Business Context and Reporting Period
Company: DaVita HealthCare Partners Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: October 22, 2014
Event: Entry into a Material Definitive Agreement resolving pending 2010 and 2011 U.S. Attorney Physician Relationship Investigations.
Key Financial Metrics and Settlement Terms
- Total Settlement Payment to U.S.: $350 million plus accrued interest (2.25% per annum from February 8, 2014).
- Civil Forfeiture: $39 million.
- State Medicaid Claims Settlement: $11.5 million plus interest (agreed in principle).
- Accrued Reserve: The Company increased its loss contingency reserve from $397 million to $414 million in the third quarter of 2014.
- Relator Costs: Payment of relator expenses, costs, and attorney's fees remains under negotiation and is not included in the settlement payment.
Material Changes and Operational Impact
The settlement resolves allegations regarding violations of the Anti-Kickback Statute in connection with dialysis center joint venture arrangements. The Company explicitly states it disagrees with the claims and makes no admissions of liability. The United States has declined to proceed with criminal charges.
Corporate Integrity Agreement (CIA) Requirements:
- Duration: Five-year term.
- Joint Venture Unwind: The Company must unwind 11 joint venture transactions covering 26 of its 2,119 clinics.
- Future Restrictions: Prohibition on entering certain types of partial divestiture joint venture transactions with nephrologists during the CIA term.
- Compliance Oversight: Retention of an independent monitor and independent compliance advisor to the Board; creation of a Management Compliance Committee.
- Compensation: Supplementation of the executive compensation clawback program to address compliance matters.
Outlook, Risks, and Contingencies
- Exclusion Risk: Failure to comply with the CIA could result in exclusion from participation in Medicare, Medicaid, or other federal health care programs.
- Penalties: Breach of the CIA could lead to liability for stipulated penalties.
- Cost Uncertainty: Costs associated with compliance with the CIA could be substantial and may exceed current anticipations.
- Release of Liability: Upon full payment, the OIG will release permissive exclusion rights and refrain from instituting proceedings to exclude the Company.
Investor Verification Checklist
- Verify the final negotiated amount for the relator's expenses, costs, and attorney's fees.
- Confirm the specific financial impact of unwinding the 11 joint venture transactions on future revenue streams.
- Monitor the Company's quarterly reports for actual compliance costs associated with the five-year Corporate Integrity Agreement.
- Review the full text of the Corporate Integrity Agreement (Exhibit 10.1) for detailed business restrictions beyond the summary provided.