Health Diagnostics Laboratory lawsuit seeks $600M; will it establish a new precedent?

Bankruptcy trustee goes after everyone connected with HDL scheme

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This is an excerpt from a 1,350-word article in the September 26 issue of THE DARK REPORT. The complete article is available for a limited time to all readers, and available at all times to paid members of the Dark Intelligence Group.

CEO SUMMARY: It’s never been done before, and the Health Diagnostics Laboratory lawsuit is a dire warning to any lab manager considering a loose policy of compliance with sales and marketing schemes. In this industry report exclusive to THE DARK REPORT, you’ll discover that the trustee of the HDL fraud bankruptcy is moving aggressively to attempt to collect money from not just the lab’s executives, but also from its shareholders, sales consultants and even the doctors who accepted inducements.

Health Diagnostics Laboratory lawsuit logoIN A WELCOME DEVELOPMENT among law-abiding labs that must compete against labs that play fast and loose with their interpretation of federal and state anti-kickback laws, the private sector is vigorously policing the clinical laboratory business in a way that federal prosecutors have failed to do. Creditors in the bankruptcy of Health Diagnostic Laboratory of Richmond, Va., just sued the company founders and their sales consultants for $600 million!

And that’s just part of the story about aggressive efforts by HDL’s creditors to recover hundred of millions of dollars from those associated with the troubled lab company. Over the past month, the law firm that represented HDL during its start-up and operating years agreed to a $20 million settlement with HDL’s creditors.

Also during the past month, it was learned that the HDL creditors engaged a law firm that is now working to collect money from physicians who accepted alleged kickbacks and other forms of illegal remuneration from HDL in exchange for referring patients to HDL for medically unnecessary or inappropriate lab tests.

Neither of these actions may have a precedent in the bankruptcy of a clinical laboratory company. But they indicate that lawyers, accountants, and client physicians who are willing to participate in potential laboratory fraud schemes with a company that possibly violate federal and state laws now have a new source of risk and exposure, independent of the risk of criminal and civil actions by federal and state prosecutors.

Now, on top of these aggressive collection actions comes the latest chapter in the troubled HDL saga. In a 205-page lawsuit filed Sept. 16 in the U.S. Bankruptcy Court for the Eastern District of Virginia (Richmond Division), Richard Arrowsmith, trustee of the HDL Liquidating Trust, lists 76 counts against more than 100 defendants. Those defendants include HDL founders Tonya Mallory, Joseph McConnell, and Russel Warnick; its former sales contractor BlueWave Healthcare Consultants; and BlueWave executives Robert Bradford Johnson and Floyd Calhoun Dent.

Conspiracy, fraud and more

The 76 counts include conspiracy; fraud and intentional interference with contracts; breaches of fiduciary duty; and fraudulent transfers, according to reporting by Katie Demeria in the Richmond Times Dispatch. “The allegations focus on alleged kickbacks paid to physicians to induce them to use HDL’s services and in the process order medically unnecessary blood tests,” she wrote.

The lawsuit seeks to recover the more than $600 million in losses that the creditors suffered, court documents show.

From the founding of HDL in 2008, the lawsuit said HDL’s founders conspired with BlueWave to sell HDL’s tests through improper and illegal business practices. Mallory, Warnick, McConnell, Dent, and Johnson “collectively hatched a scheme to build and grow HDL through illegal and fraudulent business practices and to share the spoils with BlueWave, all for their personal gain,” the lawsuit said.

payments To BlueWave

Among the more than 100 defendants are what the lawsuit called BlueWave Transferee Defendants, who got tens of thousands of dollars to millions of dollars in transfer payments from HDL to BlueWave and then to the transferee defendants.

“The additional defendants include dozens of entities created to transfer payments from HDL to BlueWave, along with dozens of independent sales contractors hired by BlueWave to sell HDL blood tests,” Demeria wrote.

“Each of the BlueWave Transferee Defendants was actively engaged in the heavily-regulated healthcare industry, knew or should have known that the business practices they carried out as described herein were illegal and improper,” the court documents showed.

Companies operated by Dent, Johnson, and Jeffrey Cornwell were named as Major Sales Contractor Defendants who gave healthcare practitioners (HCPs), “gifts such as sporting event tickets, gift cards, electronics, and other items to induce HCPs to order tests from HDL, a violation of federal and state anti-kickback laws.”

In addition, the major sales contractor defendants misrepresented facts to such insurers as Cigna Health and Life Insurance Company, Connecticut General Life Insurance Company, Aetna, and other private insurers about the true nature of those business practices, the court documents showed.

The court documents even identify the largest HDL shareholder as an individual who is prominent in the lab industry, who mischaracterized his investment as a loan.


Do you believe the Health Diagnostics Laboratory lawsuit will have any effect on laboratory owners who are tempted to skirt the anti-kickback law? Please share your thoughts with us in the comments below.


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