Last week’s raid by 150 agents on The Scooter Store’s corporate headquarters in New Braunfels — presumably as part of an investigation into Medicare and Medicaid fraud — capped a tumultuous couple of months for the provider of power-mobility devices.
But trouble has been part of the company’s legacy.
Its most recent bout began in December when two U.S. senators sent a letter to the Centers for Medicare & Medicaid Services (CMS) wanting to know why The Scooter Store had received as much as $87.7 million in Medicare overpayments from 2009 to 2011 but only had to pay back $19.5 million.
Then, in January, a CBS News report questioned whether power wheelchair companies were “ripping off the government.” One ex-Scooter Store employee told the network the company’s goal is to “bulldoze” doctors into writing prescriptions for power wheelchairs.
A few weeks later, CMS announced cuts in Medicare reimbursements for equipment starting July 1, drawing howls from suppliers. Providers of power wheelchairs, scooters and accessories will see payments slashed by more than one-third on average.
The Scooter Store, known for its ubiquitous television ads, responded by axing 150 workers, the second mass layoff in a matter of months. It let go 220 employees in September.
In a 2010 interview, well in advance of the current turmoil, the privately held company pegged annual revenue in the $350 million-to-$400 million range.
Last week’s raid involved agents from the FBI, the U.S Department of Health and Human Services’ Office of Inspector General and Texas attorney general’s office. It marked the second such raid at the company in just under 10 years.
All of this has many locals wondering what the future holds for one of Comal County’s largest employers. The company employs about 1,200 people at its headquarters and 1,800 overall.
“It’s certainly not comforting,” New Braunfels City Manager Michael E. Morrison said.
The city earlier this month demanded The Scooter Store return nearly $1.4 million of $3.5 million in economic incentives it was awarded in 2009 for promising to create 500 jobs in New Braunfels. The company hasn’t lived up to its end of the bargain; so the city is exercising a “claw-back provision” in the contract.
“What I’m most concerned about are the folks who are employed,” Morrison said. “These folks have families, they have obligations. I’m pretty sure it’s safe to say they don’t know what their future is. I think any of us in the same position would be incredibly worried.”
Scooter Store CEO Martin “Marty” Landon declined to comment when reached by phone Thursday. The company promised to send a statement via email, but the San Antonio Express-News never received it.
History of fraud probes
The power-mobility industry long has been a target of federal probes into Medicare fraud. Authorities want to determine whether unscrupulous firms have billed for providing power wheelchairs to elderly people who don’t have a legitimate medical need for the devices.
A 2011 report by the U.S. Department of Health and Human Services’ Office of Inspector General (OIG) found 80 percent of claims for power wheelchairs did not meet Medicare coverage requirements and should not have been paid for by Medicare.
It’s easy to understand why the industry is ripe for fraud.
“The reimbursement is so great,” said Jeffrey B. Hammond, who teaches health care law at Faulkner University in Montgomery, Ala., but calls New Braunfels home.
“Think about fee-for-service medicine this way: You would have to pile up an enormous amount of $70 office visits to make up for a $9,000 wheelchair,” he said. “The margins are just great.”
In 2003, the FBI visited with a couple of dozen Scooter Store employees in their homes. Authorities were investigating whether the company had defrauded Medicare, the Express-News reported.
A current employee who declined to be identified recalled federal agents also raided the company’s offices on a Saturday in 2003, though that appears to have escaped notice.
Scooter Store officials always have denied wrongdoing and staunchly defended their business practices.
Over its 22-year history, the company said in a statement this month, The Scooter Store has provided “freedom and independence to more people with limited mobility than any company in the nation.” It has served more than 500,000 customers.
The Scooter Store was founded by petroleum engineer Doug Harrison and his wife, Susanna, in 1991.
When a cousin broke his back in a car accident in the late 1980s and was confined to a wheelchair, the couple began thinking about ways to help the disabled. With the advent of the federal Americans with Disabilities Act, the Harrisons realized that buildings, sidewalks and other places would become handicapped-accessible.
The Harrisons sold their house and left high-paying jobs to start The Scooter Store. Their gamble paid off.
Annual sales topped $200 million by about the end of its first decade. Doug Harrison told the Express-News in 2001 that he wanted to see annual sales reach $800 million, though it’s not clear if the company ever achieved that mark.
