Addiction recovery industry rife with abuse, state investigators say

While most new businesses take up to two years to become profitable, and a quarter fail their first year, Nicholas DeSimone bucked those trends, big-time.

The Mullica Hill businessman made $15 million in three years after opening his first addiction recovery center, according to the New Jersey State Commission of Investigation.

DeSimone’s success didn’t come from hard work or because his pocket of Gloucester County had more people struggling with addiction than anywhere else, investigators said.

Instead, DeSimone took advantage of a largely unregulated system to make a fortune in the addiction recovery industry — and bent the law so much that commission officials have asked prosecutors to act on their findings, according to testimony during a public hearing Tuesday in Trenton.

Like DeSimone, many recovery center operators exploit vulnerable people and trap them in addiction to ensure their hefty health insurance payments continue, investigators testified.

Agents detailed illegal business practices such as double-billing, billing for services not provided, and falsifying urine tests to indicate a relapse, thereby extending patients’ stays.

Many entice customers through free food, gifts, transportation, and living accommodations, while others outright accept or pay money for referrals of patients with generous private insurance coverage — an illegal practice known as “body brokering.” State legislators specifically criminalized patient brokering last year, but commission investigators Tuesday said they were unaware of anyone charged under the law.

Many operators then use their profits for personal gain. DeSimone and his wife, Michelle, skirted federal financial reporting requirements to dodge taxes and divert millions from their business — called Kingsway Recovery Center — to financial investments, credit card purchases, and cash purchases of cars and a home, said Laura Mercandetti, a forensic accountant with the commission.

“Nicholas DeSimone’s main motivation was to make money from the insurance companies,” Mercandetti said.

The commission subpoenaed DeSimone to testify Tuesday, but he failed to appear, prompting the commission’s counsel Lisa Cialino to say they would file a motion against him for contempt of court. DeSimone did not respond to the New Jersey Monitor’s request for comment after the hearing.

Investigators referred the DeSimones for possible prosecution for money laundering, health care fraud, and income tax evasion, Mercandetti said. A spokesman for the Gloucester County Prosecutor’s Office said he didn’t have any information about what, if anything, they’re doing about DeSimone.

A widespread problem

The DeSimones may have been the commission’s chief target Tuesday, but investigators say they’re far from unique.

An outpatient treatment center called The Sanctuary in Cherry Hill brought in $6 million in insurance payments over 18 months, Mercandetti said.

“They spent it on food, clothing, car payments, personal vacations and entertainment, other home expenses, and ATM cash withdrawals,” she said.

The center closed down when it couldn’t cover employee salaries or business expenses, she added.

Even nonprofit treatment providers acted unscrupulously, accepting donations in exchange for referrals, investigators said.

Recovery Advocates of America, a Hamilton-based nonprofit, accepted more than $600,000 from 2017 through 2020 from about 35 treatment centers, with the biggest payoffs coming from two Florida-based providers, said Eric Rennert, a commission special agent.

Reached by phone after the hearing, Stacey Ross, Recovery Advocates’ executive director, referred questions to the nonprofit’s attorney, who did not respond to a request for comment.

Commission chairwoman Tiffany Williams Brewer said investigators expect to release a report on their findings in the coming months and will recommend how policymakers can curb abuse in the industry.

An entrenched problem, a growing industry

The opioid epidemic may have fallen out of the daily headlines, but it continues its deadly rampage in New Jersey, Brewer said.

More than 3,100 people died of drug overdoses last year, with another 2,237 so far this year, state data shows. Another 75,000 people have been saved in New Jersey since 2017 with the overdose-reversing drug naloxone, the data shows.

“Many more remain trapped in the cycle of addiction, desperate for help in breaking their dependence on pills, alcohol and other illegal substances,” Brewer said. “But all too often, addicted individuals and their families are victimized by the very system that’s supposed to help them recover and rebuild their lives.”

The addiction recovery industry is a growing $42 billion business, Brewer said. When providers let their financial interests — instead of a recovering patient’s needs — dictate their treatment placement, patients don’t get the specialized care best suited to their needs, Brewer added.

Nicole DiMaria lost her sister to addiction last year, saying she tried — and failed — to navigate a system whose lack of transparency ensures many never get the life-saving help they need.

Georgine DiMaria represented New Jersey in the 2007 Miss America competition. She later became addicted to prescription medication and struggled with alcoholism, leaving an in-patient treatment program halfway through a planned monthlong stay partly because of confusion about insurance coverage and costs, her sister testified. She died at age 37 of addiction-related liver disease and organ failure in August 2021.

Nicole DiMaria urged the commission to recommend changes that would require providers and insurers to reveal costs so families can make informed decisions about care.

“I am a health care attorney, and I research this space for a living, and I found it so difficult to find information,” Nicole DiMaria said.