Yuyun Lusiyani
By the end of 2020, Kentucky’s newly elected Gov. Andy Beshear faced an unprecedented public health crisis, with one overarching objective: to keep Kentuckians alive. The state was simultaneously battling two relentless threats. The COVID-19 pandemic was claiming hundreds of lives each month, while deadly drug overdoses continued to rank among the highest in the nation. Viewing addiction as a disease exacerbated by isolation, Beshear voiced concerns that individuals might forgo essential treatment for fear of contracting the coronavirus. This dire situation prompted a swift and decisive policy shift aimed at dramatically increasing access to substance abuse treatment.
A Bold Policy Response Amidst Crisis
In response to the escalating crisis, Governor Beshear moved to dismantle barriers to drug treatment access. Kentucky joined over 40 other states in temporarily lifting certain restrictions on Medicaid, the primary insurer for the majority of Kentuckians enrolled in substance abuse programs. Crucially, this change allowed recovery centers to offer expensive, long-term residential treatment to clients without first seeking approval from state Medicaid insurers. This policy, known as "prior authorization," typically serves as a critical safeguard against unnecessary or fraudulent billing by requiring providers to demonstrate the medical necessity of services before they are rendered. However, in the chaotic early days of the pandemic, the emphasis was firmly on speed and accessibility.
The immediate impact of this loosened oversight appeared to be positive for treatment access. By 2023, even as the pandemic began to wane and many other states reinstated their Medicaid prior authorization requirements for addiction treatment, Kentucky steadfastly maintained its course. That year, providers across the Commonwealth offered more than 1,100 spots for individuals seeking long-term residential treatment, allowing them to live in a facility during their recovery. This figure marked a state record and represented more per capita treatment slots than any other state in the nation, according to a report from East Tennessee State University.
The Unforeseen Costs: Warnings Begin to Mount
However, the unprecedented expansion of access came with an equally unprecedented price tag. As Medicaid bills for this surge in treatment services began to accumulate, so too did a raft of urgent warnings from various corners of the health industry.
Throughout 2024, in letters to Beshear’s administration and during at least three public meetings, a chorus of experts from across the health industry began to sound the alarm. Their central concern was that the 2020 policy changes, specifically the suspension of prior authorization, had inadvertently created an environment ripe for abuse. They argued that drug treatment providers were billing excessively for subpar care, which, paradoxically, was leading to worse outcomes for patients despite the increased spending. By December 2025, the Kentucky attorney general’s office officially designated Medicaid fraud in drug treatment as a primary "area of concern," signaling the severity of the problem.
Despite these escalating warnings, the Beshear administration was criticized for taking insufficient action to rein in the skyrocketing state spending. The consequences, as many had predicted, were soon to manifest.
Escalating Expenditure and Allegations of Exploitation
In February 2025, Kentucky Medicaid Commissioner Lisa Lee revealed a startling figure: the previous year’s spending on behavioral health and addiction treatment had reached an unprecedented $2.3 billion. This represented a dramatic increase, signaling a system under immense financial strain. Months earlier, Stuart Owen, an employee of a Kentucky Medicaid insurer, had candidly informed a state advisory committee that a significant portion of this spending was being driven by the drug treatment industry, including "unscrupulous providers who are exploiting the heck out of that for money."
At the epicenter of these allegations stood Addiction Recovery Care (ARC), Kentucky’s largest drug treatment provider and, notably, the single largest recipient of state funds for addiction services between 2019 and 2025. In the spring of the current year, a collaborative investigation by the Lexington Herald-Leader and ProPublica brought to light how ARC allegedly exploited Kentucky’s loosened spending controls and may have engaged in falsified billing practices. The investigation underscored how the absence of prior authorization created a lucrative opportunity for providers to maximize billable services without stringent oversight.
Governor Beshear’s Defense and a National Context
Despite the mounting criticism and the spiraling costs, Governor Beshear remained unapologetic about the state’s spending on drug treatment. In an early June interview with ProPublica and the Lexington Herald-Leader, he pointed directly to the continued decline in drug overdose deaths as empirical proof that his administration had made the correct strategic choice by not reinstating requirements for treatment centers to prove medical necessity before providing costly recovery services.
