How Dallas missed potential red flags in picking a company to run a major COVID-19 testing site

When Honu Management Group pitched itself to run a major coronavirus testing site for the city and county of Dallas, the company listed impressive experience. Testing for a national healthcare company. Working with the Indian Health Service. Even gaining White House approval for its testing program.

The problem: One reference said Honu overstated the scope of its work. A South Dakota tribe said it used the company’s tests and the results were unreliable. And any stamp of White House approval seems to have never materialized.

The city’s vetting process did not pick up potential red flags, The Dallas Morning News found.

Honu’s CEO said the company was truthful in the application. The city said Honu is meeting the obligations of the contract, including turning around test results quickly.

The Washington state company edged out industry giant Quest Diagnostics and a local firm to land a $14.6 million contract with the city of Dallas to test thousands of people for COVID-19, city officials said.

In seeking a contractor, city officials bypassed the usual competitive bidding rules. Many governments are turning to emergency procurements in the scramble to provide crucial services and goods related to the pandemic like testing supplies and protective gear. In the rush, some untested companies are winning work in Texas and across the country.

The city said it did not know that Honu, under a prior name, had been mentioned in a Washington state investigation of a kickback scheme involving podiatrists and prescription foot creams.

Nor did the city catch a potential conflict of interest: an El Paso construction company owner used Honu to test his workers and vouched for the company’s services. What was not clearly disclosed: the construction company owner also co-owns the lab that Honu used to test his workers — the same lab that had partnered with Honu on other COVID-19 jobs.

Dallas city officials said they followed proper vetting procedures.

“We were in need of a vendor to continue our testing and Honu was the only vendor to respond completely to meet our needs,” Rocky Vaz, director of the city’s Office of Emergency Management, said last week. “Honu has lived up to the contract terms.”

Honu’s CEO, Devin Thornton, said his company is highly qualified and that its references had no conflicts of interest.

“We do not make unsubstantiated claims or exaggerations,” Thornton said in an email. “Healthcare is not something we take lightly. We work in healthcare to make a difference, and we do it to provide a service the best we can to all people affected during these times.”

Since Honu started running the University of Dallas site, over 90% of test results have been turned around within 3 days, data provided by the county shows. Dallas County health officials are looking into why 7% of people tested positive at the site in July, compared to 17% at testing locations run by Parkland Hospital. At a meeting Tuesday, county commissioners raised concern with lack of oversight. The city and county are splitting the cost of the contract.

Separately, the city did not address questions about the difference in positive test results, but said Tuesday it is beginning a competitive bidding process to look for additional testing vendors, should they be needed.

Absent a national testing program, state and local governments are taking on much of this crucial work themselves. Texas is increasingly relying on Honu, which has worked with the state to test people in rural and urban areas for COVID-19. The company’s effectiveness will be critical in stemming the virus’s spread because fast and reliable test results are key to isolating sick people and tracking down others who may have been infected.

Coming to Texas

Honu, named for a Hawaiian green sea turtle, had a bumpy start in Texas.

The Texas Division of Emergency Management tapped the company in May as one of several to help process COVID-19 tests. In June, Honu’s laboratory partner in California returned false positives to nursing homes in Dallas County and other parts of Texas, state officials said, setting off a rush to isolate frail residents.

A state investigation found problems with certain tubes used to ship patient samples for testing at the lab, NovaDX, according to state health officials. The state resumed work with NovaDX and has reported no issues since, but has not yet released its investigation report to The News.

Honu first pitched its services to the city of Dallas in April, officials said. Around the same time, the federal government began threatening to pull its support from two major drive-through sites where city and county residents could get tested for free.

With one of them, at the American Airlines Center, set to close at the end of June, local officials said they needed a contractor who could take over the massive operation, from staffing the site and swabbing patients to testing the specimens and notifying people of their results.

The city and county of Dallas also wanted a company that could quickly process a high volume of tests, after frustrations with the federally supported sites, which officials said were taking up to 10 days to return results.

