New California Addiction Treatment Laws Could Signal Looming Reform Nationwide

As the demand for and use of behavioral health services continues to rise, so do the number of federal and state bills being introduced in an attempt to regulate the industry.

Most recently, California Gov. Gavin Newsom signed two such bills into law — and vetoed two others — earlier this month.

The new laws restrict behavioral health providers’ ability to offer housing and transportation as part of their services, as well as their ability to pay for clients’ insurance coverage. The vetoed bills would have banned misleading advertising and introduced new licensing requirements for addiction recovery facilities that are not currently bound by such requirements.


While these changes are unique to California, industry stakeholders believe the state’s push for behavioral health reform could be indicative of what’s to come nationwide.

Passed laws

California’s successfully passed new behavioral health laws include AB 919 and AB 290.

AB 919 focuses on housing and travel practices for labs and certified outpatient treatment programs.


It requires facilities to have separate housing contracts with patient that aren’t tied to health insurance and that outline rent as the patient’s responsibility. It also limits what transportation services those facilities can provide.

Essentially, the law aims to protect patients who were being left out to dry after receiving treatment, Polsinelli shareholder Rick Rifenbark said in a recent Polsinelli webinar on behavioral health compliance.

“So what is this law getting at?” Rifenbark said. “It’s trying to avoid patients getting evicted from their housing and put on the streets following their treatment and preventing them from getting home.”

Polsinelli is a national law firm headquartered in Kansas City, Missouri with more than 875 attorneys in 21 offices across the country.

That problem and others were highlighted in the Orange County Register’s explosive Rehab Riviera series, which was published in 2017.

The Rehab Riviera series highlighted how unscrupulous drug treatment centers were exploiting California’s under-regulated addiction treatment industry — ultimately leading to the introduction of bills such as these aimed at reforming California’s behavioral health industry.

“It really chronicled those events well and gets into the terrible impact … on individuals and their families when unfortunately coming into encounter some of these unscrupulous practitioners,” Polsinelli shareholder Paul Gomez said during the webinar. “All of those things combined … have served as part of the impetus for the kind of patient brokering laws and other developments.”

Meanwhile, AB 290 was originally introduced with dialysis providers in mind but also has implications for California behavioral health providers.

The law tackles the incentives that come with offering to pay for patients’ insurance — which is something kidney dialysis providers have historically done. In doing so, patients have coverage — and providers can make a profit because the hundreds of thousands of dollars insurers pay them for providing services far outweighs the cost of premiums.

However, the new law lowers the amount of reimbursement providers can receive for services rendered to such patients. Specifically, the services will be reimbursed at Medicare rates.

Some have argued that the bill will hurt providers who are acting in the best interest of patients — and who are not trying to game the system. However, Gov. Newsom argues that patients should be able to receive the same level of care regardless.

“Charities that purport to impartially provide patient assistance, and the providers that substantially fund these charities, should act in good faith and continue providing assistance to patients,” Gov. Newsom said in his signing letter.

Vetoed bill

Vetoed bills that would have applied to California’s behavioral health industry include AB 920 and SB 589. However, these pieces of legislation could find new life in 2020, Polsinelli shareholders said in a recent legal update.

AB 920 would have required outpatient centers to become licensed by the California Department of Health Care Services, which they’re currently not required to do.

However, Gov. Newsom vetoed the bill because “developing a new licensing schema is a significant undertaking, and would require a significant departure from the bill as enrolled,” he wrote in his veto message.

Despite the failure the bill’s author, Assemblywoman Cottie Petrie-Norris told the Orange County Register proponents were working to draft more comprehensive legislation to introduce in the future.

Meanwhile, SB 589 would have prohibited false and misleading advertising from licensed and unlicensed substance abuse treatment facilities, sober living residences and marketers.

“The concern being addressed here is bait-and-switches and misleading ads,” Rifenbark said in the webinar, again pointing back the Rehab Riviera series. “Families … would then send their loved ones out here, and it would turn out that that facility wasn’t licensed as was represented on the website or that [the patients] were sent to an entirely different treatment center than they had expected.”

However, Gov. Newsom vetoed the bill because he had doubts that enforcement this was possible.

“While it is important to protect vulnerable patients and their families from unethical marketing practices, I am concerned that as crafted, this measure creates a false promise,” he wrote in his veto message. “The Department of Health Care Services has no jurisdiction or licensing oversight over recovery residences or third parties. As such, it cannot take enforcement against those entities for violations of advertisement requirements.”

Recovery residences — or sober living facilities — are not regulated in any way, which explains Newsom’s doubtfulness. However, the legislation could — and likely will — be tweaked to remove “sober living residences” and target only licensed and unlicensed substance abuse treatment facilities and marketers in the future.

“Similar to AB 920, we believe this bill will be re-introduced in a revised form in 2020,” Polsinelli shareholders wrote in their update.

On top of that, Polsinelli shareholders looked even deeper into their crystal ball during their recent webinar. They predict the changes in California — a state that frequently sets legal trends — could be the first of many to sweep the nation.

“As suggested by the … new California laws, we’ll likely see additional regulation in this area at the state level,” Rifenbark said.

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