treating substance use disorder.”31.

  1. See Illicit Drug Use, Centers for Disease Control and Prevention (Mar. 1, 2021), https://www.cdc.gov/nchs/fastats/drug-use-illicit.htm; Data on Excessive Drinking, Centers for Disease Control and Prevention (Sept. 3, 2020), https://www.cdc.gov/alcohol/data-stats.htm. ↩

  2. Research and Markets, United States Addiction Rehab Industry Report 2020: SAMHSA Survey Findings, Major Trends & Issues, Operating Ratios, Competitor Profiles, and More, Globe Newswire (Jan. 29, 2020), https://www.globenewswire.com/news-release/2020/01/29/1976908/0/en/United-States-Addiction-Rehab-Industry-Report-2020-SAMHSA-Survey-Findings-Major-Trends-Issues-Operating-Ratios-Competitor-Profiles-and-More.html. ↩

  3. See Zachary Snitzer, The Underbelly of Addiction Treatment: A Look at the Unethical and Illegal Practices of “Saving Lives,” Md. Addiction Recovery Ctr. (Mar. 6, 2017), https://www.marylandaddictionrecovery.com/addiction-treatment-illegal-practices/. ↩

  4. See id. ↩

  5. Id. ↩

  6. Id. ↩

  7. See Katrice Bridges Copeland, Liquid Gold, 97 Wash. U. L. Rev. 1451, 1452-54. ↩

  8. Id. at 1453. ↩

  9. Id. at 1453-54. ↩

  10. Id. at 1494-95. ↩

  11. Ken Alltucker, Patient Deaths Bring Scrutiny to Drug and Alcohol Addiction Centers, USA Today (Oct. 3, 2018), https://www.usatoday.com/story/news/nation/2018/10/03/patients-drug-addiction-treatment-centers-opioid-epidemic-crisis/1358894002/. ↩

  12. Id. ↩

  13. Scott Cohn, Opioids’ Hidden Epidemic – Fraudulent Drug Treatment Centers, CNBC (June 29, 2018, 10:06 AM), https://www.cnbc.com/2018/06/06/opioids-hidden-epidemicfraudulent-drug-treatment-centers.html. ↩

  14. Id. ↩

  15. Id. ↩

  16. Id. ↩

  17. Eliminating Kickbacks in Recovery Act of 2018, 18 U.S.C. § 220 (2018). ↩

  18. Shannon K. DeBra & David M. Johnston, The Eliminating Kickbacks in Recovery Act of 2018: A New Federal Kickback Law Affecting the Substance Abuse Treatment Community, Bricker & Eckler (Feb. 12, 2019), https://www.bricker.com/insights-resources/publications/the-eliminating-kickbacks-in-recovery-act-of-2018-a-new-federal-kickback-law-affecting-the-substance-abuse-treatment-community. ↩

  19. Nick Oberheiden, 6 Impacts of EKRA on Laboratories, Clinics, and Other Treatment Facilities, The Nat’l L. Rev. (Dec. 10, 2020), https://www.natlawreview.com/article/6-impacts-ekra-laboratories-clinics-and-other-treatment-facilities. ↩

  20. Caitlin Forsyth et al., First Guilty Plea Under 2018 Eliminating Kickbacks in Recovery Act, Davis Wright Tremaine LLP (Feb. 3, 2020), https://www.dwt.com/insights/2020/02/eliminating-kickbacks-in-recovery-act. ↩

  21. Patrick Ouellette & Rachel V. Rose, Analyzing the First Eliminating kickbacks in Recovery Act (EKRA) Enforcement Action and its Application to Federal and State False Claims Statutes, 32 Health Law. 8, 8 (2020). ↩

  22. Id. at 9. ↩

  23. Forsyth et al., supra note 20. ↩

  24. Forsyth et al., supra note 20. ↩

  25. Forsyth et al., supra note 20. ↩

  26. Bridges Copeland, supra note 7, at 1501. ↩

  27. Bridges Copeland, supra note 7, at 1501. ↩

  28. Samantha Manning, Recovery Advocates Call for More Federal Oversight of Drug Treatment Centers, Boston 25 News (Oct. 30, 2019, 10:58 AM), https://www.boston25news.com/news/recovery-advocates-call-for-more-federal-oversight-of-drug-treatment-centers/1003258495/. ↩

  29. Deni Carise, Behavioral Healthcare Executive: Three Ways to Stop Patient Brokering, Recovery Centers of Am. (Oct. 24, 2018), https://recoverycentersofamerica.com/news/behavioral-healthcare-executive-three-ways-to-stop-patient-brokering/. ↩

  30. Reforming the Addiction Treatment Industry, Hazelden Betty Ford Foundation, https://www.hazeldenbettyford.org/recovery-advocacy/reforming-addiction-treatment-industry (last visited Mar. 15, 2021). ↩

  31. Bridges Copeland, supra note 7, at 1515 ↩

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