Case: 5:17-cr-00073-KKC-REW Doc#: 1 Filed: 06/01/17 Page: 1 of 13- Page ID#: 1

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FILED
UNITED STATES DISTRICT COURT JUN -1 2017
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION AT LEXINGTON
ROBRT R. CARR
LEXINGTON CLERK U.S. DISiRICT COURT

UNITED STATES OF AMERICA

v. INDICTMENT NO. 5 _I1 -CJLl3 -~JG.t-.C

ARROW-MED AMBULANCE, INC.,

Registered Agent: Hershel Jay Arrowood,
HERSHEL JAY ARROWOOD,
LESA ARROWOOD, and
TERRY HERALD

* * * * *
THE GRAND JURY CHARGES:

BACKGROUND

Relevant Entities

1. At all relevant times, ARROW-MED AMBULANCE, INC. was an

ambulance transportation company, incorporated in Kentucky, with its principal place of

business in Jackson, Kentucky (hereinafter ~ARROW-MED").

2. HERSHEL JAY ARROWOOD, a resident of Breathitt County, was the

sole owner of ARROW-MED (hereinafter "JAY ARROWOOD").

3. LESA ARROWOOD, a resident of Breathitt County, handled the billing at

ARROW-MED. At all relevant times, LESA ARROWOOD was married to JAY

ARROWOOD.
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4. TERRY HERALD, a resident of Breathitt County, was an Emergency

Medical Technician an~ at all relevant times, a manager at ARROW-MED.

5. At all relevant times, Medicare was a health care benefit program affecting

commerce, under which medical benefits, items and services were provided to

individuals. 18 U.S.C. 24(b). Medicare Part B, also known as supplemental medical

insurance, paid for certain health care services, including ambulance services.

6. At all relevant times, Medicaid was a health care benefit program affecting

commerce, under which medical benefits, items and services were provided to

individuals. 18 U.S.C. 24(b). Medicaid was jointly funded by the Commonwealth of

Kentucky and the federal government. Claims for payment for Medicaid beneficiaries

were sent to the fiscal agent for the Kentucky Medicaid Management Information System

in Franklin County, Kentucky or to managed care organizations who administered the

Kentucky Medicaid Program.

7. The Centers for Medicare & Medicaid Services ("CMS") was a federal

agency within the United States Department of Health and Human Services and was

responsible for administering the Medicare and Medicaid programs. CMS had the

authority to make coverage and medical necessity determinations.

8. At all relevant times, CMS administered the Medicare Part B program in

the Commonwealth of Kentucky through CGS Administrators, LLC ("COS"), a Medicare

Administrative Contractor that processed and paid Medicare Part B claims on behalf of

CMS.
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Provider Agreements and Policies

9. At all relevant times, Medicare and Medicaid would only pay for treatment

and services, such as ambulance services, which were considered medically necessary,

performed within accepted medical standards, and were rendered for a legitimate medical

purpose. Medicare and Medicaid prohibited payment for items and services that were not

"reasonable and necessary" for the diagnosis and treatment of an illness or injury.

I 0. Providers of health care services were required to enroll in the Medicare

and Medicaid programs and agree to the tenns and conditions of both programs in order

to receive payments for services.

11. At all relevant times, ARROW-MED was a participating provider with

Medicare and Medicaid.

12. To bill Medicare and Medicaid, ARROW-MED submitted a claim form,

usually in electronic fonn. In submitting a claim, ARROW-MED certified the contents

of the claim were true, correct, and complete; the claim was submitted in compliance

with Medicare and Medicaid's tenns and conditions; and the services being billed for

were medically necessary.

Non-Emergency Ambulance Services

13. Non-emergency ambulance transports are covered by Medicare only if the

patient's medical condition is such that all other forms of transportation are medically

contraindicated. 42 C.F.R. 41 0.40{d){ l ). Medicare prohibits payment for ambulance

services, "[i]n any case in which some means of transportation other than an ambulance

could be used without endangering the individual's health, whether or not such other
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transportation is actually available." Medicare Benefit Policy Manual~ Chapter 10,

Section 10.2.1. For scheduled~ repetitive~ non-emergency ambulance transportation, the

ambulance provider or supplier must also obtain a certification from the patient's

attending physician certifying that the medical necessity requirements are met. 42

C.F.R. 410.40(d)(2).

