Winning Bidder for HDL Connected to BlueWave

Cast of characters assembling at True Health has an interesting history with federal regulators

CEO SUMMARY: Events within the bankruptcy proceedings of Health Diagnostic Laboratory could be interpreted as setting the stage for the emergence of a laboratory company operated by executives-and marketed by a sales consultant-known to have had leadership roles in other lab companies accused by whistleblowers and the federal government of making illegal payments to induce physicians to refer lab tests to their respective lab companies. In that regard, some in the lab industry may consider this an example of history about to repeat itself.

IN WHAT MAY BE THE MOST BRAZEN GRAB of clinical laboratory assets in several decades, a small young Texas lab company with a 10,000 square foot lab facility is poised to purchase most of the assets of Health Diagnostic Laboratory, Inc., of Richmond, Virginia, through an auction conducted by HDL and supervised by the
U.S. Bankruptcy Court.

On Friday, the Richmond-Times Dispatch reported that, following the court-supervised auction, HDL had agreed to sell itself to True Health Diagnostics, LLC, of Frisco, Texas. To acquire “substantially all of the business assets of HDL,” True Health will pay $37.1 million. (See related article for details of this sale.)

This part of the HDL story has a surprise twist. A few colorful characters associated with HDL since its founding have been publicly linked to True Health. A company owned by at least one of these individuals has been sued by HDL in cases claiming damages of $80 million. Further, some of these people were named in the
federal whistleblower case against HDL that alleged widespread fraud involving payment of inducements and kickbacks to physicians. And further, certain of these individuals were again named in a federal action that was filed on August 15, 2015, in a federal district court in Richmond.

HDL Sold To True health

Thus, in an ironic development, HDL may be acquired by a small lab company that would thus be in a position to unwind the outstanding lawsuits against at least one of these individuals. Knowledgeable observers have stated that, because True Health appears to be associated with former associates of HDL, they would not be surprised to see True Health market its specialty cardiology tests to physicians using similar schemes that were alleged and described in the federal whistleblower case against HDL and Singulex.

If that were to occur, it would not be an unusual occurrence. Over the past two decades, at a handful of lab companies, certain executives willing to push compliance with federal and state laws have operated with little fear of criminal prosecution. It remains to be seen, however, if True Health Diagnostics will be operated in a manner that competing labs deem to be non-compliant with laws governing inducements, kickbacks, and medical necessity.

This story has two angles that pathologists and lab administrators should follow. The first angle involves the ongoing viability of HDL as an independent company under new ownership as it emerges from its Chapter 11 bankruptcy action.

It is uncertain how, given the pending sale of HDL, which of its liabilities it will be able to shed. Among those questions is whether the federal government will be paid the full amount of its civil settlement HDL signed earlier this year. The amount owed by HDL could be as much as $100 million.

HDL Sued by aetna, Cigna

As if the federal case wasn’t enough bad news, because of the federal investigation, HDL was hit with lawsuits from health insurance companies Aetna and Cigna. In their respective cases, both companies alleged that HDL waived patients’ copayments, thus causing both health insurers to lose money and their ability to manage the costs of care patients receive.

In the lawsuits, Cigna seeks $84 million and Aetna seeks an unnamed sum (believed to also be in the tens of millions of dollars). While the suits are pending, it is believed that both companies have refused to pay claims submitted by HDL.

HDL also is having a dispute with the nation’s largest health insurer, UnitedHealthcare. As a consequence, UnitedHealthcare has withheld millions of dollars in payment for blood-testing services, the Times-Dispatch reported.

In fact, some HDL employees have commented to lab industry colleagues that the first $47 million of the settlement to be paid to the federal government was an amount that HDL could handle. What put the lab company into bankruptcy court was when Aetna, Cigna, and UnitedHealthcare stopped paying HDL’s claims. That put HDL in a cash-flow bind that is believed to be ongoing.

Further, HDL has substantial liabilities and financial obligations and it is still unclear how these will be resolved as part of the bankruptcy case. No one who has seen the bid documents for the auction has discussed this aspect of the sales process. It thus remains an open question as to how HDL will be operated following its probable sale to True Health.

The second angle involves the allegations that True Wave has relationships with the principals and ex-employees of HDL’s former sales consultant company, BlueWave Healthcare Consultants. In January 2015, HDL terminated its business relationship with BlueWave, then sued the lab sales company. BlueWaves’ countersuit against HDL for $200 million was dismissed. It then apparently began competing against HDL.

The Times-Dispatch obtained documents from the HDL lawsuit that appear to connect BlueWave’s owners with True Health. In a story published September 4, the newspaper wrote that:

True Health has links to HDL’s former contract sales provider, Alabama-based BlueWave Healthcare Consultants, and it has employed former sales representatives for BlueWave. HDL got the court’s permission to conduct depositions of Robert Bradford Johnson, one of the cofounders of BlueWave, and Jeffrey “Boomer” Cornwell, who is identified in court filings as an “agent and corporate officer” of True Health and formerly part of BlueWave’s sales force.

HDL terminated its contract with BlueWave in January, prompting BlueWave to sue HDL for what it claimed was millions of dollars in unpaid sales commissions. BlueWave and its co-founders are now being sued by the federal government for the firm’s alleged role in the kickback scheme, in which physicians were paid fees to send blood samples to HDL’s labs. Tonya Mallory, HDL’s co-founder and former chief executive officer, also is being sued.

HDL said in court filings that it believed True Health and Cornwell may have interfered with its business relationships with physicians and with a supplier for one of its blood tests.

According to the filing, Cornwell offered employment to other members of BlueWave’s sales force, who had been representing HDL, to sell lab tests on behalf of True Health. “These individuals had access to the debtor’s (HDL’s) confidential and proprietary information,” according to the court filing.

