A "Bag of Money," but Executive Says Don't "Give Me Any of that Ethics Cr*p" - DaVita's Latest Settlement for $400 Million

A striking story of a large recent legal settlement, with reminders of previous related settlements, quietly slipped out in the midst of the ruckus about the Ebola virus.

A $400 Million Settlement

The basics were in a news release by the US Department of Justice.

DaVita Healthcare Partners, Inc., one of the leading providers of dialysis services in the United States, has agreed to pay $350 million to resolve claims that it violated the False Claims Act by paying kickbacks to induce the referral of patients to its dialysis clinics,...

This amount was augmented by 

a Civil Forfeiture in the amount of $39 million based upon conduct related to two specific joint venture transactions entered into in Denver, Colorado.

Also, according to Ed Silverman writing on PharmaLot, it was further augmented thus

DaVita, by the way, has agreed in principle to pay another $11 million to several states that filed false claims charges, according to a document that DaVita filed with the U.S. Securities and Exchange Commission. The DaVita spokesman says the deal involves five states.

So the total cost to the company seems to be about $400 million.   The settlement also  included a corporate integrity agreement,

  DaVita has entered into a Corporate Integrity Agreement with the Office of Counsel to the Inspector General of the Department of Health and Human Services which requires it to unwind some of its business arrangements and restructure others, and includes the appointment of an Independent Monitor to prospectively review DaVita’s arrangements with nephrologists and other health care providers for compliance with the Anti-Kickback Statute.

Kickbacks to Doctors who Refer Dialysis Patients


Here is how the kickbacks worked.

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. DaVita would then gather specific information about the physicians or physician group to determine if they would be a 'winning practice.' In one transaction, a physician’s group was considered a “winning practice” 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 involving DaVita’s acquisition of an interest in dialysis clinics owned by the physicians, and/or DaVita’s sale of an interest 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.

 So these alleged kickbacks were not envelopes full of unmarked bills, but sophisticated, complex transactions that would be hard for outsiders to understand.

To ensure that those bought stayed bought,

Last, DaVita ensured future patient referrals through a series of secondary agreements with their physician partners. These included paying the physicians to serve as medical directors of the joint venture clinics, and entering into agreements in which the physicians agreed not to compete with the clinic. The non-compete agreements were structured so that they bound all physicians in a practice group, even if some of the physicians were not part of the joint venture arrangements. These agreements also included provisions prohibiting the physician partners from inducing or advising a patient to seek treatment at a competing dialysis clinic. These agreements were of such importance to DaVita that it would not conclude a joint venture transaction without them.

Note that these alleged arrangements ensured the private gains of the physicians involved, and presumably by increasing referrals, ensured the private gains of DaVita, and likely specific managers whose remuneration depended on the fees produced by referrals.  However, the arrangements steered patients to dialysis services not based on what would be best for patients but what would be best for those involved in the arrangements.  Thus these arrangements appeared to fit the Transparency International definition of corruption: "abuse of entrusted power for private gain."  The physicians were entrusted to provide the best possible care of individual patients, yet they put their and the company (and likely the company's managers) financial gain ahead of the patients' care.

No One Admitted Anything or Suffered Any Negative Consequences



Although the company paid a fine and entered into the corporate integrity agreement, apparently no individuals, be they physicians or company managers, paid any sort of penalty.


Like many other settlements we discussed, the company paid out a lot of money but denied it did so because it did anything wrong. Ed Silverman wrote on the PharmaLot blog

In a statement, DaVita says it is 'pleased to announce a civil resolution' and that 'patient care was never an issue, nor were billing or payment practices… We are proud of our commitment to compliance over our 15-year history.'

'We have worked incredibly hard to get things right and it is our belief there was no intentional wrongdoing. We believe this settlement is the right thing to do for our teammates, partners and shareholders. It allows us to move forward with heightened clarity and transparency, both with regulators and our physician partners.'

