A Hot Startup Misled Advertisers

Employees of Outcome, valued at $5.5 billion, manipulated information given to clients, sources say

BY ROLFE WINKLER

In an era of celebrity tech entrepreneurs, Chicago has its own local star in Rishi Shah, a charismatic 31-year-old who has parlayed his advertising startup into connections with political and financial heavyweights.

A major donor to the Democratic Party, Mr. Shah has recently held private meetings at his office with Sens. Chuck Schumer and Elizabeth Warren. Fortune named him to its “40 Under 40” list. Forbes crowned him one of the world’s newest billionaires.

Mr. Shah’s startup, Outcome Health, installs video screens in doctors’ offices and charges pharmaceutical companies to run ads on them aimed at patients. After investors including Goldman Sachs Group Inc. and Google parent Alphabet Inc. poured around $500 million into Outcome at what the Chicago company said was a valuation of $5.5 billion in May, prominent venture capitalist Bill Gurley tweeted that Mr. Shah, its chief executive, was “the real deal.”

Somewhat less real were aspects of some deals Outcome cut with pharmaceutical advertisers, say former employees along with several advertisers. Interviews with these people as well as internal documents and other material from Outcome reviewed by The Wall Street Journal show how some employees misled pharmaceutical companies by charging them for ad placements on more video screens than the startup had installed.

Some Outcome employees also provided inflated data to measure how well ads performed, created documents that inaccurately verified that ads ran on certain doctors’ screens and manipulated third-party analyses showing the effectiveness of the ads, according to some of these people and documents.

The altered reports and data, they say, helped increase business for Outcome, whose customers have included drug companies such as Bristol-Myers Squibb Co. and Novo Nordisk A/S. Those two companies declined to comment. Outcome doesn’t publicly disclose results. It told investors it estimated 2016 sales at about $130 million, up from about $7 million in 2012, according to a presentation reviewed by the Journal.

Lanny Davis, a lawyer Outcome hired as spokesman after the Journal’s inquiries, says the company has hired the law firm of former U.S. attorney Dan Webb “to review allegations about certain employees’ conduct that have been raised internally.” He says Outcome “has always upheld the highest ethical standards” and has adopted new policies throughout 2017 to comply with customer contracts.

Mr. Davis, former special counsel to President Bill Clinton, says Outcome has put three employees on paid leave, including Ashik Desai, a top lieutenant of Mr. Shah’s, “while concerns that have been raised about his conduct are reviewed.” Mr. Desai didn’t respond to inquiries, and Outcome didn’t make him available for comment.

“We are proud of the company we and our employees have built,” said Mr. Shah and Outcome President Shradha Agarwal, in an emailed statement responding to questions about Outcome employees’ alleged misleading of clients. “Of course, we have had growing pains as we scaled from 4,000 to 40,000 doctors’ offices—every high-growth company does. That is why we have taken many steps to implement best practices.”

The two executives declined to be interviewed. The Journal review found nothing to demonstrate top executives’ involvement in the alleged misleading of advertisers.

Outcome is the latest in a series of highly valued startups that promise to overturn old industries with new technologies. Outcome has said its mission is to “activate the best health outcome possible for every person in the world” and provide “actionable health intelligence at the moment of care.”

In practice, it puts flat screens and tablets in doctors’ offices and gets paid by pharmaceutical companies to run ads on them. The screens, which also run educational content, are free to the doctors. The approach digitizes an industry that long tried to reach patients by placing posters, pamphlets and closed-loop television in waiting rooms.

Make goods’

Outcome is now providing tens of millions of dollars in free advertising to customers, including Sanofi SA and Biogen Inc., people familiar with the arrangements say. It returned millions of dollars in cash to Pfizer Inc., say people familiar with the refund.

Mr. Davis says Outcome as a policy offers “make goods” to advertisers when it fails to meet contract terms. He says Outcome can’t discuss specific cases involving clients because of confidentiality agreements, including all the pharmaceutical companies mentioned in this article.

A week before Outcome announced the funding round in May, Mr. Shah warned his staff during an employee meeting that the first quarter was “very tough” and that the company had missed expectations, according to a recording of the staff meeting reviewed by the Journal.

