On March 13, 2009, Healthways, Inc., announced that it had agreed to settle a whistleblower lawsuit – filed in 1994 by a former employee on behalf of the federal government – involving Diabetes Treatment Centers of America Inc., formerly owned and operated by Healthways. Under the proposed settlement arrangement, Healthways is to pay $28 million to the federal government and approximately $12 million to the whistleblower. The proposed settlement still requires the approval of the Department of Justice. The lawsuit alleged that the Diabetes Treatment Centers of America (“DTCA”) improperly compensated doctors for referrals. The lawsuit claimed that such compensation was in violation of the federal anti-kickback statute, the Stark Law and resulted in the submission of false claims to Medicare and Medicaid in violations of the federal False Claims Act. The claims under the Stark Law were dismissed upon summary judgment, but, the false claims and anti-kickback claims remained. The suit was scheduled to go to trial some time this year.

Healthways, Inc. continues to deny any wrongdoing, asserting that this settlement is not an admission of wrongdoing. In a March 13, 2009, statement, Healthways CEO Ben R. Leedle explained that the company “continue[s] to believe that we conducted our DTCA business in full compliance with applicable law but ultimately concluded that the proposed settlement is in the best interests of the Company and its shareholders. By reaching a settlement at this time, we will avoid the significant legal expenses, as well as the management distraction and inherent uncertainty associated with protracted litigation and trial.”