Whistleblower Alleges Dialysis Giants DaVita and Fresenius Steer Patients Through American Kidney Fund in $247M Kickback Scheme

In 2016, a whistleblower who had worked for 12 years at the American Kidney Fund filed a lawsuit alleging that dialysis giants DaVita and Fresenius Medical Care—which together control over 80 percent of the $24.7 billion U.S. dialysis market—operated a years-long kickback scheme where they donated hundreds of millions to AKF to subsidize patients’ private insurance premiums, steering patients away from Medicare toward commercial insurance that pays 17 times more than government rates. The lawsuit alleged that when AKF became financially stressed, DaVita and Fresenius pressured the charity to restrict grants only to patients whose dialysis providers contributed to the fund, creating a quid pro quo arrangement where donations bought patient referrals in violation of federal anti-kickback laws. By 2017, DaVita and Fresenius donated $247 million annually to AKF, which paid premiums for over 74,000 patients—approximately 20 percent of the nation’s dialysis recipients—with analysts estimating the scheme generated 30-45 percent of the dialysis giants’ annual pre-tax income through a systematic fraud exploiting America’s most vulnerable kidney disease patients.

Dialysis Duopoly: 80 Percent Market Control by Two Companies

The dialysis industry operates as an effective duopoly with minimal competition:

Market Concentration: DaVita and Fresenius Medical Care control upwards of 80 percent of the $24.7 billion American dialysis market, making dialysis “the most concentrated health care sector across the entire U.S.,” according to Duke University economist Ryan McDevitt. In California, where three-quarters of clinics are owned by the two companies, the duopoly’s dominance is even more pronounced.

Patient Captivity: Over 500,000 Americans depend on dialysis to survive kidney failure, receiving treatment three times weekly for 3-4 hours per session. This medical necessity combined with limited provider options gives DaVita and Fresenius enormous leverage over patients, who cannot switch providers easily due to geographic constraints, insurance networks, and disruption costs.

Three Decades of Consolidation: The companies have spent three decades “creeping towards a duopoly” through acquisitions of independent dialysis clinics, creating barriers to entry for potential competitors. The high capital costs of dialysis equipment and facilities, combined with the existing players’ economies of scale, make it nearly impossible for new entrants to compete.

Medicare Dependence: Dialysis is one of the few conditions for which Medicare provides coverage regardless of age, as End-Stage Renal Disease (ESRD) automatically qualifies patients for Medicare. This government funding effectively created the dialysis industry in 1972, but over decades, private companies consolidated control while depending on public financing—privatizing profits while socializing costs.

The American Kidney Fund Premium Assistance Scheme

The whistleblower lawsuit exposed how the charity operated as a patient-steering mechanism:

Premium Subsidy Model: The American Kidney Fund operates a Health Insurance Premium Program that pays private insurance premiums for low-income dialysis patients. On its face, this appears charitable—helping poor patients afford insurance. In reality, the program served as a mechanism for dialysis companies to steer patients toward high-paying commercial insurance rather than lower-paying Medicare.

Payment Rate Disparities: Commercial insurance pays dialysis providers approximately 17 times more than Medicare for the same services. For example, Medicare might pay $240 per dialysis session while private insurance pays $4,000+. This massive payment differential created powerful incentives for dialysis companies to keep patients on commercial insurance rather than allowing them to transition to Medicare.

Charitable Donations as Business Investment: DaVita and Fresenius donated $247 million annually to AKF by 2017—seemingly charitable contributions that were actually highly profitable business investments. By subsidizing patients’ private insurance premiums through AKF, the companies ensured patients remained on high-paying commercial insurance, generating revenue far exceeding the cost of their AKF donations.

30-45 Percent of Pre-Tax Income: Analysts estimated that the AKF premium assistance scheme generated 30-45 percent of DaVita and Fresenius’s annual pre-tax income. This staggering figure revealed the scheme was not incidental to their business models but rather a core profit driver—their businesses depended on this arrangement to maintain profitability.

Alleged Anti-Kickback Violations

The whistleblower’s lawsuit detailed how the arrangement violated federal anti-kickback laws:

Quid Pro Quo Arrangement: The lawsuit alleged that when AKF faced financial pressure, DaVita and Fresenius pressured the charity to restrict grants only to patients whose dialysis providers contributed to the fund. This created an explicit quid pro quo: dialysis companies donated to AKF in exchange for AKF steering their patients toward expensive commercial insurance through premium assistance.

