Legal Update

Bostwick Labs Enters Bankruptcy, Popular Healthcare Makes a Bid

Specialty lab company offers to pay $5.4 million and expects to complete sale within 45 days

BANKRUPTCY IS THE LATEST CHAPTER in the business story of uropathologist David G. Bostwick, MD. On March 15, Bostwick Laboratories Inc. filed for Chapter 11 protection with the U.S. Bankruptcy Court for the District of Delaware.

That same day, Poplar Healthcare, LLC, a specialty lab company in Memphis, agreed to buy the lab company in Glen Allen, Va., for $5.4 million, according to an article by Katie Demeria in the Richmond Times-Dispatch. The sale would conclude within 45 days, she wrote.

Poplar CEO James Sweeney declined to comment and David G. Bostwick, MD, founder and CEO of the lab company, did not return a call requesting comment.

Big Fall-off In Lab Revenue

News reports of the bankruptcy filing say Bostwick Labs owed more than $40 million and had been hit hard by payer reductions in reimbursement, particularly since 2012. In a declaration to the court, Bostwick CFO Tammy Hunt said that, at that time, payment for some lab procedures declined by as much as 52% and, during the period from 2012 to 2013, Bostwick experienced a 20% decline in revenue.

Another factor in the financial struggles of Bostwick Laboratories was a federal qui tam lawsuit against both the lab company and Bostwick. Plaintiffs alleged that, during the years 2006-2011, the defendants performed medically-unnecessary tests that did not have a physician’s order and also paid illegal inducements to physicians in violation of the federal anti-kick-back statute.

The lab company settled with the federal government for $503,668 in 2013 and an additional $6.05 million in 2014. In January, 2016, federal charges against Bostwick personally were settled with an agreement that he would pay up to $3.75 million. At the time of the bankruptcy filing, Bostwick Labs still owed the federal government $2.7 million of that amount.

Bankruptcy was needed due to negative cash flow and the company has been seeking a buyer since last summer, the Richmond newspaper reported. The sale to Poplar Healthcare would conclude within 45 days. The reason for filing, bankruptcy documents show, stems from continuing negative cash flow. The company was unsuccessful in its search for a buyer.

Bostwick also filed motions to continue working with its client customers, to pay vendors and employees, and to prohibit utilities from discontinuing service. It was short of cash and would not be able to pay employees without access to debter-in-possession financing, which the court approved. On March 20, the court gave permission for Bostwick Laboratories to access $4.4 million in interim post-petition financing.

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