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Kent Thiry, CEO, DaVita HealthCare Partners
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DaVita again lowers earnings projections for HealthCare Partners despite Q2 improvement


By Beth Kutscher
Posted: July 31, 2014 - 9:45 pm ET
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DaVita Healthcare Partners said it expects its kidney care division to perform better than anticipated this year, but dampened expectations for its HCP multispecialty medical groups.

In its second quarter earnings report, the Denver-based company raised its overall financial projections for the year, largely due to the performance in its dialysis business. It now expects operating income from kidney care to hit $1.55 billion to $1.6 billion, an increase from earlier projections of $1.52 billion to $1.58 billion.

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Revenue in the kidney-care division increased 8.2% to $2.3 billion in the second quarter as the volume of U.S. dialysis treatments increased 5.6% a day compared with the same period last year. Most of the increase came from existing dialysis centers, but DaVita also opened 22 new centers during the quarter.

However, operating income declined 8.8% to $402 million as its patient care costs increased. In addition, DaVita booked $9 million in losses in its international division as it pursues expansion into Saudi Arabia.

In HCP, which has vexed DaVita since it was acquired in 2012, revenues increased 16.6% to $887 million and income, 1.2% to $82 million. However, the group's performance benefited from recognizing $26 million in deferred revenues.

CEO Kent Thiry, who is taking on responsibility for the HCP division following the departure of group CEO Dr. Craig Samitt this month, said the medical practices have seen $25 million in improvements in two challenging markets.

He declined to comment on Samitt's departure when pressed by an analyst on an earnings call. He also declined to provide more details on the improvements.

DaVita is looking to expand HCP's integrated care-delivery model into new markets, and recently announced an expansion into Philadelphia. But the company, which has been physician-led and autonomous, has struggled to meet earnings expectations as it's integrated into the larger group.

“They have an amazing culture—they don't have good business discipline,” Allen Nissenson, the company's chief medical officer, said in an interview Wednesday. Some of the struggles have come from newer markets such as Albuquerque, which HCP entered prior to its DaVita takeover.

HCP is not expected to reach the high end of the company's previous financial target, which was lowered $20 million for the division to $240 million in operating income. DaVita also lowered guidance for the group in the first quarter.

In total, the company reported $147.7 million in net income on revenue of $3.2 billion in the second quarter compared with $254.4 million in income on revenue of $2.9 billion in the prior-year period.

DaVita now expects 2014 operating income for the entire company to be in the range of $1.755 billion to $1.84 billion, up from $1.725 billion to $1.84 billion.

Follow Beth Kutscher on Twitter: @MHbkutscher


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