Qui Tam Action Alleges False Claims Act Violations against DaVita for Drug Misuse, Improper Billing Practices

February 2, 2010

On Jan. 21, 2010, Relator Ivey Woodward, a former employee of a major pharmaceutical company, filed his Third Amended Complaint in his qui tam action alleging False Claims Act violations against dialysis giant, DaVita, Inc., in the U.S. District Court for the Eastern District of Texas.

Previous sealed drafts of the complaint dating back to 2005 asserted claims against fellow dialysis providers Fresenius Medical Care, AG, Dialysis Clinic, Inc., Renal Care Group, Inc., and National Nephrology Associates, Inc., all of whom were voluntarily dismissed without prejudice on Jan. 11, 2010. Woodward’s Third Amended Complaint is the first substantive pleading in this nearly five-year-old case to be released to the public. The government has not yet intervened in the lawsuit.

Woodward’s current complaint asserts that from 1994 – 2005, DaVita regularly over-administered epoetin alfa (EPO), a drug designed to stimulate red blood cell production that is used in the treatment of severe anemia commonly associated with end stage renal disease (ESRD) or kidney disease. Woodward alleges that DaVita bought EPO at the wholesale acquisition price estimated at 20 percent below the average wholesale price, but based its charges to federally funded healthcare programs on the average wholesale price, and not on what it actually paid.

The complaint alleges not only that DaVita submitted false claims by over-administering and over-billing federal healthcare programs for EPO, but that DaVita also provided the pharmaceutical company access to confidential patient charts and data in violation of patient privacy laws.

Woodward alleges that DaVita eventually designed protocols to maximize its financial gain by increasing its usage of EPO, and that these protocols were inconsistent with CMS guidelines and FDA label indications for EPO usage.

DaVita’s efforts were successful, according to Woodward’s Third Amended Complaint, in large part due to DaVita’s billings to Medicare for EPO that DaVita administered to patients whose red blood cell levels were high enough to deem the administration of EPO contrary to FDA package labeling instructions, potentially harmful to patients, and not medical necessary, and thus constituting false claims. Woodward estimates that this over-utilization practice alone resulted in the Medicare program paying DaVita more than $137 million in false claims.

In addition to the alleged over-administration of EPO, Woodward alleges that DaVita made improper use of the EPO overfill (the extra volume of subcutaneous drugs that permit withdrawal and administration of the labeled fill volumes). The Third Amended Complaint asserts that DaVita combined the overfill from multiple vials to form additional doses of EPO, and these “recaptured” additional doses were then administered to patients and billed to federal healthcare programs as if they came from new vials. Woodward contends that DaVita’s recapture and administration of the EPO overfill was so consistent that its monthly and annual EPO units administered count regularly exceeded DaVita’s legitimate EPO inventory units (which do not account for overfill).

The Third Amended Complaint charges DaVita with multiple counts of False Claims Act violations, based on DaVita’s alleged: (1) violation of fraud and abuse statutes by not disclosing discounts and other remuneration arising from its EPO purchases; (2) fraudulent over-administration of EPO; (3) fraudulent overcharge for captured EPO overfill; and (4) submission of false costs reports.

DaVita’s answer to the Third Amended Complaint is due to be filed with the court on Feb. 19, 2010.

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