Anti-kickback settlement targets joint venture, referral model

The federal government is clamping down hard on some profit-focused patient referral and healthcare joint venture practices, in the latest flex of anti-kickback law muscles.

The for-profit dialysis and medical practice giant DaVita HealthCare Partners is settling False Claims Act and other allegations of wrongdoing with the Department of Justice to the tune of $389 million. $350 million is for allegations of kickbacks meant to induce referrals of patients to its dialysis clinics, and $39 million is for a civil forfeiture of two joint ventures in Colorado,

"This case involved a sophisticated scheme to compensate doctors illegally for referring patients to DaVita's dialysis centers," U.S. Attorney for Colorado John Walsh said in a media release. "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."

[See also: Fraud prevention through prediction.]

Going back to 2005, a year after a merger that doubled its outpatient dialysis clinics, DaVita used a three-part joint venture model “to induce patient referrals,” the Justice Department alleged.

The company would identify physician practices with large patient populations of kidney disease and offer them “lucrative opportunities” by acquiring or buying an interest in dialysis clinics their patients would be referred to for dialysis treatment. In one transaction, the DOJ said, DaVita rated a physician’s group as a “winning practice” because the docs were “young and in debt.”

The DOJ’s investigation also alleged that DaVita crafted non-compete and non-disparagement contracts with physicians to prevent them from referring their patients to other dialysis providers. And when it was selling financial stakes in clinics, the DOJ maintained, the company tried to decrease their valuation with projections of commercial insurance payments declining by up to half in the coming years. “These manipulations resulted in physicians paying less for their interest in the joint ventures and realizing returns on investment which were extraordinarily high, with pre-tax annual returns exceeding 100 percent in some instances,” the DOJ said.

DaVita is going to end 11 joint ventures with involving 26 dialysis clinics and maintain a corporate integrity agreement with the Office of Counsel to the Inspector General of the Department of Health and Human Services.

The investigation stemmed from a whistleblower lawsuit filed in 2009 by David Barbetta, a former DaVita senior financial analyst specializing in mergers and acquisitions who now stands to earn an as-of-yet undetermined portion of the settlement.

Despite the allegations, there was no intentional wrongdoing, DaVita officials said in a statement. “Patient care was never at issue, nor were billing or payment practices.”

While the company set aside $400 million in expectation of the settlement earlier this year, the $389 million it will pay is more than half of its $633 million 2013 profits.

Fifteen years ago, DaVita was called Total Renal Care and was on the brink of bankruptcy. When current CEO Kent Thiry, a former Bain consultant and head of another dialysis chain, took over in 1999, he changed the name, reorganized and led an aggressive expansion.

Now, DaVita operates more than 2,000 dialysis clinics treating 170,000 patients, and is making a large foray into medical practice management, after a $4.4 billion acquisition of the medical group operator HealthCare Partners in 2012. (Rising earnings have also attracted the likes of Warren Buffett's investment fund Berkshire Hathaway, which since 2011 has come to own more than 17 percent of the company’s shares.)

Earlier this month, DaVita added to its medical practice foothold in its home state by buying Colorado Springs Health Partners, a 100-doctor medical group certified as a patient-centered medical home with 11 locations.

Across the country in Philadelphia, the company also recently inked a deal with Independence Blue Cross, forming a new joint venture called Tandigm Health that will partner with primary care physicians offer them payment incentives, management help and technology to treat high-risk patients with chronic conditions like diabetes, heart failure and pulmonary disease.