Bloomberg Business recently published an article that says, among other things, embattled urine drug toxicology company Millennium Health (MH) is close to finalizing a deal with its lenders “to restructure the company in bankruptcy court”.
The Bloomberg article also says the settlement MH is negotiating with the federal government could reach $275 million (as opposed to $250 million as previously reported), and MH is offering to place itself under the control of its creditors. In exchange:
…the lenders wouldn’t pursue potential legal claims against owners including founder James Slattery and private-equity firm TA Associates that the probe wasn’t disclosed to investors while the company was marketing the $1.8 billion loan last year, [people with knowledge of the matter] said.
The current equity holders would provide funds to Millennium so it can pay the settlement reached this week with the U.S. Department of Justice over allegations of overbilling a federal health-care program and other matters, said the people. A group of owners, including Slattery, would provide most of the funds, while TA Associates would pay a minority share, they said.
The government has not yet publicly shared (at least that I have seen) what exactly it is MH is alleged to have done, but the Wall Street Journal reported in June 2015 MH was being accused of “bill[ing] the federal government for unnecessary tests.”
Right after that WSJ article was published, I wrote about a Civil Investigative Demand (CID) letter that was sent to a physician in August 2014 that stated the Department of Justice (DOJ) was investigating allegations that the physician:
… and/or [MH] submitted, or caused to be submitted, false claims to federal health care payors […] for medically unnecessary urine drug testing (“UDT”)…
The CID stated the DOJ was also investigating whether:
…MH “provided kickbacks or other forms of unlawful remuneration to health care providers […] in order to induce UDT referrals to [MH]”.
See this article for more of the CID’s contents.
Hopefully once the terms of the settlement with the government are finalized, details about what MH was accused of, and what the government found during its investigation, will emerge. No matter what information is released, however, it is clear MH has been seriously devastated in a very short period of time.
As evidence of this, in April 2015, MH’s $1.8 billion loan was trading for a little above face value. By mid-June, it was valued at about 52 cents on the dollar, and in July, it had fallen further to 43 cents on the dollar. Reorg Research (paywall) late Monday afternoon provided some insight into what has happened to the loan since then:
Sources said that a block of the $1.8 billion term loan due 2021 traded in the mid-30s at a low point, and then a block between $50 million and $60 million exchanged hands late last week in the low-40s, followed by at least another $20 million slightly higher. Today the facility is being quoted in the 37/42 context, according to sources, but nothing appeared to be trading throughout the day as the market digested the Friday release of the long-awaited Centers for Medicare and Medicaid Services’ proposed methodology to re-set lab reimbursements.
If MH does indeed seek bankruptcy protection, it will be the second lab with hundreds of millions of dollars in annual revenue to do so in the last few months. Readers will recall Health Diagnostic Laboratory, which was also the focus of a federal investigation, filed for Chapter 11 bankruptcy in June.