Wound Graft Company Owners Jailed for $1.2B Healthcare Fraud Scheme

In a historic prosecution, the owners of several Arizona wound graft companies have received substantial prison terms for their respective roles in a $1.2 billion health insurance fraud scheme.

Alexandra Gehrke is spending the next 15.5 years in jail, while her husband Jeffrey King, will be imprisoned for the next 14 years. The incarcerations are the consequences of a scheme the pair engineered that generated more than $1.2 billion in false and fraudulent claims to Medicare and other health insurance programs through the use of illegal kickbacks to promote medically unnecessary wound grafts applied to elderly and terminally ill patients.

According to court documents, Gehrke, 39, and King, 46, both of Phoenix, orchestrated a large-scale wound care scheme from 2022 through 2024. Gehrke solely owned and operated two companies that contracted with medically untrained “sales representatives” to find elderly Medicare beneficiaries throughout Arizona with wounds of any kind. Once the sales representatives identified these patients, many of whom were in hospice care, Gehrke directed the sales representatives to order expensive bioengineered skin substitutes—amniotic membrane allografts made from human placental tissue—to be placed on the wounds. To maximize profits, Gehrke required the sales representatives to order only the largest sizes of grafts available, even if the sizes of grafts—or the use of grafts as treatment—were not medically appropriate or reasonable.

Gehrke referred the patients identified by the sales representatives first to a company she owned—Apex Medical LLC—and later in the scheme to a company co-owned by King. Both of these entities were enrolled as Medicare providers and could submit claims. Through these companies, Gehrke and King purchased the grafts from a wholesale graft distributor; they also contracted with nurse practitioners to apply the grafts and billed Medicare and other health insurers for the grafts applied. Gehrke and King instructed the nurse practitioners to suspend their medical judgment and apply whatever quantities and sizes of grafts were ordered by the medically untrained sales representatives, regardless of medical necessity, according to federal prosecutors.

Through the three companies she owned, Gehrke received more than $279 million in illegal kickbacks from the wholesale graft distributor in exchange for ordering its grafts, over $100 million of which she diverted to her personal accounts and tens of millions of dollars that she used to pay illegal kickbacks to the sales representatives. The company co-owned by King received an additional $130 million in illegal kickbacks from the same graft distributor.

The financial incentive for the sales representatives to order large numbers and sizes of allografts, combined with Gehrke and King’s requirement that nurse practitioners apply all grafts ordered, resulted in large grafts applied to small wounds, several grafts applied to single wounds, grafts applied to non-existent wounds and grafts applied to terminally ill patients receiving palliative care, some of whom died within days or the same day of the allograft application.

Within 18 months (November 2022-May 2024), Gehrke, King, and their co-conspirators submitted approximately $1,212,005,778 in false and fraudulent claims to health insurance programs, including more than $960 million to the federal healthcare programs Medicare, TRICARE (the healthcare program for U.S. service members and their families) and CHAMPVA (the healthcare program for spouses and children of permanently disabled veterans). The federal and commercial healthcare programs collectively paid $614,945,420 based on these claims.

The government seized substantial assets that Gehrke and King accumulated from the scheme, including $97 million from 28 bank accounts at seven financial institutions; three life insurance annuities exceeding $21 million; four luxury vehicles— a Ferrari 488 Spider convertible, a Mercedes-Benz AMG Roadster, a Mercedes-Benz 4×4 Squared G-Wagon and a Mercedes-Benz GLE—collectively purchased for more than $988,000; $367,150 in cash recovered from Gehrke and King’s home and safe deposit boxes; and over $348,000 worth of gold and silver bars and coins.

Gehrke and King pleaded guilty to conspiracy to commit healthcare fraud and wire fraud. In addition to the terms of incarceration, Gehrke and King must pay restitution and forfeit fraudulent proceeds obtained personally and through companies they owned and controlled. Gehrke must reimburse Uncle Sam $614,945,420 and forfeit $279,912,916 in fraudulent proceeds, while King must repay $605,690,110 to the U.S. government and forfeit $130,813,658 in fraudulent proceeds.

In addition to the criminal case, Gehrke and Apex Medical LLC agreed to pay $279,912,916, and King agreed to pay $30 million, related to their respective civil liability under the False Claims Act, resolving allegations that they knowingly submitted false claims to Medicare and other federal healthcare programs for medically unnecessary wound allografts, received illegal kickbacks from a wholesale wound allograft distributor in exchange for orders, purchases, and referrals, and paid illegal kickbacks to other parties.

The Federal Anti-Kickback Statute prohibits offering or paying anything of value to induce referrals of items or services covered by Medicare and other federally funded programs. The statute is intended to ensure that the judgment of medical providers is not compromised by improper financial incentives.

The False Claims Act allegations resolved by the civil settlements were originally brought by whistleblowers under the qui tam provisions of the False Claims Act, which allow private parties to bring suit on behalf of the government and to share in any recovery.

The FBI, HHS-OIG, Department of Defense Office of Inspector General, Defense Criminal Investigative Service and Department of Veterans Affairs Office of Inspector General investigated the criminal case.  The civil resolutions were the result of a coordinated effort between the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section and the U.S. Attorney’s Office for the District of Arizona, with assistance from HHS-OIG.

Trial Attorney Shane Butland of the National Rapid Response Strike Force of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Matthew Williams for the District of Arizona are prosecuting the case. Assistant U.S. Attorney Joseph Bozdech for the District of Arizona is handling asset forfeiture. The civil False Claims Act investigation was handled by Trial Attorney Vanessa Reed of the Civil Division and Assistant U.S. Attorney Lon Leavitt for the District of Arizona.

The Fraud Section leads the Criminal Division’s efforts to combat healthcare fraud through the Health Care Fraud Strike Force Program. Since March 2007, this program, currently comprised of nine strike forces operating in 27 federal districts, has charged more than 5,800 defendants who collectively have billed federal healthcare programs and private insurers more than $30 billion. In addition, the Centers for Medicare & Medicaid Services, working in conjunction with the Office of the Inspector General for the Department of Health and Human Services, are taking steps to hold providers accountable for their involvement in healthcare fraud schemes.

The investigation and resolution of this matter illustrates the government’s emphasis on combating healthcare fraud. One of the most powerful tools in this effort is the False Claims Act.