Honu was the only company that fit the bill out of about a dozen the city had approached, according to city officials.

Given the state’s prior issues with NovaDX, the city and county of Dallas asked Honu to work with a different lab. Honu partnered with one in the Austin area. The city and county announced that after June 30 the American Airlines Center site would move to the University of Dallas in Irving, with Honu taking over operations and projecting a faster turnaround time. The site moved this week to Dallas College Eastfield Campus.

Thornton recently met with two News reporters and showed them around the University of Dallas testing site, where staff and contractors tested up to 500 people a day. Dressed in black scrubs and orange Nikes, Thornton talked of how he grew up in Hawaii, ended up in Washington state and went from working in medical sales to forming his own healthcare management company in 2008. After doing business as DA Medical Group for over a decade, the company rebranded as Honu in January. Thornton said the change came after parting ways with his former business partner.

“I’ve always run the company kind of as a charity,” Thornton said. “Every single penny I have ever made in this company has always gone back into healthcare, whether that’s supporting clinics, or supporting patients or getting patients treated at the lowest possible cost. That’s my thing.”

Kickback allegations

After learning of the state’s investigation involving tests results from Honu’s lab partner, The News began looking into the company. A Google search led to a November news report from KING-TV in Seattle about a Washington State Department of Health investigation into at least two foot doctors regarding an alleged medical kickback scheme.

A whistleblower alleged in 2017 that DA Medical Group representatives, including Thornton, had proposed a business arrangement: the doctors would receive a “rebate” for having patients’ prescriptions filled by Oregon pharmacies, according to Washington state investigative records obtained by The News. The whistleblower suspected the doctors were making “hundreds of thousands of dollars each year” through the arrangement.

Records show state investigators discovered that the pharmacies sent patients boxes of foot creams, gels, adhesive patches and other medications, and overbilled patients’ insurance companies — in one case, $50,000 for drugs that a patient was prescribed for toe pain and a plantar wart.

A spokeswoman for the Washington health department, Jessica Baggett, said the investigation focuses on three podiatrists because they are licensed by the state. It has no jurisdiction over DA Medical Group or Thornton, she said. The department has not issued any charges and the case remains open.

Thornton told The News there was no kickback scheme. “Our company has and will always operate with the utmost compliance to both federal and state regulations,” he said.

He said the pharmacy that DA Medical worked with was billing patients through another pharmacy and that arrangement was not disclosed to him. Thornton said that once notified of the issue, DA Medical did its own investigation, fired the pharmacy it had worked with, and is cooperating with state investigators.

“It breaks my heart when people try to abuse the system that is designed for patient care,” Thornton said.

Dallas city officials noted that DA Medical and Thornton have not been charged with any crimes.

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Differing accounts

After Honu won the contract in Dallas, The News obtained a copy of the company’s proposal, relevant work experience, references and other documents from the city through a public records request.

Honu initially gave three references as evidence it could manage the Dallas County testing site.

The first reference, Converging Health, confirmed to the city it worked with Honu on a “large testing project” and said Honu “went above and beyond to help us meet the demands of the client with such a short timeline,” records show.

A second reference told The News Honu overstated its work and another customer said they had a bad experience with the company.

In one case, Honu told the city it had worked with a healthcare company called CareATC, and that CareATC had established testing facilities for emergency workers in Dallas and four other cities across the country. CareATC provided the staffing while Honu said it provided lab testing and protective gear. But CareATC’s president and chief operating officer, Scott Strickland, said the company utilized Honu for a “very limited time” and simply bought one iPad, some protective gear and 50 coronavirus test kits which have gone unused.

Thornton said when he submitted references to the city, it was Honu’s intention to provide COVID-19 testing at CareATC sites. He said he was unsure why only 50 test kits were purchased and that he would look into it.

Honu also said it provided lab testing, protective gear and patient monitoring for the “Indian Health Services – Sioux Nation” beginning in April.

