A federal grand jury in Denver is investigating the relationship between a dialysis company and one of the city's largest kidney doctors' offices. The doctors are under investigation to determine whether the dialysis company DaVita Inc. essentially paid a kickback to guarantee a steady stream of patients from the doctors’ office.
In 2008, DaVita, the nation's largest dialysis provider, sold half-ownership in seven dialysis clinics to Denver Nephrology for $1.89 million. Those clinics generated estimated annual revenues of more than $28 million, according to The Denver Post.
DaVita had offered 40 percent ownership to another group of Denver doctors for eight times the price some 17 months earlier, but the deal did not fly. Then the company approached Denver Nephrology. DaVita maintains that the value of the clinics dropped substantially by the time of the sale because a second major dialysis competitor opened in Denver.
Federal law regarding relationships between doctors and dialysis clinics mandates that dialysis companies sell part-ownership of clinics at fair-market value. The point is to make sure a dialysis company is not buying off doctors in order to get patients.
Dialysis services are a highly-competitive market, and for a dialysis center to be profitable it is best have top doctors on board. Of course patients do not have to choose the dialysis clinic their physician oversees, but many do and thus dialysis companies seek out nephrologists with the best reputations and the most patients.
Grand-jury proceedings are secret, but DaVita executives said in August that the company was the subject of the federal inquiry by the U.S. Attorney's Office. The company also has said the investigation is focused on its partnerships with doctors and that it had been subpoenaed for documents.
For a decade, DaVita paid doctors at Denver-based Western Nephrology to serve as medical directors for Denver-area dialysis clinics. When that 10-year agreement was expiring in 2008, the doctors partnered with a competing dialysis company, American Renal Associates.
Before negotiations failed, DaVita made Western Nephrology doctors two offers in 2006. DaVita offered to sell the doctors 40 percent ownership in the clinics for $20.86 million in January 2006. Then, in December 2006, after a counteroffer of $7.3 million, DaVita dropped its price to $15.3 million.
But the Western Nephrology doctors group refused, choosing instead to partner with DaVita's competitor to bring new centers to the Denver area.
In May 2008, DaVita sold 49 percent ownership of the same seven clinics to Denver Nephrology, the other large nephrology group in town. But the price paid by Denver Nephrology — $1.89 million — was only a fraction of what previously had been deemed fair-market value.