Drug-testing giant gets credit downgrade

Millennium Health of Rancho Bernardo had its credit rating downgraded another notch by Moody’s, the second time in five weeks that the outlook for the nation’s largest drug-testing company has plunged.

Moody’s cited both a looming change in how Medicare reimburses companies like Millennium for urine tests and an expected settlement with the federal government over allegations that the company improperly billed the government for drug tests.

That probe has been ongoing since 2012, according to federal court records. Millennium, based in Rancho Bernardo, has been under scrutiny for possible billing of unnecessary drug screenings when performing urine tests. Under Medicare rules, the government pays for each drug screened, a system that critics say can lead to higher billings.

That system is set to change next year, when Medicare will pay a fixed fee for urine tests. That change will cut into the revenue stream for drug testing labs. Millennium gets about a third of its revenues from Medicare or Medicaid.

Last month, The Wall Street Journal reported that the government was on the verge of reaching a settlement with the company of as much as $250 million. Millennium said only that it had reached an agreement in principle but did not provide details.

Moody’s dropped Millennium’s ratings from B2 to Caa2, defined as being “subject to very high credit risk.” The agency cited the company’s “significant debt load” and said a large monetary settlement coupled with a change in government reimbursement did not bode well.

It said the company could pursue a distressed exchange, where borrowers offer lower priced securities to their creditors and wipe out the current debt, which Moody’s said it would consider to be a default.

Millennium, which employs 1,300 people including 800 in San Diego, declined to comment on the downgrade Wednesday.

Previously: Urine screening firm nears settlement