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Manhattan U.S. Attorney Obtains Temporary Restraining Order Against Outpatient Clinics and Recovery Residences

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at November 10, 2014

On October 29th, the United States Attorney for the Southern District of New York, and the U.S. Department of Health and Human Services, Office of Inspector General’s (“HHS-OIG”) New York Region, announced that the United States has obtained a temporary restraining order (“TRO”) in Manhattan federal court against NARCO FREEDOM, INC. (“NARCO FREEDOM”), a provider of health care services including outpatient chemical dependency clinics. The TRO addresses an ongoing fraudulent kickback scheme whereby NARCO FREEDOM offers Medicaid recipients short-term housing in residences known as “three-quarter houses” or “Freedom Houses,” conditioned upon those residents attending NARCO FREEDOM’s outpatient clinics, thereby generating tens of millions of dollars in Medicaid funds for NARCO FREEDOM. The TRO enjoins NARCO FREEDOM from evicting the residents of its Freedom Houses for refusing to engage in the kickback scheme.

Manhattan U.S. Attorney Preet Bharara said: “Through its alleged scheme, Narco Freedom has both defrauded the government and profited from the exploitation of vulnerable individuals specifically when they are most in need of help. There is now a temporary restraining order in place that protects these vulnerable individuals, and this Office looks forward to obtaining further relief to remedy the alleged fraud that Narco Freedom has perpetrated.”

HHS-OIG Special Agent in Charge Thomas O’Donnell said: “The conduct displayed by Narco Freedom is another example of the damage personal greed does to our nation’s healthcare system. HHS-OIG recognizes the importance of substance abuse 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 has been engaged in a scheme to induce individuals who qualify for Medicaid, and who lack 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 refers to as “Freedom Houses.” NARCO FREEDOM allows individuals without housing, many of whom have been recently released on parole, to reside in the Freedom Houses for approximately six to nine months, but requires all Freedom House residents to enroll in and attend its outpatient clinics, and evicts residents who do not comply. NARCO FREEDOM operates the Freedom Houses specifically in order to drive business to its outpatient clinics, and forces residents of its Freedom Houses who are 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.

The complaint alleges that residents of the Freedom Houses are forced to sign paperwork purporting to relinquish any housing rights as well as privacy rights under the Health Care Portability and Accountability Act and other federal statutes. Staff at the Freedom Houses then monitor the residents’ attendance at outpatient programs and evict residents who do not attend all outpatient services as directed. NARCO FREEDOM obtains substantial financial gain from these outpatient services, which are funded almost entirely through Medicaid. NARCO FREEDOM also requires the Freedom House residents to direct their monthly shelter allowance provided by the New York City Human Resources Administration to NARCO FREEDOM. The Freedom Houses are the subject of numerous building code violations and resident complaints, including lack of basic sanitation and failure to curb drug use in the residences. The scheme exploits vulnerable individuals who are forced to comply with NARCO FREEDOM’s rules because they lack stable housing options.

According to the complaint, NARCO FREEDOM has subjected HHS to tens of millions of dollars in losses in Medicaid funds paid as a result of its fraudulent kickback scheme.

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