14. Non-emergency ambulance transports are covered by Medicaid only if the

service is medically necessary. 907 KAR 1:060~ Section 1(6). In the context of non-

emergency ambulance transportation, that means "[t]he recipient's medical condition

warrants transport by stretcher." 907 KAR 1:060, Section 4. The ambulance provider

must also maintain a statement of medical necessity from the patient's attending

physician which verifies that the patient was confined to a bed before and after transport,

required movement by stretcher, or had a medical condition which contraindicated

transportation by means other than an ambulance. 907 KAR 1:060, Section 5.

15. Medicare and Medicaid payment for ambulance transportation depended on

the patient's condition at the actual time of the transport regardless of the patient's

diagnosis. A thorough assessment and documented description of the patient's current

state was essential for coverage and payment. Medicare and Medicaid required

ambulance providers to maintain records establishing that ambulance transportation was

medically necessary.

16. Paramedics and emergency medical technicians ("EMTs") working for

ambulance service companies are supposed to document their provided services on a "run

sheet." The run sheet contains patient identifying infonnation, the location where the
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patient was picked up and dropped off, and a basic description of the purpose of the

transport. The run sheet also contains a "narrativen section where EMTs and paramedics

are to accurately and honestly document the patient's condition at the time of transport,

and why that condition necessitates ambulance transport. At all relevant times, the run

sheet was considered part of a patient's medical record and CMS or its contractors could

audit the run sheets to determine the medical necessity of the ambulance transport.

17. The written certifications required by Medicare and Medicaid were called

Physician Certification Statement ("PCS") forms. At all relevant times, PCS forms

needed to be signed and dated by a physician who certified the patient's medical need for

ambulance transport, and needed to be signed no earlier than the sixtieth day before the

ambulance transport was provided. Although required, the presence of a PCS form did

not establish the medical necessity of the service. The enrolled provider was also

responsible for verifying the appropriateness of the services provided.

18. Medicare and Medicaid required the use of the Healthcare Common

Procedure Coding System ("HCPCS") to process claims in an orderly and consistent

manner. The HCPCS code for basic life support, non-emergency ambulance

transportation was A0428. The HCPCS code for ambulance mileage was A0425.

Medicare and Medicaid assigned a claim number to each claim submitted by a health care

provider. Medicare and Medicaid then issued remittance advices to providers of health

care services that identified the claims submitted for payment and provided information

about the status of those claims.

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The Defendants' Scheme to Defraud

19. In or about September 2012, JAY ARROWOOD purchased the assets of

TransStar Ambulance Service, including its license and rights to operate within Breathitt

County, Kentucky. JAY ARROWOOD began operating ARROW-MED at that time,

providing routine, non-emergency ambulance transportation for Medicare and Medicaid

patients to and from a dialysis clinic in Jackson, Kentucky.

20. Beginning on or about September 12, 2012, JAY ARROWOOD and

LESA ARROWOOD submitted claims to Medicare and Medicaid for services provided

by ARROW-MED seeking payment for ambulance transportation services. Those

claims were submitted on electronic or hard-copy claim forms called a CMS1500 claim

fonn. At the time of submission, ARROW-MED certified that the services for which it

sought payment were "medically indicated and necessary for the health of the patient."

JAY ARROWOOD also agreed, on behalf of ARROW-MED, to "submit claims that

are accurate, complete, and truthful."

21. Beginning in or about September 2012, ARROW-MED, JAY

ARROWOOD, and LESA ARROWOOD submitted or caused others to submit claims

to Medicare and Medicaid for patients who were able to walk, did not need ambulance

transport, and otherwise did not qualify for non-emergency ambulance transportation

under the Medicare and Medicaid program rules and regulations.

