Stericycle Pricing Fraud Allegations: What You Can Do About It
Funeral service businesses have had a rough go of it over the past few years. An increasing cremation rate, decreasing revenue per call, and increasing operating costs have been a mounting drag on revenue and income.
Some of the increased operating costs we face, while they may be beyond our control, can be managed. Expenses like employee-related costs, insurance, liability costs, etc., can be controlled with careful and diligent management. However, some costs imposed on our industry have been fraudulently levied by corporate predators looking to line their own pockets with the hard-earned money of those serving others at a time of great need.
A series of lawsuits have been filed across the country against Stericycle, Inc., (NASDAQ: SRCL) alleging that the biomedical waste company breached contracts and defrauded its customers out of hundreds of millions of dollars through a series of impermissible and fraudulent practices including systematically and regularly raising prices despite agreeing to supposedly fixed-price contracts and failing to inform its customers about the price increases. The most recent lawsuit certified as a class-action alleges: that plaintiffs were invoiced for an automatic price increases that was neither calculated using dollar amounts of costs incurred nor authorized by contract, that Stericycle engaged in a common scheme and practice of offering false and misleading information to induce customers to enter into contracts, that Stericycle then engaged in further fraudulent conduct to conceal price increases with false and misleading information as well as illusory price reductions, and that Stericycle charged plaintiffs for several “undisclosed fees” that were hidden increases buried in invoices.
Stericycle admits that it has employed automatic price increases and has charged other extra fees without notice or justification, and it has acknowledged that at least some of its contracts with plaintiffs forbid automatic price increases without notice and justification.i One plaintiffs’ expert claims that damages for the class members was $608 million, comprising $481 million for automatic price increases and $127 million for surcharges.ii
Most in funeral service are probably familiar with Stericycle as they have a large presence in our industry. Stericycle provides services to our industry, including collecting and processing biohazard waste for disposal and a range of training, consulting, and compliance services. However, what you might not know is that Stericycle is a publicly traded company with a market capitalization of almost $7 billion and revenues of approximately $3.56 billion in 2016, according to its Securities and Exchange Commission filings. That is larger than any company in funeral service.
It operates regulated waste management networks in the United States and more than 20 other countries. It has approximately 250 processing facilities, over 360 transfer sites, and over 140 other service facilities. Stericycle’s customers include hospitals, physician and dental practices, outpatient clinics, and, of course, funeral service businesses.
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The lawsuits against Stericycle allege that the medical waste disposal company misled its customers regarding pricing. The lawsuits detail Stericycle’s electronic billing and accounting software system, which was allegedly set to default to an 18 percent “automated price increase” for “small-quantity” customers. According to the suits, those accounts made up 97 percent of Stericycle’s customers worldwide.
Following the imposition of the Automatic Price Increase, the suits claim, Stericycle’s customer service department received a large volume of complaint calls, and customer service representatives were told to give false reasons for the price increases in order to get customers to pay.
The suits also claim that Stericycle improperly increased prices by charging a number of fees and surcharges, labeled as fuel costs or environmental fees. However, these charges were not connected to actual costs, which is why Stericycle often hid them from customers on invoices by bundling them with its flat fees, the suits claim.
The suits charge Stericycle with breach of contract and violations of consumer protection laws across a number of states. It asks the court to award damages to a class of Stericycle’s customers impacted by the fraudulent behavior alleged in the complaint.
Some clients claim to be victimized by a 250 percent increase in price over seven years. While Stericycle advertised a $60 per pickup rate, one dentist claims to have received quarterly bills for $220, $279, and ultimately $398. iii The lowest bill he received was for $108 – after Stericycle came for pick-up after his office was closed so they did not haul away any waste.iv In order to be released from his contract, the dentist says that a Stericycle employee told him he would have to pay out the remainder of his contract.v His math showed that amount to be $400; however, Stericycle demanded $1,777 to be released from the contract.vi Another client said he started out paying Stericycle around $80 a month, which increased to $1,853 a month by the end of this association with the company.vii
In a previous case against Stericycle, United States ex rel. Perez v. Stericycle, Inc., Stericycle supervisors admitted that they were aware that Stericycle’s practices were improper, yet Stericycle continued these practices with its other clients, the recently certified lawsuit claims. The whistleblower lawsuit stated that the company had illegally raised its prices to garner millions from the federal government, a number of states, and Washington, D.C. The data revealed that the federal government and the states were overcharged by approximately $12 million. Stericycle agreed to pay $26.8 million to settle that lawsuit.
Stericycle also paid $2.4 million to settle a former employee’s whistle blower claim that the medical waste disposal company overcharged more than 1,000 New York government entities by hiding automated price increases for its services.
The lawsuits that have been filed so far largely ignore the fact that the funeral service industry has been hit hard by Stericycle’s alleged overcharging. The lawsuits filed recently identify the specific industries that assert to have been victimized by Stericycle’s pricing. However, they have not mentioned our industry by name. Funeral service is only included in the definition of the types of businesses included in the classes certified. Plaintiffs’ attorneys are lining up to sign up medical offices, labs, and veterinary clinics, but are not standing up to represent our industry. Until now.
I have been representing funeral service since the beginning of my legal career, 15 years ago. My entire business is dedicated to funeral service. For years, I have had my clients call me asking for help in dealing with the corporate behemoth that is Stericycle. The costs and contract terms were so onerous that it significantly impacted small- and medium-sized businesses alike. However, the lawsuits that had been brought against Stericycle on a one-off basis in the past were largely unsuccessful, and the costs of bringing an individual suit were prohibitive.
However, now that some of these actions have been successful and are being allowed to proceed on a collective basis, the opportunity exists to stand together to prosecute these claims. I have had several opportunities to initiate lawsuits for plaintiffs in our industry, most against the bad actors in our profession who could end up giving the entire industry a bad name, but I have always declined – not wanting to cross the line from defender of our industry to prosecutor. This case, however, is a different story. Right now, we have the opportunity for our industry to stand together and have a chance to get back a little bit of that money that those who serve our communities worked so hard to earn over so many years.
Funeral service businesses have been struggling for years from Stericycle’s business practices and automatic price increases, and I am eager to bring them restitution for what I believe to be outright fraud. You have worked hard to serve your families and build your business. Don’t let someone get away with taking that away from you.
This article is meant to educate you on the damage that might have been done to your business if you have been a Stericycle customer over the past 15 years. However, it is also to educate you on what you can do to make it right. You have the opportunity to possibly recover some of the hard-earned money that might have been taken from you by fraudulent business practices. Since 2003, Stericycle’s electronic billing software has instituted an automatic 18 percent price increase every six to 12 months. If your business used Stericycle in the past 15 years, you may have been defrauded.
If you would like to learn more about Stericycle litigation, or to discuss having your contracts and billing reviewed free of charge to see if you were defrauded, please contact me at chris@thefarmerfirm.com or call me at 713-367-1013 to discuss this matter.
i In Re: Stericycle, Inc. Steri-safe Contract Litigation. Memorandum and Order granting class certification. In the United States District Court for the Norther District of Illinois, Eastern Division.
