The Strangest Show On Earth

Denver-based health-care mogul Kent Thiry runs DaVita, his multibillion-dollar kidney dialysis company, unlike anything the buttoned-down corporate world has ever seen. Are his carnival-like theatrics a stroke of genius, or are they designed to distract people from the hard truths about his business?

September 2012

Not long before Thiry would rally behind the high school hippies, Congress was creating a program that, by helping unhealthy Americans, would someday fatten many an entrepreneurial wallet, including Thiry's. In 1972, Congress debated briefly and amicably over a Medicare system tweak that provided full dialysis coverage to anyone—not just the disabled or the elderly, for whom Medicare had been created seven years earlier. The framers expected the new program to serve about 11,000 people and cost $135 million annually (about $741 million in today’s dollars). They undershot: By the mid-1970s, private, for-profit dialysis companies emerged, proliferating at a pace that reflected Medicare’s dialysis guarantee and Americans’ increasingly poor health habits, particularly their obesity rates. This serendipitous blend has only gotten sweeter for dialysis companies: In 1997, all but three states reported obesity rates below 20 percent; by 2009, the only state that could make that claim was Colorado, which has since crept up to 21 percent. American domestic obesity rates are now higher than 35 percent, and they continue to soar.

Today, 40 years after Congress’ well-meaning but poorly calculated decision, more than 400,000 people receive dialysis in the United States at a cost of almost $80,000 per patient, per year. Medicare’s—and thus taxpayers’—annual tab runs about $20 billion. (Private insurers cover the rest.) American dialysis companies have spent four decades traveling a road paved with gold, and DaVita, which controls roughly one-third of the market—with about 100,000 of its patients covered by Medicare—has been accused of surreptitiously jackhammering extra nuggets for itself.

Take, for example, the company’s use of the drug Epogen. Better known as “Epo,” it’s used to counter anemia, a common side effect among ESRD patients that reduces red blood cells and increases the need for transfusions. Epogen was brought to market in 1989 by the pharmaceutical company Amgen. When used on dialysis patients, Epo is covered by Medicare; it earns Amgen around $2 billion per year and is the single-largest dialysis drug expenditure in the Medicare system.

Even though high doses of Epo can cause strokes, blood clots, and heart attacks, it’s still a highly effective and, in most cases, necessary tool in the treatment of ESRD. The trouble, critics of DaVita say, is that the company has quietly over-ordered the drug at bulk-rate prices, or flat-out overprescribed it, and then sent Medicare the bill. In 2002, a former Amgen employee sued DaVita, claiming that DaVita technicians were instructed by their bosses to dole out as much Epo as possible. The suit accused DaVita clinic administrators of allowing Amgen sales reps to examine patients’ charts—which would be a violation of federal privacy laws—and contended that DaVita frequently administered Epo in doses that “were more than medically necessary.” This past July, DaVita paid $55 million to settle the case; the terms of the deal allowed the company and its doctors to deny any wrongdoing. Another similar whistleblower suit, filed in 2007, is still pending, and it’s unlikely to be the last time someone accuses a dialysis company of such violations. “Dialysis is perhaps the biggest single component of Medicare,” says Michael Caddell, a Houston-based attorney who was lead counsel for the plaintiff in the settled lawsuit. “It’s an almost impossible industry for the government to manage, regulate, and control.”

Allegations of overbilling the government for drugs aren’t DaVita’s only purported infraction. Large dialysis companies routinely “buy up” groups of nephrologists, the M.D.s who diagnose and treat kidney disease. These doctors then refer patients needing dialysis to the companies with which they’re on contract. (DaVita also has begun creating “one-stop shops,” clinics that house DaVita-branded pharmacies and provide emergency services. Skeptics note that in-house emergency procedures might not get reported as they would when a patient is sent to a non-DaVita ER, thereby allowing DaVita to post favorable, but potentially misleading, clinical outcomes.) The Stark Law, passed in 1992 and revised in 1993, makes it illegal for doctors to refer patients to other health-care providers in which they have a financial stake. However, Congress has granted DaVita, its main competitor, Fresenius, and other dialysis providers key exemptions from Stark Law restrictions, on the grounds that, according to DaVita officials, “the provision of dialysis and related drugs present a low risk for potential abuse.” Such exemptions have enabled these business arrangements to continue almost unfettered.

