Watchdog finds widespread abuses in New Jersey’s addiction recovery industry

The State Commission of Investigation blamed insufficient government regulation and oversight

By: - February 6, 2024 3:56 pm

Laura Mercandetti, a forensic accountant with the New Jersey State Commission on Investigation, testifies about unscrupulous addiction recovery providers during a public hearing in Trenton on Oct. 11, 2022. (Photo courtesy of the New Jersey State Commission on Investigation)

In Cherry Hill, the owners of an addiction recovery center put lavish vacations, veterinary services, and their son’s college tuition on company credit cards, stiffing staff of their salaries, dodging taxes, and eventually trying to sell the business for $2 million long after it had stopped serving clients.

In Atlantic County, several sober-living homes operated unchecked for years, despite multiple code violations, reports of inappropriate sexual relationships between staff and residents, and the owner’s practice of pocketing public money the county paid to treat people even after they got kicked out.

In Toms River, a self-proclaimed addiction recovery specialist collected hundreds of thousands of dollars to refer patients with pricey private insurance to out-of-state treatment providers, flouting state and federal laws prohibiting “patient brokering.”

The schemes, which went undetected for years, were among several laid out in lurid detail in a new report released Tuesday by the State Commission of Investigation.

Investigators spent several years probing New Jersey’s addiction recovery system and found widespread failures in regulation and oversight they say enabled corruption to flourish.

“Fraud, unethical conduct, and wrongdoing were found in businesses at every stage of the recovery process, sometimes starting as early as an overdose victim’s first encounter with an addiction professional at their hospital bedside or during an online search for treatment,” investigators wrote.

The government’s lax regulation of the multi-billion-dollar industry allowed owners and others to “exploit systemic weaknesses, often to the detriment of individuals who are struggling with addiction,” they added.

“Even though the State has devoted substantial funding to addressing addiction and implemented necessary safeguards for some monies dedicated to it, more needs to be done to monitor the public investment in this area, to make the industry less prone to abuse and to protect the individuals who rely on the businesses and personnel who provide these services,” they wrote.

The report comes more than a year after the commission held two public hearings at the Statehouse, where its investigators warned that unscrupulous actors in the industry had cashed in on the largely unregulated system in likely criminal ways.

Tuesday, they urged lawmakers and others to act on their findings to eliminate the potential for abuse and safeguard people who rely on treatment centers to recover from addiction. Drug overdoses killed almost 2,400 New Jersey residents last year, and almost 2,900 the year before, according to the state Office of the Chief Medical Examiner.

Investigators found that many in the industry use deceptive marketing tactics to hook customers, circumvent laws banning patient brokering, participate in illicit partnerships between treatment centers and sober-living homes to ensure that both earn profits, and engage in fraudulent billing, tax evasion, and other financial wrongdoing.

The commission sent its findings to the state Office of the Attorney General, the U.S. Attorney’s Office, the Internal Revenue Service, the state Department of Health, and various other state departments for possible prosecution or other action.

It also issued eight recommendations, much of which would require legislative action, including:

  • Strengthening and expanding the state’s patient brokering law, which Gov. Phil Murphy signed in 2021. That law makes it a fourth-degree crime for someone to profit from referring a patient to an addiction treatment facility; it only addresses misconduct by individuals rather than by entities or corporations.
  • Pass legislation to ban deceptive marketing practices, such as treatment centers hiding their out-of-state locations. Addiction treatment businesses prefer people who have private insurance with out-of-network benefits because they bill at the highest rates, according to the commission’s report.
  • Create a state licensure system for peer recovery coaches. Such coaches typically are the first recovery-related personnel patients encounter when they seek sobriety; they do interventions, visit hospital bedsides after overdoses, and sometimes work with local law enforcement agencies to connect people with treatment. Yet it’s an unlicensed vocation in New Jersey with minimal guidelines on background, training, and conduct.
  • Strengthen licensing and inspection standards for treatment centers. License applicants should undergo a financial audit, fingerprinting, and criminal background checks to ensure they have no history of crimes involving fraud and dishonesty, investigators recommended.
  • Beef up regulation of sober-living homes and increase fines and consider criminal penalties for operators of unlicensed homes.
  • Clarify regulatory language on ownership and financial ties between treatment centers and sober-living homes.
  • Tighten oversight of entities seeking public funding for addiction recovery services. New Jersey is set to get $1 billion over the next 18 years as part of national legal settlements with pharmaceutical and consulting companies for their roles in fueling the opioid epidemic.
  • Convene a task force to examine how to further strengthen industry regulation.

The commission’s chair, Tiffany Williams Brewer, said such recommendations will ensure New Jersey protects people struggling to recover from addiction from being victimized by unethical operators.

“The SCI’s recommendations would enable the addiction rehabilitation industry to operate with integrity, reliability and accountability,” Williams Brewer said in a statement.

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Dana DiFilippo
Dana DiFilippo

Dana DiFilippo comes to the New Jersey Monitor from WHYY, Philadelphia’s NPR station, and the Philadelphia Daily News, a paper known for exposing corruption and holding public officials accountable. Prior to that, she worked at newspapers in Cincinnati, Pittsburgh, and suburban Philadelphia and has freelanced for various local and national magazines, newspapers and websites. She lives in Central Jersey with her husband, a photojournalist, and their two children.