WAREHOUSES OF PROFIT: The Billion-Dollar Therapeutic Foster Care Medicaid Fraud Machine

Jul 14, 2026

How for-profit and private equity-backed companies bill taxpayers $2–4 billion a year for therapy that vulnerable foster children never receive — while no state audits whether the services exist

A foster child in Florida can be worth $30 a day, or she can be worth $120 a day. The difference is a single word: therapeutic.

That word — attached to a placement, coded into a Medicaid claim — multiplies the reimbursement rate three to five times over. In exchange, the law and common decency promise the child something real: licensed clinicians, individualized treatment, round-the-clock clinical support, specially trained foster parents carrying lighter caseloads.

This investigation documents what actually happens instead. Across the United States, a network of for-profit and private equity-backed companies claims the “therapeutic” designation, pockets the rate differential, and delivers little or no therapy at all. An estimated $2 to $4 billion in Medicaid funds flows annually to intermediaries that mark foster placements as therapeutic without providing the therapy.

And in the words of the finding that anchors this entire report: no state has ever conducted a systematic audit matching therapeutic foster care Medicaid claims against actual service delivery records.

The Rate Differential: Where the Money Lives

The fraud begins with a number. In state after state, the gap between the standard per diem and the “therapeutic” per diem is enormous — and it is the gap, not the care, that the companies are selling.

On paper, that premium buys a defined standard of care. A therapeutic placement is supposed to mean 40-plus hours of specialized training for foster parents, regular therapy from licensed clinicians, 24/7 clinical support, individualized treatment plans, and lower caseload ratios — roughly one worker for every eight to ten children instead of one for twenty or more.

What the record shows is the opposite. Foster parents receive minimal or no specialized training. Little to no actual therapy is delivered. There is no clinical support outside business hours. Treatment plans are boilerplate, copied between cases. Caseloads run to 1:25 and beyond.

The child is warehoused at a standard-care reality. The company bills at the therapeutic rate. It keeps the difference.

The Fraud Mechanism, Step by Step

Stripped to its mechanics, the scheme is simple enough to diagram:

· Step 1 — Secure the designation. Many states accept self-reported training, so the “therapeutic” label is easy to claim.

· Step 2 — Recruit foster parents at standard rates of $20–$35 a day.

· Step 3 — Bill Medicaid at therapeutic rates of $75–$160 a day and retain the differential.

· Step 4 — Generate phantom documentation— boilerplate treatment plans and therapy that is logged but not delivered.

· Step 5 — Face no consequences, because no state audits claim against actual service delivery.

Every link in that chain depends on the last one. The phantom billing survives because the verification that would expose it does not exist.

The Corporate Players

The report names the companies at the center of the machine.

Universal Health Services (UHS)— NYSE: UHS — reported $15.8 billion in revenue in 2024 across more than 400 facilities in 28 states. In July 2020, UHS paid $122 million to settle False Claims Act allegations covering 2007 to 2018. In March 2012, it paid $6.85 million over substandard adolescent psychiatric services in Virginia. It operates under a Corporate Integrity Agreement with HHS-OIG.

Acadia Healthcare— NASDAQ: ACHC — reported $3.1 billion in 2024 revenue across more than 250 facilities in 39 states. Acadia was named in the Senate’s Warehouses of Neglect investigation in June 2024, became the subject of Senator Ron Wyden’s DOJ referral in October 2024, and was under active DOJ and FBI investigation as of 2025. The Citizens Commission on Human Rights documented children dying in Acadia hospitals as recently as June 2025.

Devereux Advanced Behavioral Health— a nonprofit operating in 13 states and serving more than 31,000 individuals — was also named in Warehouses of Neglect and named in the Wyden DOJ referral. Its executive compensation is comparable to that of its for-profit counterparts.

Sequel / Vivant Behavioral Healthcare— private and for-profit — rebranded from Sequel to Vivant under the same CEO. It is where 16-year-old Cornelius Fredericks died in May 2020 after seven staff members restrained him for throwing a sandwich at Lakeside Academy in Kalamazoo, Michigan. Staff pleaded no contest in May 2023. His family filed a $50 million lawsuit in October 2021. Sequel had received $9 million in Medicaid reimbursement from Michigan for Lakeside. Oregon foster children were sent to out-of-state Sequel facilities where they were abused.

Sevita Health, formerly The MENTOR Network, is owned by private equity firms Centerbridge Partners and Vistria Group and operates in 40 states. A 2017 Senate investigation found that 86 children died in MENTOR foster care over ten years. At the time, it was the largest for-profit foster care company in America. Whistleblowers alleged systematic abuse at its California group homes, reported by KQED in December 2023. In 2021, its private equity owners sought a minority stake sale to monetize foster care profits. Politically, Sevita gave $25,000 to the DLGA PAC in 2025 and maintains PACs in Massachusetts, Minnesota, and Texas.

Necco, Inc., headquartered in Cincinnati, runs therapeutic foster care in Ohio, Kentucky, West Virginia, and Georgia, and holds a Kentucky DCBS contract. According to PMC’s FEC database, CEO Edward D. Necco’s political contributions include:

· $45,000+ to the Kentucky Democratic Central Committee (2019–2024)

· $6,600 to the Sheehy Victory Committee (2024)

· $5,000 to In This Together PAC (2024)

· $6,600 to Tim Sheehy for Montana (2024)

· $2,500 to the Republican Party of Kentucky (2025)

Total Necco family contributions exceed$85,000, bipartisan— from a single company.

