California Finds Homeless Worth More Unrehabilitated
A $1.6 Billion Rehab Fraud Exposes the Economics of Failure
LOS ANGELES, California, October 24, 2026 — California has finally discovered something more profitable than curing addiction: not curing it. According to the New York Post investigation into California’s drug rehabilitation industry, federal prosecutors have charged operators of a rehabilitation network accused of submitting more than $1.6 billion in claims to private insurers while vulnerable people were allegedly recruited, recycled, neglected and sometimes abandoned. The U.S. Attorney’s Office for the Central District of California describes it as the largest substance abuse treatment fraud case the Justice Department has prosecuted. The allegations are serious, the defendants are presumed innocent, and the economic philosophy is recognizable to anyone who has watched California attempt to solve homelessness by repeatedly purchasing more homelessness administration.
The Golden State has spent years insisting that homelessness is a complicated problem requiring extraordinary resources, extensive consultation, increased funding, additional oversight, new agencies, community engagement, environmental reviews and a sufficient number of diversity coordinators to ensure every tent enjoys equal representation.
Somebody forgot to include rehabilitation.
The latest federal allegations describe a remarkable business opportunity. Acquire a person with addiction problems, place that person into a rehabilitation program, bill an insurance company, move the person to another rehabilitation program and repeat until the insurance policy or the patient’s will to live has been exhausted.
Under ordinary capitalism, a business makes money by satisfying customers. Under California’s emerging homelessness economy, the central commercial challenge appears to be preventing customers from getting better. A successful rehabilitation clinic loses its patient. An unsuccessful rehabilitation clinic gains a returning customer.
California has built a market in which the second business model deserves its own business school.
Gavin Newsom’s California: Human Misery as Economic Development
Governor Gavin Newsom has long promoted California as a leader in progressive public policy, environmental responsibility and compassionate government. The state can produce electric cars, regulate plastic straws, protect endangered species and conduct a comprehensive environmental impact assessment before permitting a homeowner to replace a garage door.
Yet the rehabilitation allegations raise a more elementary question. How does a state surrounded by highly paid regulators become such an attractive location for a business allegedly profiting from the exploitation of vulnerable people?
California can identify a restaurant using the wrong kind of disposable fork from three counties away. Detecting a rehabilitation network accused of submitting $1.6 billion in questionable insurance claims took federal criminal investigators.
The allegations do not establish that Newsom personally knew about or approved the conduct. His administration nevertheless governs a state whose elaborate regulatory environment is supposed to protect precisely the people who were allegedly exploited.
The problem is not a shortage of compassion in California. Compassion is available in industrial quantities. It comes in PowerPoint presentations, strategic initiatives, interdepartmental task forces and annual reports printed on environmentally responsible paper. Actual results are considerably harder to locate.
California’s government has developed a vocabulary in which a person sleeping in a doorway becomes an individual experiencing housing insecurity, an enormous administrative failure becomes a multidimensional policy challenge, and another billion dollars becomes an important first step.
Nobody is homeless anymore. Everybody is participating involuntarily in an affordable housing pilot program.
The paperwork has recovered beautifully. The patients, unfortunately, remain a work in progress.
California Homelessness Spending: $24 Billion and No Scorecard
California’s homelessness spending offers a useful lesson in government economics. Between fiscal years 2018 and 2023, the state allocated approximately $24 billion toward homelessness and housing initiatives.
That’s $24 billion with a B. Not $24 million. Not Monopoly money. Actual dollars that somebody earned before the government came up with a compassionate strategy for spending them.
What the State Auditor Found
In April 2024, the California State Auditor’s report on homelessness spending and accountability found that California had failed to consistently track expenditures and results across its homelessness programs. Of the five programs evaluated, two appeared cost-effective. The other three lacked sufficient outcome data to determine whether they were delivering value. The auditor also noted that the California Interagency Council on Homelessness had not updated its statewide financial data since its 2023 assessment.
Imagine operating a restaurant for five years, spending billions of dollars, and explaining to investors that nobody knows whether customers received food. In the private sector, that’s bankruptcy. In Sacramento, that’s Thursday.
The state’s inability to measure results has introduced a revolutionary principle to public administration: if you don’t count the failures, you can keep celebrating the spending. California’s government has accomplished something Soviet economists could only dream of. It has built a system in which the absence of reliable production statistics becomes an argument for increasing the production budget.
