How Zynex raked in nearly $1 billion through health care fraud

Marian Houk was rehabbing from a major spinal surgery in 2022 when her physical therapist at UCHealth in Aurora recommended she try electrical stimulation to manage the pain.

Like many providers around the country, UCHealth sent Houk to Zynex Inc., an Englewood-based medical device company that manufactures and sells instruments used for pain management and rehabilitation.

When insurance didn’t cover the electrical nerve stimulation device, Zynex promised Houk that she could make 10 payments of $25 to cover the cost. What the Westminster patient didn’t know was that this would kick off a year of fighting with a company determined to bill Houk and her insurance providers as often as possible.

The company billed her old insurance. It billed her new insurance. And it sent her bills for more than $2,000 for the $250 device, when she was already paying it off in installments.

“The billing was relentless and terrifying,” Houk said in an interview.

Houk was one of numerous Coloradans caught up in what federal investigators say was a years-long scheme by Zynex to oversupply medical devices and overbill patients seeking opioid-free pain relief. A federal grand jury indicted two former top executives in January, accusing them of orchestrating the fraudulent practices that netted Zynex nearly $1 billion. The company last month avoided further prosecution by admitting to participating in a conspiracy to commit health care fraud, securities fraud, mail fraud and other violations.

Former Zynex employees, in interviews with The Denver Post, said they felt uncomfortable following directives that were unethical or outright illegal. The company routinely fell behind on paying vendors, even as leadership touted rapid growth and record revenue. Staff said they were instructed to continue sending devices and supplies to patients, even when they didn’t request them. Executives told workers not to tell Medicare and Medicaid patients that they would be on the hook for the devices if their insurance didn’t cover them.

“It felt like that was poor business practice to essentially lie to your patients and scam them and create a bad reputation for the company,” said Cori Latousek, a former Zynex employee.

More than a dozen patients told The Post they received supplies that they didn’t order and didn’t need. The scheme has prompted a host of lawsuits from insurance companies and shareholders who say they were duped by Zynex.

At the top of the pyramid stood a chief executive officer who marketed the company’s work as the antidote to the opioid epidemic. Thomas Sandgaard started a foundation to help fund alternatives to painkillers and produced a movie on the opioid crisis. He was also known for driving expensive sports cars, playing guitar around the office and promoting himself at every turn, former employees say.

Zynex served as a Colorado startup success story — a one-man operation turned public company with hundreds of millions of dollars in revenue. This is the story about how it all fell apart.

Sandgaard, a Castle Rock resident, remained in federal custody as of late February, according to the U.S. Marshall’s Office. His attorney, when contacted by The Post, said he was no longer working on the case. Anna Lucsok, Zynex’s former chief operating officer, who was also indicted, is free on bond. Her attorney, Bill Leone, said, “the allegations in this indictment are just that — allegations. We look forward to vindicating our client at trial.”

Zynex, in a statement, said the company, in its deal with the Justice Department, “took responsibility for past business practices implemented by former company executives.”

“Our new management team is committed to the highest standards of integrity and compliance in everything we do, so we can better serve patients who can truly benefit from our prescription medical devices,” the company said. “We have completely broken from the past and look forward to closing this chapter and making an important contribution to the health care needs of Americans living with chronic pain.”

Rapid growth fueled by ‘moral conundrums’

Sandgaard, a dual citizen of the U.S. and Denmark, founded Zynex in 1996 after a career in the semiconductor, telecommunications and medical equipment industries. He positioned the company’s products as a safe alternative to opioids through the development of electrotherapy technology that alleviates chronic pain.

In February 2019, the company went public. Sandgaard called the moment a “milestone achievement” that would help expand the Zynex team.

Rapid growth followed — and industry watchers started taking note.

The company ranked 13th in revenue growth among all medical device companies in the U.S. and Canada on Deloitte’s 2020 Technology Fast 500. Jim Cramer, the popular host of “Mad Money” on CNBC, in 2021 told viewers to buy Zynex stock.

Zynex, in the first quarter of 2023, reported 36% year-over-year revenue growth. Orders increased 61%. The following quarter, revenue jumped 22%.

At the end of 2024, Sandgaard said his company hit $200 million in revenue, and he expected to see 10% to 15% growth in 2025.

“The company is built by our employees,” the founder said in a 2024 interview.

