Protecting People, Not Profits

By Ashley Mendez – Intern at disAbility Law Center of Virginia (dLCV)

Access to quality mental health care can be life-changing for individuals experiencing homelessness. Many rely on Medicaid to receive essential behavioral health services, including crisis intervention, therapy, psychiatric care, case management, and medication management. These services provide critical support for individuals living with serious mental illness, trauma, and substance use disorders. However, mental health recovery requires more than clinical treatment alone. For individuals experiencing homelessness, recovery is also dependent on having a safe, stable place to sleep, store personal belongings, and begin rebuilding daily routines. Without housing stability, even the most effective mental health interventions can be difficult to sustain.

Recent criminal cases in Virginia have brought renewed attention to Medicaid fraud within behavioral health services, highlighting the importance of accountability, transparency, and protecting the rights of individuals with disabilities. When providers misuse Medicaid funds for financial gain, the consequences extend far beyond wasted taxpayer dollars. Fraud undermines public trust, diverts limited behavioral health resources, and can leave some of Virginia’s most vulnerable residents without access to the quality, medically necessary care they deserve.

At the same time, these cases expose a deeper systemic issue. Allegations involving the misuse of Medicaid funds to provide hotel rooms or temporary lodging as unlawful incentives reveal that many individuals experiencing homelessness are seeking one of the most basic necessities. While such practices constitute fraud and should be addressed through appropriate legal and regulatory action, they also underscore the strong connection between housing instability and mental health. The desire for shelter should not be viewed as exploitation; rather, it reflects an unmet basic need that significantly influences an individual’s ability to engage in treatment, maintain recovery, and achieve long-term stability.

Mental Health and Homelessness Are Closely Connected

Individuals experiencing homelessness are disproportionately affected by serious mental illness, substance use disorders, trauma, and chronic stress. The National Alliance on Mental Illness (NAMI) reported in March 2025 that 1 in 6 of the more than 6,500 people in Virginia who are unhoused have a serious mental illness. The uncertainty of not knowing where to sleep each night, concerns personal safety, and the daily struggle to meet basic needs often worsen symptoms of anxiety, depression, post-traumatic stress disorder, and other behavioral health conditions.

When a person lacks stable housing, it becomes far more difficult to attend therapy consistently, take medications as prescribed, maintain employment or education, build healthy relationships, and engage in long-term treatment and recovery. Housing instability is not simply a social issue, it is a behavioral health issue.

Accountability Matters, But So Does Addressing the Root Cause 

Medicaid fraud occurs when individuals or organizations intentionally submit false claims or misuse Medicaid funds for financial gain. Examples include billing for services that were never provided, falsifying documentation, or billing for a higher level of care than was delivered.

Recent Virginia investigations have alleged that behavioral health providers improperly used Medicaid-funded services while offering hotel rooms or other incentives to attract clients. According to the U.S. Department of Justice, co-conspirators in the Divine Youth Services case allegedly paid more than $470,000 in illegal kickbacks through false billing, including offering hotel rooms to induce Medicaid recipients to receive services. Similarly, authorities have alleged fraudulent billing practices involving Advancing Communities Everywhere (ACE). These allegations remain subject to the judicial process.

These cases deserve accountability because Medicaid funds must be used ethically and for medically necessary services. Individuals should never feel pressured into treatment for the financial benefit of a provider. However, they should not distract from the broader reality that many individuals accepted temporary lodging because they had nowhere else to go. The fraud lies in the misuse of Medicaid, not in the fact that people experiencing homelessness need housing.

Rather than viewing housing solely as an inappropriate incentive, policymakers should recognize that stable housing is often one of the most effective supports for successful mental health treatment.

The Broader Impact on Virginia’s Behavioral Health System

Fraud undermines public trust and diverts limited Medicaid resources away from individuals experiencing genuine behavioral health crises. It also contributes to increased oversight, stricter documentation requirements, and more intensive authorization reviews that can delay access to care for ethical providers and the people they serve.

Recent changes to Virginia Medicaid further highlight the importance of protecting essential behavioral health services. Under Items 291.KKKK and 291.LLLLL of the 2026 Appropriation Act, the Department of Medical Assistance Services (DMAS) will discontinue Medicaid coverage for Community Stabilization services and reduce the maximum reimbursable encounter for Mobile Crisis Response from eight hours to four hours.

These changes reduce access to services that help individuals remain stable following psychiatric emergencies. For people experiencing homelessness, the loss of these supports may create even greater barriers to recovery if they are discharged back into unstable living situations without ongoing community supports or housing resources.

Supportive Housing Is a Behavioral Health Intervention

Research consistently demonstrates that stable housing improves mental health outcomes, reduces psychiatric hospitalizations, decreases crisis service utilization, and increases treatment engagement. When individuals know they have a safe place to live, they are better able to focus on therapy, medication adherence, employment, education, and rebuilding relationships.

This raises an important policy question:

Should Medicaid expand opportunities to support housing within behavioral health programs?

While Medicaid generally cannot pay for room and board, there is growing recognition nationwide that supportive housing models, which combine affordable housing with intensive behavioral health services, case management, and recovery supports, can significantly improve outcomes for individuals with serious mental illness. Programs that integrate housing with behavioral health services allow clinicians to stabilize symptoms while simultaneously addressing one of the greatest barriers to recovery. Community-based behavioral health services can also provide a more cost-effective, less restrictive alternative to inpatient psychiatric hospitalization while supporting long-term recovery.

The average cost of a 30-day Psychiatric admission is approximately $36,510 (roughly 1,217 per diem), meaning long-term admission costs can run up to $444,205. (DMAS, 2026) Hospital Rates In contrast, community- based services such as Community Stabilization which is 5-7 day service can range from approximately $3,540 to $10,573.92, making them significantly less expensive. Even when combined with step-down services or long-term care services such as Mental Health Outpatient treatment, which averages $250 per day, the overall cost often remains below that of a single inpatient admission. Behavioral Health Service Rate Updates Effective January 1, 2024 | MES

Beyond the financial savings, community-based services allow individuals to receive intensive treatment while remaining in their communities, where providers can coordinate ongoing care, connect clients to essential resources, and often leverage community partnerships to help secure temporary or stable housing. By addressing both behavioral health needs and social determinants such as housing instability, community-based care can reduce repeat hospitalizations, improve long-term outcomes, and promote more efficient use of Medicaid resources.

While protecting Medicaid from fraud is essential, policy discussions should also recognize that housing is one of the strongest social determinants of mental health. Expecting individuals to achieve lasting recovery while living on the streets or cycling through shelters places them at a significant disadvantage and increases the likelihood of repeated crises, hospitalizations, and involvement with emergency services. Expanding supportive housing initiatives alongside behavioral health treatment would not only improve individual outcomes but also strengthen the overall effectiveness of Virginia’s mental health system. When people have both access to quality clinical care and a stable place to live, they are far more likely to sustain recovery, reduce reliance on crisis services, and build healthier, more independent lives.