Arizona Gov. Katie Hobbs has signed legislation increasing oversight of sober living homes, two years after state officials announced that a Medicaid fraud scheme had targeted Native Americans seeking drug and alcohol treatment.

The bill, sponsored by three Republicans, amends state law for the regulation and licensing of sober living homes. It places new demands on the Arizona Department of Health Services, though a lawmaker from the Navajo Nation expressed concern that the bill does not go far enough in addressing root causes of the fraud.

Hobbs’ office announced late Friday that the bill, expected to take effect in the fall, was among dozens she had signed into law. The governor did not explain her decision to sign the legislation but she has been vocal in her support of reforms over the past two years to help authorities “go after bad actors.”

The legislation’s passage comes after ProPublica and the Arizona Center for Investigative Reporting reported in January that former state Medicaid officials had failed for years to stem the $2 billion fraud scheme, despite repeated warnings. Starting around 2019, people were lured into substance abuse treatment programs and housed in sober living homes where operators often allowed patients to continue using drugs and alcohol, according to officials. Meanwhile, many providers excessively billed the state’s American Indian Health Program, Medicaid insurance available to tribal citizens, for treatment they did not deliver.

At least 40 people died in sober living homes from the spring of 2022 to the summer of 2024 as the crisis escalated, Maricopa County Medical Examiner records reviewed by the news organizations showed. Victims’ advocates say they are certain the scheme’s toll is far higher. In interviews, victims’ relatives told ProPublica and AZCIR that they had been left in the dark about the circumstances of their loved ones’ deaths, including not knowing the names or addresses of the facilities where their family members had been staying because no one had informed them.

“I believe that this bill will set standards,” Rep. Cesar Aguilar, a Democrat from Phoenix, said before voting for the measure. “It will force businesses to actually help the most vulnerable.”

The League of Arizona Cities and Towns, a nonprofit that lobbies on behalf of municipalities and that supported the measure, said in a news release that a noteworthy component of the bill includes “mandating timely reporting” to the Arizona Department of Health Services — in addition to family members and emergency contacts — when a resident dies, overdoses or suffers severe harm in a facility. The health department will also be required to notify local governments when new licenses are issued to operators of sober living homes, which the league said will “improve transparency and community awareness.”

Under the bill, the health department’s director will set standards and requirements for sober living homes to maintain a drug- and alcohol-free environment and promote health and addiction recovery. Health officials could revoke or suspend licenses depending on the severity of a violation or issue fines of up to $1,000 for each day that a violation goes unaddressed.

At a minimum, the health department will conduct annual inspections of facilities and report to lawmakers on the number of complaints received regarding licensed or unlicensed facilities and how many resulted in investigations or other enforcement actions.

The bill received bipartisan support. However, critics said it did not address additional factors that contributed to the fraud scheme: Many victims stayed in unlicensed facilities and, despite warnings, the Arizona Health Care Cost Containment System, the state’s Medicaid agency, was slow to grasp the scope of the fraud and stop it.

It wasn’t until May 2023 that AHCCCS and the governor, who took office that year, announced a sweeping investigation of hundreds of facilities and launched a hotline to help victims who were recruited into fraudulent programs or displaced after AHCCCS suspended payments to the businesses. The agency has since enacted a series of reforms in response to the fraud. In an interview last year, a deputy director for AHCCCS also acknowledged that the agency’s American Indian Health Program lacked safeguards for fraud.

Supporters of this year’s bill have touted support from tribes.

Reva Stewart, who is Diné and an advocate for victims of the scheme and their families, opposed the bill. She anticipates the measure will make it more burdensome for licensed facilities to help people seeking treatment, while failing to stop the unlicensed homes, where most of the harm was done. ProPublica and AZCIR found that officials’ botched response to the crisis resulted in Native Americans losing access to behavioral health services that were being provided to them.

Sen. Theresa Hatathlie, a Democrat from Coalmine Mesa on the Navajo Nation, was also critical of the legislation. She voted against it, noting that a bill she sponsored last session would have required more accountability not only from the health department related to its oversight of the homes but also from the Arizona Corporation Commission, where the businesses must be registered.

Hatathlie, whose niece died in one of the homes, said this year’s Republican sponsors of sober home legislation did not include her in their discussions.

“We’re actually not solving the problem,” she said during a Senate floor vote last month. “So to say it’s good enough now, when we still have people dying and getting lost in the system, is a disservice to human lives. These are my relatives. These are my family members.”

Sen. Frank Carroll, the bill’s lead sponsor, didn’t immediately respond to an email and phone calls requesting comment.