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High-flying Alliance Health of South Jordan has filed for bankruptcy in the aftermath of a raid by federal agents seeking evidence of possible fraud related to the sale of products to government health plans.
CEO Jeffrey Smith resigned April 14 after the bankruptcy filing in Texas earlier this month, company spokesman Brian Watkins said in an email, which noted its board of directors was now overseeing operations as it seeks to reorganize and emerge from bankruptcy.
The filing came after Zions Bank closed the company's line of credit in the wake of the Feb. 23 federal raid, said bankruptcy attorney Elizabeth Green.
The U.S. attorney's office for Utah declined to comment on the investigation. But a previous search warrant application filed in federal court said the case involves "a scheme to defraud health care benefit programs, resulting in payments for mail-order diabetic test strips under false and fraudulent pretenses."
Two companies that manage prescription services for federal employee and military health insurance programs contracted with Alliance Health-owned mail-order pharmacies that were posing as retail outlets. By acting as if they were retail outlets, Alliance could provide diabetic test strips at as much as six times their mail-order price, according to an affidavit from a federal agent.
Mail-order diabetic test supplies also are not covered by federal insurance programs, the affidavit says.
In addition, the company's sales team would sometimes switch a patient's prescription multiple times to provide the most profitable product, the affidavit says.
The team also persuaded some patients to call a new "modern doctor" if their physicians declined to change prescriptions and sometimes would raise the frequency the patient was using the tests to sell more products, it says.
Another team would transfer patients from one of the 18 or so related pharmacies to another when the first one was "flagged" and unable to submit claims, the affidavit says.
The search warrant allowed agents to go through Alliance Health packages sent or received by UPS and the U.S. Postal Service, and agents looked for evidence in the company's trash.
"Alliance Health and its associated pharmacies are cooperating fully with the inquiry," Watkins said.
The company laid off 11 percent of its workforce about a month ago and now has 759 employees, 627 of them in Utah.
Alliance Health was named to 2016's Inc. 5000 fastest-growing companies list at No. 1,835, reporting three-year growth of 203 percent and 2015 revenue of $175.4 million. In 2015, it was named the fastest-growing company in the state by Utah Business magazine, which in 2016 also tagged it as one of the best places to work.
Zions said in a bankruptcy court filing that the bank had extended a loan of $19.7 million to Alliance Health in 2014 with a revolving line of credit of at least $9.3 million. On the same date as the raid on the company, federal agents seized all the company's cash in its Zions accounts, the filing said.
Alliance Health's board of directors voted April 4 to file for bankruptcy after Zions said it would push to have a receiver appointed to take over operations.
The company listed debts of $50 million to $100 million, with Johnson & Johnson as its largest creditor, at $38.9 million; Roche, at $33.4 million; and the state of Virginia at $25 million.