Millennium Health Settles Federal Charges; Bankruptcy Filing Likely

Millennium Health will pay $256 million to settle federal allegations of performing medically unnecessary tests that were ginned up in part through physician kickbacks, and appears headed for bankruptcy protection in the coming weeks.

The settlement is among the largest ever involving a laboratory, topping a $241 million settlement paid by Quest Diagnostics four years ago to settle Medicaid bid fixing allegations in California.

According to the U.S. Justice Department, Millennium had overbilled the Medicaid, Medicare and other federal programs for unnecessary urine and genetic testing, encouraged in part by furnishing physicians with "custom profiles" for their patients, which the agency contended was actually standing orders for tests without assessing each patient's medical needs. Excessive testing was also encouraged by furnishing doctors with free point of care urine drug test cups, which were understood to be returned to Millennium for testing. The Justice Department said that practice violated both the Stark Law and Anti-Kickback Statute. The alleged conduct took place between 2008 and earlier this year.

"The Department of Justice is committed to ensuring that laboratory tests, including drug and genetic tests, are ordered based on each patient's medical needs and not just to increase physician and laboratory profits," said deputy attorney general Benjamin C. Mizer, head of Justice's civil division, in a statement. "We will not tolerate practices such as the ordering of excessive, non-patient specific tests and the provision of inducements to physicians that lead to unnecessary costs being imposed upon our nation's health care programs."

Under the terms of the settlement, Millennium will pay $227 million to resolve claims of overbilling; $10 million to settle allegations of false claims to federal health care programs; and $19.2 million to the Centers for Medicare & Medicaid Services to resolve administration actions that had been brought by that agency. Millennium has also entered into a five-year corporate integrity agreement with the Department of Health and Human Services Office of the Inspector General. It will include significant changes to its board of directors, said HHS Inspector General Daniel Levinson.

"While Millennium may debate some of the merits of the DOJ's allegations, we respect the government's role in health care oversight and enforcement. At the end of the day, it was time to bring closure to an investigation that began nearly four years ago," said Millennium Chief Executive Officer Brock Hardaway in a statement. "Millennium Health is currently a very different organization than we were in the past. We fully embrace our obligation to both commercial and publicly funded health plans to provide value to the health care system overall and ensure that doctors who order our testing solutions adequately demonstrate that those solutions are clinically necessary, and aligned with the latest available clinical guidelines."

Millennium said it would pay the settlement in part through a restructuring of its debt, which is currently about $1.8 billion. The company said in a statement this would be achieved through "an out-of-court basis or through a prepackaged chapter 11 proceeding that primarily affects the claims of lenders and equity holders." Several news reports have indicated that Millennium's creditors would gain control of the company. The restructuring is expected to be completed before the end of the year.

Takeaway: Millennium Health will use a massive debt restructuring or bankruptcy reorganization in order to turn a new page.