Lab’s Shares Plunge After Big Refund : Health care: National Health Laboratories agreed to pay $110 million for what the Justice Department called unnecessary blood tests.
In a prospectus published last year, National Health Laboratories attributed its 24% average annual sales growth rate since 1986 to “quality and prompt service, aggressive and responsive sales management and detailed cost controls.”
Fraud, apparently, also played an important role in the impressive growth of the La Jolla-based medical test lab chain.
Now the company’s future seems very much clouded. Its share price plunged 24% Monday as investors digested National Health’s agreement on Friday to refund $110 million to federal health insurance programs that the Department of Justice said were fraudulently billed for unnecessary blood tests.
The payment will result in a $82-million charge to fourth-quarter earnings and a $30-million charge in the first quarter of 1993, the company told analysts Monday.
The company can absorb the record payment without immediately wrecking its balance sheet, said Joel Ray, research analyst at Kidder Peabody & Co.
“The issues you wonder about are, will this have an impact on their marketing of their services to physicians? Will it tarnish their reputation?” Ray asked. “Although the company said it doesn’t expect any significant changes in tests being ordered by doctors, you wonder.”
Federal officials said the company manipulated doctors into ordering tests they believed they were getting for free, or for minimal additional costs, and then billed Medicare and Medicaid for twice or three times the $19 cost of the basic blood survey package.
Those tests were lucrative for National Health, accounting for 10% of the company’s revenue and significantly more of its profit, according to analysts who participated in a Monday conference call with executives. Those sales and profits helped fuel National Health’s startling revenue growth from $271 million in 1987 to $604 million in 1991.
National Health Laboratories is not the only laboratory chain implicated in possible fraud and false billing, observers and law enforcement officials said Monday.
Jack Dowden, the former sales manager for a rival laboratory concern who blew the whistle on National Health Laboratories, said several companies are being investigated by the Justice Department, including his former employer, whom Dowden declined to identify.
On Monday, U.S. Atty. William Braniff in San Diego said only that an unspecified number of other companies are being scrutinized by his office. Much of the details of Braniff’s case against National Health Laboratories lie in a sealed lawsuit on file at U.S. District Court in Los Angeles. The suit was filed by Dowden under the False Claims Act, the whistle-blower’s law, and joined by the U.S. attorney’s office.
Times staff writer Doug Shuitt contributed to this report.
