At last week’s final meeting of the SB838 recovery housing workgroup, the Department of Behavioral Health and Developmental Services (DBHDS) announced a draft proposal aimed at stopping sober home operators from dictating their residents’ treatment.

First introduced at the final subgroup meeting on Aug. 26, the draft states:

Require residences that provide clinical services (ex: VARR level four, ASAM RR type C), or require residents to participate in clinical services as a condition of living in the residence, to be licensed by DBHDS to operate

“From our standpoint, as soon as a recovery residence is dictating or requiring treatment services, then they’re operating more like a treatment provider,” Dev Nair, DBHDS assistant commissioner for provider management, said at the Sept. 18 meeting.

The proposal seeks to close a loophole that has allowed some sober home operators to run de facto residential treatment programs without DBHDS licensure — profiting from the setup while dodging regulations designed to protect residents’ safety, rights and wellbeing.

For unlicensed recovery homes, such as those accredited by the Virginia Association of Recovery Residences (VARR), the proposed change would represent a major step toward protecting resident autonomy. As a result, it could also threaten the bottom lines of many Richmond area operators, whose multimillion-dollar business models appear reliant on restricting resident choice.

The model generally works as follows:

Someone — anyone — opens a recovery home. No qualifications or background checks are required. 

The sober home operator then partners with a clinical provider and steers residents into that provider’s Medicaid-funded outpatient programs. These typically include Partial Hospitalization Programs (PHP) — which, despite the name, usually don’t involve hospitals — and Intensive Outpatient Programs (IOP), each requiring set weekly hours of group counseling and activities. For residents, many of whom have few housing options and might be court-ordered into recovery housing, compliance is less about choice than survival. 

This arrangement guarantees the clinical provider a steady revenue stream from a captive resident base, while also limiting competition and, at times, undermining treatment quality.

The target population under this model also differs from that of traditional sober homes. To keep houses filled with people eligible for outpatient treatment, operators often screen residents for “clean time” and deny access to those with more established sobriety, as reported by former residents and employees of Richmond area organizations.

As a result, operators more frequently admit individuals in high-risk positions — sometimes still in active addiction or withdrawal, fresh off the streets or struggling with significant mental health challenges — as long as the clinical provider can bill Medicaid.

As indictments across the country have shown, sober home operators aren’t known to leverage this power for nothing in return. Their roles often become that of brokers, selling access to residents for a share of the profits.

While Virginia has yet to experience a crackdown, activities consistent with such schemes have been reported by residents, employees and community members for years. 

Richmond’s sober-home-to-outpatient VARR network

Beginning around 2021, dozens of residents from several VARR-accredited organizations reported being mandated to attend IOP at River City Comprehensive Counseling Services, owned by former VARR Vice Chairman Jimmy Christmas. Operators allegedly received payments from Christmas in exchange for funneling residents into his programs — conduct that would constitute a federal crime under both the Anti-Kickback Statute and the Eliminating Kickbacks in Recovery Act.

A few years later, these operators shifted tactics. Instead of allegedly steering residents to the same outside provider, they began opening their own IOPs and PHPs, some jointly owned with Christmas or his wife. Under the new system, they reportedly channel sober home residents into the treatment programs they now own or co-own. In practice, it appears the same model as before, just dressed up with different paperwork. 

The new strategy, however, does not necessarily put the practice on legal ground. The Office of Inspector General has long flagged such business ventures — where investors are in a position to drive healthcare referrals (much less coerce them) — as high-risk for violating federal anti-kickback laws. 