How many people escaped homelessness?
We need additional research.
How much did it cost?
We need a comprehensive accounting framework.
What happened to the previous money?
That question has been referred to a subcommittee.
When will homelessness decline?
We anticipate publishing a strategic timeline after receiving funding to assess the feasibility of establishing a timeline.
The old Soviet Union famously struggled to produce enough consumer goods. California has solved that problem by producing committees instead.
Rehab Fraud Economics: Patients Stay Sick, Operators Get Paid
The latest rehabilitation allegations expose an especially unpleasant financial incentive. According to the October 22 Department of Justice charges involving alleged rehabilitation and healthcare fraud, defendants allegedly offered vulnerable people flights, accommodations, cash, gift cards and even drugs to persuade them to enter purported treatment facilities.
Prosecutors named Nathan Young and David Young, both of Los Angeles, as the men who allegedly controlled dozens of purported treatment companies, and accused two Texas residents, Honey and Cody Phipps, of working as body brokers who recruited patients. The charges include conspiracy to violate the Eliminating Kickbacks in Recovery Act. All four defendants are presumed innocent. Body brokering isn’t new, either. NPR documented the kickback trade in 2017.
Some patients were allegedly encouraged to exaggerate symptoms or consume substances to qualify for additional treatment. Others were allegedly moved repeatedly between facilities to generate further insurance claims.
There is something profoundly disturbing about a drug rehabilitation business allegedly encouraging drug consumption. That’s rather like operating a fire department and providing arsonists with complimentary gasoline. Or opening a weight-loss clinic that insists every patient eat a cheesecake before leaving. Or running a marriage counseling service that introduces husbands to their wives’ attractive younger sisters.
The fundamental economic incentive has been turned upside down. Under the allegations, the patient’s recovery wasn’t necessarily the desired outcome. Continued insurance eligibility was.
This is not proof that the accused operators practiced socialism, and the central $1.6 billion scheme involved private insurance claims, not a state homelessness grant. It is, however, a good illustration of what happens when a badly monitored payment system rewards activity without verifying results.
Who Controls the Means of Reimbursement
A traditional business wants satisfied customers. A corrupt rehabilitation business wants reimbursable customers. A dysfunctional bureaucracy wants measurable expenditures. And the unfortunate patient just wants to stop being addicted.
Three competing economic objectives, and the only person seeking a cure has the least influence over the transaction.
Karl Marx spent his life analyzing who controlled the means of production. California has introduced a darker question: who controls the means of reimbursement?
Addiction Treatment Fraud: Group Therapy Without the Group
Federal prosecutors further allege that some supposed therapy consisted of Zoom sessions with more than 100 attendees, in which patients did little more than turn on their cameras. Other reported activities billed as therapy included trips to beaches, movies and recreational outings.
For a state associated with Hollywood, this is an impressive development. California may have discovered the world’s first medical treatment in which watching a movie can be charged at healthcare rates.
The possibilities are endless. A trip to Disneyland becomes exposure therapy. Standing in line for two hours becomes patience training. A visit to an expensive restaurant becomes nutritional counseling. A terrible Hollywood sequel becomes trauma treatment. And sitting through a Gavin Newsom press conference becomes intensive psychological endurance training.
Legitimate rehabilitation involves trained professionals, evidence-based treatment, counseling and ongoing support. The alleged business model involved finding out how much of that could be eliminated before the invoices stopped clearing.
The really astonishing part is the amount of money involved. From 2020 to 2026, the network submitted roughly $1.6 billion in claims and, the Post reports, received more than $210 million in payments.
Two hundred and ten million dollars.
That’s an extraordinary amount to collect from a business supposedly dedicated to helping people stop doing something. Most Americans would happily stop smoking, drinking or gambling for a fraction of it. Instead, prosecutors describe an enterprise that allegedly made millions while helping some people do the opposite.
Government Spending as Job Security: Why Failure Pays
The larger California problem is the financial ecosystem that grows around a crisis. Homelessness generates demand for housing assistance, rehabilitation services, nonprofit organizations, outreach workers, administrators, consultants, advocacy groups and government departments.
Some organizations do valuable work, and many staff members devote their lives to helping vulnerable people. But a badly designed funding system can reward institutional expansion without requiring comparable improvements in people’s lives.
