By Ann C. Logue
Kidneys are in the news again. In October, we learned about one writer who donated a kidney and another writer who allegedly plagiarized the donor’s letter to the recipient. This week, the story involves SEC charges against American Renal Associates Holdings (ARA), a chain of dialysis clinics that allegedly falsified revenues.
In the United States, treatment for end-stage renal disease is covered by Medicare, with patients (or their private insurers) making a 20% copayment. There aren’t a lot of ways to raise revenue. Companies make adjustments when they receive cash from patients or insurers, and the SEC claims that ARA’s executives recorded the adjustments in ways that helped the company meet revenue targets rather than in ways that reflected reality. This went on for a few years, during which executives managed to mislead their audit firm about what was happening. In the short run, you can do that if the whole C-suite is aligned. When the 2018 audit rolled around, there was too much for management to hide. The company announced a restatement, and the SEC jumped in. Restatements were complete in September 2019.
ARA was listed on the New York Stock Exchange until it was sold to Nautic Partners in January of 2021; otherwise, the SEC would have no stake in the misstatement. But given that ARA was a public company, that revenues per treatment are standard across the industry, and that it was possible to check revenues against government reimbursement records, it was clear that there were issues.
The company has agreed to pay a $2 million civil penalty. The SEC is also looking for permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and officer and director bars for the executives involved.
The literary kidney kerfuffle involved lots of gray areas in copyright law and duties to friends and colleagues. It made for hours of Twitter discourse. The ARA fraud is rather boring: executives either figured that they were too smart to get caught or that a miracle would happen before the auditors got wise, and that didn’t happen.