Two Orange County men who worked as sales representatives for a medical supply company were arrested this morning on charges that they caused their employer to fraudulently bill Southern California hospitals for approximately $3.5 million in spinal implant products that never were used during surgery.
Jason A. Koenig, 33, and Mark A. Crane, 45, both of Huntington Beach, were indicted separately on Wednesday by a federal grand jury in Santa Ana. Koenig and Crane both worked for Depuy Acromed, Inc. (DAI), a subsidiary of the Johnson & Johnson company. The indictments allege 20 counts of mail fraud against Koenig and 18 counts of mail fraud against Crane.
Koenig and Crane were DAI sales representatives specializing in spinal implant products from early February 2000 to approximately October 2002. Their combined sales territories included approximately 15 hospitals throughout Orange and Los Angeles Counties, including St. Jude’s Medical Center in Fullerton and St. Joseph’s Hospital in Orange.
As sales representatives, Koenig and Crane were paid with commissions based upon the number of spinal implant products sold by DAI to be used in spinal surgeries. Koenig and Crane would be present during the surgery to monitor what spinal implant products were used and thereafter would supply a list of the spinal implant products purportedly used during the surgery to the hospital and to DAI for billing.
Koenig allegedly caused hospitals to be overcharged approximately $2 million, and Crane is allegedly responsible for approximately $1.5 million in overbilling, by falsifying the lists of spinal implant products purportedly used during the surgeries. These lists were fraudulent for several reasons because the number of spinal implant products billed were up to three and four times the number of spinal products actually used during the spinal surgery, and some of the spinal implant products billed were for types of products that the surgeon never used during the spinal surgery.
The investigation into Koenig’s and Crane’s activities began when one hospital noticed an extremely high bill for a spinal surgery. Another hospital noticed that its spinal surgery costs were way over budget, with the exception of one month when Koenig was on vacation. These hospitals then compared hundreds of operative reports and patient X-rays against the bills submitted by various sales representatives. The hospitals determined that only the bills submitted by Koenig and Crane contained additional charges for spinal implant products that never were used during surgery.
As a result of the inflated number of spinal implant products being billed, Koenig was named Salesman of the Year as the highest-billing salesman of DAI’s spinal implant products in 2001, and received almost $700,000 in commissions. Crane was the second-highest-billing salesman of spinal implant products at DAI, receiving almost $500,000 in commissions in 2001.
DAI does not appear to have known about the activities of its two employees, and DAI was not a target of the investigation. DAI has been cooperating with the investigation.
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt.
Koenig and Crane are expected to make their initial court appearances in United States District Court in Santa Ana this afternoon.
Each mail fraud count in the indictments carries a statutory maximum sentence of 20 years in federal prison.
The case was investigated by the United States Postal Inspection Service and the Federal Bureau of Investigation.