Conditional Charity: Federal anti-kickback laws prohibit offering anything of value in exchange for patient referrals or steering. By conditioning charity grants on whether patients’ dialysis providers donated to AKF, the arrangement allegedly transformed charitable assistance into a kickback scheme where donations purchased patient referrals.

Inducement to Stay on Commercial Insurance: Dialysis patients who lost employer-sponsored insurance would normally transition to Medicare, which costs dialysis companies significantly less revenue. AKF premium assistance induced patients to remain on commercial insurance by making it affordable, preventing the natural migration to Medicare that would reduce dialysis company revenue.

Only Patients from Contributing Providers: The lawsuit’s most damning allegation was that AKF restricted grants to patients whose dialysis providers donated to the fund. This selectivity based on provider contributions proved the arrangement was not purely charitable but rather a business transaction where companies bought patient steering through charitable donations.

DOJ Declines Prosecution: Systematic Fraud Too Big to Prosecute

Despite compelling evidence, federal prosecutors declined to join the whistleblower lawsuit:

DOJ Non-Intervention: The Department of Justice declined to intervene in the False Claims Act lawsuit, effectively ending the case’s viability. Without DOJ participation, whistleblower suits rarely succeed, as individual plaintiffs lack resources to litigate against massive corporate defendants.

Lawsuit Dismissal: Following DOJ’s decision not to intervene, the whistleblower lawsuit was dismissed. The dismissal meant DaVita and Fresenius faced no legal consequences for the alleged kickback scheme, allowing the arrangement to continue generating billions in revenue.

Too Big to Prosecute Theory: Critics argued that the DOJ declined prosecution because successful action against DaVita and Fresenius might destabilize the dialysis industry, potentially causing clinic closures that would harm patients dependent on dialysis for survival. This “too big to prosecute” logic gave the duopoly immunity from accountability due to their systematic importance.

Pattern of Non-Enforcement: The AKF case was part of a broader pattern where dialysis industry fraud allegations led to settlements rather than criminal prosecution. DaVita has paid over $1.1 billion in the past five years to settle four DOJ False Claims Act allegations, demonstrating systematic fraud where companies treat occasional settlements as a cost of doing business rather than deterrents against illegal conduct.

DaVita’s Fraud Settlement History: $1.1 Billion in Five Years

The AKF allegations occurred against a backdrop of serial fraud:

$350 Million Settlement (Kickback Allegations): DaVita agreed to pay $350 million to resolve claims that it violated the False Claims Act by paying kickbacks to induce referrals to its dialysis clinics—a separate kickback scheme from the AKF arrangement.

$34.5 Million Settlement (Pharmacy Kickbacks): DaVita paid $34,487,390 to resolve allegations that it paid kickbacks to induce referrals to DaVita Rx, a former subsidiary providing pharmacy services, and paid kickbacks to nephrologists and vascular access physicians for patient referrals.

Additional Settlements: DaVita paid nearly $1 billion in civil penalties to settle whistleblower suits since 2012, including allegations that it threw out good medicine and fraudulently billed Medicare. The lawsuits created a pattern showing DaVita’s business model depended on fraudulent billing and kickback arrangements.

Settlements Without Admission: All settlements included standard provisions where DaVita denied wrongdoing while paying hundreds of millions in penalties. This “settle without admitting” approach allowed the company to continue operations without criminal convictions or binding admissions of fraud, treating penalties as merely another business expense.

Political Power: $211 Million to Defeat California Ballot Measures

The dialysis duopoly wielded enormous political power to block reform:

2018 California Proposition 8: California voters considered a ballot measure that would have capped dialysis clinic profits at 115 percent of direct patient care costs. DaVita and Fresenius spent $111 million defeating the measure—breaking California records for one-side spending on a ballot initiative. The industry’s campaign successfully framed profit caps as threatening patient access, despite evidence that excessive profits contributed to poor care quality.

2020 California Proposition 23: When reform advocates tried again in 2020 with a measure requiring on-site physicians at dialysis clinics, the industry spent another $100 million defeating it. The consistent pattern showed the duopoly would spend whatever necessary to prevent regulation that might reduce profitability.

$211 Million Over Four Years: DaVita was responsible for approximately $143 million of the political spending over four years, with Fresenius contributing about $68 million. This massive spending demonstrated how dialysis companies used profits from Medicare and private insurance to fund political campaigns blocking oversight of how they spent those healthcare dollars.

