The Markovich prosecution shows why addiction-treatment buyers cannot stop at payer contracts and utilization reports. Patient recruitment, inducements, churn, lab economics, and service delivery all have to be tested before the wire.
By Noah Green CPA CFE
This article is general due diligence education for buyers, investors, lenders, and operators. It is not legal advice. Enforcement posture, docket status, restitution, and sentencing can change. Verify current posture before publication or reliance.
The Short Version
DOJ reported that Jonathan and Daniel Markovich were convicted after trial in November 2021 and sentenced on March 18, 2022 in a South Florida addiction-treatment fraud scheme involving Compass Detox and WAR Network. The public sentencing release states Jonathan Markovich received 188 months and Daniel Markovich received 97 months. DOJ described approximately \$112 million billed.
For buyers, the lesson is direct: addiction-treatment diligence must follow the patient journey from first contact through discharge and readmission. Revenue that depends on patient brokering, inducements, excessive urinalysis, or shuffling patients between related programs is not defensible revenue. It is a liability wearing a margin percentage.
Related SPP reading: Arizona AHCCCS addiction-treatment case study, DOJ healthcare fraud diligence guide, and The FTC Franchise Rule guide.
Public Posture
The Markovich brothers were convicted after trial in November 2021 and sentenced on March 18, 2022. The DOJ sentencing release is the primary public source for the conviction, sentence lengths, and the approximately \$112 million billed figure. The release does not state a final restitution or forfeiture amount. If a transaction requires confirmed restitution or forfeiture figures, those should be verified from the judgment of conviction directly.
Use convicted and sentenced language for the defendants and outcomes described in the DOJ sentencing release. Use DOJ says or DOJ described for scheme characterizations unless the element was adjudicated and is confirmed in the judgment. Do not state a restitution figure that is not supported by the primary source.
The Mechanism or Diligence Problem
The DOJ sentencing release describes a scheme that operated across multiple layers of the addiction-treatment business simultaneously. DOJ said the operators billed for medically unnecessary or unprovided services, used patient recruiters, gave kickbacks including travel, drugs, and cash, shuffled patients between programs, and ordered excessive urinalysis.
That description is not a list of isolated billing errors. It is a map of how the operating model was constructed. Each element fed the others.
Patient recruiters brought in census. Inducements — travel, housing support, cash, and according to DOJ, drugs — kept patients in the pipeline and discouraged them from leaving or complaining. Shuffling patients between related programs extended billable episodes and reset billing periods. Excessive urinalysis generated lab revenue on top of facility revenue. And billing for services not provided or not medically necessary converted all of that activity into insurance payments.
For a buyer or investor, the implication is that no single document request will surface this structure. A payer contract review will not find recruiter payments. A utilization report will not reveal that therapy notes were fabricated. A lab revenue analysis will not show that UA frequency was driven by economics rather than clinical need. The only way to test the model is to follow the patient.
That is the central diligence problem in addiction-treatment acquisitions: the revenue is real, the payer relationships are real, and the facility may be licensed and accredited — but the conduct that generated the revenue may not survive scrutiny once the seller is no longer explaining it.
The Markovich case is useful precisely because it is resolved. The conviction and sentencing are public. The scheme description is in a DOJ release. A buyer reviewing a similar target today can use that description as a checklist and ask whether the same conditions exist in the target’s operating model.
Warning Signs for Buyers
The following warning signs are drawn from the scheme description in the DOJ sentencing release and from the structural features that the public record describes. They are not exhaustive. They are starting points for inquiry.
Census and admissions patterns
High census churn, unusually high readmission rates, or a pattern of patients cycling between the target and related programs without clear clinical rationale are warning signs. In a legitimate program, readmissions happen. In a brokering scheme, readmissions are a revenue mechanism. The difference shows up in the clinical record, the referral source, and the timing.
Recruiter and referral economics
Payments to patient recruiters, referral fees, travel support, housing arrangements, or any other economic arrangement that compensates a third party for delivering patients are warning signs. These arrangements may be structured as marketing contracts, consulting agreements, or transportation services. The label does not change the substance. If a payment flows to someone whose function is to bring patients to the facility, that payment needs to be examined against Anti-Kickback Statute standards and state law.
Inducements to patients
Travel, housing, cash, gift cards, or other items of value provided to patients as an inducement to enroll or remain in treatment are warning signs. DOJ described inducements including drugs in the Markovich case. Even less extreme inducements — free transportation, subsidized housing, cash for attendance — can constitute illegal remuneration under federal and state law and can indicate that the program is competing for patients on the basis of benefits rather than clinical quality.
Urinalysis frequency and lab economics
Urinalysis is a legitimate clinical tool in addiction treatment. Excessive frequency — testing that is not tied to individualized treatment plans or clinical need — is a warning sign, particularly when the facility has an ownership or referral relationship with the testing lab. The economics of that relationship need to be mapped. If the facility profits from lab referrals, the incentive to over-test is structural, not incidental.
