DaVita Healthcare Settlement (2014)

The government alleged DaVita engaged in a systematic scheme to pay illegal kickbacks to physicians in exchange for patient referrals to its dialysis centers. The misconduct involved complex financial arrangements with physician investors.

– DaVita allegedly structured joint venture deals that masked kickbacks as legitimate investment returns
– The company targeted physicians who could refer large numbers of dialysis patients
– The scheme allegedly violated the Anti-Kickback Statute and resulted in false claims submitted to Medicare and other federal programs

DaVita agreed to pay a total of $389 million to resolve the allegations. The settlement was split between a civil False Claims Act payment and a civil forfeiture.

– $350 million to settle the False Claims Act allegations
– $39 million in civil forfeiture tied to two specific joint venture transactions in Denver

While the case involved a criminal investigation, it was resolved through these civil penalties without any criminal fines against the company.

Two whistleblowers, both former employees of DaVita, filed separate qui tam lawsuits that formed the foundation of the government’s case. Their insider knowledge and detailed evidence allowed investigators to penetrate the complex joint venture arrangements that disguised kickbacks as legitimate investment returns.

– The whistleblowers provided documentation and testimony that exposed how DaVita structured financial deals to incentivize physician referrals
– The Department of Justice credited their courage and persistence for making the $389 million recovery possible
– Under the False Claims Act, the whistleblowers received a share of the settlement proceeds for their role in exposing the fraud
– They received around $65 million plus interest for their part in the case

DaVita used a three-part joint venture model to disguise kickbacks as legitimate investment returns. The company identified physician groups with large kidney disease patient populations and offered them lucrative partnership opportunities.

– DaVita sold physicians shares in existing dialysis centers below fair market value and bought their shares above fair market value
– The company manipulated financial models with arbitrary projections to make deals artificially attractive, sometimes yielding pre-tax returns exceeding 100 percent
– DaVita used secondary agreements including non-compete and non-disparagement clauses to lock in referrals
– The company vetted physician groups based on vulnerability, such as targeting those who were “young and in debt”

The DaVita case forced the dialysis industry to reevaluate joint venture structures with physicians. The $389 million settlement sent a clear message that arrangements masking kickbacks as legitimate investments would not be tolerated, even when structured through complex corporate entities.

– The case led to a five-year Corporate Integrity Agreement requiring DaVita to implement compliance measures, retain an independent monitor, and submit annual certifications
– Hospitals and dialysis chains nationwide began auditing their own physician arrangements to ensure compliance with the Anti-Kickback Statute
– The case reinforced that financial arrangements must reflect fair market value and cannot be conditioned on patient referrals
– Healthcare providers now face heightened scrutiny of joint ventures and secondary agreements like non-compete clauses that lock in referrals

David Barbetta was the whistleblower who launched the DaVita case.

A former senior financial analyst, he raised internal concerns about physician joint ventures but was dismissed. After leaving the company in 2009, he filed a qui tam lawsuit in Denver.

He then spent years working with the government, providing internal emails, financial documents, and testimony that detailed how DaVita manipulated valuations to disguise kickbacks as legitimate investments. His evidence became the foundation of the government’s case and directly contributed to the $389 million settlement.

The DaVita settlement is a landmark because it was the largest False Claims Act recovery solely targeting kickbacks in the healthcare industry at the time. The case demonstrated that complex financial structures designed to disguise kickbacks as legitimate joint venture investments could still be exposed and prosecuted under the False Claims Act.

It also reinforced the powerful connection between the Anti-Kickback Statute and the FCA, showing that creative deal-making does not shield providers from liability when referrals are driven by profit rather than patient care.

The $389 million resolution, which included a five-year Corporate Integrity Agreement with an independent monitor, sent a clear warning across the healthcare industry that illegal financial arrangements with physicians would not be tolerated.