Health Diagnostic Laboratory has filed for bankruptcy following a nearly $50 million settlement with the U.S. Justice Department over allegations it improperly paid doctors for blood samples.
The Richmond, Va.-based laboratory denied wrongdoing as part of that settlement, which was announced in April.
But the settlement, along with media attention, the resignation of the company's founder and CEO, and “certain payer issues and changes in billing practices in certain states … caused significant disruption to the Company's business and negatively impacted HDL's recent financial performance,” according to court documents. HDL says it owes the government $49.5 million, according to court filings.
“Coupled with the agreement we reached earlier this year with the U.S. Department of Justice—one that resolved all allegations against our Company while making it clear that there was no finding of wrongdoing—the protections of Chapter 11 should allow the Company to put a difficult period behind it and build on the future of the vitally important work we do to help improve the health of millions of Americans,” HDL CEO Joseph McConnell said Monday in a statement.
McConnell said that filing for bankruptcy is an “an opportunity to better position our company for continued growth and success while strengthening our finances—ensuring our viability as a company for decades to come.”
It isn't necessarily common for companies to file for bankruptcy after reaching settlements with the government, said Tony Maida, a partner in the Health Industry Advisory Group at McDermott Will & Emery in New York. But it's possible that HDL and the government might now negotiate a different type of settlement in light of the filing, he said.
HDL first received a subpoena from the Justice Department in 2013 over what HDL calls a “long-standing, industrywide practice” of paying fees to doctors in connection with drawing blood and processing and handling blood samples sent to HDL for testing. In 2014, HHS' Office of Inspector General issued a special fraud alert saying such payments presented a substantial risk or fraud and abuse under the anti-kickback statute.
After HDL stopped making those payments, average daily sample volume ordered by doctors dropped by nearly 20% in the third quarter of 2014 and by another 5.5% in the fourth quarter of 2014, leading to a drop in net revenue of 47%, according to court filings. Further revenue declines in 2015, along with other costs, led to the company's “liquidity crisis,” according to court documents.
HDL is also now involved in a number of other lawsuits, including one filed by Cigna Health and Life Insurance Co., seeking $84 million in damages over HDL's billing practices.
Federal prosecutors are now investigating doctors who received payments from HDL, according to The Wall Street Journal, which cited unnamed sources familiar with the investigation.