The FBI announced its investigation of Kentucky-based treatment provider Addiction Recovery Care for potential Medicaid billing fraud in the summer of 2024, but in the ensuing 18 months, there was little indication of what the large and influential company was accused of doing.
That all changed early this year, thanks to a filing in a new federal lawsuit against Addiction Recovery Care, known as ARC, and a new federal database that tracks monthly Medicaid payments to providers for each billing code of services that they provide.
According to a Kentucky Public Radio review of the court filing — a copy of a $27.7 million draft settlement between the U.S. Department of Justice and ARC — federal prosecutors are likely targeting an extraordinary spike in Medicaid payments the company received for performing “psychoeducation” services, which a whistleblower alleges was fraudulently billed.
A review of the new federal database also shows ARC was paid $70 million from Medicaid for this psychoeducation service in 2023 and 2024 — which accounted for 20% of all Medicaid payments under that billing code in the entire country for this two-year period.
Psychoeducation is a non-clinical service that provides general information about the recovery process, but is separate from actual addiction treatment provided by licensed psychotherapists and certified social workers. Most states in Kentucky’s region do not even pay out any Medicaid claims for this service, but payments to addiction treatment providers in Kentucky for psychoeducation absolutely exploded in recent years — quadrupling to $34.7 million from 2020 to 2023, and then quadrupling again in 2024 alone to $165.6 million.
Some saw the red flags. The Kentucky Association of Health Plans — a trade group of the health insurance companies that administer Medicaid payments for the state, also called managed care organizations (MCOs) — warned state officials in the administration of Gov. Andy Beshear in August of 2024 that provider spending on non-clinical psychoeducation had inexplicably skyrocketed and urged them to stop payments for the services, like other states.
There was also the whistleblower who filed a federal civil lawsuit in Kentucky in April of 2023, coming forward to allege ARC was fraudulently billing psychoeducation services by falsely indicating they were performed by a licensed professional, which garnered a much higher payment. That lawsuit had been sealed until this January, when a New York lender sued ARC for allegedly defaulting on an $8 million payment, filing as an exhibit the draft settlement ARC had shared with it — detailing the alleged psychoeducation billing scheme and the terms of the $27.7 million payment to dismiss the complaint.
Once the largest addiction treatment provider in Kentucky — and owned by a very prominent political donor to both parties — ARC has faced a precipitous downfall since the FBI investigation was announced. Since that time, ARC has closed more than half of its facilities and laid off numerous employees, in addition to an aborted attempt to sell off most of its assets to a Florida company in late 2025.
A spokesperson for ARC did not reply to inquiries for this story.
State officials with the Kentucky Cabinet for Health and Family Services and Department of Medicaid Services finally took action in late 2024 to curb the rate of spending on psychoeducation, which by 2025 plummeted by more than $100 million.
However, some state lawmakers in Frankfort want to do more — and want a full reckoning for how the Beshear administration let ARC and other providers siphon away so much taxpayer dollars in this period for a non-clinical service that is only an education supplement to actual addiction treatment.
One of those critics is GOP state Rep. Ken Fleming of Louisville, who chairs the Kentucky Medicaid Oversight and Advisory Board that first met last summer. Shown the new federal data on Medicaid payments that ARC received in 2023 and 2024, Fleming said this should have been a red flag that was caught much earlier.
“There was no oversight, there was no control quality measures, in terms of monitoring and making sure that these numbers are trending in a normal, understandable way,” Fleming said. “So to me, it's a direct failure of the administration in not overseeing and managing taxpayers’ money. I mean, it's pretty blatant and it's really disturbing.”
Beth Fisher — a spokesperson for the Kentucky Department of Medicaid Services and the Cabinet for Health and Family Services — said their changes related to psychoeducation billing that were implemented in 2025 have worked to reduce spending. She also said the agency never forwarded concerns to federal agencies or law enforcement about psychoeducation billing because “no provider misuse was identified and therefore no reports were made.”
