“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.”