‘Hooked’ with free sober housing

In some cases, operators use housing as a lure to recruit IOP and PHP participants. Michael Feinmel, Henrico’s deputy county manager for public safety, raised the issue at the Sept. 18 meeting while the group was discussing operators’ mandating treatment:

What we also see is the reverse scenario, where housing is the hook to get people to come to PHP or IOP or whatever the treatment is. And the residents aren’t really all that concerned about treatment. They’re not necessarily even asking for treatment. They just want housing. And so they’re willing to turn over their Social Security number, their Medicaid ID number, to allow the treatment provider to bill Medicaid for treatment that may or may not be provided. And the resident doesn’t want to pay because he or she needs somewhere to stay and they’re taking them up on the opportunities to live in recovery housing. So it’s kind of a cart-horse scenario, but we’re seeing that scenario grow even more and more. And it was in Henrico County that hotels were being filled up with folks in that scenario. But now we’re seeing it venture into the recovery residence space.

Such practices, which also run afoul of anti-kickback laws, have been the subject of recent civil actions in other states:

• In 2023, the United States and the Commonwealth of Massachusetts sued Bournewood Health Systems, alleging it violated federal and state anti-kickback and False Claims Act statutes by providing free recovery housing to induce patients to attend its PHP. Bournewood settled the following year.
• In 2025, Minnesota’s NUWAY Alliance agreed to pay $18.5 million to settle a False Claims Act suit. According to the Department of Justice press release, “NUWAY Alliance provided intensive outpatient (IOP) treatment, among other services, for substance use disorder to thousands of clients suffering from addiction each year in Minnesota. Between January 2019 through February 2025, NUWAY compensated Medicaid patients for seeking IOP treatment — which is reimbursable by Medicaid — in violation of federal anti-kickback statute and resulting in false claims.”

While DBHDS isn’t charged with investigating kickback schemes or Medicaid fraud, the agency’s proposal tackles the issue from another angle. By explicitly defining the combination of sober living and mandated outpatient care as a residential treatment program, it would give the state authority to shut down operators running such programs without a license.

Unlicensed programs: the benefit to operators and the risk to residents

Legal scrutiny aside, by sidestepping licensure as residential treatment centers, operators reap the financial rewards of running such programs without the oversight, accountability, or rules — such as 24/7 staffing requirements and occupancy limits — that could cut into profits.

Residents also lose the human rights protections that are guaranteed in licensed settings, such as:

• Freedom from abuse, neglect and exploitation;
• The ability to communicate privately with anyone;
• Nutritionally adequate, varied meals;
• A safe and sanitary environment;
• Freedom from unnecessary restrictions, with due process review; and
• Access to a human rights complaint-resolution process.

Since 2022, when VARR won exemption from Virginia’s landlord-tenant laws for certified operators, residents have lost even the most basic tenant rights. Combined with lack of licensure requirements, this concentrates extraordinary power in the hands of sober home operators — despite the fact that virtually anyone can enter the industry.

This “best of both worlds” gray area has allowed operators to flourish, while residents are easily overlooked and Medicaid picks up the tab.

Nonetheless, some have spent years insisting that recovery homes are no different from any family residence. Since 2022, VARR leaders and Delegate Carrie Coyner (R-Chesterfield) have pressed this point in their push for zoning protections — arguing that certified recovery residences are the functional equivalent of families, distinct from treatment centers and entitled to operate freely in any residential neighborhood. 

Here are Coyner and former VARR President David Rook making the case for recovery homes of all levels:

When I interviewed Rook in November 2022 — at which time he was still an owner-operator of True Recovery RVA and a VARR board member — he described his plans to pair PHP with recovery housing after I asked about the appearance of kickbacks between True Recovery and River City:

The perception from a lot of participants is that they’re being forced to go to IOP so that True Recovery can get payments from River City.

[That] probably is the perception, but that’s the perception about everything. It’s always all about money. You talk about a rumor, that’s the rumor we hear the most, that it’s all about the money.

Do you consider that to be a problem at all, that there’s this perception?

