Doctor concerned with health care law

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Health Law Daily, June 11, 2015

DaVita directors settle with shareholders after $475M in anti-kickback payouts

By Mary Damitio, J.D.

Finding that the negotiated settlement was in the best interests of DaVita Healthcare Partners, Inc., a provider that was forced to pay over $475 million in anti-kickback settlements, a district court ordered the final approval of the settlement agreement between the company’s shareholders and Board of Directors. While the settlement involved no monetary compensation, it required significant corporate governance reforms, including increased Medicare and joint ventures, which would help prevent the occurrence of misconduct (In re DaVita Healthcare Partners, Inc., June 5, 2015, Martinez, W.).

Background. DaVita, a dialysis provider, was previously sued under the False Claims Act for fraudulent Medicare billing and for violating the federal Anti-kickback Statute (42 U.S.C. §1320a-7b) by soliciting and entering into joint venture agreements with physicians who had large renal patient bases. DaVita entered into an agreement with the Department of Justice to pay $350 million to settle the False Claims Act claims and agreed to a civil forfeiture of $39 million, totaling $389 million (see DaVita filters $350M to feds in dialysis scheme, October 23, 2014; DaVita to pay $389M in largest kickback-only case in healthcare history, October 27, 2014). DaVita also entered into an anti-kickback settlement agreement to repay $3 million in payments to Colorado’s Medicaid program (see Colorado recovers $3M in Medicaid payments from kickback scheme, January 6, 2015) A settlement of a different qui tam action further resulted in $86 million in expenses for DaVita.

Derivative suit. In 2012, Courtney Clark filed a derivative action against DaVita’s Board of Directors alleging that it breached its fiduciary duty relating to the company’s fraudulent billing and kickback schemes. The action sought compensation, attorney fees, and litigation costs. In May of 2013, Haverhill Retirement System also filed suit on behalf of DaVita and its shareholders. The cases were consolidated with Haverhill as lead plaintiff and its attorneys as local counsel. The parties reached a settlement that was preliminarily approved pending adequate shareholder notice and a final fairness hearing. Thereafter, court granted the Motion for Final Approval of Settlement and took the attorney fee petitions under advisement.

Settlement. There was no evidence of fraud or collusion between the parties, therefore the settlement was found to have been negotiated at arm’s length. The attorneys were experienced in shareholder derivative litigation and the evidence demonstrated that the negotiations were “vigorous” and conducted in good faith. Additionally, the proposed settlement was reasonable and the shareholders’ likelihood of success on the merits was questionable, especially in consideration of the fact that an outstanding motion to dismiss was pending at the time of the settlement. The terms of the settlement, which involved solely corporate governance reforms and no monetary benefits, were also found to be fair and adequate because such reforms were designed to prevent the reoccurrence of misconduct. One of the required reforms related to increased oversight of Medicare billing and joint ventures. Additionally, no shareholder filed objections to the settlement, which is a factor that weighed heavily in approving the settlement. Accordingly, the court ordered the final approval of the amended settlement agreement.

Attorneys’ fees. The number of hours claimed by the shareholders’ counsel in the fee motion was reasonable given the complexity and procedural history of the case. However, the hourly rates, which included $825 for some partners and $250 for paralegals, with one even billing at the “conscience-shocking” rate of $325, were not commensurate with the Denver area. Contrary to the attorneys’ arguments that New York hourly rates could be considered, the appropriate comparison was to the hourly rates charged in the area in which the court is located, regardless of where counsel is located. Therefore, all charges at the $825 rate were removed from the petition and the paralegal charges were halved. However, the court considered the significant risk the shareholders’ counsel took in taking on the case, the fact that the fee was contingent, the uncertain outcome of the work, and the complexity of the action all of which weighed in favor of the award of a significant amount of attorney fees. As a result, the court awarded $6 million as fair compensation to the shareholders’ attorneys for fees and costs.

The case is Civil Action No. 12-cv-2074-WJM-CBS.

Attorneys: Kip Brian Shuman (The Shuman Law Firm) for Courtney Clark. John Timothy Jasnoch (Scott & Scott, LLP) for Haverhill Retirement System. Judson Earle Lobdell (Morrison & Foerster, LLP-San Francisco) for Kent J. Thiry.

Companies: DaVita Healthcare Partners, Inc.; Davita, Inc.; Haverhill Retirement System

MainStory: TopStory AntikickbackNews BillingNews FraudNews FCANews QuiTamNews ColoradoNews

Health Law Daily

Introducing Wolters Kluwer Health Law Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.

A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.