For more than a decade, Fred Way Jr. has been at the forefront of Pennsylvania’s fight against the opioid epidemic — leading the charge to define standards for the state’s hundreds of unlicensed and unregulated sober living homes.
He has advised lawmakers on state policy. Colleagues describe him as a passionate advocate. And the recovery-house certification program created by his nonprofit, the Pennsylvania Alliance of Recovery Residences, serves as the only benchmark for judging the quality of housing in Philadelphia for people in early recovery — and for determining which of those homes will receive coveted city funds.
That made Way’s appearance in a little-noticed state grand jury report this summer surprising to many in the recovery field: In it, he acknowledged taking money from a drug rehab facility under criminal investigation for encouraging the industry’s worst abuses.
Testifying under a grant of immunity from prosecution, Way said that for seven years, he had been paid $55,000 annually as a consultant for Southwest Nu-Stop, a Kingsessing-based treatment center that state prosecutors say profited by trapping hundreds of people struggling with addictions in dangerous living conditions and substandard treatment.
All the while, Way acknowledged, his nonprofit was also giving thousands of taxpayer dollars to Southwest each year — money from the city to help improve recovery residences across Philadelphia. Southwest was the only organization that received PARR grants during the period, according to its financial reports.
Prompted by the grand jury’s findings, Attorney General Josh Shapiro in June charged Southwest Nu-Stop and its founder, Dr. Lloyd Reid, with Medicaid fraud and paying illegal kickbacks to recovery-home operators. Way has not been charged — or even accused — of wrongdoing; state investigators credit him with helping them unravel Southwest’s alleged crimes.
But since the release of the grand jury report, addiction treatment advocates have expressed concern about Way’s past ties to Southwest and questioned his continued role as one of the faces of recovery-house reform.
At least one organization in the field has cut ties with Way and his nonprofit. Others have questioned the role PARR’s certification program for sober living homes plays in determining which houses receive backing from the city.
State lawmakers, too, are scrutinizing Way’s influence. He serves on a legislative committee drafting new regulations for the recovery-home industry.
“It’s extremely concerning,” said Rep. Frank Farry, a Bucks County Republican and chairman of the House Human Services Committee. “Many of us have been on a quest to clean up the recovery house and treatment industries … and it seems pretty clear that this was compromised by the people involved in this.”
For his part, Way, 64, maintains that he has done nothing wrong and that he ended his relationship with Southwest once he learned of its alleged illegal activity. Though he declined interview requests from The Inquirer, his attorney submitted written answers to questions.
“Mr. Way has not committed any crimes,” the lawyer wrote. “[His] reputation is unsurpassed as an expert in recovery housing and as a leader in establishing and maintaining recovery housing standards in Philadelphia, in the Commonwealth of Pennsylvania as well as nationwide.”
Mickey Kaisinger, who has worked in the industry alongside Way for years and operates several recovery homes in Bucks County with her husband, isn’t so sure.
“We’re only going by what we can read in the [grand jury report,] but something doesn’t seem right,” she said. “We’re trying to be credible and make all these houses more respectable. But this feels like it’s going in the opposite direction.”
‘Pimping them out’
According to city estimates, Philadelphia is home to roughly 150 recovery residences — group homes where thousands of people in outpatient addiction treatment have lived together to focus on their sobriety.
But there is no statewide licensing requirement and almost no formal regulation, meaning that in practice, they can range from well-run facilities committed to residents’ recovery to illegal boarding houses where patients are virtually held prisoner in squalid and unsafe conditions.
A 2017 Inquirer investigation detailed extensive abuse within the industry — a shadowy gray market where disreputable operators confiscate IDs, food stamps, and other government benefits in lieu of rent and then “sell” exclusive access to their residents to outpatient rehab centers that can make millions in Medicaid reimbursements for treating them.
To keep the patients flowing, several treatment centers paid regular kickbacks to recovery-home operators — anywhere from $100 to $400 per patient per month — to cement exclusivity deals that required residents to receive treatment with them or risk eviction, the investigation revealed.
The arrangement is illegal under state and federal law. But it has been so commonplace in Philadelphia that recovery-house residents, advocates, and even home operators told The Inquirer they refer to it as “patient brokering” or “pimping them out.”
“What’s happened is that people have figured out how to turn vulnerable people in early recovery into a commodity,” Bill Stauffer, president of the Pennsylvania Recovery Organizations Alliance, said in a recent interview.
Responding, in part, to The Inquirer’s story, state prosecutors empaneled the grand jury this year to review abuses within the industry. Its findings identified Southwest Nu-Stop as one of the city’s worst offenders.
‘I’m paying for them’
Between 2017 and 2019, Southwest paid nearly $1.2 million in kickbacks to at least 26 recovery homes, according to the panel. Meanwhile, the center raked in nearly $12.7 million in Medicaid reimbursements for treating patients sent its way over the same period.
The arrangement proved so lucrative that Southwest opened recovery houses of its own and required residents to attend outpatient treatment at its centers.
Reid, Southwest’s founder, has denied that he committed any crimes. And in testimony shown to the grand jury earlier this year, he was unapologetic.
“I’m paying for them,” he allegedly told one employee who confronted him and pointed out that restricting patients’ choices on where they receive treatment is a violation of Medicaid rules. “I’m feeding them. I’m transporting them. So, I’m not going to let them go to another [treatment center].”
