Market meld
Skip to main content
MDHC_Logotype_white
Subscribe
  • My Account
  • Login
  • Subscribe
  • News
    • This Week's News
    • COVID-19
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • People
    • Regional News
    • Digital Edition
    • Merck ends development of two potential COVID-19 vaccines
      Ambulatory surgery centers offer extraordinary value in a high-cost healthcare system
      Ascension’s St. Mary’s Hospital Surgery Center at Towne Centre and Allegheny Health Network’s Bethel Park surgery center
      Hospitals see opportunity, risk in ambulatory surgery centers
      KPMG says deal activity will stay high in '21: 10 takeaways
    • Merck ends development of two potential COVID-19 vaccines
      KPMG says deal activity will stay high in '21: 10 takeaways
      2 in 5 Americans live where COVID-19 strains hospital ICUs
      Biden's early approach to virus: Underpromise, overdeliver
    • Ascension’s St. Mary’s Hospital Surgery Center at Towne Centre and Allegheny Health Network’s Bethel Park surgery center
      Hospitals see opportunity, risk in ambulatory surgery centers
      Health suffers as rural hospitals close
      Medicare ACO participants fell in 2021
      Louisiana gets reports vaccine providers are discriminating
    • Last-minute COVID costs cut into UnitedHealthcare's $396 million operating income
      CMS approves rule forcing insurers to ease prior authorization
      COVID-19 still a big uncertainty for insurers in 2021
      Health insurers' outlook boosted after Dems' Georgia win
    • It's a secret: California keeps key virus data from public
      lacewell_linda_supertinendent_dept_of_financial_services_8.47.jpg
      New York state investigates drug price spikes during pandemic
      Health experts blame rapid expansion for vaccine shortages
      HHS freezes rule targeting community health centers' drug discounts
    • KPMG says deal activity will stay high in '21: 10 takeaways
      By the Numbers: 20 largest healthcare investment banks in 2020
      Providers await new HHS coronavirus grant reporting deadline
      Operation Warp Speed Dr. Moncef Slaoui, Pfizer Group President Angela Hwang, Moderna CEO Stephane Bancel, CVS Health Executive Vice President Karen Lynch and McKesson CEO Brian Tyler participate in a panel discussion on the COVID-19 vaccine.
      Hospitals, drug companies strive to stand out virtually at JPM
    • Next Up Podcast: What to expect with telehealth and healthcare technology in the next 4 years - Transcript
      Dr. Karen DeSalvo
      Next Up Podcast: What to expect with telehealth and healthcare technology in the next 4 years
      A man in a room with servers.
      Momentum grows to outsource hospital tech functions in 2021
      5 things to know about Google's $2.1B Fitbit acquisition
    • An older man wearing a mask receiving a vaccine.
      Want more diversity in clinical trials? Start with the researchers
      Avocado
      Avocado a day keeps the doctor away
      50% of Americans make resolutions. Fewer than 27% keep them over time.
      Data Points: Sticking with your resolutions
      U.K. chief scientist says new virus variant may be more deadly
    • Cerner names Erceg as new CFO
      Elizabeth Richter will serve as acting CMS administrator
      Providence names new chief financial officer
      Wisconsin's top health official departing for federal job
    • Midwest
    • Northeast
    • South
    • West
  • Insights
    • ACA 10 Years After
    • Best Practices
    • InDepth Special Reports
    • Innovations
    • The Affordable Care Act after 10 years
    • New care model helps primary-care practices treat obesity
      doctor with patient
      COVID-19 treatment protocol developed in the field helps patients recover
