May 9, 2016

CT docs join lawsuit frenzy against medical-waste giant

Photo |  Steve Carroll — Stock.Adobe.com
Photo | Steve Carroll — Stock.Adobe.com
Needles are among the medical waste collected by Stericycle.
Photo | Steven Reed Stock.Adobe.com

Stericycle Snapshot:

Founded: 1989

Headquarters: Illinois

Business: Collecting, processing
and disposing of regulated and specialized waste; confidential document destruction; consulting and compliance services

2015 revenue/net income:
$2.99 billion/$256.9 million

Established presence in Middletown through 1994 acquisition of Safe Way Disposal, which was Stericycle's third acquisition

Went public in 1996

Began international operations in 1998

Total acquisitions from 1993 to Dec. 2015: 435 (230 in the U.S.)

Largest acquisition: In Oct. 2015, Stericycle bought Shred-it International of Ontario and Ohio for $2.3 billion

Significant medical waste acquisition: In 1999, the company acquired Browning-Ferris Industries, previously the biggest medical-waste- services provider in the country, for $410.5 million. Stericycle's revenues more than doubled the following year.

Two West Hartford physicians have filed a class-action lawsuit accusing one of the country's largest medical-waste disposal service providers of illegally jacking up service fees.

But they aren't alone.

The April 28 complaint against Illinois-based Stericycle — filed by Drs. Murray Wellner and Harvey Hameroff — comes on the heels of at least 18 similar class-action suits that have been filed in multiple states against the $8-billion public company over the past three years, according to court records.

Wellner and Hameroff's complaint, which seeks class-action status, estimates there could be thousands of Stericycle customers in Connecticut, including physicians, dentists, veterinarians, pharmacies and other businesses that generate medical waste, whose aggregate claims against the company exceed $5 million.

At the heart of the Connecticut suit, and those that preceded it, is the contention that Stericycle's customer-service agreements were deceptive or misleading.

Fine Print Challenged

The contracts — several examples have been filed in federal court — list a flat monthly, quarterly or annual service fee on the front page. But further into the agreement, the fine print says Stericycle has the right to change pricing to account for specific scenarios, such as rising operational costs, or to comply with changes in law.

The lawsuits argue that Stericycle routinely charged automatic price increases as high as 18 percent, and that they were unrelated to rising costs or legal changes.

The two Connecticut doctors allege that Stericycle steadily increased their service fees, from $181 in 2006 to $1,581 last year. The suit claims the increases were part of "a systematic practice and policy that Stericycle regularly employs to generate revenues," and that wasn't disclosed to customers when they signed their agreements.

Their complaint said the alleged actions amount to breach of contract and violation of the Connecticut Unfair Trade Practices Act.

Stericycle claims more than 1 million customers and 25,000 employees around the world. More than half of its workforce is in the United States, including an unknown number at a Middletown location.

As of May 5, Stericycle had not yet filed a formal response to the complaint in court. The company did not return a call seeking comment for this story.

Lawsuits mounting

Wellner and Hameroff's civil suit is the latest in a growing number of similar billing-related lawsuits, known as "tag-along" or "follow-on" actions, that Stericycle faces.

The class actions began mounting in 2013 and a federal judicial panel has since consolidated 18 lawsuits from Stericycle's non-government customers in a dozen states under a federal court in Illinois, where the company is headquartered.

It's possible Wellner and Hameroff's complaint will join them. Three of the law firms representing the two doctors are involved in several of the 18 consolidated cases, the latest of which was filed April 8 in Alabama, according to court records.

Wellner declined comment and his and Hameroff's attorney didn't return calls for comment.

Hagens Berman Sobol Shapiro, the Seattle-based law firm appointed as lead counsel for the consolidated plaintiffs in Illinois, said the Connecticut case will "almost certainly" join the 18 others because it "asserts essentially identical claims."

Hagens Berman asked a judge in January to certify a nationwide class of plaintiffs. As of last week, that hadn't yet happened.

Roots of the Class-Action Frenzy

The class-action frenzy was sparked by public revelations in 2013 that numerous state governments were suing Stericycle over alleged improper price increases.

