Scooter Store Bankrupt After Medicare Audit Uncovered Fraud

April 17, 2013 -- The Scooter Store, which claims it has given 700,000 senior citizens back their mobility, has itself run aground. The company this week filed for Chapter 11 bankruptcy, listing assets of $1 million to $10 million and liabilities of between $50 million and $100 million.

Major creditors include the Centers for Medicare and Medicaid Services (CMS), which, according to the filing, is looking to collect $19.5 million--the amount the Scooter Store previously had agreed to repay the U.S. government after an independent audit found that the company had overbilled Medicare and Medicaid by $46.8 million to $87.7 million from 2009 to 2011.

Last month agents of the FBI, the Office of the Inspector General, the U.S. Department of Health and the Texas Attorney General's office raided the Scooter Store's headquarters in New Bruanfels, Texas. Two weeks after that, Scooter's CEO Martin Landon sent an email to employees telling them not to return to work until further notice.

The government audit found that seniors with no medical need for a power chair had nonetheless gotten one through the Scooter Store—an outcome due in part to the company's skill at badgering doctors to prescribe its products.

The company, which according to bankruptcy filings, once had over 2,400 employees, now is gets by with just 300. It has stopped selling chairs and stopped running its once ubiquitous TV commercials promising seniors they could not be turned down for a "free" power chair, courtesy of government health coverage.

Asked what will happen to the estimated 20,000 seniors who now depend on Scooter chairs to get around, a spokesperson familiar with the bankruptcy proceeding tells ABC News they shouldn't worry.

"Customers should know their service needs should continue to be met at the company's existing distribution centers," the spokesperson says. There are 57 centers in 41 states. A bankruptcy court today approved a motion by Scooter Store management to continue to honor the company's obligations to customers.

Longer term, says the spokesperson, it's not possible to say what seniors should expect. Management's intention, she says, is to sell the company. It would be up to any new owner whether to continue in business or to liquidate.

Callers to the Scooter Store hear a recorded announcement saying that the company "is currently unable to take any new orders at this time" and is taking only service calls. "We cannot provide a time frame for when we will be taking new orders," it says.

Theresa Jones, who used to work in sales and customer service for the Scooter Store, tells ABC News that for a while her job there "was the best job I ever had." Her fellow employees, she says, were very good people who got satisfaction from helping seniors get power chairs.

"Then about 15 months ago," she says, "things changed." The raid by the FBI she recalls as "somewhat scary."

Jones' memoir about her life inside the Scooter Store--"Behind Closed Doors"—went on sale four weeks ago. She says she never saw any practices she deemed questionable while she was there.

"They say we bullied doctors," she tells ABC News. "That is factual. Not bullied, but we did have a color-code for doctors." The code distinguished between compliant doctors, who routinely prescribed chairs, and doctors who were less cooperative. "We suggested patients go to those doctors which whom we had a better relationship."

Was that illegal? Fraudulent? She thinks not.

In a single year, she recalls, she once helped the Scooter Store sell 55,000 chairs. "Were there a few people delivered chairs who didn't have to have one? Over 22 years of business, probably yes."