DaVita Healthcare, one of the nation’s leading providers of kidney dialysis services, has agreed to pay $350 million following a qui tam lawsuit and investigation by the Department of Justice.
According to the allegations, the Denver-based corporation – which operates centers in 46 states and the District of Columbia – is accused of offering kickbacks for referrals to its centers. This common attempt to boost profits is forbidden by the False Claims Act and the federal Stark Law if the referral patients are receiving benefits through Medicare or Medicaid. While not admitting liability in the matter, DaVita’s settlement resolves allegations of financial misdeeds spanning nearly a decade – and costing taxpayers unnecessary expense.
Details of the Case Against DaVita
Similar to false claims veteran Fresinius, DaVita Healthcare provides dialysis services to patients enduring the effects of renal failure. Renal failure is becoming more and more common as the population continues to age and obesity continues to plague Americans.
Seeing an opportunity to increase profit margin, DaVita allegedly identified doctors or practice groups tending to treat a significant number of patients with kidney problems. The company offered these practices the opportunity to partner with DaVita by allowing the physicians to acquire or purchase an interest in one of DaVita’s hundreds of dialysis clinics. The catch? Doctors had to promise to only refer dialysis patients to these clinics – which was memorialized in a comprehensive non-compete agreement and non-disparagement agreement preventing the doctors from referring patients anywhere else.
The joint venture alleged to have been used between DaVita and its physicians was comprised of three steps. First, DaVita would harvest data and information about physicians and groups to determine which practices would be “winning” because the physicians were “young and in debt.”
After choosing a “winning practice,” DaVita would offer the doctors the opportunity to join the joint venture by allegedly manipulating the financial data used to value the purchase or interest in the dialysis center. These manipulations included arbitrary projections that insurance companies were expected to cut payment allowances for dialysis treatments in half in the near future (an assertion not based on any actual facts).
Based on the assumption that ownership in the dialysis center would likely depreciate, the physicians were induced to pay much less for their ownership stake than true market value would have dictated. The physicians, in some scenarios, realized extreme returns exceeding 100 percent. Lastly, DaVita would bind all physicians in the practice (whether involved in the joint venture or not) with ironclad non-compete agreements, requiring all practitioners to refer dialysis patients to DaVita centers.
DaVita’s joint venture model is patently adverse to permissible conduct under the False Claims Act, and it is no surprise it ultimately settled the matter. According to the Department of Justice’s Civil Division:
“Health care providers should generate business by offering their patients superior quality services or more convenient options, not by entering into contractual agreements designed to induce physicians to provide referrals….The Justice Department is committed to protecting the integrity of our healthcare system and ensuring that financial arrangements in the healthcare marketplace comply with the law.”
The whistleblower in the case is a former financial analyst for DaVita who exposed the company’s fraudulent schemes in a qui tam lawsuit. His reward has not been determined, but whistleblowers can recover up to 30 percent of the ultimate settlement or jury verdict.
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