Date: Jan 09, 2019 Author: Sophia Kunthara and Catherine Ho Source: San Francisco Chronicie (
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CardioDx, a venture-backed company, is headquartered in Redwood City. On Friday, the front door was unlocked but the offices appeared empty.
A 16-year-old Bay Area medical diagnostics company is shutting down after the federal government's Medicare health insurance program -- one of the largest purchasers of the company's flagship product, a blood test for heart disease -- rescinded coverage of the test in many states after the test was found to be unnecessary and of little use to patients.
But that was not before the company, CardioDx in Redwood City, sold millions of dollars worth of the test over the course of six years until Medicare in November stopped paying for it. At least 175,000 patients have used the test, the company has said.
CardioDx's shutdown appears abrupt: The same day in December it publicly touted the value of its blood test, it submitted a notice to a state agency disclosing it was laying off 110 employees as it planned to "wind down its current business operations." But warning signs emerged in the fall, when insurance companies that administer Medicare benefits began issuing public notices that they planned to stop covering the test in November. Around that time, a federal court unsealed whistle-blower complaints brought by former employees who accused the company of defrauding Medicare by knowingly selling an unnecessary test.
The company did not offer any explanation about its plans to shut down in its Dec. 19 letter to California's Employment Development Department. A 60-day notice of mass layoffs is required by state labor law for businesses with 75 or more employees.
Multiple calls to CardioDx headquarters and a media line over the course of several days were not returned. Emails requesting comment from CEO Khush Mehta, founder and Chief Strategy Officer David Levison and the company's three other board members went unanswered. On Friday morning, the doors to CardioDx's lobby were open, but the office appeared empty, with the company's reserved parking spots unfilled.
CardioDx, a Redwood City company that develops tests for coronary artery disease, told the state it plans to layoff its 110 employees, including CEO Khush Mehta, and end its current business operations Feb. 20.
Photo: Courtesy of CardioDx
It is unclear how much Medicare spent on the test during the six years it covered it or how much in payments CardioDx collected. But in 2016 and 2017 alone, the Medicare program and patients collectively spent nearly $52 million on the test, according to a Chronicle analysis of data from the U.S. Centers for Medicare and Medicaid Services. It is unclear how much of that may have been paid out of pocket by patients.
Accusations that the company sold a test it knew was medically unnecessary date to 2015, court records show. In separate lawsuits filed in federal court in San Francisco, two former CardioDx employees say the company defrauded Medicare out of tens of millions of dollars between 2012 and 2018. Attorneys who filed a complaint in February 2018 put the figure at $55 million; the 2015 complaint puts that figure between $39 million and $53 million.
The legal challenges were made under the False Claims Act and triggered a review by the U.S. Department of Justice, court records show. The department, however, filed court papers in November saying it had decided not to pursue the claims.
That doesn't mean the end of the company's legal troubles. Justin Berger, an attorney for the former employee who filed the first whistle-blower complaint, said he is still pursuing his lawsuit against CardioDx and several executives without the government's intervention.
The company has not responded to the claims in court, and no lawyer of record is listed. Efforts to reach attorneys who have previously represented CardioDx were unsuccessful.
Medicare stopped paying for the test, called Corus CAD, in November, according to three Local Coverage Determination notices posted by the U.S. Centers for Medicare and Medicaid Services in September and October. The coverage decisions were made by insurance companies that administer Medicare benefits regionally and help decide which services will be covered, though the payments for those services ultimately come from the federal government.
"The manufacturer has failed to demonstrate that testing resulted in improved patient outcomes or that testing changed physician management to result in improved patient outcomes," one notice said. "Data regarding its clinical usefulness in elderly (Medicare-aged) patients, particularly males, is significantly lacking in all scientific articles."
Medicarestopped paying forCardioDx's test, called Corus CAD, in November.
Photo: Paul Chinn / The Chronicle
The notice also says the test is not included in any professional society management or treatment guidelines.
The Corus CAD test is used to rule out whether a patient's chest discomfort requires further testing for coronary artery disease. CardioDx-sponsored studies said the test would rule out 50 percent of patients for further testing, but it only ruled out further testing for 20 percent of Medicare-covered women and did not rule out further testing for any men over age 65, lawyers for one of the former employees claimed in a suit.
CardioDx, founded in 2003, had raised about $297 million, and its last round of venture funding was in January 2017, when it raised $22.5 million, according to Crunchbase. Soon after it received the green light for Medicare coverage, the company brought in $58 million from prominent venture capital firms, including GE Capital, Intel Capital and Kleiner Perkins. A Kleiner Perkins spokeswoman said the firm wrote off the investment several years ago and declined to comment further. GE Capital declined to comment and Intel Capital did not immediately respond to a request for comment.
CardioDx tried to become a publicly listed company in 2013. It filed papers with the Securities and Exchange Commission in preparation of an initial public offering but withdrew the filing.
Medicare pulling its coverage after several years because of the lack of value of the test is unusual, but it could very well cause a company to close its doors, according to Tim Bajarin, president of market research firm Creative Strategies.
"If it's not really valuable, it's surprising that it's taken this long for Medicare or anyone to make that evaluation," Bajarin said. He added that it would be "highly unusual" that it's pulling coverage. "And it does appear that Medicare must've been the major backer financially, the major insurance that covers it, that their lack of support for it could cause a death knell."