"If we’d gone back in time too early and changed things too drastically, how many more people would have died that we’ve saved?" Beshear questioned. "With four straight years of drug overdose decreases, they can throw blame at me. We’ll talk about dollars, but there are people’s kids that are still alive today because they were able to get addiction treatment services and get them quickly."
However, this assertion has been met with significant counter-arguments from public health experts. While Kentucky did indeed experience a significant decline in overdose deaths between 2020 and 2025, experts noted that this trend was not unique to the Commonwealth. Other states severely impacted by the opioid epidemic also observed year-over-year decreases in fatal overdoses, including those that had not loosened their Medicaid billing rules, such as Tennessee and West Virginia.
Academic studies generally concur that the nationwide drop in the drug death rate during this period was more broadly attributable to a combination of factors: a decline in opioid prescriptions, a significant increase in the availability and use of naloxone (an overdose reversal drug), and a reduction in the presence of highly potent fentanyl in the illicit drug supply. Moreover, Medicaid and behavioral health experts in Kentucky stated in state hearings that some of the services most heavily billed for by drug treatment companies were not directly correlated with a reduction in overdose deaths.
The Pervasive Issue of Overbilling for Lower-Level Services
Kentucky’s permissive policies allowed ARC and other companies to increasingly bill for services like peer support groups, which typically do not require the direct involvement of a licensed doctor or therapist, rather than for more intensive, clinically led interventions. At its peak, ARC treated approximately one-third of all Kentuckians seeking drug treatment in the state. State data revealed that more than half of the services ARC billed for were these lower-level services, precisely the type that Medicaid experts had warned were susceptible to abuse.
The FBI has been investigating ARC for two years, and the company’s legal troubles have recently intensified. This week, the Department of Justice announced it had reached a $16 million settlement with ARC to resolve allegations of Medicaid fraud. These allegations, which stemmed from a 2023 whistleblower lawsuit filed by three former ARC employees, claimed that the company directed its employees to falsely bill Medicaid for services like peer support. While the settlement resolved these specific allegations, the Department of Justice explicitly stated there had been no determination of liability.
In a separate, ongoing investigation, the DOJ last month indicted ARC’s founder, Tim Robinson, on charges of wire fraud and money laundering. These charges are related to an alleged scheme to defraud multiple lenders. Robinson has pleaded not guilty to these charges.
In April, ARC issued a statement asserting that it "has never knowingly or fraudulently billed Medicaid for services, and there is no evidence that the organization encouraged employees to falsify group notes for billing purposes." Nevertheless, the fallout from these investigations and allegations has been severe. Over the past two years, ARC has been compelled to close most of its facilities, leading to a substantial 56% decrease in long-term residential treatment beds statewide, according to the most recent available data. This drastic reduction raises new concerns about the availability of crucial treatment services for Kentuckians struggling with addiction.
Legislative Backlash and Political Stalemate
By 2025, Republican legislators in Kentucky, citing overwhelming evidence of waste, fraud, and abuse, had "seen enough." They passed a bill that would once again require treatment centers to seek prior approval from insurers before providing addiction treatment services. Governor Beshear, however, vetoed the bill, arguing it "will put up barriers to and delay healthcare for Kentuckians." Undeterred, the Republican-controlled legislature promptly overrode his veto, underscoring the deep partisan divide over the issue.
The political ramifications extended further. During the 2025 legislative session, Republicans also moved to revoke the governor’s executive power to unilaterally make changes to Kentucky Medicaid without legislative permission. Beshear again vetoed this bill, which included the provision to reinstate tighter spending controls, but his veto was overridden. This legislative action significantly curtailed the executive branch’s authority over a critical state program.
Republican Sen. Chris McDaniel, a key proponent of the bill, vehemently criticized the administration in March 2025, stating that Beshear’s administration "had to be one of three things: willfully ignorant, derelict in their duties, or complicit. It was just too much money in one space for them not to have known better."
