Minnesota addiction service provider may end massive program amid fraud investigation

Thousands of Minnesotans a year rely on Nuway’s program that pairs addiction treatment with a monthly housing subsidy, but it might not be around much longer.

The state Department of Human Services plans to halt Medicaid payments for the service on Friday, citing a “credible allegation of fraud” amid a U.S. Department of Justice investigation into the nonprofit.

Nuway recently sued the DHS and is seeking an injunction to block the state from stopping payments, which it says would result in the “swift demise” of the state’s largest outpatient substance use disorder treatment program.

The Minnesota Attorney General’s Office, which is representing the DHS, responded in court documents over the weekend that the nonprofit manufactured its own crisis and is pursuing a “too big to fail'‘ strategy. It argues that rewarding that conduct doesn’t benefit the public interest.

A U.S. district judge will hear the case Thursday.

Meanwhile, some people working in the field fear the potential end to the program would have a ripple effect, leaving more Minnesotans struggling to find help with addiction and homelessness.

“Without this program, without Nuway, I can just see calamity happening. Literally, it’s going to cost people their lives. … We’re really nervous, to say the least,” said Mark Schwartz, who said the program put him on a life-changing path to sobriety eight years ago.

He now owns Right Time Sober Living and said about half of the 165 people in his group’s homes rely on Nuway’s support.

The DHS has been warning for about a year that it would withhold funding to Nuway.

State officials listed five potential fraud concerns in a letter to Nuway last year: Billing for services not provided; using illegal kickbacks; failing to return overpayments; submitting claims where it wasn’t entitled to reimbursement and failing to comply with legal requirements to document services.

Nuway has known the U.S. Attorney’s Office was investigating since April 2022 but continued to seek more than $2.8 million in reimbursements each month, according to the attorney general’s recent response.

“Despite being under fraud investigation for nearly three years, Nuway not only failed to diversify its clients’ payments sources but took steps to increase the number of Medicaid-paying outpatient clients during that time by about 34%," the response adds.

The DHS delayed withholding funds in hopes the U.S. Attorney’s Office and Nuway could resolve potential litigation, Betsy Schollmeier, chief legal counsel for the DHS’ Office of Inspector General, wrote to Nuway’s attorneys this month. She said the nonprofit’s attorneys and federal and state attorneys haven’t reached a settlement.

The program at the center of the controversy provides people with a monthly stipend of up to $700 for housing in a recovery residence, also known as a sober home, while they participate in Nuway’s intensive outpatient treatment. The housing aid continues for 30 days after someone successfully completes treatment.

The housing subsidy is being scrutinized as an illegal kickback. Evergreen Recovery in St. Paul had a similar offering, which a federal investigator described as defrauding Medicaid by enticing people with free housing and then billing for treatment. The FBI raided that organization last summer.

Nuway officials stress that the DHS has known about their program for years and it won an award from the managed care organization UCare.

The nonprofit is pushing back against accusations of fraud, including billing issues KARE 11 highlighted in a recent report. Nuway argues in its complaint that it followed DHS guidance when it rounded up to bill for an hour of counseling for sessions that lasted 35 minutes. When the DHS changed its guidance last fall, Nuway said it immediately adjusted to comply with the rules.

But the state’s court filing, citing KARE 11, notes Nuway’s finance officials and outside counsel raised concerns with the billing practice.

“Like all other providers, Nuway must follow state and federal rules for Medicaid in order to bill for services. In the last year, Nuway has had ample opportunity to change their practices,” temporary Human Services Commissioner Shireen Gandhi said in a statement. “We are deeply concerned about the potential impact on clients if Nuway closes and expect Nuway to follow laws to plan for client transitions. DHS is working closely with counties and other partners to mitigate the possible impacts.”

State law requires licensed providers to give 25 days' notice before they close and make responsible transition plans to shift people to other services, DHS officials said, and the state has been talking with its partners since early last year to prepare them to coordinate care if Nuway closed without setting up connections for clients.

Roughly 5,000 people participated in Nuway’s intensive outpatient treatment program last year and the vast majority used the housing aid, nonprofit officials said. More than 800 clients are currently getting that treatment and 84% receive the housing support, according to Nuway’s complaint.

“Nuway doesn’t want to leave anyone in the lurch,” said David Glaser, an attorney for the nonprofit. “We’re not going to stop treatment on someone the minute the payment suspension goes into effect. So they will work to make sure people’s treatment is completed. In some ways, the bigger impact is the long-term one.”

Some other addiction treatment providers have raised concerns with the practice, which they said puts those that don’t offer housing aid at a competitive disadvantage. The model can create an unhealthy dependence on the provider, they said, with clients continuing at a higher level of care for longer than needed so they can keep their housing, preventing them from finding full-time jobs.

If Nuway has to stop the program, the DHS anticipates other providers can absorb most, if not all, of their clients, according to the state’s court documents. They note that while some outpatient clients might need to continue with that level of care, others might be better suited for more intensive inpatient services or possibly no services at all.

Nuway officials and housing providers they work with were skeptical that there would be an adequate safety net to help people if the program is closed.

More people would have to rely on the state-funded Housing Support program. Shortcomings with that option were part of the reason Nuway created its own program more than a decade ago, chief clinical officer Ken Roberts said. He said too few people are able to access the state support and the spaces they end up in aren’t necessarily the sober, supportive environments they need.

Schwartz, the former client, teared up at the idea of the program ending. If there is wrongdoing, he said he wants to see accountability — even if that hurts his business. But, he added, “I’ve yet to see any provable fraud,” and he believes the program’s merits far outweigh any problems.

He attended an event last week for recovery residence partners at Nuway’s counseling center on Blaisdell Avenue in Minneapolis. Hundreds of people gather in rooms throughout that historic mansion every weekday for small group therapy.

Leo Garcia, who manages Ascend Recovery Residence’s house in Minneapolis, was also at the event. After 20 years of IV drug use, he became sober in 2022 and said Nuway’s intensive outpatient treatment with housing helped him discover there was more to life.

“If that goes away, you are taking from individuals that really want the help,” Garcia said. “They might feel that they don’t have purpose, no one cares for them. Some might run back to the streets and use, some might die.”