The Strange Story of Health Diagnostic Laboratory

HDL's Mallory before her fall.

HDL’s Mallory before her fall.

By Peter Galuszka

The biggest problem facing the health care industry in Virginia and the rest of the country isn’t Obamacare or the lack of new medical discoveries. It the lack of transparency that hides what is really going on with pricing tests, drugs and hospital and doctors’ fees. Big Insurance and Big and Small Pharma cut secret deals. We are all affected.

I’ve been wanting to blog about this – especially after Jim Bacon’s recent post on the supposed tech trend in health care – but I wanted to wait until a story I’ve been working on for a few weeks was posted at Style Weekly, where I am a contributing editor.

In it, I explore the strange story of Health Diagnostic Laboratory, a famed Richmond start-up that went from zero to $383 million in revenues and 800 employees in a few short years. The firm said it was developing advanced bio-marker tests that could predict heart disease and diabetes long before they took root. HDL’s officials thought it would transform the $1.6 trillion health care industry.

Richmond’s business elite applauded HDL founder Tonya Mallory, a woman who grew up just north of the city and had the strong personality and drive to create the HDL behemoth. Badly wanting a high tech champion in a not-so high tech town, the city’s boosters did much to publicize HDL and Mallory, believing they could draw in more startups.

The story was too good to be true. It start to deflate last summer when the federal government noted that HDL was one of several testing labs being probed for paying doctors $17 for using HDL tests for Medicare patients when Medicare authorized $3 per test. Mallory resigned Dept. 23. Several lawsuits by Mallory’s former employer, Cigna health insurance and another have accused HDL of fraud. HDL has responded in court.

One legal picture suggests that HDL wasn’t a true tech startup but a new firm that stole intellectual property and sales staff. HDL says no, but its new leader Joe McConnell has taken steps to reform sales and marketing and is said to be working with the U.S. Department of Justice to settle a federal investigation.

The HDL affair raises issues about the inside marketing and apparent payoffs that are the biggest problem the health care industry faces. It doesn’t matter what kind of “market magic” combined with new technology comes up if something like this keeps happening.

This is all the more reason for a universal payer system. That may be “socialized” medicine but in my opinion it is the only logical way to go.

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6 responses to “The Strange Story of Health Diagnostic Laboratory

  1. I agree with Peter. The tech stuff holds promise but I’ll give you a simple problem that’s not yet resolved and the problem is not the govt but the preferences of doctors .

    If you end up having to go to one or more specialists – the “theory” is that your primary care physician will “share” your records and lab tests with the specialist s and vice versa.

    Any of you that have had occasion to have to get care this way – unless you are with a HMO – know that the “theory” is not only not electronic sharing – but it’s not paper sharing either.. unless you do it yourself.

    The result is bad care. The doctors don’t know what each other are doing nor do they even see the lab tests they are doing so mistakes are made in decisions as well as duplicative efforts.

    this is an example of what the free-market, if left alone, chooses to do .

    and this is why Medicare is now forcing doctors to start using electronic medical records – but not yet share them electronically.

    so this is totally separate from insurance.. it has more to do with how entrepreneurs (doctors and other medical providers) will do or not do unless someone forces them to do otherwise.

    No other OECD country on the planet has this problem. shared electronic medical records is the standard but here in the good old USA – we have to pretend the free market will deliver superior care.

    the truth? Nope it doesn’t. It maximizes profit and if electronic medical records costs money on the front end – it’s a cost not recovered – especially if it means the doctor actually get s less business because the patient actually gets cured – quicker.

    and the whole deal about the ACA being a CF is just bogus.

    Yes .. it IS a convoluted mess – no question about it.

    but so is employer-provided health insurance – that people take for granted but it too have obscure and arbitrary policies about what they cover and what they wont’ and the only reason they do not deny you coverage like free market insurance does – is that the govt forbids them from doing that.

    Then you have Medicare, MedicAid and Tricare and the VA and EMTALA – which totally apart from the ACA is a huge complex rabbit-warren just as bad as ACA is ..

    technology will not fix this especially if it costs money on the front end – and saves money on the back-end – for the patient – because the doctors don’t want to pay more so it costs their patients less if it impacts their bottom line!

    You want to see massive reform take place – overnight?

    Repeal not only ObamaCare but Employer-provided insurance and see what happens.. THEN we really WOULD have a real free-market .. in health insurance… and the Heritage and CATO folks could blow it out the wazoo.

  2. A person who sees more than one doctor who is prescribing meds or ordering tests needs to be active and insist that all affected docs see test results and agree on any change in prescribed meds. A person who is not his/her own advocate can easily be SOL.

    Larry, I still get a kick out of your challenges to legislators. Taking away things from the public is not a way to get reelected. Ask Danny Rostenkowski. The average person believes she/he has earned benefits and is not willing to give up much, if anything, to expand benefits to others. I’d say the position against giving up is much stronger today than it was 20 years ago, largely, IMO, because of the lack of wage increases. And labor unions won’t help because they are largely focused on the public sector, the growth of which sucks up money that cannot then be used for wage increases. Toss in a winner takes all economy and we have a mess.

    • re: being an advocate – agree but you have to do it ALL THE TIME.. they simply will not forward records.. you’re better off getting a copy and walking it over!

      re: taking things away

      here’s the problem TMT – and we’ve talked about it.

