Welcome to The Closing Bell. This is your last stop for biz scoops and big news before the weekend — a roundup of stories that can’t wait till Monday.
Doctor’s lawsuit claims Humana has defrauded government for years
A Florida doctor has accused Humana in a whistleblower lawsuit of defrauding the government for years by falsely inflating the severity of patient conditions — and potentially exposing patients to improper treatments.
Dr. Mario M. Baez had filed the suit in late 2012, but a judge only late last month unsealed the documents at the request of the U.S. government.
Baez, a doctor in Palm Beach County, alleged Louisville-based Humana and its Medicare Advantage providers for years billed the government for services that were more expensive than the services the patients required.
Medicare pays a monthly amount to Humana for medical treatment of the insured based on a patient’s risk score, which depends on the patient’s diagnosis. A serious psychiatric disorder, for example, would require a higher score — and payment — than simple depression.
Those dynamics, the suit claims, “created an incentive for Humana (and the providers) … to ‘upcode’ patients, which means diagnosing them with more serious versions of medical conditions than they actually had.”
For example, a patient with depression was “upcoded” to bipolar disorder or major depression.
The suit claims Humana and the providers “fraudulently altered patients’ records to … raise (risk) scores and trigger increased funding.”
Baez also alleges Humana “encouraged upcoding by providing its Medicare Advantage providers … with forms that specifically highlighted more profitable diagnosis codes; by specifically training physicians to upcode; (and) by creating auditing programs that were not able to detect upcoding.”
According to court documents, Baez learned of the alleged upcoding when he reviewed patient files in early 2009 and talked to other doctors in his practice who admitted to the fraud.
“Humana had a duty to review the medical records,” Baez writes in the suit, and the company should have known by the high frequency of rare disorders that the bills were fraudulent.
Baez said in the suit that he notified Humana officials of the fraud and that Humana initially “promised a full correction of the fraudulent billing (but) later reneged … and made only a partial correction (and) refused to reimburse Medicare for the over-funding it had received.”
Baez also claims that Humana’s director of finance in the Florida Senior Segment told him “Humana did not reimburse Medicare … because the billings were not large enough for Medicare to ever notice.”
Practices like those alleged in the lawsuit have cost taxpayers billions of dollars, according to the Center for Public Integrity, which reported on the lawsuit last week.
Humana, as a matter of long-standing policy, does not comment on pending litigation.
Baez filed the suit under the False Claims Act, which entices whistleblowers to reveal fraud against the government by allowing them to receive up to 30 percent of the money that is recovered. The suit was filed in the U.S. District Court in West Palm Beach. —Boris Ladwig
Elizabethtown management company acquires offspring of Interactive Media Lab
It was about this time last year that Interactive Media Lab experienced a breakup when two of the three founders of the 20-year old company jumped ship, with other staff departures soon to follow.
At the time, Interactive Media Lab CEO and founder Matt Foster told IL he planned to streamline the business and narrow its focus. The result: Foster and a handful of IML staffers created K-80, a multimedia company providing mobile app development, enterprise-level programming, end-to-end web design, and hosting. (Disclosure: K-80 helped create IL’s new Insider 502 database.)
They built an attractive business, as evidenced by the fact that Elizabethtown, Ky.-based Hartlage Management Co. has bought the young company.
“We saw this as an opportunity for us to add services that will be used by our own companies but more importantly provide development capabilities to others,” said Josh Hartlage, new president of K-80 Technologies. “Companies are always looking for mobile, web and development help and we believe K-80 is positioned to be the solution!”
Texas Roadhouse CEO’s pay rises 58 percent in 2015
The payout of some long-term incentives sent Texas Roadhouse founder and CEO Kent Taylor’s compensation skyrocketing by 58 percent last year.
Taylor’s base salary remained at $525,000, but after factoring in short-term and long-term incentive pay, his total compensation for 2015 is valued at $5.36 million. By comparison, his compensation in 2014 was $3.39 million.
The two other named executives also saw double-digit compensation increases for the same reason.
Texas Roadhouse president and CFO Scott Colosi’s total pay rose 21 percent to $2.87 million. His base salary also rose to $450,000 from $400,000 this year after he took on the CFO role in January 2015.
The company’s general counsel and corporate secretary Celia P. Catlett earned $754,781, up 33 percent from 2014. Her base salary also increase by $50,000 to $250,000; her salary will continue to increase each year, reaching $300,000 in 2017 per her new employment agreement.
UofL prof: Feds painted themselves into a corner with opposition to GE-Electrolux deal
Federal antitrust regulators had little choice but to approve Qingdao Haier’s proposed acquisition of General Electric’s Louisville-based appliances group, according to a University of Louisville professor.
