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United States v. Narco Freedom, Inc.

United States District Court, S.D. New York

April 2, 2015


For United States Of America, Plaintiff: Cristine Irvin Phillips, LEAD ATTORNEY, Carina Hyatt Schoenberger, United States Attorney Office, SDNY, New York, NY; Kirti Vaidya Reddy, LEAD ATTORNEY, U.S. Attorney's Office, SDNY (Chambers Street), New York, NY; Christopher Blake Harwood, United States Attorney's Office, Southern District Of New York, New York, NY; Rebecca C. Martin, U.S. Attorney's Office, SDNY (86 Chambers St.), New York, NY.

For Narco Freedom, Inc., Defendant: Linda Jane Clark, LEAD ATTORNEY, Joseph Anthony Murphy, Hiscock & Barclay, LLP(Albany), Albany, NY; Karl Jay Sleight, Harris Beach PLLC (Albany), Albany, NY.

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John G. Koeltl, United States District Judge.

The Government brought this action against Narco Freedom, Inc. (" Narco Freedom" ). The Government alleges that Narco Freedom is violating 42 U.S.C. § 1320a-7b,

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the " Anti-Kickback Statute," by providing below-market housing at Narco Freedom's " Freedom Houses" only to persons that attend Narco Freedom's Medicaid subsidized drug treatment programs.

The Government now has moved for a preliminary injunction pursuant to 18 U.S.C. § 1345. The preliminary injunction would prohibit Narco Freedom from conditioning residence in the Freedom Houses on enrollment in Narco Freedom drug treatment programs, from requiring any individual residing in a Freedom House to move within the first thirty days of establishing residence, and from closing any Freedom House without advanced notice. The Government also requests that the Court impose obligations on Narco Freedom involving recordkeeping, reporting, and the terms of Narco Freedom's relationships with its patients.

On November 3, 2014, the Court issued--with the parties' consent--a temporary restraining order enjoining the defendant from evicting individuals who are participating in outpatient programs not controlled by Narco Freedom and enjoining the defendant from closing any Freedom House without advanced notice.

Narco Freedom consented to continue the temporary restraining order pending the Court's decision on the Government's motion for a preliminary injunction. From December 2, 2014, to December 4, 2014, the Court held an evidentiary hearing. At the request of both parties, the Court held the case in abeyance while the parties discussed a possible resolution.

On March 13, 2015, The New York State Attorney General issued a superseding indictment against Gerald Bethea, Narco Freedom's then chief executive officer (" CEO" ), Richard Gross, Narco Freedom's then Comptroller, and Narco Freedom itself (among others). On March 18, 2015, Bethea and Gross were arrested. On March 19, 2015, the Government filed an order to show cause for the appointment of a temporary receiver.

On March 24, 2015, the New York Office of Medicaid Inspector General (" OMIG" ) informed Narco Freedom that a fifty percent withhold had been placed on Narco Freedom's current and future Medicaid payments. OMIG Letter Ex. B. On March 26, 2015, OMIG informed Bethea and Gross that they would be excluded from participating in the New York State Medicaid program, effective March 31, 2015. See OMIG Letter Ex. A. And on April 1, 2015, OMIG informed Narco Freedom that it would be excluded from the New York State Medicaid program, effective April 6, 2015. See OMIG Letter Ex. C.

Having reviewed the record and assessed the credibility of the witnesses, the Court now makes the following findings of fact and reaches the following conclusions of law pursuant to Rule 65 of the Federal Rules of Civil Procedure. For the reasons stated below, the Government's motion is granted.



Narco Freedom provides drug treatment programs in the Bronx, Queens, Brooklyn, and Long Island. Narco Freedom serves over 3,000 clients, many of whom are referred to Narco Freedom by the New York City Department of Probation, the New York State Division of Parole, the United States Parole Commission, and the Brooklyn and Manhattan drug courts. See Bethea Decl. ¶ 5; Def.'s Ex. A at 1; Hr'g Tr. at 413. Narco Freedom's drug programs include, among others, drug-free outpatient treatment and methadone treatment. Hr'g Tr. at 424.

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The drug treatment programs are regulated by the New York Office of Alcohol and Substance Abuse Services (" OASAS" ) and other federal and state agencies. Hr'g Tr. at 413. For individuals enrolled in drug-free outpatient programs, Medicaid reimburses all costs of up to seventy-five treatments. O'Connor Decl. ¶ 46. §

Narco Freedom also runs " three-quarter houses," known as " Freedom Houses," for individuals who participate in Narco Freedom's outpatient treatment programs. Hr'g Tr. at 339, 414. These three-quarter houses do not provide in-house services to tenants, are not licensed or regulated, and have no formal arrangement with any government agency. O'Connor Decl. ¶ 7; Gov't Ex. S (" Kent Decl." ) ¶ ¶ 11--12; Hr'g Tr. at 43. The staff members at the Freedom Houses do not have mental health training, ...

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