Privately, though, many of those same employees grew concerned over how Zynex was making its money.

Latousek served as a territory manager in Seattle, targeting physical therapy, pain clinics and surgery centers for business. The sales pitch: non-opioid pain management.

She recalled leadership instructing her not to tell patients who received the devices that they automatically get enrolled for supplies, such as batteries and electrodes. Many patients, as a result, she said, received charges that they didn’t authorize.

“That felt really sketchy,” Latousek said. “I would always tell my patients to make sure they opted out.”

Most of the time, Medicare wouldn’t cover the stimulation device or the electrodes. When Zynex dealt with these patients, staff said they told them it cost $250 out of pocket.

But in the spring of 2021, leadership changed the directive. Going forward, the policy was to not tell Medicare patients the cost if their insurance didn’t cover it, former employees said.

“We’re pretty much locking in older vulnerable people on Social Security or fixed incomes who don’t have much money,” said one former Zynex worker, who spoke to The Post on the condition of anonymity because they feared career consequences for being associated with the company.

This led to constant “moral conundrums,” the former employee said. They recalled phone calls with elderly patients who said they couldn’t afford the device. Yet Zynex still found a way to send them the units, charging them $250.

When this employee brought up concerns from staff that they were taking advantage of people, they said they were let go.

“I never felt good,” the individual said. “Me getting fired was definitely a blessing.”

Former Zynex staffers said this occurrence was common: Workers who expressed concerns about the company’s practices would be fired or reassigned to different roles. As a result, few employees stayed for long, outside of top executives.

Meanwhile, Zynex was often late paying vendors, employees said. The company offered to pay half if it could receive some of the inventory — an arrangement that left workers feeling uncomfortable.

People in the buying department quickly grew alarmed that their supply orders for batteries and electrodes were so steady. Normally, in this business, there should be fluctuating inventory levels based on customer demand, employees said. But at Zynex, the numbers remained constant.

That was because they were shipping batteries and electrodes over and over to the same patients, these workers said they realized. Many people would return the packages to the warehouse with notes telling Zynex to stop sending them supplies.

Unwanted supplies, unexplained bills

More than a dozen patients told The Post that they received supplies from Zynex that they never ordered and didn’t need.

Josh Kahn, 39, underwent a spinal fusion in 2023, and his surgeon recommended an electrical nerve stimulation machine. The Denver resident got a prescription for the Zynex device.

The implement worked well, Kahn said, but every month he received batteries and electrodes that were unnecessary given his usage of the machine. He stuffed a drawer with all the supplies.

In January 2025, Kahn asked Zynex to discontinue the recurring orders. The company acknowledged his request.

But Kahn continued to get charged $45 a month for the device and supplies, according to the bills he provided to The Post.

“This is becoming a nuisance,” he told the company in an email.

Chris Basser, 49, used a Zynex machine for a back injury he sustained in 2021 after getting hit by a drunk driver. Medicaid covered everything, the Colorado Springs resident said, but he still received packs of six or nine batteries every three weeks.

He said he tried calling the company to cancel the orders, but nobody ever responded. He eventually gave up.

“I thought it was maybe a miscommunication,” Basser said. “I didn’t think of fraud.”

It didn’t seem to matter whether patients paid their bills. Zynex continued to demand payment.

For nearly four years, Zynex has been seeking $250 from Michael Raizen, despite the Denver resident negotiating a deal with the company to pay for his device.

“It’s like a bad rash,” Raizen’s wife, Gail DeVore, said. “No matter what you do, you can’t get rid of it.”

Sports cars, electric guitars and giant banners

Sandgaard served as the face of Zynex — and he wasn’t shy about letting everyone know.

The CEO showed up to the Englewood office in a McLaren Model 72S Spider sports car, and liked to walk around the office with his electric guitar, blasting music, ex-employees said. One former staffer recalled carrying around his amp and handing out T-shirts “like a little groupie.”

Sandgaard hung a large banner on the fourth floor, a spoof of a popular George Washington meme in which the Zynex founder is holding a machine gun in one hand, a bald eagle perched on his other arm. He’s standing on a fiery hill with a white Zynex flag behind him. Dollar bills flutter around his feet.

“He came off as a man incredibly full of himself,” the former staffer who felt like a groupie said, speaking on the condition of anonymity due to fears about future career consequences. “It felt very toxic male CEO.”

