“There were practices going on there that were wrong”: Outcome Health’s Desai pleads guilty, cooperates with DOJ.

Perhaps the smartest move, under really, truly bad circumstances. Ashik Desai, the former executive vice president of business operations/chief growth officer of point-of-care health information/advertising company Outcome Health, ‘copped a plea’ this past Monday to felony wire fraud charges. According to the Chicago Tribune, Assistant US Attorney Matthew Madden told Judge Thomas M. Durkin of the Northern District of Illinois Federal Court in Chicago that Mr. Desai is cooperating with the investigation. “When I was at Outcome Health, there were practices going on there that were wrong,” Mr. Desai said, understatedly, during his court appearance Monday. “I participated in those practices that ended up defrauding Outcome’s customers.”

According to the article and other sources (WTTW), Mr. Desai is only 26; he started at Outcome as an intern when it was still Context Media and departed in 2017. With continued cooperation, the prosecution is recommending only 10 years in prison, half of what a conviction might bring at the statutory maximum of 20 years. He was released on bond and surrendered his passport.

The multiple and most serious charges in the indictment are for the two founders, Rishi Shah and Shradha Agarwal, both of Chicago, and Brad Purdy, their former COO and CFO, all in their early 30s. These are criminal charges of fraud relating to their capital raises of about $1 bn during 2011 into 2017, deceiving their investors, lenders, and their own auditors for profit and misrepresenting to advertisers their delivery performance.

On Monday 9 December, Mr. Purdy pleaded not guilty to six counts each of mail fraud and wire fraud, two counts of bank fraud and one count of making false statements to a financial institution. His counsel, not unexpectedly but amusingly for those of us who are experienced in the corporate pecking order and what exactly a CFO is responsible for, stated: “Ashik Desai and several of his underlings committed a massive fraud. The evidence will show Brad Purdy was not part of that fraud,” he said. “Evidence is going to show Ashik Desai repeatedly lied to Brad and others to conceal his fraud from people like Brad.” Mr. Purdy also was released on bond and surrendered his passport.

Two of those underlings, Kathryn Choi and Oliver Han, pleaded not guilty on Thursday 5 December to their respective charges of wire fraud. They face five years maximum if convicted. In this Editor’s opinion, they were indicted to bring forth additional information to buttress the major charges on Mr. Desai and the three top executives. As ‘small fry’ with at most a little profit sharing, they are sideshows–easy to pressure. They may truly spill the beans if they and their counsel sense that things are going badly–if they have any more beans to spill. 

Mr. Shah and Ms. Agarwal are scheduled to appear in court next Monday, 16 December. They have previously stated that they will plead not guilty (FiercePharma). Flight risk is undoubtedly a concern for the prosecution regarding Ms. Agarwal. According to this Refinery29  interview from 2017, Ms. Agarwal is an Indian citizen and, while a long-time legal resident, not a naturalized American. Mr. Shah was born in the US. This cautionary Tale of the Unicorn, told in the Chicago Way, warns us all to be careful of what we see, are asked to do, sign on to–and sign off on.

Another unicorn loses its horn–Outcome Health finally loses the CEO and president

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2015/08/1107_unicorn_head_mask_inuse.jpg” thumb_width=”150″ /]Another Theranos? Outcome Health is a point of ‘sale’ advertising company that has wrapped itself in ‘behavior change technology’. It’s been a Chicago darling and closed a $500 million Series A led by Goldman Sachs and Alphabet only last May. Its business in ‘transforming healthcare’ is the prosaic but highly lucrative placement of monitors in doctors’ offices that provide relentless health educational content liberally laced with DTC sponsorship messages, free to the doctors but paid for by pharma companies. This also includes tablets, exam room demo wallboards, and Wi-Fi in offices. The Series A pushed up the company’s valuation to $5.5 bn and made its CEO a billionaire.

What it didn’t do, like Theranos, was deliver. Before October last year, advertisers, backed up by former employees’ testimony, realized that the data were inflated in several ways: number of screens in offices, verification of actual runs, match lists that didn’t match to the screens, made-up survey numbers, and puffed up third-party analyses of the ads’ effectiveness, e.g. for prescriptions written. A Wall Street Journal article in October last year exposed the practices. When advertisers are fleeced, they may get mad, but then they get even. There were reported refunds in the millions to Pfizer, plus millions in advertising make-goods to Sanofi SA and Biogen Inc. 250 ad campaigns are now in review across 40,000 doctors’ offices. A search for the guilty ensued, some culpable employees were suspended, the usual layoffs of 33 percent of the staff and belt-tightening ensued, and an outside person was hired to investigate and impose the usual ‘best practices’. Also MedCityNews

The mea culpas didn’t work because it’s real money and there were signs it was moving. In November, investors in that Series A, including Goldman Sachs, Alphabet, and Pritzker Group Venture Capital, attempted to claw back $225 million they gave to CEO Rishi Shah and President Shradha Agarwal held in a special fund. The investors accused them of moving the money. The court documents indicated they received subpoenas from the Justice Department (see Chicago Tribune below). The filing was in New York State Supreme Court, not in Illinois. Outcome’s response was to trumpet their integrity and that “the equity investors led by Goldman Sachs are misusing the court system to advance their own short-term, self-interest of winning an advantage over debt-holders — all to the detriment of the business, its employees and customers.” MedCityNews

Last week, they settled. Both Mr. Shah and Ms. Agarwal announced they are ‘stepping down’ from direct operations to become chairman and vice chair of the now seven-person board of directors, now including three independent directors and two representing investors. The investors, lenders, and founders are funneling $159 million to reduce the company’s debt by $77 million and buttress their operations. The COO is taking on interim CEO duties while the board searches for a new head. The release trumpets ‘reinvestment in the future’. And that HQ move to an ‘Outcome Tower’? Nixed. Illinois also pulled away two tax credit deals. Chicago TribuneMedCityNews

How three major investors didn’t do their ‘due diligence’ before writing big checks is beyond this Editor’s ken. This tale won’t be as drastic or lead to moral questions as Theranos did. There are no malfunctioning tests, misled patients and doctors– after all, it’s just advertising in offices paid by everyone’s favorite pharmas. But as yet another blot on healthcare transformation, like Theranos it’s turned into a corporate saga of posturing–ah, here’s a fig leaf to cover, a shoe to drop, and here’s your large feathered fan.