Health Diagnostic Laboratory Sold at Auction

Health Diagnostic Laboratory (HDL) has been acquired in a bankruptcy auction earlier this month for a fraction of its value of just a couple of years ago. Virtually all of the assets of the Richmond, Va.-based HDL were acquired by Frisco, Texas-based True Health Diagnostics for $37.1 million. The sale is still subject to the approval of a U.S. Bankruptcy Court judge.

"The auction was robust and competitive, and we believe our objective of maximizing the value of the assets of HDL to best serve the interests of our creditors and other stakeholders has been achieved," said HDL Executive Vice President and General Counsel Douglas Sbertoli in a statement. HDL filed for bankruptcy protection last June after it was unable to pay its creditors in an orderly fashion. Its 2013 revenue of $375 million was 10 times its recent sales price.

HDL had been battered by a federal investigation into its practice of reimbursing physicians for handling and shipping of lab specimens. In June 2014, the U.S. Department of Health and Human Services' Office of the Inspector General issued a fraud warning regarding the payments by laboratories to physicians to process samples, warning those payments could constitute an illegal kickback. The company's business practices were detailed by the Wall Street Journal in a front-page story about three months later, prompting the resignation of company co-founder and CEO Tonya Mallory not long after. HDL's test volume during the first quarter of 2015 was about half of what it had been in 2013. Mallory was recently sued by the U.S. government, which has accused her of engaging in a kickback scheme that prompted it to pay hundreds of millions of dollars for unnecessary tests.

Takeaway: The once high-flying Health Diagnostic Laboratory is no longer an independent entity.