$1.6M settlement for Twin Cities whistleblowers who alleged VA was cheated out of millions

Two fired Twin Cities sales representatives will share $1.625 million for blowing the whistle on their employer, who they alleged overcharged the U.S. Department of Veterans Affairs millions of dollars for skin grafts.

Georgia-based MiMedx Group Inc. agreed Monday to pay $6.5 million to resolve allegations in federal court that it knowingly submitted inflated prices for tens of thousands of grafts used in VA medical facilities in Minneapolis and St. Cloud, and in Nebraska, Texas, Iowa, Michigan, Wisconsin and North Dakota, the Justice Department announced Monday.

Jess Kruchoski and Luke Tornquist will equally share the $1.625 million for their role in exposing the overcharging they suspected was occurring, with the government receiving the balance for its losses.

"I am happy that this [case] is public and that the truth has come out," said Tornquist, who now operates his own wound care business with a partner in St. Paul. "It's not fun to go through this in silence. … It's been really hard for Jess and I for the past three years."

Kruchoski said, "I'm glad that it has come to a resolution and that the Justice Department spent the time and did its due diligence."

Tornquist and Kruchoski made their concerns known as whistleblowers through the False Claims Act, which permits private parties to sue on behalf of the government for false claims and to receive a share of any recovery.

In a statement, MiMedx CEO Timothy R. Wright said, "We are happy to have this investigation behind us. Transparency, cooperation and disclosure are enabling us to resolve historical issues and focus our efforts toward the future."

In November, two former senior executives were indicted on accounting-fraud charges. Former CEO Parker H. Petit and former President William Taylor were accused by the Justice Department of engaging in an accounting fraud during 2015 and 2016 that overstated the company's revenue and misled investors.

Separately, the Securities and Exchange Commission sued MiMedx, Petit, Taylor and former CFO Michael Senken, accusing them of conducting a "pervasive" accounting fraud from 2013 to late 2017. The SEC said MiMedx agreed to settle without admitting wrongdoing and pay $1.5 million.

According to the whistleblower lawsuit:

Kruchoski joined MiMedx in 2012, and he soon asked a vice president why the company was not offering a specific graft, a 16-millimeter disk, to the federal government at the lower price charged to commercial clients. Kruchoski was told it was "because the government would pay for the more expensive 16-mm disk."

The vice president then told Kruchoski to never share the commercial price list to key VA personnel.

The two were fired in December 2016, and they filed their whistleblower suit about six weeks later.

"Charging inflated prices for medical products is unlawful and unethical," said Erica MacDonald, U.S. attorney for the District of Minnesota, where the lawsuit was filed more than three years ago. "This settlement underscores the obligation of government contractors to be fair and truthful in their dealings with the United States and to prevent wasted taxpayer dollars."

VA Inspector General Michael Missal said, "Our nation's veterans deserve the best health care products and services available, and the American taxpayers deserve fair and honest pricing from government contractors."

The Wall Street Journal contributed to this report. Paul Walsh • 612-673-4482