In January of that year, a judge unsealed a 2008 whistleblower lawsuit filed by a former Stericycle employee, which contained the first publicly known allegations that Stericycle had improperly increased prices billed to government customers.

Thirteen states and Washington, D.C., joined the complaint in 2010, which eventually settled in 2015 for $28.5 million. New York's attorney general settled separately for $2.4 million.

Stericycle has said in U.S. Securities and Exchange Commission filings that the whistleblower settlement was not an admission of wrongdoing or liability, and that it settled the suit to "avoid the expense, burden and inherent risk and uncertainty of litigation."

Stericycle has denied the allegations made by the flurry of lawsuits that soon followed.

"We believe that we have operated in accordance with the terms of our customer contracts and that these complaints are without merit," Stericycle said in its 2015 annual report, filed with the SEC in March. "We will continue to vigorously defend ourselves against each of these lawsuits."

Stericycle said it couldn't estimate possible losses from ongoing lawsuits.

CT's Stericycle dealings

Two New England states — Massachusetts and Rhode Island — received a piece of last year's $28.5 million whistleblower settlement, but Connecticut was not a party to the suit, although the state has done business with Stericycle.

Since 2012, the state has paid the company approximately $334,000 for hazardous-waste-disposal services, mainly at correctional facilities and hospitals, according to data on the State Comptroller's website, opencheckbook.ct.gov. Stericycle also has an active four-year contract for disposal services with the state that runs through 2018, records show.

It wasn't immediately clear last week if the state had any contracts with Stericycle prior to June 2010, which is when more than a dozen states joined the whistleblower suit.

Attorney General George Jepsen was elected in late 2010, five months after other states joined the lawsuit. His spokeswoman Jaclyn Falkowski said last week that the office has no Stericycle-related complaints from state agencies on file from the past two years, which is the length of time the office keeps records not related to litigation.

She said Connecticut also didn't join the whistleblower suit because Stericycle's alleged conduct took place prior to the state legislature enacting its own whistleblower law, known as the False Claims Act. In addition, until 2014, the act only applied to false Medicaid claims, she said.

Massive growth, antitrust concerns

Jepsen's predecessor, U.S. Sen. Richard Blumenthal, tangled with Stericycle at least once, records show.

In 2002, when Stericycle announced it intended to buy medical-waste-disposal businesses from Georgia-based Scherer Healthcare, a competitor with a substantial New England customer base, then Connecticut Attorney General Blumenthal expressed concern about the potential anticompetitive impacts of the deal.

Blumenthal negotiated a voluntary seven-year agreement that required Stericycle to notify his office in advance of further acquisitions of medical-waste businesses operating in the New England market.

Falkowski said the AG's office has no such notices on file.

Massachusetts was also involved in the acquisition settlement, requiring Stericycle to divest a medical-waste transfer station in the northeastern part of the state.

At the time, Stericycle had been operating in Connecticut for eight years.

Massive Revenue Growth

Founded in 1989, the company bought Middletown-based Safe Way Disposal in 1994, two years before going public. Stericycle had $16.1 million in sales that year. In 2015, the company reported $2.99 billion in revenues.

That 187-fold growth is the result of 435 acquisitions over the company's history, including 230 in the U.S., according to SEC filings.

That market consolidation has drawn other antitrust concerns. The U.S. Department of Justice and New York's attorney general sued in 2011 to block Stericycle's acquisition of an Ohio-based competitor, which they argued would have given Stericycle 90 percent of the New York metro market for infectious-waste treatment.

The parties settled, with Stericycle agreeing to divest a transfer station in The Bronx.

The suit filed by the West Hartford doctors last month refers to Stericycle's market power.

"One of the consequences of Stericycle's rapid growth and dominance has been that its customers (and potential customers) have had little meaningful choice in selecting and negotiating arrangements with medical waste disposal companies and have been at the mercy of the terms of the agreements, no matter how oppressive and one-sided they may be," the complaint reads.

There are 17 biomedical-waste haulers licensed in Connecticut, according to a state list dated Nov. 2015. It's not clear how much market share Stericycle owns.

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