Presented with information in the new federal database about ARC’s dramatic increase in psychoeducation payments over this period and asked if there was wrongdoing, Fisher wrote that “this matter involves an ongoing Medicaid fraud investigation,” referring questions to the Kentucky attorney general’s Medicaid fraud unit.
How this one billing code for Medicaid exploded in Kentucky is still reverberating in Frankfort, where state lawmakers are currently crafting a two-year state budget that directs $6 billion to Medicaid benefits, tackling how to credential peer support specialists in the addiction treatment industry and advancing a bill to increase transparency and oversight over Medicaid spending.
One bill that is close to clearing the Kentucky Senate was amended this week to do what health insurers had called for two years ago — ending all Medicaid payments for psychoeducation services in Kentucky.
As lawmakers look to the future, a look back at the past — through the new federal database, state records and past legislative meetings — shows the path that got Kentucky and ARC where they are today.
DOJ: ARC received ‘reimbursements to which they were not entitled’
According to the unsigned draft settlement with ARC, the agreement stems from the sealed whistleblower lawsuit filed in April of 2023, with the Department of Justice intervening in that case.
Under the settlement, federal and state officials “contend that ARC knew or recklessly disregarded” Medicaid billing procedures for psychoeducation and other services from 2018 to 2024 by falsely indicating they were performed by a licensed professional. As a result of those actions, ARC and its affiliates “received reimbursements to which they were not entitled.”
The draft also states that ARC “self-disclosed improper payments” related to psychoeducation to state Medicaid officials in March of 2024, and then self-disclosed additional improper payments to federal prosecutors in December of that year related to other services.
Under the terms of the proposed settlement, the complaint alleging ARC submitted false claims for psychoeducation services would be dismissed, with ARC paying the federal government $27.7 million. The settlement states the agreement “is neither an admission of liability by the ARC Entities nor a concession by the United States that its claims are not well founded,” but instead an effort to avoid a costly and lengthy litigation process.
No settlement involving ARC has been announced by the company or state and federal prosecutors to date, but the draft copy in the lawsuit lists the U.S. Attorney’s Office for the Eastern District of Kentucky, the inspector general’s office in the U.S. Department of Health and Human Services, the Kentucky Office of the Attorney General and the Kentucky Cabinet for Health and Family Services as parties agreeing to the proposed settlement.
Asked about the draft settlement, Fisher with the state cabinet replied that Kentucky’s DMS “has not signed off on any settlement involving Addiction Recovery Care.”
The timing of the whistleblower’s lawsuit in 2023 lines up with when ARC’s Medicaid payments for psychoeducation services started rising, according to the new federal database that breaks down Medicaid payments by month, provider and billing code from 2018 through most of 2024.
A new kind of federal database shows ARC as a national outlier
This February, the Centers for Medicare and Medicaid Services published the massive dataset with assistance from the Department of Government Efficiency, describing it as a way to track unusual payments, trends and potential fraud.
Health researchers at KFF noted after the launch of the new database that there were some limitations to the data — such as not identifying where the services were performed, only where the payments were sent — and questions about how it was compiled. Some time before the end of that month, HHS took the database offline with a message that it is “under construction” — but not before several programmers downloaded and shared the full database on their own websites. One created a visualization tool to explore the data by billing code and provider, which Kentucky Public Radio used to compile numbers for this story.
The data shows ARC’s Louisa headquarters starting off receiving no payments for psychoeducation services in 2018, but gradually increasing to more than $500,000 per month at the beginning of 2021.
ARC’s psychoeducation payments would remain steady for much of 2022 at more than $700,000 per month, but this is when payments under this billing code at the national level briefly skyrocketed, quadrupling to $32.7 million that December. The database suggests that much of this brief national spike in 2022 was due to psychoeducation payments in Arizona — where massive Medicaid fraud was uncovered a year later, along with the discovery that Medicaid payments had grown five times larger in the span of just two years.