GE said last week it had received a green light from the U.S. Department of Justice, which looks at such deals to make sure they do not substantially lessen competition.
The companies had announced in January that China-based Haier would acquire GE Appliances for $5.4 billion, pending regulatory review.
GE in December had terminated an agreement to sell the unit to Sweden-based AB Electrolux. The DoJ had sued to stop the $3.3 billion acquisition because it feared a loss of competition and higher prices in the appliance industry.
At the time, the feds essentially said the combination of Electrolux and GE would have created a duopoly, together with Whirlpool, and that consumers would have seen higher prices, especially for inexpensive appliances.
“The whole point was that Electrolux’s (presence in the U.S.) was too big,” said Beth Davis-Sramek, associate professor and Dean’s Research Scholar at the University of Louisville’s College of Business.
The DoJ lawyers could not turn around and make the same argument with Haier, which has a much smaller presence in the U.S. than Electrolux.
“They kind of worked themselves into a corner,” Davis-Sramek told IL.
The professor has said that while the deal will bring stability to the appliance unit’s 12,000 employees, including 6,000 in Louisville, the long-term impact of a Chinese corporation acquiring an iconic American brand is unknown.
Haier has told IL that it wants to model the acquisition on a similar, but smaller deal it struck when it bought New Zealand-based Fisher & Paykel in 2012. Haier has allowed that business to operate independently and has invested in its research and development capabilities.—Boris Ladwig
El Toro partners with database company to launch new product aimed at ads for new movers
Goodness, things are clearly going gangbusters over at ad-tech company El Toro. Seems like there’s El Toro news every couple of days, most recently CEO Stacy Griggs being named an Endeavor Entrepreneur.
Today’s news: a new product launch.
El Toro’s “Digital New Movers” allows brands and ad agencies to target people who are moving using digital advertising. El Toro partnered with Avrick Direct of Goleta, Calif., which creates the foremost databases of new movers in the country.
“By combining their data on moving status with our IP address matching system, we were able to collectively develop a completely new product to target new movers,” Griggs said in a press release.
Every month, 1.8 million Americans move and spend an average of $8,700 on goods and services related to the move, so this represents over $200 billion in annual retail spending.
According to Greg Mosely, El Toro director of sales and training, “When people move they make significant changes to their purchasing patterns. Changing everything from the retail stores they frequent, the restaurants they dine at, and their healthcare providers”
Traditionally the way to reach new movers was via direct mail, which is slow.
People who try a new brand during a move are 90 percent more likely to return to that brand again.
If you’re interested in learning more about New Movers, sign up for a webinar. —Melissa Chipman
Think tank: Aetna-Humana merger would reduce competition, increase insurance premiums
Another week, another broadside against the proposed Aetna acquisition of Humana: A liberal think tank said that forcing companies to sell parts of their business does not restore competition that is lost as a result of health care mergers.
Hartford, Conn.-based Aetna wants to buy Humana for $37 billion. Shareholders of both companies have given the go-ahead, but about half of the 20 states in which the companies operate still have to approve the deal, as does the U.S. Department of Justice, which wants to make sure the consolidation does not substantially lessen competition.
In some cases in which federal regulators interfere in such proposed mergers, they try to maintain competition by forcing companies to sell parts of their businesses that overlap to such an extent that the combined company would essentially have monopoly powers.
The feds demanded such concessions from Humana in 2012 when it merged with Arcadian Management Services, but the Washington, D.C.-based Center for American Progress said the divestitures “failed to restore competition” and that seniors on individual plans ended up paying higher health insurance premiums.
In fact, premiums “increased for more than half of the divested plans by 44 percent, on average,” the Center wrote.
The Center also said its analysis “found that current competition between Aetna and Humana in the Medicare Advantage market keeps individual plan premiums lower in counties where both providers offer plans than in counties where they do not compete.”
“Therefore, if the merger goes through and this competition disappears, consequences most likely would include higher premiums for seniors, increased consolidation in already highly concentrated insurance markets, and higher costs for the Medicare program and taxpayers,” the Center wrote.
Aetna and Humana have said the combined company would reduce costs for consumers and provide them with better care, but consumer and medical groups, including the American Medical Association, have said the DoJ should prevent the merger because it would reduce quality of care and increase costs.
Humana recognized for corporate sustainability efforts
And here’s some good Humana news: RobecoSAM, a Zurich-based investment company focused on sustainability, awarded Humana and nine other U.S. companies its Gold Class distinction on its Corporate Sustainability Assessment.
The recognition signifies to investors that the companies “are strongly positioned to create long-term shareholder value,” RobecoSam said.
