By the end of 2020, Kentucky faced two grave threats: COVID-19 and increasing drug overdoses. Newly elected Governor Andy Beshear prioritized keeping people alive. Concerns about addiction as a disease that thrives in isolation led Beshear to make drug treatment more accessible. Fearing COVID-19 would deter treatment seeking, Kentucky joined over 40 states in easing Medicaid restrictions. Recovery centers could offer costly treatment with less state Medicaid oversight.
Even as the pandemic subsided by 2023, Kentucky maintained its relaxed policies, unlike other states that reinstated prior approval requirements for Medicaid-covered addiction treatment. Treatment providers in Kentucky offered over 1,100 slots for long-term care, setting a record. However, mounting Medicaid expenses raised concerns.
Warnings surfaced in 2024. The Kentucky attorney general’s office highlighted Medicaid fraud in drug treatment as a critical issue. Despite alerts, Beshear’s administration did little to mitigate the rising spending. By early 2025, Medicaid Commissioner Lisa Lee reported a dramatic increase in behavioral health and addiction treatment costs, reaching $2.3 billion.
Stuart Owen from a Kentucky Medicaid insurer criticized the sector for financial exploitation. Addiction Recovery Care (ARC), the state’s largest drug treatment provider, notably benefited, receiving significant state funds. The Lexington Herald-Leader, in collaboration with ProPublica, exposed ARC’s alleged fraudulent billing.
Beshear defended the spending, pointing to continued reductions in overdose deaths. He argued that the flexible policies prevented further deaths. Other states also recorded overdose declines without loosening Medicaid rules, driven by decreased opioid prescriptions and increased naloxone usage.
Medicaid and health experts in Kentucky questioned the billed services’ efficacy in reducing overdose deaths. Despite this, ARC and others billed heavily for peer support groups, raising concern about quality. ARC, during peak operations, handled about a third of drug treatments in the state. State data showed concerns over the high proportion of lower-level services billed.
Federal investigations into ARC intensified. The Department of Justice settled for $16 million over Medicaid fraud allegations based on a 2023 whistleblower lawsuit by former ARC employees. No liability was determined. Additionally, ARC founder Tim Robinson faced charges of wire fraud and money laundering in separate allegations.
Due to these troubles, ARC closed multiple facilities, reducing long-term treatment beds. In response, 2025 saw Republicans pass a bill to require insurer approval for treatment services. Beshear vetoed it to prevent barriers to care. The veto was overridden amid accusations of waste and abuse.
Warnings continued from Medicaid insurers and actuaries, criticizing the lack of reinstated spending controls enabling billing abuse. Kentucky’s Medicaid insurers expressed concerns over excessive billing for non-evidence-based services lacking licensed supervision.
The Kentucky Association of Health Plans urged re-establishment of prior authorization, ensuring billing accuracy and avoiding unnecessary costs. Governor Beshear monitored concerns and engaged with insurers about increased spending, resulting in a reduction in billing by over $100 million from 2025 to 2026. However, spending on certain services still rose.
ARC disclosed billing errors leading to overpayments in 2024. Medicaid insurers then questioned ARC’s billing practices, leading to contract terminations. ARC appealed to the health agency, seeking intervention to sustain its contracts.
Beshear’s administration resisted reinstating stricter controls, protecting consumer access. ARC received $103 million from Kentucky Medicaid for frequently abused services. Beshear later defended the position stating that life-saving measures were being enacted effectively.
Disputes over management resulted in the legislature revoking Beshear’s power to alter Medicaid without permission. Beshear’s veto was overridden as tighter controls returned. Senator Chris McDaniel accused Beshear’s administration of negligence or complicity in financial oversight.
Beshear maintained the actions, asserting that expanded Medicaid access significantly contributed to addiction recovery. He expressed confidence in continuing the progress to potentially end the epidemic.