Meanwhile, several Southwest Nu-Stop patients and employees told the grand jury that the center’s treatment was substandard and conditions at its recovery homes were poor.
Group therapy sessions were consistently overcrowded, they said, with nearly double the number of patients allowed under Medicaid rules.
A landlord who leased Southwest a property to operate as a recovery home testified that she was horrified to discover it was infested with bedbugs and had been housing nearly four times the number of people allowed by local zoning codes.
As Way put it during his own testimony before the panel: “Southwest provided recovery home residents a place to stay, but only at the cost of locking them into a poor quality, overcrowded treatment center.”
A mutually beneficial relationship
Recovery houses like that were exactly the type of places Way had hoped to weed out when he left a nearly two-decade career in addiction services for the City of Philadelphia to launch PARR in 2011.
The goal, as described in the organization’s promotional materials, was to raise the standards of all recovery houses by establishing criteria by which reputable homes could be judged. Those that met PARR’s standards would receive certification from the organization — an achievement that granted legitimacy a home could use to market itself.
“It was very hard to get in the program — very hard,” said Darrin Molletta, a former recovery house operator who sought PARR certification. His house in North Philadelphia failed two inspections before it finally passed.
The city’s Department of Behavioral Health relies on PARR certification to help it determine where to spend the limited taxpayer money it allocates for supporting roughly 20 recovery homes each year. Only PARR-certified homes are eligible.
In exchange, the department has given PARR more than $300,000 on average for the last three years to help recovery houses improve their operations. That sum — and other government backing PARR receives — make up nearly all the nonprofit’s revenue, according to its tax filings.
Yet, the filings also show that between 2016 and 2019, PARR issued improvement grants exclusively to Southwest Nu-Stop, giving it at least $200,000 at the same time as the treatment center had Way on its payroll.
A conflict of interest?
Way’s attorney, David W. Zellis, said he did not view his client’s simultaneous work with Southwest and with PARR as a conflict of interest.
Way initially agreed to work as a consultant for Reid in 2011, hoping he could improve Southwest’s relationships with recovery houses and help identify and set standards for homes operated by the treatment center, Zellis said. None of Southwest’s recovery houses was certified by PARR.
Way only accepted immunity for his grand jury testimony — a protection typically offered to witnesses whose testimony could be self-incriminating — because prosecutors offered it, Zellis said, not because he believed he had committed any crimes.
“Acceptance of immunity in no way is an admission of wrongdoing,” Zellis said.
Way told the panel that the type of bribes Southwest is accused of paying are commonplace in the industry in Philadelphia. But he maintained he did not know about Reid’s alleged kickbacks when he agreed to work there as a consultant. He said that once he found out, he tried to persuade Reid to stop and then cut ties when it became clear Reid wouldn’t.
By the time Way left Southwest in 2018 — after working there seven years — CBH had announced a financial audit of treatment centers prompted by The Inquirer’s reporting on their kickback relationships with recovery houses.
As for the more than $200,000 PARR gave Southwest between 2015 and 2018, Zellis said those grants were approved not just by Way but also by the nonprofit’s board. He maintained that Reid’s business was one of several that got PARR grants.
PARR’s own tax filings say otherwise, identifying Southwest as the only recipient of the nonprofit’s grant funds in the years in question. In some years, the money it gave Southwest amounted to as much as a quarter of PARR’s total revenue.
The tax records list the purpose of those awards as “case management” — the same phrase the grand jury said Reid often used in the subject line of kickback checks he cut to recovery-home owners.
A divided response
The grand jury report has roiled the recovery community, leaving many with questions about Way’s relationship with Southwest.
Earlier this month, the Bucks County Recovery House Association — a group of recovery-home owners that sets standards for houses in the county and that paid PARR regularly to inspect and certify homes — voted to cut ties with the organization in light of Way’s testimony.
And Farry, the state representative leading the committee reviewing new regulations for the recovery-house industry, has questioned Way’s continued involvement in that process.
“Mr. Way has had the opportunity to put his stamp on the policies of cleaning up this industry,” he said. “We need to find out what really transpired throughout the course of [his relationship with Southwest].”
The City of Philadelphia declined to comment on Way’s ties to Southwest and whether they are reviewing their financial contributions to PARR. Members of PARR’s board have also mostly remained mum.
“It’s an internal matter,” said Sean Leslie, the board president and a recovery-home operator himself. “My involvement with PARR is very limited.”
But Dave Sheridan — director of the St. Paul, Minn.-based National Alliance of Recovery Residences — said its board still has full confidence in Way, who serves as its chairman. Way disclosed his relationship with Southwest to NARR before his grand jury testimony, Sheridan said.
“He was forthright with officers of NARR from the start,” he said. “Our relationship with Fred has just been wonderful.”
Stauffer, the head of the Pennsylvania Recovery Organizations Alliance, remains torn — “upset and disappointed” by what he read in the grand jury report yet respectful ofWay’s work over decades in the recovery-home industry.
“When something like this happens, it begins to portray everyone in a bad light,” he said. “I know there are good recovery providers, and people trying to do the right thing. I think by and large, Fred was a person who mostly did that. ... But I was surprised to see [his testimony].”
Read the grand jury report
CORRECTION: An earlier version of the story incorrectly reported the sources of the Pennsylvania Alliance of Recovery Residences’ taxpayer funding. That money comes through a contract with The City of Philadelphia’s Department of Behavioral Services and Intellectual disAbility Services.