To save money, Outcome recently slashed employee travel, according to a staff memo reviewed by the Journal. At least seven executives have departed this year, some shortly after joining, including an operating chief, Sameer Kazi, who confronted Mr. Shah with concerns about business practices, say people briefed on the discussion. Mr. Kazi in a brief phone conversation this summer said he was at the company “two weeks and three days” early this year, declining to comment on his departure.

Mr. Davis says Mr. Kazi’s departure was amicable and that some two dozen executives have also been added in 2017.

Outwardly, Outcome projects a bright future. In late September, Mr. Shah stood next to Chicago Mayor Rahm Emanuel for a ceremony in the lobby of the 29-story glass building to be renamed “Outcome Tower” where the company recently leased 394,000 square feet, typically enough space for roughly 2,500 staff, though it has fewer than 500 in the city today. The Chicago-area native announced that his company planned to expand its Chicago workforce by 2,000 by 2022. Mr. Emanuel pronounced that “as Outcome goes, so goes Chicago.” Mr. Emanuel’s office didn’t respond to inquiries.

Hours later, Mr. Shah met with executives in a hotel conference room to finalize plans for layoffs, says a person familiar with the planning. By the end of the week, they had laid off at least 76 of their 600-plus total employees. Mr. Davis says Outcome hired more people in the third quarter than it cut that week and has hired about 20 more since.

Outcome, registered in Delaware as ContextMedia Health LLC, was founded in 2006. It began its swift ascent after 2012, and with it rose Mr. Shah’s profile. He regularly flies on private planes and helicopters for business and pleasure, say people familiar with the travel. Mr. Davis says Mr. Shah personally pays for the flights.

Mr. Shah donated over $600,000 to the Democratic Party’s joint fund-raising committee for the 2016 election and held a $50,000-a-plate fundraiser for Hillary Clinton at his Chicago mansion. In July, Sen. Warren stopped by his office, followed in September by Sen. Schumer.

A spokesman for Mrs. Clinton and a spokeswoman for Sen. Warren didn’t respond to inquiries. A spokesman for Sen. Schumer confirmed the meeting with Mr. Shah.

Mr. Shah holds a majority stake in Outcome after the fund-raising round with Goldman and Alphabet’s CapitalG unit, making him a billionaire on paper in the deal.

Representatives for Goldman and Alphabet didn’t respond to inquiries. Mr. Gurley, the venture capitalist who lauded Mr. Shah at the time, declined to comment; his firm isn’t invested in the company.

A pharmaceutical company wanting to advertise on Outcome’s doctor network typically gives the startup a list of specific doctors whose patients the pharmaceutical company wants to target. A diabetes-medication company, for instance, might want to advertise in endocrinologists’ offices.

Outcome’s analysts match the drug company’s target list against its own list of offices with its screens installed, called its “list match” process. Outcome typically billed clients for what it said was the number of matched screens.

From at least 2014 through 2016, Outcome sometimes charged companies for a list match showing more screens than it had installed, sometimes by as much as double, say people familiar with the process. Asked if there were cases where clients weren’t informed that a match list included doctors without screens, Mr. Davis says: “Yes. These are among the issues” that the independent counsel will review.

Outcome sometimes charged for doctors it hoped would install its screens but hadn’t yet, say some of the people. Other times, it charged for multiple doctors practicing at the same address, but in different office suites, even if not all had its screens installed.

Mr. Davis says that when the company fails to meet contract terms, it offers make-goods. “Company policy, both currently and historically, is to communicate an accurate list match with transparency to our clients.”

Outcome would give advertisers the numbers of doctors and screens but sometimes declined to provide a full list of matched doctor names, citing privacy concerns, making it more difficult for advertisers to independently verify ads were running, say some of the people familiar with Outcome’s processes.

Mr. Davis says Outcome shares doctors’ identifying information with clients if they agree not to disclose it.

The executive directing the list-match process has long been Mr. Desai, whom Mr. Shah hired in 2012. In October 2014, Mr. Desai gave instructions to prepare a match of doctors for Boehringer Ingelheim GmbH, which wanted to run ads for its drug Spiriva, according to internal messages reviewed by the Journal.

Mr. Desai gave instructions to send to a salesman a list of 4,000 doctors and 2,100 offices for the client, which included some doctors without screens installed, says a person familiar with the matter. The salesman, and by extension the client, weren’t informed of that fact, says this person.

