District Court Approves Transition Plan For Clinical And Housing Operations Of Substance Abuse Provider Engaged In A Fraudulent Kickback Scheme

Preet Bharara, the United States Attorney for the Southern District of New York, and Scott Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s (“HHS-OIG”) New York Region, announced that a transition plan for NARCO FREEDOM, INC. (“NARCO FREEDOM”), a provider of outpatient chemical dependency clinics and short-term housing in residences known as “three-quarter houses,” has been approved in Manhattan Federal Court.  In April 2015, NARCO FREEDOM was enjoined from engaging in a fraudulent kickback scheme and a temporary receiver was appointed to take over NARCO FREEDOM’s operations.  On September 11, 2015, the Court approved the receiver’s plan to transition the substance abuse clinics and the housing operated by NARCO FREEDOM to other healthcare providers.  This transition prevents the imminent disruption of clinical services and housing for NARCO FREEDOM residents.  U.S. District Judge John G. Koeltl entered the order last Friday.

Manhattan U.S. Attorney Preet Bharara said:  “As the Complaint in this case alleged, Narco Freedom defrauded the government and profited from the exploitation of people most in need of their help.  Enjoining Narco Freedom from continuing to engage in the kickback scheme and transitioning its clinics and houses to other providers will provide this vulnerable population with the continuity of care and housing they sorely need.”

HHS-OIG Special Agent in Charge Scott Lampert said: “The conduct displayed by Narco Freedom is a clear example of the damage personal greed does to our nation’s healthcare system.  The transition approved by the Court puts an end to Narco Freedom’s illegal practices and allows important substance abuse treatment to continue to be provided without interruption.  HHS-OIG recognizes the importance of such treatment, and will continue to ensure that those who provide those services do so in an honest fashion that complies with the law.”

As set forth in the complaint filed on October 28, 2014, in Manhattan federal court:

Since in or about 2006, NARCO FREEDOM was engaged in a scheme to induce individuals who qualified for Medicaid and lacked stable housing to enroll in and attend NARCO FREEDOM’s outpatient clinics in exchange for short-term housing in residences known as “three-quarter houses,” which NARCO FREEDOM referred to as “Freedom Houses.”  NARCO FREEDOM allowed individuals without housing, many of whom had been released on parole, to reside in the Freedom Houses for approximately six to nine months, but required all Freedom House residents to enroll in and attend its outpatient clinics, and evicted residents who did not comply.  NARCO FREEDOM operated the Freedom Houses specifically in order to drive business to its outpatient clinics, and forced residents of its Freedom Houses who were already enrolled in other outpatient programs to transfer to NARCO FREEDOM’s outpatient programs, in violation of the Patients’ Rights provision of the New York State Code.

On October 29, 2014, U.S. District Judge Koeltl granted the Government’s motion for a restraining order which enjoined NARCO FREEDOM from evicting the residents of its Freedom Houses for refusing to engage in the kickback scheme.  On April 2, 2015, Judge Koeltl granted the Government’s motion for a preliminary injunction, concluding that NARCO FREEDOM provided numeration to Medicaid recipients in the form of below-market housing.  Judge Koeltl found that by “[p]roviding below-market housing to Medicaid recipients increases costs to the Medicaid program through over-and inappropriate utilization.  For those who need housing, the prospect of nearly free housing creates a strong incentive to overuse Narco Freedom’s drug treatment programs.”  On April 3, 2015, the Court granted the Government request for an appointment of a temporary receiver to take over and manage the operations of NARCO FREEDOM.  On July 28, 2015, New York State Office of Alcohol and Substance Abuse Services issued temporary emergency operating certificates for certain of the three-quarter houses, which were now being operated by the temporary receiver, certifying them as chemical dependence supportive living services.

Friday, Judge Koeltl granted the temporary receiver’s application to transition NARCO FREEDOM’s substance abuse clinics and houses to two other providers who will ensure the continuity of operations, subject to the Court’s order.  Specifically the Court ordered Narco Freedom to transition all of its clinics and houses to two different providers, Samaritan Village and Acacia Network, effective on September 22, 2015.  Both organizations currently provide housing and substance abuse services in New York City.

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Mr. Bharara thanked the Office of the Inspector General at HHS-OIG for its investigative efforts and support and assistance with the case, as well as the New York State Office of Alcohol and Substance Abuse Services and the New York City Human Resources Administration for their assistance and cooperation.

The case is being handled by the Office’s Civil Frauds Unit.  Assistant U.S. Attorneys Kirti Vaidya Reddy and Cristine Irvin Phillips are in charge of the case.