The state agency at the center of Arizona’s ongoing behavioral health crisis knew its proposed billing reforms could trigger a surge in homelessness nearly a year before implementing the changes, yet still failed to adequately prepare for the fallout—or adjust its response to the crisis that emerged as a result.

Emails obtained by AZCIR show Arizona’s top housing official alerted an administrator with the state’s Medicaid program to concerns raised in August 2022, as the program worked to revamp how it reimbursed behavioral health providers.

“We know that there are providers out there who are substandard and agree that needs to be addressed,” a sober living home representative said in an email to the Housing Department, referring to a string of bad actors suspected of defrauding the state. “But this proposed solution will have the unintended consequence of adding a significant amount of homeless to an already growing number as many of the facilities supported by AHCCCS (the Arizona Health Care Cost Containment System) will close their doors.”

That’s precisely what happened once AHCCCS enacted the changes nine months later. And though a spokeswoman for the agency said the state had worked to connect the thousands of people victimized by fraudulent providers with “reputable housing resources,” AZCIR has found the agency arranged for just three facilities—all in the Phoenix area—to meet overwhelming statewide need.

The emails shed new light on what the embattled agency knew in advance of its public acknowledgement of widespread Medicaid billing fraud in May 2023, particularly regarding how the state’s response would affect the vulnerable, largely Indigenous populations targeted by scammers and ultimately displaced by facility closures. 

Despite victim testimonies about housing insecurity’s role in the crisis and the pointed warning shared by the Housing Department, AHCCCS focused on suspending fraudulent facilities and connecting members with stopgap care. Ultimately, the agency designed and distributed relief services that left many victims stranded without the one resource they needed most: shelter. 

“I don’t think there was enough resources in terms of temporary housing. I think it was overwhelming,” said Walter Murillo, chief executive officer of Native Health, a nonprofit that provides medical and behavioral health services to Indigenous Arizonans. “The homeless crisis really was predictable.” 

During the pandemic, recruiters tied to unscrupulous behavioral health providers traveled the state, luring victims with “glamorized” false promises of free housing, food and clothing. Fraudulent actors then billed AHCCCS for services they never provided. 

The tactics grew more prevalent and aggressive over time, according to state Sen. Theresa Hatathlie, D-Coalmine Mesa, who noticed an uptick in reports and alerts posted on social media. The fraudulent providers targeted tribal members to exploit loopholes in the reimbursement policies specific to the American Indian Health Plan, which provides Medicaid coverage to Indigenous populations. 

Between 2019 and 2022, payouts for outpatient behavioral health claims soared from $53 million to $668 million.

In response, AHCCCS capped such payouts and suspended Medicaid reimbursements to 290 providers with questionable billing practices. The crackdown aimed to curtail widespread fraud. It also led many facilities to shutter and evict patients—just as AHCCCS had been warned.

The agency created a “comprehensive member impact plan” that included a dedicated state hotline option to connect victims with relief services like treatment, transportation and temporary housing. But the rollout was marred by chaos, with limited coordination and oversight that left AHCCCS members vulnerable to relapse, abuse and homelessness, previous reporting by AZCIR found. When pressed repeatedly about the scope of the scandal this fall, AHCCCS officials couldn’t say how many of its members had been affected. The agency did not provide comment for this story. 

While AHCCCS is not a housing authority, the agency’s response was poorly tailored to the important role housing played in both the crisis’ origins and its resolution, according to Murillo. Of the patients his organization encountered from suspicious facilities, he said, the vast majority were motivated by a need for a place to live. 

“I think their response was, ‘Let’s find (treatment) beds,’” Murillo said. “Well, OK. Number one, there’s not that many beds, so good luck. But second, these folks weren’t looking for beds. They were looking for shelter.”

AHCCCS officials, for their part, claim the agency accounted for victims’ housing needs, noting that the state made every effort to prioritize “reputable housing resources” within an individual’s community.

But officials never publicly disclosed that the housing options were limited to just three facilities in the Phoenix area, including two Motel6 locations, AZCIR has found.

AHCCCS focused on temporary housing options in Maricopa County because that is where the majority of suspensions occurred, agency spokeswoman Heidi Capriotti said. Given that the state’s most populous county spans 130 miles from corner to corner, though, even victims displaced within it have still struggled to reach help. And the distribution does little to address the nearly 10% of suspended facilities located outside the county’s borders.

“It’s kind of like, well, where’s the local help?” said Veronica Boone of the Tucson Indian Center. 

Christopher Olivera and Aly Hodge said the state’s hotline directed them to a local homeless shelter when their Tucson sober living home housing nearly 200 people closed in September, despite AHCCCS claiming temporary lodging offered does not include shelters. The offering in Tucson required individuals to live apart from partners of the opposite sex, their pets and many of their belongings. 

“What they are doing is, they’re simply separating husbands and wives and taking your animals to foster care,” Hodge said. “We have no place to go.”

Now, nearly three months since they were evicted and more than seven months since AHCCCS launched its hotline, Hodge said she and Olivera are still struggling to find stable housing in their community. 

“We’ve been completely forgotten about.”

As of late November, the state had provided nearly 32,500 nights of lodging with an average stay of 14 nights, according to aggregated data released by Solari, the hotline operator contracted with AHCCCS. Roughly two-thirds of the 252 rooms contracted by the agency were occupied at the time despite clear need among victims currently living unsheltered. The data suggests the state-funded aid is still reaching just a portion of those who need it. 

Grassroots efforts like Stolen People, Stolen Benefits have stepped in to find and help victims the state overlooked. 

Over the past six months, the group of volunteers has regularly searched the streets of Phoenix to identify unsheltered victims—many of whom were evicted with little notice as facilities shuttered—and connect them with AHCCCS’ temporary housing. Nearly as soon as volunteers get a victim into one of the state-funded motels, they start working to secure a more permanent arrangement.

In theory, the state’s contracted providers offer this kind of assistance. But Hatathlie, the state senator, said victims are falling through the cracks. 

“I can guarantee you a majority of them are not being given a warm handoff to their tribal community, or even being given resources,” she said. 

Native advocate Jeri Long, who volunteers with Stolen People, Stolen Benefits, said she has tried to be at the motels when individuals leave, but it’s proven impossible to reach everyone. When she can’t, she fears their search for shelter will place them back in the same cycle of harm they were trying to leave. 

“A lot of them will just call the group home back, or they’ll find another group home to go to,” Long said. 

Connecting victims with housing has become both more challenging and more urgent since winter arrived. Murillo, of Native Health, said tribal members often would rather chance their luck at another fraudulent sober living home than return to bitter cold on their home reservations, where change can be slow. 

Staff at Native Health have voted to dedicate an employee donation fund to help individuals with housing and other expenses. But there’s only so much volunteers can do without additional assistance from the state to make long-term housing available, advocates said. 

“Helping? I don’t see that they’re doing much in a way of helping,” Stolen People, Stolen Benefits’ Reva Stewart said of state officials’ response. “I think they’re just targeting the fraud part of it.”

Hannah Bassett

Center for Investigative Reporting