Related-program patient movement
If the target operates or has relationships with multiple programs — detox, residential, outpatient, sober homes — and patients move between them in patterns that appear to reset billing periods rather than reflect clinical progression, that is a warning sign. The clinical record should support each level-of-care transition. If it does not, the movement may be a billing mechanism.
Therapy and service documentation
Therapy notes that do not match attendance records, staffing levels, or patient grievances are a warning sign. In a scheme that bills for services not provided or not provided as billed, the documentation gap is often visible in the records if a reviewer looks at the right level of detail. Group therapy notes that are identical across patients, individual session notes that do not reflect the patient’s stated concerns, or notes signed by providers who were not present are all red flags.
Medical director independence
A medical director who is compensated in a way that creates incentives to approve admissions, extend stays, or order tests is a warning sign. Medical director independence is a structural control. If the medical director’s income depends on census or lab volume, that control is compromised.
Grievance and complaint history
Patient grievances, state licensing complaints, accreditation findings, and payer audits are warning signs if they cluster around service delivery, patient welfare, or billing accuracy. These records are often available through state licensing agencies and accreditation bodies and should be requested as part of diligence.
Diligence Tests Before Signing or Before the Wire
The following tests are designed to surface the conditions described in the DOJ sentencing release before a transaction closes. They are organized by the stage of the patient journey they test.
1. Patient File Sample Review
Select a random sample of patient files — at minimum 25 to 50 files, larger for a significant transaction — and trace each patient from initial referral through admission, treatment, testing, discharge, and any readmission. For each file, confirm that the referral source is documented, that the admission was supported by a clinical assessment, that therapy notes match the treatment plan and the patient’s stated condition, that urinalysis frequency is supported by the treatment plan, that level-of-care transitions are clinically documented, and that billing matches the documented services.
This review should be done by a clinician or a reviewer with clinical training, not only by a financial analyst. Financial analysts can confirm that a claim was submitted and paid. They cannot assess whether the documented service was clinically appropriate.
2. Referral Source and Recruiter Payment Mapping
Request all marketing contracts, referral agreements, consulting agreements, transportation contracts, and any other agreements under which the target pays a third party for patient referrals or patient support. Map each payment to the function it compensates. Identify any arrangement where the payment is contingent on patient enrollment, patient census, or patient retention.
Cross-reference these contracts against the patient files. For each referral source that receives payment, confirm that the referral relationship is disclosed in the patient record and that the arrangement has been reviewed for compliance with the Anti-Kickback Statute and applicable state law.
3. Patient Inducement Review
Request records of any items of value provided to patients: transportation, housing, meals, gift cards, cash, or other support. Confirm that each item is documented, that it is within the bounds of applicable law, and that it is not conditioned on enrollment or continued participation in the program.
Review employee communications — email, text, and any messaging platform used for operations — for references to patient inducements, recruiter relationships, or patient movement between programs. This review is most productive when it covers the period of highest census growth.
4. Urinalysis Frequency and Lab Relationship Analysis
Pull the complete urinalysis billing history for the review period. Calculate average tests per patient per week by program type and compare to published clinical guidelines for the level of care. Identify outliers — patients tested significantly more frequently than the clinical standard — and pull the treatment plans for those patients to confirm that the frequency was clinically justified.
Map the lab relationship. If the target refers to an affiliated lab, confirm the ownership structure, the fee arrangement, and whether the arrangement has been reviewed for Anti-Kickback Statute compliance. If the lab is owned by the same principals as the facility, the economics of that relationship need to be disclosed to any buyer and assessed independently.
5. Related-Program Patient Movement Analysis
If the target operates or has relationships with multiple programs, pull the patient movement records for the review period. For each patient who moved between programs, confirm that the transition is documented in the clinical record and that the documentation supports the level-of-care change. Calculate the average length of stay at each program level and compare to clinical norms. Identify patients who cycled through the same level of care more than once within a short period and pull the clinical rationale for readmission.
6. Medical Director Independence Review
Review the medical director’s compensation agreement. Confirm that compensation is not contingent on census, admissions volume, lab orders, or any other metric that creates an incentive to approve unnecessary services. Interview the medical director directly about clinical protocols, admission criteria, and the process for approving level-of-care transitions. Confirm that the medical director has the authority to deny admissions and discharge patients against the operator’s economic interest.
7. Grievance, Licensing, and Accreditation Review
Request all patient grievances filed in the review period and the facility’s responses. Request state licensing inspection reports and any corrective action plans. Request accreditation survey reports and any findings. Review payer audit correspondence and any recoupment demands. These records are often available through state licensing agencies independently of the seller and should be pulled from primary sources rather than relying on seller-provided summaries.