Harrison resigned from The Scooter Store last year to “pursue other interests,” a little more than a year after Florida-based private-equity firm Sun Capital Partners acquired a minority ownership stake for an undisclosed sum. He would remain one of its largest shareholders, the company said at the time.
While The Scooter Store specialized in the senior market, it expanded into the more lucrative market of “complex” power wheelchairs for the severely disabled in 2007 by launching Alliance Seating & Mobility.
The feds sue
The Scooter Store maintained extensive records to stay in compliance with Medicare regulations, company officials told the Express-News in 2001.
Nevertheless, in 2005 the U.S Justice Department sued The Scooter Store for allegedly making false Medicare claims and defrauding the government.
The government accused the company of engaging in a mass-marketing campaign to “entice” Medicare beneficiaries to obtain power wheelchairs paid for by Medicare, Medicaid and other insurers.
“Instead of the ‘zippy’ power scooters that were advertised, The Scooter Store sold the beneficiaries expensive power wheelchairs that they did not want, need and/or could not use,” the Justice Department said in a 2007 statement.
A Scooter Store ad on its website in 2005 had the following guarantee: “If we pre-qualify you for a new scooter or power chair and Medicare denies your claim, The Scooter Store allows you to keep your scooter or power chair at no cost.”
The Scooter Store settled the case in 2007 by agreeing to pay the government $4 million and forgo $13 million in Medicare payments.
As part of the settlement, The Scooter Store entered into a five-year “corporate integrity agreement” that required the company to report any Medicare overpayments within 30 days of identification.
That became an issue last year when an independent auditor discovered The Scooter Store was overpaid between $46.8 million and $87.7 million combined in the third and fourth years of the agreement.
The Scooter Store never refunded any of the overpayments, the OIG said a year ago when it gave notice of its intent to exclude the company from participating in Medicare.
Following the notice, The Scooter Store, while disputing it breached the corporate integrity agreement, agreed to repay $19.5 million under a five-year payment plan.
That led two U.S. senators to write CMS in December asking why it agreed to accept an amount “significantly less” than what it overpaid The Scooter Store.
In the agency’s reply last month, CMS said it accepted the amount based on The Scooter Store’s analysis of the auditor’s report. CMS said the agreement doesn’t absolve The Scooter Store from further liability related to the billed claims.
One of the senators, Connecticut Democrat Richard Blumenthal, issued a statement following last week’s raid on The Scooter Store.
“This raid is a welcome step toward cracking down on waste and fraud in Medicare payments for motorized wheelchairs involving The Scooter Store,” he said. “I have urged action to stop abusive overpayments for such devices — costing taxpayers hundreds of million of dollars and preying on seniors with deceptive sales pitches.”
The corporate integrity agreement expired last May. However, the OIG still is evaluating The Scooter Store’s compliance for the last year of the agreement.
In the spotlight
The Scooter Store attracted unwanted attention in January when CBS News interviewed former employees who said the company’s main goal is not to help patients but to “bulldoze doctors into writing prescriptions” so it can boost profits.
Once a doctor has written a prescription, CBS News reported, Medicare rarely checks whether the chairs actually are necessary. The company had a program specifically to get chairs for people that doctors already deemed ineligible, according to three former employees interviewed by CBS News.
Scooter Store officials declined an on-camera interview with CBS News, but said its screening process eliminates 88 percent of those seeking reimbursements through Medicare or private insurance.
CMS, meanwhile, has been implementing programs designed to rein in fraud and cut costs.
Last summer, the agency started a three-year demonstration program that requires providers get “prior authorization” from Medicare before patients living in seven states receive a power wheelchair or scooter.
The states, which include Texas, have “high populations of fraud- and error-prone providers,” CMS said in a statement at the time. The program eventually could be rolled out in all states.
The American Association of Homecare, which represents durable medical equipment suppliers but not The Scooter Store, contends the rules could delay deliveries for some or that others never receive approval.
After the latest round of layoffs this month, The Scooter Store announced it was “better aligning its resources to accelerate its new vision of helping seniors age gracefully at home.”
The company plans to offer additional products and services to aid its customers, but it didn’t give any details.
“They’re going to have to try to find … other lines of business because what was high (profit) margin is now becoming much lower margin,” said Hammond, the Faulkner University law professor.
Whether The Scooter Store’s efforts to expand its offering are at risk of being derailed in the aftermath of last week’s raid remain to be seen.
For their part, authorities are keeping a lid on precisely what they were looking for.