DaVita, Inc.

Case Details

Class Period: August 5, 2015 - October 21, 2016
Date Filed: February 01, 2017
Case Number: 1:17-cv-00304
Jurisdiction: District of Colorado

Case Summary

The Complaint brings forth claims for violations of the Securities Exchange Act of 1934 against DaVita, Inc. (“DaVita,” or the “Company”), and certain of its senior executives.  The Complaint alleges that Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects on behalf of all persons or entities that purchased or otherwise acquired DaVita common stock during the Class Period.

DaVita, a Delaware corporation with its principle executive offices located in Denver, Colorado, is one of the country’s largest providers of inpatient and outpatient dialysis services, treating patients who have End Stage Renal Disease (“ESRD”), otherwise known as kidney failure.

Specifically, the Complaint alleges that, throughout the Class Period, Defendants made false and/or misleading statements and/or failed to disclose that: (1) the Company and its senior executives purposefully steered patients into unnecessary insurance plans in order to maximize profits; (2) the Company was using the American Kidney Fund (“AKF”) as a vehicle to facilitate these improper practices; and (3) as a result, DaVita’s revenues and profits obtained through this inappropriate patient steering was in violation of federal anti-kickback statutes,  the Office of the Inspector General (“OIG”) guidance concerning charitable premium assistance (“CPA”), the Social Security Act, and various state laws nationwide.   From 2007 through 2014, the percentage of DaVita’s revenues attributable to its commercially insured ESRD patients, or its “commercial mix” continued to decline.  When the Affordable Care Act (“ACA”) made individual marketplaces available to ESRD patients despite their pre-existing condition – DaVita saw an opportunity to turn this downward trend around by devising a nationwide scheme to illegally steer all of its government-insured patients into commercial plans for the sole purpose of profiting off the much more lucrative commercial rates.  Defendants donated over $100 million per year to the AKF so that the charitable organization would pay the costly commercial insurance premiums for DaVita.  By the summer of 2015, the Company was explicitly directly its employees to steer all ESRD Medicaid, and Medicaid-eligible, patients into commercial plans by offering these patients the AKF-backed CPA program and submitting the AKF applications online for them.  This initiative was referred to by former employees and in internal Company documents as the “Medicaid Opportunity.”   Throughout the Class Period, Defendants were also misleading investors by failing to disclose that the improvements to its commercial mix were directly attributable to their unsustainable illicit steering scheme, and falsely representing that DaVita’s relationship with the AKF was legitimate.    By the summer of 2016, DaVita’s scheme to steer these patients began to unravel and analysts began to question the Company’s relationship with the AKF.   Then on August 18, 2016, the CMS issued a formal Request for Information (“RFI”) regarding allegations that DaVita and other dialysis companies had engaged in steering.  In reaction to the RFI, DaVita’s stock dropped 4.7%.  On October 23, 2016, the St. Louis Post-Dispatch published an investigative report that revealed DaVita’s “systematic approach” to steering patients into AKF-backed commercial plans.  In reaction to this report, the Company’s stock price dropped $2.86 per share, or nearly 5%, wiping out $565 million in Company market capitalization.   Just one week later, on October 31, 2016, DaVita issued a press release announcing that, effective immediately, it was temporarily suspending support for applications to the AKF for 2,000 patients enrolled in minimum essential Medicaid coverage, and that such suspension could reduce the Company’s annual operating income by as much as $140 million, while continuing to deny that it steered patients to private insurance, and materially misrepresenting how much of the Company’s profits depended on AKF support.   Then, on August 1, 2017, DaVita reported that its second quarter 2017 earnings dropped 15% when compared to the same period the prior year,  precisely because it had suspended AKF assistance for a portion of the Company’s commercially-insured patient base, leading to a 9% drop in DaVita’s stock price.   The full truth regarding Defendants’ fraud was not fully disclosed until October 9, 2017.   Although DaVita had steadfastly refused to disclose how many of its commercial patients received AKF premium assistance, the AKF’s own disclosures revealed that it provided such assistance to approximately 21,000 non-ACA patients. Thus, on October 9, 2017, J.P. Morgan issued a report downgrading DaVita’s stock because of the AKF’s “updated disclosures,” estimating that an astonishing “60-80% plus of DVA’s earning power is derived from its AKF relationship,” while questioning the “legal legitimacy” of the Company’s AKF relationship. As a result of these disclosures, the Company’s stock price plummeted $5.93, or 10%, to close at $53.89.  The following day, Defendants were finally forced to acknowledge the full magnitude of their fraud. Specifically, on October 10, 2017, the Company disclosed that, in addition to the previously-acknowledged 2,000 patients that used AKF assistance to enroll in ACA plans, almost 6,000 other commercially-insured patients also received AKF assistance, which could result in an additional loss in DaVita’s operating income of approximately $540 million.

On November 6, 2017, the Court appointed the Peace Officers’ Annuity and Benefit Fund of Georgia (“Georgia Peace”) and the Jacksonville Police and Fire Pension Fund (“Jacksonville”) as Lead Plaintiffs.

On January 12, 2018, Lead Plaintiffs filed their Amended Complaint.  On March 27, 2018, Defendants filed a motion to dismiss the Amended Complaint.  Lead Plaintiffs filed their opposition to Defendants’ motion on June 6, 2018, and Defendants filed their reply on July 20, 2018.  On August 1, 2018, based on Defendants’ raising of new arguments in their reply, Lead Plaintiffs filed a motion for leave to file a sur-reply, which was granted by the Court.  Lead Plaintiffs then filed a sur-reply on August 3, 2018.  On March 28, 2019, Saxena White secured a major victory with the Court denying Defendants’ motion to dismiss in its entirety.  The Court found that “Plaintiffs set forth in great detail, with reference to internal DaVita documents and confidential witness statements, how DaVita tracked the acquisition of ‘private pay’ patients at its facilities, incentivized patient steering by offering bonuses to employees, prepared training and instructional materials for employees that disparaged Medicare and Medicaid, and designed materials to convince patients that Medicare and Medicaid were worse options than private insurance.” The Court’s detailed, fact-intensive Order is especially significant because it adopts Lead Plaintiffs’ position on every issue of significance and determined that “DaVita expressly disclaimed steering and publicly attributed success to other factors, while fully cognizant that it had a policy of directing ESRD patients to private insurance and internal metrics to demonstrate its success in directing patients.”   The Court found that the facts alleged in the Complaint  “give rise to a strong inference that Defendants made statements about steering and the source of Defendants’ financial success with the intent to manipulate, deceive, or defraud, or were reckless because their statements presented a danger of misleading buyers.”  Defendants then filed their Answer to the Amended Complaint on May 28, 2019.

On January 31, 2020, Lead Plaintiffs filed their Motion for Class Certification, Appointment of Class Representatives and Appointment of Class Counsel.  In this motion, Lead Plaintiffs request that the Court certify this action as a class action, appoint Georgia Peace and Jacksonville as Class Representatives, and appoint Saxena White as Lead Class Counsel.  Defendant’s  filed their response on June 29, 2020.  Lead Plaintiffs’ will file their Reply on August 7, 2020.

On February 24, 2020, Defendants filed a Motion for Partial Reconsideration of the Court’s Order Denying the Motion to Dismiss and amended this motion on February 27, 2020.  Lead Plaintiffs’ Opposition to Defendants’ Amended Motion for Partial Reconsideration was filed on April 10, 2020.  Defendants’ filed their Reply on May 1, 2020.