5 charged in $11.7 million Southern California addiction treatment fraud scheme

Five more men have been charged in connection with a scheme that lured vulnerable drug users to Southern California with promises of free addiction treatment, fraudulently signed them up for private insurance, and then generated $60 million in billings that resulted in insurance payouts of $11.7 million.

Charged with multiple felonies, including insurance fraud, money laundering and conspiracy, were Jeremy Ryan, 42, of Orange; Daniel Reaman, 41, of Mount Rainier, Maryland; Richard Roberts, 61, of Stockton; Reiner Nusbaum, 54, of San Clemente; and Michael Castanon, 56, of San Juan Capistrano.

“With no regard for the substance abuse patients who wanted and needed treatment, this ring trafficked and used them to steal from insurance companies to line their own pockets,” state Insurance Commissioner Ricardo Lara said in a prepared statement.

The scheme involved 441 patients from all over the country who were trafficked into 19 different treatment centers, according to the joint investigation by the California Department of Insurance and the Orange County District Attorney’s Office.

“These schemes target and exploit vulnerable people at a time when they need help the most,” said Orange County District Attorney Todd Spitzer in a prepared statement, vowing to “continue to send a strong message against fraudsters and the deceptive tactics that exploit treatment services by prosecuting these cases to the fullest extent of the law.”

Castanon owned and operated Luminance Recovery Center, a San Juan Capistrano-based treatment facility, and now is CEO of Dana Point Rehab Campus. Roberts and Nusbaum were among those who owned and operated RNR Recovery and Diamond Recovery in Orange and Riverside counties, and Reaman was director of True Recovery Centers, according to the complaint.

Most of the accused did not return calls or emails seeking comment. But Roberts responded with links to a post about a $1 billion lawsuit filed by now-defunct Sovereign Health against insurer Health Net and its parent corporation.

Asked if that meant he believes Health Net is behind this action, and that the D.A.’s Office and Department of Insurance are doing its bidding, he wrote, “That is exactly what’s happening.”

Health Net could not be reached for comment.

The alleged scheme

According to the complaints, mass marketing campaigns were used to find clients all over the country who wanted to beat addiction. Those people were brought to Southern California and signed up for private insurance through Health Net, using the home addresses of locals who were paid $300 for each fraudulent application.

The conspirators, as officials call them, hid the fact that they were actually paying the health insurance premiums by using nonprofits to handle that — their own Healthcare Relief Foundation, and the “unwitting” StopB4UStart, the complaints said.

They conspired with the owners and employees of more than 17 substance treatment facilities to “traffic” clients and collect thousands of dollars in unlawful, per-client kickbacks, the complaints say.

Diamond Rehab issued $14 million in fake billings and collected $1.9 million in fraudulent gains, while Luminance Health Group and associates were responsible for $3.7 million in fake billings and collected $1.7 million, according to the complaints.

In January, related charges were lodged against Steven Lomonaco, 61, of Laguna Beach; Mahyar “Christian” Mohases, 37, of Santa Ana; Robert Williams, 41, of Murrieta; Nicholas Reeves, 42, of Aliso Viejo; and James Frageau, 29, of Temecula.

The alleged crimes echo the playbook outlined in the Southern California News Group’s Rehab Riviera series, published more than three years ago. New health insurance rules mandating coverage for addiction treatment in 2014 meant users were suddenly worth hundreds of thousands of dollars to unscrupulous treatment centers willing to exploit them.

Centers recruited people from all over the country, signed them up for expensive private insurance, paid the premiums, then submitted billings for hundreds of thousands of dollars. Once insurance benefits were maxed out, some users were given drugs so they could test “dirty” and start the lucrative billing cycle anew. Along the way, people died.

David Skonezny, founder of “It’s Time for Ethics in Addiction Treatment,” a private Facebook group of more than 5,300 treatment professionals seeking to raise the bar, has been calling out many of these businesses for years.

“This is awesome,” Skonezny said of the crackdown. “It gives me hope that people are finally going to be held to account. It’s absolutely important for setting the tone — it serves to put people on notice that, if you were ever involved in these kinds of behaviors, you’re not going to just skate.”

Lawmakers had hoped to make 2020 the year that regulation of the addiction treatment industry got a major overhaul in California — but events have conspired against that. They plan to take it up in the following session, but this development reinforces how badly reform is needed.

“This horrifying case illustrates the lengths that rogue rehab operators and sober living home fraudsters will go to turn a buck — trafficking, multimillion-dollar fraud schemes, exploiting patients in recovery who desperately need help, and leaving a trail of human wreckage in their wake,” said Assemblywoman Cottie Petrie-Norris, D-Laguna Beach, by email.

“I am grateful to the Department of Insurance and to the Orange County District Attorney’s Office for their partnership, their vigilance and for their continued commitment to bring these criminals to justice,” Petrie-Norris said.

State Sen. Pat Bates called it a great first step.

“It’s something long overdue and a step in the right direction,” said Bates, R-Laguna Niguel. “It’s good news.”

The men are not yet in custody, said D.A. spokeswoman Kimberly Edds. Officials are trying to obtain their surrender to local authorities, or to apprehend them.

Each defendant is currently in warrant status, meaning they do not have court dates yet, Edds said. Once they turn themselves in on the warrant or are otherwise apprehended, court dates will be arranged for them. Recommended bail is $250,000 for each.

The men face 12 years, eight months to 21 years and four months in prison for their alleged involvement in the scheme. Deputy District Attorney James Bilek of the Insurance Fraud Unit is prosecuting the case.