CHICAGO _ Long before investors poured nearly $500 million into Outcome Health, executives at the Chicago startup time and again reprimanded salesmen for making misleading or inaccurate claims, records show.
Outcome, which pitches doctor's offices free health-related programming and ads on TVs and tablets it provides, was once considered among Chicago's most promising tech startups.
The company now is facing a court battle with major investors, including units of Goldman Sachs, Google -parent Alphabet Inc. and a venture capital fund co-founded J. B. Pritzker, who is running for governor of Illinois. They sued Outcome and founders Rishi Shah and Shradha Agarwal, alleging fraud and misrepresentation in a "scheme to mislead investors."
Outcome reaped millions of dollars from prescription drug ads that ran on screens in medical waiting and exam rooms for a captive audience of patients. Trouble came to light last month after a Wall Street Journal investigation, citing internal company documents and anonymous sources, concluded that Outcome Health had misled pharmaceutical clients about the number of screens in doctors' offices that showed their ads from 2014 through 2016, and inflated data on how well the ads performed.
But court records reveal that senior management at Outcome Health had grappled with issues of dishonesty among members of its sales team years before that period, as its representatives made sales pitches to other important clients: the medical practices that would showcase the screens.
Depositions in a federal civil suit filed by a competitor show that members of Outcome's sales staff made untruthful or misleading statements to doctors' offices between 2010 and 2013, when the company was known as ContextMedia. The depositions included the testimony of ContextMedia salesmen and executives, and the content of emails, as read aloud by attorneys.
The lawsuit was filed in 2012 by Healthy Advice Networks. Depositions from that case have been available online in a public court file since August 2014 _ 2 { years before the investors now suing Outcome Health put money into the company.
Davidson Goldin, a spokesman for Outcome Health, said in an emailed statement that the company "has a high ethical standard and terminates employees for violating policies when necessary." He said Outcome Health salespeople each typically engaged in more than 100 pitches a day to medical practices.
"Drawing conclusions from a court case resolved years ago that identified a small number of mistakes by salespeople early in their careers is misleading, especially because this involved such a tiny fraction of the 40,000 physician offices that the company serves," Goldin wrote. "The record also shows that in each instance the situation was handled with urgency by the management team."
The reprimands of sales staff coincide with the company's earliest days of expansion. Between 2010 and 2016, ContextMedia increased its network from a few hundred hospitals and clinics to over 10,000, Chief Operating Officer Bradford Purdy said under oath in a 2016 court filing in a different lawsuit.
Red flags first appeared in 2010, not long after ContextMedia introduced a new product, the Rheumatoid Health Network. There were two sales teams at ContextMedia _ one that pitched screens to doctors' offices and another that sold ads to prescription drug makers.
In the second half of 2010, ContextMedia CEO Shah decided that the company should go head-to-head with competitors who already had their screens in doctors' offices, according to the testimony of James Demas, who was ContextMedia's chief financial officer at the time.
As sales representatives worked to persuade physician groups to switch to ContextMedia, Demas informed Shah and Agarwal in a December 2010 email that he overheard a new contract sales employee making an untruthful claim that the company had an agreement with a competitor, Healthy Advice Networks, according to Demas' deposition.
"I heard Matt Garms on the phone telling an office that we have an agreement with Healthy Advice whereby we remove their screens and ship them back to Healthy Advice," Demas wrote. "The messaging is false and misleading."
ContextMedia, which had only 10 employees back then, had no such arrangement.
Key portions of a Healthy Advice agreement with a medical practice _ read aloud during Demas' deposition _ said the doctors' office had to keep the monitors running for a minimum of six months and then could only cancel with 30-days' written notice. Under the terms, the medical practice was not allowed to remove the equipment or even unplug it unless it had written permission from Healthy Advice, which is now known as PatientPoint.
Demas testified that "Shah raised the issue of wanting to go in and switch out," and Demas came up with the idea of developing an authorization form that ContextMedia would ask physician practices to sign before taking down a competitor's screens.
The plan, Demas said in his deposition, was for ContextMedia to ship the old equipment from the physician practice directly back to Healthy Advice.
"Hey guys," Demas wrote to Shah and Agarwal, who was then chief marketing officer. "I've written this to appear as an installation/de-installation authorization."
In his deposition, Demas explained why he developed the form: "I wanted to make sure that we had the authorization of the office before we took something down that was on their property."
Demas, who left ContextMedia in 2015, declined to comment.
Shah's deposition was filed under seal, but portions of it were included as an exhibit to a public filing. That exhibit shows Shah testified ContextMedia had assured medical practices that its switch-outs would be "hassle-free" so they could "pick the product that they wanted to pick."
ContextMedia later put Garms, the salesman whose call alarmed Demas, in charge of supervising and training a small sales team whose duties included pitching switch-outs to physician practices.
Shah testified the company corrected Garms during his first month on the job and Shah had not seen any other instances of Garms making false or misleading statements after that. Likewise, COO Purdy testified that Garms sat in the middle of the sales team and if Garms "heard anything that was factually incorrect, he would have a direct conversation with them to correct it."
Reached by phone, Garms, who still works at Outcome Health, told a reporter to call back but then didn't respond to a subsequent call or email seeking comment.
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