DooDiligence Posted October 9, 2017 Share Posted October 9, 2017 JPM is certainly after the fact... I bought more today Thinking in dollar amounts to buy instead of round lots is making this easier for me. That plus not chasing 1/8s & 1/4s. Might get harder if bad news hits? Seems like JPM just attracted those who didn't know the company already. Link to comment Share on other sites More sharing options...
cubsfan Posted October 9, 2017 Share Posted October 9, 2017 Yep not the simplest story DD. Maybe JPM gets you to your -10% 09-Oct-2017 09:57:54 AM - DAVITA INC DVA.N: JP MORGAN CUTS TARGET PRICE TO $51 FROM $66 -Reuters News Curious if anyone had access to the JP Morgan report? Saw the highlights on Schwab - looks like the same old rehashed stuff from last year. Added more today - light volume day, buyback blackout, and Oct 31st coming up - maybe DVA gets flushed out here? We will see! Link to comment Share on other sites More sharing options...
sleepydragon Posted October 10, 2017 Share Posted October 10, 2017 Yep not the simplest story DD. Maybe JPM gets you to your -10% 09-Oct-2017 09:57:54 AM - DAVITA INC DVA.N: JP MORGAN CUTS TARGET PRICE TO $51 FROM $66 -Reuters News Curious if anyone had access to the JP Morgan report? Saw the highlights on Schwab - looks like the same old rehashed stuff from last year. Added more today - light volume day, buyback blackout, and Oct 31st coming up - maybe DVA gets flushed out here? We will see! JPM: ** JPM analyst Gary Taylor raises concerns about DVA's level of earnings power derived from American Kidney Fund's (AKF) operations, amid ongoing legal battle between payors, dialysis providers and AKF ** Taylor estimates DVA contributes ~$100 mln to AKF annually and receives as much as $500 mln-$700 mln of annual pretax income benefit Link to comment Share on other sites More sharing options...
Happy Posted October 10, 2017 Share Posted October 10, 2017 http://pressreleases.davita.com/2017-10-10-DaVita-Provides-Disclosures-Regarding-Charitable-Premium-Assistance Link to comment Share on other sites More sharing options...
Bluffy Posted October 10, 2017 Share Posted October 10, 2017 Yep not the simplest story DD. Maybe JPM gets you to your -10% 09-Oct-2017 09:57:54 AM - DAVITA INC DVA.N: JP MORGAN CUTS TARGET PRICE TO $51 FROM $66 -Reuters News Curious if anyone had access to the JP Morgan report? Saw the highlights on Schwab - looks like the same old rehashed stuff from last year. Added more today - light volume day, buyback blackout, and Oct 31st coming up - maybe DVA gets flushed out here? We will see! JPM: ** JPM analyst Gary Taylor raises concerns about DVA's level of earnings power derived from American Kidney Fund's (AKF) operations, amid ongoing legal battle between payors, dialysis providers and AKF ** Taylor estimates DVA contributes ~$100 mln to AKF annually and receives as much as $500 mln-$700 mln of annual pretax income benefit If I take Taylors estimates and say the worst case would be a 600 mln annual pretax loss (700 - 100 in contributions) I get 1490 mln - 600 mln = 890 mln in pre-tax income. If I apply a 12 times pre-tax earnings multiple on the equity I get to a 10680 mln market cap vs. current market cap at approximately 10300 mln. I don't see a lot of downside for a highly regulated business with attractive long-term economics. What risks am I not seeing? Link to comment Share on other sites More sharing options...
sleepydragon Posted October 10, 2017 Share Posted October 10, 2017 i think most brokerage analyst got the following wrong prior to today's DVA disclosure: 1. Very high none ACA commercial exposure, Up to 1bn. But today's disclosure say it's only 500m and DVA doesnt expect it will be 100% of 500mn. In fact, they are saing it will be more close to 0 than 100%. 2. CMA only have authority on the individual insurance rate (which DVA has 50mn exposure). They dont have a say on commericial side. That's regulated by dept of labor. Certainly, both bull and bear see there are some rate pressures but the price already reflected this aspect. The stock is cheap because there is a mis understanding on AKF, thanks to short funds who need to make a bonus before year end :) Link to comment Share on other sites More sharing options...
