Can Our Addiction Treatment Industry Withstand a “Fearless and Searching Moral Inventory” of Our Business Practices?


The purpose of this article is to encourage professional treatment leaders to carefully examine their business model practices. The goal is to allow each leader to determine if their business model will stand up to scrutiny.

Whether the center is based in the 12-Step model, or promotes itself as a non-12 Step program, most programs seem to have one component of care that is consistent. Almost all forms of care promote the need for the client to examine his or her past at some level, in order to change their behavior going forward. In self-help programs this is called an inventory. Non-12 Step programs often utilize Cognitive Behavioral Therapy (CBT). The essence of which is by changing maladaptive thinking it will lead to change in affect and behavior.

Regardless of philosophy, most program models strongly encourage clients to examine their behavior in order to develop a more healthy and integrated life. Since we ask our clients to do this, it seems appropriate to ask our professional treatment leaders on all levels to do the same.

As one who has worked in addiction treatment at one level or another for over 40 years, I have witnessed a number of treatment centers come and go. I was witness to the number of large for profit organizations that allowed financial motivation to drive them to make significant errors in the 1980’s and 1990’s. Those giants, both addiction and psychiatric services, are now out of business. In some instances, senior members of management were prosecuted from criminal misconduct.

Once again the issue of Ethical Behavior in the management of addiction treatment is beginning to surface as a hot topic. Of late, there have been several reported FBI raids on treatment providers. The raids appear to be looking at urine testing billing practices and other forms of insurance fraud. There are investigations into whether or not licensed centers are paying for referrals, and a number of centers avoid licensing by operating a sober living home and then referring to their own outpatient program.

Finally, although not yet widely known, a number of law firms are examining the practices of treatment centers for potential class action law suits. The focus of these inquiries seems to be acts that potentially violate a number of California laws.

As a result of the increased concerns about ethics over the past few years, I have been asked to present at numerous chemical dependency related programs and centers. In part because of my having witnessed the issues from the ‘80’s & ‘90’, and I am often asked to compare those practices and the practices of today. The comparison is too close for comfort.

As a lawyer, and treatment CEO who as restructured 8 addiction treatment centers, one of my most frequent consultations arises from concerns about Risk Management and Risk Reduction. A significant area of risk and one that is generally misunderstood or unknown are management actions that may violate both state and/or federal laws.

Because the scope of this discussion is quite broad, I will focus on a three of the more common practices seen in California, and the potential consequences. These are (1) issues arising from drug testing; (2) paying for referrals; and, (3) people offering professional counseling services who are not licensed.

Excessive billing for drug testing

In Florida and in New Jersey, raids have been conducted where urinalysis testing was being conducted four times per week for outpatients.

In the September 16, 2014, publication of the Addiction Professional magazine, author Gary A. Enos, wrote an article concerning a raid on sober living operations and outpatient programs in Southern Florida. The article suggested that Good Decisions Sober Living, a sober living home with an outpatient program, was billing insurance about $1,500.00 per drug test and testing each resident four times a week. The article quoted Florida Association of Recovery Residences (FARR) president John Lehman, an advocate for fair and ethical treatment practices in Florida. He said the organization (Good Decisions) operates its own testing laboratory and medical billing company, and he considers it the top violator of ethical standards in Palm Beach County’s burgeoning community of sober homes. At one point the organization was advertising free rent, gym memberships and transportation for would-be residents in early recovery. “Basically your insurance card was your American Express card” said Lehman.

In New Jersey, American Addiction Centers has been sued by Blue Cross Blue Shield alleging fraudulent drug testing. It is alleged that AAC performs urine drug tests 6-12 times more than necessary, contributing to outsized margins. In addition to their issues in New Jersey, in Florida, where AAC has 51% of their total beds, the FBI has begun raiding addiction centers that appear to be engaging in similar activities as AAC has been accused of.

