–Yet more fallout from the catastrophic bankruptcy of HDL Lab
The Zombie Lab case just got even messier.
Last Friday the trustee for the bankrupt Health Diagnostic Laboratory (HDL) filed a massive lawsuit against the former executives, owners, sales force members, and others who profited from HDL. The 205-page lawsuit includes a detailed narrative of the illegal and fraudulent schemes employed by the company. Those schemes allowed the people named in the lawsuit to pocket hundreds of millions of dollars in a few brief years, the suit alleges.
As previously reported, the HDL trustee had earlier demanded payments from both former patients who received HDL tests and the doctors who took kickbacks to order those tests.
This is the latest— and probably the most comprehensive— lawsuit stemming from the HDL collapse. The company and its principals also have been sued by the US government and several large insurance companies, including United Healthcare, Aetna, and Cigna. Following its birth in 2008 HDL experienced an explosive growth until 2014, when it began to collapse after it became known that the US government was investigating it for fraud.
The lawsuit seeks to claw back more than $600 million from those involved with HDL and its closely related outside sales force, BlueWave. BlueWave appears to have gained the most from HDL. The lawsuit lists payments of more than $220 million paid to BlueWave, including $123 million to the company’s owners, Robert Bradford Johnson and Floyd Calhous Dent, III. $46 million went to HDL’s biggest shareholder, Tipton Golias, an outside investor who also owns a Texas-based lab company, Helena Laboratories. $18 million went to company founder and CEO Tonya Mallory, and more than $17 million each to her co-founders, Joseph McConnell and George Russel Warnick. The 3 co-founders also paid themselves an additional $7 million apiece in salaries and bonuses.
The close relationship between BlueWave and HDL has been frequently noted. The lawsuit said that the BlueWave founders “were able to exercise undue influence and control over HDL, and induce HDL’s assent to the improper BlueWave Agreement.” Their influence was so great that “HDL employees joked that BlueWave’s Dent and Johnson really ran HDL because Mallory always had to discuss issues with them before making decisions.”
BlueWave also “made knowing and negligent misrepresentations of fact to” private insurance companies “about the true nature” of HDL’s business practices. They “falsely represented, among other things, that the amounts charged for the tests included a co-pay, co-insurance, or deductible amount that HDL intended to collect from patients (when HDL routinely did not collect such amounts), that HDL’s business and the sales of HDL tests… were conducted in accordance with the AKS [anti-kickback statute] and other healthcare law (when in fact they were not), and that the HDL tests… were medically necessary (when many times they were not).”
The lawsuit names 24 individual BlueWave sales representatives as defendants, including Jeffrey (“Boomer”) Cornwell, a top BlueWave salesman and, currently, the vice-president of sales at HDL’s successor company, True Health Diagnostics. The lawsuit notes that Cornwell “provided HCPs [healthcare professionals] with 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.” The BlueWave sales people told HCPs “that HDL did not intend to collect from patients for co-pay, co-insurance, or deductible amounts” and promoted the process and handling (P&H) fees the HCPs would receive. “HCPs were thereby induced to order medically unnecessary tests for patients.”
The lawsuit includes new details about HDL’s use of a Medical Advisory Board (MAB), speaking fees, and individual consulting agreements as a key part of its illegal scheme. The company paid top doctors $2,500-$3,000 each month in consulting fees, though “the doctors were required to perform only minimal services, such as reviewing HDL marketing materials and participating in MAB meetings and calls.” These monthly fees were in addition to the P&H fees already received by the HCPs. Further, “several consulting agreements provided that HDL would pay additional amounts for writing and speaking engagements.”
The lawsuit also provides some details about HDL’s role in the development of Iggbo, the Uber-like phlebotomy service that has been identified as playing a key role in some of the new, post-HDL fraudulent lab schemes. HDL, it turns out, provided direct funding for the development of Iggbo, but it was HDL CEO Mallory and others at HDL– not the company itself– who derived financial benefit. The lawsuit says Mallory and others “breached their fiduciary duties of loyalty and due care, committed corporate waste, and acted in a grossly negligent and negligent manner” in this matter.
The lawsuit states that HDL still owes the government $95 million, plus interest, on the DOJ settlement. Under the law, however, the “DOJ could have asserted a claim against HDL for over $1 billion in damages, treble damages, and civil penalties.”
CardioBrief readers may be interested in one detail in the lawsuit about improper CYP2C19 testing, which has been studied as an indicator of clopidogrel resistance but has never been demonstrated as a beneficial guide to treatment. There is certainly no indication for the test in patients for whom clopidogrel therapy is not being considered. But at one point HDL CEO Mallory told her colleagues “that a family practice doctor had sent in a prescription to add HDL’s expensive CYP2C19 test ‘to all of his samples that we have in storage’.” She told them that “HDL may have up to 2,500 samples in storage for this doctor.” The lawsuit states: “Having the CYP2C19 test run on all samples in storage for this doctor’s patients was medically unnecessary, and inducing this doctor to place the order was a violation of the AKS and other healthcare law.”
In her email to her colleagues Mallory “separately highlighted the financial side of this ‘add on’ testing on stored specimens. ‘I’d like to have all of the backlog of back testing cleared by the end of July so that the reimbursement will hit us in September when we will need'” the money to pay an anticipated fee. “Thanks to everyone for helping to get this done as soon as possible,” she wrote. “This add on business alone could result in almost a million extra for us.”
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