stock disclaimer
Joined: 07 Jun 2003
Posts: 1
Posted: Sat Jun 07, 2003 5:36 am Post subject: DaVita's stock disclaimer on the Antikickback and Stark Law
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n July 1991, November 1992 and November 1999, the Secretary of HHS<
>published regulations that create exceptions or "safe harbors" for some<
>business transactions and arrangements. Transactions and arrangements<
>structured within these safe harbors do not violate the anti-kickback<
>statute. A business transaction or arrangement must satisfy each and every<
>element of a safe harbor to be protected by that safe harbor. Transactions<
>and arrangements that do not satisfy all elements of a relevant safe harbor<
>do not necessarily violate the anti-kickback statute, but enforcement<
>agencies may subject them to greater scrutiny and could determine that they<
>violate the statute.<
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>Because our medical directors refer patients to our centers, the federal<
>anti-kickback statute may apply. Among the available safe harbors is one<
>for personal services, which is relevant to our arrangements with our<
>medical directors. Most of our agreements with our medical directors do not<
>satisfy all seven of the requirements of the personal services safe harbor.<
>We believe that, except in cases where a center is in transition from one<
>medical director to another or where the term of an agreement with a<
>physician has expired and a new agreement is in negotiation, our agreements<
>with our medical directors satisfy most of the elements of this safe<
>harbor. One of the requirements not satisfied is a requirement that if the<
>services provided under the agreement are on a part-time basis, as they are<
>with our medical directors, the agreement must specify the schedule of<
>intervals of service, their precise length and the exact charge for such<
>intervals. Because of the nature of our medical directors" duties, we<
>believe it is impossible to meet this requirement. Also, one of the<
>requirements is that the compensation is fair market value for the services<
>rendered. There is little guidance available as to what constitutes fair<
>market value for medical director services. Although our medical director<
>agreements are the result of arm"s length negotiations, an enforcement<
>agency could challenge the level of compensation that we pay our medical<
>directors. Accordingly, we could in the future be required to change our<
>practices, pay substantial fines or otherwise experience a material adverse<
>effect as a result of a challenge to these arrangements. One of the areas<
>that the United States Attorney"s inquiry described above covers is our<
>financial relationships with physicians.<
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>At 31 of our dialysis centers, physicians who refer patients to the centers<
>hold interests in partnerships or limited liability companies owning the<
>centers. The anti-kickback statute may apply to these situations. Among the<
>available safe harbors with respect to these arrangements is one for small<
>entity investment interests. Although none of our arrangements satisfy all<
>of the elements of this small entity investment interests safe harbor, we<
>believe that each of these partnerships and limited liability companies<
>satisfies a majority of the safe harbor"s elements, as well as the intent<
>of the regulations.<
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>We lease approximately 50 of our centers from entities in which physicians<
>hold interests and we also sublease space to referring physicians at<
>approximately 90 of our dialysis centers. The anti-kickback statute may<
>apply in these situations. Among the available safe harbors with respect to<
>these arrangements is one for space rentals. We believe that the leases and<
>subleases we have entered into are in material compliance with the safe<
>harbor.<
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>Because we are purchasing and selling items and services in the operation<
>of our centers that may be paid for in whole, or in part, by Medicare or a<
>state healthcare program and because these items and services might be<
>purchased or sold at a discount, the federal anti-kickback statute may<
>apply. Among the available safe harbors is one for discounts, which is<
>relevant to our discount arrangements. We believe that the discount<
>arrangements that we have entered into are in material compliance with the<
>anti-kickback statute and that these arrangements satisfy, in all material<
>respects, each of the elements of the discounts" safe harbor applicable to<
>these arrangements.<
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>Fraud and abuse under state law<
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>Several states, including California, Florida, Georgia, Kansas, Louisiana,<
>Maryland, New York, Utah and Virginia, in which we operate dialysis centers<
>jointly owned with referring physicians, have statutes prohibiting<
>physicians from holding financial interests in various types of medical<
>facilities to which they refer patients. Some states also have laws similar<