Private Equity and the Logic of Extraction

The most detailed picture of why this keeps happening comes from the Private Equity Stakeholder Project’s February 2022 report, The Kids Are Not Alright.

Since 2015, PE firms have aggressively acquired foster care companies. The playbook is familiar from other sectors: debt-funded dividends that extract value while loading the companies with debt, cost-cutting through staffing reductions, and roll-up strategies that build market dominance — dominance that translates into leverage to negotiate higher rates.

The report’s finding is blunt on the human cost: cost-cutting through staffing reductions correlates with abuse incidents. When the acquired asset is a child, thin staffing is not an efficiency. It is a danger

The Senate Sounded the Alarm. Then Nothing.

On June 12, 2024, Senator Ron Wyden released Warehouses of Neglect, a Senate Finance Committee report on UHS, Acadia, Devereux, and Sequel/Vivant. Its findings: systemic abuse, taxpayer-funded neglect, Family First Prevention Services Act failures, inadequate state oversight, and rebranding used as a tool of evasion.

On October 9, 2024, Wyden formally requested that the Department of Justice investigate for Medicaid fraud, civil rights violations, and False Claims Act violations.

As of March 2026 — 17 months later — no public DOJ action has been taken.

The silence is not for lack of enforcement capacity. On June 30, 2025, DOJ announced a national healthcare fraud takedown: 324 defendants and $14.6 billion in fraud, including “services not rendered” schemes — the exact category this fraud belongs to. Therapeutic foster care was not targeted. The sector remains unexamined.

The Audit Gap

The reason the machine runs is structural, and the report names it precisely.

States do audit provider enrollment, placement, billing codes, and rates. States do not audit service delivery, training compliance, staffing, treatment plans, or outcomes.

In other words, states verify that the paperwork is filled out correctly and that the codes match the rate schedule. They do not verify that a single hour of promised therapy ever happened. The entire enforcement apparatus checks the invoice and never checks the work.

Federal oversight mirrors the blind spot. The DOJ-HHS HCFAC annual report for FY2020 found that 23 states had unenrolled providers billing— yet the resulting recommendations focused on claims processing, not on whether children received services.

The MACPAC Report to Congress in June 2025 stated the problem in official language: Medicaid is the primary payer for residential behavioral health for foster children; states have varying definitions; audit requirements are inadequate; and children often do not receive the services that justify the elevated rates. MACPAC’s enhanced oversight recommendations have not been implemented.

The Math of a $2–4 billion Fraud

The report builds its central estimate from public numbers.

· AFCARS counts 400,000+ children in foster care.

· An estimated 15 to 25 percent are classified therapeutic — roughly 60,000 to 100,000 children.

· The per diem differential runs $50 to $100 per day, or $18,250 to $36,500 per child per year.

· Total therapeutic billing: $1.1 billion to $3.65 billion.

· With an estimated 50 to 80 percent of services undelivered, the therapeutic-foster-care fraud alone lands at $550 million to $2.92 billion.

· Adding PRTF and group homes brings the total to an estimated $2 to $4 billion annually.

That figure equals 14 to 27 percent of DOJ’s entire 2025 healthcare fraud takedown — and it has never been targeted.

Family First: A Law Built With a Loophole

The Family First Prevention Services Act was meant to rein in institutional placement. Instead, therapeutic foster care was carved out from the Qualified Residential Treatment Program requirements.

Companies grandfathered existing programs. No federal enforcement verifies compliance. Independent assessments are circumvented. In Nebraska, per the state’s own LR 29 consultant report and the 2020 Foster Care Reimbursement Rate Committee findings, specialized designations were used to minimize paperwork, not to provide services— the loophole functioning exactly as designed.

Rebranding as Evasion

One pattern recurs across the corporate players and deserves its own emphasis: the name change as an escape hatch. MENTOR became Sevita. Sequel became Vivant — same CEO. When a brand accumulates too many dead children and too much scrutiny, it sheds the name and keeps the business. The Senate identified rebranding as a deliberate mode of evasion, and the record bears it out.

What This Means

The evidence assembled here describes a closed loop that runs on a single failure: the refusal to check.

A word triggers a payment three to five times larger. The payment requires services. The services are never verified. The children — 60,000 to 100,000 of them, labeled therapeutic — absorb the difference between what was billed and what was delivered. Some of them die, in numbers no federal agency bothers to count by placement type.

Every actor in the chain has done its part except the last one. The Senate investigated and named the companies. MACPAC told Congress the oversight is inadequate. HHS-OIG documented unenrolled providers billing across nearly half the states. Wyden referred it to DOJ for Medicaid fraud and False Claims Act violations. And then, for 17 months and counting, the machinery of enforcement that mustered 324 defendants for $14.6 billion in other fraud has left this $2-to-$4-billion sector untouched.

The fix does not require new science. It requires audits that compare claims to care. The report’s roadmap is concrete: DOJ should act on the Wyden referral; HHS-OIG should conduct a national audit; CMS should require service verification; Congress should standardize the definition of “therapeutic.” At the state level, Medicaid Fraud Control Units should investigate therapeutic foster care billing, and licensing agencies should audit training and services rather than paperwork. Advocates can FOIA the billing data, interview the foster parents, and track the rebrandings.

Until someone matches a therapeutic Medicaid claim against a therapy that actually happened, the warehouses stay open — and the profit keeps flowing over the heads of the children it was supposed to protect.

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