California is under the microscope after a joint investigation between The Center for Investigative Reporting and CNN released the results of their year-long examination of allegations of fraud in the highly profitable drug rehab industry.

In the past six years over half a billion dollars has been paid to clinics participating in the Drug Medi-Cal program. California has the largest Medicaid program in the nation, but has failed to adequately audit and enforce billing from drug rehab clinics.  The joint investigation identified 56 clinics in Southern California alone that had questionable or deceptive billing practices.  Over the past two years, those 56 clinics received $94 million in Drug Medi-Cal payouts. Half of the public funds paid out for drug rehab went to fraudulant programs.

gb medical servicesFelons & Fakes

While it is illegal for a felon to run a clinic, that happened in at least one case.  A clinic run for years by an owner/CEO with a Texas conviction for organized crime received $3.6 million in public funds and made $2 million a year for a decade.

In another case, a clinic was run by an operator who was blacklisted from billing Medicaid due to a history of defrauding the government.  He was able to bill Drug Medi-Cal for over a million dollars in services.

Numerous whistle blowers have come forward over the years testifying that fraud is the norm in many rehab clinics.  They report being ordered to make up reports of counseling sessions, bill for clients that no longer attend sessions, and in some cases bill for clients who are in jail or even deceased as if they are still active participants in the program.  Just one of these clinics that reportedly billed for “ghost clients” received $1.7 million over the past two years from Drug Medi-Cal.

There are also reports of clinics paying $5 or $10 to a client to attend sessions and busing teens in groups to counseling sessions without verifying that all of the teens actually have addiction problems.

Other fraudulent activities include billing the state for car services, vacations, spa visits, and even for gifts to clients, including expensive alcohol.

medicationsReal Victims

In Los Angeles County alcohol and drug overdose kill two people almost every day, making them one of the top premature death causes in the area.  This is a real problem with real victims who are being ignored by clinic owners who are only concerned with lining their own pockets.

CNN spoke with one patient who sincerely sought treatment for addiction and treatment at one of the clinics being investigated.  Instead of help, she found people attending for money and counselors who walked out of group therapy after only 15 minutes.

And remember the teens being bused to drug counseling who were not addicts? At least one expressed her fear that somewhere there is an official record that she received drug rehabilitation and that the falsified record could interfere with her future life and career.


Allegations of fraud in the drug rehab industry are nothing new.  Many employees of clinics and state and county employees have raised these issues for years, but very few clinics were ever penalized for their actions, let alone closed down.  In fact, many continued to operate and received funding bumps year after year.  Regulators pointed to complicated legal precedents that required them to contract with any state-certified clinic based on the number of patients.

In the wake of the CNN/CIR findings, California lawmakers have been calling for hearings, independent audits of the program, and for explanations from the state officials involved.

A month after the initial results were shared with the California Department of Health Care Services, 16 clinics were suspended.  DHCS later updated that number to 29 clinics and, by August 2nd, three days after CNN went public with their results, a total of 46 clinics, including 62 satellite counseling sites, had been suspended pending further investigation.

The entire investigation is chronicled in a four-part article on
Rehab racket: Frauds, felons and fakes
Teens claim they were used as fake rehab clients
California cracks down on rehab clinics after CNN/CIR investigation
CNN/CIR rehab fraud investigation spurs lawmakers into action

More California treatment centers

For an update to the investigation, check out this video:



AmyAugust 13, 2013 at 8:28 am

I’ve always been suspicious of the rehab industry, just like most of the medical industry. There seems to be so much hype around it, and it seems just like any other flashy consumer product, complete with celebrity endorsements. I know that some people really need help, but do they really need to pay out the nose for something that’s not nearly as effective as it claims to be?


AmyAugust 13, 2013 at 8:28 am

There’s a couple of clinics in this industry that definitely deserve to be shut down! I’m glad that the state is taking action on this for once. Fraud in the drug rehab industry is taking advantage of sick people, who have no where else to go. That’s shameful.


AmyAugust 13, 2013 at 8:28 am

The worst thing about Medicaid scam stories like this is that it’s not just a sad story for the addicts enrolled in fraudulent clinics, but for every single tax payer in the US as well. Think about it, when you’re paying taxes, it’s so that the State can get lazy and keep dumping millions into poorly run clinics. That’s no good for anybody here, it’s not just a drug addict’s problem like so many people think.


AmyAugust 13, 2013 at 8:28 am

So where’s all the money that the state is failing to receive going off to, anyway? Organized crime, and the same gangs that the feds say are putting the drugs out on the streets in the first place? It sounds fishy to me. At least they’ve caught up with some of the money leaks here.


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