An obscure Medicaid billing line, a tribal-funding exemption, and a "by-report" pricing rule converted Arizona's behavioral health system into the largest Medicaid loss in state history. This is a story about an HCPCS code.
Let's start with the number that made Governor Katie Hobbs and Attorney General Kris Mayes hold a joint press conference in May 2023. Between fiscal year 2019 and fiscal year 2022, Arizona's Medicaid agency — the Arizona Health Care Cost Containment System, or AHCCCS — spent approximately $668 million on outpatient behavioral health services billed under one specific carve-out: the American Indian Health Program. That was up from roughly $53 million three years earlier. Spending grew by an order of magnitude over a span shorter than a single Medicaid managed-care contract cycle, and nobody at the agency seems to have thought it worth pausing to ask why until it was very, very late.
By the time the state finally pressed pause, AHCCCS had paid out somewhere between $2.0 billion and $2.8 billion in fraudulent or improper claims (the agencies disagree on the number; we'll come back to that). Somewhere between five and eight thousand Native American beneficiaries, most of them members of the Navajo Nation (with smaller numbers from the San Carlos Apache, White Mountain Apache, and Hopi tribes), had been recruited from reservations and brought to unlicensed sober living homes and outpatient clinics in the Phoenix metro. Many were billed for therapy they never received. Some, after the houses emptied, died on the street.
This is a story about a billing code.
Most of AHCCCS, like most state Medicaid programs, runs through managed care. Private health plans contract with the state to cover beneficiaries for a capitated, per-member-per-month rate. Capitation creates an obvious incentive to control costs: if your members run up too many therapy sessions, the plan eats the loss.
The American Indian Health Program is different. Native American AHCCCS beneficiaries can choose AIHP fee-for-service instead of managed care, an option carved out specifically to honor tribal sovereignty and federal trust obligations. Under AIHP, the federal government reimburses Arizona at 100% Federal Medical Assistance Percentage for services delivered to enrolled tribal members at IHS or 638-tribal facilities; the state pays nothing. This is good policy. It also, as designed, pays per claim, not per member.
Now add the second loophole. Effective October 1, 2019, AHCCCS published fee schedules that set rates "by report" for several high-acuity outpatient behavioral health codes, meaning the agency would pay essentially whatever the provider documented, with no automatic dollar cap. The most lucrative of these was HCPCS H0015, the code for an Intensive Outpatient Program: at least three hours of group counseling per day, at least three days per week. There was no prior authorization. There were no NCCI claim edits applied to AIHP. There were no in-person site visits required for the underlying outpatient behavioral health licensure issued by the Arizona Department of Health Services.
For approximately three years, anyone who could (a) form an Arizona LLC, (b) get an outpatient behavioral health license from ADHS, and (c) recruit a few enrolled tribal members willing to put their name on a sign-in sheet could bill AHCCCS for IOP services at "by report" rates, repeated daily, with no cap, and a federal government writing the check. The fee schedule was, in retrospect, a bad door to leave unlocked.
From FY2019 to FY2020, AIHP outpatient behavioral health spending grew roughly 250%. The next year, more than 100% on top of that. By FY2022 the program was running at approximately $668 million annually, more than the entire pharmacy budget of several smaller state Medicaid programs. According to reporting by AZCIR, internal warnings reached AHCCCS leadership well before public action was taken. The first public response, a joint press conference with Hobbs, Mayes, and AHCCCS Director Carmen Heredia — came in May 2023.
By that time, the count of AHCCCS-licensed outpatient behavioral health providers in Maricopa County had exploded. The state would eventually identify hundreds of providers it considered fraudulent and either suspend them, terminate them, or refer them for prosecution. Per the AG's office and AHCCCS, the overwhelming majority of suspensions occurred in Maricopa County.
The total loss is contested. AHCCCS has used a $2.0 billion floor figure for paid claims under review. The Arizona AG's office, citing the Recovery and Communications Action report, has used $2.5 billion. 12 News reporting in 2024 put the figure at $2.8 billion. The differences appear to be a function of (a) which fiscal years are included, (b) whether amounts paid to providers later cleared in audit are counted, and (c) whether claims paid through state-only funds are added to the federal-FMAP totals. There is no published reconciliation between the three numbers.