22. Between approximately September 2012 and October 2013, ARROW-

MED did not complete the narrative portion of its run sheets. In or around July 2013,

CGS, the Medicare contractor for Kentucky, conducted a post-payment audit of twenty
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randomly selected claims for non-emergency ambulance transports billed by ARROW-

MED to Medicare. CGS auditors concluded that all twenty claims were not payable

because the services were not medically necessary. Notice of the audit results was sent to

ARROW-MED in or about October 2013.

23. In or about October 2013, ARROW-MED was placed on a "pre-payment

screen" whereby all run sheets related to ARROW-MED's claims to Medicare for non-

emergency ambulance transport would be reviewed by COS prior to payment. At the

direction of JAY ARROWOOD and LESA ARROWOOD, ARROW-MED began

falsifYing the narrative portion of the run sheets. ARROW-MED made false statements

on these medical records and omitted true statements in order to obtain payment from

Medicare and Medicaid.

24. Beginning in or about October 2013, JAY ARROWOOD instructed

ARROW-MED EMTs and paramedics not to document that a patient could walk to or

from the ambulance, and to omit other accurate information that would contradict a

patient's alleged medical need for an ambulance.

25. Beginning in or about October 2013, LESA ARROWOOD began

reviewing run sheets prepared by ARROW-MED EMTs and paramedics and instructed

employees to include false statements about the patients' conditions in the narrative

section, including general statements about medical need copied from the PCS forms.

26. Beginning in or about October 2013, TERRY HERALD falsified or

caused others to falsity run sheets by including false infonnation or omitting relevant

information.
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27. Beginning in or about October2013, JAY ARROWOOD, LESA

ARROWOOD, and TERRY HERALD falsified or instructed others to falsify run

sheets for the specific purpose of ensuring that ARROW-MED's claims to Medicare and

Medicaid would be paid.

COUNTl
18 u.s.c. 1349

28. The Grand Jury incorporates by reference Paragraphs 1 through 27 as if

fully restated and alleged herein.

29. From on or about nn exact date unknown but at least September 12,2012,

and continuing through on or about August 24, 2015, in Breathitt County, and elsewhere

in the Eastern District ofKentucky,

ARROW-MED AMBULANCE, INC.,

HERSHEL JAY ARROWOOD,
LESA ARROWOOD, and
TERRY HERALD

did knowingly and willfully, with the intent to further the objects of the conspiracy,

combine, conspire, confederate and agree with each other and with others known and

unknown to the Grand Jury to commit certain offenses against the United States, namely,

to knowingly and willfully execute the above-described scheme and artifice to defraud a

health care benefit program affecting commerce, as defined in Title 18, United States

Code, Section 24(b), that is, Medicare and Medicaid, and to obtain, by means of

materially false and fraudulent pretenses, representations, and promises, money and

property owned by, and under the custody and control of, said health care benefit

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programs, in connection with the delivery of and payment for health care benefits, items,

and services, in violation of Title 18, United States Code, Section 1347.

Purpose of the Conspiracy

30. It was a purpose of the conspiracy for the defendants to unlawfully enrich

themselves by (a) submitting false and fraudulent claims to Medicare and Medicaid, for

services that were medically unnecessary and that were not eligible for reimbursemen~

and (b) diverting proceeds of the fraud for the personal use and benefit of the defendants.

Manner and Means

31. The manner and means by which the defendants sought to accomplish the

purpose of the conspiracy included, among others, the following: on or about an exact

date unknown but at least September 12, 2012, and continuing through on or about

August 24,2015, ARROW-MED, JAY ARROWOOD, LESA ARROWOOD, and

TERRY HERALD, submitted and caused to be submitted false and fraudulent claims to

Medicare and Medicaid for non-emergency ambulance services that were not medically

indicated or necessary to those beneficiaries.

All in violation of18 U.S.C. 1349.

COUNTSl-15
18 u.s.c. 1347
18 u.s.c. 2

32. The Grand Jury incorporates by reference Paragraphs 1 through 27 as if

fully restated and alleged herein.

