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The Department of Justice (DOJ) announced yesterday that dialysis provider DaVita Healthcare Partners, Inc. (“DaVita”) has agreed to pay $389 million to settle allegations that it violated the False Claims Act by paying kickbacks to induce referrals from physicians who acquired or sold interests in affiliated dialysis clinics. The government alleged that DaVita provided attractive returns to the referring physicians by manipulated valuations of the investment interests, and that DaVita further ensured referrals by requiring the physicians or their group practices to agree not to compete with the dialysis clinics.

In addition to the $350 million fine and $39 million civil forfeiture, DaVita entered into a Corporate Integrity Agreement requiring it to unwind or restructure some of its joint venture arrangements and requiring prospective review of DaVita transactions with nephrologists and other healthcare providers. DaVita has indicated that it plans to end joint ventures with nephrologist investors in 26 dialysis clinics. DaVita announced eight months ago in an earnings call that it had agreed to the framework for a settlement involving payment of the $389 million amount.

David Barbetta, a former senior financial analyst in DaVita’s Mergers and Acquisitions Department, initiated the lawsuit by filing a qui tam whistleblower complaint under seal in 2009. The whistleblower  will receive a share of the settlement in an amount that has not been determined.

This settlement provides another reminder of the need to carefully structure joint venture and other financial compensation arrangements involving healthcare providers and their referral sources. Fair market value and restrictive covenants can raise hot button issues.

Click here to read the DOJ's press release.