The Scooter Store: ‘A house of cards’

Friday, September 20, 2013

NEW BRAUNFELS, Texas – Being shut out from Rounds 1 and 2 of competitive bidding was the last straw for the nation’s largest mobility provider.

The Scooter Store announced last week that CMS’s decision to terminate its contracts for Round 1 and exclude the provider from Round 2 “effectively eliminated the company’s ability to consummate a sale out of its Chapter 11 bankruptcy case,” forcing it to close.

“They built a big house, but it turned out to be made of cards,” said Bob Leonard, an analyst with The Braff Group. “When you’re advertising on TV ‘This will be free,’ that’s an invitation to be investigated.”

Earlier this year, in the wake of an investigation by the FBI and vocal criticism by members of Congress, CMS identified compliance issues with The Scooter Store’s contracts for Round 1 and initiated a process to terminate. As part of the process, the provider submitted a corrective action plan, but the agency determined issues still remained, according to a source.

With no contracts and no hopes of a buyer, The Scooter Store’s plans to downsize, rebrand and come out of Chapter 11 bankruptcy as a new company essentially vanished. A forthcoming auction will be more of a liquidation of assets rather than a sale of an operating company, sources say. 

“They’re just going to be getting fire sale prices on their assets,” said bankruptcy expert Joe Marshall, a partner in the Restructuring Group at Munsch Hardt in Dallas. “The recovery will be significantly less—how much less, who’s to say?”

That auction, which was scheduled for Sept. 23, is now set for a date “to be determined,” according to court documents filed Sept. 17. 

The Scooter Store will wind down operations in the coming weeks, furloughing employees, including management, as of Sept. 13, according to a statement.

At its height, the Scooter Store employed more than 2,400 people. As of last week, it employed about 200 at its headquarters and about 170 spread over 55 distribution centers around the country.

The Scooter Store’s difficulties began in earnest with an FBI raid in February that led to a mass-layoff of approximately 1,600 employees in March. FBI spokesperson Michelle Lee told HME News last week that there is “nothing to report” on its investigation.

The provider filed for bankruptcy in April.

Scooter Store investor Sun Capital Partners referred questions to AlixParners, which could not be reached for comment by press time.

Going forward, CMS is not concerned about access issues in the Round 1 areas where The Scooter Store was awarded dozens of contracts, according to a source.

“Medicare took steps to ensure that there are more than enough suppliers to serve a given competitive bidding area to meet the needs of the beneficiaries,” the official stated. “We have seen no issues with access in the Round 1 rebid areas, and we have no plans to offer additional contracts.”

See next week’s HME Newswire for Part II of this story.