An Eden Prairie, Minn.-based medical equipment manufacturer, two of its managers and a consultant were indicted by an East St. Louis, Ill., grand jury and charged with defrauding Medicare of more than $6 million in one of the largest undercover healthcare stings to date, the U.S. attorney in Fairview Heights, Ill., announced. Augustine Medical; its vice president of wound care, Timothy Hensley; director of reimbursement, Paul Johnson; and a Denver reimbursement consultant, Phillip Zarengo, were indicted and each was charged with four counts of mail fraud and one count of conspiracy to defraud the government from 1997 through 2001. The undercover operation, known as Operation Headwaters, was launched in 1999 by regional offices of the FBI, the HHS' inspector general's office and U.S. postal inspectors. The indictments are the first from the sting operation.
The government set up a medical device distributor, Southern Medical Distributors, Swansea, Ill., and marketed a product called Warm Up Active Wound Therapy, a wound healing device. The device was not covered for reimbursement by Medicare. Inspector General Janet Rehnquist said the indictment reflects the determination of her office and other members of the Operation Headwaters task force to uncover the full measure of fraud in the healthcare industry.
"Beyond the indictment of Augustine Medical, we expect this sting operation to yield more enforcement results in the coming months," Rehnquist said in a written statement.
Augustine Medical is now known as Arizant, also based in Eden Prairie; the company reorganized and changed its corporate identity days after the grand jury indictments came down.
Arizant spokeswoman Michele Olson said the company, which she said is cooperating with the government, is pleading innocent. Olson said the company hired a nationally known reimbursement consultant and relied on his advice to pass on to its customers.
"Although we believe the rules were followed, the government does not agree," she said. -- by Mark Taylor