Another week and another subpoena for DaVita.
The El Segundo, Calif.-based dialysis provider announced last week that it received a subpoena from the U.S. Justice Department, marking the third ongoing government investigation involving the company. This investigation is the latest in a series of probes that appear to be focusing on how dialysis chains compensate medical directors.
Analysts and DaVita said a $350 million settlement that Gambro Healthcare US agreed to pay the government in December 2004 is motivating the new subpoena, which came from U.S. Attorney James Martin in St. Louis, the same office that led the Gambro Healthcare probe. "We think his team has the playbook," said Darren Lehrich, a senior healthcare analyst with investment bank Piper Jaffray & Co.
During a conference call with investors, DaVita Chairman and Chief Executive Officer Kent Thiry said Martin's office "learned a bunch about (the) industry" and is looking "to leverage that expertise."
Among the Justice Department's allegations against Gambro Healthcare were that the company hired and compensated medical directors based on the number of patients they could refer to their clinics.
This current investigation, which requests documents dating back to 1996, won't affect DaVita's potential $3.05 billion purchase-expected to close this summer-of Gambro Healthcare, the U.S. subsidiary of Stockholm, Sweden-based Gambro, Thiry said. The Federal Trade Commission is examining that deal, which would make DaVita the second-largest dialysis provider in the U.S.
The largest dialysis chain, Fresenius Medical Care, completed a $486 million settlement with HHS' inspector general's office in 2000. That investigation examined physician compensation.
The latest DaVita subpoena overlaps with an investigation the U.S. attorney in Philadelphia launched in 2001 looking into the company's pharmaceutical division and physician compensation, but this request also asks for documents related to "growth categories," joint ventures, acquisitions and new facilities, Thiry said. Lehrich said the most significant similarity between the investigations is the physician-compensation component, which appeared to be the crux of Gambro Healthcare's settlement.
About 70% of dialysis patients are covered by Medicare and the government doled out $6 billion in payments in 2003 to free-standing outpatient facilities, which provide about 87% of dialysis treatments, according to a recent report by the Medicare Payment Advisory Commission.
Thiry emphasized the government's interest in erythropoietin, a drug used to treat end-stage renal disease. MedPAC said in a report that from 1996 to 2003 spending on erythropoietin and other drugs that aren't included in bundled Medicare payments to dialysis providers increased 14% and 17%, respectively.
In October 2004, it was revealed that the government was conducting an industrywide probe that sought vitamin D records from three dialysis chains, including DaVita.