“Sioux Nation” is not the name of any federally recognized tribe and more than a dozen have “Sioux” in the name, according to the Indian Health Service.

Leaders of the Rosebud Sioux Tribe, in South Dakota, told The News they bought 615 test kits from Honu in late April for more than $88,000. When the tribe used the kits to test 61 frontline workers, over half came back positive, sending a “panic through our tribe,” health director Skyla Fast Horse said. Rosebud Sioux Tribal President Rodney Bordeaux said he doesn’t recall that any had symptoms. The Indian Health Services then retested the same 61 people and all results were negative, he said. The tribe has not used any more of the test kits, Fast Horse said.

Thornton did not respond to questions about the quality of services the company provided to the tribe.

Honu’s application also said another company called mLife “helped gain White House approval for Honu’s coronavirus testing program.” mLife Diagnostics President Hunt Allred said mLife sent Honu’s information to contacts in D.C., but isn’t sure what happened from there.

Thornton said the application shouldn’t have said that and it has been taken off all of Honu’s subsequent proposals.

“When you’re trying to herd cats, and you’re trying to get things out, that was honestly an oversight,” he said.

In May, the city asked Honu for additional references to show the company could handle a bigger job, Thornton said. The company offered Ed Anderson, the owner of an El Paso construction company. In mid-June, Anderson vouched for Honu and told the city the company had tested more than 500 of his workers, according to notes from the city’s phone call with Anderson.

What no one mentioned then: Anderson and his son own Nova Labs, also called NovaDX — one of Honu’s lab partners where the workers’ samples were tested, records show.

Thornton and Anderson both told The News there is no conflict of interest because Dallas is not using NovaDX as the lab for its contract with the city. Anderson confirmed Honu did perform the work, including sending staff to Anderson’s business to test employees. Thornton also said Anderson’s lab ownership was “clearly listed” in the documents Honu submitted to the city and the county. It appears one time in the company’s 35-page proposal, under the name Edwin Anderson, on a California lab licensing document.

Vaz, the city emergency director, said no such disclosure was made during the reference-checking process, and only came to light after The News asked about it.

A city spokeswoman said Honu was properly vetted as quickly as possible in what was a crisis.

The city was not able to reach all of Honu’s references, but those who responded were positive, spokeswoman Roxana Rubio said in a statement Tuesday. Honu also answered questions from the county’s health department about their testing capabilities, she said.

City officials declined to say whether knowing about the discrepancies in Honu’s proposal would have changed the decision to award it the contract.

“The city cannot speak to hypotheticals,” spokeswoman Catherine Cuellar said. She noted that there’s a clause in the contract that allows for termination – but that hasn’t been necessary.

“We continue to monitor Honu’s performance,” Rubio said.

Expansion

In emergencies where cities are choosing vendors with little or no competition, it’s important to stringently vet the company and its executives, said Sean Moulton, a senior policy analyst at the Project on Government Oversight, a Washington, D.C. nonprofit.

That ensures the city is aware of any past problems and can talk through them with the vendor before making a decision.

“I’m not saying that a company that fails on a contract should be avoided and basically blackballed from ever getting contracts again, but you have to be very careful,” Moulton said. “When you’re in a crisis, this is a time when you go with only the most reliable companies and the companies you know are going to deliver.”

Dr. Philip Huang, Dallas County’s health director, said given the new pandemic, there are few companies able to run these massive testing operations.

“We’re just looking for someone to get the job done,” he said last week. “We’re going to hold them to the contract if they can’t do it.”

Honu, meanwhile, is expanding its footprint here and across the country.

After relying on the company to run tests, Texas has now put Honu in charge of test sites in rural parts of the state, a job previously handled by the Texas National Guard, and in Dallas and El Paso. To date, the state, through the Texas Division of Emergency Management, has paid Honu $2.4 million for its services, according to payment records posted online.