ARC’s psychoeducation payments started rising at a faster pace by November of 2022, when they also started going to ARC’s Owingsville treatment facility. By March of 2023, ARC Owingsville received $1.9 million under the billing code, cracking $2 million that month when combined with the Louisa office.
ARC’s total payments for psychoeducation services cracked $3 million in July of 2023, then reached a high of $4.4 million that December. According to the CMS database, those December payments to ARC amounted to a third of Medicaid’s entire psychoeducation payments at the national level.
With the Owingsville office no longer receiving payments in 2024, ARC’s Louisa office averaged more than $3 million per month in payments for psychoeducation services through that November, when the database concluded. The company’s total haul under this billing code for the available data in 2024 was just shy of $40 million — 22.4% of Medicaid’s entire spending for psychoeducation that year.
Psychoeducation billing changes, and concern from MCOs
The explosion of Kentucky Medicaid payments for psychoeducation services that began in 2023 followed closely with changes to billing made by the state that year —- which were not addressed again by the cabinet until late 2024.
But the signs that something very unusual was happening with this specific billing code were there — from an unheralded cabinet study, to a private letter from health insurance companies warning the state that action needed to be taken.
State records show that Kentucky altered its Medicaid fee schedule in 2023 to significantly increase the provider rate for some psychoeducation services, which was tiered based on who was delivering the service in its 15-minute units. At the highest tier, physicians delivering services would bring a payment of $55.20 per unit, whereas at the lowest tier, peer support specialists would bring in $8.61.
As Kentucky Medicaid payments to ARC and other behavioral health providers were quietly skyrocketing, in May of 2024 the Cabinet for Health and Family Services issued a report to an advisory committee showing that Kentucky was an outlier with other states when it came to making any payments for psychoeducation services.
The multi-state rate study showed that Kentucky was the only state among the 10 in the region to reimburse providers for psychoeducation as a separate service.
On July 30 of 2024, two ARC executives testified before an interim legislative committee and pleaded for help, explaining that three of Kentucky’s six MCO companies had suddenly cut their rates by 15-20%, with one insurer announcing they would no longer cover any addiction services at ARC by that fall.
Though it would not be reported until two days later, that same day the FBI posted an announcement online that it was investigating ARC for potentially fraudulent Medicaid billing, calling on any patients or employees with information to contact them.
According to a letter obtained by Kentucky Public Radio, this is when the Kentucky Association of Health Plans made their case for how psychoeducation spending was out of control and needed to be stopped.
KAHP CEO Thomas Stephens sent the Aug. 13 letter to then-cabinet Secretary Eric Friedlander, noting that Kentucky was one of only a few states to cover psychoeducation as a standalone service, and that those payments were abnormally large. Stephens noted that one MCO reported paying an average daily rate of $290.67 for non-clinical psychoeducation, while paying an average daily rate of only $76 for clinical psychotherapy.
Stephens wrote that with this payment imbalance, “providers are incentivized to provide the non-clinical service at significantly greater volume compared to the clinical service,” which “results in worse health outcomes for Medicaid members.”
Noting that psychoeducation claims had more than doubled from 2021 to 2023, while costs had more than tripled, Stephens called for eliminating coverage of psychoeducation. If not fully eliminating coverage, he said the Beshear administration should put strict per-day and per-year caps on psychoeducation payments and “prohibit service delivery by para-professionals.”
In a Nov. 1 letter to providers several months later, Kentucky DMS Commissioner Lisa Lee announced changes to how psychoeducation would be billed starting in January of 2025. The service would still be covered, but the rate for individual patients was cut by 15%. It also created a new group rate for up to 12 individuals that was 25% lower than the individual rate.
Writing that psychoeducation “is support to, and an adjunct to, actual clinical care provided by a clinician,” Lee added that peer support specialists and uncertified workers “cannot deliver psychoeducation services.”
Lawmakers, AG’s office catch wind of spending spree, after the fact
Perhaps the first public glimpse of just how much psychoeducation spending had increased in Kentucky was in a February 2025 budget subcommittee meeting in Frankfort — though no one in the meeting appeared to notice.
