Case 2:12-cr-00550-TJS Document 1 Filed 09/28/12 Page 1 of 9

UNITED STATES DISTRICT COURT

UNITED STATES OF AMERICA v.

: :

CRIMINAL NO. 12 DATE FILED: 9/28/12

BRIAN RACEY

VIOLATION: 18 U.S.C. 1347

INFORMATION COUNT ONE

(Health Care Fraud)

1.

The defendant, BRIAN RACEY ("RACEY"), a resident of Pennsylvania, was an

employee of Orthofix, Inc. ("Orthofix").

2.

Orthofix, a Minnesota corporation with a principal place of business in

Lewisville, Texas, manufactured and distributed in interstate commerce medical devices intended

for humanuse, including bone growth stimulators. Bone growth stimulatorswere externallyworn devices which emitted pulsed electromagnetic fields to stimulate regeneration of bone in

connection with spinal fusions, among other uses. Orthofix sold three bone growth stimulators:

the Spinal-Stimand Cervical-Stim, which were used as an adjunct to spinal and cervical fusion

surgery, and the Physio-Stim, which was used to treat bones that did not heal properly.
3. Defendant RACEY was a Territory Manager covering Delaware and portions of

Pennsylvania and New Jersey between April 2004 and March 31, 2011. RACEY sold the

Physio-Stim, among other products.

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4.

In 1965, Congress enacted Title XVIII of the Social Security Act ("Medicare" or

the "Medicare Program") to pay for the cost of certain medical services and care for persons aged 65 and older, and for persons with disabilities. The funds set aside by Congress to pay for the

necessary medical care of these elderly Americans, and any premiums paid by such persons, were
referred to as the Medicare Program Trust Funds.

5.

The Center for Medicare & Medicaid Services ("CMS") was a federal agency

within the Department of Health and Human Services ("HHS") that was responsible for the
funding, administration and supervision of the Medicare Program.

6.

Pursuant to sections 1832(a)(1) and 1861(n) of the Social Security Act, Medicare

Part B provided for the coverage of certain durable medical equipment ("DME"). CMS

contracted with four Medicare Administrative Contractors to process and pay Medicare Part B claims for DME. Accredited DME suppliers were permitted to submit claims for payment
directly to Medicare for devices.

7.

Orthofix was an accredited DME supplier enrolled in the Medicare program. As

an accredited supplier, Orthofix was authorized to submit directly to Medicare contractors claims for reimbursement for bone growth stimulators provided to Medicare Program beneficiaries.

8.

To obtain payment from Medicare for a bone growth stimulator prescribed by a

physician, CMS required Orthofix to obtain and maintain, among other records, medical records
describing the patient's injury or condition.

9.

For DME that was covered by Medicare, Medicare suppliers were reimbursed the

lower of the actual fee for the item or the fee that Medicare approved for the item. The

Medicare-approved amount for reimbursement of bone growth stimulators varied over time,

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ranging from approximately $3,500 to more than $4,400 for each device.
10. Medicare reimbursed 80% of the amount payable to the supplier and the Medicare

beneficiary was responsible for the other 20% of the amount. As an example, if the amount

reimbursed was approximately $3,500, Medicare paid 80% or approximately $2,800, and the
patient paid 20% or approximately $700.
11. Medicare published guidelines establishing when a bone growth stimulator was

covered for beneficiaries. These guidelines were widely disseminated at Orthofix. As defendant

RACEY knew and understood, a Physio-Stim was only covered by Medicare if the patient had a
"nonunion of a long bone fracture." A "nonunion" was defined as "radiographic evidence that

fracture healing has ceased for three or more months prior to starting treatment with the [bone

growth] stimulator." As RACEY further knew and understood, Medicare required "a written interpretation by a physician stating that there has been no clinically significant evidence of

fracture healing between the two sets of radiographs." See NHIC Corp., Local Coverage
Determination (LCD) for Osteogenesis Stimulators (LI 1501). RACEY knew and understood

that, if this criterion was not met, Medicare would not pay for a Physio-Stim.

12.

When a physician prescribed a bone growth stimulator manufactured by Orthofix,

the local Territory Manager collected the medical records and prescription and forwarded these
documents to an Insurance Administrator at Orthofix's home office. The Insurance Administrator

prepared and submitted the claim to the applicable insurance carrier.

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DEFENDANT RACEY'S SCHEME TO DEFRAUD MEDICARE

13.

Between 2004 and 2011, numerous physicians in defendant RACEY's territory

prescribed bone growth stimulators for patients that did not meet Medicare's guidelines. On
numerous occasions, RACEY forged physicians' chart notes and prescriptions to make it appear
as though the orders met Medicare's guidelines so that Medicare would pay the claims.
14. For instance, on January 31, 2008, patient JL went to the emergency room for an

injury to JL's hip resulting from a fall that had occurred the day before. The next morning,
February 1, 2008, JL had surgery to insert screws into her right femoral neck, the ball of the balland-socket hip joint at the top of her femur, or thigh bone. On April 7, 2008, Dr. SL first saw

patient JL, who complained of pain in her hip. Dr. SL stated in chart notes that JL had a femoral neck fracture, noted that union was delayed, and prescribed a bone growth stimulator for JL to
wear.

15.

As defendant RACEY knew and understood, the bone growth stimulator

prescribed by Dr. SL for JL did not meet Medicare's guidelines, because JL did not have a fracture where healing had ceased for three or more months. 16. On May 27, 2008, defendant RACEY submitted an order for a bone growth

stimulator for JL to Orthofix. The records submitted by RACEY were different than the records

contained in JL's patient file. RACEY submitted a supposed chart note dated May 7, 2008 more than three months after the date of JL's fall-stating that Dr. SL had seen JL on that date. In
addition to falsifying the date on Dr. SL's chart note, RACEY took out a sentence that Dr. SL

had written, "this is her first post-operative visit." RACEY also submitted a supposed prescription from Dr. SL for JL dated May 8, 2008 for Physio-Stim.

