Thursday, March 16, 2017

Two Florida Owners of Sober Homes and Alcohol and Drug Treatment Centers Plead Guilty for Filing Fraudulent Insurance Claims and Paying Kickbacks for Referrals

Audits of alcohol and drug addiction treatment centers have been on the rise. We have also seen an increase in criminal filings relating to billing for medically unnecessary services and payment of kickbacks for the referral of rehab patients. However, the facts when cases go criminal tend to be ones where there is outrageous conduct.  A recent Florida case fits that profile. 

Although the facts in this case are on one end of the spectrum, alcohol and drug treatment centers need to be very careful about paying marketing fees for the referral of patients, offering patients free or reduced rent at sober homes, paying for patients' insurance, ordering excessive lab tests for patients and any financial arrangements with laboratories.  

On March 15, 2017, Kenneth Chatman and Laura Chatman, owners of sober homes and alcohol and drug addiction treatment centers, pled guilty to one count of conspiracy to commit health care fraud in violation of 18 USC Section 1349 for the filing of fraudulent insurance claim forms and defrauding health care benefit programs. Their plea also included money laundering and sex trafficking conspiracy (the outrageous facts) counts.  
According to the plea agreements, Mr. Chatman established a series of sober homes, including Stay’n Alive, Inc., Total Recovery Sober Living LLC, and several other multi-bed residences operating as sober homes in Palm Beach and Broward Counties under his wife's name. These sober home facilities were in the business of providing safe and drug-free residences for individuals suffering from drug and alcohol addiction. 

Mr. Chatman admitted he paid kickbacks and bribes to sober home owners for referring their residents to Reflections Treatment Center LLC in Margate, Florida and Journey to Recovery LLC in Lake Worth, Florida for treatment. Mr. Chatman called these referral payments “case management fees,” “consulting fees,” “marketing fees” and “commissions” but the government viewed them as kickbacks. The referring sober home owners met with Kenneth Chatman on a weekly basis to collect the referral payments, which were based on the number of insured patients that received treatment each week.

To obtain residents for the sober homes, Mr. Chatman and others provided free or reduced rent and other benefits to individuals with insurance who agreed to reside at the sober homes, attend drug treatment, and submit to regular drug testing that the residents’ insurance plans would be billed. These benefits were viewed as kickbacks to the patients.  Although the sober homes were purportedly drug-free residences, some of the defendants permitted the residents to continue using drugs as long as they attended treatment and submitted to drug testing. This evidence was used to show that the treatment was ineffective and medically unnecessary.

Mr. Chatman admitted that he chose the type and frequency of different types of lab testing that would be performed based the kickbacks he was receiving from different clinical laboratories rather than based upon the individual patients’ needs.  Confirmatory urine drug testing and duplicative saliva drug testing was ordered.  DNA and allergy testing was ordered regardless of whether patients complained of allergies. These tests were medically unnecessary and not used to direct the treatment of patients. Many of the test results were never reviewed and new samples were submitted before older tests were received and reviewed.

The sexual trafficking portion of the case was related to allegations that Kenneth Chatman also recruited and coerced female patients and residents into prostitution, telling them that they would not have to pay rent or participate in treatment or testing so long as they would allow him to continue to bill their insurance companies for substance abuse treatment and testing that the patients did not receive.

It was alleged that intimidation tactics and threats of legal process, including evicting the patients from his sober homes and confiscating their belongings such as car keys, telephones, and medications were used to maintain their compliance. These patients were allegedly not required to attend treatment at Reflections or provide bodily fluid samples for testing but their insurance was billed for substance abuse treatment and testing that they did not receive. 

Attorney Commentary: While this case has outrageous facts, the marketing used in the rehab business, the use of laboratory testing, the failure to collect co-pays and deductibles, the offering of free sober living homes or reduced rent, the payment of insurance payments are all facts that come up in treatment centers. Any one of these can be a red flag. Compliance is key here and insurance companies are increasingly aggressive in reporting suspected abuse to state and federal agencies.   

Posted by Tracy Green, Esq.
Office: 213-233-2260


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