I’ve heard it since I was at McShin. It’s never been the truth about that organization or our organization or any other organization. Every organization has goals. We can’t keep the doors open unless we’re profitable. I have four kids to take care of. … I’m not some bleeding heart that thinks people in the human services business shouldn’t make money either. It’s the hardest fucking work you’ll ever fucking do. It’s the most demanding. People talk shit about you. People are always looking for something you’re doing bad or wrong. I think we all do it because there’s a calling or a passion for it. I mean, I know there’s bad fuckers out there. To be perfectly honest, what we’re really looking at is starting our own licensed company. … [We] still run into the same problem though. Because if I run it separately than True Recovery and then I make True Recovery people go into it, and they don’t have a choice to go to another one of their choosing, it’s a fine line. Because part of what we do is, you do what we say you do. So, if we say you go to River City, you go to River City. If we say you see Dr. [Peter] Breslin, you see Dr. Breslin, as part of the program. But if you then own it and you’re saying go to it, then there’s a question. The truth is, and here’s the truth, right? Bad actors have done this to us. Because the truth is it makes sense to keep it all in house. It is so hard to navigate between all these different groups. If you could have it all in one and do it all in one, and that’s the recovery support to the treatment, every bit of that, if you could do that then you’re going to increase your outcomes. You’re going to increase your length of stay. You’re going to increase their ability to live life in the right way. The problem is there’s so many bad players that have taken so much advantage of the system in Florida and New Jersey and other places, that now everybody looks at it funny. You know, like the best model I ever saw was PHP with residential. It makes sense, but people stare at it bad. It’s six hours of actual treatment a day and then housing is provided. “Oh well you’re giving housing away. It’s an incentive.” No, it’s a fucking removal of a barrier. But unfortunately, if everybody’s not offering housing, then it is an incentive. So you have to come up with a paid fee or some kind of payment for them to have to make. But they can’t afford payment, and they need real treatment. And they need residential treatment. … But the minute I announce, ‘cause we’re working on it. I want PHP with residential. And that’s going to be an unlicensed house that’s going to be a VARR house, I hope, that’ll be VARR-certified. It’ll be a recovery house, and I’m going to make the people that live in it, their agreement coming in is going to be that they participate in PHP. And I hope to have ownership of that, right? Because if I can get some ownership in it, then it will create dollars. And what I can do with that is then provide 24-hour staff in the house. I can create a better house and create a better bed and create better things for you to do. And yeah, I’d get paid a little bit more. But people are going to come after me because of it. I know they’re going to come after me. They’re going to shape and twist it. And really, it’s a perfect model. If they hadn’t destroyed it in Florida, with greed and piss cups and all the other stuff that they do down there, then it’s the perfect model, ’cause it reimburses better than ASAM 3.1 does. And it has a higher requirement for actual interaction with clinicians. But it doesn’t come with housing, so you combine the two, because lack of housing or lack of stable and safe housing is probably the biggest reason people don’t complete treatment episodes. It’s not greed. It’s like, goddamn it, we want to create something that’s actually going to fucking work for people. But we got PHP, but we can’t put anybody in housing because people hate that idea that you’re going to make money off of it. Actually, I’m going to spend the profits from PHP to pay for the house and to pay for staff that I don’t fucking need because there’s no requirement for staff because the house has nothing to do with the license. But newcomers, people in recovery often aren’t capable of even following that thinking. They see the house and the thing and they go, “Oh, they’re just making a bunch of money.” Well we could be making more money, but we’re paying for a better house. We’re buying the house so we don’t have to worry about renters ever moving out. We’re putting staff into a house now that we don’t have to put staff into, providing beds so that we can transport you back and forth. We’re paying people to take you to do fun shit so you can get social engagement. We’re creating everything that science says works. Everything the studies say work, we’re trying to create. And every time we create something, if it pays, people want to take us down for it. Like fuck. So you don’t win with grant money. And you don’t win if you create the funding stream. So just fuck everybody. You know, [people think] everybody needs to figure it out like [Sarah] Scarbrough does and do it for whatever she does it for. We can’t all do it that way. Can’t everybody be free like The Healing Place.

Two months later, Rook was arrested on drug and weapon-possession charges in Henrico County. Within six months, he founded Next Frontier Recovery and soon began operating recovery housing paired with PHPs. 

