Subpoena Seeks DaVita Records
DaVita Inc., a leading operator of dialysis centers, said Wednesday that it received a subpoena from the Department of Health and Human Services for documents on its financial relationships with physicians and drug makers.
The subpoena also demanded that DaVita “update” records turned over to authorities 15 months ago on its billing practices and financial dealings with doctors.
DaVita said the subpoena was from the Office of the Inspector General in Philadelphia, the investigative arm of HHS.
The Torrance-based company did not respond to requests for additional comment. A government spokesman declined to provide further detail.
The action comes during an HHS review, announced in October, of “potentially excessive” Medicare claims by dialysis centers for the anti-anemia drug Epogen. The Amgen Inc. drug accounted for 25% of DaVita’s $1.65-billion operating revenue in 2001.
But analysts speculated that the subpoena was related to a previously disclosed investigation by the U.S. attorney in Philadelphia. DaVita disclosed in February 2001 that the government requested information on Medicare billings for services not performed and on incentive payments to doctors for patient referrals.
DaVita said Wednesday that no proceedings have been initiated against the company.
Medicare accounts for 52% of DaVita’s dialysis revenue, and Medicaid, the federal-state insurance plan for the poor, accounts for an additional 5%. The company reported 2001 income of $137.3 million.
“My guess is that sometime in the next two years, DaVita will reach a settlement with Medicare in these matters, and the amount will be less than $2 a share, about $120 million total,” said Andrew May, Jefferies & Co. analyst.
“Every time you bill the government, you run the risk of fraud, and a company the size of DaVita probably bills the government a thousand times a day,” May said. “The potential to run afoul of what a prosecutor thinks is fraud is enormously high.”
DaVita operates 495 centers in 32 states, including 81 centers in California.
DaVita disclosed in previous filings with the Securities and Exchange Commission that some of its financial relationships with physicians may not comply with federal regulations that took effect during the first quarter of this year. DaVita said that some of its medical directors have equity in entities that operate DaVita dialysis centers. In other cases, DaVita leases dialysis centers from entities partially owned by physicians who make referrals to DaVita.
The firm said that it believes the contracts conform with the new rules, but that the government “could view them as prohibited.”
DaVita’s shares closed at $23.05 on the New York Stock Exchange, down $2.65. The decline came during the company’s tender offer for about 24% of its shares at prices ranging from $22 to $26 per share--a deal that until Wednesday had not generated much excitement.
