Q&A: Picking up the pieces of HDL

Chris Grottenthaler

Chris Grottenthaler. Photos courtesy of True Health.

True Health Diagnostics took a big leap out of its home in Frisco, Texas, when it acquired downtown-based Health Diagnostic Laboratory in September.

The year-old blood testing company’s employee count instantly quadrupled as a result of the deal, it added a second location that is seven times as large as its first, and the combined company now draws in four times the revenue than True Health did on its own.

But HDL wasn’t short on baggage, a factor that True Health founder and CEO Chris Grottenthaler had to consider before pulling the trigger on the $37.1 million transaction.

The once fast-rising Richmond company retreated into bankruptcy in June, mired in controversy, layoffs and a Department of Justice investigation into alleged kickbacks.

Grottenthaler also had to combat a perception problem stemming from connections between True Health and HDL’s former sales contractor, BlueWave Healthcare Consultants, and the belief of some in the industry that True Health was essentially controlled by BlueWave.

But Grottenthaler, 36, looked past all that and said he saw in HDL “an opportunity to make some good out of a bad situation.”

True Health has already settled into 105,000 square feet of what was once HDL’s massive headquarters downtown in Jackson Ward. And of the 570 employees left at HDL prior to the deal, 350 are now employed by True Health.

Grottenthaler, a native of Loudoun County, Virginia, sat down with BizSense at HDL’s Fifth Street offices last week to discuss True Health’s rapid growth, the plans for its new operations in Richmond, and how it plans to deal with HDL’s past.

The following is an edited transcript.

Richmond BizSense: What led you to found True Health?

Chris Grottenthaler: After graduate school, I went into work with a private equity firm out of Chicago, got involved with a couple of their portfolio companies – companies that they acquire and invest in – and they would plug in management into those companies. So I was part of the team that was sort of parachuted into a couple different healthcare deals that they had done. We had quite a bit of success on those ventures.

I was part of a toxicology business 10 years ago, and the growth that we saw in that company led me to believe that in a specialty lab business, focusing on a disease state or a patient category, we could create really interesting products that are focused on either one of those two categories.

I organized the business in March of last year, then we raised friends and family capital in June of last year, then we bought our first piece of equipment and opened a very small operation in Texas. We processed our first specimen in October of last year, and then we started growing organically up until the acquisition of these (HDL) assets.

So we’re a high-growth story and obviously this acquisition and the integration catapults us to the next level.

HDL downsized its operations pre-merger, but True Health still occupies more than 100,000 square feet. Photo by Burl Rolett.

HDL downsized its operations pre-merger, but True Health still occupies more than 100,000 square feet. Photo by Burl Rolett.

RBS: When did you first hear of HDL and when did you realize it was a target for a True Health acquisition?

CG: I first heard of HDL when I started True Health. I did a lot of diligence and research back in (the first quarter) of last year. So I saw the HDL product in the market. The acquisition I found out about through media sources. It was pretty public information that they were going through bankruptcy. We didn’t think we would be interested or compatible because there’s a history between the two companies. The first meeting with HDL’s management was pretty interesting, because there was this belief that we’re owned by BlueWave. So I told (former HDL CEO) Joe McConnell that it was offensive that he thought that.

We just had an open conversation and we said, look, this is how True Health came to be, and it’s a very organic story and there are a number of circumstances that have led us to be in this position, and I stand behind my decisions in helping do what’s best for the business. And at the end of the day, we’re doing what’s best for the people in this building and were able to save 350 jobs.

RBS: Where do you think the idea that True Health is involved with BlueWave came from?

CG: We hired a number of sales reps that used to work under BlueWave. I’m not exactly sure where they came up with the idea that BlueWave owned us, but we hired a lot of those individuals. So I think HDL had a sort of a corporate response. It’s a competitive environment. Unfortunately in the lab industry there’s some negativity. We try our best to stay out of it and take the high road on things, but unfortunately the misinformation has perpetuated in the market.

We’re trying to do a lot of good and trying to save jobs and salvage the product, because I’ve always had admiration for what HDL did and a respect for the product and respect for the people. As a competitor to the business, I didn’t want to see HDL shut its doors. I think it would have been a disservice to the customers and a disservice to the industry.

True Health screens blood samples for disease and other potential health problems.

True Health screens blood samples for disease and other potential health problems.

RBS: What does HDL add to True Health?

CG: Fundamentally, what the acquisition did for us was give us a huge infrastructure and a really strong platform for us to continue to evolve our test menu. As we look at cardiovascular disease and the other chronic diseases that we’ll look to develop a product offering for, we have a really strong infrastructure to be able to do that now. We run a fabulous lab in Frisco, but it’s not to the scale of what HDL has.

We were rebuilding Frisco and we were in the process of relocating and opening a new facility there, and now this put us two to three years ahead of our growth plan.

RBS: From a leadership and management perspective, what did you say to the former HDL, now True Health, employees to explain the transition and get them feeling comfortable again after all the uncertainty?

CG: It’s an ongoing conversation. The folks in this building have gone through a lot over the past year or so. We’re not here to inflict more harm. We just had department level meetings and I’ve met individually with each department yesterday and today, having conversations and basically saying, we need to find ways to regain confidence and rebuild the product. You should be proud when you walk into the building that you’ve been able to sustain your activities after the past year and that the business is going to come out on the other side of it. The employees should be proud that they have the perseverance to go through it and they should be proud of the business that they’re working for today.

We’re going to do everything on a 100 percent compliant basis, and it’s a huge priority to the company. They should have confidence and trust that we’re going to do everything we can do to make sure this company grows and continues to prosper.

RBS: What is it like operating under the corporate integrity agreement that was put in place for HDL through the settlement with the DOJ?

CG: It’s a huge priority. We have adopted the corporate integrity agreement, so we’re compliant with it and will continue to submit the appropriate reports and so forth back to the government. I think it’s a huge differentiator for us in the market. Usually a corporate integrity agreement is something, in the lab industry, that you get after you go through the investigations and then you have your settlement. It’s very common for companies at a certain level to be under a corporate integrity agreement. It lets everybody know the boundaries. It sets very clear rules for what you can and can’t do and what the right process is for reviewing things.

So I see it as a huge advantage to True Health that we’re already under a corporate integrity agreement because we have something that’s reflective of a multibillion-dollar business. And we’re not a multibillion-dollar business. But now we have an infrastructure by which we can grow, and the corporate integrity agreement is part of it.

Where you have other service providers in the healthcare industry trying to game the system, we have a very middle-of-the-fairway approach to how we do things. We can offer a great product and a great service without having to do the tricks on the side.

RBS: How do you feel about the way you all have progressed so far?

CG: We feel good about it. First, I love Richmond and I’ve spent a lot of time here growing up, and it’s not far away from home, so it’s a comfortable place for me. The whole process from start to finish happened very quickly, even for a typical bankruptcy process. It’s something that we would not have done if we weren’t comfortable with it. We wouldn’t have come into this situation if we weren’t confident in our abilities to make it successful and if we didn’t cross a lot of T’s and dot a lot of I’s to get us to this point. We’ve done our share of diligence, and we know the challenges and we know the opportunities, and it’s something we feel comfortable with.

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