Why it was good for shareholders and "teammates and partners," presumably meaning employees to pay so much money in the absence of "intentional wrongdoing," when the money would likely come out of stock value and employees' salaries,  was not explained.  Why patient care was "not an issue" when the allegations were that patients were steered to dialysis providers because of financial inducements given to doctors, not due to any consideration of patients' needs and welfare also was not explained.

Furthermore, the whistleblower who triggered the lawsuit suggested there was wrongdoing.  Again, per Ed SIlverman on PharmaLot,

In a July 2009 e-mail cited in the whistleblower lawsuit, which was also filed in federal court in Colorado, one DaVita executive asks for suggestions on how to ensure the financial models used to value transactions pass internal standards. Another executive replies 'You mean gaming the model, right?' To which the first exec writes, 'I do.'

'I think there was a pretty wide understanding that what was going on was questionable at best,' David Barbetta, the former DaVita senior financial analyst, tells us. He says he worked at DaVita from March 2007 until August 2009, when he resigned after being disturbed by several joint venture transactions.

Barbetta, who is now an independent technology consultant, says he mentioned concerns to DaVita managers, but was ignored. 'I did raise this with someone who was a vice president, but he just said not give him any of that ethics nonsense,' he tells us. 'He was a vp and I was an analyst, so I pretty much looked at him and didn’t really push the issue any further.'

Another Denver Post article put it even more vividly,

 One vice president warned Barbetta not to 'give me any of that ethics crap,' court documents state.

And, in internal company e-mails Barbetta provided to the government, top DaVita officials boasted of 'gaming' valuation models. Barbetta also told prosecutors that another DaVita manager once explained to him the deals were used to funnel 'a bag of money' to physicians. Those doctors, in exchange, steered dialysis patients to DaVita.

Why there was no further investigation of these executives, and those to whom they reported, was also not explained.  

Just the Latest Settlement

The few media reports of this settlement suggested that this was not DaVita's first settlement.

The 2000 and 2004 Gambro Inc Settlements

The current DOJ release noted that DaVita

had previously been in a joint venture arrangement involving dialysis clinics with Gambro, Inc., a dialysis company acquired by DaVita in 2005. Prior to the acquisition, Gambro had entered into a settlement with the United States to resolve alleged kickback allegations that, among other things, required Gambro to unwind its joint venture agreements.

Actually, Gambro Inc, which became part of DaVita in 2005, had made two similar settlements.  According to a 2004 Department of Justice news release,

In 2000, Gambro Healthcare and its subsidiary, Gambro Healthcare Laboratory Services, agreed to pay $40 million to settle allegations of healthcare fraud. Gambro and another subsidiary, Dialysis Holdings Laboratory Services, Inc. (DHLSI), have agreed to pay more than $13.1 million to settle similar allegations. 

However, in 2004, a much bigger Gambro settlement was announced,

Gambro Healthcare will pay more than $350 million in criminal fines and civil penalties to settle allegations of healthcare fraud in the Medicare, Medicaid and TRICARE programs,...

Aspects of this settlement were eerily similar to those of the latest DaVita settlement,

As part of this comprehensive global resolution, Gambro Supply Corporation, a sham durable medical equipment company and a wholly owned subsidiary of Gambro Healthcare, admitted to the execution of a healthcare fraud scheme and agreed to plead guilty to criminal felony charges, pay a $25 million fine and be permanently excluded from the Medicare program.

Gambro Healthcare will also pay in excess of $310 million to resolve civil liabilities stemming from alleged kickbacks paid to physicians, false statements made to procure payment for unnecessary tests and services, and payments made to Gambro Supply. The settlement also requires Gambro to allocate an additional $15 million to resolve potential liability for the conduct resolved under the federal agreement pursuant to a preliminary understanding reached with representatives of various state Medicaid programs. Gambro Healthcare has also entered into a comprehensive Corporate Integrity Agreement.

Note that this older settlement actually involved admissions of wrongdoing, fraud, and a guilty plea by a subsidiary to federal felonies.  . 

