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Exclusive: U.S. drug testing firm probed for alleged fraud, intimidation

By Duff Wilson

(Reuters) - A federal grand jury in Boston is investigating Millennium Laboratories of San Diego, a fast-growing private company selling urine drug testing services to pain clinics across the United States.

The company not only is under investigation by the Justice Department for allegations of health care fraud but also for intimidating former employees, one who was portrayed in a slideshow at a company meeting as a corpse in a body bag.

Two of the ex-employees, who had raised concerns about Millennium's sales practices, also say they were followed for weeks by private investigators they believe were hired by the company.

No criminal charges have been filed, and Howard Appel, Millennium's president, said the company is cooperating fully with a Justice Department subpoena and did nothing wrong.

Appel said the company is a leader in business ethics in the estimated $4 billion industry that helps doctors monitor the soaring use and abuse of pain drugs. He said the grand jury may also be investigating Millennium's competitors.

Four witnesses, speaking publicly for the first time, described their grand jury testimony to Reuters in separate interviews. They said they were only asked about Millennium.

Reuters reviewed copies of five grand jury subpoenas seeking records on Millennium. Federal grand juries operate in secrecy to investigate matters that might constitute criminal conduct. Witnesses are free to describe what they said.

All four said they testified that Millennium was getting doctors to order unnecessary urine tests and charging excessive fees to Medicare and private insurers. Millennium has denied those accusations in civil lawsuits.

The body-bags picture was part of a PowerPoint presentation by Martin Price, the company's general counsel, the former employees said. He showed it at a national sales meeting in January in which Price described Millennium's success against its adversaries, according to one grand jury witness, former Millennium employee Jodie Strain.

Strain said grand jurors gasped when the body-bag image was projected onto a wall during her testimony October 3. She said the toe tag identified the corpse as Ed Zicari, a former regional manager Millennium was suing.

Appel declined to comment on the body bag picture. The United States attorney's office in Boston also declined to comment.

Other slides that were part of Price's presentation showed the logos of competing companies being riddled with bullet holes while gunfire sounded as if they were at a shooting range. Strain, a former senior sales representative, said the talk ended with an ominous warning: The company could not protect people who went "outside the Millennium family."

Strain and another person who witnessed the PowerPoint presentation, in a separate interview, said more than 200 sales people in the audience fell silent at the body bag picture.

"I took it as a complete warning and threat to not only not go to the competition but don't even question Millennium once you were no longer under their protection," Strain said in an interview.

"That was definitely quite scary," said another former employee who spoke on condition of anonymity. "It sent a very clear message not to mess with Millennium Labs." That person also said Price had told the staff to put away cell phones, which could have been used to take pictures, before the presentation. Through a company spokesman, Price declined to comment.

Shortly after Price's presentation, Strain said she told Zicari's girlfriend about the slide show because she feared for their safety. Strain said she was fired the next week.

Zicari and his girlfriend, Lori Martin, a former sales representative at the company, were being sued by Millennium at the time for allegedly taking confidential information when they left the company. Both also accused the company of misconduct. The suit was settled last summer.

Zicari and Strain are currently pursuing suits against Millennium for wrongful termination and other claims.

Appel described them as "disgruntled former employees" who were fired for cause, not for questioning company practices. He described Zicari as "alive and well and living in Texas."

Daniel Richman, a former federal prosecutor who teaches criminal law at Columbia University, said intimidating images such as a body bag representing a former employee could be "potent" evidence for obstruction charges or to argue bad intent on other charges if they are brought.

FOCUS ON SALES

The grand jury witnesses said most of their testimony focused on the company's sales practices. They said Millennium had aggressive pitches to pain clinics to order varieties of urine tests even when they were not needed, at up to $1,600 a test. Urine tests can show doctors whether their patients are taking extra pain drugs and whether they are taking their prescribed drugs.

The federal investigation is led by Susan Winkler, former chief of the health care fraud unit for the U.S. attorney in Boston. That unit has recovered more than $8.5 billion in settlements, fines and judgments since 2009.

