Judge allows DHS to halt Medicaid payments to addiction treatment provider Nuway amid fraud concerns

Addiction treatment provider Nuway is poised to shutter a program that serves thousands of Minnesotans a year after a judge allowed the state Tuesday to pursue its plan to halt funding to the nonprofit under fraud investigation.

The state Department of Human Services had planned to suspend Medicaid payments for Nuway’s intensive outpatient treatment program last Friday, citing a “credible allegation of fraud.” The U.S. Department of Justice has been investigating Nuway for years, and state officials have been warning for about a year that they planned to pause funding amid concerns.

With the funding cutoff approaching, Nuway sought a federal injunction to block the DHS from withholding the Medicaid reimbursements. Nuway said suspension of those payments would mean it couldn’t afford to keep offering intensive outpatient treatment services with housing — the largest program of its kind in the state.

“The Court is deeply concerned with the plight of NUWAY’s patients, who may suffer irreparable harm by the temporary payment withholds. But in the Court’s opinion, NUWAY’s argument that it has a protected interest in the payments does not have a fair chance of prevailing on the merits,” Senior U.S. District Judge John Tunheim wrote in his decision.

Nuway’s attorney, Manda Sertich, argued at a hearing last Thursday that state law gives it the right to a contested hearing before payments are withheld. Tunheim said that while providing a contested case proceeding before withholding payments would be a much fairer process, it is not what current law requires.

“It is not overly dramatic to say the payment withholds could result in relapses and could even result in deaths,” Sertich said last week. She pointed to employees who work with people in recovery who packed the courtroom. Employees said their clients come first, and “this is nothing short of a crisis for them,” Sertich said.

Tunheim encouraged a swift resolution to the fraud investigation, but said the state’s interest in preserving the integrity of the Medicaid program and protecting the public interest is also important.

Assistant Attorney General Scott Ikeda said at last week’s hearing that the state was firmly within its rights to stop the Medicaid payments.

“The department has an obligation to protect taxpayer money,” Ikeda said. “It has a credible allegation of fraud. It wants to pause payments while that investigation proceeds. The court should allow the government to pursue that public policy.”

Nuway says it has offered the outpatient treatment program with housing help for more than a decade. The program, which currently supports hundreds of people, provides participants with a housing stipend of up to $700 a month to allow them to live in a sober recovery residence.

Claims of fraud have centered on two themes: problematic billing practices and concerns that the housing payments may be used to improperly entice clients and amount to illegal kickbacks.

The DHS generally said that the credible fraud allegations include “billing for services not provided as billed, inducing services through illegal kickbacks, failing to return overpayments, submitting claims for which reimbursement was not entitled, and inadequate documentation of services.”

As the court battle approached, some people who work in addiction services — including several people who run recovery residences that partner with Nuway — warned that the closure of the major program could make it more difficult for people to get needed support to remain sober and move past homelessness.

DHS officials said they have been working with partners to prepare for the potential program closure, and said in court documents that they believe other treatment providers can take on most or all the clients from Nuway’s program.

At Thursday’s hearing, Tunheim weighed the arguments, asking how the closing would affect individuals in treatment and whether that was even part of the legal calculus for the court. He wondered how long the temporary pause of payments could last and whether the uncertainty was of concern.

“It’s a relevant consideration,” Tunheim said. “Two-week pause is different than a one-year or two-year pause.”

A temporary suspension of payments must continue until either the agency or prosecuting authorities determine there’s not enough evidence of fraud, or the legal proceedings related to the alleged fraud wrap up, the DHS noted in court documents.

Ikeda said the state was not shuttering Nuway or stopping it from operating; it was simply stopping a certain kind of government payment. Nuway says that is 90% of its revenue, but Ikeda said that is not a DHS concern.

Sertich told the court Nuway estimated if the funding were to disappear the intensive outpatient treatment program could run out of cash in two months.

“It’s tragic that DHS’s decision is going to hurt a lot of people,” David Glaser, another attorney for Nuway, said in a statement after Tuesday’s ruling. “While NUWAY considers the next steps, they will follow the law in putting together a transition plan that is ethical and best for nonresidential treatment clients’ care and safety as well for the future of the workforce supporting them.”