Previously, in March 2005, DaVita received a subpoena from the U.S. Attorney’s Office for the Eastern District of Missouri in St. Louis, making it mandatory for the company to produce a broad range of operational documents. These documents included pharmaceutical and other services provided to patients, relationship with pharmaceutical companies and financial relationship with physicians and joint ventures, among others.
However, after this receipt of the subpoena, DaVita has received and accepted a series of such writs for submission of evidence, as records or documents, from time to time in 2005, 2006, 2007 and the last being produced in December 2009. Nevertheless, no criminal proceedings have been reportedly initiated against the company till date.
Although the extent of such inquiry is yet to be estimated, DaVita has been expecting this subpoena for the last 3-4 months. The company has agreed to conform to the obligations of the OIG and is cooperating in every possible way in carrying out a transparent investigation.
However, replying to the subpoenas continue to increase legal expenses and also requires significant alertness on the part of management. Further, any adverse outcome of these proceedings could weigh heavily on DaVita to process the damage control, which could be in the form of substantial financial penalties, exclusion from future participation in the Medicare and Medicaid programs and criminal penalties.
Overall, we believe that DaVita is fundamentally a strong organization with a fair regulatory compliance and well poised to showcase robust growth once the market rebounds to its historical highs. However, any penalty payment on the subpoenas could not only elevate the already increasing operating expenses of the company, but also tarnish the company’s reputation and relationship with its physicians and pharmacists.
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