The essence of the fraud is simple. The center or provider conducts an on-site drug test (often at a cost of no more than 3 dollars). The test is then sent to a laboratory for review and the insurance company is billed as high as $1,200.00 for the test. Negative tests then are used to justify sending a second test for “verification” of the result. Multiple tests and verification tests are not rarely medically justifiable, but nonetheless are billed to insurance as high as $2,000.00.

The key areas of examination are the frequency (medical necessity) and the costs associated with these tests. One question that stands out is, “if the client lacks the ability to maintain abstinence as shown by daily drug testing, why isn’t that client in a residential treatment center?” If the treatment center, or one of its owners has a personal or family member interest in the testing laboratory, it is almost certainly viewed as a fraud.

Turning our attention to California, the primary law that facilities and providers need to comply with is called the Speier Anti-Kickback statute. Located at California Business and Professions Code section 650, the law expressly prohibits any health care entity or provider from paying or receiving compensation (payment in any form) to induce referrals.

Although not widely enforced yet, in one case in Los Angeles, the Court of Appeals made clear any contract (written or oral) that provided for a payment based upon a referral is a misdemeanor. “The Business and Professions Code interdicts as a misdemeanor, and also as grounds for revocation or suspension of license.” Misdemeanor means the potential for a criminal prosecution by the State.

Here in California, the issue has become more widely discussed for two separate potential violations. The first is the opening or acquiring an interest in a laboratory where clients UA’s are tested. The second is the paying of a referral fee to referral resources (often under the guise of marketing fees and occasionally filtered through a third party or business).

Self Referrals for Laboratory Work

Of late, I have met with and spoken to a number of treatment center owners who own and operate their own laboratory for the purpose of referring their clients for drug testing. Most have created a separate corporation for this purpose. The common theme they express is that it maximizes profits. Maximizing profit is an understandable goal in our highly competitive market place.

However, this law was enacted as a protection against insurance billing fraud. To prevent individuals and corporations from referring to themselves (or family members) for services that may be questionable due to a lack of medical necessity, or excessive fees being charged. The language of 650.01(a), states in relevant part “Notwithstanding Section 650, or any other provision of law, it is unlawful for a licensee to refer a person for laboratory . . . if the licensee or his or her immediate family has a financial interest with the person or in the entity that receives the referral.”

Because the referral for the laboratory work comes from a licensed physician or PA, they run a significant risk if they, or a family member has an ownership interest in the lab. In addition, if the treatment center is licensed by the State of California, they too run the same risks. These risks include the loss of their license, civil litigation that may result in disgorgement of all profits with the added burden of paying the other side’s legal fees, and potentially criminal prosecution. In a criminal action, if found guilty, the defendant would face a loss of their license, significant fines and possible jail time.

One testing organization I spoke with approached me with the sales pitch that by having a client “buy” a membership into the laboratory the client could share in the profits. When I questioned the soundness of this thought, I was told that their attorney, licensed outside of California assured them that it was perfectly legal.

Two things to know. One, there are some “safe-harbors” that may make transactions legal; and two, lawyers who are not licensed in California are not reliable sources for legal analysis or opinions about California laws.

If your center or practice is involved with this type of transaction, you would be well served to find an attorney who specializes in health care law. Your discussion with your attorney will in the strictest of confidence, and be able to advise you of any risks you face and the steps you can take to take to reduce any potential exposure.

Payment for Referrals of Clients

A few years ago I met with the director of an addiction treatment center in Southern California. He offered me a payment of $4,000.00 per client that I referred to his center. He stated that with this payment and the amount of money I collected for the Intervention, I could make a very comfortable sum by simply putting 2 clients in his center each month. When I pointed out that his offer was a violation of B&P Code 650, and the prohibition of paying for referrals, his comment was an astonishing reflection of his lack of ethics. He said “no one will ever know.” He was wrong, I would know. The only safe harbor for being paid for referrals is if the referral source is a state licensed referral agency. The thought process he offered was that if any referral fee was paid under the heading of a marketing fee, that this would be legal.

It is common practice today for many independent intervention and marketing professionals to be paid by several treatment centers at once. This independent relationship in and of its self is most likely not a violation of the law. However, if the payment is either adjusted upward or downward based upon the number of admissions, then it is illegal.

