On Oct. 22, 2014, the United States Department of Justice (DOJ) announced that it had finalized its settlement with DaVita HealthCare Partners, Inc. (DaVita) resolving allegations against DaVita originally brought in a lawsuit filed under the qui tam or whistleblower provisions of the Federal False Claims Act. The lawsuit (United States ex rel. David Barbetta v. DaVita, Inc. et al., No. 09-cv-02175-WJM-KMT (D. Colo.)) was filed by whistleblower David Barbetta, a former DaVita senior financial analyst in its mergers and acquisitions department.

As part of the settlement, DaVita has agreed to pay $350 million to settle claims that it violated the Federal False Claims Act, and $39 million as a civil forfeiture tied to two specific transactions. Additionally, DaVita has entered into a five-year Corporate Integrity Agreement (CIA) with the Office of the Inspector General to the Department of Health and Human Services (OIG) requiring DaVita to unwind a limited number of its joint venture arrangements and restructure others, and includes the appointment of an independent monitor to prospectively review DaVita’s arrangements with nephrologists and other healthcare providers for compliance with the Anti-Kickback Statute.

The settlement resolves allegations that between March 2005 and February 2014, DaVita identified nephrologists and physician group practices with large patient populations suffering from chronic kidney disease and end stage renal disease, and offered them opportunities to become joint venture owners in DaVita wholly owned dialysis centers at below fair market value pricing. According to the DOJ’ press release, the DOJ alleged that DaVita manipulated the valuation of equity in its wholly owned centers by making certain assumptions regarding future payments for dialysis treatments in order to make the transactions financially attractive for physicians to purchase equity in its dialysis centers. The DOJ alleged that, as a result, physicians may have paid below fair market value compensation for their joint ventures investment interests and benefitted from resulting high rates of return. As part of the settlement, there has been no admission by DaVita of any wrongdoing.

The DOJ press release and the unsealed governmental complaint provide some guidance regarding activities and contractual joint venture arrangements that the DOJ believed to be problematic during its investigation. According to the complaint, in order to ensure future patient referrals to the centers, physician investors were required to sign noncompete agreements that prohibited them from inducing or advising a patient to seek treatment from a competing center. Moreover, the noncompete agreements were structured so as to bind all physicians in a practice group, regardless of whether the physician was part of the joint venture.