Spekulatius Posted October 10, 2017 Share Posted October 10, 2017 Yep not the simplest story DD. Maybe JPM gets you to your -10% 09-Oct-2017 09:57:54 AM - DAVITA INC DVA.N: JP MORGAN CUTS TARGET PRICE TO $51 FROM $66 -Reuters News Curious if anyone had access to the JP Morgan report? Saw the highlights on Schwab - looks like the same old rehashed stuff from last year. Added more today - light volume day, buyback blackout, and Oct 31st coming up - maybe DVA gets flushed out here? We will see! JPM: ** JPM analyst Gary Taylor raises concerns about DVA's level of earnings power derived from American Kidney Fund's (AKF) operations, amid ongoing legal battle between payors, dialysis providers and AKF ** Taylor estimates DVA contributes ~$100 mln to AKF annually and receives as much as $500 mln-$700 mln of annual pretax income benefit If I take Taylors estimates and say the worst case would be a 600 mln annual pretax loss (700 - 100 in contributions) I get 1490 mln - 600 mln = 890 mln in pre-tax income. If I apply a 12 times pre-tax earnings multiple on the equity I get to a 10680 mln market cap vs. current market cap at approximately 10300 mln. I don't see a lot of downside for a highly regulated business with attractive long-term economics. What risks am I not seeing? I think a business under siege can trade way lower than that. Why pretax earnings? I have seen plenty of business trade below 12 x postal earnings, when they were under the gun. Link to comment Share on other sites More sharing options...
sleepydragon Posted October 11, 2017 Share Posted October 11, 2017 increased share buyback to 1.5 billion (was 1.2 billion): http://pdf.reuters.com/htmlnews/8knews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20171010:EDG_0000927066-17-000077 Link to comment Share on other sites More sharing options...
MrB Posted October 11, 2017 Share Posted October 11, 2017 increased share buyback to 1.5 billion (was 1.2 billion): http://pdf.reuters.com/htmlnews/8knews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20171010:EDG_0000927066-17-000077 And I was worrying about management backing off from the repurchase, looks more like they're backing up the truck! Link to comment Share on other sites More sharing options...
MrB Posted October 11, 2017 Share Posted October 11, 2017 If you're wondering why the stock is volatile today: http://sirf-online.org/2017/09/22/davita-inc-warren-and-charlies-excellent-insurance-gambit/ (haven't read it yet, so can't comment) Sniff, sniff - smells like Jim... It may be.... but is the report wrong? Basically it alleges that the AKF is effectively a front for dialysis providers, mainly Davita and Fresenius since they provide the bulk of AKF funding. In turn AKF pays insurance premiums for people that otherwise wouldn't be able to continue paying their premiums. Because of this people are able to keep their private insurance plans and Davita and Fresenius are charging their insurance companies like crazy. If AKF wouldn't be there those people would stop having private insurance and would go on Medicare which would be a very bad outcome for Davita. Also the insurance companies are understandably really pissed off by this. I think that's about the gist of it. YES it seems. The report has the main input, DaVita US patients, as 214k, which is actually global NOT US. US patients are 194k. Puts market share number out at 41% and has a significant trickle down affect in his table. He should have picked up on this fairly easily, because you will be hard pressed to come across a market share number of higher than 35% for DaVita. Certainly throws up a question about his motivation/sleigh of hand. Honest mistake? Link to comment Share on other sites More sharing options...
MrB Posted October 11, 2017 Share Posted October 11, 2017 Just out of interest. Can someone look on Interactive Brokers what the cost to borrow on DVA is please? Link to comment Share on other sites More sharing options...
frankhkii Posted October 11, 2017 Share Posted October 11, 2017 Just out of interest. Can someone look on Interactive Brokers what the cost to borrow on DVA is please? I see a current "fee rate" of 0.25% and a "Rebate rate" of 0.91%. It was interesting that Chanos decided to not mention DVA at Grants yesterday and only briefly mentioned dialysis in passing (he pitched short UHS, ESRX, LPNT, and THC). It seems he's short a large basket of healthcare companies... Is there any timeline you can point to for the injunction? I see FMC was quoted as saying it is "indefinite in duration" as long as the court does not change it. Additionally, when and how does the rule actually get overturned? Thanks. Link to comment Share on other sites More sharing options...
rb Posted October 11, 2017 Share Posted October 11, 2017 I see a current "fee rate" of 0.25% and a "Rebate rate" of 0.91%. It was interesting that Chanos decided to not mention DVA at Grants yesterday and only briefly mentioned dialysis in passing (he pitched short UHS, ESRX, LPNT, and THC). It seems he's short a large basket of healthcare companies... Do you have a link for yesterday's Grants or Chanos's thing? Link to comment Share on other sites More sharing options...