That itself is part of the story. AZCIR has reported that state leadership presented public figures that may have understated the actual scope of paid claims under review. Neither the HHS Office of Inspector General nor the Government Accountability Office has, as of this writing, published a dedicated audit of the Arizona program; the Senate Indian Affairs Committee has not held a dedicated hearing.
What recruitment looked like in practice, according to PBS NewsHour, ProPublica, and Arizona Mirror: vans circulating reservation borders (Navajo Nation, San Carlos Apache, Hopi, White Mountain Apache), offering rides to people struggling with substance use, with the promise of free housing and treatment. The recruits were brought to Phoenix-area sober living homes operated by, or affiliated with, the licensed clinics. Some received some level of treatment. Many did not. The clinics submitted claims regardless.
When AHCCCS finally cut off payments in mid-2023, the houses emptied. According to ProPublica's investigation, at least 40 people died in connection with the displacement (overdoses, exposure, and other causes) after being evicted onto the streets of Phoenix and Mesa with no money and no transportation back home. The Navajo Nation declared a public health state of emergency. President Buu Nygren called it "a humanitarian crisis."
What the agencies say. AG Mayes, in announcing the first prison sentence in the AHCCCS fraud cases, called the conduct "a betrayal of public trust on a massive scale." AHCCCS Director Heredia has said the agency has implemented "the most significant integrity reforms in its history." Sen. Theresa Hatathlie (D-Coalmine Mesa), the Senate's only Navajo member, has consistently said reform without enforcement and restitution is not enough.
By April 2026, federal prosecutors in the District of Arizona had charged at least eight defendants in connection with the AHCCCS American Indian Health Program billing scheme, with alleged loss amounts ranging from $1.58 million to over $650 million. The largest single federal case is United States v. Ali, in which prosecutors allege approximately $650 million in fraudulent billing through a network of clinics and sober homes, described by the U.S. Attorney's Office as "almost a quarter of all Arizona AHCCCS fraud." Per the indictment, AHCCCS paid approximately $564 million on the $650 million billed.
| Federal defendant | Entity | Alleged loss | Status |
|---|---|---|---|
| Farrukh Ali | ProMD Solutions | ~$650M alleged ($564M paid) | Charged; extradition pending |
| Rita Ntusa Anagho | Tusa Integrated Clinic LLC | ~$69.7M | Pled guilty May 2025; $55M restitution agreed; sentencing Feb. 9, 2026 |
| Daud Koleosho & Adam Mutwol | Community Hope Wellness Center LLC (CHWC) | ~$57.7M | Charged (DOJ release) |
| Diana Marie Moore | Harmony Family Services | ~$22M (~$21.7M restitution) | Convicted; sentenced 66 months (Aug 2024) |
| Kenneth Harrison & Courtney Haywood | Aurtism, LLC | ~$9.4M | Indicted Mar 2024; Harrison sentenced 52 months |
| Cle'Esther Davenport | Davenport House LLC | ~$1.58M | Charged (indicted June 2025) |
State criminal cases — driven by AG Mayes's Medicaid Fraud Control Unit, have moved on a parallel track. Per AZCIR reporting from February 2026, the state has so far indicted more than 100 individuals across federal and state cases combined and recouped approximately $125 million, less than 6% of the taxpayer funds the AG's office estimates were lost to fraud. Notable Maricopa County state cases include:
| State case | Alleged loss | Status |
|---|---|---|
| Arielle Dix | tens of $M alleged; $3.8M restitution | Convicted; 3.5-year prison sentence: first state prison sentence in the AHCCCS fraud cases |
| A Better You Wellness Center, LLC / Lucas, Verser et al. | ~$115M | Charged (Oct 2023 indictment) |
| L&L Investments (Mesa) | ~$22.5M billed | Convicted; $34.24M restitution |
| Hope of Life Int'l Church / Happy House (Mucuranyana, Rusingizwa, Mvuyekure et al.) | ~$60M | 22 charged in May 2025 indictment |
| Davis et al. | ~$55M | Charged |
| Nathan | ~$21M | Charged |
| Beckhum; Kayongo; Mukarukundo; Ghannam; Russell | undisclosed | Charged in superseding indictments (Center Square) |
Allegations only. None of the defendants listed above have been adjudicated guilty unless explicitly noted. Charges may be dismissed, amended, or resolved by plea or trial. AHCCCS suspension or termination of a provider is an administrative action and does not, by itself, constitute a finding of criminal conduct. The names listed are limited to those publicly named in DOJ press releases, AG press releases, or court filings. Several individuals named in early news coverage of the scandal are not included in this article because no public criminal charge has been filed against them in the matters described.