The 2005 Settlement of Allegations of Illegal Anti Competitive Aspects of DaVita's Gambro Acquisition

DaVita's proposed acquisition of the criminal Gambro also provoked allegations by the US Federal Trade Commission of illegal anti competitive activities. In a 2005 FTC news release,

According to the Commission’s complaint, DaVita’s proposed acquisition of Gambro would be anticompetitive and in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended. DaVita and Gambro account for a significant proportion of the dialysis clinics and treatment stations in many local areas in the United States, and the acquisition, if consummated, would lessen competition for outpatient dialysis services in 35 markets nationwide.

The 2012 DaVita Epogen Settlement

The 2014 Denver Post article included this offhand reference,

The company settled another whistle-blower lawsuit in 2012 and agreed to pay $55 million for other fraud claims. In that case, a former employee of Epogen-maker Amgen alleged the company overused the anemia drug.

The 2012 Denver Post article to which it referred stated,

Kidney dialysis giant DaVita Inc. has settled a whistleblower lawsuit for the first time, agreeing to pay $55 million over allegations of drug overuse while denying any wrongdoing.

Denver-based DaVita settled fraud claims in 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.

Note that this case suggested actions that could have hurt patients,

 The Texas whistleblower lawsuit accused DaVita of using more Epogen than was medically necessary,...

Epogen is not without serious adverse effects, as noted above, and overdosing multiple patients with it made it likely that some were harmed.

Further, while

DaVita said it was the first time it was settling a claim over federal anti-fraud laws, but noted the government had declined to join the whistleblower' s lawsuit.

Only two years later DaVita had to settle more federal claims, this time due to a suit that the federal government had certainly joined.  And as noted above, a company which DaVita was about to acquire as a subsidiary had admitted to fraud and pleaded guilty to federal charges apparently involving fraud just before the acquisition. 

Finally, just as in 2014, in 2012 DaVita denied responsibility,

'DaVita and its affiliated physicians did nothing wrong and stand by their anemia management practices, which were always consistent with their mission of providing the best possible care for each patient,' a company statement said.

Summary

The latest settlement by DaVita was of allegations that the company gave kickbacks to physicians to get them to refer patients to DaVita facilities, regardless of the patients' best interests.  The company paid about $400 million and signed a corporate integrity agreement, but no individual who authorized, directed, or implemented the provision of kickbacks was identified, or paid any penalties.  This settlement turns out to have been only the latest settlement by DaVita or companies it acquired.  Previous settlements involved penalties of $53 million, $350 million, and $55 million (totaling more than three-quarters of a billion dollars from 2004 to 2014.  Previous settlements were for kickbacks and fraud.  One included a guilty plea to a felony.  Previous settlements involved alleged and sometimes admitted behavior that likely put patients at risk.   One earlier settlement also included a corporate integrity agreement.  However, no settlement imposed any negative consequences on any individual who authorized, directed, or implemented the bad, and sometimes criminal behavior.

The DaVita Statement of Mission and Core Values includes

Integrity
We say what we believe, and we do what we say. We are trusted because we are trustworthy. In our personal, team, and organizational values, we strive for alignment in what we say and do.

and

Accountability
We don’t say, 'It’s not my fault,' or 'It’s not my job.' We take responsibility for meeting our commitments — our personal ones as well as those of the entire organization. We take ownership of the results.

Despite the fact that the above settlements made a mockery of these lofty values, the company managers who presided over the behavior that lead to them prospered mightily during this time period.  The company' 2014 proxy statement showed the current CEO and board chairman Kent J Thiry received $17,099,257 in total compensation in 2013.  The five next best paid executives received collectively about $22 million.  Note that Mr Thiry as been CEO since 1999, and thus all the above settlements and most of the behavior that led to them occurred on his watch.

So the march of legal settlements continues in step with the same old song.  Big health care organizations preach their lofty missions and values, pay their top managers millions, and in some cases turn them into billionaires, while the organizations are accruing amazing records of bad and sometimes criminal corporate behavior.  The legal settlements only provide hints as to this behavior, but nearly every time, the management need not admit nor deny wrongdoing while merrily going on to collect their next huge paycheck which was justified by the corporate financial performance in part generated by the bad behavior.