Winkler signed the Millennium subpoenas and questioned the witnesses before the grand jury. Christina Sterling, a spokeswoman for the U.S. attorney, would not confirm or deny that a case was before the grand jury.

Marc Raspanti, a partner in a Philadelphia corporate-defense law firm, said grand juries generally only consider matters in which prosecutors have a strong suspicion of criminal behavior. It would take probable cause to indict, and evidence beyond a reasonable doubt to convict.

Millennium has not been called to testify.

"Not yet, but when called to do so, we will," Appel said.

The urine drug testing industry has taken off as the number of pain drug prescriptions in the United States grew from 30 million to 180 million a year over the last two decades, raising demand for monitoring, Appel said. The burgeoning industry has spawned two previously disclosed prosecutions and scores of suits and countersuits by companies accusing each other of wrongdoing.

In March, Calloway Laboratories of Woburn, Mass., paid $20 million to settle a Massachusetts state Medicaid case accusing it of paying kickbacks for unnecessary screening. Three former Calloway officials were sentenced to four years probation. And in 2010, Ameritox, based in Baltimore, Md., paid $16.3 million to settle similar claims by the federal government.

PREVIOUS DISPUTES

Millennium has been in heated legal disputes with both of those competitors, but at the same time, held itself out as a leader in industry accountability.

Millennium and its founder say they gave $2 million to the University of Washington in 2010 to study pain; $312,000 to a state of Florida program in 2010 to track prescription drugs; and $250,000 to a Duke University professor in April to host "a business summit on ethical practices in the medication monitoring industry."

"This is a new industry," Appel said. "A lot of companies are popping up, and it's important that all companies are held accountable to make sure they comply with a standard of ethics and accountability."

Millennium said in a civil suit filed September 18 that it received a Justice Department subpoena March 27 for "over 20 broad categories of company documents and materials." Appel declined to be more specific. In the civil suit, Millennium is seeking up to $5 million from an insurance policy to defend itself in the federal investigation, while the insurer, Allied World Assurance, says it will only pay $100,000. The case is pending.

Appel said the company plays a vital role in helping doctors and patients. He declined to talk about Millennium's size or revenues, but ex-employees say they were told it had grown into the biggest company in the sector.

The ex-employees told the grand jury that Millennium encouraged unnecessary and excessive testing in a variety of ways. They have made similar statements in civil suits.

Millennium sales tactics, they said, included a chart showing doctors how much they could boost their own income by increasing the number of urine drug tests they ordered. For instance, a $15 payment to test for one drug could balloon to about $800,000 a year if 20 people a day were tested and each urine sample was tested for 11 drugs, the chart said.

URINE CUP KICKBACKS?

Kelly Nelson, a former regional sales manager for Millennium, and Strain both said they testified to the grand jury in response to questions about a federal anti-kickback law. They said Millennium gave doctors free boxes of collection cups with embedded test strips -- worth $3 to $6 per cup - to encourage referrals, which the prosecutor questioned under an anti-kickback measure called the Stark Law.

"I told the grand jury I objected to the frequency of testing and the free cups," Nelson said. She said she was fired after complaining about the practices and is suing the company.

Millennium was founded in 2007 by Edward Slattery. His bio says he previously worked in real estate and broadcast and served eight years as Massachusetts commissioner of aeronautics. Last year, he won an Ernst & Young Entrepreneur of the Year award in San Diego. He declined to comment.

Price, Millennium's general counsel, joined the company in 2011 after working as its outside counsel for the giant lawfirm Hogan Lovells. His biographical sketch says he had a "prolific record" defending companies against government investigations, class actions and other legal cases.

At the time of the sales meeting, Millennium was suing Martin and Zicari for allegedly giving confidential information to a lawyer for a competing company. The suit was settled in July. During that period, Martin and Zicari said private detectives they believe were hired by a law firm for Millennium trailed them in the Dallas area and parked outside their homes. Millennium declined to say whether it had hired the detectives.

"After a time you come to the conclusion they're doing it to harass you more than anything else, or to intimidate you," Martin said.

(This story has been corrected to fix spelling of name of company throughout)

(Reporting By Duff Wilson; editing by Blake Morrison)

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