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Two years after Arizona officials unveiled a $2.5 billion Medicaid fraud scheme targeting Native Americans seeking treatment for addiction, the state has recovered just a small portion of the taxpayer fund lost in the fraud.
The Arizona Attorney General’s Office is leading a criminal investigation into a network of behavioural health providers and solemn housing, leveraging the American Indian Health Program to get inflated Medicaid payments from 2019 to 2023. Investigators have found that the fraudsters are not providing the services they claimed and that they may allow patients to continue using the substance they were seeking treatment.
The state has so far charged more than 100 individuals and recovered $125 million — or about 5% of the funds the state estimates have paid bad actors.
Attorney General Chris Mays said at a press conference on May 1 that he hopes to acquire “at least hundreds of millions” from the fraudsters. However, she warned, “It’s difficult. Why does it happen… Criminals get money, buy luxury homes, buy multiple expensive cars, hide their money offshore, spend their money in irreparable ways.”
“My team works every day to seize these assets,” Mays said.
Arizona’s healthcare cost containment system struggled to curb ramp-delaying fraud under two governors, making more than 11,000 people vulnerable to subsequent disruptions. Arizona State Research Report and advance report by the Propublica Center found at least 40 Indigenous residents at a calm living and treatment facility in the Phoenix area died when the state shattered its response.
Dozens of people have died in a plain Arizona home as state officials groped for the reaction to Medicaid fraud.
Additionally, the damage has spread through the state’s behavioral health industry. This was almost stopped when the agency enacted a policy that would halt around 300 providers and halt or significantly delay payments to people still operating. These reforms included increased provider screening and scrutiny at refunds.
Democrat Gov. Katie Hobbs recently signed a law that would increase oversight of plain living shops by requiring facilities to report the deaths of residents promptly. But supporters like Reva Stewart, a Dine activist whose group supported the Scheme’s Indigenous victims through those who were stolen, don’t think the state has done well enough.
“I feel like I’m on the wheels of a hamster, and we’re still the first,” Stewart said. “They’ve had a lot of charges and people are being charged, but at the same time… they’re just slapping their wrists.”
The U.S. Department of Justice has also indicted several individuals and is conducting parallel investigations into fraudulent claims schemes under federal law.
However, despite these state and federal efforts, most of the stolen taxpayer money may not be recovered.
From 2019 to 2023, Arizona’s healthcare cost containment system allowed around 13,000 unauthorized providers to enter the system.
Additionally, if a solution was proposed because the fraud was proposed internally, the agency did not take any decisive action. Initially, there was pressure from special interest groups related to the behavioral health industry. This argued that reforms to the American Indian health plan threatened their economic interests.
Currently, the AHCCCS states that efforts to unravel the crisis can take years and describe the investigation as “a very complex and manual process.”
Authorities must check inappropriate payments on a case-by-case basis, whether obtained through fraud or not. Providers should pay back the AHCCC as soon as they realize they have overpayments, but in many cases they cannot do so for one temporary basis. Repayments can occur over months or years.
State Medicaid agencies receive a lot of federal funds, so inappropriate payments add financial consequences. The state must pay back its stock to the federal government.
In Arizona, the federal government covers 70% to 76% of Medicaid costs between 2019 and 2023. The rates of those who received services through the American Indian Health Program were even higher.
AHCCCS has repaid $49.1 million to the federal government since January 2023. That amount will likely increase as AHCCCS continues to consider fraudulent cases.
However, the agency does not need to refund the federal government for overpayments made to a currently bankrupt or out of business facility. According to AHCCCS, 90 of the 322 providers suspended on suspicion of fraud have been closed.
The agency was unable to provide an estimate of how much these providers are being supercharged, but said they would notify the Attorney General if the providers go out of business and provide information to support a criminal case against them.
State Sen. Teresa Hatasselee, a Democrat at Navajo Coal Mines Mesa, has been critical of the state’s response and continues to call for stricter regulations on calm living facilities. During the floor voting in March, she later expressed her dissatisfaction with the reforms Hobbes signed into law, claiming they weren’t progressing well.
“Now is the time to stop protecting bad actors and those who continue to allow bad actors to continue to come back,” she said.
As states slowly work to unravel fraud and collect taxpayer funds, national debates about Medicaid’s future are intensifying. Republican majority in both Arizona and Congress have urged Medicaid to cut back on the tax cuts proposed by President Donald Trump. Among their legitimacy is system fraud and abuse.
But health policy experts say most Medicaid spending is paid for legal care, and fraud is usually committed by a small number of health care providers, not patients.
Instead of the current system where the federal government covers most of the Medicaid costs in low-income countries, conservatives advocate for limiting Medicaid funds related to inflation. This is a model that changes more costs with state budgets.
Director of Arizona Medicaid Agency resigns following response to fraud scheme
Arizona is one of nine states where such changes could cause the end of Medicaid expansion, and currently guarantees around 30% of 648,000 low-income people, or AHCCCS recipients.
Despite Medicaid’s uncertain future, Arizona officials are moving forward in their efforts to address the lasting damages of the fraud scandals they have inflicted on tribal communities. In November, Mays announced a grant initiative of up to $500,000 per organization to fund victim compensation and housing assistance for those who have been displaced or otherwise affected by fraudulent treatment centers. Recipients include tribal nations and native health organizations.
But Stewart says the state’s work isn’t finished, and many of the injured people still don’t see real accountability or support.
“They call it a tragedy… and they want to get justice,” she said. “But where is justice when it comes to the amount of death we have, the amount of native relatives that we still lack?”
Christopher Romacaff, Roy W. Howard Fellow of the Arizona State Research Reporting Center, contributed the report.
