Local clinics snared in DaVita settlement

BOULDER — DaVita Healthcare Partners Inc. will undo a Colorado joint venture involved in an illegal kickback scheme that included clinics in Boulder and Longmont as part of a $389 million settlement with the Department of Justice in a whistleblower lawsuit.

Denver-based DaVita (NYSE: DVA), a Delaware corporation, agreed to the settlement to resolve claims that it violated the False Claims Act by paying kickbacks to physicians who referred patients to dialysis centers in which the physicians had an ownership stake. DaVita has dialysis clinics in 46 states and Washington, D.C., and cares for nearly 170,000 kidney patients.

DaVita did not respond to requests for comment. However, in announcing the settlement Oct. 22, the company said it did not knowingly engage in any wrongdoing.

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DaVita said in October that it planned to undo 11 joint-venture transactions covering 26 of its 2,119 clinics. One of those joint ventures was Mountain West Dialysis Services LLC, including the Boulder Dialysis Center and the Longmont Dialysis Center, as well as other centers in Lakewood and Arvada.

Between March 1, 2005, and Feb. 1, 2014, DaVita identified physician groups that had significant patient populations suffering renal disease and offered them lucrative opportunities to partner with DaVita by acquiring or selling an interest in dialysis clinics to which their patients would be referred for treatment.

The whistleblower lawsuit was filed by David Barbetta, a resident of Virginia who previously was employed by DaVita as a senior financial analyst in DaVita’s Mergers and Acquisitions Department. Barbetta’s share of the recovery has not been determined.

DaVita further ensured referrals of patients to the clinics through a series of secondary agreements with the physicians, who agreed not to compete with DaVita, preventing the physicians from referring their patients to other dialysis providers, according to the U.S. Justice Department.

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, according to the Justice Department.

DaVita then would gather specific information about the physicians or physician group to determine if they would be a “winning practice.” In one transaction, a physician group was selected 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 in which DaVita would sell a stake 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.

“The manipulations of the value confirm that DaVita’s valuation process lacked any integrity and could be used to justify any value that DaVita needed to entice referring physicians to enter into joint ventures with it,” the complaint reads. “Ultimately, the only purpose (the joint venture) served was as complicated window-dressing to give the joint venture transactions an appearance of legitimacy.”

Physicians agreed to contracts with DaVita, and dialysis services were billed to federal health-care programs starting June 1, 2008, violating the False Claims Act. These contracts included provisions prohibiting the physician partners from inducing or advising a patient to seek treatment at a competing dialysis clinic.

Physicians received an upfront payment and continuous “extraordinarily high returns” of from 120 percent to 220 percent on their investments in the joint ventures.

“Such returns evidence not only the immediate kickback received upon the creation of the joint venture but also the ongoing stream of kickbacks in the form of distributions of profits from the centers,” the complaint reads.

“Federal law protects patients by making buying and selling patient referrals illegal, so as to ensure that the interest of the patient is the exclusive factor in the referral decision,” said U.S. Attorney John Walsh in a statement. “When a company pays doctors and/or their practice groups for patient referrals, the company’s focus is not on the patient, but on the profit to be extracted from providing services to the patient.”

The Justice Department identified similar kickback schemes at DaVita’s California joint ventures Llano Dialysis LLC, also known as East Bay; Shadow Dialysis LLC; Doves Dialysis LLC; Animas Dialysis LLC; and Bright Dialysis LLC. Its other joint ventures were Central Kentucky Dialysis Centers LLC in Kentucky and Wauseon Dialysis in Ohio.

A DaVita spokesman did not respond to phone and email messages requesting comment, but DaVita Kidney Care, a division of DaVita HealthCare Partners, said in a statement it “will be subject to a corporate-integrity agreement and an independent monitor to oversee future joint ventures.”

The integrity agreement requires DaVita to unwind some of its business arrangements and restructure others.

The company added that it did not believe it intentionally did anything wrong.

Justice Department spokesman Jeffrey Dorschner declined to comment on whether the federal agency was investigating other health-care providers and whether or not it suspected the problem was more widespread.

The U.S. Attorney’s Office for the District of Colorado, the Civil Division of the U.S. Department of Justice, the U.S. Department of Health and Human Service and Office of Inspector General handled the case.

Since January 2009, the Justice Department has recovered a total of more than $22.4 billion through False Claims Act cases, with more than $14.2 billion of that amount recovered in cases involving fraud against federal health-care programs.

Steve Lynn can be reached at 970-232-3147, 303-630-1968 or slynn@bizwestmedia.com. Follow him on Twitter at @stevelynnBW.