Despite the political attacks and legal challenges, Beshear reiterated his stance in June, declaring he would "take the hit." He maintained that the receding tide of addiction in Kentucky was a testament to his policies and that the cost, however high, was ultimately worth it. "If we continue at this pace, there’s a chance we end an epidemic that started in our lifetime," Beshear asserted. "Opening up services through Medicaid in general to more people has been one of, if not the, most important things we’ve done to get people back on track."
A Raft of Warnings Ignored: A Chronology of Concerns
The narrative of unchecked spending and alleged fraud is punctuated by a clear chronology of warnings that appear to have gone unheeded. From 2023 through 2024, Medicaid insurers and actuaries consistently communicated their concerns, arguing that Beshear’s decision to delay the reinstatement of spending guardrails had allowed billing abuse to proliferate across the drug treatment sector.
Some Medicaid insurers took proactive steps, sending warning letters to providers suspected of overbilling, offering guidance on appropriate billing practices. At least one insurer, Passport by Molina Healthcare, attempted to curb excessive billing by establishing its own guidelines for services deemed "intensive, high cost and/or have the potential for overutilization," specifically referencing peer support services, which are similar to 12-step programs.
In August 2024, the Kentucky Association of Health Plans (KAHP), representing the state’s Medicaid insurers, sent a formal letter to the state Cabinet for Health and Family Services. The letter explicitly warned that weak oversight had facilitated "unnecessary" spending on treatment and, more critically, that the services most frequently billed for by treatment centers were not leading to improved health outcomes for patients. The KAHP’s letter specifically highlighted that addiction treatment providers were overbilling for services not grounded in evidence-based practices or delivered by licensed medical professionals. The association’s proposed solution, articulated in subsequent public hearings, was the immediate reinstatement of prior authorization.
Tom Stephens, president of the KAHP, confirmed in an interview that the August 2024 letter was not an isolated incident but "simply one example of concerns that had been raised over time" with the Beshear administration.
When queried about this letter, Beshear spokesperson Scottie Ellis responded that the governor "monitored the concerns expressed publicly and those shared with his administration" and that the state health agency worked with Medicaid insurers to address them. However, Ellis declined to provide specific details regarding the measures the administration took during that period.
More warnings swiftly followed. The very next month, in September 2024, Somerset Mayor Alan Keck penned a letter to the Beshear administration, imploring them to reinstate Medicaid spending controls. Keck’s rural southeastern Kentucky county had been devastated by the opioid crisis. In his letter to then-health Secretary Eric Friedlander, Keck detailed troubling practices: treatment centers in his region were allegedly recruiting out-of-state patients and using company addresses to establish fraudulent residency for them, thereby enabling them to bill Kentucky Medicaid. He also alleged that some companies were misrepresenting the services they provided to fraudulently bill Medicaid.
"Our communities are seeing an influx of sober living facilities that are taking advantage of Kentucky’s Medicaid system and the lax requirements that linger from the Covid-19 pandemic," Keck wrote. Keck, who had unsuccessfully run in the Republican primary for governor in 2023, recently stated that Friedlander never responded to his letter, and he believes Beshear’s administration should have acted more decisively to curb the drug treatment industry’s "explosive growth." Beshear’s spokesperson did not address questions regarding a response to Keck’s letter.
In November and December 2024, officials from Anthem and WellCare, two prominent Medicaid insurers, further amplified their concerns in meetings with state legislators and Medicaid officials, underscoring the growing consensus among insurers about the systemic issues.
Data Illuminates Billing Discrepancies
The state’s own data from that period corroborated the insurers’ claims that Kentucky was heavily subsidizing services that required minimal or no involvement from licensed doctors and therapists. Kentucky Medicaid Commissioner Lisa Lee informed lawmakers in February 2025 that behavioral health providers in the state were paid more than $147 million for peer support services in 2023 and 2024 alone. Concurrently, Medicaid payments for psychoeducation saw a dramatic jump from $40.4 million to over $168 million. Psychoeducation is typically a component of a regular appointment where a clinician explains a diagnosis and treatment plan to a patient. A significant portion of the money spent in Kentucky on psychoeducation was directed to ARC. Medicaid insurers warned that Kentucky was one of the few states that permitted this service to be billed for separately, a practice they argued was being widely abused.
