CHICAGO (CN) – Business titan Edgar Bronfman is lead defendant in a shareholder derivative complaint against Accretive Health and 10 of its directors, who are accused of concealing the company’s “deplorable” debt collection practices, which allegedly discouraged patients from seeking life-saving treatments and violated medical privacy laws.
Lead plaintiff Jeffrey Goodwin sued Edgar Bronfman, Accretive Health, nine other corporate officers in Cook County Court. One of the director defendants is former Secretary of State George Shultz, a director emeritus of Accretive.
Bronfman, the CEO of Warner Music Group, is a director of Accretive Health, which “provides revenue cycle management services for hospitals and healthcare providers in the United States,” according to the complaint.
Goodwin claims that in January this year, “Minnesota’s Attorney General filed a lawsuit against Accretive Health alleging that the company had violated health privacy laws, state debt-collection laws and state consumer protection laws. The lawsuit centers on a medical privacy security breach that occurred in July 2011 when an employee of Accretive Health had a laptop stolen out of a rental car. The laptop contained unencrypted medical records of 23,500 patients.”
The complaint continues: “The Attorney General’s office was not only concerned with the theft itself and how the company subsequently handled it but also with the extent of the confidential medial information Accretive Health had within its possession and the use of that information.”
The defendants then announced that “in response to the lawsuit filed by Minnesota’s Attorney General, the company had agreed to no longer collect debt on behalf of Fairview [Health Services] … and that they expected this change to negatively impact the company’s fiscal year 2012 revenue by $62 million to $68 million,” according to the complaint.
Accretive’s stock price then fell $4.46 per share to $19.60, a decline of almost 19 percent, the complaint states.
“Then, on April 24, 2012, the Minnesota Attorney General released a report which detailed Accretive Health’s aggressive practices, which included demanding payments from people seeing care in emergency rooms, cancer wards and delivery rooms. The report raised concerns about these deplorable practices,” according to the complaint.
Goodwin cites a New York Times article that reported: “Hospital patients waiting in an emergency room or convalescing after surgery are being confronted by an unexpected visitor: a debt collector at bedside.
“This and other aggressive tactics by one of the nation’s largest collectors of medical debts, Accretive Health, were revealed on Tuesday by the Minnesota attorney general, raising concerns that such practices have become common at hospitals across the country. …
“In March 2011, doctors at Fairview complained that such strong-arm tactics were discouraging patients from seeking lifesaving treatments but Accretive officials dismissed the complaints as ‘country club talks,’ the documents show.”
After this report, Accretive stock “sank $7.63 per share to close at $10.86 per share on April 25, 2012, a one-day decline of 41 percent,” Goodwin claims.
He claims that Accretive’s directors and CEO knew the company was violating patient privacy law by making private health information available to its debt collectors, and concealed from shareholders the effect the company’s violations would have on earnings.
“As a result of the individual defendants’ illegal actions and course of conduct, the company is now the subject of a class action lawsuit that alleges violations of federal securities laws. As a result, Accretive Health has expended, and will continue to expend, significant sums of money,” the complaint states.
Goodwin seeks damages for breach of fiduciary duty and proposes new procedures to improve internal oversight of Accretive’s corporate officers. He also seeks restitution of all profits and benefits obtained by the individual defendants.
Also named as defendants are Accretive directors Michael Cline, Steven Kaplan, Stanley Logan, Denis Nayden, George Shultz, Arthur Spiegel, and Mark Wolfson, and CEO Mary Tolan and CFO John Staton.
Goodwin is represented by Edward Joyce of Edward Joyce & Associates.