Freedom Medical, Inc. of Hilliard, Ohio, two related companies and four individuals, have agreed to settle Federal Trade Commission charges that they were deceptively telemarketing medical equipment to consumers nationwide. According to the FTC in a complaint filed last May, the defendants pitched one type of product to consumers -- for example, a scooter -- but then obtained physician approval and made insurance claims for other, more expensive, equipment -- such as a motorized wheelchair. In some instances, the FTC charged, the defendants filed insurance claims listing items and accessories that were never discussed with, or ordered by, consumers. Under the consent judgment to settle these charges, two of the individual defendants -- Brian A. Patten and Robert L. Grden -- are banned for 10 years, from engaging in the selling or marketing of any medical equipment or any product or service used for medical purposes. A third defendant -- Robert D. Atkins -- is required to post a $50,000 performance bond to protect future customers before selling or marketing medical equipment.
The settlement stems from the FTC's expertise in prosecuting telemarketing fraud and is the first case in which the FTC brought charges against entities for victimizing consumers in order to perpetrate a fraud against health insurers.
In addition, the defendants have agreed to pay approximately $74,650 to the FTC and $31,350 to the Department of Justice in a related case. The corporate defendants have agreed to forfeit frozen assets with an estimated value of $190,000. (At the same time the court approved the FTC's settlement, it also entered a final order settling a parallel civil action brought by the U.S. Attorney, Southern District of Ohio, against four of the seven defendants named in the FTC action.)
In addition to Freedom Medical, Inc., the FTC's complaint detailing the charges named company president Brian A. Patten; and vice president Robert L. Grden; and Freedom Medical of Wisconsin, based in New Berlin, Wisconsin. The court froze the defendants' assets to preserve any funds for disgorgement, and appointed receivers to oversee the corporate operations. In November 1995, the Commission named two more defendants -- Sierra Medical, Inc., also of Hilliard, Ohio, and its principal, Robert D. Atkins -- and the court issued an asset freeze against Sierra as well. (Along with the settlements announced today, the Commission has issued an amended complaint naming Daniel Smeltzer as a defendant with regard to his role in the alleged scheme and Smeltzer has agreed to be bound by the provisions of the settlements.)
The FTC had alleged that the defendants made unsolicited sales calls to disabled persons whose names had been obtained from such places as motor vehicle department records and trade shows for the disabled. The telemarketers allegedly told consumers that the medical equipment they were selling would cost the consumers nothing out-of-pocket, because their health insurers would pay for equipment they ordered and the defendants would accept whatever payment the insurers sent and waive any co-payments.
According to the FTC, the defendants then contacted consumers' physicians to obtain prescriptions or "certificates of medical need," and submitted claim forms to their health insurers. In many instances, the FTC charged, the defendants made claims for costlier equipment that would be covered by insurance. The defendants also billed for items and accessories which had not been ordered by the consumer, according to the complaints.
In addition to the monetary provisions of the settlement, and the ban and bond requirements for the individual defendants, the order prohibits all of the defendants from making the kinds of misrepresentations alleged in the complaint. Finally, the order contains various reporting requirements to assist the FTC in monitoring the defendants' compliance.
The FTC filed the settlement in the U.S. District Court for the Southern District of Ohio, Eastern Division, in Columbus, on Jan. 5, 1996, and was subsequently approved by the judge. The Commission vote to approve the settlement for filing was 5-0. The Commission received a great deal of assistance from the U.S. Attorney, Southern District of Ohio.
NOTE: This stipulated final judgment and order for permanent injunction is for settlement purposes only and does not constitute an admission by the defendant of a law violation. The stipulated final judgment has the force of law when signed by the judge.
Copies of the stipulated final judgment, as well as other documents associated with this case, are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov
(Civil Action No. Freedom Medical -- C2-95-510)