If homelessness declines substantially, the bureaucracy should be able to celebrate success. Unfortunately, success can also invite awkward questions about future budgets. How many administrators will still be necessary? How many consulting contracts can be eliminated? How many committees should be dissolved?
These are dangerous questions in a city where government paperwork enjoys more secure accommodation than the people it describes.
California’s political class speaks endlessly about sustainability. Perhaps it should begin by asking whether perpetual homelessness is the only truly sustainable industry it has created.
The Sacramento Budget Meeting
One can picture a Sacramento budget meeting in which an official announces that homelessness has finally been eliminated.
Silence fills the room.
An accountant faints. A consultant begins shredding his business plan. Someone from the Department of Community Engagement demands to know who authorized solving the problem without a community engagement process. A junior employee nervously suggests creating a new initiative to restore homelessness to sustainable operating levels.
Everybody applauds. Funding approved.
The California Fix: Accountability, Not Another Spending Package
The solution to this kind of exploitation isn’t particularly mysterious. Require verified treatment. Audit suspicious billing patterns. Track recovery outcomes. Penalize fraudulent operators. Protect patients from coercion. Make it easier for families to identify legitimate services, starting with the federal treatment locator run by SAMHSA.
And when public programs spend billions of dollars, publish results that ordinary taxpayers can understand without hiring a forensic accountant. None of that requires another multibillion-dollar government initiative. It requires accountability, which is the one service California’s political bureaucracy has repeatedly struggled to deliver.
Consider the contrast. A California small-business owner who accidentally violates a minor licensing regulation may face immediate consequences. Meanwhile, federal authorities allege that a rehabilitation network submitted more than a billion dollars in improper claims over several years. The government can regulate a sandwich shop’s restroom facilities down to the smallest detail. The industry allegedly profiting from severely vulnerable patients apparently presented a considerably greater challenge.
The One-Employee Department
Perhaps the next California Department of Homelessness Innovation should have only one employee. Give that person a clipboard, a calculator and permission to ask an uncomfortable question.
“What exactly did we get for the money?”
That would be the most radical experiment in California governance since someone suggested building a house without requiring seventeen environmental studies.
The essential problem is straightforward. When a patient gets sober, finds employment, reconnects with family and escapes homelessness, society wins. When a dishonest operator gets another reimbursement, the operator wins. And when a politician announces another historic spending package without measuring results, the bureaucracy wins.
The tragedy is that those three outcomes are not always the same thing. California has made compassion an industry, spending a political achievement, and accountability an optional accessory.
Now federal investigators are examining allegations that some private operators turned the most vulnerable people in society into little more than insurance billing opportunities. If the charges are proved, the greatest scandal won’t simply be the money. It will be the discovery that people desperate for recovery were allegedly more valuable to their supposed caregivers when they remained dependent.
California’s homelessness system has produced a remarkable economic paradox. The patient stays addicted. The insurance company gets billed. The operator gets rich. The government promises another investigation.
And somewhere on Skid Row, a man who wanted help discovers that the only thing in his life enjoying a successful recovery is somebody else’s bank account.
Five Humorous Observations
- A rehab that flies you in, hands you a gift card and throws in drugs isn’t a rehab. That’s a timeshare presentation with better snacks.
- One point six billion dollars. I once spent forty minutes on hold with my insurance company to argue about a thirty-eight dollar copay. Meanwhile, somewhere in Los Angeles, a guy billed them for a beach day and they paid it. On time.
- A Zoom call with a hundred people, everybody’s camera on, nobody saying a word. You know what else that is? Every work meeting I’ve ever been in. Somebody bill that as therapy. I’d have been cured by 2021.
- Two out of five programs worked. In baseball, that’s a Hall of Fame batting average. In California government, that’s a ribbon cutting and a press release.
- California has a department for everything. If you saw a tent on Skid Row, you’d assume somebody got a grant for it, and somebody else got a grant to study the first guy’s grant.
Editorial Disclaimer
This article is political satire criticizing California’s homelessness policies, government accountability and alleged financial exploitation within the rehabilitation industry. The criminal allegations against the named defendants remain unproven unless established in court. The $1.6 billion rehabilitation case primarily concerns private insurance billing and should not be confused with California’s separate public homelessness expenditures. Satirical descriptions of government decisions, meetings and economic principles are comedic commentary, not accounts of actual official statements.
This story is entirely a human collaboration between two sentient beings: the world’s oldest tenured professor and a philosophy major turned dairy farmer.