HDL said in its court filing that it had reason to believe that Cornwell had been “spreading misinformation to physicians and physician practices who have established relationships with the debtors (HDL) that such [medical] practices should order testing services through True Health because the debtors will be out of business within a few months.

HDL also said it believed Johnson [Robert Bradford Johnson, a co-founder of BlueWave] participated in a trade show as a representative of True Health in violation of a consent agreement with HDL.

Collaboration with Lab Buyer

These news reports seem to confirm that individuals with some sort of past or current association with BlueWave are collaborating with True Health, the lab company now positioned to purchase HDL.

Even physicians who were formerly clients of HDL and allegedly paid consulting fees by HDL are popping up in this story. For example, Sam Fillingane, DO, is a physician who has referred patient specimens to HDL and provided paid consulting services to HDL. He is listed as the Chairman and Director of Medical Education at True
Health Diagnostics. He to owns and operates the Fillingane Medical Clinic, a “cardiovascular risk reduction clinic” in Flowood, Mississippi.

Fillingane’s LinkedIn profile shows that he previously worked at HDL and Singulex. In April, HDL and Singulex reached settlement agreements with the federal Department of Justice involving alleged violations of the Anti-Kickback Statute and the False Claim Act. They both agreed to pay money to the federal government but admitted no guilt.

Last year, The Wall Street Journal reported that Fillingane was the highestpaid doctor on HDL’s list of doctors receiving money from Medicare as a result of referring patients’ specimens to HDL.

Third Angle To Watch

If there is a third angle to watch in this case, it is whether any of the principals named in the case involving HDL and BlueWave will face criminal prosecution and possible jail time. That remains an open question. On August 7, the federal government filed court documents and officially intervened in the three separate whistleblower cases that were the basis of the civil settlements last spring involving HDL and Singulex.

In court documents, federal prosecutors named as defendants: Tonya Mallory, founder and former CEO of HDL; BlueWave Healthcare Consultants, along with its founders and owners, Floyd Calhoun Dent, III, and Robert Bradford Johnson; and Berkeley HeartLab.

The federal government is not pursuing criminal charges against the defendants. Rather, the government is asking for a jury trial and wants to recover the funds paid by Medicare and Tricare, along with treble damages.

The attorneys from the Department of Justice who have been involved in this case are: From Charleston, South Carolina, Assistant U.S. Attorneys James C. Leventis Jr., and Jennifer J. Aldrich. From the Civil Division of the DOJ in Washington are Attorneys Michael D. Granston, Patricia L. Hanower, Elizabeth Strawn, Mary Chris Dobbie, and Michael Edmund Shaheen.

Medicare False Claims

The scale of the alleged fraud is staggering. In the court documents, federal prosecutors described the allegations and said that, “These kickbacks resulted in false claims submitted to Medicare and Tricare which caused the federal government to pay more than $500 million ($500,000,000) to Berkeley HeartLab, HDL, and Singulex.”

In the past 25 years, pathologists and lab administrators have heard many stories about fraud and abuse. But for just three lab companies to suck $500 million from the two federal health programs in the five-to seven-year period described in the court documents is unprecedented.

Further, for the majority of clinical labs in the United States, Medicare business typically makes up no more than 20% to
40% of annual revenue. Thus, it can be estimated that private insurers paid another
$500 to $700 million to these three lab companies during those same years. The scale of this alleged lab fraud makes it easy to understand why Aetna and Cigna have filed lawsuits against HDL.

The huge size of this case makes it all the more curious why the federal prosecutors seem reluctant to pursue criminal charges against the defendants. After all, U.S. Attorney Paul J. Fishman in New Jersey prosecuted the Biodiagnostic Laboratory Services case and got criminal guilty pleas from 34 lab managers and doctors who accepted the lab’s inducements. To bring criminal charges against this group of defendants and the physicians who accepted the money would send a strong message to the entire lab industry and all physicians across the nation.

True Health Is New Lab With Links to Ameritox

VETERAN LAB INDUSTRY EXECUTIVES are asking questions about True Health Diagnostics, LLC, of Frisco, Texas, now that it has surfaced as a buyer prepared to pay $37.1 million for Health Diagnostics Laboratory.

True Health is a new lab company and launched clinical testing services in the fall of 2014. Its CEO is Chris Grottenthaler, who was the Vice President of Finance at Ameritox between May 2006 and December 2011. The Senior Vice President of Sales and Marketing is Carol Nellis. She also worked at Ameritox, from August 2006 through April 2013.

In a federal whistleblower lawsuit against Ameritox, The Department of Health and Human Services wrote that Ameritox “paid kickbacks to induce its physician clientele to refer drug testing services to the lab that were reimbursable by Medicare… the settlement resolves allegations that the Baltimore-based company made cash payments to physician clients to induce referrals from January 1, 2003, through December 31, 2006, and that the laboratory testing service offered collector personnel at no cost to the lab’s physician clients in order to induce referrals from January 1, 2003, through June 30, 2010.” To settle the case, in 2010 Ameritox paid $16.3 million and did not admit guilt.

This means that Grottenthaler and Nellis both worked at Ameritox during the years when the toxicology company is alleged to have paid illegal inducements to physicians. Further, these two lab executives, now at True Health, are, according to news stories, doing business with Jeffery “Boomer” Cornwell and possibly also the BlueWave sales consulting company. Court documents allege that Cornwell and BlueWave participated in HDL’s schemes to illegally induce physicians to refer tests to HDL.

These facts are why some in the lab industry are asking if these “fellow travelers” have come together at True Health with the intent to use a variety of inducements to win lab test referrals from physicians.

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