A Boehringer spokeswoman says the company doesn’t discuss advertising partnerships, saying: “We are looking into this matter further.”

Earlier that summer, Johnson & Johnson complained to Outcome after its field representatives noticed there were no screens in some offices where J&J was being charged to run ads for an arthritis drug, according to documents and people familiar with the dispute. Mr. Desai and Mr. Shah apologized and agreed to decrease J&J’s cost, say these people.

A J&J spokeswoman declined to comment on the episode. J&J, she says, expects suppliers to “represent their capabilities accurately.”

The incidents of charging advertisers for doctors without screens continued at least through the end of 2016, say some of the people familiar with the company’s practices.

This summer, Outcome hired media-audit firm BPA Worldwide to audit its network. BPA’s Senior Vice President of Auditing, Richard Murphy, says his firm verified the size of Outcome’s network and delivery of ads for one ad campaign.

Doctored screenshots

Some advertisers required Outcome to provide affidavits with screenshots showing their ads had run in doctors’ offices. Outcome employees sometimes grabbed a screenshot of an ad from their own computers, edited it to add a timestamp and doctor identification number to make them appear genuine, and affixed Mr. Desai’s electronic signature, say people who prepared the documents.

Mr. Davis says such use of screenshots would violate company policy. “We do not know of any instance in which this happened, but these are among the issues” that the independent counsel will review, he says. Outcome is able to capture “live” screenshots remotely from doctors' offices, he says.

Advertisers also asked Outcome to survey patients and doctors to see how they responded to ads. The surveys sometimes got little response, say people with knowledge of the surveys. In one case, an employee asked Mr. Desai to approve a made-up number of respondents to a survey for client Tandem Diabetes Care Inc., according to an internal message. “Yea I’d inflate it a bit more :),” Mr. Desai said in response. Tandem declined to comment.

Mr. Davis says Outcome doesn’t know of any instance of providing inaccurate survey results.

Outcome has also been accused of altering third-party reports. To convince advertisers their ad campaigns are worthwhile, Outcome commissions agencies including Quintiles IMS, also known as IMS, to estimate how many more prescriptions are written for a drug thanks to ads it runs. Outcome passes the reports to clients.

In May 2016, a representative for Boehringer’s diabetes drug Tradjenta contacted IMS about data in a report forwarded by Outcome, says a person familiar with the episode. When IMS compared the report Boehringer had received with the one IMS had sent to Outcome, it noticed discrepancies in the data, according to an email reviewed by the Journal.

In the email, an IMS representative complained to Mr. Desai, listing inconsistencies and erroneous numbers and emphasizing the importance of “strong ethics.” Mr. Desai responded in an email that IMS’s findings were “terribly concerning,” pledging to get to the bottom of what happened. In a later email, he blamed an unnamed data scientist.

The incidents of altering IMS reports before sending them to clients happened multiple times, say people familiar with the reports.

The Boehringer spokeswoman declined to comment on the incident. An IMS spokesman says: “We expect clients to use our data in a responsible and appropriate manner.” Mr. Davis says Outcome has policies to ensure metrics are reported accurately to clients.

In November 2014, an employee expressed nervousness to Mr. Desai when early data for ads running on tablets for a J&J ulcerative-colitis drug showed clicks were a minute fraction compared with numbers previously shared with J&J, internal messages reviewed by the Journal show. The two discussed what the employee called “very poor engagement” for that tablet campaign. They also discussed similar discrepancies in tablet campaigns run by Novo Nordisk, Biogen, AbbVie Inc., Tandem and Astellas Pharma Inc., the messages show.

Mr. Desai outlined a plan to “use the holidays” to slowly lower numbers shown to those clients, according to a message reviewed by the Journal.

“I mean not to the extremes of reality,” he said. “But lower.”

Mr. Davis says “these are among the issues” to be addressed by the independent counsel. “The company strongly denies the practice of misreporting of campaign information,” he says. “The company’s policy is to accurately report information to every customer on every program.”

The pharmaceutical companies declined to comment.

Over all, Mr. Davis says that “if there was any intentional misconduct, and the company finds out, severe actions will be taken.”

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