Rivals wary of dialysis giant DaVita's aggressive business style
By Jennifer Brown
The Denver Post
Posted: 07/14/2009 01:00:00 AM MDT
Updated: 07/14/2009 08:40:38 AM MDT
News that Fortune 500 company DaVita Dialysis is moving its headquarters to Denver socked its competitors like a punch in the gut. To its rivals, the kidney-care giant is a bully armed with high-powered attorneys who use lawsuits as tools to intimidate.
Joe Corrigan, 87, undergoes dialysis at a Western Nephrology center in Westminster. He has relied on treatments for nearly three years. (Helen H. Richardson, The Denver Post)
DaVita executives counter that they are simply strong competitors — they act as aggressors only when doctors or nurses or other dialysis companies break promises and double-cross them.
Either way, a string of DaVita-filed lawsuits around the country — with two major battles boiling in Denver and Colorado Springs — shed light on the ruthless competition over dialysis patients in an industry that costs Medicare alone more than $8 billion per year. For years, DaVita's competition in Colorado's two largest cities was almost nonexistent.
The mud began to fly last year when the second-largest group of Denver kidney doctors, called nephrologists, ended their exclusive affiliation with DaVita and partnered with a Massachusetts dialysis company entering the Denver market. Near the same time, the largest nephrology group in Colorado Springs dumped DaVita in favor of Liberty Dialysis, which recently opened two dialysis centers in the city.
DaVita quickly sued doctors in both cities, plus a nurse battling breast cancer who quit her job at a DaVita dialysis center and took one with Liberty.
The hostility between the companies is so intense, it's seeping down to the patients.
"With everything that is going on, you feel like you are becoming sort of a dialysis dollar," said Julie Estes, a 53-year- old Colorado Springs woman who spends three days a week, four hours at a time, hooked to a dialysis machine in order to stay alive.
Deals with doctors
DaVita says it "paid millions" in 1998 to the doctors of Western Nephrology in Denver to retain them as medical directors of six dialysis centers in the metro area for 10 years. The doctors signed non-compete agreements, promising not to join forces with DaVita rivals or steal any of the California-based company's nurses.
Kent Thiry, CEO of DaVita (THE DENVER POST | RJ SANGOSTI)
Patients are free by law to choose any dialysis center they want. But dialysis companies bank on the fact that snagging the most popular kidney doctors in town to serve as medical directors of their centers will bring in the most patients — and the most dollars.
Every dialysis center is required by federal law to have a medical director to oversee the care of patients and the water purification system used to flush toxins from the blood of people with failing kidneys.
It's a side job, separate from a nephrologist's practice, that some estimate takes only a couple of hours each week. Companies and doctors declined to say what salary comes with the job, but estimates range from $20,000 to $200,000 per year depending on the competitiveness of the market.
After 10 years with DaVita, when they believed the non-compete agreement was about to expire, Western Nephrology doctors began making plans to become medical directors of shiny-new American Renal Associates dialysis centers opening in Denver with a flat-panel TV and heated, massage chair at every dialysis station.
Four of the new centers are within 3 1/2 miles of existing Da Vita centers. The non-compete agreement that Western Nephrology doctors had signed for DaVita prohibited them from having relationships with competitors within a 35-mile radius.
DaVita contends in its lawsuit that it found out about Western Nephrology's "secret campaign" because the dialysis company they were working with applied for Medicare billing numbers for five new centers in the Denver area.
In its counterclaim, American Renal Associates accused DaVita of violating federal antitrust law — the company had controlled at least 80 percent of the Denver market. DaVita lagged in updating its dialysis centers until competition was imminent, according to court records. And the claim accused DaVita of "filing legal actions that are objectively baseless" merely as an "anticompetitive weapon."
DaVita tried to stop the doctors' partnership with American Renal Associates with a court injunction, which was rejected.
"There were numerous reasons we didn't want to continue our relationship with DaVita — one was that we didn't care for the way they cared for patients," said Dr. Michael Anger, one of the Western Nephrology physicians.
The doctors say they wanted to stay on as medical directors of the DaVita centers as well as the new centers opened by American Renal. But DaVita wouldn't allow it.
"If somebody has a monopoly, it's economically very advantageous to them," Anger said. "I think they are still trying to intimidate us."
In its defense, DaVita — the largest dialysis company in the country, with 115,000 patients and 1,500 centers — says it has only an "incredibly small percentage" of doctors with contractual issues.
"Here is the simple truth: These doctors are not living up to a contract they freely signed," said Chris Riopelle, DaVita vice president of corporate development. "We lived up to our end; they didn't live up to theirs."
Colorado Springs kidney doctor Jesse Flaxenburg says his wife and daughters burst into tears the night he was served, at home, with a lawsuit from DaVita.
The physician, who works for Pikes Peak Nephrology, is now mired in an ugly lawsuit and countersuit against DaVita. Ten-year non-compete agreements the doctors had signed with DaVita were expiring this month, and the doctors instead wanted to work with Liberty Dialysis.
"I consider DaVita's tactics to be unethical attempts to intimidate me," said Flaxenburg, who never signed a non-compete agreement with DaVita. "I have no doubt they will end up losing or withdrawing these lawsuits."
In their countersuit, filed in April, Pikes Peak doctors say DaVita's "cost-cutting measures and administrative bureaucracy" were taking precedence over patient care. The doctors say they were concerned about the centers' staff's overuse of the anti-anemia drug Epogen, plus poor wages and working conditions for nurses.
Despite the opening of two Liberty dialysis clinics in Colorado Springs, DaVita said it has retained 90 percent of its patients in that city. DaVita says Pikes Peak nephrologists have tried to coerce patients to quit using DaVita.
"Some patients are being pressured by their doctor to leave a place where they feel safe and loved," Riopelle said.
Estes, who has been on dialysis for eight years, stayed with DaVita even though her doctor's office, Pikes Peak Nephrology, mentioned more than once that Liberty had opened a new clinic nearby.
"I don't see me, at this point, changing clinics because of the new guy in town," she said.
Estes suspects, though, the new competition spurred DaVita to bring in heated chairs and make the clinic a "warmer atmosphere."
Scooping up doctors
The competition for staff also is fierce.
Former DaVita employees said that just before they found out Liberty was coming to town, they were asked to sign agreements promising they would not work for any competitor for at least six months after leaving DaVita. The agreements also spelled out "stay-put bonuses" of $11,000 in 2009 and $9,000 in 2010.
DaVita since has sued Pueblo registered nurse Diane Odell, who quit DaVita in November to work for Liberty.
DaVita also has sued kidney doctors in Reno, Nev.; Salt Lake City; and Pocatello, Idaho, among other places — all for aligning themselves with rival dialysis centers.
When DaVita realized Pikes Peak Nephrology doctors — who have 325 of the 370 patients on dialysis in Colorado Springs — were about to partner with Liberty, DaVita chief executive Kent Thiry desperately tried to keep them.
The company keeps tabs on newly trained nephrologists and tries to scoop them up before the competition. The company has entered agreements with 178 new doctors in the past year and a half alone.
DaVita was nearly bankrupt when Thiry took over in 1999, company executives said.
"He built a great team, and they turned the company around," Riopelle said, adding that employees — called teammates — were allowed to pick the new company name, which means "giver of life" in Italian.
Riopelle said DaVita is focused on patient care and would rather tout its "superior clinical outcomes" than the size of the televisions in its clinics.
He brushed off accusations that the company is moving from El Segundo, Calif., to Denver to give itself a public-relations boost in Colorado.
"We moved our headquarters to Colorado because we believe it is a great place for our business, our teammates and their families to grow," Riopelle said.