At the core of these billing issues was the suspension of prior authorization, which had historically served as the primary check against the overuse and overbilling for low-quality care. Without it, the addiction treatment landscape in Kentucky transformed into what Shelby Steuart, a professor specializing in health policy at the University of Maryland, described as "a Medicaid free-for-all." She concluded, "It just became an opportunity for people to make money."
When questioned about these numerous warnings and the administration’s delay in reinstating Medicaid spending guardrails, the governor’s office maintained that Beshear’s decision "helped save lives." Spokesperson Ellis asserted via email that amidst the public warnings, the Cabinet for Health and Family Services, the state’s health agency, met with Kentucky’s Medicaid insurers "to discuss concerns" regarding the spike in drug treatment spending. She added that the administration issued a letter in November 2024 to clarify billing guidelines for certain flagged services, which reportedly resulted in a more than $100 million decline in billing from 2025 to 2026. However, as the attorney general’s Office of Medicaid Fraud and Abuse Control informed lawmakers in December 2025, billing simultaneously increased by $40 million for other services that experts continued to flag as being abused. Ellis reiterated the administration’s core defense: "In the end, actions taken by Gov. Beshear and his administration have decreased overdose deaths for four straight years."
ARC’s Struggles and the Shifting Landscape
In 2024, ARC itself disclosed what it termed "billing errors" that led to overpayments from the state, as revealed by emails obtained through Kentucky’s open records laws. Around this time, Kentucky’s Medicaid insurers began to voice more direct questions about excessive billing and initiated steps to sever contracts with ARC. In response, ARC sought assistance from the state’s health agency, appealing to the health secretary to delay the reinstatement of spending controls and to implement a system that would compel Medicaid insurers to continue working with the company. "Time is of the essence," ARC founder Tim Robinson wrote in a September 2024 email to then-Secretary Friedlander.
While Beshear’s administration ultimately declined to force insurers to maintain contracts with ARC, it notably also chose not to reinstate tighter spending controls at that juncture. In that same year, ARC received a record $103 million from Kentucky Medicaid, with a substantial portion attributed to services that Medicaid insurers had explicitly warned were being abused.
In his June interview, Governor Beshear defended this decision and denied that his 2020 order directly led to a rise in Medicaid fraud or abuse. He acknowledged that by the time Kentucky’s Republican-controlled legislature reinstated spending controls in July 2025, his administration was in the process of coordinating with the state’s health agency to enact some spending guardrails, but conceded that "admittedly, the Cabinet was probably taking too long."
Implications and the Path Forward
The saga of Kentucky’s Medicaid spending on addiction treatment presents a complex dilemma at the intersection of public health, fiscal responsibility, and political accountability. While Governor Beshear’s initial actions were born from a genuine desire to save lives during a dual crisis, the subsequent lack of robust oversight created vulnerabilities that, according to critics, were exploited by some providers. The allegations of fraud against ARC, culminating in a significant settlement and criminal charges against its founder, underscore the severity of these vulnerabilities.
The dramatic reduction in residential treatment beds following ARC’s closures raises concerns about the future availability of crucial services for Kentuckians battling addiction. The legislative actions to reinstate prior authorization and curb the governor’s power over Medicaid signal a shift towards stricter accountability, but also highlight the political cost of the initial policy choices.
Kentucky’s experience serves as a potent case study for other states grappling with public health emergencies. It illustrates the critical, delicate balance required between ensuring immediate, unhindered access to care in a crisis and maintaining rigorous financial and clinical oversight to prevent waste, fraud, and potentially, the delivery of substandard care. The long-term implications for Kentucky’s Medicaid program, the integrity of its healthcare system, and the trust of its citizens will undoubtedly continue to unfold as the state navigates the aftermath of this unprecedented period of spending and scrutiny.
Joko Widodo
admin
Nila Kartika Wati
Lina Irawan
Eva Lovia