Scooter Store files for bankruptcy in wake of federal raid

Posted Monday, Apr. 15, 2013  comments  Print Reprints

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Scooter Store Holdings Inc., a New Braunfels-based supplier of motorized scooters and wheelchairs throughout the U.S., has filed for bankruptcy with a plan to sell virtually all of its assets.

"Historical overhangs coupled with an increasingly complex regulatory environment and mounting economic pressure in the health-care sector have significantly impacted the company's ability to operate under its current model," Chief Executive Officer Martin Landon said today in a statement.

The closely held company listed assets of less than $10 million and debt of more than $50 million in Chapter 11 documents filed in U.S. Bankruptcy Court in Wilmington, Del. Scooter Store will use Chapter 11 "to seek to create a new, financially healthy provider that operates in strict accordance with all legal, contractual and regulatory requirements," Landon said.

The company owes more than $19 million to the Centers for Medicare & Medicaid Services, administrator of the two government programs, according to court papers. Medicare provides health-care coverage for the elderly and disabled, funded through a payroll tax and other federal revenue. Medicaid provides coverage for the poor, administered by states and funded jointly by state and federal governments.

The Scooter Store has come under increased federal scrutiny over whether the company has improperly charged Medicare for scooters for elderly citizens who don't need them. Last month, about 150 federal agents descended on the New Braunfels headquarters in what's believed to be an investigation into Medicare and Medicaid fraud. The company laid off most of its 1,200 employees following the raid.

The company said in an earlier statement that company officials had cooperated with government investigators who searched the headquarters. Investigations "have created significant financial burdens, as well as damaged the debtors' commercial appeal," Chief Financial Officer Charles Lowrey said in bankruptcy papers.

The company, which has served more than 700,000 older and disabled customers, is "heavily regulated" by the Medicare and Medicaid systems, the Justice Department and the inspector general's office in the Department of Health and Human Services, he said.

A switch by Medicare to "a 13-month capped rental model with respect to collection of payments" for scooters negatively affected debt service, he said.

Also harmful has been a "criminal investigation by the Department of Justice" into the "former management team," and a civil investigation into "billing and reimbursement procedures," he said. The probes are continuing, Lowrey said.

Morgan, Lewis & Bockius and Young Conway Stargatt & Taylor are serving as Scooter Store's bankruptcy lawyers, the company said. Morgan Joseph TriArtisan was hired to help with the asset sales and Lawrence Young of AlixPartners LLP was named chief restructuring officer.

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