Judge Sanctions Dialysis Clinic Firm for Spoiling Discovery

Judge Sanctions Dialysis Clinic Firm for Spoiling Discovery Judge Charles Pannell said DaVita should reimburse whistleblowers.

A federal judge has sanctioned one of the nation’s largest health care corporations for “unacceptable” conduct in a whistleblower lawsuit that he said spoiled its required disclosure of information with false testimony—a decision that could force the company to reimburse whistleblower attorneys as much as $2 million.

U.S. District Senior Judge Charles Pannell Jr. ruled that DaVita Inc., which operates more than 2,000 kidney dialysis clinics, demonstrated “enough of a showing of bad faith” to warrant reopening discovery in the seven-year-old case. The suit, filed by two former employees who worked at DaVita clinics in Georgia, accuses the company of defrauding the federal government of hundreds of millions of dollars.

The judge said he contemplated awarding attorney fees and costs for any prior discovery that was “impeded or spoiled,” the entire cost of new discovery, including redeposing witnesses, and the cost of filing and litigating the sanctions motion. The whistleblowers’ lawyers said those costs could exceed $2 million.

Pannell issued the nine-page-order on Aug. 12, following three days of hearings in July and eight months of what the judge described as “a series of protracted fights resulting in furious rounds of briefing, hearings and accusations.”

Benjamin Fox, one of a team of attorneys led by John Floyd and Mickey Mixson of Atlanta’s Bondurant, Mixson & Elmore that is defending DaVita, said in response to Pannell’s order: “We respect the court and the process. We are confident that any additional discovery will not support relators’ claims.” DaVita, he added, “will ultimately prevail in this litigation.” He declined further comment.

DaVita’s legal team also includes a group of attorneys led by Mark Pearlstein at McDermott Will & Emery in Boston and attorneys from Houston firm Gibbs & Bruns.

The case against one of the nation’s leading providers of kidney dialysis services was filed in 2007 by Dr. Alon J. Vainer, a board-certified nephrologist who was the medical director for several of DaVita’s Georgia clinics, and Daniel Barbir, a registered nurse, who worked as a clinic director in Cumming.

The two former DaVita employees claimed in their suit that, for years, DaVita systematically defrauded Medicare, Medicaid and civilian medical programs for the U.S. Department of Veterans Affairs and Defense Department. They claim the company boosted profits by prescribing—and billing the federal government—for vials of drugs that were larger than the smaller doses actually administered to patients, thereby artificially increasing the cost of the care. The suit also names Gambro Healthcare Inc., a company that merged with DaVita in 2005, as a codefendant.

The federal False Claims Act allows private citizens to file civil actions on behalf of the government against individuals and companies who defraud government programs. Those who sue, called relators, receive a portion of the recovered damages if their allegations are upheld.

The whistleblowers’ lawyer, L. Lin Wood, said that if the suit is successful, monetary damages could approach $300 million. Because damages are trebled under the False Claims Act and may be augmented by the addition of civil monetary penalties for each false claim submitted, DaVita could be potentially liable for more than $2 billion, Wood said.

“So DaVita must have felt it had a couple of billion reasons to lie in this and not disclose the truth about a significant piece of evidence central to its fraudulent scheme,” he said.

Wood and cocounsel Marlan Wilbanks have claimed that a DaVita computer program, known as “Snappy,” was integral to the alleged dosage maximization scheme. They sought evidence on how Snappy worked, how the program was used by DaVita’s doctors and nurses and whether the program recommended dosages that created medically unnecessary waste.

The two lawyers sought sanctions against DaVita, claiming that key witnesses either had given false testimony in depositions or recanted statements to conform to the company’s assertions that Snappy was not programmed to recommend wasteful dosages for at least one of the drugs at issue.

Calling Pannell’s ruling “a major step” in the litigation, Wood said, “DaVita tried to defraud my clients and the court in this litigation but did not succeed.”

“DaVita intentionally defrauded Medicare and the United States for years, but like its discovery fraud in this litigation, it will be exposed,” he continued. “DaVita will be held accountable.”

Said Wilbanks: “We have always believed that much of the scheme was hard-wired into the DaVita dosing grids in order to maximize profits and waste. The DaVita executives and corporate representatives provided false testimony about that, but the truth finally came out.”

Court pleadings defending DaVita dismissed the sanctions fight as “a single and peripheral issue of fact about a version of software no longer in use” and a “complete red herring.”

“Regardless of whether or how Snappy suggested a dose, the suggested doses all fell within the dosing range ordered by the treating physician and recognized as appropriate by the medical profession and the supposed victim federal agency, the Centers for Medicare and Medicaid Services (CMS),” defense attorneys said.

Acknowledging that one of DaVita’s witnesses “testified inaccurately about the display on one screen of a massive software system,” they contended, “That error was replicated in other witnesses’ testimony … before DaVita discovered and corrected this from the witness and inaccuracy.”

That DaVita employees “would fail to remember precisely one field on one screen in one module of software that was no longer in use when the testimony was given, in a system in which a user would see potentially hundreds of screens and thousands of different fields, is not surprising and certainly not evidence of perjury,” defense attorneys concluded.

The judge rejected that explanation, saying he was “convinced that the defendants have spoiled discovery related to Snappy to such a degree that sanctions are appropriate and the court must reopen discovery.”

In his order, Pannell singled out the testimony of Richard Tetley, whom DaVita had identified as the corporate representative with the most knowledge of how Snappy worked.

Pannell said that Tetley first gave “unequivocal testimony” that Snappy did not recommend doses for one of three drugs at issue in the case. But a year later, the judge wrote, Tetley “admitted that his deposition testimony was false.”

Pannell observed that during the year of discovery when Tetley’s original testimony remained uncorrected, witnesses who were deposed by the whistleblowers’ lawyers, and whose testimony contradicted Tetley’s, “would change their testimony to hew to Tetley’s false testimony” after a break in the deposition or in an errata sheet submitted later.

“At worst, the defendants purposely manipulated the evidence and witnesses to hide the truth from the [whistleblowers] and the court,” Pannell said.

“The court does not believe that the evidence the [whistleblowers] have submitted unequivocally shows that the defendants committed this more nefarious level of discovery practice, but the ‘forgetfulness’ and changed testimony from so many witnesses is highly suspect.”

Pannell turned down a request by whistleblower lawyers that he issue a default judgment against DaVita. But, the judge said, “The defendants’ extreme delay in correcting Tetley’s testimony, their attempts to ensure that subsequent witnesses’ testimony hued to Tetley false statements, and their failure to retract other admittedly false statements even after the relators filed this motion for sanctions amounts to at least enough of a showing of bad faith to reopen discovery and award attorney’s fees.”

The case is Vainer v. DaVita, No. 1P:07-cv-02509 (N.D. Ga.).