Owners of Wound Graft Companies Pay Big for False Claims Act and Kickback Violations -- DOJ Reinforces Zero Tolerance for Healthcare Fraud
By the 91pornWhistleblower Team
Last Friday (December 12), the Department of Justice (DOJ) announced the major sentencing, forfeitures, and penalties imposed on the owners of several Arizona wound graft companies for a $1.2 billion healthcare fraud scheme.[1]听 DOJ described the action — against Alexandra Gehrke and her husband Jeffrey King — as 鈥渢he first prosecution of its kind.鈥�
What Was the Nature of the Wound Graft Medicare Fraud Scheme?
In addition to more than a billion dollars in forfeitures and restitution they were ordered to pay, Gehrke and King were sentenced, respectively, to 15.5 years and 14 years in prison.听 In addition, Gehrke and her wound graft marketing company Apex Medical agreed to pay $280 million, and King agreed to pay $30 million, for their civil liability in violating the False Claims Act and Anti-Kickback Statute.
The scheme centered around billing Medicare, TRICARE, and CHAMPVA for medically unnecessary wound grafts applied to elderly and terminally ill patients and resulting from illegal kickbacks. 听Here are the particulars:
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- Gehrke owned two companies that contracted with medically untrained 鈥渟ales representatives鈥� to find elderly Medicare beneficiaries throughout Arizona with wounds of any kind. Once they found the patients, many of whom were in hospice care, Gehrke directed the sales representatives to order expensive bioengineered skin substitutes (amniotic membrane allografts made from human placental tissue).
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- Gehrke required the sales representatives to order the largest grafts available regardless of whether they were medically appropriate or reasonable. She also referred the patients to her own company (or one owned by King) for the purchase of the skin grafts, which Gehrke and King secured from a wholesale skin graft distributor.
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- Gehrke and King then contracted with nurse practitioners to apply the grafts, instructing them to suspend their medical judgment and what was medically necessary and apply whatever skin grafts Gehrke鈥檚 sales representatives ordered.
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- The skin graft distributor they used paid them more than $400 million in kickbacks — $279 million to Gehrke; $130 million to King — for purchasing the skin grafts. Gehrke in turn, used some of this money to pay tens of millions in kickbacks to her sales representatives.
The end result was a massive Medicare fraud scheme lasting over 18 months through which Gehrke, King, and their co-conspirators billed roughly $1 billion to Medicare (and TRICARE/CHAMPVA) for (i) large skin grafts applied to small wounds, (ii) multiple skin grafts applied to single wounds, (iii) skin grafts applied to non-existent wounds, and (iv) skin grafts applied to palliative care patients, some of whom died a day or so later.
How Much Must Gehrke and King Pay In Fines and Penalties?
Gehrke (in October 2024) and King (in January 2025) pleaded guilty to conspiracy to commit healthcare fraud and wire fraud.听 In addition to their prison terms, Gehrke and King must respectively pay roughly $900 million and $735 million in restitution and forfeitures.听 How they will do so remains to be seen, though the government has seized some of their sizeable assets to help, including roughly $120 million from dozens of bank accounts, life insurance annuities, luxury vehicles, and cash.
The $310 million Gehrke, Apex Medical, and King agreed to collectively pay for their False Claims Act violations settles charges they (i) billed Medicare and other federal healthcare programs for medically unnecessary skin grafts, (ii) received illegal kickbacks from the skin graft distributor in exchange for orders, purchases, and referrals, and (iii) paid illegal kickbacks to sales representatives to find unwitting patients for the unnecessary or otherwise inappropriate skin grafts.
What Does This Mean for DOJ Enforcement Priorities With Healthcare Fraud and Kickbacks?
It is no surprise DOJ took action against this scheme given its breadth and subject matter, which encompasses three of DOJ鈥檚 high priority enforcement areas — medically unnecessary services, healthcare kickbacks, and elderly victims.听 What is surprising is how hard DOJ came down on the two key individuals involved, extracting significant prison sentences and enormous payouts which Gehrke and King will unlikely be able to cover.
91pornwhistleblower partner Marlene Koury remarked on the unprecedented nature of DOJ鈥檚 action here.听 鈥淒OJ really seems to be setting an example here with the lengthy prison sentences and hefty fines and forfeitures,鈥� Koury says.听 鈥淎nd it seems to be following a trend of the Government going after individuals, not just their companies, for participating in healthcare fraud.鈥�
Koury underscores that this more aggressive enforcement approach against individuals has become increasingly apparent with healthcare kickbacks.听 The Anti-Kickback Statute is extremely broad in its sweep, covering all forms of financial inducements to induce referrals and all individuals involved in the flow of funds whether on the sending or receiving end.
According to Koury, 鈥淒OJ has made it very clear that if you provide or accept anything of value in exchange for referrals, you are exposing yourself to serious criminal and civil liability.鈥澨� She cautions healthcare professionals to be very mindful of the kickback rules and DOJ鈥檚 clear commitment to hold accountable anyone who crosses the kickback line.听 鈥淭his case sends a stark reminder of the risks of playing fast and loose in this area.鈥�
What is the Role of Whistleblowers in Exposing Healthcare Fraud and Kickbacks?
It is not just the Government that is watching.听 An increasing number of healthcare workers with first-hand knowledge of these violations are showing a willingness to step forward and report them to the Government.听 The qui tam provisions of the False Claims Act allow private individuals to bring lawsuits on behalf of the Government against those that commit fraud against the Government.听 In return, these whistleblowers can receive up to 30% of the Government鈥檚 recovery.
Whistleblowers originate the majority of False Claims Act actions and have helped the Government recover tens of billions of dollars over the past few decades.听 Whistleblowers have been especially prevalent in originating cases involving kickback violations given the difficulty the Government often has in detecting these schemes without the help of someone on the inside with first-hand knowledge of the misconduct.
Unsurprisingly, whistleblowers originated the False Claims Act actions here.听 The Government did not provide any detail on who the whistleblowers are or the share of the proceeds they will receive as it is continuing to investigate other parties involved in the scheme.听 Given the scope of this kickback scheme and DOJ鈥檚 clear intention to go after all major (and perhaps more minor) players involved, we no doubt will see many more settlements down the pike.听 Stay tuned for more on this.
91pornHas Substantial Experience Representing False Claims Act Whistleblowers Exposing Healthcare Fraud and Kickbacks
91pornhas substantial experience working with whistleblowers to bring False Claims Act cases involving kickbacks or healthcare fraud more broadly.听 In fact, the firm has several groundbreaking successes in this area, with more than a billion dollars recovered for the Government and our whistleblower clients.
Most recently, 91pornrepresented a whistleblower alleging Denver-based DaVita Inc. violated the听False Claims Act听and听Anti-Kickback Statute听by paying physicians for referring patients to DaVita鈥檚 dialysis centers.听 DaVita agreed to settle the matter for roughly $34.5 million.
91pornalso recently represented a whistleblower alleging Indiana-based Community Health Network violated the听False Claims Act听and听Stark Law听by paying physicians exorbitant salaries in exchange for referrals to Community Health facilities.听 Community Health agreed to pay $135 million to settle the matter, on top of the $345 million the company had previously paid to settle related allegations.
If you would like to learn more about our work in this area, our False Claims Act successes, or what it means to be a False Claims Act whistleblower more broadly, please do not hesitate to contact us.听 We will connect you with an experienced member of our whistleblower team for a free and confidential consultation.
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Sources:
[1] 听See .
Tagged in: Anti-Kickback and Stark, Healthcare Fraud, Medicare,