Federal action accelerated through 2024 and 2025, capped by a national health care fraud takedown in July 2024 that named seven Arizona defendants, and a series of 2025 superseding indictments.
The Arizona scheme is the type of pattern where cross-program data sharing earns its keep. K3 Analytics' FraudGraph investigative database — which holds about 2 billion rows of public-record federal and state data, including SBA Paycheck Protection Program loans, Medicare and Medicaid provider data, federal court dockets, and state corporate filings — produces lookup paths from any of the named federal AIHP-scheme defendants into adjacent program data. Whether a specific defendant or affiliated LLC also received PPP funding, has prior NPI activity, or shares an address with another flagged entity is a question the database is designed to answer, with the FraudGraph entity-master cross-reference as the starting point.
Federal prosecutors have separately described patterns in which entities took both PPP loans during the pandemic and AIHP "by report" reimbursements during the post-pandemic billing surge. Whether any specific PPP loan was, by itself, fraudulently obtained is a separate question that requires separate evidence; receipt of a PPP loan does not, alone, suggest wrongdoing. The cross-program signals that show up in cases like these: same-day Articles of Organization filings, common addresses across distinct LLCs, NPI assignments to individuals with prior license actions, PPP-loan-and-Medicaid-bill timing windows, are not, individually, evidence of fraud. They are starting points for follow-up.
Source: FraudGraph cross-reference of SBA PPP Loan Data and AHCCCS Sober Living Fraud Response provider list.
AHCCCS suspended new outpatient behavioral health licenses in May 2023 and began terminations of suspect providers. The agency now requires in-person site visits, fingerprint background checks, ownership disclosures, and tighter prior-authorization rules for AIHP outpatient behavioral health. The "by report" pricing rule was replaced with capped fee schedules.
The legislature has done less. SB 1611, sponsored by Sen. Werner, would push AIHP enrollees toward managed care, a structural reform that has split tribal stakeholders, with some viewing it as a necessary fraud-prevention measure and others as an erosion of tribal control over healthcare delivery. As of this writing the bill remains in committee.
At the federal level, the U.S. Attorney's Office for the District of Arizona established a dedicated AHCCCS Treatment Fraud Strike Force in 2024. That structure — built around a single state Medicaid program — is novel. It may become a template if comparable behavioral health billing patterns in Oregon, Massachusetts, Nevada, and California progress to charges.
Three things:
The Anagho sentencing, scheduled for February 9, 2026 in D. Ariz., will set a benchmark guideline range for the larger federal cases still pending.
The Ali extradition. If the defendant in the largest single federal case can be returned to face the indictment, the case will become the centerpiece of the federal prosecution. If extradition fails, the alleged $650 million remains a sealed conviction at best.
SB 1611 and the AIHP architecture itself. The bill's fate will signal whether Arizona is willing to alter the structure that produced the loophole, or whether reform stops at the operational level. The HHS-OIG, GAO, and Senate Indian Affairs Committee have all so far declined to publish dedicated audits or hold dedicated hearings on a Medicaid loss event larger than most state Medicaid programs' annual operating budgets. Reports of continued targeting of Indigenous communities in 2026 suggest that reform is incomplete and the underlying recruitment networks have not gone away.
The bottom line. A single billing rule — pay "by report" for HCPCS H0015, with no cap, no NCCI edit, and no prior authorization, against a 100% federal match — produced, over three years, the largest acknowledged Medicaid loss event in Arizona history. The state has charged more than 100 individuals between federal and state cases, recouped approximately $125 million, and tightened its own controls. Less than 6% of the estimated taxpayer loss has been recovered. The state also has not yet answered the question that matters most: how many other state Medicaid agencies have the same door, with the same kind of lock.