A second potential trap comes if the payment is not commensurate with “fair market value” for the service rendered. There is no “bright-line” test to determine what fair market value is. Most reviews for this standard look at what other industry professionals are paid for a similar service, what the actual services rendered are, and can the organization account for the actual time spent on the services.

I am routinely approached at conferences and workshops by individuals who comment that they “know” of treatment centers who pay for referrals. Knowing and proving are two different things. What is certain, if the person or organization making the payment for the referral is licensed, they stand to lose their license and face the consequences discussed above. For the person taking the payment, they too may lose their license if they have one. If they are not licensed, and are offering Intervention services, sober coaching services, operating Sober Living homes etc., they may face prosecution for violation of B&P Code 4999.30.

Offering Professional Counseling Services without a License

This particular issue is perhaps the most contentious area of concern that I routinely encounter. In large part it has to do with how services are rendered, and do those services fall within the definition of “Professional Counseling.” It is often complicated by individuals who do not understand that there is a significant difference between a certification as a counselor, or interventionist, and being licensed in the State of California.

The test is rather straight forward, if you look at the services you offer do these services use the application of counseling interventions and psychotherapeutic techniques that identify and remediate:

emotional issues; including guidance for
personal growth, (note that this likely applies to “sober coaches”);
adjustment to disability;
crisis intervention; and,
psychosocial and environmental problems.

If the answer is yes to any of these, are you a licensed provider in the State of California? If not, what steps are you taking to ensure that you protect yourself from the potential of either civil or criminal consequences? California law recognizes individuals who are licensed as a Marriage Family Therapist; a Licensed Clinical Social Worker; Licensed Ph.D. or Psy.D.; and, M.D. or D.O. Certification alone is only acceptable where the practitioner works under a licensed provider (such as a treatment center or licensed therapist). There are only two exceptions carved out to this law. Certification is not a license and there is no exception for this category. In fact, the use of certification initials after some ones name may cause more risk for the practitioner.

This is important because a random sampling of web-sites run by individuals offering intervention services shows that most discuss doing “assessments” with a specific plan for how the intervention will proceed. Others offer “case-management” and aftercare. All which in California requires a license.

Here in California, this constitutes a violation of B&P Code 4999.30 which says in relevant part, “[a] person shall not practice or advertise the performance of professional clinical counseling services without a license issued by the board . . .”

Many of the “models” of Intervention create significant conflict for the unlicensed practitioner in California. Those who subscribe to the “Systemic” model describe a practice that requires family counseling before an Intervention will be undertaken. Without a license in California, the practitioner is open to serious adverse legal consequences, both civil and criminal. Some certification bodies establish their Code of Ethics in a manner that conflicts with California law.

So the inventory question becomes, are you in truth offering a service where you use “the application of counseling interventions and psychotherapeutic techniques to identify and remediate cognitive, mental, and emotional issues, including personal growth, adjustment to disability, crisis intervention, and psychosocial and environmental problems . . .”

If the answer is yes, and you are not a licensed provider in the State of California, what steps are you taking to ensure that you protect yourself from the potential of either civil or criminal consequences?

These are not idle musings. I routinely receive e-mails from organizations that claim to have “internationally licensed” therapists and “sober coaches.” I’ve even received an e-mail from a company offering an on-line “Ph.D.” in intervention. Misrepresentations of this magnitude affect everyone who works each day to address the impact of alcoholism and addiction. Our field’s professionalism is rightly questioned when those who lack ethics are saying and doing things illegally. These practitioners come across as modern day snake oil salesmen, while damaging those individuals and centers that took the time to do it right.

There are legal safe-harbors for those of us who make referrals and offer intervention services, but they must be understood and followed to avoid potentially significant legal issues.

It is my hope that professional treatment leaders will examine their business practices to ensure they are both legal and ethical. It does not the stretch imagination to see how the acts of a few bad actors can and will cause of field to suffer greatly.