Kentucky Didn't Just Loosen the Rules — It Kept Them Loose After Everyone Else Tightened

In February 2025, Kentucky Medicaid Commissioner Lisa Lee told a state advisory committee that the previous year's spending on behavioral health and addiction treatment had reached $2.3 billion. That is an unprecedented figure, and it came with a specific cause.

The cause was a policy choice that most other states had reversed two years earlier.

Here is what happened, and why the dollar figure matters more than the headline.

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When COVID-19 arrived in 2020, Kentucky lifted prior-authorization requirements for Medicaid-funded addiction treatment. The logic was defensible: people were dying, treatment centers needed to move fast, and bureaucratic approval processes were a friction point. Governor Andy Beshear expanded the policy explicitly, allowing recovery centers to bill expensive residential and other treatment services without first getting sign-off from state Medicaid insurers.

By 2023, the pandemic had waned. Other states restored those prior-approval requirements. Kentucky did not.

That decision is the pivot point, and it is worth sitting with for a moment.

Prior authorization is not a barrier to care for its own sake. It is an audit mechanism. When a provider must demonstrate medical necessity before billing, the state gets a checkpoint — a moment to ask whether the service is appropriate, whether the diagnosis is documented, whether the billing code matches what actually happened in the room. Removing that checkpoint during an emergency is a reasonable triage decision. Declining to restore it after other states have done so is a different kind of decision entirely.

Kentucky's choice created a window. Between 2023 and 2025, the state offered treatment providers something they could not easily find elsewhere: the ability to bill Medicaid for expensive services without prior review.

The market responded exactly as markets do.

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The largest beneficiary, according to ProPublica and the Lexington Herald-Leader's joint investigation, was Addiction Recovery Care — ARC — Kentucky's biggest drug treatment provider and the largest recipient of state funds between 2019 and 2025. Medicaid experts flagged peer support services — not care led by a licensed doctor or therapist — as the primary billing category and the primary vector for abuse.

Stuart Owen, representing a Kentucky Medicaid insurer, told a state advisory committee that much of the $2.3 billion spending spike was driven by "unscrupulous providers who are exploiting the heck out of that for money." Experts raised those warnings publicly, in 2024 letters to Beshear's administration and in at least three public meetings. The administration did not reimpose controls.

According to the ProPublica and Herald-Leader investigation, the Department of Justice reached a $16 million settlement with ARC over Medicaid fraud allegations. The DOJ said the settlement resolves the allegations and that there has been no determination of liability. Separately, the DOJ indicted ARC's founder, Tim Robinson, on wire fraud and money laundering charges tied to an alleged scheme to defraud multiple lenders — charges to which he has pleaded not guilty.

ARC has now been forced to close most of its facilities. The people who needed those beds are now without them.

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Now for the counterargument, because it deserves a direct answer.

Beshear's case is not nothing. Overdose deaths in Kentucky declined significantly between 2020 and 2025 — four consecutive years of decreases. In a state that was among the hardest hit by the opioid crisis, that is a real outcome, and Beshear is right to point to it. "There are people's kids that are still alive today," he told ProPublica and the Herald-Leader in June, "because they were able to get addiction treatment services and get them quickly."

The problem is that the overdose decline is not evidence that the uncontrolled billing produced it.

Academic research cited in the investigation attributes the national decline in overdose deaths primarily to falling opioid prescriptions, wider use of naloxone, and reduced fentanyl concentrations in the drug supply — not to Medicaid billing policy specifically. States that did not loosen billing rules the way Kentucky did also saw year-over-year overdose decreases over the same period. Medicaid and behavioral health experts said the services providers billed most aggressively — peer support groups — were not the services associated with the decline in overdose deaths.

The deaths fell. The billing exploded. Those two things appear to be largely independent of each other.

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The structural question this raises is not about Beshear's intentions. It is about what the policy actually built.

When a state removes prior-authorization requirements and then uniquely declines to restore them, it does not merely expand access to treatment. It creates a specific regulatory environment — one in which billing volume can grow without a corresponding audit of whether that billing reflects care delivered. The incentive that environment creates is not subtle.

Providers inside that environment face a simple calculation. Services that require documentation, clinical supervision, and licensed staff are expensive to deliver. Services that require neither — peer support groups, check-ins, attendance logs — are cheap to deliver and, in the absence of prior authorization, nearly as easy to bill. When you pay the same Medicaid rate for both and require documentation of neither, you have told the market which one to provide.

This is not only a story about bad actors, though the DOJ's work suggests bad actors were present. It is a story about what happens when the mechanism designed to distinguish necessary care from unnecessary billing is removed — and what kind of industry grows into that space.

Stuart Owen told the advisory committee that the money was being exploited. Experts told Beshear's administration the same thing in writing. The administration had the information it needed to act.

It did not act.

That is the fact the overdose statistics do not change, and the one that $2.3 billion makes impossible to ignore.

Who benefited from Kentucky's decision to stand alone?

Start with the balance sheet.