HDL settlement bill: $47M and likely to go up

The settlement also includes a fee contingent on the sale or value of HDL's downtown headquarters. Photo by Burl Rolett.

The settlement also includes a fee contingent on the sale price or value of HDL’s downtown headquarters. Photos by Burl Rolett.

Hefty fees have landed on the shoulders of a Richmond-grown company as a federal investigation against it comes to a close.

Downtown-based Health Diagnostic Laboratory has officially reached a settlement agreement with the U.S. Department of Justice, which requires the company pay more than $47 million to the government, along with potential contingency payments down the road.

The agreement resolves a nearly year-long investigation into HDL and other medical laboratory companies over alleged violations of federal anti-kickback statutes.

The investigation centered on the legality of fees HDL paid to doctors in exchange for using its services, and whether those payments were kickbacks that interfered with physicians’ ability to give sound, unbiased medical advice.

The settlement states that the agreement is neither HDL’s admission of liability over the accusations, nor the government’s concession that the claims are not well-founded.

The DOJ said in a release Thursday that the settlement stemmed from whistleblowers that made legal complaints under the False Claims Act, which allows them a share of any financial recovery made as a result of a subsequent investigation.

The whistleblowers included Dr. Michael Mayes, a South Carolina doctor; Scarlett Lutz, of the South Carolina-based Palmetto Billing Service; Kayla Webster, a registered nurse; and Chris Riedel, former CEO of California-based Hunter Laboratories. Their share in the settlement has not yet been determined, the DOJ release states.

Former HDL CEO Tonya Mallory

Former HDL CEO Tonya Mallory

In a prepared statement Thursday, HDL said, “These allegations were made against a number of companies operating in the clinical laboratory industry by individuals who stand to personally profit by making these allegations.”

A news release from Phillips & Cohen, the law firm that filed Mayes’ lawsuit, described Mayes as “a South Carolina doctor who had ethical concerns about blood testing labs paying physicians extra fees allegedly to get their business.”

Lutz and Webster are South Carolina residents who jointly filed a suit against HDL in 2013. That case has been kept under seal since then, according to a news release from the three law firms representing them.

Phillips & Cohen said in its release that the lawsuits prompted the federal government to issue a fraud alert in June 2014, after which HDL stopped providing the processing and handling fees in question.

The $47 million fixed fee is likely just the beginning of what HDL owes the federal government. The settlement agreement calls for the company to pay contingent fees that would come due under a variety of circumstances, including if the company is sold or sells any of its assets.

One of contingent payments involves HDL’s new headquarters at 757 N. Fifth St. Should the company sell that property within five years, 75 percent of the proceeds of the sale would go to the federal government, according to the terms of the settlement. And if a sale does not take place within four years, HDL would have to get an appraisal of the building and pay the government 75 percent of that appraised value. The property, which HDL had built at a cost of $100 million a few years ago, was most recently assessed by the city at $63 million.

The government set a cap under which HDL’s total payout of fixed and contingent payments will be no more than a combined $100 million, the settlement document states.

The settlement comes only a few days after HDL announced another round of layoffs – cutting 42 employees and bringing the total to 204 workers eliminated in the last eight months.

More legal action may be in works related to the whistleblower claims. The news release states, “The United States advised the court that it would be filing its own complaint against the corporate and individual defendants against whom it has intervened within 120 days.”

Those individuals include HDL founder and former CEO Tonya Mallory, as well as Floyd Calhoun Dent and J. Bradley Johnson of BlueWave Health Consultants, the release states.

BlueWave was HDL’s sales contractor during the time that the alleged kickbacks were paid out. HDL cut ties with BlueWave in January, resulting in lawsuits filed by both sides that have since been dismissed.

A California-based laboratory, Singulex, was also included in the settlement. It will have to pay $1.5 million to the federal government. Singulex was also part of the investigation and had cut ties with BlueWave in October of 2014.

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