CEO SUMMARY: This will be an interesting week in the ongoing saga of Health Diagnostic Laboratory. The judge in the bankruptcy case must review the sales auction and the winning bid of $37.1 million that True Health Diagnostics submitted. At least two lawyers representing whistleblowers in the federal case against HDL suggest that questions should be asked, given the public disclosure that True Health has relationships with one or more individuals involved in the federal government’s case that alleges fraud by HDL and BlueWave Consultants.
IT WAS NO SURPRISE TO THOSE following the Chapter 11 bankruptcy action of Health Diagnostic Laboratory, Inc., that the winning bidder in last week’s auction to sell the lab company was True Health Diagnostics LLC, of Frisco, Texas.
On September 4, during the first phase of the auction, True Health was the initial low bidder, offering $32 million for “substantially all business assets of HDL,” HDL said. At the time, HDL called True Health a “stalking horse bidder,” because its bid was a floor for other bidders.
By the time bidding closed on September 10, sources told THE DARK REPORT that one more bidder stepped forward to force True Health to bid $37.1 million. The proposed sale is subject to the approval of U.S. Bankruptcy Court Judge Kevin R. Huennekens who will review the proposal this week.
The question remaining is whether the court will approve the sale given that some observers have said ties exist between True Health and HDL and individuals who have worked for HDL’s former sales consulting firm, BlueWave Healthcare Consultants Inc.
HDL entered bankruptcy in June following a $100 million settlement in April with the U.S. Department of Justice, based on allegations that it had violated the Anti-Kickback Statute and the False Claims Act between 2010 and 2014. The DOJ was acting on reports from three whistleblowers who had knowledge of HDL’s practices.
Insurers Bring Suits
After the DOJ settlement, one of the nation’s largest health insurers—Aetna, Inc.—filed a suit against HDL, charging the lab company with fraud. Aetna stopped paying HDL’s claims. HDL also got into a billing dispute with the nation’s largest health insurer—UnitedHealthcare—and United stopped paying HDL’s claims. Facing this drop in revenue, HDL filed for bankruptcy.
While HDL’s current executive team wants the True Health sale to go forward, lawyers for two of the whistleblowers in the case said last week they would watch closely to see how the court reviews the ties between HDL and True Health.
“Regarding the purchase of HDL by True Health, I find it bizarre and troubling,” said Niall McCarthy of Crotchett, Pitre and McCarthy. “I do not think it is appropriate that an entity with contacts to the defendants in a false claims case is allowed to purchase HDL, another defendant in the same false claims case.” McCarthy represents Chris Reidel, former CEO of Hunter Laboratories, and a whistleblower in the HDL case.
Another lawyer who represents a whistleblower is Peter Chatfield of the law firm of Phillips & Cohen LLP of Washington, D.C. “The relationship between all of these companies involved with (True Health) will be something that could be challenged if it looks suspicious,” said Chatfield who represents Michael Mayes, MD, an internal medicine specialist in Hilton Head Island, S.C. “This challenge could come either in the bankruptcy proceeding or if the government feels that a fraud is being committed through other means.
‘People Are Watching’
“There are people watching to make sure that all the transactions involved in this case are as legitimate as possible,” added Chatfield.
As noted in the story that follows on pages 8-11, court documents and news stories have identified that several individuals involved with HDL over the years are now associated with True Health. For example, The Richmond Times-Dispatch reported on September 4 that, in a deposition conducted by attorneys for HDL, it was determined that Jeffrey “Boomer” Cornwell, “who is identified in court filings as an ‘agent and corporate officer’ of True Health” was “formerly part of BlueWave’s sales force” and a sales consultant for HDL.
Further, Richmond Times-Dispatch writer John Reid Blackwell reported last week that court documents show that True Health may have relied on sales personnel who once worked for BlueWave Healthcare Consultants, HDL’s former sales consultant. HDL ended its relationship with BlueWave in January. HDL has said it believed a BlueWave executive recruited BlueWave salespeople to work for True Health, Blackwell wrote.
True health’s Investors?
An additional twist to this story is that there are rumors, as yet unconfirmed, that Cornwell or one of the principals in BlueWave may have invested in True Health or hold equity in the young lab company.
If true, this fact raises another interesting question. Since HDL has a $100 million lawsuit pending against BlueWave (whose countersuit against HDL for $200 million was dismissed), are Cornwell and BlueWave in a position to benefit if True Health was to become the owner of HDL? After the sale closes, would HDL withdraw its lawsuit against BlueWave?
It is also important for pathologists and lab administrators to understand that some aspects of the federal whistleblower case against HDL are still active. On August 7, 2015, the Department of Justice took the next step in the HDL case and officially intervened in the three separate whistleblower lawsuits. Court documents named Tonya Mallory, founder and former CEO of HDL; BlueWave Healthcare Consultants, including its two founders and owners, who are Floyd Calhoun Dent, III, and Robert Bradford Johnson; and Berkeley HeartLab.
These aspects to the HDL case present HDL’s bankruptcy court judge with interesting issues to consider when he reviews the proposed sale of HDL to True Health this week.