How to Avoid Kickbacks and Conflicts of Interest in Colorado Sober Living
Colorado’s sober living community has grown quickly in recent years, and with that growth comes an important responsibility: ensuring that partnerships, referrals, and business arrangements comply with both state and federal law. Whether you operate a sober living home, run a treatment clinic, or provide coaching or recovery support services, understanding the rules around referrals and compensation is essential.
Many operators have seen or heard of revenue-sharing deals, referral bonuses, or “per-head” payments in the industry. These practices are more common than they should be—and they can carry serious consequences. In fact, most referral-based financial arrangements in the addiction treatment and sober living space are either prohibited or tightly regulated.
This post explains what’s allowed, what’s not, and how to structure compliant partnerships in Colorado.
Why Referral Rules Matter
If you operate a treatment program in Colorado or partner with one, your referral practices are regulated by multiple legal frameworks. For example, if a coaching or support services company partners with a sober living home, any arrangement involving referrals must comply with:
1. Colorado behavioral health licensing laws (§§ 27-80-102 and 27-82-103)
These laws prohibit licensed behavioral health providers from engaging in coercive, deceptive, or financially influenced referral practices.
2. The Colorado Consumer Protection Act (C.R.S. § 6-1-105)
This statute prohibits deceptive or undisclosed financial arrangements connected to referrals, whether directly or indirectly.
3. The federal Eliminating Kickbacks in Recovery Act (EKRA)
EKRA makes it illegal to offer or receive anything of value in exchange for referrals to treatment programs, laboratories, or sober living facilities—no matter who pays the bill. This includes private insurance, self-pay, and even free services.
4. Colorado’s mandatory Recovery Residence Program standards
These rules require transparency, resident choice, and the absence of coercion in all interactions between treatment providers and recovery residences.
Together, these laws form a comprehensive framework to protect clients from being steered into housing or services based on financial incentives rather than their best interests.
Why EKRA Matters in Colorado
Although Colorado has its own regulatory system for recovery residences, EKRA applies nationwide. Because federal law is supreme under the U.S. Constitution, EKRA’s anti-kickback rules override any state practice that might suggest otherwise.
This means:
You cannot pay or receive referral fees.
You cannot give discounts, gifts, or incentives tied to client recruitment.
You cannot enter into revenue-sharing arrangements based on census or enrollment.
You cannot tie compensation to the number of clients referred or admitted.
Whether you’re operating a sober living home or partnering with one, EKRA applies to you.
What Colorado Requires From Sober Living Homes
Colorado refers to sober living homes as recovery residences, and they are regulated under:
C.R.S. § 25-1.5-108.5
2 CCR 502-1:21.500
Recovery residences must:
Maintain a drug- and alcohol-free environment;
Support independent living and life-skills development;
Provide structured recovery support services;
Be certified by a state-approved certifying body (CARR).
These state rules focus on safety, quality, and operations. EKRA focuses on preventing fraud. Both apply simultaneously.
What You Cannot Do: Prohibited Referral Arrangements
The following arrangements are prohibited under EKRA, Colorado law, or both:
Revenue-sharing with a sober living home
Paying or receiving referral bonuses
“Per-head” or census-based compensation
Discounts or gifts tied to referrals
Reduced rent in exchange for sending clients
Any arrangement where money changes hands because a client was referred
If the financial benefit depends on who enrolls or how many enroll, it is almost certainly illegal.
What You Can Do: Structuring Compliant Partnerships
The good news is that compliant partnerships are possible—as long as they are financially independent of referrals. Some guidelines:
1. Keep financial arrangements and referrals separate
Payment terms must be fixed, predictable, and not tied to client enrollment.
2. Commercially reasonable agreements are allowed
You may pay for space, services, or access if the arrangement stands on its own as a legitimate business transaction.
3. Space-rental arrangements can be compliant
A coaching or support provider can rent space from a sober living home if:
Rent is paid at fair market value;
The space is used regardless of how many residents enroll;
The sober living home does not receive financial benefit based on client participation;
The coaching provider bills clients directly—not the residence.
4. Keep documentation clear
Written agreements, resident disclosures, and consistent pricing help demonstrate compliance.
A Simple Rule of Thumb
If money changes hands because someone sent you a client, it’s probably illegal.
If money changes hands because you are renting space or providing a standalone service at fair market value, it is generally permissible.
Final Thoughts
Colorado’s sober living community provides critical support to individuals in recovery, and maintaining ethical, compliant partnerships is essential—not only to avoid legal risk, but also to protect client trust and ensure high-quality care.
If you’re considering a collaboration between a treatment program, coaching service, or sober living home, take time to structure the arrangement carefully. When in doubt, seek legal guidance early. A compliant model is always possible—it just needs to be built the right way.
This article is meant to inform and empower, but it is not legal advice for any individual case. Every situation is different, and we encourage you to consult your attorney or contact us if you’d like to explore how the law applies to your circumstances.
If there is a topic you’d like to see covered in a future article, please share your suggestion using the link provided here.
Brian Pinkowski is an attorney with Pinkowski Law & Policy Group, LLC, where his work centers on public health, environmental issues, and organizational governance. He is also President of the Residential Assisted Living National Association, representing more than 40,000 members and a board member of the Colorado Assisted Living Association to promote excellence in assisted living care.
This article is written for informational purposes only, and is not legal advice for your specific situation, but we hope it helps you understand your rights and legal options. Contact your attorney or us if you would like to discuss how the appeal process might work for you.