>to the federal anti-kickback statute that may affect our ability to receive<
>referrals from physicians with whom we have financial relationships, such<
>as our medical directors. Some of these statutes include exemptions<
>applicable to our medical directors and other physician relationships.<
>Some, however, include no explicit exemption for medical director services<
>or other services for which we contract with and compensate referring<
>physicians or for joint ownership interests of the type held by some of our<
>referring physicians. If these statutes are interpreted to apply to<
>referring physicians with whom we contract for medical director and similar<
>services or to referring physicians who hold joint ownership interests, we<
>would be required to restructure some or all of our relationships with<
>these referring physicians and could be subject to financial penalties. We<
>cannot predict the consequences of this type of restructuring.<
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>Stark I/Stark II<
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>The Omnibus Budget Reconciliation Act of 1989 includes provisions, known as<
>Stark I, that restrict physician referrals for clinical laboratory services<
>to entities with which a physician or an immediate family member has a<
>"financial relationship." Federal regulatory agencies may interpret Stark I<
>to apply to our operations. Regulations interpreting Stark I, however, have<
>created an exception to its applicability regarding services furnished in a<
>dialysis center if payment for those services is included in the ESRD<
>composite rate.<
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>The Omnibus Budget Reconciliation Act of 1993 contains provisions, known as<
>Stark II, that restrict physician referrals for "designated health<
>services" to entities with which a physician or immediate family member has<
>a "financial relationship." The entity is prohibited under Stark II, as is<
>the case for entities restricted by Stark I, from claiming reimbursement<
>for such services under the Medicare or Medicaid programs, is liable for<
>the refund of amounts received pursuant to prohibited claims, is subject to<
>civil penalties of up to $15,000 per service and can be excluded from<
>future participation in the Medicare and Medicaid programs. Stark II<
>includes certain exceptions. Stark II provisions that may be relevant to us<
>became effective in January 1995. Phase I of federal regulations<
>interpreting Stark II were issued in January 2001, and became effective, in<
>relevant part, in the first quarter of 2002. CMS has yet to propose Phase<
>II of these regulations.<
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>A "financial relationship" with an entity under Stark II is defined as an<
>ownership or investment interest in, or a compensation arrangement with,<
>the entity. We have entered into compensation
agreements with our medical<
>directors. Some of our medical directors own equity interests in entities<
>that operate our dialysis centers. Some of our dialysis centers are leased<
>from entities in which referring physicians hold interests and we sublease<
>space to referring physicians at some of our dialysis centers. In addition,<
>while nearly all of our stock option<
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>arrangements with referring physicians were terminated in 2000, a few<
>medical directors still own options to acquire our common stock because we<
>did not have the contractual right to terminate their options. Under the<
>Stark II regulations, these stock options constitute compensation<
>arrangements that must meet an applicable exception. Also, some medical<
>directors and other physicians own our common stock, which they either<
>purchased in the open market or received from us as consideration in an<
>acquisition of dialysis centers from them. Although we believe that the<
>ownership of our stock and the other ownership interests and lease<
>arrangements for our centers are in material compliance with Stark II, it<
>is possible that CMS could view them as prohibited arrangements that must<
>be restructured or for which we could be subject to other applicable<
>penalties.<
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>We believe that our compensation arrangements with medical directors and<
>other contract physicians materially satisfy the personal services<
>compensation arrangement exception to the Stark II prohibitions. Payments<
>made by a lessor to a lessee for the use of premises are also excepted from<
>Stark II prohibitions if specific requirements are met. We believe that our<
>leases and subleases with referring physicians materially satisfy this<
>exception to the Stark II prohibitions. The Stark II exception applicable<
>to physician ownership interests in entities to which they make referrals<
>does not encompass the kinds of ownership arrangements that referring<
>physicians hold in several of our subsidiaries that operate dialysis<
>centers. Accordingly, it is possible that CMS could require us to<
>restructure some of these arrangements or seek to impose substantial fines<
>or additional penalties on us.<
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