Arthrocare Device Use Draws More Scrutiny

OKLAHOMA CITY -- An escalating FBI probe could pose new threats to embattled Arthrocare (ARTC Quote - Cramer on ARTC - Stock Picks).

This month, the National Insurance Crime Bureau issued an alert to Florida insurers about a mounting FBI investigation into minor -- but lucrative -- surgeries that often require one of Arthrocare's most popular devices.

Moreover, sources say, a federal grand jury is preparing to examine the matter as well.

Sales of Arthrocare's popular Perc-D SpineWands, which have fueled the company's explosive growth in recent years, could suffer as a result.

According to the NICB alert, FBI officials in West Palm Beach, Fla. are seeking information about "percutaneous discectomy" surgeries performed on patients covered by pending legal settlements rather than traditional health insurance. Investigators are focusing on discectomies billed under a special code -- known as CPT 63056 -- that can bring especially generous payments.

"Some federal criminal investigations like this can take years," says Gary Roberts, a Florida attorney familiar with this particular case. "However, from every indication I've seen, this one appears to be fast-tracked."

Confirmation of the FBI probe comes months after TheStreet.com first began exploring a possible insurance scam involving Arthrocare's popular SpineWands. In those past reports, TheStreet.com examined Arthrocare's brisk sales to Palm Beach Lakes Surgery Center in particular.

Palm Beach Lakes performs numerous discectomies on car-wreck victims and often bills for them under the generous 63056 procedure code. Car insurers, faced with huge payment demands from law firms representing the patients, ultimately foot the bill.

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