High profit margins may be evidence of fraud
By Elizabeth E. Hogue, Esq., Burtonsville, MD
In United States of America v. Hussein Amr, the U.S. Court of Appeals for the Sixth Circuit concluded that extremely high profit margins may be evidence of fraudulent conduct.
In 1995, Hussein Amr established United States Medical Supply (USMS), a home medical equipment company. Based upon a complaint from an employee, the FBI began an investigation into possible fraud at USMS.
At the conclusion of the investigation, Amr was indicted. The indictment was based on evidence that: Hussein induced patients to purchase power wheelchairs they did not want or need, offered free lift chairs to induce patients to purchase power wheelchairs, failed to offer patients the option of renting rather than purchasing wheelchairs, charged for standard accessories that were already included in the price of wheelchairs, and inflated repair charges.
Amr primarily sold power wheelchairs. Evidence was introduced at trial to show that USMS purchased power wheelchairs for $2,250. USMS billed Medicare $4,300 for the wheelchair and an additional $800 for accessories, for a total of $5,100. USMS would then receive a copay usually from either Medicaid or Blue Cross and Blue Shield of $1,200. USMS routinely received $6,300 for each wheelchair for which it paid $2,250, for a profit of more than $4,000 per chair.
USMS' profit margins were so high, in part, because it charged Medicare for more expensive products than it actually provided to patients. On every power wheelchair that USMS sold, for example, USMS billed Medicare $360 for a gel cushion; but it supplied foam cushions instead.
A part of the profits was obtained by charging extra for accessories that were standard on the wheelchair. USMS, for example, would charge Medicare separately for tire and electric controllers, which are standard equipment on all power wheelchairs.
In addition, Amr routinely steered patients toward purchasing power wheelchairs rather than other less expensive equipment. No one ever advised patients that they had a right to lease wheelchairs. In fact, more than half of the patients who purchased power wheelchairs from USMS didn't want or need power wheelchairs.
Amr was convicted; he appealed the conviction.
He argued to the appellate court that the court should not have allowed evidence about the high profit margins at USMS because it was irrelevant. On the contrary, the court said, evidence of huge profit margins Amr earned on selling power wheelchairs was highly relevant to support the conclusion that he steered patients to purchase power wheelchairs they did not need and, thereby, engaged in fraudulent conduct.
In short, there is such a thing as too much! Providers with extremely high profit margins on any service or product or very rapid growth should be on notice, based upon this case, that this fact may induce regulators to scrutinize them more closely.