Burlington Labs rescue plan approved

The Green Mountain Care Board has issued a conditional certificate of need to an investor group after an emergency review to take over financially-challenged Burlington Labs, a diagnostic testing and treatment company headquartered in Burlington that serves patients in eight Vermont communities including Springfield.

   

Burlington Labs rescue plan approved By Neal P. Goswami Vermont Press Bureau | September 02,2016 MONTPELIER — The Green Mountain Care Board has issued a conditional certificate of need to an investor group after an emergency review to take over financially-challenged Burlington Labs, a diagnostic testing and treatment company headquartered in Burlington that serves patients around the state suffering from opiate and other substance addictions. The investor group, led by James Crook, a former longtime executive with IDX Systems, includes the current ownership of Burlington Labs and the University of Vermont Health Network. The group was granted a conditional certificate of need to take over Burlington Labs Thursday after a hasty emergency review by the Green Mountain Care Board. “The critical role Burlington Lab plays in the statewide fight against opiate addiction obviously resonated with the board,” Crook said in a statement. The company employs 183 people in six states, including 137 employees in Vermont. It operates walk-in patient services in Barre, Bennington, Burlington, Middlebury, Morrisville, Rutland, St. Albans and Springfield and had planned to open a location in White River Junction later this year. The GMCB review process found that Burlington Labs serves a critical need in Vermont’s efforts to combat substance abuse. It served 2,347 patients this year through August and performed 40,941 drug tests. According to the board’s decision, Burlington Labs is in critical financial shape and lacks the cash to meet its ongoing payroll and debt obligations. It has defaulted on several contracts and has trade debts around $3.7 million. Current monthly expenses are about $400,000 more than revenue. Additionally, Burlington Labs has defaulted on a bank loan with KeyBank NA and owes the bank $4,894,600 plus accrued interest. Compounding the company’s financial problems is an ongoing investigation by the Vermont Attorney General’s Office’s Medicaid Fraud & Residential Abuse Unit that will add to the company’s debt. Burlington Labs has been negotiating a settlement since May concerning an investigation into overstated Medicaid claims in 2015. The Vermont Medicaid program has been withholding 50 percent of payments to Burlington Labs because of the investigation. The Green Mountain Care Board’s decision to issue the conditional certificate of need noted the investor group expects to pay as much as $6.5 million in damages once a settlement is negotiated. Completion of a settlement agreement is the key condition that must be satisfied for the certificate of need. Crook provided an $800,000 secured loan to Burlington Labs on June 30 to help it meet payroll and pay its most critical suppliers and vendors. He then advanced an additional $585,000 to assist the company in meeting additional financial obligations. The board found that most of that money has been spent. Crook told the GMCB he got involved because he wants to do “something that matters” to curb the epidemic of opiate abuse and his involvement provided an opportunity to prevent the loss of jobs in Vermont. He said his team can provide the “right resources” to save a “very important asset” in the state. Crook sought out the University of Vermont Health Network to become a minority partner in the investor group. The investor group formed as a limited liability company in Delaware on Aug. 18 in the effort to purchase Burlington Labs. The group plans to invest $4.5 million, according to the board’s decision. Crook will initially control about 62 percent of the company, with the Burlington Labs and UVHN owning 23 percent and 15 percent, respectively. The ownership stakes are subject to change, however, as the loans extended to Burlington Labs by Crook are considered and equity incentive units are offered to company officers and employees. UVHN is expected to provide loans ranging between $3 million and $5 million to Burlington Labs after the transfer of ownership. A portion of the loan amount is planned to be convertible into preferred ownership units in 2018, estimated at an additional 10 percent stake. Crook testified before the GMCB that the ownership transfer of Burlington Labs needed to happen quickly. He said the media attention focused on the state’s Medicaid investigation has created anxiety among employees, creditors, the Attorney General’s Office, patients and the treatment centers the company works with. Crook also testified he could not continue to provide funds to Burlington Labs if the transaction did not happen fast. The GMCB noted that granting an emergency review “is rare and should be used sparingly,” but members were convinced the request for a certificate of need “requires swift intervention and the Board’s expeditious decision.” The investor group meets all the criteria for a certificate of need, according to the GMCB. “(I)n conducting our review of this (certificate of need) we were struck by the gravity of Burlington Labs’ financial situation, the commitment of the Applicant to ensure that these services and jobs crucial to our state will not be lost, and the acute need for these services as a tool to help address Vermont’s drug epidemic,” the decision states. GMCB Chairman Al Gobeille said board members had some reservations about the expedited process but said the materials provided by Crook provided more assurances. “I, personally, was very concerned that they would buy it and they would be unsustainable. I don’t want this to come back to us. That said, we received confidential information about the company, which shows what they’re going to do, that shows how they’re going to break even next year,” Gobeille said. “That really mattered to me.” He said the board felt compelled to move quickly in the interest of patients. “It’s a fundamentally question of, ‘Do we need this?’ We felt that the story was compelling, that it was very needed for patients and there was no other remedy,” Gobeille said. “Our certificate of need process is bureaucratic, complicated and long. The last one we did took nine months. If this took nine months, the facility would be closed and the patients would not have that service.” The investor group plans to provide new leadership and a new governance structure when it takes over. The board of directors will include Crook, who will serve as chairman. Christopher Powell, formerly of IDX, will serve as the chief executive officer, while John A. Kane, another former IDX executive, will serve as the chairman of the new entity’s Audit and Finance Committee. Todd Keating, an executive with UVHN, will also serve on the board. The group initially planned to include Burlington Labs co-founder and current chief executive Michael Casarico on its board, but the group confirmed to the GMCB that Casarico will not be a member. According to the GMCB decision, the investor group will refinance the loan held by KeyBank and assume Burlington Lab’s additional $3.7 million debt. It is also continuing to pursue a settlement over the Medicaid investigation. Burlington Labs, under the new ownership, will continue the services it currently offers and use the same or equivalent lab testing procedures, specimen collection procedures and proprietary methods, according to the decision. The new ownership team “will evaluate its business over time to determine the appropriate location and relocation of collection centers, and intends to move the Barre center to Montpelier, likely close one center in New York and one in Massachusetts that are underutilized, reopen a recently closed center in Enosburg, and evaluate plans to open a center in White River Junction.” Additionally, the group “intends to initially retain substantially all of the employees of Burlington Labs, but states that there may be workforce reductions in the future. A reduction in force may take place “in order to put the business on more solid financial footing going forward.” The GMCB received letters of support for the transaction from Spectrum Youth and Family Services, Howard Center, Turning Point Center of Addison County, Vermont Health Commissioner Dr. Harry Chen, United Way of Northwest Vermont and Burlington Mayor Miro Weinberger. The GMCB decision stated each letter referenced the need for maintaining the services provided by Burlington Labs. The administration of Gov. Peter Shumlin hailed the announcement of the certificate of need Thursday. “The governor was pleased that the Green Mountain Care Board took a thorough look at the Burlington Labs situation, and approved the certificate of need,” Shumlin spokeswoman Sue Allen said. “The drug testing services of Burlington Labs have been critical in Vermont’s fight against opiate addiction, and Gov. Shumlin hopes that the jobs provided by the company can be preserved.” CH