Leadership that cares not for honesty, transparency, or accountability, and that puts short term revenue, and usually personal enrichment ahead of patients' and the public's health may be the single most important reason that US health care is so dysfunctional.  Yet hardly anyone even dares discuss the damning facts about health care leadership, much less propose solutions.  If we do not reform our health care leadership so that it is transparent, honest, accountable, unconflicted, and it puts patients' and the public's health over personal enrichment, our health care system will continue to founder.  

Caught in the Cross-Fire: Patients, Doctors, DaVita, Amgen, and Medicare

The New York Times just published a report that raised intriguing questions about the biggest US commercial dialysis provider, and, its relationships with a large biotechnology company on one hand, and the US government's Medicare system, on the the other. These questions thus end up being about how the power of big business and big government intersect within US health care.

First, here is some background. In the US, nearly all dialysis for patients with end-stage renal disease (ESRD) is funded by Medicare, the government single-payer insurance system for the elderly and disabled. Yet nearly all such patients get their dialysis in commercially run clinics. We recently posted about allegations of anti-competitive practices by some of the companies that run such clinics.

The NY Times focused on another company, DaVita, "a leading provider of dialysis services."

1 - Who is really responsible for key clinical decisions made on behalf of dialysis patients in commercially run clinics?

This will require more background. Epogen (epoetin , manufactured by Amgen), combats the anemia that often afflicts dialysis patients. There has been recent controversy about whether physicians use the drug too aggressively, raising expenses, and possibly doing patients no good, and even harm. Moreover, Medicare pays for Epogen separately from other dialysis services, and allows clinics that administer it to mark up the price, making it a lucrative source of revenue. (See our related posts here, here and here.)

DaVita patients apparently receive a lot of Epogen.

How DaVita makes much of its money: by administering the drug Epogen to treat anemia in dialysis patients. DaVita receives more from Medicare and private insurers for providing Epogen than it pays to buy the drug from its manufacturer, Amgen.

DaVita treats about 106,000 patients in more than 1,300 clinics and appears to be the most aggressive Epogen user among major dialysis chains, according to the United States Renal Data System, a government-funded registry of dialysis data. Epogen accounts for 25 percent of DaVita’s revenue and up to 40 percent of its earnings, according to the Stanford Group Company, a research firm.

In the article, Kent J Thiry, DaVita's CEO, appeared to assume responsibility for the use of all this Epogen. Thiry took "issue with what he describes as unfair accusations that his company’s profits are built on a product that causes harm to patients." He then said "he would welcome a well-designed change in the reimbursement system to eliminate perceived incentives to overuse Epogen, which is commonly referred to as Epo. 'Do that tomorrow so we get rid of the taint,' he said. 'We’re still going to use the same amount of Epo.'

But how did Mr Thiry, described as a graduate of "Harvard Business School, ... [who] was a consultant at Bain & Company and then ran Vivra, a dialysis chain in Northern California," become so confident about the reasons DaVita patients get so much Epogen? He is not a doctor. He said "DaVita did not overuse Epogen. He said decisions on how much to use are made by patients’ physicians."

Then how could he be sure how these physicians would prescribe in the future?

Maybe it is because "DaVita does have a central protocol to advise doctors on dosage."

So just how much direct control DaVita physicians have over their own prescribing, versus how much they must toe the company line is unclear.

2 - Are prescribing decisions affected by conflicts of interest?

Dialysis clinics lose money on the fee paid by Medicare for a dialysis treatment because the payments haven’t kept pace with inflation. Yet industry executives say the clinics can typically recoup those losses by getting reimbursed for Epogen and other drugs.

Government officials “understood they were subsidizing the cost of dialysis by allowing us to make a profit on the drugs,” said Dr. J. Michael Lazarus, chief medical officer of Fresenius [another commercial dialysis provider].