33. On or about the dates enumerated below, in Breathitt County, and

elsewhere in the Eastern District of Kentucky,

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ARROW-MED AMBULANCE, INC.,

HERSHEL JAY ARROWOOD,
LESA ARROWOOD, and
TERRY HERALD

aided and abetted by one another and others known and unknown to the Grand Jury,

knowingly and willfully executed and attempted to execute a scheme and artifice to

defraud and to obtain by means of materially false and fraudulent pretenses,

representations and promises, money and property owned by, and under the custody and

control of a health care benefit program affecting commerce, as defined in Title 18,

United States Code, Section 24(b), that is, Medicare and Medicaid, in connection with the

delivery of and payment for health care benefits, items, and services, by causing the

submission to Medicare and Medicaid, of materially false and fraudulent claims for

services, specifically, for non-emergency ambulance transport that were not medically

indicated or necessary to those beneficiaries:

Count Beneficiary Claim Number Claim Date of Payor

Amount Service
2 J.B. 662813039428170 $1,800.00 11/28/2012 Medicare
3 J.N. 662813183702130 $1,800.00 3/8/2013 Medicare
4 J.B. 662813280664440 $1,800.00 10/7/2013 Medicare
s J.B. 7513331089434 $I,800.00 10/7/2013
Wellcare of
Kentucky
6 V.R. 662813331828830 $1,800.00 1118/2013 Medicare
7 C.H. 662814210427480 $1,800.00 7/10/2014 Medicare
8 J.B. 662815028442560 $1,800.00 9/10/2014 Medicare
9 D.S. 662815077718620 $1,800.00 10/17/2014 Medicare
10 J.B. 662814357440070 $1,800.00 12/19/2014 Medicare
II J.B. 662814357440080 $1,800.00 12/19/2014 Medicare
12 C.H. 662815112778960 $1,800.00 3/23/2015 Medicare
13 J.B. 662815162677450 $1,800.00 6/10/2015 Medicare
14 D.O. 662815162677640 $1,800.00 6/10/2015 Medicare
15 D.O. 662815174660220 $1,800.00 6/17/2015 Medicare
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Each count in violation of 18 U.S.C. 1347 and 2.

FORFEITURE

34. The allegations contained in Counts 1-15 of this Indictment are hereby

realleged and incorporated by reference for the purpose of alleging forfeitures pursuant to

18 U.S.C. 981(a){l){C), 28 U.S.C. 246l(c), and 18 U.S.C. 982(a)(7).

35. Upon conviction of the offenses in violation of Title 18, United States

Code, Sections 1349 and 134 7 set forth in Counts 1-15 of this Indictment, the defendants,

ARROW-MED AMBULANCE, INC., JAY ARROWOOD, LESA ARROWOOD,

and TERRY HERALD shall forfeit to the United States of America, pursuant to 18

U.S.C. 981(a)(l)(C), 28 U.S.C. 2461(c), and 18 U.S.C. 982(a}(7), any property, real

or personal, that constitutes or is derived, directly or indirectly, from gross proceeds

traceable to the commission of the offenses. The property to be forfeited includes, but is

not limited to, the following:

a. A money judgment in the amount equal to the proceeds defendants

ARROW-MED AMBULANCE, INC., JAY ARROWOOD, LESA

ARROWOOD, and TERRY HERALD obtained as a result of such

violations.

36. If any of the property described above, as a result of any act or omission of

the defendants:

b. cannot be located upon the exercise of due diligence;

c. has been transferred or sold to, or deposited with, a third party;

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d. has been placed beyond the jurisdiction of the court;

e. has been substantially diminished in value; or

f. has been commingled with other property which cannot be divided without

difficulty;

the United States of America shall be entitled to forfeiture of substitute property pursuant

to Title 21, United States Code, Section 853(p), as incorporated by Title 18, United States

Code, Section 982(b)(I) and Title 28, United States Code, Section 2461(c).

All pursuant to 18 U.S.C. 981(a)(l)(C), 18 U.S.C. 982(a)(7), and 28 U.S.C.

246l(c).

A TRUE BILL

CARLTON S. SHIER, IV
ACTING UNITED STATES ATTORNEY
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PENALTIES

COUNTS 1-15: Not more than 10 years imprisonment, $250,000 fine, and 3 years
supervised release.

PLUS: Mandatory special assessment of$100 per count.

PLUS: Restitution, if applicable.