At many of the country’s largest ABA providers, the same organization that tells a family their child has autism is the one that treats it. The clinician who makes the diagnosis works down the hall from the therapists who will bill Medicaid for years of intensive services. The child never leaves the building. Now, North Carolina wants to redraw those lines.

Buried in a sweeping policy paper released by the state’s Department of Health and Human Services (NCDHHS) in November is a proposal that would prohibit ABA providers from treating patients they diagnose. The language is bureaucratic, but the implications are not: “The provider that provides case management functions, makes an ASD diagnosis, or conducts an assessment for service referral, may not also deliver ASD services to that same individual.”

If enacted, the rule would break what critics call the closed-loop referral system—an arrangement where the entity deciding a child needs treatment is the same one that profits from providing it.

The proposal arrives as North Carolina confronts numbers that have made the state’s Medicaid actuaries uneasy. Spending on Research-Based Behavioral Health Treatment—the state’s umbrella term for ABA and related services—has climbed from $121.7 million in fiscal year 2022 to a projected $639 million in 2026. That’s a 425% increase in four years, far outpacing the 17% rise in autism diagnoses over the same period.

Where is the money going? The policy paper offers one theory: too many children are being funneled into intensive treatment by the very organizations that stand to gain from it.

The Vertical Integration Question

The practice NCDHHS is targeting didn’t emerge by accident. It’s a business model—one that has proliferated as private equity has reshaped the ABA landscape over the past decade.

Many of the largest ABA chains now employ licensed psychologists, clinical social workers, or other master’s-level clinicians who can diagnose autism. The pitch to families is convenience: get answers and start treatment in one place, with one team.

But convenience has a shadow. “In practice,” the NCDHHS paper notes, “the same provider may currently function as the diagnosing provider, the referring provider, the assessing provider and the service provider.” When all those roles collapse into one entity, the incentives get tangled.

Providers see it differently. In a position statement submitted to NCDHHS, ABS Kids argued that the integrated model exists for historical and practical reasons—not predatory ones. North Carolina once required that all autism-related behavioral services be provided under the direct supervision of a licensed psychologist, leading to the development of integrated service models where psychologists were embedded within ABA provider organizations.

“Although the subsequent licensure of Board Certified Behavior Analysts expanded the pool of independent practitioners, the established infrastructure—including clinical governance, quality oversight, and administrative systems—remains integrated for sound operational reasons,” the company wrote.

Requiring psychologists to function only in separate legal entities, ABS Kids argued, would impose significant administrative upheaval—new incorporations, credentialing processes, and billing infrastructures—that would “divert limited resources away from patient care without producing measurable compliance benefits.”

The Access Argument

Providers also warn that severing diagnosis from treatment could backfire by reducing access to diagnostic services altogether.

Psychologists are the primary entry point for Medicaid beneficiaries seeking autism diagnostic evaluations, according to ABS Kids. Medicaid reimbursement rates for psychological testing are already well below the costs of stand-alone private practice, meaning integrated models subsidize diagnostic access through broader service lines.

If psychologists are barred from operating within organizations that also provide treatment, the company warned, many will discontinue Medicaid diagnostic evaluations due to insufficient reimbursement, focus instead on commercial payers or non-diagnostic service lines, and further reduce the number of Medicaid-accepting diagnosticians statewide.

“This will exacerbate already lengthy waitlists for autism diagnosis and undermine the EPSDT mandate to ensure timely, medically necessary care,” the company wrote.

ABS Kids also challenged the legal basis for the proposal. While NCDHHS referenced conflict-of-interest principles from the federal Home and Community-Based Services framework, the company noted that the Centers for Medicare & Medicaid Services has explicitly stated that Research-Based Behavioral Health Treatment does not meet the federal definition of HCBS. Applying those restrictions to ABA services, ABS Kids argued, would be “unsupported by CMS guidance and inconsistent with national standards.”

The National Context

North Carolina is not alone in its unease. Federal audits have uncovered at least $56 million in improper ABA Medicaid payments in Indiana and $18.5 million in Wisconsin. Minnesota had 85 open investigations into autism providers as of mid-2024. The problems identified run from sloppy documentation to outright fraud: billing for more than 24 hours of service in a single day, treating patients who never received proper diagnostic evaluations, charging for therapy during naptime.

North Carolina hasn’t completed a similar audit. But the state is watching, and the self-referral prohibition is, in part, a preemptive strike—an attempt to close a structural vulnerability before investigators come looking.

Washington State offers a glimpse of what separation might look like. There, Medicaid requires autism diagnoses to come from designated “Centers of Excellence”—clinicians who have completed specialized training and operate independently from ABA treatment providers. The child gets diagnosed in one place, treated in another. The lines stay clear.

The difference is that Washington built separation into its system from the start. North Carolina is trying to unwind an arrangement that has already taken root.

An Alternative Path

Rather than an outright ban, ABS Kids proposed strengthening transparency and oversight measures within the existing framework: requiring diagnosing clinicians to disclose organizational affiliation when recommending treatment, continuing payer-based authorization of all service plans, requiring signed acknowledgement that families are informed of their right to choose any qualified provider, and implementing periodic quality and utilization audits across integrated and non-integrated models.

Existing regulatory safeguards already address the conflict-of-interest concerns the state is trying to solve, the company argued—including North Carolina’s Corporate Practice of Medicine Doctrine, the Federal Anti-Kickback Statute, and independent utilization management conducted by managed care organizations.

“These protections collectively eliminate the risk of self-referral abuse while preserving patient choice and care continuity,” the statement read.

What Happens Next?

The self-referral prohibition is one of eleven policy changes outlined in the NCDHHS paper. Others include requiring national certification for ABA technicians, mandating caregiver involvement in treatment plans, and asking the legislature to let health plans close their provider networks.

For now, these remain proposals. The public comment period closed in late November, though the department continues accepting feedback. Implementation would require revisions to clinical coverage policy; some changes may need legislative action.

Meanwhile, the state’s ABA ecosystem remains unsettled. Governor Josh Stein reversed Medicaid rate cuts in December after families sued, but the fiscal pressures that prompted those cuts haven’t disappeared. The money question and the quality question have become the same question: how should a state pay for autism services in a way that ensures children get what they actually need?

North Carolina’s answer, at least in part, is to redraw the lines—to insist that the people who decide a child has autism shouldn’t be the same people who profit from treating it. Whether providers will accept that geometry remains to be seen.