[H]ealth care regulators say a former executive from IDX, his team of investors and the University of Vermont Health Network can acquire a major drug-testing laboratory once it settles allegations of Medicaid fraud.
The Green Mountain Care Board issued the decision Thursday, saying that Burlington Labs, which often tests urine from heroin addicts who are on parole, is too important to the state and the Burlington community to go under.
The board said the permit, called a certificate of need, will be issued when the company settles an investigation by the attorney general over alleged Medicaid fraud. Additionally, the founder and current chief executive officer of the company will not sit on the board of directors as originally planned.
The company has been under investigation for months for allegedly overbilling the state and has had cash flow problems since March. Burlington Labs billed Medicaid for nearly $12.2 million in calendar year 2015, according to the Department of Vermont Health Access, compared with $2.8 million in 2014 and $1.3 million in 2013.
“We are thankful to the Green Mountain Care Board for addressing our application in a timely manner,” Jim Crook Jr., the former IDX executive who has led the charge to acquire and turn around Burlington Labs, said in a statement.
“The critical role Burlington Labs plays in the statewide fight against opiate addiction obviously resonated with the board,” Crook said. “While we have more work to do before we finalize our investment, Burlington Labs Acquisition LLC is one step closer to our collective goal.”
The acquisition company, Burlington Labs Acquisition LLC, applied for an emergency permit, called a certificate of need, on Aug. 19. Crook and the investors had been working for several months to set up the acquisition company and a new governance structure to turn the company around.
Crook said Aug. 24 that the overbilling was most likely an error and he had no reason to believe that anyone at Burlington Labs defrauded the state. Nonetheless, he has proposed to set up a new auditing team, including a new chief executive officer, a new chief financial officer and a consulting firm.
Under the deal, Crook and his team of investors plan to pay $4.5 million to acquire the company at closing, according to the decision, and own 62 percent of the new company. The current owners of Burlington Labs would retain ownership of 23 percent of the new company.
The UVM Health Network will invest $1 million into the company at closing, according to the decision, giving it 15 percent ownership. The network also plans to loan the company between $3 million and $5 million in its first year, and the loan would eventually be converted into a further 10 percent ownership stake in the company.
The board wrote in its decision that the emergency permit review process, which allows the board to meet privately if necessary, should be used sparingly, but that the crisis at Burlington Labs, including its potential inability to make payroll, warranted a swift decision.
“Mr. Crook has made a sizeable personal investment in this ailing business not as a banker, but as an investor and community member seeking to financially resurrect a business with a social mission in which he believes,” the board wrote.
“He has assembled an impressive group of investors and will install new leadership and governance, including a board of directors whose members collectively possess many years of expertise in finance, health care, and in operating and managing complex businesses,” the board wrote.
“The applicant can sustain the financial burden of this project, and intends to utilize an expense model that will achieve financial solvency for Burlington Labs, rather than seek to grow revenues through higher charges to its patients,” the board concluded.
Crook and the investor team also received support from numerous community organizations, including the Howard Center, Turning Point Center of Addison County, and the United Way of Northwestern Vermont. Gov. Peter Shumlin, Health Commissioner Dr. Harry Chen and Burlington Mayor Miro Weinberger also supported the acquisition.
“It’s absolutely critical that we keep Burlington Labs alive, so that we can keep Vermonters alive,” Shumlin said at a news conference Aug. 25. “We rely on their testing to help fight this battle (against opiate addiction) that we’re all engaged in together.”
However, Shumlin said the Green Mountain Care Board, which has the legal authority of a group of judges, should make its own decision about the timeline of the acquisition.