When Kent Thiry says that his company, DaVita, is a village and he is its mayor, it carries a little more weight than corporate executive talk about an ethos of "all for one and one for all" usually would. The dialysis provider's chairman, chief executive officer and unofficial mayor dresses the part of a musketeer.
Thiry uses a musketeer getup during his appearances at the DaVita Village Academy, a series of employee retreats held at sites around the country, to drum home the point about the DaVita village. After all, the musketeers of Alexandre Dumas' classic tale defended a village, too. At a recent academy in East Rutherford, N.J., Thiry came out for the graduation ceremonies in full musketeer regalia, dressed in a blue vest with a gold DaVita star on the chest over a white, puffy shirt and topped with a blue hat with a gold star. He carried a sword.
"The village idea kind of grew slowly," Thiry says. "Since I was a little boy, I always wanted to run for mayor or governor. ... When you talk about a village, people can immediately picture what you mean, whereas if you talk about the mission and values things, they can understand that's good, but it's more abstract.
"But at a village, you get a sense of citizenship. All of the responsibilities fall into place more quickly. We made good progress through the first year and a half (after Thiry joined the company in October 1999), but once we started talking about the village, it just dramatically accelerated the ownership or buy-in. It's a metaphor that works."
DaVita, which closed its $3.05 billion acquisition of rival Gambro Healthcare in October, is the second-largest revenue-producing dialysis company in the country and expects to have revenue of $4.4 billion after integrating Gambro. Fresenius Medical Care, which is merging with Renal Care Group, is the largest revenue producer and expects to post annual revenue of $7.5 billion after acquiring Renal Care.
The dialysis industry has been under the scope of several recent government investigations, and DaVita hasn't been an exception. The company is currently working with the Justice Department in three ongoing investigations.
Earlier this year, DaVita was one of several companies that were subpoenaed in an industrywide probe that is asking about vitamin D testing. In March, St. Louis' attorney general requested DaVita records on physician referrals and compensation. Another investigation in Philadelphia has been examining physician compensation and the company's pharmaceutical division since 2001.
Building the village
Thiry lives the musketeer metaphor at DaVita, El Segundo, Calif. The door to his office reads, "Mayor of DaVita Village." E-mails sent to his company account are addressed to "KT the mayor." Thiry believes this extended metaphor makes him more approachable than if he took on the trappings of a traditional CEO.
"When I ask people to do something, it's not because we need to generate profit for a corporation. It's because, in a village, you need to have a certain economy and everyone helps," he says. "At the same time, you have rights, and not just employment rights. You have the right to be treated in a different kind of way in a community."
The company Thiry took over in 1999, Total Renal Care, Torrance, Calif., was not such a happy village. The company was heavily leveraged after acquiring Renal Treatment Centers for stock in a deal valued at $1.3 billion, and it was divesting the bulk of its operations outside the U.S. Write-downs of assets and bad debt required by accounting rules put the company in violation of some of its loan agreements. The company's rapid growth in outlets wasn't matched by a sufficient increase in corporate oversight, leaving several functions, such as billing and cash collection processes, to operate at "below optimal levels of efficiency and effectiveness," the company said in its 10-K securities filing for 1999. The top two executives resigned in July 1999 without explanation as the company warned that it would miss earnings expectations for the second time in three quarters.
"We were within three weeks of missing payroll," Thiry says of his start with the company. "If the banks had asked for any significant payment, we would have had to shut the doors. The only reason they didn't is they were worried (that), if they did, they would not get their money."
Richard Whitney, who joined DaVita as chief financial officer shortly after Thiry took the top job, says Thiry understands that using symbolism is essential when running an organization with 25,000 employees. "You cannot sit and talk individually with every one of them," says Whitney, who left DaVita in late 2004 and now is chairman of the board of Specialty Labs, a company that handles high-end laboratory tests that local hospitals often outsource.
"I was impressed with his ability to focus in on the areas that mattered the most, his ability to communicate with a broad team and get them to understand and support his view of where the company needed to go, and his ability to make difficult decisions," Whitney says.
Thiry combined an intense focus on fixing the immediate problems with an equally intense effort to change the culture of the company, Whitney says. Some of the problems the company faced included a high vacancy rate--420 vacancies in its 460 centers--a shareholder lawsuit, no CFO, a Securities and Exchange Commission investigation, and bank penalties of about $1,000 per week per facility.
Whitney credits Thiry with teaching "absolutely invaluable" lessons on leading employees, balancing business and financial results with clinical excellence, and the importance of managing with an explicit set of values and a mission. "I find myself pulling out the playbook that he used in the early days at DaVita and 90% of it is applicable," he says.