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17.

The documents submitted by defendant RACEY to Orthofix were forged by

RACEY. Among other things, (1) Dr. SL did not see JL on May 7, 2008; (2) Dr. SL's chart notes stated that JL first visited Dr. SL on April 7, 2008; (3) Dr. SL prescribed the bone growth

stimulator on April 8, 2008 - not on May 7, 2008; and (4) the form and the content of the

supposed chart notes and letter submitted by RACEY were different from the notes and letter
maintained in DM's patient file.

18.

Defendant RACEY forged Dr. SL's chart notes and prescription for JL to make it

appear as though JL's injury met Medicare's guidelines so that Medicare would pay the claim.
19. Dr. SL's order for JL was processed at Orthofix's home office, and a claim was

submitted to Medicare. Medicare paid $3,020 for this claim. Defendant RACEY received a
commission of more than $500 for this order.

20.

As another example, on April 6,2008, patient DM went to the emergency room

for an injury to DM's right arm resulting from a fall that had occurred that day. On April 21, 2008, Dr. SL first saw patient DM, who complained of pain in DM's right arm. Dr. SL stated in

chart notes that DM had a right humerus fracture that was healing, and that radiographs showed
that DM's arm showed some early callous formation. On June 9, 2008, Dr. SL prescribed a bone
growth stimulator for DM to wear.

21.

As defendant RACEY knew and understood, the bone growth stimulator

prescribed by Dr. SL for DM did not meet Medicare's guidelines, because DM did not have a
fracture where healing had ceased for three or more months.

22.

On June 24, 2008, defendant RACEY submitted an order for a bone growth

stimulator for DM to Orthofix. The records submitted by RACEY were different than the

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records contained in DM's patient file. RACEY submitted a supposed letter from Dr. SL to DM's referring physician dated March 11, 2008, stating that Dr. SL had seen DM on that date
and that DM's fall had occurred on March 6,2008 - not on April 6, 2008. RACEY also submitted a supposed chart note dated June 12, 2008 - more than three months after the falsified date of DM's fall-stating that Dr. SL saw DM on that date, that radiographs showed that DM's

arm showed "no callous formation," and that DM had a "right humerus fracture, no healing."
RACEY also submitted a supposed prescription from Dr. SL for DM dated June 12,2008 for
Physio-Stim.

23.

The documents submitted by defendant RACEY to Orthofix were forged by

RACEY. Among other things, (1) Dr. SL did not see DM on March 11, 2008 or June 12, 2008;

(2) DM suffered an injury on April 6, 2008 - not on March 6, 2008; (3) Dr. SL's chart notes

stated that DM's right humerus fracture was healing; (4) Dr. SL prescribed the bone growth

stimulatoron June 9, 2008 - not on June 12, 2008; (5) the form and content of the prescription
submitted by RACEY was different from the prescription in DM's patient file; and (6) the form
and the content of the supposed chart notes and letter submitted by RACEY were different from
the notes and letter maintained in DM's patient file.

24.

Defendant RACEY forged Dr. SL's chart notes, letter and prescription for DM to

make it appear as though DM's injury met Medicare's guidelines so that Medicare would pay the
claim.

25.

Dr. SL's order for DM was processed at Orthofix's home office, and a claim was

submitted to Medicare. Medicare paid $3,020 for this claim. Defendant RACEY received a
commission of more than $500 for this order.

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26.

Between 2005 and 2011, Medicare paid at least $250,000 for at least 100 claims

submitted by RACEY that did not meet Medicare's guidelines and should not have been paid based on forged chart notes and/or prescriptions.
27. From in or about 2005 through in or about March 2011, in the Eastern

District of Pennsylvania and elsewhere, defendant

knowingly and willfully executed a scheme and artifice to defraud Medicare, a health care benefit

program, and to obtain by means of false and fraudulent pretenses, representations and promises,

money owned by, or under the control of the Medicare program, in connection with the delivery

of and payment for health care benefits, items and services, by submitting and causing to be
submitted fraudulent claims for bone growth stimulator devices for reimbursement by Medicare,
resulting in losses of more than $250,000.
All in violation of Title 18, United States Code, Section 1347.

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NOTICE OF FORFEITURE

28.
full.

The allegations set forth in paragraphs one through 27 are herein incorporated in

29.

Upon conviction of any offense in violation of 18 U.S.C. 1347 as set forth in

Count One of this Information, the defendant,

shall forfeit to the United States, pursuant to 18 U.S.C. 982(a)(7), any property, real or
personal, that constitutes or is derived, directly or indirectly, from gross proceeds traceable to the
commission of the offense.

30.

If any of the property described in paragraph 29 above, as a result of any act or

omission of the defendant -

a.

cannot be located upon the exercise of due diligence;

b.
c.
d.

has been transferred or sold to, or deposited with, a third party;

e.

has been commingled with other property which cannot be divided without
difficulty;

it is the intention of the United States, pursuant to 18 U.S.C. 982(b)(1), incorporating 21 U.S.C. 853(p), to seek forfeiture of any otherproperty of the defendant up to the value of the property
described in subparagraphs (a) through (e) of this paragraph.

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All in violation of Title 18, United States Code, Section 928(a)(7), and Title 28, United States Code Section 2461(c).

ZANE DAVID MEMEGER UNITED STATES ATTORNEY