Arthrocare Division Feeling Insurers' Heat

OKLAHOMA CITY -- In 2006, government billing records show, Palm Beach Lakes Surgery Center performed hundreds of spine surgeries that are normally suitable for just a small fraction of the population.

Thanks in part to Arthrocare (ARTC Quote), which supplied the disposable SpineWands used in those surgeries, the surgery center made millions. It caught the attention of insurance companies as well.

Palm Beach Lakes Surgery Center uses Arthrocare SpineWands to perform plasma disc decompression (PDD), a minimally invasive surgery designed to relieve the pain caused by herniated discs. Arthrocare promotes PDD as one of the cheapest and most effective treatments in the spine arena. Although SpineWands lack routine health insurance coverage -- a factor that weighed on their performance for years -- they currently rank as the biggest source of revenue in Arthrocare's booming spine division.

Yet even Arthrocare readily admits that PDD isn't for everyone. Indeed, the company estimates that just 10% to 15% of patients who seek treatment for back pain actually need the operation. It touts a special "treatment algorithm," formulated by its new DiscoCare subsidiary, as an effective safeguard designed to weed out poor surgery candidates and ensure proper patient selection.

Even so, some major car insurance companies suspect that PDD surgeries are being grossly overused. They have grown especially suspicious of cases involving patients referred to surgeons by personal injury attorneys. DiscoCare often supplies the $7,500 SpineWands used for those operations.

Dan Martinez, a law partner at St. Petersburg, Fla.-based Callahan Martinez, says he is contesting "close to 20" PDD cases on behalf of AllState (ALL Quote) alone. Martinez expressed grave concerns about those cases involving DiscoCare in particular.