Whistleblower to get $65M in DaVita settlement

A whistleblower and former senior financial analyst for DaVita Healthcare Partners Inc. (NYSE: DVA) will receive $65 million plus interest from a $389 million settlement between the Justice Department and the dialysis company, according to a Justice Department spokesman.

David Barbetta, of Virginia, will receive the money as part of a lawsuit he filed in 2009 in U.S. District Court for the District of Colorado against Denver-based DaVita. Barbetta alleged that the kidney dialysis giant violated the False Claims Act by paying illegal kickbacks to physicians who referred patients to dialysis centers in which the physicians had an ownership stake.

DaVita, a Delaware corporation, has dialysis clinics in 46 states and Washington, D.C., and cares for nearly 170,000 kidney patients. DaVita, in an announcement of the settlement Oct. 22, said that it did not intentionally do anything wrong.

Eric Havian, an attorney for Barbetta with Phillips & Cohen LLP in San Francisco, declined to comment on the settlement amount. Whistleblowers can receive from 15 percent to 30 percent of settlement amounts in False Claims Act cases.

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

Barbetta, who worked in DaVita’s Mergers and Acquisitions Department, spent years working on the case with a team of lawyers, said Patrick Burns, director of Washington, D.C.,-based Taxpayers Against Fraud, an organization that tracks False Claims Act litigation. Barbetta will have to pay attorneys’ fees and taxes on the settlement, reducing his share.

“This DaVita case was a big case,” said Burns, who has followed the litigation. “The person we need to salute for ending that fraud is David Barbetta.”

Barbetta could not be reached for comment.

Not everyone thinks that DaVita committed fraud. Some joint ventures that are similar to the ones formed between DaVita and the physicians are legal, said Mark Meaney, executive director of the Center for Education on Social Responsibility at the University of Colorado Boulder’s Leeds School of Business.

“The federal government clearly understands that there are legitimate contractual agreements between companies like DaVita and physician groups,” he said.

Because the case did not go to trial, it’s difficult to know whether the joint venture agreements crossed the line, he said.

“The federal government is alleging that this kind of contractual agreement was in violation of the False Claims Act,” Meaney said, “which is something that is very, very difficult to prove.”

Between March 1, 2005, and Feb. 1, 2014, DaVita identified physician groups with patients suffering from kidney 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, according to the U.S. Justice Department.

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.

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, the Justice Department said. The contracts included provisions prohibiting the physician partners from inducing or advising a patient to seek treatment at a competing dialysis clinic.

Meanwhile, physicians received an upfront payment and continuous “extraordinarily high returns” of from 120 percent to 220 percent on their investments in the joint ventures, according to the Justice Department.

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.

The government reached agreement on Barbetta’s share of the proceeds on Oct. 16, according to a court filing. DaVita paid the settlement to the government on Oct. 30.

U.S. District Judge William Martinez dismissed all claims against DaVita in a Nov. 3 order. The Justice Department, meanwhile, has indicated it will not investigate doctors involved in the scheme.

“Regarding the status of the doctors involved:  I can simply say our investigation into these joint ventures is closed,” Justice Department spokesman Jeff Dorschner said in an email.

A spokeswoman for the state Department of Regulatory Agencies, which oversees the Colorado Medical Board, said the agency by law cannot confirm investigations into physician conduct until it takes public action.

“There has been no public action related to the matter in question,” said Cory Everett, director of strategic and external affairs, in an email.

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