Federal Subsidies Spur Massive Fraud

By Chris Edwards of Cato.

"One of the problems with federal hand-out programs is that individuals take advantage of them and scam artists outright loot them. You see this in programs such as Medicaid, Medicare, school lunches, earned income tax credits, housing aid, student loans, and farm subsidies.

Daily Beast writer Evan Wright has the appalling story of Christopher Bathum, who looted addiction-treatment funds made available by the Obamacare law. The law required addiction-treatment funding by Medicare, Medicaid, and private insurance companies.

Addiction is, of course, a huge problem, but to me Wright’s article indicates that the wrong solution is throwing federal money and mandates at it. The costly Americans with Disabilities Act also played a role in Bathum’s scam.

Here are excerpts from Wright’s excellent story:

He’s a convicted sexual predator who targeted women in his care. Soon he’ll be tried for an alleged $176 million insurance fraud. He’s an exceptionally bad person, but as a businessman he was fairly typical of rehab operators in America’s $42 billion-a-year treatment industry.

His name is Christopher Bathum. Until his arrest in 2016 he ran Los Angeles-based Community Recovery, among the fastest growing rehab chains in the nation. Starting with a single treatment center in 2012, Bathum grew Community Recovery into two dozen facilities in California and Colorado, with 400 beds, medical clinics, a testing lab and a Hollywood art center and café, where patients could work and express themselves creatively.

… The most astounding aspect of Community Recovery was its price. It was free, sort of. Some were charged ten or twenty thousand dollars to enter. Many others were given scholarships. Though it turned out Community Recovery bought insurance policies for patients without telling them. To those desperate for help or a place to sleep, the details of how they got in hardly mattered. It was free enough.

The Affordable Care Act made sweeping changes to the recovery industry, which went into effect in 2012. After decades of denying coverage, insurance companies were required to pay for treatment, and at rates comparable to coverage for major illnesses. The net effect for addicts was that virtually anyone could get a policy, and it would cover up to about $3,000 per day for the first 30 days of treatment, or roughly $100,000 a month. To rehab owners, addicts, no matter how broke or hopeless, suddenly were gold mines, potentially worth up to $100,000 if they could wrangle them into treatment.

The recovery boom was on. Community Recovery was one of hundreds of new rehabs that opened in Southern California. So many popped up that the hundred-mile stretch of coastline from Orange County to Malibu was nicknamed “Rehab Riviera.” Similar booms took place in Florida and in the more ski-friendly parts of Utah. While Affordable Care made it possible to get treatment in any state, apparently many addicts when given the choice would rather try to get sober in scenic areas than in fly-over places like Pittsburgh or Omaha.

… Community Recovery was a luxury rehab for the people. Many patients lived in hilltop mansions with pools and spas. It abounded with fun activities—surfing, hiking, yoga, paintball fights, go-kart racing, zip-line adventures, and (pseudo) Native American healing sessions that Bathum led in smoke-filled teepees.

… In late 2015 LA Weekly reporter Hillel Aron published an astonishing exposé. It revealed that Bathum never finished college and faked his persona as a psychotherapist. Prior to running rehabs, Bathum had been a pool-cleaner. He had four felony convictions for committing fraud on eBay. He had a major drug problem, meth and heroin. A few weeks before Aron’s story ran, Bathum had overdosed in a Malibu motel while shooting drugs with patients. There was a photograph of Bathum being loaded into an ambulance during his overdose. Aron unearthed a lawsuit filed by a former patient from Seasons in Malibu who claimed Bathum offered her drugs in exchange for sex. Patients from Community Recovery stepped forward to say Bathum had sexually assaulted them.

Some told their stories on 20/20. Bathum went on 20/20, too, and gave an absurd, seemingly methed-out interview in which he denied their allegations and claimed the photo him overdosing at the motel was a simple case of identity theft.

All of it should have led to the immediate shut-down of his rehab. Hundreds of patients remained in his care. Authorities did nothing.

… Bathum’s rehabs operated under a perverse legal loophole: he ran them as unlicensed “sober living homes.” As such, they were protected by the Americans with Disabilities Act, which included an obscure provision that gave recovering addicts status as a protected class. Their inclusion as a protected class was done to prevent neighborhoods from discriminating against recovering addicts who wanted to live together in “sober living homes.” Such homes were defined as places where no medical treatment or therapy could be offered. But since the Americans with Disabilities Act prevents state agencies from inspecting sober living homes, it’s nearly impossible to know what’s going on inside them.

… His behavior was outrageous, yet Bathum exemplified a unregulated industry. The Affordable Care Act poured money into an already broken system. Industry revenues jumped from slightly more than $20 billion to about $42 billion today."