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Denver-based DaVita sets aside $300 million to settle kickback probes
POSTED: 05/09/2013 05:24:09 PM MDT
UPDATED: 05/10/2013 08:31:27 AM MDTBy Jennifer Brown
The Denver Post
Dialysis giant DaVita HealthCare Partners Inc. has set aside $300 million to settle criminal and civil anti-kickback investigations, a sign the company could soon pay a price after years of fighting allegations about its relationships with doctors.
Executives of the Denver company revealed the reserve fund to shareholders this week. CEO Kent Thiry termed the disclosure a "sober" update during a call with analysts.
The criminal case relates to a Denver federal grand jury investigation into the relationship between DaVita and one of the city's largest kidney doctors' offices. The probe has focused on whether the dialysis company paid a kickback to those doctors to guarantee a steady stream of patients.
The money set aside is part of a "comprehensive offer to settle all the related civil, administrative and criminal matters," Thiry told analysts. The investigations are "solely about physician relationships" and do not concern patient care, he said.
The U.S. Attorney's Office in Denver would not comment on the criminal investigation. DaVita spokesman Skip Thurman said the company would not comment beyond the earnings update.
In that update, DaVita executives said the settlement related to two "physician relationship investigations" that involved the U.S. Attorney's Office in Denver, the civil division of the U.S. Department of Justice, and the U.S. Department of Health and Human Services' Office of Inspector General.
Federal attorneys "have taken the position that some or all of our joint ventures do not comply with the anti-kickback statute," Thiry said.
The anti-kickback law prohibits accepting money or making payments for the purpose of influencing where patients seek treatment.
The government can seek criminal charges against companies or individuals when the anti-kickback statute is violated, said Denver attorney Wallis Stromberg, an expert in health care law. In some cases, only the company — not executives — is hit with a criminal charge and must pay a settlement.
Companies can plead guilty, but obviously not serve jail time, so the point of many anti-kickback settlements is to force the company to pay, said Golden criminal defense lawyer Miller Leonard. In some cases, the government can impose a compliance-monitoring program or refuse to do business with the company, which in health care means business with Medicare or Medicaid, Leonard said.
The Denver-based grand jury has been investigating for at least a year and a half whether DaVita arranged a joint venture with a group of Denver kidney doctors in order to bring more dialysis patients into DaVita clinics. At the center of the case is whether DaVita charged fair market value to the doctors, who received part ownership in seven dialysis clinics.
The doctor group paid $1.89 million for half ownership in clinics that generated estimated annual revenues of more than $28 million, according to documents obtained by The Denver Post in 2011.
DaVita had offered 40 percent ownership to another group of Denver doctors for eight times the price about 17 months earlier but was rebuffed.
In the highly competitive dialysis market, attracting top doctors is key. While patients do not have to choose the dialysis clinic their physician oversees, many do, so dialysis companies seek out nephrologists with the best reputations and the most patients.
DaVita officials have maintained that the fair-market value of the clinics dropped dramatically between the company's offer to the first doctor group and the sale in 2008 to the competing group.
"Three hundred million is a big number," said Piper Jaffray stock analyst Kevin Ellich, who has followed DaVita for a decade. But the amount is only a portion of the company's estimated $1.5 billion in operating cash this year, he said.
DaVita has been investigated numerous times in the last several years but has emerged largely unscathed. In 2012, the company settled a whistle-blower lawsuit for the first time, agreeing to pay $55 million for fraud claims.
The case stemmed from a Texas lawsuit challenging the dialysis chain's past use of Epogen, an anemia drug whose high cost and dangers helped change how the government pays for kidney care.
DaVita's largest shareholder is Warren Buffett's Berkshire Hathaway Inc. Earlier this week Berkshire said it had entered into an agreement allowing it to nearly double its holdings to 25 percent, sending DaVita's shares soaring.
Jennifer Brown: 303-954-1593, jenbrown@denverpost.com or twitter.com/jbrowndpost
Read more: Denver-based DaVita sets aside $300 million to settle kickback probes - The Denver Post
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