Shareholder Lawsuit Latest Problem to Hit Troubled Laboratory

By LAURENCE DARMIENTO

Staff Reporter

Troubled Specialty Laboratories Inc. was hit with a shareholder lawsuit last week in federal court, accusing the Santa Monica company of failing to follow costly lab requirements in order to inflate revenue and earnings.

The lawsuit follows a decision by Novation, one of the largest national purchasing groups for hospitals, to terminate its contract with the clinical reference laboratory as of July 29.

The actions follow the federal government’s previously reported decision to revoke Specialty Labs’ federal license and suspend Medicare and Medicaid payments over allegations that its lab personnel were not qualified. The company’s stock has dropped to below $9 a share, after trading as high as $47 last year.

Specialty Labs took a $1.2 million charge against earnings last week to account for Medicare and Medicaid’s refusal to pay bills it submitted, and to reserve for possible civil penalties, according to a filing with the Securities and Exchange Commission.

That reduced net income to $1.3 million (6 cents a diluted share) for the first quarter ended March 31, compared with $3.4 million (15 cents) for like period a year ago.

Company officials could not be reached for comment on the lawsuit. The lab is appealing the revocation of its federal license and has submitted a plan to correct its personnel licensing problems with the state. The company contends it is now in compliance with all regulations.