Complicating matters was the fusion of Sandgaard’s professional and personal lives.

He was in the midst of a divorce when he enlisted the services of a local psychologist, Dr. Raelynn Maloney. In 2014, the two started dating.

Despite the Zynex founder boasting about the company’s success, Maloney learned that Sandgaard and his firm had accrued significant debt and had exhausted lines of credit, she alleged in a 2025 lawsuit against him and the company.

Desperate, Sandgaard asked Maloney to help save Zynex, she said. The psychologist started attending high-level meetings as an unpaid consultant.

Without the ability to obtain financing, Sandgaard regularly asked Maloney for loans for himself and the company, she alleged. Maloney put up more than $1.1 million in personal assets as cash or collateral throughout 2023 so Sandgaard and Zynex could avoid bankruptcy, the complaint alleges.

Sandgaard eventually bought a house for Maloney and her daughters. She quit her private practice to join Zynex full-time, serving as the head of customer service, billing and parts of human resources, Maloney alleged.

In 2020, Sandgaard bought the British soccer team, Charlton Athletic, and asked Maloney to help turn that organization around as well, she said.

Eventually, Sandgaard started to pull away from Maloney, she said in the lawsuit. He began seeking sexual experiences with their mutual friends, colleagues and former Zynex employees, she alleged. He sexually harassed his staff, Maloney said, and even put her in charge of handling several Equal Employment Opportunity Commission sexual harassment complaints made by employees.

“I guess you’re not going to have your fairytale ending,” Maloney said Sandgaard told her.

Maloney did not respond to messages seeking comment. Her lawsuit remains open.

Sandgaard, in court filings, called the complaint a “vengeful recounting of events regarding her romantic breakup.” The lawsuit, his lawyers wrote, “is nothing but a punitive attempt to punish her ex-partner and seek financial relief for the benefits she can no longer reap from their relationship.”

Zynex begins to crumble

The facade eventually started to crumble when insurance providers began to catch on to the scheme.

In December 2024, TRICARE, the health insurer for service members, suspended payments to Zynex “based upon credible allegations of fraud and its audit of Zynex’s billing,” according to Sandgaard and Lucsok’s indictment. That move represented a huge blow to the company’s business, as TRICARE accounted for a quarter of its revenue.

Other payors also stopped reimbursing Zynex.

Allstate, in September 2025, said it had paid out more than $3 million in bodily injury claims to Zynex based on “false and fraudulent records,” the insurer alleged in a federal lawsuit filed in New York.

Zynex, the insurer said, “abused Allstate’s claimants’ insurance coverage by billing for (durable medical equipment) that” Zynex “had no legal right to collect.”

Sandgaard and Lucsok concealed TRICARE’s suspension until March 2025, federal prosecutors said. After the news came out, Zynex’s stock dropped by 51% in one day, dipping to $3.41 per share from $7.

Two days after the disclosure, Sandgaard sold $4.8 million of his stock, even though the company could not afford to buy it back, the indictment states.

Records show Sandgaard and the company as a whole suffered from serious financial woes.

Between 2015 and 2025, the Zynex founder personally racked up more than $321,000 in unpaid taxes to the Colorado Department of Revenue, court records show.

In December, Zynex filed for Chapter 11 bankruptcy protection, listing assets of more than $45 million and debts exceeding $86 million. Among the creditors: U.S. Bank (owed $61.75 million), TRICARE (owed $2.77 million) and the Polsinelli law firm (owed $1.14 million). Maloney is also listed with an “undetermined” claim.

On Jan. 14, a federal grand jury in Rhode Island indicted Sandgaard and Lucsok on charges of conspiracy to commit mail, health care and securities fraud, among other counts.

Federal prosecutors alleged what patients, Zynex employees and insurance providers had been saying for years: The company was billing for and sending people devices and supplies that they didn’t request and didn’t need.

The company collected more than $873 million for its products, including more than $600 million for supplies, “the vast majority of which were the result of fraud,” the government alleged.

Between them, Sandgaard and Lucsok used their sizable earnings to pay for a private jet, a Lamborghini, the McLaren sports car, cosmetic procedures, real estate and the British soccer club, investigators said.

“This case represents a troubling abuse of patients seeking care, as well as the federal health care benefit system,” U.S. Attorney Charles C. Calenda said in a statement announcing the charges.