U.S. Is Seeking Data on DaVita

DaVita Inc. of El Segundo disclosed Tuesday that it had received a subpoena from the Justice Department for documents related to its kidney dialysis operations and laboratory services.

A DaVita rival, Renal Care Group Inc. of Nashville, revealed that it too had been subpoenaed.

The companies said the U.S. attorney’s office in New York wanted, among other things, information on vitamin D therapies and tests given to kidney patients to determine whether they needed such treatments.

Intravenous vitamin D is routinely given to dialysis patients to regulate parathyroid hormone, which can cause bone loss. Patients with kidney failure go to clinics run by DaVita and Renal Care to have waste removed from their blood.

The companies said they were cooperating with the government and would discuss the investigations in individual conference calls today. DaVita added that it believed that the investigation was a “joint civil and criminal” matter.

Neither company indicated whether it was the subject of the investigation. However, experts said the fact that the companies made public the serving of the subpoenas suggested that investigators were looking at the individual firms.

“I would say that they are probably the subject,” said John J. Fahy, a former federal prosecutor in New Jersey.

Experts said investigators probably were looking at either serious deficiencies in patient care or Medicare billing fraud. The federal Medicare health program covers all dialysis patients, regardless of age.

DaVita, which operates 611 dialysis centers in 35 states, including California, has been contacted in other government probes in recent years.

Two years ago, the investigative arm of the Department of Health and Human Services subpoenaed documents on the company’s relationships with physicians and drug makers. In 2001, the U.S. attorney’s office in Philadelphia requested documents on Medicare billings for services not performed and on incentives paid to doctors for patient referrals. Those investigations are continuing, DaVita said in a government filing in August.

Analysts said the latest investigation was broader than those aimed at DaVita in the past, since it involved a second company.

The cost of using vitamin D in dialysis has been examined recently by federal officials. The Medicare program reimbursed dialysis centers more than $300 million in 2002 for the two most commonly prescribed brands of vitamin D, both of them sold by Abbott Laboratories Inc., according to a report this year by the Office of Inspector General, Health and Human Services’ investigative arm.

The report said the drug was profitable for the dialysis companies: DaVita, Renal Care Group and other big national dialysis chains received 34% to 37% more in Medicare reimbursement for vitamin D than they paid for it.

Balaji Gandhi, an analyst with Pacific Growth Equities, said DaVita and Renal Care annually take in $140 million and $85 million, respectively, in Medicare reimbursement for vitamin D and $70 million and $45 million for tests measuring parathyroid hormone levels.

Gandhi said the Medicare Modernization Act, which gave seniors prescription drug coverage, would eliminate the profits that dialysis centers realize on vitamin D. The law takes effect in January.

“Certainly, there was an incentive to run more tests and use more vitamin D as well,” Gandhi said. “But it would seem that the new Medicare law would resolve that issue.”

DaVita shares Tuesday fell $2.86 to $29.40, while Renal Care fell $2.48 to $30. Both trade on the New York Stock Exchange.