The very thing that made Health Diagnostic Laboratory Inc. stand out among Richmond-area companies in recent years — its rapid growth — also may have been the thing that made the business stand out to government regulators.
HDL grew quickly from its founding in 2009, adding hundreds of employees in downtown Richmond. A provider of diagnostic testing for patient blood samples, the company also received hundreds of millions from Medicare reimbursements.
That may have made HDL an outlier in the industry — an organization that stands out among a crowd.
“That is not a position you generally want to be in, in a highly regulated industry,” said Rachel Suddarth, an assistant professor at the University of Richmond School of Law.
HDL confirmed in July that it is cooperating with a federal government investigation into reimbursement practices in the clinical laboratory industry. It has vigorously denied any wrongdoing.
Nearly two weeks ago, its co-founder, president and CEO, Tonya Mallory, abruptly resigned from an executive role, though she will remain a company adviser and board member. She was replaced as CEO by co-founder and chief laboratory officer Joe McConnell.
The company said Mallory left for personal reasons and not because of the federal investigation.
While the outcome of the ongoing federal probe is uncertain, the investigation and the loss of a senior leader are disruptive and threatening events for any company, business experts say.
They have resulted in a strategic change for HDL, which announced that it has ended the reimbursement practices that prompted the government review.
Instead, HDL says it is now pursuing a more traditional growth plan that includes opening new draw sites where doctors can send their patients to get their blood drawn.
Even before Mallory left, the company said it was planning to open a network of centers where people could walk in and get their blood drawn and tested for biomarkers for a fee. At the new sites, however, patients will need a physician referral.
The company is planning to open a site in Chesterfield County soon, which would be its fifth in the Richmond area, as well as one in Suffolk, an HDL spokesman said.
HDL is privately held and does not disclose revenue and profit figures. It said in July that it had about 860 employees, including about 750 in the Richmond area, although it eliminated 30 jobs in August.
William W. Sihler, a professor of business administration at the University of Virginia’s Darden School of Business, said the company’s financial situation and its ability to hang onto customers are vital to getting through a period of uncertainty and a change in leadership and business strategy.
“It also helps if the company has sufficient financial resources to tide it over for the several months while it gets its feet on the ground,” Sihler said.
For a relatively young company such as HDL, the ultimate outcome often depends on how well the company can assure its investors, customers and suppliers that its future is secure.
Going through a government investigation can be likened in some ways to when a company goes through restructuring under bankruptcy, Sihler said.
“If you have been investigated and found to be OK, that is not a problem,” he said. “If you are found not to be OK, and if (the company) has a product for which people are concerned about quality — then it is quite serious.”
A change in leadership is a frequent outcome of any scandal or investigation of a company, often with just the top executive affected, he said.
“If the whole top management team is involved, the company is probably a goner unless there are outside investors with enough of a stake to want to take over,” he said.
Mallory’s departure as HDL’s top executive came as a surprise — and it came two months after the company confirmed to the Richmond Times-Dispatch that it is cooperating with the federal investigation and two weeks after the Wall Street Journal ran a front-page story about the federal investigation of reimbursement practices in the medical laboratory industry.
The Wall Street Journal article included assertions that some doctors had received $4,000 a week in reimbursements from HDL for blood samples, that it obtained Medicare payments of $1,000 or more for some bundles of the 28 tests it performs on blood samples, and that the company earned about 41 percent of its $383 million in 2013 revenue from Medicare reimbursements.
The company denies there is a connection between Mallory’s departure and the Justice Department’s investigation, saying Mallory, who turns 49 on Monday, stepped down for personal reasons — she is helping her brother start a company.
One key decision choice for management that can determine a company’s ongoing viability is whether it clearly communicates how it will change its policies and strategy, said Ronald Sims, a professor of business administration and organizational behavior at the College of William and Mary.
“Everybody who has a vested interest in the organization deserves some kind of open communication,” he said.
“One of the first things that has to happen is (a company) has to say we have a clear understanding of what went wrong, we acknowledge it, and then say what is going to be done to rectify the situation,” Sims said.