Author Topic: David vs. Goliath  (Read 5046 times)


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David vs. Goliath
« on: December 26, 2010, 12:00:19 PM »
(Found this and thought it was worth re-running)

A David vs. Goliath battle emerges in the fight for dialysis dollars

June 27, 2009 2:59 PM

As Dr. Jesse A. Flaxenburg read to his young daughters one evening in March, the doorbell interrupted their nighttime routine.

He put the book down. The girls climbed out of bed and trailed behind him as he went to the door, and his wife emerged from another room with their 1-year-old son in her arms.

On the front step stood a delivery man with a package under one arm and a clipboard in the other. Flaxenburg, puzzled and slightly irritated at the surprise arrival, scribbled his signature as his family looked on.

Instead of the box, he was handed some papers.

Flaxenburg examined the documents and told his wife he'd been sued. She began to cry.

The older children, seeing their mom upset, did the same.

For an idealistic young physician, it was a harsh introduction to the high-stakes world of Wall Street.

For DaVita Inc., the multi-billion-dollar corporation behind the suit, it seems to be business as usual.

In recent years, the Fortune 500 company - one of the country's largest dialysis providers - has filed at least six suits in five states against physicians and competing dialysis centers that pose a threat to its profits, according to court documents examined by The Gazette. In those suits the publicly traded company or its subsidiaries have alleged a list of wrongdoings, from breaching contracts and ignoring noncompete arrangements to slander.

In each one, the company contends physicians and its competitors have secretly conspired to harm its business. The doctors say DaVita is waging a legal war to crush its competition.

Flaxenburg and his five associate physicians at Pikes Peak Nephrology Associates are the latest targets. DaVita accuses them in an arbitration demand of improperly courting a new competitor that threatens its long-standing dominance in Colorado Springs.

Flaxenburg, like the other doctors, denies wrongdoing and says the action is purely punitive.

"They did this because they wanted to intimidate me," said Flaxenburg. "I can't let that kind of behavior go."

So far, there has been no clear victor in the suits. Four are ongoing; two were settled confidentially after prolonged court battles.

But the legal showdown shines a light on the precarious balance between patient care and profits. In the competitive dialysis industry, the sick are measured as market share.

"There's been some bad stuff in this field," said Bill Vaughn, senior policy analyst for the health sector at Consumers Union, about the dialysis industry. "Nothing you can say in this field will shock me."

Boardrooms v. bedsides

When DaVita announced in May that it's relocating its executive headquarters from El Segundo, Calif., to Denver, Denver Mayor John Hickenlooper and Gov. Bill Ritter praised the news.

"DaVita's decision to move its headquarters is a great coup for metro Denver and the state of Colorado," Hickenlooper said at a May 27 press conference. "DaVita is one of the biggest and best in the industry ... We are proud DaVita chose to call Colorado home."

Indeed, DaVita is a business success story. It rose out of a struggling dialysis company in the late 1990s to become No. 433 on the Fortune 500 list. Today it treats nearly a third of U.S. dialysis patients and employs more than 32,000 people, according to its Web site.

DaVita is listed as one of Fortune's "World's Most Admired Companies" and is the only Fortune 500 company named by WorldBlu's annual list of "Most Democratic Work Places." Earlier this month it made a list of "2009 Best Companies in Colorado to Work For."

But DaVita's reputation in the medical profession is not as stellar.

Doctors, lawmakers and others have questioned the company's frequent use of Epogen, a profitable anemia drug, despite concerns the drug could be harmful in high doses. The U.S. Department of Health and Human Services and U.S. Attorneys General offices in Texas and Missouri are investigating DaVita's use of Epogen and other treatments, as well as its billing practices. Those investigations are ongoing, according to the company's latest quarterly filing with the Securities and Exchange Commission, and it warns adverse outcomes could affect its bottom line.

Amid the controversy, some doctors have become dissatisfied with DaVita, and competitors have emerged in recent years.

And that's bad for DaVita's bottom line.

"Dialysis facilities receive payment for every treatment they deliver," said Dale Singer, executive director of the Renal Physicians Association. "They want to make sure they're at capacity, just like a hospital doesn't want to have empty beds."

DaVita says as much in its latest SEC quarterly filing:

"If a significant number of physicians were to cease referring patients to our dialysis centers, whether due to regulatory or other reasons, then our revenues, earnings and cash flows would be substantially reduced."

From the exam room to the court room

That might explain why a company that treats about 114,000 patients nationally is pursuing unspecified damages from six physicians in Colorado Springs who treat roughly 400.

Flaxenburg, 38, never expected to find himself facing off with a corporate giant. He moved to Colorado Springs in 2006 after finishing a fellowship at Harvard Medical School's teaching hospitals. Pikes Peak Nephrology treats the lion's share of people in El Paso County suffering end-stage renal disease.

"Your mentors are all academics," Flaxenburg said about his time at Harvard's hospitals.

"They are largely shielded from the business of medicine. ... I came out of that world relatively naive as to how all this stuff worked. And it's been quite an education."

The trouble began when the nephrology group agreed to welcome a newcomer to Colorado Springs, a small but fast-growing company, based in Mercer Island, Wash., called Liberty Dialysis. Liberty opened two locations in the city earlier this year and is building a third. It's also opened centers in Pueblo and Castle Rock.

