A blood-testing company that has been operating a laboratory formerly run by the now defunct Health Diagnostic Laboratory has filed for bankruptcy protection and has laid off some of its employees in downtown Richmond.
Texas-based True Health Diagnostics LLC notified state and local officials of the job cuts on Monday and warned that the company may be forced to close its operations entirely.
On Tuesday, the company filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Delaware.
The company operates the laboratory at 737 N. Fifth St. in the Virginia Bio+Tech Park.
True Health Diagnostics said the job reductions were necessary because the Centers for Medicare and Medicaid Services has suspended all Medicare payments to the company, according to a letter sent to the Virginia Employment Commission’s rapid response unit and the Richmond mayor’s office.
“Medicare payments are a significant source of revenue for the company, and without these payments the company must commence employee layoffs and may need to commence additional employee layoffs and/or a business shutdown,” said the letter, signed by True Health’s chief financial officer, Christian Richards.
The company’s notice to government officials lists 392 jobs that it says are “currently affected.”
However, True Health’s newly hired chief restructuring officer, Clifford Zucker, said Tuesday that the 392 jobs listed in the notice include employees working outside of the Richmond area. He said 80 employees were laid off on Monday and that one-third of those worked in Richmond.
In its Chapter 11 bankruptcy filing, True Health estimates it has between $10 million and $50 million in assets and between $100 million and $500 million in liabilities.
The city of Richmond is listed among the company’s 30 largest unsecured creditors with a claim of $690,290.
“Should the company fail to obtain additional funding, then the company will likely lay off additional employees at the company’s laboratory operations, and the company may also need to completely shut down operations at the company’s laboratory operations,” the company’s notice to state and local officials says.
True Health, based in Frisco, Texas, got into its financial problems because it has been in a dispute with the federal government over Medicare reimbursements.
The company filed a lawsuit on July 2 in U.S. District Court for the Eastern District of Texas claiming that the Centers for Medicare and Medicaid Services had withheld $20 million in payments to the company since 2017 without due process.
“The result of all of this has been financial ruin for True Health,” the lawsuit claims.
True Health said in its lawsuit that it serves about 335,000 individuals per year, more than 65,000 of whom are Medicare beneficiaries. The company said in its lawsuit that it employs about 400 people nationwide.
The government agency initially imposed a 100% suspension of payments to the company in May 2017 based on “credible allegations of fraud,” but then reduced the suspension to 35% of payments, withholding about $800,000 a month from the company, according to the lawsuit.
“Although this allowed True Health to survive, it still left the company without the financial means to clear existing obligations and required it to seek loans to stay in business,” the lawsuit said.
This June, the agency again suspended 100% of its payments to the company, again based on “credible allegations of fraud,” according to the lawsuit.
True Health said in court documents that it had never received an adequate opportunity to challenge the merits of the suspension, and it warned that unless the suspension was lifted, the company would file for bankruptcy or liquidate outside of bankruptcy.
The federal court dismissed True Health’s lawsuit on July 22, enabling the Centers for Medicare and Medicaid Services to continue withholding payments.
True Health said in its notice to state and local officials that the company is “exploring all options to obtain additional funding to keep the company fully operational and prevent further mass layoffs or a business shutdown.”
A representative from the Centers for Medicare and Medicaid Services did not respond for a request for comment.
True Health bought most of the assets of Richmond-based Health Diagnostic Laboratory in 2015 in a bankruptcy court auction.
Health Diagnostic Laboratory, a fast-growing blood-testing company that once employed hundreds of people in Richmond, went into Chapter 11 bankruptcy in June 2015 after settling a federal investigation into its physician reimbursement practices.
Like HDL, True Health offers blood tests to identify early biomarkers for chronic disease, but True Health has a broader platform than just cardiovascular disease and diabetes, Chris Grottenthaler, True Health’s founder and chief executive officer, said in an interview in 2015.
At the time, Grottenthaler said his company offered jobs to about 350 former HDL employees, and the company was continuing to operate in about 100,000 square feet of the more than 250,000-square-foot office and laboratory space that HDL had been using.
In 2015, True Health had a 15,000-square-foot office and lab in Frisco, with about 85 employees. Grottenthaler said then that the company was adding jobs in Texas, and that it planned to maintain operations there and in Richmond.
“The Richmond lab has some unique capabilities, and some fairly advanced technology, so we will continue to operate that, but the core operations in Texas will remain intact as well,” Grottenthaler said at the time.
Grottenthaler started True Health in March 2014, at first financing the startup business with investments from friends and family. True Health got additional rounds of financing to help support the development of its lab and office in Texas and received institutional funding for its acquisition of HDL.
Grottenthaler grew up in Loudoun County and went to high school in Ashburn. He studied international affairs at James Madison University and received an MBA from American University.