Outcome Health agrees to $70M settlement in federal ad fraud investigation

The digital health advertiser hopes to close the book on roughly two years of scandal after reports that it manipulated and sold falsified advertising inventory.
By Dave Muoio
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Roughly two years after the fact, digital healthcare advertiser Outcome Health is finally closing the loop on its ad fraud scandal. Yesterday the Chicago-based company and the US Department of Justice announced a $70 million settlement alongside an admission that the company’s former executives and employees sold falsified advertising inventory from 2012 to 2017.

“Outcome Health deceived its lenders and investors, and overbilled its clients, by fraudulently misrepresenting both the quality and quantity of its advertising services and concealing those misrepresentations from auditors,” Principal Deputy Assistant Attorney General John P. Cronan said in a statement from the DoJ released yesterday. “Today’s resolution demonstrates the Criminal Division’s unyielding commitment to making whole victims of fraud.”

As part of the non-prosecution agreement reached by the DoJ and Outcome Health, the company has committed to compensating its pharma clients over a three-year period. About $65.5 million of this has already been paid or been committed as a mix of cash payments or comped services, with the advertiser putting another $4.5 million aside to handle future claims from those who have not yet been compensated.

These arrangements do not impact any currently standing arrangements Outcome has with its partners, the company said. Additionally, the DoJ said in its announcement that it settled on this resolution based on Outcome’s cooperation with the investigation and the “extensive remedial measures” it has taken over the last few years. These include the company’s replacement of offending executives and staff within the last few years, and its hiring of third party auditors for all current and future advertising campaigns.

“Outcome’s payment of $70 million is an appropriate resolution for the corporate entity given the misconduct of executives and employees acting on its behalf,” Assistant US Attorney Brian Hayes, chief of the Criminal Division for the Northern District of Illinois, said in a statement. “This resolution demonstrates that there are significant consequences for businesses whose executives and employees engage in fraud.”           

WHY IT MATTERS

Outcome was something of a tech industry darling, having been among the first digital health startups to achieve unicorn status. The 2017 Wall Street Journal report outlining persistent manipulation of advertisement performance data was a fall from grace for the company, with the resulting lawsuits and the federal investigation serving as a cautionary tale for other fast-growing startups.

“Today’s agreement holds a healthcare technology company accountable for systematically committing fraudulent business practices for financial gain over many years,” Inspector General Jay N. Lerner, of the Federal Deposit Insurance Corporation’s Office of Inspector General, said in a statement.

The settlements also signal a fresh start for Outcome, which has spent the last couple of years painting itself as “a completely new company.”

“We’re thrilled to resolve this matter, as it enables us to move forward and focus on our mission to be the indispensable partner to patients, providers and industry partners during moments of care,” Matt McNally, CEO of Outcome Health, said in a statement.

“Over the past two years, Outcome Health implemented a comprehensive overhaul of our compliance and campaign-reporting policies,” he continued. “These actions included engaging third-party auditors to ensure reporting accuracy, investing in partnerships with organizations like BPA Worldwide to validate key performance indicators, overhauling internal controls to improve the reliability of reporting, and forming an all-new leadership team, myself included.”

THE LARGER TREND

Outcome Health’s troubles began the same year as its $500 million raise, which at the time brought the company to a valuation of roughly $5 billion. In the months following the scandal, the advertiser lost several high-profile business partners; reached an investor settlement that saw cofounders Rishi Shah and Shrada Agarwal step down from their respective CEO and president positions and eventually depart; settle a completely separate class action suit for $2.9 million; and in June of 2018 appoint McNally to his CEO position.

With all that in mind, it’s not surprising that company has lately been focused on transforming its public image.

“I think it’s easy to lose sight of the purpose and mission and people you’re actually there to serve,” Outcome COO Nandini Ramani, who served as the interim leader of the company amidst the shakeup, said earlier this year at CES 2019’s Digital Health Summit. “This last year has been a year of rebuilding, creating infrastructure, ensuring that we have all of the guardrails, data infrastructure, to actually report and ensure not just our paying clients, but also our providers.”