On Lee’s PowerPoint presentation to the lawmakers, one slide showed that psychoeducation spending by MCOs had increased from $40 million in the 2023 fiscal year to $168 million in the 2024 fiscal year. None of the committee members asked about the jump.
However, psychoeducation payments were on the mind of at least one lawmaker that 2025 session.
House Bill 695 passed in March to restore pre-pandemic prior authorization for behavioral health services, an effort to contain potentially wasteful Medicaid spending. ARC was lobbying that session for certain exemptions or required notifications for the prepayment reviews.
Sen. Chris McDaniel, the GOP budget chairman from Ryland Heights, noted that when the final version of HB 695 passed out of committee, it stripped out references to psychoeducation — which the original version would have exempted from prior authorization.
“We pay for these services for people to be helped, not for folks to make large profits,” McDaniel warned. “And if you are finding yourself in the space of questioning what you're doing right now, I would argue that you probably should change. Don't make us find you, because it will not be pleasant as a whole.”
In December, just weeks ahead of the 2026 legislative session, two leaders in the Kentucky attorney general’s Office of Medicaid Fraud and Abuse Control gave lawmakers another window into the rise and fall of Medicaid spending on psychoeducation services — and where potential fraud may exist.
Executive director Matthew Kleinhart presented a chart to the Medicaid Oversight and Advisory Board that showed payments broken down by behavioral health billing codes for the calendar years 2020 through 2025. Psychoeducation payments for individuals quadrupled from $8.2 million in 2020 to $34.4 million by 2023, and then quadrupled again in just one year to $163.5 million.
But Kleinhart noted that individual psychoeducation spending did drop dramatically in 2025, following the changes instituted by the cabinet, falling to just $14.4 million.
However, Kleinhart added that “it appears that those who may be committing fraud have moved to other areas,” as the new “group” billing for psychoeducation went from just $2 million in 2024 to $38.1 million in 2025.
Without mentioning ARC by name, Democratic Sen. Karen Berg of Louisville asked the attorneys how much of the 2024 leap in psychoeducation spending “is a function of the incorrect billing that was going on in this state by one of our larger mental health care providers?”
Rewa Zakharia, the criminal division chief in the AG’s office, answered that she couldn’t directly comment “on anything that could or could not be pending as far as an investigation or a prosecution.”
Kentucky Public Radio asked the Cabinet for Health and Family Services for a record of the total Medicaid payments by the state for psychoeducation services from 2022 through 2025, as well as those totals that went to ARC. After a week, the cabinet said an open records request would be needed to turn over that data, which is pending.
ARC in the background as General Assembly tackles Medicaid
Kentucky’s massive increase in Medicaid spending on addiction treatment is one of the motivating factors behind House Bill 2, sponsored this session by Fleming. The bill would implement the federal mandates of the “Big Beautiful Bill” passed by Congress last summer — such as work reporting requirements for those on Medicaid — and add new co-payments for patients to receive certain health services, but a large part of its focus is on adding oversight and transparency of Medicaid spending.
The HB 2 transparency measures include an online “dashboard” for the public to monitor Medicaid spending and outcomes, as well as new audits.
Fleming said the uncontrolled surge in psychoeducation spending in 2023 and 2024 — and his difficulty to get certain numbers from the Beshear administration — is why those transparency measures are in House Bill 2, “making sure the activities are upfront and honest, in terms of how they're being applied.”
Some Democratic lawmakers fear the bill — as well as the current version of the GOP budget bill — goes too far in making it harder for people with lower-incomes to access Medicaid coverage, instead of taking on big companies who were trying to profit off of cheating the system.
“I think this is a way that we're punishing our poor people and accusing them of fraud when it really exists more on the provider side,” said Democratic Rep. Mary Lou Marzian of Louisville on the House floor in February, as HB 2 passed on a mostly party-line vote.