The CSA “focuses on examining financially material factors that impact a company’s core business value drivers,” the company said. “Factors such as a company’s ability to innovate, attract and retain talent, or increase resource efficiency matter from an investor’s point of view because they impact a company’s competitive position and long-term financial performance.”
Humana, the sole insurer on the list, joined such U.S. companies as Alcoa and Wyndham Worldwide and international giants such as Rolls Royce, Air France and BMW.
“Our commitment to sustainable business practices is key to helping people improve their health, and we are honored to have been recognized by RobecoSAM once again in 2016,” Heidi Margulis, senior vice president of corporate affairs and leader of corporate responsibility efforts at Humana, said in a press release.
The insurer received the distinction for the third consecutive year.
Startup Weekend kicks off today
Startup Weekend starts today at the end of the work day. So while you’re rolling home, maybe getting a beer on a patio somewhere on your way, a whole bunch of ambitious people will be strapping in for 54 hours of work.
As good as that beer sounds, how good would it feel to start a business and get it up and running before work on Monday? I don’t think anyone has up and quit their job on the Monday after Startup Weekend, but it’s definitely given a lot of people the courage and affirmation that maybe someday they could.
Startup Weekend’s press release makes short work of a complicated event. It says, “On Friday night, attendees will take the open mic to pitch their ideas to the group in 60 seconds or less. After groups form, the rest of the weekend will be spent formulating the most popular ideas with the help of mentors and seasoned startup entrepreneurs. By Sunday, teams will be ready to present their ideas in front of a panel of judges who will award prizes, including legal services, pre-accelerators and more, all of which are targeted to continue to help teams build their startups after the weekend.”
The weekend will start off with an opening talk by entrepreneur and Capture HigherEd CEO Steve Huey. Sunday’s closing judges include Stacy Griggs, CEO of El Toro; Jackie Willmot, COO of XLerateHealth; and Moses Icyishaka, analyst at Chrysalis Ventures.
For the first time, the event’s organizers have reeled in some big-name sponsors, including Humana and UPS.
Startup Weekend starts at 6:30 p.m. on Friday and ends Sunday evening with a demo day. Tickets, which include food and beverages all weekend long, start at $59 and are available here. If you just want to just attend the demo day to watch the teams pitch, it starts at 5 p.m. on Sunday.
Louisville auto dealer buys two Ohio Mercedes-Benz dealerships
Tafel Motor Co., a Louisville Mercedes-Benz dealer, recently purchased two out-of-town dealerships — Mercedes-Benz of Cincinnati and Mercedes-Benz of West Chester — and has plans to grow even further.
The Shelbyville Road-based auto group officially started running the two Ohio car dealerships on March 7, according to a news release. Tafel Motors declined to disclose the details of the deal.
With the purchases, Tafel Motors also brought on Steve Zubieta, the former managing partner of Mercedes-Benz of Encino, to lead the Cincinnati store, and Peter Boesen, former managing partner of South Bay BMW and South Bay MINI, to head the West Chester dealership.
“We are committed to creating exceptional growth at both dealerships, providing advancement and employment opportunities, as well as contributing and participating in the community as a great corporate citizen,” David L. Peterson, owner of Tafel Motors, said in the release.
Woodford Reserve debuts its limited edition Kentucky Derby bottle
With only 57 days to go until Kentucky Derby 142, it’s never too soon to start the hubbub. One of the first telltale signs the big race is near is the annual release of the limited-edition Woodford Reserve Derby bottle, this year featuring artwork by award-winning equine artist Thomas Allen Pauly.
Pauly, who hails from Chicago, used an image from his “Barreling Down” painting that depicts two thoroughbreds and jockeys racing for the finish line. Pauly was named the Official Artist of American Pharoah.
“Woodford Reserve is honored to collaborate with an artist of such high caliber for this year’s commemorative Derby bottle,” said brand director Jason Kempf in a press release. “His years of experience, esteemed skillset in painting and passion for the equine industry correlate perfectly with the Kentucky Derby.”
New shoe store opens at The Outlet Shoppes of the Bluegrass
Vans is a California-based shoe company known for its canvas slip-on shoes and its ties to the surfing and skateboarding communities. The new store opened Thursday near Johnny Rockets, according to a news release.
“Vans notably enhances the variety of our merchandise mix at The Outlet Shoppes of the Bluegrass,” general manager Dan Davilla said in the release. “Attracting today’s youth market, this particular addition is a great example of our continued commitment to expanding store selections to appeal to the widest-possible range of shoppers.”
During the past four months, The Outlet Shoppes of the Bluegrass has added several new stores including Abercrombie and Fitch, Express, H&M and Maurice’s. —Caitlin Bowling