Friday, June 12, 2015

The Tipping Point for Health Diagnostic Laboratory

Bankrupt firm ordered to stop paying doctors "fees."

Posted By on Fri, Jun 12, 2015 at 12:47 PM

A key sequence of events -- started when the company stopped paying doctors to use its blood tests -- was the tipping point for Health Diagnostic Laboratory, according to bankruptcy papers and news accounts.

In 2013, the last year of its remarkable revenue growth, HDL was processing 3,600 blood samples every day, generating $375 in annual revenues and $45.2 million in earnings, according to court documents and a perceptive account in Richmond BizSense.

But in 2014, the company was one of several warned by the U.S. Department of Health and Human Services not to pay extra fees to doctors as “processing” fees. HDL complied and later that year rode out a publicity firestorm after the Wall Street Journal exposed the matter in a front-page story.

The negative coverage and the dried-up revenue stream cut daily testing samples by 20 percent while revenue dipped 47 percent. For 2014, revenue fell to $320 million and earnings dropped to $15.3 million.

That would be bad enough for any company but the coup d’grace came when the U.S. Department of Justice forced a settlement with HDL that required a $47 million payment. HDL has admitted no guilt but has to come up with the cash.

Not only that, it faces other lawsuits for fraud, substantial legal bills and an unhappy bank, BB&T, that is switching off its credit. Bottom line: The one-time darling of Richmond’s business community is now hard-pressed to make payroll, a nightmare for any company. It will be able to do so until another hearing in U.S. Bankruptcy Court on June 30.

It should be noted that plenty of firms go bankrupt and doing so is a financial decision, not an emotional one. Sometimes going bankrupt is a road to salvation, as Chrysler showed in 2009. The auto company is now profitable. General Motors also went bankrupt but survived only after a government bailout.

And don’t get me started on the marquee-name banks that lived on only through the Troubled Asset Management Program (TARP) government bailout in the great 2008 crash while the rest of us were struggling with mortgages. Out in the coalfields, going bankrupt is seen as a dodge to pay pensions. Patriot Coal, spun off by coal giant Peabody, sick of the tough Appalachian fields, has been in bankruptcy twice with that goal evidently in mind.

It's far too soon to write HDL’s epithet. By facing up to its problems it may well live on or be bought out by another health firm.

One of the things, however, that sickens me about HDL is that it shows the very reason why health care in America is such a mess. There cannot be transparency in setting health prices if there are hidden deals set at confidential meetings. Insurance companies and hospitals and medical practices do this all the time.

Another thing: Don’t make payoffs and call it marketing.

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