Democrats, including Beshear, have also criticized the Republican budget bill for spending $220 million less on Medicaid benefit payments than what the Beshear administration projects will be needed over the next two years. Republicans have countered that they don’t believe the administration’s projections.
ARC’s troubles have also come up in the context of House Bill 470, an attempted “fix” to a bill from two years ago requiring peer support specialists in addiction treatment to receive a state credential by the beginning of 2026. HB 470 would delay its implementation for another year, as just 101 of the nearly 17,000 specialists have qualified for the new credential, as of last month.
Though it passed the House easily, HB 470 stalled at a Senate committee hearing in February and was not voted on, as some name-dropped ARC as reason for skepticism.
“Part of the problem that we've seen, I think, particularly with ARC, has been an abuse of the peer recovery model,” McDaniel said. “It appears to me that this does not really address that so much as it extends the amount of time that abuse can occur.”
Sarah Vaughn, who works with peer support specialists and testified on the bill, also noted that ARC executives testified in committee for the peer support bill two years ago, as well as HB 470 when it was in the House this year.
“Why are we pushing for a bill that ARC created when they are under an FBI investigation?” Vaughn said. “It looks bad. Everything about it looks bad… Why is the focus not regulating the facilities becoming more stringent, having stop guards in place with Medicaid, before it gets out of hand?”
Jennifer McMinn, the vice president of recovery for Volunteers of America Mid-States, told Kentucky Public Radio the Louisville-based addiction treatment provider has never billed separately for psychoeducation, but the non-clinical services that peer support specialists provide is vital to the recovery process.
A licensed clinical social worker for two decades, McMinn fears that peer support specialists, the recovery organizations that ethically use them and patients who need their services may be the ones who end up punished for the alleged sins of ARC.
“If people were auditing (ARC) the way they should have been, this shouldn't have happened, and then we wouldn't be in this predicament,” McMinn said. “It shouldn't be the profession that gets put into jeopardy because of this. It should be that agency.”
On Tuesday, a new version of HB 470 cleared the Senate committee with little discussion. The new version would do what MCOs called for two years ago, mandating that the Kentucky Medicaid program “shall not provide coverage for individual or group psychoeducational services.”
‘One of the most basic human explanations, which is greed’
Shown the new federal data on ARC’s psychoeducation payments in 2023 and 2024 after HB 470 stalled in the committee meeting last month, McDaniel said “there is no rational explanation” for it, “other than one of the most basic human explanations, which is greed.”
“There are people in this world who don't care how they make their money, and we have people in this state who have figured out how to make addicts big money, and they've enriched themselves,” said McDaniel, who questioned whether the massive state spending on treatment over the past decade has made any perceivable dent in Kentucky’s addiction woes.
He added that “to watch those organizations be paraded to the State of the Commonwealth address, amongst many other things, was very disheartening.”
ARC owner Tim Robinson was singled out for praise by Beshear in his January 2024 State of the Commonwealth address, two months after he was reelected — with financial help from Robinson.
Through two of his low-profile businesses, Robinson gave $195,000 in 2022 and 2023 to the Democratic Governors Association, the political committee that spent $19 million on ads to elect Beshear. Following the 2023 general election, Robinson contributed $29,000 to Beshear’s inauguration fund.
Robinson was also a big donor to help elect Kentucky Attorney General Russell Coleman that year. He gave $20,410 to a PAC that spent $70,000 on efforts to elect Coleman, while he and other employees of ARC also combined to contribute more than $10,000 to Coleman’s campaign.
Robinson and other employees of ARC also combined to contribute more than $10,000 to Coleman’s campaign.
As first reported by Kentucky Public Radio after the FBI investigation of ARC was announced in 2024, both Coleman and the top deputy in his office have recused themselves from any investigation of ARC.
This story was produced by the Appalachia + Mid-South Newsroom, a collaboration between West Virginia Public Broadcasting, WPLN and WUOT in Tennessee, LPM, WEKU, WKMS and WKU Public Radio in Kentucky, and NPR. Sign up for the weekly Porch light newsletter here for news from around the region.
