Arthrocare Billing Unit Draws Scrutiny

OKLAHOMA CITY -- When it comes to sports medicine, critics sayArthrocare (ARTC Quote) likes to play by its own set of rules.

Arthrocare runs an obscure division, DRS, that offers assistance to surgery centers that use the company's sports medicine devices. Specifically, Arthrocare says, DRS bills insurers for its devices under "established carve-outs" so that surgeons won't have to seek reimbursement for the devices themselves. Surgeons simply bill for the actual operations instead.

"Carve-out billing is pretty straightforward," Arthrocare CEO Michael Baker told TheStreet.com earlier this month. "There's nothing the least bit unusual about what DRS does."

Yet some short-sellers who have placed huge bets against Arthrocare's stock, suspect the company of outright cheating. They say that the company appears to be "double-dipping" by billing for devices that are already covered under global fees paid to surgeons for the entire operations. They even supplied a damaging expert opinion as support for their claims.

Karen Zupko & Associates is a Chicago-based consulting firm that ranks as a premiere authority on healthcare reimbursement matters. In a recent letter to Endeavor Trading, Zupko stated that Arthrocare's disposable arthroscopic wands do not qualify as "durable medical equipment" that can be carved out for separate reimbursement. Moreover, Zupko indicated that Arthrocare may know as much but continues to seek additional reimbursement anyway.

"In our conversation with (Arthrocare's) independent distributor, we were directly told that by carving out wands, DRS is causing the reimbursement entity ... to effectively double-pay for the wand," Zupko stated. "In our opinion, when insurers discover this billing practice, two things are very likely to happen: they will issue requests for refunds and will scrutinize all further/future billing from Arthrocare and its subsidiaries."