Father and Son Charged in $1.6 Billion Rehab Scheme Prosecutors Call the Largest of Its Kind

A Los Angeles father and son controlled dozens of substance abuse treatment companies that billed private insurers more than $1.6 billion for treatment that was unnecessary or never provided, federal prosecutors say. The Justice Department calls it the largest sober home fraud scheme it has ever prosecuted.

David Young, 71, and his son Nathan Young, 39, both of Los Angeles, were charged along with Honey Phipps, 42, and Cody Phipps, 36, of Greenville, Texas, the U.S. Attorney’s Office for the Central District of California announced Thursday, Oct. 22. The case was the centerpiece of a Los Angeles health care fraud takedown in which 15 defendants were charged with schemes totaling about $2 billion in alleged fraudulent claims.

“These charges include the largest sober home fraud scheme the Department has ever prosecuted,” said Assistant Attorney General Colin M. McDonald of the Justice Department’s National Fraud Enforcement Division.

According to the indictment, the Youngs directed “body brokers,” including the Phippses, to find people who were homeless, living in poverty or attending addiction support groups. Prosecutors say the defendants looked for people whose insurance paid the most generous reimbursements, and often enrolled them in new policies for which they were not eligible.

The recruits were offered free flights, money, apartments, hotel stays, cars, gift cards, marijuana, cigarettes and controlled substances, including illegal drugs, prosecutors allege. Prescription medications were “freely dispensed by doctors employed by the Youngs,” according to the release.

Once patients arrived, most found the promises “illusory,” the government says. Patients with high-paying “premium” policies were put up in hotels and private apartments. Others lived in cramped, unsanitary housing that the government says was described as “trap houses.”

Prosecutors allege the Youngs recycled patients through their facilities to keep billing, whether or not treatment was needed or delivered. When patients tried to leave, the Youngs allegedly directed staff to drug them “to knock the client out.” The government also says the defendants cut patients off from their families, kept them from their belongings and physically blocked them from leaving.

In one example cited by prosecutors, Nathan Young was told that a premium patient wanted to leave detox so he could smoke marijuana. He allegedly instructed that the patient be given what he wanted off-site so he would stay. Employees were told to coach patients to fake symptoms so they would qualify for detox, and some patients were encouraged to use drugs or alcohol to become eligible for treatment, the release says.

The “therapy” that followed detox consisted of Zoom sessions with more than 100 attendees who only had to turn on their cameras, according to prosecutors. Patients were told they could “lay out on [the] beach” instead of taking part, while the sessions were billed to insurers.

The four defendants face charges of conspiracy to commit health care fraud and wire fraud, conspiracy to violate the Eliminating Kickbacks in Recovery Act, three counts of health care fraud and two counts of violating that law. The Youngs face five additional health care fraud counts and four additional kickback counts.

A fifth man, Nicholas Moore, 33, of North Myrtle Beach, has pleaded guilty to conspiracy to commit health care fraud and wire fraud. Prosecutors say he managed several of the Youngs’ detox facilities as an “area manager” and nominal owner. He admitted helping submit $199 million in fraudulent claims, according to the release.

The Youngs were each released on $4 million bonds after a brief court appearance, Courthouse News Service reported. According to the indictment, they received more than $210 million in payments on the claims, which Behavioral Health Business reported were submitted between May 2020 and May 2026. Their treatment centers had names such as Helping Hands Rehabilitation, Get Real Recovery and Sunset Rehab, Courthouse News reported. Prosecutors say 18 of about 20 California locations had different sham owners attached to shell companies, which made it hard for insurers to see that the claims came from one operation.

“Mr. Young denies the allegations and looks forward to challenging the government’s case. We will address the government’s claims in court,” said Reuven Cohen, Nathan Young’s attorney. Lawyers for David Young did not respond to Courthouse News. The charges are allegations, and the defendants are presumed innocent unless proven guilty.

Mark Groubert said he was glad the issue was finally coming to a head.

He traced the business model to the Affordable Care Act. In his account, the law’s guarantee of coverage for addiction treatment, and the ability to get a newly insured patient into treatment quickly rather than waiting for a policy to take effect, changed the industry in ways most people never noticed. A broker could sign someone up for insurance in a park, put him on a plane and deliver him to a rehab that would bill for 30, 60 or 90 days. Groubert’s description of how quickly coverage begins could not be independently confirmed. The broader history is documented. The 2010 law barred insurers from denying coverage for preexisting conditions and made substance abuse treatment an essential health benefit, which Courthouse News noted led to a boom in the treatment industry and to numerous fraud cases.

Groubert described the economics based on what he said he has seen firsthand. Rehab operators paid brokers a bounty of roughly $5,000 per patient, he said, and then billed insurers $35,000 to $50,000 a month for each one. Those figures are his estimates and do not come from the court filings. “I know people who were body brokers. I know rehab owners who paid bounties,” he said.

He also described a practice the indictment alleges in similar terms. Brokers, he said, would get recruits high before they signed admission papers and again on the way to the facility so they would fail an intake drug test and qualify for detox.

Groubert said the case would be an important test, because wealthy rehab owners would hire strong defense lawyers to fight the government’s theory that the model amounts to insurance fraud. “This has been going on, I swear to you, for 25 years out here,” he said.

Groubert told viewers the defendants “pocketed” more than $210 million. That matches the payments the indictment says they received, while the amount billed to insurers was more than $1.6 billion.

The FBI, IRS Criminal Investigation and the Drug Enforcement Administration investigated the case. It is being prosecuted by Assistant U.S. Attorney Haoxiaohan H. Cai and Justice Department trial attorneys Siobhan M. Namazi and Erika V. Suhr.