Montana Exposes $55 Million Fraud Scheme Targeting Native Americans

A $50 Million Fraud Attempt, a Fast Stop, and What It Means for Health Plans and Regulators

Health care fraud rarely announces itself with flashing lights. More often, it slips in through small process seams, gets validated by routine transactions, then scales before anyone realizes a pattern has formed.

That is why the recent case outlined by Montana State Auditor and Commissioner of Securities and Insurance James Brown is worth the insurance industry’s attention. Brown says his office identified what could be up to $50 million in attempted fraud tied to out-of-state substance use treatment facilities that allegedly targeted vulnerable people in Montana’s tribal communities, with claims reportedly billed at up to $9,000 per day for as long as 90 days. The scheme was flagged by PacificSource and referred to federal authorities, with $22 million in suspected fraudulent claims reportedly stopped before payment in the most recent wave of rescissions. (KTVH)

The allegations are disturbing on their own merits, but they also spotlight operational lessons for carriers, TPAs, and regulators: how enrollment mechanics can be exploited, how provider billing behavior can mimic legitimate high-acuity care, and how cross-state jurisdiction complicates enforcement even when the red flags are clear.

How the Alleged Scheme Worked

According to Brown, the alleged fraud centered on purported substance use treatment facilities outside Montana, many in California. His office says insurance producers, including some unlicensed, went into tribal communities to aggressively recruit people struggling with addiction. Those individuals were reportedly encouraged to enroll in Affordable Care Act marketplace plans, and in some cases to disenroll from Medicaid. (KTVH)

Once enrolled, individuals were allegedly transported to the out-of-state facilities, where Brown says they received little or no actual treatment. Meanwhile, the facilities allegedly billed insurers at extremely high daily rates for extended periods. (KTVH)

“It’s unprecedented in the history of this office, there’s no doubt about it.”
James Brown, Montana State Auditor and Commissioner of Securities and Insurance (KTVH)

From a payer perspective, this is the kind of pattern that can be deceptively “clean” in the first moments of processing: valid member eligibility, claims that fit common addiction-treatment code groupings, and a provider narrative that sounds plausible, especially when supported by documentation that appears complete at intake.

Why Native American Marketplace Enrollment Rules Became a Vulnerability

Brown said Native Americans were particularly targeted because the ACA includes provisions that allow tribal members to enroll at any time of year, not only during standard open enrollment, and with no waiting period to begin receiving care. (KTVH)

For bad actors, this is a powerful combination: immediate eligibility plus rapid service initiation, with limited time for traditional prepayment controls to gather enough signal before the bill hits the system.

The takeaway for health plans is not that these enrollment protections are a problem. They exist for good reasons. The operational challenge is that any “always open” eligibility channel needs matching “always on” monitoring.

The Real Harm Is Not Just Financial

The case has a human toll that the industry cannot ignore. Brown described patients allegedly being left without care and without a way home.

“The most troubling part of this is that the services weren't provided, and then after the period in which treatment could be had in theory, they would just kick these people out on the street and provide them no way to get back to Montana.”
James Brown, Montana State Auditor and Commissioner of Securities and Insurance (KTVH)

That detail matters for insurers because patient abandonment risk often correlates with billing abuse. When a facility’s incentives are tied to reimbursement volume rather than outcomes, operational breakdowns and claims irregularities frequently travel together.

What Stopped It: Plan Surveillance and Rapid Rescissions

Brown said PacificSource alerted his office shortly after he took office, prompting a months-long investigation. PacificSource then took the findings to the U.S. Department of Health and Human Services, which approved rescinding dozens of claims so the insurer did not have to pay those amounts in the identified cases. (KTVH)

PacificSource’s Montana market president, Erik Wood, emphasized the partnership with the commissioner’s office.

“We’re grateful to Commissioner Brown and his team for their partnership and support.”
Erik Wood, PacificSource Montana market president (KTVH)

From an industry standpoint, this is a reminder that the most effective anti-fraud posture is often collaborative: payer SIU patterns, regulator licensing data, and law enforcement jurisdiction working in sequence rather than in silos.

What Enforcement Looks Like When the Activity Is Out of State

Brown said that because most of the suspected activity occurred outside Montana, his office does not have criminal jurisdiction. However, they are working with the FBI and the U.S. Attorney’s Office, and he expressed hope that criminal charges will be brought. (KTVH)

What the state can do, Brown noted, is pursue civil penalties against the insurance producers responsible for the enrollments, especially if they were not licensed in Montana at the time. (KTVH)

This split is important for carriers: fraud deterrence cannot rely on prosecution timelines. Administrative actions, payment rescissions, credentialing controls, and producer oversight are often where the fastest containment happens.

Claims Pattern Snapshot

Here’s a simplified view of the alleged billing dynamics described by the auditor’s office and reported in the investigation:

(KTVH)

One Practical Section: What Insurers Can Stress-Test Now

• Producer oversight in high-touch enrollments: Tighten controls for outreach-driven signups, especially where producers are affiliated with specific facilities.

• Outlier detection tuned for rapid-start episodes: Watch for same-day or near-immediate high-dollar utilization after enrollment, clustered by facility and referral source.

• Member safety flags alongside billing flags: Track abandonment indicators (return travel issues, complaints, unreachable members) as potential correlates of inflated billing.

• Cross-functional escalation paths: Ensure SIU, network, clinical, and compliance can trigger prepayment review quickly when patterns emerge.

• Regulator-ready documentation: Build a “rescind packet” playbook so questionable claims can be escalated efficiently when federal or state partners request support.

The Bigger Industry Lesson: Integrity Is an Operational Discipline

This case is a reminder that health insurance fraud is not only a claims problem. It is an ecosystem problem: enrollment channels, producer behavior, provider oversight, and the speed of payment all play a role.

And when a scheme targets people who are already at risk, the industry’s response becomes more than a financial safeguard. It becomes part of the health care system’s duty of care.

“This is a terrible injustice that's been done to vulnerable populations in Montana.”
James Brown, Montana State Auditor and Commissioner of Securities and Insurance (KTVH)