“Patients and Caregivers to Protect Dialysis Patients”: The industry created front groups with patient-friendly names to oppose reform measures. Analysis showed about 90 percent of funding for “Patients and Caregivers to Protect Dialysis Patients” came from DaVita (60 percent) and Fresenius, with DaVita donating over $67 million in two years to this purported patient advocacy group that actually advanced company interests.

Discouraging Home Dialysis: Protecting Clinic Revenue

The duopoly actively discouraged lower-cost home dialysis alternatives:

Home Dialysis Cost Advantages: In-home dialysis costs up to five times less than in-center dialysis, is favored by most nephrologists as providing better outcomes, and reduces stress for patients by eliminating thrice-weekly clinic visits. Home dialysis should be the default recommendation for medically appropriate patients.

Financial Disincentives: Despite home dialysis’s clinical and cost advantages, DaVita and Fresenius strongly discourage patients from pursuing it because home dialysis generates far less revenue than in-center treatment. The companies’ business models depend on maximizing in-center dialysis utilization regardless of whether home dialysis would better serve patients.

Physician Pressure: The duopoly employs or contracts with most nephrologists, creating financial pressure on physicians to refer patients to in-center dialysis rather than home alternatives. Physicians who recommend home dialysis too frequently may face reduced referrals or contract termination.

Limited Home Dialysis Availability: While the companies offer some home dialysis services, they invest minimally in promoting or expanding these programs compared to in-center facilities. This ensures home dialysis remains a small fraction of their business, preserving higher-revenue in-center treatment as the dominant model.

FTC Investigation: Antitrust Scrutiny Without Enforcement

The dialysis duopoly attracted antitrust attention without meaningful consequences:

FTC Probe Opened: The Federal Trade Commission opened investigations into DaVita and Fresenius regarding noncompete contracts for dialysis clinic medical directors and potential antitrust violations related to market concentration. Senator Richard Blumenthal called on the FTC to “take appropriate robust enforcement action to remediate issues it has identified and protect patients.”

Market Concentration Concerns: With over 80 percent market share concentrated in two companies, the dialysis industry met standard definitions of monopoly/duopoly requiring antitrust scrutiny. The lack of competition allowed coordinated price increases, reduced quality without competitive pressure, and prevented innovation that might reduce profitability.

Noncompete Contracts: The FTC investigated noncompete agreements that prevented nephrologists from working for competing dialysis providers, potentially restricting competition and physician mobility. These contracts reinforced the duopoly’s control by preventing doctors from leaving to join or start competing clinics.

Investigation Without Enforcement: Despite investigations and congressional pressure, the FTC took no major enforcement action against the dialysis duopoly. This pattern—investigations that generate headlines but not outcomes—demonstrated regulatory capture where agencies scrutinize industries without meaningfully constraining their market power.

Patient Harm: Steering Vulnerable Patients for Profit

The AKF scheme’s human costs extended beyond financial fraud:

Exploiting the Poor: The premium assistance scheme specifically targeted low-income patients who couldn’t afford commercial insurance premiums without assistance. Rather than helping these vulnerable patients, the scheme exploited their poverty to maximize corporate revenue by keeping them on expensive insurance.

Delaying Medicare Eligibility: By subsidizing commercial insurance premiums, the scheme discouraged or delayed patients’ transition to Medicare, which would provide comprehensive coverage without premium assistance. This potentially harmed patients by keeping them in less comprehensive commercial plans rather than transitioning to Medicare’s dialysis-specific coverage.

Profit Prioritization Over Patient Welfare: The entire arrangement demonstrated that dialysis companies prioritized revenue maximization over patient welfare. Rather than recommending the most appropriate insurance and treatment options for each patient, companies systematically steered patients toward options that maximized corporate profit regardless of patient impact.

Quality of Care Concerns: With profitability depending on patient volume and insurance steering rather than care quality, the duopoly lacked incentives to invest in improving outcomes. Studies have shown that for-profit dialysis facilities have higher mortality rates than nonprofit facilities, suggesting the profit motive undermines patient care.

Lobbying Expenditures: Millions to Protect Fraud

The dialysis industry spent aggressively to protect its business model:

Federal Lobbying: DaVita and Fresenius maintain permanent lobbying operations in Washington, D.C., spending millions annually to influence Medicare payment rates, oppose bundled payment reforms, and block legislation requiring transparency in charity relationships.

State Lobbying: Beyond federal lobbying, the companies fund state-level lobbying to oppose certificate-of-need reforms, fight clinic staffing requirements, and block profit cap proposals. The $211 million spent on California ballot measures represented just one part of nationwide state lobbying efforts.

