Whistleblower behind DaVita’s record $400 million settlement of charges alleging kickbacks to doctors

DENVER, COLORADO, October 22, 2014 -- A whistleblower lawsuit brought by Phillips & Cohen LLP prompted a federal investigation into the business practices of DaVita Healthcare Partners and has resulted in DaVita paying $400 million to settle civil charges involving kickbacks to doctors.

DaVita's settlement, announced by the US Department of Justice, is apparently the largest one ever that covers solely allegations of kickbacks in the healthcare industry. DaVita will pay $350 million to the federal government to settle the whistleblower lawsuit and other civil charges and an additional $39 million as a civil forfeiture. DaVita also will pay $11.5 million to settle related state Medicaid claims.

The "qui tam" (whistleblower) lawsuit, which DOJ joined, alleged that DaVita --one of the nation's biggest providers of dialysis services -- paid doctors hidden kickbacks as a way to get patient referrals for its dialysis clinics and to reduce or eliminate competition from other dialysis centers.

The complaint says that DaVita rewarded doctors who referred patients to its dialysis centers by:

  1. Selling them shares in existing DaVita dialysis centers for less than fair-market value.
  2. Buying shares in dialysis centers owned by physicians for more than fair-market value.
  3. Giving physicians kickbacks masked as profits from joint ventures.
  4. Paying them to refrain from building competing dialysis centers.

Phillips & Cohen filed the whistleblower lawsuit on behalf of David Barbetta, a former DaVita employee, in federal district court in Denver in 2009. The lawsuit alleged violations of the False Claims Act, state false claims laws and the federal Anti-Kickback Statute. The lawsuit had been "under seal," meaning it wasn't publicly known, until the court unsealed it late Wednesday afternoon.

Barbetta, a resident of Virginia, worked in DaVita's mergers and acquisitions department. He left the company after growing increasingly concerned about DaVita's financial transactions involving its joint ventures. He then spent nearly 5,000 hours over the next several years poring over detailed financial documents and working with his attorneys and the government to strengthen the case against DaVita.

"I am happy DaVita agreed to end a number of its joint ventures with kidney doctors and agreed not to enter into those types of financial relationships in the future," said Barbetta. "DaVita should exercise its power in ways that improve patient care, not in ways that lock up patient referrals for financial reasons."

Providing dialysis treatment for patients with chronic kidney failure has been very profitable for DaVita. Its annual revenues have grown in the past five years from $5.9 billion in 2009 to $11.7 billion in 2013, and its operating profit has increased from $934 million in 2009 to $1.55 billion in 2013. Treatment costs for approximately 90 percent of DaVita's patients are paid by Medicare, Medicaid and other government healthcare plans.

Doctors who referred patients to centers they co-owned with DaVita sometimes received returns ranging from 120 percent to 220 percent or more within two years of their initial investment, according to the complaint.

The complaint alleges that DaVita used a number of methods in its financial analyses to artificially inflate or decrease the value of transactions with doctors to make them more favorable to doctors whose referrals DaVita sought.

For example, the complaint says, DaVita would falsely depress the value of centers in its internal calculations in order to sell joint venture shares to physicians at below-market prices by assuming a large decline in reimbursement rates from high-paying patients (referred to as "Hippers" by DaVita). This alleged manipulation of its financial analyses, which DaVita called "Hipper Compression," would cause the supposed value of the centers to plummet, allowing DaVita to sell doctors shares in joint ventures for below-market rates, according to the complaint.

An exhibit to the complaint describes a transaction where, using Hipper Compression, DaVita sold a 49 percent joint-venture interest in six DaVita centers in Denver, Colorado, to a doctors' group, Denver Nephrology, for less than $2 million. In a second transaction that same day, DaVita paid the same doctors' group nearly $19 million to buy out a 49 percent interest in three different DaVita dialysis centers the doctors' group partially owned in Denver.

The transactions were in essence a very profitable swap for the doctors' group: In exchange for selling DaVita 49 percent of three dialysis centers, the doctors' group received from DaVita a 49 percent interest in six other centers DaVita owned plus netted over $15 million in cash. DaVita paid the doctors' group 20 times more per dialysis center when buying joint-venture shares than it charged the doctors' group when selling joint-venture shares in DaVita dialysis centers. (See Exhibit 9 of First Amended Complaint.)

Total Renal Care, a wholly owned subsidiary of DaVita, also was named as a defendant.

Barbetta and Phillips & Cohen thanked the government attorneys and investigators who worked diligently on the case for several years. In particular, they commended Assistant US Attorneys Edwin Winstead, J. Chris Larson and Jaime Peña of the US Attorney's Office in Colorado and DOJ Trial Attorney John Henebery in Washington D.C.

The False Claims Act fosters a private-public partnership to fight fraud against the government. The law encourages whistleblowers to file civil lawsuits against companies that are defrauding the government by offering job protections and a reward of 15 percent to 25 percent of the government's civil recovery if the government joins, or intervenes in, the case.

The case is captioned: United States, ex rel. David Barbetta vs. DaVita, Inc. and Total Renal Care, Inc., Case No. 1:09-cv-02175-WJM-KMT (D. Colo.)

The whistleblower  complaint against DaVita; the settlement agreement between DaVita, the government and the whistleblower; and other documents related to the DaVita case can be found here.

About Phillips & Cohen LLP

Phillips & Cohen is the nation's most successful law firm representing whistleblowers, with recoveries for governments totaling $11 billion in civil settlements and criminal fines. It represents whistleblowers in cases under the False Claims Act and claims under the Securities Exchange Commission, Commodity Futures Trading Commission and IRS whistleblower reward programs. For more information, see www.phillipsandcohen.com.