The 7-year-old company has about 70 outpatient dialysis centers, compared with DaVita's 1,400. But it has built its business model largely on physician relationships and creature comforts for patients, capitalizing on some of the gripes about its rivals.

Liberty Executive Vice President Ben Croce said it has earned business from doctors by giving physicians more say in their patients' treatment and building a strong staff to keep the turnover rate low.

It has also invested heavily in amenities and equipment for patients: flat-screen televisions at every dialysis station, free Wi-Fi and heated massage chairs. They install fireplaces in their lobbies.

The doctors at Pikes Peak Nephrology say they don't have a financial relationship with Liberty in Colorado Springs and are leaving it up to patients where they go for treatment, informing them about both providers. Flaxenburg said he has patients at both places who are doing great.

DaVita, though, accuses the practice of violating a noncompete agreement, disclosing DaVita's trade secrets and soliciting its employees to go to Liberty.

A game of Monopoly?

DaVita's suit against the Springs group is similar to those filed in Denver; Reno, Nev.; Pocatello, Idaho; Salt Lake City; and Augusta, Ga. In each one, DaVita's lawyers allege doctors in one way or another tried to run DaVita out of business.

The complaints generally focus on noncompete agreements doctors sign when they become medical directors. Medical directorships are usually part-time jobs that can be maintained in addition to a physician's regular duties. The money can be significant. DaVita says it paid $250,000 to Flaxenburg's associates in July 2003 to extend a 10-year agreement by just one year. That agreement is set to expire next month.

Although it is illegal for dialysis centers to pay doctors for patient referrals, the company pays medical directors with an expectation that it will have their loyalty, according to explanations it gives in the various suits.

When Flaxenburg joined Pikes Peak Nephrology three years ago, he was later contacted by DaVita's regional office about being added to the medical director agreement, as his associates had done years before.

Flaxenburg refused, because he had reservations about its noncompete conditions. Competition, he said, would only help the community.

"I had a choice - I could have signed it," he said. "It would have been selling out everything I believe in."

His partners came to adopt his attitude. They had become frustrated with DaVita's management practices, according to their countersuit. When Liberty presented its plans to enter the Colorado market, the competition was welcomed.

DaVita declined to provide interviews for this story, citing pending litigation, but issued a short statement saying "maintaining strong relationships with our business partners is a primary concern."

Liberty, which has been sued alongside doctors in a few of the suits, also declined to discuss the court cases.

But DaVita contends in court filings the Colorado Springs doctors were responsible for 11 employees and 10 patients going to Liberty.

In many cases, doctors have responded to DaVita's accusations with formal complaints of their own. The Denver doctors at Western Nephrology and Metabolic Bone Disease have filed an antitrust complaint. Pikes Peak Nephrology countersued in U.S. District Court in Denver, accusing the company of abusing the legal system. And a Reno, Nev., nephrology executive filed a countercomplaint saying DaVita knows how expensive litigation can be for smaller practices, and uses it to force them "into submission." A judge denied her request to throw out the lawsuit, which was filed against her in 2008.

Kevin Allen, a long-time employment attorney in Denver who specializes in noncompete and nonsolicitation agreements, said many businesses have been known to file suits as much to create a "chilling effect" as to win.

"I think businesses in general can use litigation as a method of trying to hinder competition from growing," said Allen, who declined to discuss the specifics of DaVita's claims.

DaVita's approach may also be a matter of self-preservation, said Mark Loewenstein, who teaches corporate and agency partnership law at The University of Colorado Law School.

"It's really a situation where a company's trying to protect its business plan, and being very aggressive about it," he said.

Both lawyers said the courts tend to favor the argument for competition in such disputes.
Patients caught in crossfire

In the court documents, allegations fly from all sides about patients apparently caught in the middle of the disputes between dialysis providers and doctors. DaVita alleges in a 2002 suit against doctors in Georgia that a doctor left a voicemail for a patient who was waiting for a transplant to say he had "fantastic news." The news was not that an organ had arrived, but that the doctor was part of a new dialysis center.

Pikes Peak Nephrology complains that staff at DaVita questioned patients while they were on dialysis about conversations with the physicians and what was said to them.

Karen Kitzky, 58, who has been on dialysis for 16 years, is a patient of Pikes Peak Nephrology and says she was the first dialysis patient to leave DaVita for Liberty. Her old provider, she said, appeared understaffed and she felt that was unsafe if something were to go wrong. "I didn't feel safe enough to go to sleep," she said. Her decision, she says, was not well received by DaVita's staff. Employees told her she would not be able to see her current physicians if she switched, and one employee told her she was going to a place where, statistically, she was more likely to die.

Staff members, too, have found themselves mired in the struggle for market dominance.

One former DaVita employee, nurse Diane Odell, was sued by DaVita after she went to work for a Liberty center in Pueblo, according to court documents. The allegations, like those against the physicians, centered on breaching a noncompete agreement and revealing trade secrets.

For Flaxenburg, no one will emerge from this dispute a victor. Whatever rulings may come, it will be a matter of who loses the least - or lasts the longest.


Call Newsome at 636-0198. Visit the Pikes Peak Health blog at and the Gazette's Health page at


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« Last Edit: December 26, 2010, 08:23:36 PM by cschwab »
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Re: David vs. Goliath
« Reply #1 on: December 28, 2010, 12:18:36 AM »
great article! Love the name too to symbolize!