The realities of providing dialysis services highlight the importance of creating a culture that employees can really buy into.
Before his appearance as a musketeer at the DaVita Village Academy graduation, Thiry talked with the "citizens" in attendance who work in "blue-collar medicine," providing hands-on care for nearly every minute a patient is in one of DaVita's dialysis centers. "You're hard-pressed to find another place in healthcare that's this hands-on," Thiry says. "Eighteen percent of our patients die every year. These people work so hard and are good (at what they do). Imagine working in a place where one out of every five people you're working with is going to die this year. It would be easy to get worn down from that. You have to celebrate that you are not only keeping people alive but vital enough that they can help take care of their grandchildren. They not only live longer, but live a quality life."
Thiry had different goals when he earned his master's in business administration with honors from Harvard Business School in 1983. He joined Bain & Co. as a consultant, and healthcare wasn't on his mind. "I show up for work, and the partner said, `OK, you're going to work for a not-for-profit hospital in Galveston, Texas.' I wanted to work for Hewlett-Packard or some hot software company or something like that. I didn't want to work for a not-for-profit hospital. He said, `Shut up and pay your dues.' " Thiry spent eight years at Bain, half in healthcare and half outside the industry. The 761-bed Galveston hospital was a branch of the University of Texas at Austin Medical Center, and the early 1980s were not a good time for the Gulf Coast region because of its reliance on oil-related industries, Thiry says. The hospital had to cut costs without sacrificing care. "It was brutal," he says. Still, Thiry says he learned to appreciate working in healthcare. "It was one of my favorite experiences ever. It was a wonderful experience."
Thiry became a partner at Bain in 1987 and left the firm in 1991 to become president of San Mateo, Calif.-based Vivra, which was the second-largest dialysis services provider in the U.S. at the time, according to a Vivra news release, but also had surgery center, rehabilitation and diabetes businesses. In 1992, he was appointed CEO, and when Vivra was sold to Gambro Healthcare, he became chairman and CEO of Vivra Specialty Partners from 1997 to 1999. Thiry teamed with three private-equity firms to buy the specialty networks and chronic disease management businesses back from Gambro, to form Vivra Specialty Partners.
Thiry also served as nonexecutive chairman of the board of Oxford Health Plans from August 1998 to July 2004.
The road ahead
From a company that was shrinking and struggling to avoid default, DaVita is now an industry consolidator. Its acquisition of Gambro Healthcare on Oct. 5 added 520 clinics, boosting its total to 1,200, despite the company being forced by the Federal Trade Commission to divest 60 centers. From a company that started with a utilitarian name, Total Renal Care, DaVita now has a name that means "he/she gives life" in Italian. A company that formerly had trouble documenting its services and collecting its bills, DaVita now has a "compliance philosophy" that employees stood and chanted twice at the academy meeting in New Jersey: "If it isn't documented, it didn't happen. If it didn't happen, we can't bill for it."
Perhaps most important to investors, Thiry presided over a turnaround-from a loss of $147.3 million in 1999 on revenue of $1.45 billion to net income of $222.3 million last year on revenue of $2.3 billion.
Balaji Gandhi, a stock analyst who follows dialysis, rehabilitation and nursing home companies for Pacific Growth Equities, says the Gambro acquisition has significantly leveraged the company's balance sheet again, but compared with Total Renal Care's position in 1998, DaVita faces just one other national company, Fresenius, and fewer regional players thanks to consolidation. Moreover, dialysis providers have more certainty about the way Medicare will pay for its services than they did seven years ago, thanks in part to the Medicare Modernization Act of 2003, which called for a 1.6% rate increase and an add-on payment for medications.
Thiry was initially "pretty much invisible" to investors for the first few years, as he focused on the company's turnaround, Gandhi says. "He certainly ranks among the top CEOs in the group of companies that I look at," Gandhi adds. "You look, obviously, at the results and what he's accomplished there, especially financially and being able to pay down debt, but also in the way that he's communicated this turnaround to Wall Street. I think he's done that very well. He's managed expectations. He's braced people for kind of a long process, to keep people from expecting too much too soon."
Birthplace: Thiensville, Wis.
Family status: Wife, Denise; one son, 17, and one daughter, 15
Education: Bachelor of arts in political science, Stanford University, Palo Alto, Calif., 1978; master's of business administration from Harvard Business School, Boston, 1983
Previous jobs: Bain & Co., 1983-91, where he made partner in 1987; Vivra, 1991-97, where he was originally named president and then became CEO in 1992; Vivra Specialty Partners, chairman and CEO, 1997-99