Amgen offers discounts and rebates to dialysis companies based, in part, on how much Epogen they use and how much that use increases year to year. DaVita says in regulatory filings that failure to qualify for such discounts could have a 'material adverse effect' on the company’s earnings.

Mr. Thiry declined to comment about Amgen. But in previous comments to reporters and analysts, he has accused Amgen of 'abuse of monopoly power' and has said that Washington would not care as much about Epogen if the price were lower.

In a letter to Amgen in February 2006, DaVita protested terms of a new contract, saying it would face huge financial penalties if it didn’t increase usage of Epogen by 4 percent.

What sense did the contract with Amgen make if DaVita has no control over the amount of Epogen its physicians prescribe? But did the structure of contracts between DaVita and Amgen put pressure on the company to in turn pressure its physicians to prescribe more Epogen? Did this amount to a conflict of interest? Did DaVita patients know that the company's profits were tied to how aggressively their physicians prescribed?

The NY Times has provided a disturbing look into how corporate motives intrude into the patient-physician relationship, and how this intrusion was apparently facilitated by how the US government's single payer health insurance system, Medicare, works. The end results seems to be patients and physicians caught in the cross-fire between a commercial dialysis provider, a biotechnology company, and the US government.

Dialysis Providers and the Restraint of Competition

This story almost made it under the radar. Our local Providence Journal provided this exclusive,

Two area dialysis clinic operators — American Renal Associates and Fresenius Medical Care Holdings — have signed consent orders with the Federal Trade Commission settling charges that they unlawfully tried to restrain competition.

According to the FTC, the parties entered into an asset purchase agreement on Aug. 3, 2005, under which ARA proposed to purchase five Rhode Island dialysis clinics from Fresenius. The agreement also required Fresenius to close an additional three clinics — two in Rhode Island and one in Fall River. The parties terminated the asset purchase agreement on March 13, 2006, after FTC staff raised antitrust concerns.

The FTC’s complaint alleges two separate violations of antitrust laws. The commission charges that the agreement between ARA and Fresenius to close three Fresenius clinics was an agreement to eliminate competition in the affected areas of East Providence, North Providence and Fall River. The effect of this elimination of competition would have been an increase in ARA’s ability to raise prices in these areas and to reduce ARA’s incentives to improve service and quality.

Also, commission charged that ARA’s proposed acquisition of two Fresenius clinics in Warwick would substantially reduce competition for outpatient dialysis services in the Warwick/Cranston area.

According to the FTC, agreements to pay a competitor to exit a market, such as the one allegedly negotiated between ARA and Fresenius, are illegal.

Although the report was local, it involved actions by two large commercial provider of dialysis services, Fresenius Medical Care Holdings, part of Fresenius Medical Care, a German firm claiming to be the world's largest provider of services to patients with chronic renal disease, and American Renal Associates, which claims to be one of the largest US dialysis providers. As such, it indicates the goals of the leaders of these organizations, and the means they will utilize to achieve these goals. Fresenius has received much more coverage lately for its efforts to stave off proposed reductions in payments for large doses of epoetin to treat anemia in dialysis patients, even given that such aggressive treatment has not shown to provide any clear benefit to patients.

This story is particularly interesting because it is, to my knowledge, one of the few reports of an anti-trust action against commercial health care service providers in the US, even though the provision of health care services is more and accomplished by corporations that grow ever larger and more powerful. This suggests that one way such organizations may grow large and powerful is by collaborating with others with whom they are ostensibly competing.

On the other hand, this is just one of many stories, found on Health Care Renewal, the other blogs that now act as health care watchdogs, and of course in the news media, of health care organizations bumping up against legal limits in their pursuit of money.

The problem is that these stories are scattered around blogs and the news media, and very rarely in medical and health care journals. I believe that were they better aggregated, physicians and the public alike would realize how much of health care is now driven by the self-interest of the leaders of large health care organizations, and how little is unfortunately driven by the needs of patients and the advancement of science.