From 5th Fastest to Zero Growth in Less Than a Year: MiMedx – #55
Management has to prepare transparent accounting records and very carefully monitor internal and external audits that take place. The reports that these two separate efforts comprise should be compared and the CFO should present their reports to the Board. To ensure absolute integrity each audit team should be present at respective presentations – that buys Management up to 20 pair of eyes looking at these vital documents – I’ll assure you that the MiMedx situation would have been identified after the first attempt of illegal activities. Let’s take a look at some of the clear violations that took place:
- Grew the company 50% a year for five years – $2Billion valuation – under a slogan calling its “wound-care-products” modern medical alchemy. For their product, MiMedx used donated placenta liners by women who had births by Caesarian section. Do you believe these placentas were donated? If I was an auditor, CFO, or a Board Member, I would be looking into this as well as checking who benefitted most from these activities. There were too many people involved in watching this illegal activity going on for five years. (Inside & Outside)
- MiMedx Sales Reps recorded in-accurate names of surgeons and improperly listed names as John & Joe Doe.
- MiMedx hadn’t reported payments made to Doctors who used or promoted their products despite a Federal law requiring manufacturers to report payments or gifts to doctors. MiMedx claimed their products were exempt from this law (WSJ Feb 2019).
- MiMedx had a “Whistle Blower” program in place – fired eight employees after they used company website regarding the rules to follow in reporting facts.
- FDA changed the law last November to include some of the products that MiMedx supplied. The company would have 3 years to comply and would bear the costs of Clinical Trials.
- The pressure to keep MiMedx volume and profitability high was accelerated into motion when the FDA changed the rules. This is when the feeling grew that volume and profitability had to increase significantly at all costs!
- In one instance, MiMedx sales records shipment of 135 oversize skin grafts to a Las Vegas plastic surgeon’s office, which exceeded the normal physicians order size of 10 skin grafts. The surgeon would not pay $270,000 bill for the goods shipped to a Fed Ex Office for a pick-up. The goods were picked up by a MiMedx Customer. Please help me understand this – where if any controls were in place? MiMedx’s top Management couldn’t satisfactorily explain this move. Just think of how many Sales People saw this windfall in sales activity – how could there be no questions by a series of people.
- Everybody was scared to talk at MiMedx because they saw what can happen – be fired. Example:Ms. Armstrong was an Account Representative wh0 directly told Mr. Petit of improprieties of third party Distributors overcharging hospitals for MiMedx products. She was fired for what the company called performance reasons. Mr. Petit said “that Ms. Armstrong was a ‘Whistle Blower’ and that he couldn’t remember anything she said that he could recall as far as he was concerned.” What an answer!
- VA Hospitals do 1/5thof the business of MiMedx. Almost all the business is conducted on a consignment basis – managing VA shelves became a challenge. Just in the SW Region the inventory was $34Million which was equal to more than 10% of reported companywide sales the previous year. Just one Region! At the end of the quarter, the company would make whatever number they needed through shipments to the VA’S consignment inventories – which were booked as sales.
- Mislabeling products for the purpose of charging higher prices or receiving higher reimbursements. Ms. Scott, a Regional Sales Director, known as “Robin” was fired after she reported this obvious error. Tom Pedit, another Regional Sales Director, provided specific samples of numerous “ mind-blowing level of sales and accounting irregularities with MiMedx Sales Reps falsifying inventory reconciliations and advising Doctors on how to maximize reimbursement on MiMedex products”.
As in most of these situations, the hurdle became too severe. The CEO was fired in early July of this year and the company is going to take actions to promote accountability, strengthen oversite to include management development and implement measures to improve accounting, corporate compliance and internal practices.
All the above done too late – the numerous people have to be identified and made accountable. If they work for another firm please let this new firm know of your findings. You would have to fire all members of the Board and replace them with Personnel who could be trusted – the same goes for the outside accounting firm KPMG. My recommendation to re-install trust and accountability, would be to identify departments and specific employees and charge the Managers and employees with specifics that would clearly show the gains created due to intentional and fraudulent activity.
Start legal actions against Managers and follow-up with terminations of lower echelon employees to insure that future employers get the strait dope on the person they might be considering to hire. It might be appropriate to indicate that it would be a waste of money to pursue these activities since the firm is going out of business, but every measure should be taken to ensure that future employers have all the data regarding these employee activities. By the Way – MiMedx is not going out of business. Therefore, it behooves the new CEO to pursue charges against management and employees.