8. Subpoena and Litigation-Hold Review
Ask directly whether the target or any of its principals has received a subpoena, civil investigative demand, government audit request, or litigation hold notice in the past five years. Confirm the answer in representations and warranties. Review any disclosed government correspondence carefully. A facility that has received a subpoena and not disclosed it to a buyer is a facility that has already identified a problem it has not resolved.
How to Read the DOJ Sentencing Release
The DOJ sentencing release for the Markovich case is a summary document. It describes the scheme, the charges, and the sentences. It does not contain the full factual record. For a buyer who wants to understand the specific conduct at issue, the more detailed record is in the trial exhibits, the presentence investigation report (which is typically not public), and the judgment of conviction.
The sentencing release is useful for three purposes. First, it confirms the public posture: convicted after trial, sentenced on a specific date, specific sentence lengths. Second, it describes the scheme in terms that can be used as a diligence checklist. Third, it identifies the statutes charged, which tells a buyer what legal theories the government used and therefore what conduct the government considered criminal.
For the Markovich case, the statutes described in the public record include conspiracy to commit health care fraud and wire fraud, health care fraud, Anti-Kickback related counts, money laundering, and PPP fraud for Jonathan Markovich. Each of those theories points to a different layer of the operating model and a different set of documents to request.
By the Numbers
| Metric | Public figure or posture | Why it matters for diligence | Source |
|---|---|---|---|
| Trial conviction date | November 2021 | Establishes resolved posture; scheme description is adjudicated | DOJ sentencing release |
| Sentencing date | March 18, 2022 | Confirms sentence posture; use this date in any publication reference | DOJ sentencing release |
| Jonathan Markovich sentence | 188 months | Reflects severity of convicted conduct across all counts including money laundering and PPP fraud | DOJ sentencing release |
| Daniel Markovich sentence | 97 months | Reflects severity of convicted conduct | DOJ sentencing release |
| Billed amount described by DOJ | Approx. \$112 million | Revenue volume at this scale required patient-level testing to detect; payer-level review alone would not surface the mechanism | DOJ sentencing release |
| Restitution / forfeiture | Not stated in sentencing release | Verify from judgment of conviction if transaction requires confirmed recovery figures | DOJ sentencing release; judgment not reviewed |
| Statutes charged (per public record) | Conspiracy to commit health care fraud and wire fraud; health care fraud; Anti-Kickback related counts; money laundering; PPP fraud (Jonathan Markovich) | Each statute maps to a different document category in diligence | DOJ sentencing release |
Source footer: Figures and posture are drawn from the DOJ sentencing release listed in Primary Sources below. The billed amount is the figure DOJ described in that release. Restitution and forfeiture are not stated in the release and should be verified from the judgment if needed for a specific transaction.
Buyer / Investor Takeaway
The Markovich case is a useful reference point for any buyer or investor reviewing an addiction-treatment target, not because it is unusual, but because it is detailed and resolved. The scheme description in the DOJ sentencing release maps directly onto the operating decisions that a buyer will encounter in diligence: how patients are recruited, how they are housed and transported, how long they stay, how often they are tested, how they move between programs, and how services are documented and billed.
A buyer who reviews only payer contracts, utilization reports, and financial statements will not find the conditions that created the revenue in a scheme like this one. Those documents reflect the output of the operating model. They do not reveal the inputs.
The inputs are in the referral contracts, the recruiter payments, the patient files, the therapy attendance records, the urinalysis orders, the lab economics, the medical director’s compensation agreement, and the employee communications. Those are the documents that tell a buyer whether the operating model is defensible.
The practical implication for pre-close diligence is that addiction-treatment targets require a patient-welfare review, not just a financial review. That review should be conducted by someone with clinical training who can assess whether the documented services were appropriate, not only whether they were billed and paid.
For lenders, the same logic applies to covenant design. A loan secured by an addiction-treatment facility’s revenue stream should include covenants that require ongoing compliance monitoring, clinical audit rights, and disclosure of any government inquiry. Revenue that depends on patient brokering or excessive testing is not stable collateral.
For operators considering a sale, the takeaway is that a buyer who does not ask these questions is not a sophisticated buyer. A seller who cannot answer them has a problem that will surface in post-close indemnification, government inquiry, or both.
SPP Bottom Line
SPP would diligence an addiction-treatment target by following patients, not just invoices. The Markovich case shows that a \$112 million billed figure can be built on a structure that no financial review alone would detect. Recruitment economics, patient inducements, lab referral relationships, and service documentation integrity all have to be tested at the patient level before a buyer can form a defensible view of revenue quality.
If the operating model depends on recruiters, inducements, churn, or excessive testing to maintain census and revenue, EBITDA is not a measure of business value. It is a measure of exposure.