      Rachel Wyatt
      Project to curb pressure injuries in hospitals shows promise
      Yale New Haven's COVID-19 nurse-staffing model has long-term benefits
    • Modern Healthcare InDepth: Breaking the bias that impedes better healthcare
      Videos: Healthcare industry executives describe their encounters with racism
      Michellene Davis
      Healthcare leadership lacks the racial diversity needed to reduce health disparities
      Dr. James Hildreth
      How medical education can help fight racism
      Quotes from rebadged employees
      Outsourcing IT, revenue cycle takes toll on internal culture
    • A phone screen showing the question, "Mary we hope this information was helpful and we'd like to keep guiding you. Are you interested in knowing when it's your turn to receive the vaccine?"
      Chatbots, texting campaigns help manage influx of COVID vax questions
      A woman with a wearable sensor talking to her provider.
      Wearable sensors help diagnose heart rhythm problems in West Virginia
      self service station
      COVID-19 pushes patient expectations toward self-service
      Targeting high-risk cancer patients with genetics
  • Transformation
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Highmark Health inks six-year cloud, tech deal with Google
      Study: 1 in 5 patients report discrimination when getting healthcare
      HHS proposes changing HIPAA privacy rules
      Android health records app launches at 230 health systems
    • California hospitals prepare ethical protocol to prioritize lifesaving care
      Amazon, JPMorgan Chase, Berkshire Hathaway disband Haven
      Digital pathways poised to reshape healthcare continuum in 2021
      Healthcare was the hardest hit by supply shortages across all U.S. industries
    • A phone screen showing the question, "Mary we hope this information was helpful and we'd like to keep guiding you. Are you interested in knowing when it's your turn to receive the vaccine?"
      Chatbots, texting campaigns help manage influx of COVID vax questions
      A woman with a wearable sensor talking to her provider.
      Wearable sensors help diagnose heart rhythm problems in West Virginia
      New care model helps primary-care practices treat obesity
      How hospitals are building on COVID-19 telehealth momentum
    • Regional insurers bet big on virtual-first plans
      MedPAC votes to boost hospital payments, freeze or cut other providers
      Most Next Gen ACOs achieved bonuses in 2019
      Congress recalibrates Medicare Physician Fee Schedule after lobbying
  • Data/Lists
    • Rankings/Lists
    • Interactive Databases
    • Data Points
    • Health Systems Financials
      Executive Compensation
      Physician Compensation
  • Op-Ed
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
    • Wellstar CEO calls adapting for the pandemic her bold move
      Howard P. Kern
      Recognizing the value of telehealth in its infancy
      Dr. Stephen Markovich
      A bold move helped take him from family doctor to OhioHealth CEO
      Dr. Bruce Siegel
      Why taking a hospital not-for-profit was Dr. Bruce Siegel’s boldest move
    • Barry Ostrowsky
      Ending racism is a journey taken together; the starting point must be now
      Laura Lee Hall and Gary Puckrein
      Increased flu vaccination has never been more important for communities of color
      John Daniels Jr.
      Health equity: Making the journey from buzzword to reality
      Mark C. Clement and David Cook
      We all need to 'do something' to fight inequities and get healthcare right, for every patient, every time
    • Ambulatory surgery centers offer extraordinary value in a high-cost healthcare system
       Alan B. Miller
      Looking ahead with optimism as we continue to transform healthcare