      You don’t want the govt to give to others – what they’ve given you.

      you don’t have insurance because you have employer-provided. You have insurance ONLY because the Govt will not let insurance companies deny coverage to people if they are on employer-provided.

      then we have the problem – that you are paying for the folks who ARE being denied insurance – not only at the ERs – but the subsequent care they receive because their disease and condition was not caught early by primary care.

      so you’re paying all of that – even as you complain you don’t want to pay for others.. – you already are!

      so we have folks who would deny others the same things they have.. that neither of them would have without the govt – …

      that’s pretty hypocritical in my book.

  3. and if you want a non-ObamaCare alternative – try this on for size.

    you give anyone the same right to insurance that the govt guarantees for employer-provided – that is – cannot deny pre-existing conditions and cannot charge more than other people.

    give that to anyone who buys insurance – and also give them a tax credit for the FICA, Federal and State taxes that are also not charged to employer-provided folks.

    and let people buy catastrophic insurance (which, by the way is offered under ObamaCare also).

    so your health insurance will end up like your 401K -in that it’s completely portable – you are no longer tied to one company for your health care – and watch what happens to the companies that no longer have that hook.

    that’s a honest and forthright proposal.

    It’s one the GOP could make as their REPLACE… and it’s one that many Dems would support and even the POTUS might agree to it.

    but – I hear none of this from the folks who oppose ObamaCare. They simply have no real alternatives.

    which makes you wonder what they do support.. to deal with the health care issues.

    this is my frustration these days. I can certainly see different viewpoints on HOW to get something done – different ways – but when the opponents have NO real alternatives.. what does that mean?

    “I’ve got mine – screw you”.

  4. There are three articles I’ve come across over the years that, to me, lay out the grim picture of where we are (not to mention, where we ought to be headed) with regard to health care —
    these two from Atlantic (by David Goldhill and Derek Thompson respectively):
    http://www.theatlantic.com/magazine/archive/2009/09/how-american-health-care-killed-my-father/307617/
    http://www.theatlantic.com/business/archive/2013/03/why-is-american-health-care-so-ridiculously-expensive/274425/
    and this one just published in Time (Steve Brill is an excellent investigative reporter well known in the legal world):
    http://www.huffingtonpost.com/jeffrey-young/steven-brill-health-care-_b_2736712.html

    Obviously our incentives to lower medical costs are profoundly disfunctional, and Obamacare (which I support by the way, insofar as it attempts to address the need for universal coverage and the abuse of our emergency rooms as de-facto public health clinics) has only (again in my opinion) made things worse as far as cost containment is concerned.

    Peter, it strikes me that health care ought to be an industry which attracts the best and brightest talents not only because the care itself does personal good to individuals in great need, but also because the entire business of health care, including the insurance industry that supports it, is a public service. Yet, here we are writing about corruption and sleazy practices that seem to abound — and all because we’ve created and tolerated a way of business that has such perverse economic incentives and grotesque business dysfunctions built into it!

    I know you’re not writing about what could be done to fix things; but at least we should acknowledge the total waste of political energy that has gone into the health care debate since Obamacare was enacted. I have little admiration for the Republican response to O-Care over these past five years given the total absence of a counterproposal to coalesce around and/or critique. The problem is so huge, yet all we seem capable of doing is posturing. I wish you’d write about that someday.

    • Thanks for the links … and here’s a couple of excerpts:

      ” Near the end of the book, Reid expands on two big reasons why U.S. health care is so expensive: (1) Unlike other countries, the U.S. government doesn’t manage prices; and (2) the complications created by our for-profit system adds tremendous costs. ”

      and

      ” Perhaps the most important detail Brill addresses over and over in his article is the so-called chargemaster, the list of prices for everything a hospital does. That may seem mundane but these document (or, more accurately, these computer databases) drives much of how the business of health care is conducted in this country.

      In short, those prices mean practically nothing in reality — unless you have no health insurance. Private health insurance companies pay less. Medicare pays much, much less. But if you’re uninsured, those are the prices that wind up on your bill.”

      So the question no one seems to really ask or now the answer is – why do hospitals in this country charge their customers like this?

      why do they charge, for instance, about 5 times as much for an MRI as any other OECD country in the world when that MRI unit is the same everywhere?

      and the answer is right in front of us but we prefer not to believe it.

      Our MRIs serve BOTH paying and non-paying customers and who pays for the non-paying customer? Now you know why it costs 5 times as much for an MRI in this country. You are not only paying for your MRI but a couple of others who pay nothing and you’re paying for folks – had they gone to a primary care regularly would have detected and treated disease before it got to the point where expensive MRIs and other late-stage care was needed.

      Obamacare would have changed SOME of this – OVER TIME – it could not fix it overnight. It would take years for people who used to not get primary care to start getting it and diseases detected earlier – and downstream cost savings not realized until later.

      it’s not that all the folks who don’t pay could not pay SOME – it’s that they do not have insurance that allows them to pay some and then share higher costs in an insurance pool where everyone else is also sharing costs.

      Insurance is not a “partial” thing. Either you are insured or you are not – and in a free market – “insurance” is all about pools – the size of the pools.

      That’s why Medicare is provided to 40 million people, many with medical conditions for about $500 a month.

      and market-based insurance is based on much smaller pools.

      Any state is free to form a state-wide pool to cover everyone in the state (like they do for state employees) , except for one problem – that’s not near as profitable for insurance companies than selling individual policies to much smaller pools of people.

      but that’s the free market for you, eh?

      these problems are structural and technology will not fix them.

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