In his DBHDS application to license the first PHP, Rook projected $1.1 million in first-year revenue — including $685,892 in profit, a margin of 62 percent, from a single location. The application named Rook as sole owner, and he told me Christmas was not a partner. Yet it listed the same mailing address used by River City and the same vice president of clinical operations.

Last year, a Next Frontier recovery house that was paired with a PHP drew complaints from neighbors, who reported alcohol use, trespassing and other concerns. (Rook said in an email that he addressed those complaints). Without naming the operator, Feinmel briefed county supervisors on the situation, emphasizing that neighbors were also worried about the quality of care residents were receiving.

At last week’s final SB838 workgroup meeting, Feinmel highlighted issues with another program. County officials recently identified a recovery home paired with PHP that’s owned by an out-of-state investor with “no experience whatsoever in treatment.” The owner, he said, partnered with a local provider to run the operation who lacked a “well-established track record in the treatment space.” As a result, neighbors have experienced a “myriad of difficulties” over the past two months.

Feinmel didn’t go into detail on the neighborhood observations, but he added:

When we talk to members of the community, obviously they want the neighborhood issues to be resolved, but that’s not the end of the conversation for them. They’re concerned about the quality of care that’s being given to the residents that are in these houses.

“I’m really glad we’re having this conversation,” said Chrissy Chow, board member of the Virginia Association of Addiction Professionals. “I’ve gotten two calls this week about this exact thing, about somebody being like, ‘We’re opening up a PHP with boarding.’ And it’s really like, this company is opening up a recovery residence. … And it is a really easy way to get around licensing.” 

She then pointed to a DBHDS draft recommendation that stated, “Amend the Code of Virginia to authorize DBHDS to inspect certified recovery residences and residences pursuing DBHDS certification.”

“I thought we were mandating that,” she said. “And if we are mandating that, then couldn’t that be part of what DBHDS looks at when looking at certifying a recovery residence? The relationship between a recovery residence and then a licensed PHP program?”

Two people¹ appeared to express hesitancy regarding DBHDS’ proposal: Nicole Riley, representing Stephanie Bellanger (the only confirmed member of Riley’s client, Treatment and Recovery Allies), and VARR Interim Executive Director Bob de Triquet.

De Triquet said:

I kind of brought up, too, at some previous meetings of like an ongoing work group, continuing the work group. Because this topic alone is pretty complex. A lot of different aspects around it, and really we can spend a whole work group just dedicated to this topic. I read a lot of policy and procedure and a lot of insight on this.

When asked to clarify whether VARR opposed DBHDS’ licensing proposal and why, de Triquet responded:

We are not for or against it at this time. This is a topic that has come up in the SB838 workgroup and I believe it deserves further informed discussion before a recommendation is made. In my statement, I am encouraging ongoing, open dialogue to explore this matter further and working together on developing an innovative and effective approach.

Riley’s comments seemed partly based on a misunderstanding of the proposal, but her client would nonetheless be affected by the changes, along with several other VARR-accredited operators and former VARR leaders.

With business models seemingly built around limiting patient choice, it’s unclear whether the organizations at issue could withstand meaningful reform. 

On the other hand, the proposed change could strengthen VARR’s argument in future zoning debates. Opposition to related legislation has often centered on fears that recovery homes function as unlicensed treatment facilities. Removing such operations from the pool of certified recovery residences might ease those concerns and blunt resistance.

Although the SB838 workgroup has ended, the process is far from over. If DBHDS’ proposal advances into the final recommendations, the public will have ample opportunity to weigh in during the next General Assembly session.

As always, I’ll continue to follow this closely and keep you informed.

This update only scratches the surface of the intersection between recovery housing and outpatient treatment. I plan to explore the issue more fully in a later piece, and I welcome anyone with insight to reach out.

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Have a correction, update, or tip to share? Email christa@investigate-rva.com or get in touch with me here.

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1. McShin Foundation CEO Honesty Liller’s comments initially sounded like opposition to DBHDS’ proposal, but she later clarified they were unrelated. [Return to article]