      Dr. Bruce Siegel
      By protecting the healthcare safety net, Biden can put us on the path to a stronger country
      Healing healthcare: some ideas for triage by the new Congress, administration
    • Letters: Eliminating bias in healthcare needs to be ‘deliberate and organic’
      Letters: Maybe dropping out of ACOs is a good thing for patients
      Letters: White House and Congress share blame for lack of national COVID strategy
      Letters: VA making strides to improve state veterans home inspections
    • Sponsored Content Provided By Optum
      How blockchain could ease frustration with the payment process
      Sponsored Content Provided By Optum
      Three steps to better data-sharing for payer and provider CIOs
      Sponsored Content Provided By Optum
      Reduce total cost of care: 6 reasons why providers and payers should tackle the challenge together
      Sponsored Content Provided By Optum
      Why CIOs went from back-office operators to mission-critical innovators
  • Awards
    • Award Programs
    • Nominate
    • Previous Award Programs
    • Other Award Programs
    • Best Places to Work in Healthcare Logo for Navigation
      Nominations Open - Best Places to Work in Healthcare
      Nominations Open - Health Care Hall of Fame
      Nominations Open - 50 Most Influential Clinical Executives
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top 25 Innovators
    • Top 25 Minority Leaders
    • Top 25 Women Leaders
    • Excellence in Nursing Awards
    • Design Awards
    • Top 25 COOs in Healthcare
    • 100 Top Hospitals
    • ACHE Awards
  • Events
    • Conferences
    • Galas
    • Webinars
    • COVID-19 Event Tracker
    • Leadership Symposium
    • Healthcare Transformation Summit
    • Women Leaders in Healthcare Conference
    • Workplace of the Future Conference
    • Strategic Marketing Conference
    • Social Determinants of Health Symposium
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Minority Leaders Gala (2022)
    • Top 25 Women Leaders Gala
  • Listen
    • Podcast - Next Up
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Video Series - The Check Up
    • Sponsored Video Series - One on One
    • Dr. Karen DeSalvo
      Next Up Podcast: What to expect with telehealth and healthcare technology in the next 4 years
      Carter Dredge
      Next Up Podcast: Ready, set, innovate! Innovation and disruption in healthcare
      Next Up Podcast: COVID-19, social determinants highlight health inequities — what next?
      Ceci Connolly
      Next Up Podcast: How to navigate the murky post-election waters
    • Beyond the Byline: Regulators aim to boost value push with fraud and abuse law updates
      An older man wearing a mask receiving a vaccine.
      Beyond the Byline: Verifying information on the chaotic COVID-19 vaccine rollout
      doctor burnout
      Beyond the Byline: How healthcare supply chain struggles contribute to employee burnout
      Beyond the Byline: Covering race and diversity in the healthcare industry
    • Leading intention promote diversity and inclusion
      Introducing Healthcare Insider Podcast
    • The Check Up: Chip Kahn
      The Check Up: Chip Kahn of the Federation of American Hospitals
      The Check Up: Trenda Ray
      The Check Up: Trenda Ray of the University of Arkansas for Medical Sciences
      The Check Up: Dr. Kenneth Davis
      The Check Up: Dr. Kenneth Davis of Mount Sinai Health System
      The Check Up: Dr. Thomas McGinn
      The Check Up: Dr. Thomas McGinn of CommonSpirit Health
    • Video: Ivana Naeymi Rad of Intelligent Medical Objects
  • MORE +
    • Advertise
    • Media Kit
    • Newsletters
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Government
May 26, 2012 01:00 AM

