Kentucky Day Treatment Operators Agree to $15.2 Million Medicaid Fraud Settlement

LEXINGTON, Ky. — Operators of a Kentucky day treatment program for children agreed to a $15.2 million civil judgment to resolve Medicaid fraud allegations, the Justice Department announced on May 15, 2026.

The settlement covers claims that the operators submitted false bills to Medicaid for behavioral health services provided to children through the program. The judgment resolves allegations under the False Claims Act that the operators engaged in improper billing practices over multiple years.

The scope of the case involves a single day treatment provider serving children in eastern Kentucky, where such programs deliver intensive behavioral and educational support services typically covered by Medicaid for eligible low-income families.

The agreement marks the end of the civil case in the U.S. District Court for the Eastern District of Kentucky. The operators will pay the $15.2 million judgment and are permanently excluded from participating in any federal health care programs, including Medicaid and Medicare.

This changes the prior state in which the operators faced ongoing litigation and retained eligibility to bill government health programs; the new state bars them from future federal reimbursements effective immediately upon entry of the judgment.

Downstream, the operators must remit the full judgment amount according to a payment schedule set by the court. The exclusion triggers mandatory reporting to the Department of Health and Human Services, which will update the List of Excluded Individuals and Entities.

State Medicaid agencies in Kentucky and any other states where the operators held contracts must now terminate those agreements and redirect affected children to other enrolled providers. Federal auditors gain a concrete precedent for reviewing similar day treatment billing patterns nationwide.

This settlement forms part of the Justice Department's broader enforcement initiative targeting fraud in Medicaid-funded behavioral health services for children. The department has pursued parallel civil and criminal cases involving day treatment and intensive outpatient programs in multiple districts in recent years.

The original allegations surfaced through whistleblower complaints and data analysis of Medicaid claims in eastern Kentucky.