Spotlight on Neurometrix
Federal prosecutors in Boston have made a name for themselves chasing healthcare fraud. There's a new case on their calendar.
A grand jury investigating healthcare fraud is expected to meet this month to examine activity at a Waltham company that markets a popular and very profitable new system thousands of doctors use to diagnose patients with nerve-related medical problems, according to a witness who has been subpoenaed to testify.
The Boston grand jury, led by Assistant US Attorney Susan Winkler, will examine issues surrounding Neurometrix Inc. and its NC-Stat system. Winkler is chief of the healthcare fraud unit working for Boston US Attorney Michael Sullivan.
In May, Neurometrix said it got a subpoena from the Department of Health and Human Services for documents to investigate possible kickbacks and fraud against the government.
At that time, the company said it was cooperating and that the government "has not instituted proceedings against us relating in any way to this investigation." Neurometrix executives said yesterday they had no information about a grand jury. The NC-Stat system, approved in 1998, has been popular and controversial with more than 750,000 tests conducted.
However, the system has pitted some neurologists who employ more exhaustive methods against others who test with Neurometrix's automated system. Many doctors say there is a high correlation between results from the NC-Stat system and conventional neurological exams. But some neurologists, who have their own financial interests on the line, question the reliability of the automated testing.
Another point of controversy: NC-Stat's very high degree of profitability for the company and doctors. Billing codes for reimbursement from insurers are a big part of the profit story.
Neurological exams diagnose a range of medical problems from lower back pain to carpal tunnel syndrome to complications related to diabetes. A conventional exam conducted by a neurologist involves a fairly invasive procedure called needle-electromyography and requires the doctor to interpret results.
The NC-Stat system uses disposable sensors placed on the patient's skin. The sensors send information to a handheld device, which in turn sends the data to Neurometrix. The doctor gets a faxed analysis, usually within a half hour.
Doctors file for insurance reimbursement for all kinds of services, including nerve tests, using five-digit codes that identify the procedure. Neurometrix did not seek a new code for NC-Stat procedures; doctors using it filed under the codes that presumed a more invasive procedure requiring interpretation and paying about $90 per tested nerve.
Doctors made a lot of money using the test on patients they would have referred to neurologists in the past. The 15-minute exam could generate a profit of a couple of hundred dollars, depending on how many nerves were tested.
Neurometrix made lots of money, too. It earns profit margins exceeding 70 percent selling the testing hardware and the disposable sensors. The equipment sells for about $5,000, and sensors cost doctors about $35 apiece. Just as Gillette's razor business makes most of its money in disposable blades, the bulk of Neurometrix's profit comes from sensors.
Some insurers have begun to balk at reimbursement for NC-Stat tests billed with the old procedure code, requiring doctors to file under a more uncertain "miscellaneous" code instead.
The billing backlash has affected Neurometrix. Fourth-quarter revenue fell compared with the previous three months. The stock has sunk 70 percent over the last 12 months.
Sales practices at Neurometrix may become another issue. Two former sales executives told me they routinely gave free sensors to doctors who referred new physicians and others. That poses a legal problem if a doctor uses the free sensors and then bills the government.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com. 