Market meld

DaVita's deal with a large physician-management group shows the lines are no longer clear in healthcare

Jaimy Lee
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print
    The deal positions the new DaVita HealthCare Partners to move beyond dialysis and offer integrated care.

    DaVita, the nation's second-largest provider of dialysis services, is wagering that integrated care will change the way it takes care of kidney-care patients and even what kind of company DaVita will become.

    The Denver-based company said it will pay $4.42 billion in cash and stock to merge with HealthCare Partners, a privately held operator of medical groups and physician networks in Southern California, central Florida and Las Vegas.

    The deal is another signal—perhaps the biggest so far—that healthcare companies of all kinds will increasingly merge with or acquire unlikely partners in an effort to gain a foothold with key providers as insurers and government healthcare programs move forward with new payment and care models in the wake of the Patient Protection and Affordable Care Act.

    “The DaVita transaction is but one example of many that are sure to come,” David Cyganowski, a managing director at Kaufman Hall & Associates, said in an e-mail. “There is a real blurring of the lines happening right before our eyes. What is clear, however, is that market-driven healthcare reform is occurring at a faster pace than even PPACA dictates—so it really doesn't matter how the Supreme Court of the United States rules in the coming weeks.”

    In most of these deals until now, insurers have been the ones to acquire providers. Last year, UnitedHealth Group bought Monarch HealthCare, an Irvine, Calif.-based independent physician group, and Highmark, a Blue Cross and Blue Shield licensee in Pennsylvania, entered an agreement to acquire West Penn Allegheny Health System, a financially troubled hospital system in Pittsburgh. In 2010, Humana acquired Concentra, an urgent- and occupational-care provider.

    “DaVita currently executes on its integrated-care mission with thousands of physician partners across the country for specialized kidney-care services,” DaVita Chairman and CEO Kent Thiry said in a news release announcing the merger. “HealthCare Partners executes on that same mission across a full and deep array of healthcare services in three geographic markets.”

    The transaction will bring a much broader network of providers and traditional healthcare services under DaVita's management and may help support the company as it and other dialysis providers lobby the CMS to allow the development of renal-disease accountable care organizations.

    “We think that by combining with HealthCare Partners the data becomes ever more compelling that all of America's dialysis patients need to be taken care of on an integrated bundled basis, not with the fragmented fee-for-service that still exists,” Thiry said in an interview.

    However, the long-term outlook for Da-Vita does not limit the company to dialysis.

    Thiry said the combined company, to be called DaVita HealthCare Partners, is still working on how it will be defined, but noted that its core business will be as an integrated-care provider. “Because the segment that HealthCare Partners competes in is much, much larger than the kidney-care market, we would therefore expect over the long term for HealthCare Partners to become the largest part of the enterprise,” Thiry said.

    The Torrance, Calif.-based physician group, which reported operating income of $488 million and revenue of $2.4 billion in 2011, provides primary- and specialty-care services as well as coordination of hospital care and other services for its patients. It operates three of the 32 CMS Pioneer ACOs.

    The move positions DaVita “to accept more financial risk from payers and appears to be a play on physicians as the gatekeeper of healthcare costs and utilization in future payment models,” Gary Taylor, an analyst with Citigroup, said in a research note.

    DaVita currently provides dialysis services to about 145,000, or 36%, of the nation's 400,000 dialysis patients. The deal, Taylor noted in an interview, has “almost nothing to with dialysis.”

    While DaVita can currently grow about 5% to 7% in revenue each year, introducing a much broader network of providers under DaVita's management, especially one with the potential to rapidly expand, could allow the HealthCare Partners side of the business to grow by up to 20% each year, Taylor said. “HealthCare Partners is exactly the kind of asset you'd want to have,” he said. “It's a smart, strategic move.”

    Both Thiry and HealthCare Partners CEO Dr. Robert Margolis, who will serve as co-chairmen of the combined company, say that developing integrated care for dialysis patients is important.

    DaVita and other industry groups, such as Kidney Care Providers, have been pushing the CMS to allow the formation of ACOs specifically for end-stage renal disease patients. “We think there's good opportunity to have specific renal ACOs and do the same thing that Da-Vita's been doing for years with a broader swath of kidney-care patients,” Margolis said.

    In a June 2011 comment letter on the proposed rule for the Medicare Shared Savings Program for ACOs, DaVita said a “renal-focused coordinated-care pilot would not only improve the lives of patients suffering with ESRD, but could also prevent thousands of Americans from needing dialysis.” The company went on to say the CMS' regulations could negatively affect end-stage renal disease patients by shifting the patient's “accountable” provider from a nephrologist to a primary-care physician.

    According to DaVita, about 85% of dialysis patients visit dialysis centers three times a week for four-hour sessions, a schedule that sets up the dialysis centers to serve as a place to provide other types of care. “We're hopeful that we're able to find a model that works for both parties,” said LeAnne Zumwalt, group vice president of government affairs for DaVita. “We're advocating to the CMS to move forward a renal-disease care model.”

    After something larger

    Citigroup's Taylor said he expects the CMS to issue a proposed rule on some form of a renal disease ACO or integrated-care model sometime this year. Nevertheless, he said that while HealthCare Partners' expertise with the CMS and its ACOs could help DaVita, the company wouldn't have needed to spend $4 billion for that kind of expertise. “They're going after something much, much larger than this,” Taylor said.