Moreover, ESRD Networks, the dialysis industry’s primary nongovernmental quality-control organization, is comprised largely of dialysis company executives. At the federal level, Medicare’s governing body, the U.S. Centers for Medicare and Medicaid Services (CMS), has often employed senior-level officials with long-standing ties to the dialysis industry. For example, former CMS head Thomas Scully was on DaVita’s board when President George W. Bush appointed him to the post in 2001. DaVita admits to its—and its competitors’—influence in Washington but sees its power as a force for good. “I spend a lot of time with the dialysis community and the government working on our strategies, aligning our goals and objectives,” says LeAnne Zumwalt, a DaVita group vice president and one of the company’s liaisons in Washington. Because Medicare is the primary customer for all dialysis providers, Zumwalt says that companies don’t have to vie for market share; instead, they work in each others’ interests. “It is very amicable. You become close friends. Our industry is perceived [on Capitol Hill] as successful. We have the doctors, nurses, providers, and manufacturers aligned for what we want.”

Critics say this strategic placement of industry insiders has seemed to allow DaVita to elude law enforcement. Among the skeptics is the Justice Department itself. Since 2001, U.S. Attorney’s offices in Colorado, Missouri, and Texas have launched investigations into DaVita’s billing practices or its financial relationships with physicians. To date, none of the scrutiny has resulted in new lawsuits or prosecutions, and the investigations remain open and pending; DaVita officials won’t comment on any of them.

When it isn’t navigating its way through federal inquiries or whistleblower suits, DaVita encounters speed bumps at the clinical level, too. Dialysis patient advocates, many of them current or former nurses who have worked in the industry, cite dozens of examples in which for-profit dialysis companies routinely cut corners on treatment procedures, resulting in mistakes that have sickened—and sometimes killed—their patients. The more than half-dozen activists and patients I spoke with agreed that the most egregious violator, by far, is DaVita. Independent of one another, they have accused the company of undertraining its technicians, who in turn perform clinical procedures at substandard levels and sometimes let clinics become unsanitary. (The one clinic I visited, in Aurora, was spotless; it also was so new that it was mostly empty of patients and employees and didn’t yet have a Wall of Fame.) And, as the Denver Post reported in 2011, DaVita continues to reuse dialysis filters—dialyzers—on its patients more than most providers, a practice that’s safe as long as the filters are sterilized between treatments and not mistakenly shared with other patients. Although DaVita has openly defended the practice—its chief medical officer wrote an op-ed in response to the Post article—according to one ex-DaVita technician who requested anonymity, “If these techs have only worked at DaVita, that’s how they’ve been trained, and they don’t know any better.” (In a case that illustrates how horribly wrong dialysis can go, a nurse at a DaVita clinic in Lufkin, Texas, killed five patients in 2008 by injecting bleach into their bloodlines. Though her attorneys tried to blame the deaths on honest mistakes caused by DaVita’s shoddy clinical practices, last spring the nurse was convicted of first-degree murder and sentenced to life in prison.)

The same Kent Thiry who encourages his teammates to email him with concerns, critics say, isn’t so responsive to his patients. Some patients have accused techs of theft, sexual harassment, and, perhaps most often, of intimidating anyone who raises objections about quality of service. They say DaVita habitually ignores complaints, drags its feet, and twists the grievance process into a bureaucratic knot. The company is especially notorious among naysayers for refusing to treat patients who grouse too much, “dismissing” them to another clinic—usually not a DaVita center—regardless of the inconvenience it may cause. (This is especially harmful in rural areas, where the next clinic of any kind might be hours away.)

Some former patients have even accused DaVita of blackballing them to other non-DaVita dialysis clinics, which, if true, would be another federal privacy violation. “DaVita is number one in dumping patients,” says Arlene Mullin, an advocate in Battleground, Washington, who shared dozens of emails with me detailing alleged abuses of the patients she represents. She contends that DaVita clinics operate with virtually no accountability or oversight. “I’ve gotten notarized statements from patients so I can advocate for them, and neither ESRD Networks nor DaVita has recognized any of them. [ESRD Networks and the government] have no authority over these clinics. None.” Mullin claims that DaVita’s insider connections to CMS and ESRD Networks allow clinics to get tipped off about what should be surprise inspections. (She says this also happens at non-DaVita clinics.) The patient advocates I spoke with uniformly believe that ESRD Networks and CMS respond to grievances by stonewalling, burying them in bureaucracy, or ignoring them altogether. “Of all the patients I’ve helped to file complaints, in 100 percent of the cases, ESRD Networks has sided with the dialysis companies,” Mullin says. “Medicare has allowed this industry to oversee itself.”

Bill Peckham, a longtime dialysis patient turned activist blogger, goes a step further, saying the “all for one” DaVita Village concept simply doesn’t include patients. He likens the company to a village that mines coal. “We patients don’t have the voice of a citizenry; we’re just the coal.”