Campaign Contributions: The duopoly contributes to congressional campaigns, particularly members serving on committees with jurisdiction over Medicare and healthcare regulation. These contributions buy access to lawmakers and create relationships that facilitate industry-friendly legislation.

Industry Trade Groups: Beyond direct lobbying, the companies fund trade associations and industry groups that lobby on their behalf, multiplying their political influence while obscuring the extent of their spending.

Medicare Overpayments: Privatizing Profits, Socializing Costs

The dialysis industry’s profitability depends heavily on government funding:

ESRD Medicare Coverage: The 1972 decision to extend Medicare coverage to End-Stage Renal Disease patients regardless of age created the dialysis industry. Government funding made dialysis universally accessible, saving countless lives while creating a massive healthcare market.

For-Profit Consolidation: While government funding created the industry, for-profit corporations consolidated control, acquiring nonprofit and independent dialysis providers to build the current duopoly. This privatization transferred a publicly-funded healthcare service to profit-seeking corporations.

Payment Rate Lobbying: The duopoly lobbies aggressively to maintain and increase Medicare dialysis payment rates, even though studies suggest current rates exceed actual treatment costs. Higher Medicare rates increase baseline profitability and create larger differentials between Medicare and commercial insurance that incentivize patient steering schemes.

Using Public Funds for Political Spending: The companies use revenue from Medicare—taxpayer funds—to finance political campaigns blocking regulation of how they spend those taxpayer funds. This creates a circular flow where public healthcare spending finances political efforts to prevent public oversight of that spending.

AKF’s Response: Denying the Obvious

The American Kidney Fund maintained it operated independently despite evidence:

Claims of Independence: AKF President and CEO LaVarne Burton stated: “the charity’s Health Insurance Premium program is 100% needs-based, and the only factors AKF considers when issuing grants are whether the patient demonstrates financial need and meets program criteria. We do not have any role in which insurance a patient selects, or where they go for dialysis treatment.”

Contradiction with Evidence: Burton’s claims contradicted the whistleblower’s allegations that AKF restricted grants to patients from contributing providers and that DaVita and Fresenius pressured AKF to implement this restriction. The alleged facts, if true, would prove AKF was not independent but rather operated as an instrument of the dialysis duopoly.

Charitable Status Protection: As a 501(c)(3) nonprofit, AKF enjoys tax-exempt status predicated on operating for public benefit rather than private interests. If the whistleblower’s allegations were true, AKF potentially violated its charitable status by operating to benefit DaVita and Fresenius rather than kidney disease patients.

No IRS Action: Despite the allegations suggesting AKF’s premium assistance program primarily benefited corporate donors rather than patients, the IRS took no action to revoke or review AKF’s tax-exempt status. This regulatory inaction allowed the arrangement to continue indefinitely.

Systematic Corruption: Business Model Built on Fraud and Kickbacks

The dialysis industry exemplifies how healthcare systematic corruption operates:

Regulatory Capture: Despite multiple fraud allegations, billion-dollar settlements, and whistleblower lawsuits, the dialysis duopoly faces no meaningful consequences. Regulatory agencies investigate but don’t enforce, creating an appearance of oversight without actual accountability.

Too Big to Prosecute: With over 80 percent of dialysis patients depending on DaVita and Fresenius, aggressive prosecution risking clinic closures would harm patients. This creates immunity through systematic importance, where companies become too essential to face criminal accountability.

Settlements as Business Expenses: DaVita’s $1.1 billion in settlements over five years demonstrates that fraud penalties are merely business expenses that don’t threaten profitability or operations. Companies calculate that fraud revenue exceeds settlement costs, making systematic fraud economically rational.

Political Protection Through Spending: The duopoly’s $211 million in political spending on California ballot measures alone demonstrates how healthcare profits fund political campaigns that block reform. This creates a self-reinforcing cycle where fraud generates profits that finance political protection that enables continued fraud.

The 2016 whistleblower lawsuit alleging that DaVita and Fresenius operated a $247 million kickback scheme through the American Kidney Fund—steering vulnerable dialysis patients toward expensive commercial insurance through premium assistance to generate 30-45 percent of their pre-tax income—exposed how the dialysis industry’s 80 percent duopoly has captured regulators, exploited the poorest patients, and built business models on systematic fraud while spending hundreds of millions to block reforms, exemplifying healthcare industry regulatory capture where companies control over half a million captive patients dependent on their services for survival.