    DaVita and HealthCare Partners have been acquisitive players in their respective markets. In recent years, DaVita has snapped up both U.S.-based and international dialysis providers, while the acquisition of JSA Healthcare Corp. in 2006 introduced HealthCare Partners to the Nevada and Florida markets.

    Summit Partners, a Boston-based private-equity firm, became an investor in HealthCare Partners in 2005. Margolis said the “size, resources and the scope” of DaVita would allow HealthCare Partners, which was founded about 20 years ago, to continue its expansion efforts. Merger talks between the companies began about nine months ago.

    “There are clearly no other large national clinically centric, delivery-centric models and we believe that's a significant differentiator and a terrific advantage,” Margolis said.

    John Ransom and Nicholas Jansen, analysts with Raymond James Financial, said in a research note that they do not believe DaVita will initially bring “much strategic value” to HealthCare Partners. “What DaVita does offer is the promise of capital (probably for beachhead acquisitions in new markets), experience with physician relations, and a deep bench of management talent. While these assets are not trivial, they are not exactly scarce,” they said. “What DaVita may bring to the table is a default asset—its ownership does not bring any obvious conflicts to HCP, as it seeks to partner with new payers and enter new markets.”

    If HealthCare Partners had sold to a managed-care plan, its expansion would have been limited to the plan's membership base, according to Ransom and Jansen. “That said, we believe that the real test for this deal is this—can DaVita help the company grow in new markets? Can it nurture this growth in a capital-efficient way?”

    Expanding the patient-centric integrated provider network that the merged company is seeking to create is also a challenge Thiry raised.

    “It is our job to figure out how to responsibly replicate that in as many places as we can, either through our own actions or through stimulating others,” Thiry said.

    TAKEAWAY: DaVita's acquisition of HealthCare Partners further signals an industrywide move toward consolidation and attention to changes in payment and care models.

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    It's a secret: California keeps key virus data from public
    It's a secret: California keeps key virus data from public
    New York state investigates drug price spikes during pandemic
    New York state investigates drug price spikes during pandemic
    Sponsored Content
    Get Free Newsletters

    Sign up for free enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today

    The weekly magazine, websites, research and databases provide a powerful and all-encompassing industry presence. We help you make informed business decisions and lead your organizations to success.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS
    • Instagram

    Stay Connected

    Join the conversation with Modern Healthcare through our social media pages

    MDHC_Logotype_white
    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • News
      • This Week's News
      • COVID-19
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition
    • Insights
      • ACA 10 Years After
      • Best Practices
      • InDepth Special Reports
      • Innovations
    • Transformation
      • Patients
      • Operations
      • Care Delivery
      • Payment
    • Data/Lists
      • Rankings/Lists
      • Interactive Databases
      • Data Points
    • Op-Ed
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Awards
      • Award Programs
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top 25 Innovators
        • Top 25 Minority Leaders
        • Top 25 Women Leaders
      • Nominate
      • Previous Award Programs
        • Excellence in Nursing Awards
        • Design Awards
        • Top 25 COOs in Healthcare
      • Other Award Programs
        • 100 Top Hospitals
        • ACHE Awards
    • Events
      • Conferences
        • Leadership Symposium
        • Healthcare Transformation Summit
        • Women Leaders in Healthcare Conference
        • Workplace of the Future Conference
        • Strategic Marketing Conference
        • Social Determinants of Health Symposium
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Minority Leaders Gala (2022)
        • Top 25 Women Leaders Gala
      • Webinars
      • COVID-19 Event Tracker
    • Listen
      • Podcast - Next Up
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Video Series - The Check Up
      • Sponsored Video Series - One on One
    • MORE +
      • Advertise
      • Media Kit
      • Newsletters
      • Jobs
      • People on the Move
      • Reprints & Licensing