Based on the initial success, the next step was to expand the
DiscoCare model to the entire United States. Under the distributor
model, DiscoCare had been purchasing SpineWand devices for a little
more than $1,000 and collecting between $5,500 and $6,000 on aver-
age. We agreed that it was a team effort and that the markup on the
SpineWand should be shared more equally between DiscoCare and
ArthroCare. With that goal, we began negotiating a national services
agreement in the fall of 2006 that was to take effect at the beginning
of 2007. We needed the time to prepare all the logistics and training
required for a national rollout.
I was informed shortly thereafter that the national launch of the
DiscoCare model needed to be moved up to Nov. 1. The proposed higher
average selling prices were needed to meet company revenue projec-
tions for the quarter. I had only 30 days to do 90 days of work. Once
again, the tail was wagging the dog.
The national distribution agreement with DiscoCare was a very
complex service agreement.
• DiscoCare would purchase wands from Arthro- Care at the prices
that DiscoCare had been averaging on collections and ArthroCare would
pay DiscoCare a service fee that was roughly 50% of the selling price.
• DiscoCare needed to meet specific quotas each quarter. These quo-
tas were baked into the revenue forecast for the spine business unit
for 2007.
• DiscoCare had 180 days to pay for SpineWands used in private
insurance and workers' compensation cases and 360 days for PI
cases.
Similar to when the relationship with DiscoCare began, I don't recall
any due diligence being done at this time on the DiscoCare model
regarding legality or compliance with healthcare laws.
Although we began operating under the new national agreement
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