Health Diagnostic Laboratory files for Chapter 11 bankruptcy

Two months after settling a federal investigation of its reimbursement practices, Richmond-based Health Diagnostic Laboratory filed for Chapter 11 bankruptcy protection in June, listing the $49.5 million settlement payment as its biggest debt.

Overall, the company said it has more than 200 creditors, and its assets and liabilities both were listed in the range of $100 million to $500 million.

One of the biggest short-term challenges facing HDL could be keeping its talent, says Richard Coughlan, senior associate dean for the Robins School of Business at the University of Richmond.  “Because of the uncertainty surrounding the bankruptcy declaration, many of their most capable employees will seek positions elsewhere.  This is likely to hamper the company’s ability to carry out operations at recent levels of productivity and could lead physicians to find other options for testing.”

In its bankruptcy petition, HDL said its revenues fell sharply after it came under federal scrutiny for paying doctors a $20 process and handling fee for each blood sample sent to the company. HDL discontinued the payments, which it called an industry-wide practice, after the government issued an alert in June 2014 saying they could violate the federal anti-kickback laws. The company admitted no wrongdoing in its April settlement.

In the filing, HDL said that, because of its reduced revenue, it was unable to comply with loan facility covenants with North Carolina-based BB&T. HDL said it has had difficulty making payments to suppliers and conducting its operations since late May when the bank discontinued the company’s ability to borrow under a loan facility and froze its accounts.

At press time, HDL was waiting for a bankruptcy judge to approve an agreement it reached with the U.S. government to protect $2.6 million in Medicare reimbursements owed to the company. HDL said in a court filing that a freeze on these payments would severely hurt its revenue stream and ability to continue operating.