by Ben Vernia | October 22nd, 2014
On October 22, the Department of Justice announced that dialysis giant DaVita Healthcare Partners will pay $350 million to settle allegations, originally brought by a qui tam whistleblower, that the company kickbacks for referral of dialysis patients. The company also agreed to a five-year Corporate Integrity Agreement and an independent monitor, and to unwind some of its problematic business relationships.
According to DOJ’s press release:
DaVita Healthcare Partners, Inc., one of the leading providers of dialysis services in the United States, has agreed to pay $350 million to resolve claims that it violated the False Claims Act by paying kickbacks to induce the referral of patients to its dialysis clinics, the Justice Department announced today. DaVita is headquartered in Denver, Colorado and has dialysis clinics in 46 states and the District of Columbia.
The settlement today resolves allegations that, between March 1, 2005 and February 1, 2014, DaVita identified physicians or physician groups that had significant patient populations suffering renal disease and offered them lucrative opportunities to partner with DaVita by acquiring and/or selling an interest in dialysis clinics to which their patients would be referred for dialysis treatment. DaVita further ensured referrals of these patients to the clinics through a series of secondary agreements with the physicians, including entering into agreements in which the physician agreed not to compete with the DaVita clinic and non-disparagement agreements that would have prevented the physicians from referring their patients to other dialysis providers.
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The government alleged that DaVita used a three part joint venture business model to induce patient referrals. First, using information gathered from numerous sources, DaVita identified physicians or physician groups that had significant patient populations suffering renal disease within a specific geographic area. DaVita would then gather specific information about the physicians or physician group to determine if they would be a “winning practice.” In one transaction, a physician’s group was considered a “winning practice” because the physicians were “young and in debt.” Based on this careful vetting process, DaVita knew and expected that many, if not most, of the physicians’ patients would be referred to the joint venture dialysis clinics.
Next, DaVita would offer the targeted physician or physician group a lucrative opportunity to enter into a joint venture involving DaVita’s acquisition of an interest in dialysis clinics owned by the physicians, and/or DaVita’s sale of an interest in its dialysis clinics to the physicians. To make the transaction financially attractive to potential physician partners, DaVita would manipulate the financial models used to value the transaction. For example, to decrease the apparent value of clinics it was selling, DaVita would employ an assumption it referred to as the “HIPPER compression,” which was based on a speculative and arbitrary projection that future payments for dialysis treatments by commercial insurance companies would be cut by as much as half in future years. These manipulations resulted in physicians paying less for their interest in the joint ventures and realizing returns on investment which were extraordinarily high, with pre-tax annual returns exceeding 100 percent in some instances.
Last, DaVita ensured future patient referrals through a series of secondary agreements with their physician partners. These included paying the physicians to serve as medical directors of the joint venture clinics, and entering into agreements in which the physicians agreed not to compete with the clinic. The non-compete agreements were structured so that they bound all physicians in a practice group, even if some of the physicians were not part of the joint venture arrangements. These agreements also included provisions prohibiting the physician partners from inducing or advising a patient to seek treatment at a competing dialysis clinic. These agreements were of such importance to DaVita that it would not conclude a joint venture transaction without them.
The Government’s complaint identifies a joint venture with a physicians’ group in central Florida as one of several examples illustrating DaVita’s scheme to improperly induce patient referrals. The group had previously been in a joint venture arrangement involving dialysis clinics with Gambro, Inc., a dialysis company acquired by DaVita in 2005. Prior to the acquisition, Gambro had entered into a settlement with the United States to resolve alleged kickback allegations that, among other things, required Gambro to unwind its joint venture agreements. As a consequence, Gambro purchased the group’s interest in the joint venture clinics and agreed to a “carve-out” of the associated non-competition agreement which allowed the group to open its own dialysis clinic nearby, which it did. After acquiring Gambro, DaVita bought a majority position in the group’s newly established dialysis clinic, and sold a minority position in three DaVita-owned clinics. Despite the fact that each of the clinics involved were roughly comparable in terms of size and profits, DaVita agreed to pay $5,975,000 to acquire a 60 percent interest in the group’s clinic, while selling a 40 percent interest in the three clinics it owned for a total of $3,075,000. As part of this joint venture, the group agreed to enter into new non-compete agreements.
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In conjunction with today’s announcement, the U.S. Attorney’s Office noted that after extensive review, it is closing its criminal investigation of two specific joint ventures.
As part of the settlement announced today, DaVita has also agreed to a Civil Forfeiture in the amount of $39 million based upon conduct related to two specific joint venture transactions entered into in Denver, Colorado. Additionally, DaVita has entered into a Corporate Integrity Agreement with the Office of Counsel to the Inspector General of the Department of Health and Human Services which requires it to unwind some of its business arrangements and restructure others, and includes the appointment of an Independent Monitor to prospectively review DaVita’s arrangements with nephrologists and other health care providers for compliance with the Anti-Kickback Statute.
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The government announced that the whistleblower’s share of the settlement has not yet been determined.