sleepydragon Posted October 11, 2017 Share Posted October 11, 2017 GS UK team: Fresenius Medical Care/dialysis: Yesterday’s conversations were dominated by the ongoing “charitable premium assistance” issue at FMC and other dialysis providers. For a fuller description of steering and CPA – see here). I don’t think we learned anything new yesterday – but the debate around charitable assistance continues. Broadly there are three groups of patients who have received charitable premium assistance (CPA) 1. those who are eligible for Medicaid (or Medicare) but purchase commercial healthcare insurance which is funded by charitable assistance (ie steered patients) – we have previously quantified this impact as a $132mn headwind for FME. This group is highly likely to decline over time 2. Patients who are insured on an employer sponsored plan, or COBRA (unemployment insurance) but cannot afford co-pays and seek financial help (eg from the American Kidney Fund – AKF). 3. People insured by Medicare but cannot afford co-pays Yesterday’s conversations related mostly to the second group, and despite yesterday’s concerns, we see limited risk to the charitable assistance for this group. For FME, Charitable Assitance is likely to remain an overhang, with limited visibility on full resolution. CMS are expected to issue a rule relating to the first group (Medicaid eligible, steering patients) by year end, and an ongoing DoJ investigation into the wider charitable premium issue may provide clarity on groups 2 and 3 – but this CPA issue may dominate the narrative on dialysis/FMC for some time – we are Buy on FME. Our 12-month price target of €97 assumes FMC trades at 11.5x 2018E EV/EBITDA. Key risks to our view and price target include reimbursement headwinds, wage inflation, commercial mix changes, corporate activity, and US$ moves. Last close: €81.01. Link to comment Share on other sites More sharing options...
MrB Posted October 12, 2017 Share Posted October 12, 2017 GS UK team: Fresenius Medical Care/dialysis: Yesterday’s conversations were dominated by the ongoing “charitable premium assistance” issue at FMC and other dialysis providers. For a fuller description of steering and CPA – see here). I don’t think we learned anything new yesterday – but the debate around charitable assistance continues. Broadly there are three groups of patients who have received charitable premium assistance (CPA) 1. those who are eligible for Medicaid (or Medicare) but purchase commercial healthcare insurance which is funded by charitable assistance (ie steered patients) – we have previously quantified this impact as a $132mn headwind for FME. This group is highly likely to decline over time 2. Patients who are insured on an employer sponsored plan, or COBRA (unemployment insurance) but cannot afford co-pays and seek financial help (eg from the American Kidney Fund – AKF). 3. People insured by Medicare but cannot afford co-pays Yesterday’s conversations related mostly to the second group, and despite yesterday’s concerns, we see limited risk to the charitable assistance for this group. For FME, Charitable Assitance is likely to remain an overhang, with limited visibility on full resolution. CMS are expected to issue a rule relating to the first group (Medicaid eligible, steering patients) by year end, and an ongoing DoJ investigation into the wider charitable premium issue may provide clarity on groups 2 and 3 – but this CPA issue may dominate the narrative on dialysis/FMC for some time – we are Buy on FME. Our 12-month price target of €97 assumes FMC trades at 11.5x 2018E EV/EBITDA. Key risks to our view and price target include reimbursement headwinds, wage inflation, commercial mix changes, corporate activity, and US$ moves. Last close: €81.01. I don't think this is a bad summary. However I think one should always view this in the broader industry and historical context. This has been going on for a long time and is industry wide, not limited to ESRD. So if you want to hit ESRD you have to hit the entire premium assistance market, which will be more challenging. Go after ESRD alone and you need to show you're not discriminating, which will be more challenging. ESRD also has the advantage that it is operating under legal cover from the 1997 OIG opinion. I suspect the end of year/early 2018 ruling will be challenged (lawyers weigh in please). DOJ going after specific companies is possibly biggest threat here or another whistleblower/DOJ. Considering the last guy walked away with an estimated $30m; it must present a big carrot. Link to comment Share on other sites More sharing options...
MrB Posted October 12, 2017 Share Posted October 12, 2017 Just out of interest. Can someone look on Interactive Brokers what the cost to borrow on DVA is please? I see a current "fee rate" of 0.25% and a "Rebate rate" of 0.91%. It was interesting that Chanos decided to not mention DVA at Grants yesterday and only briefly mentioned dialysis in passing (he pitched short UHS, ESRX, LPNT, and THC). It seems he's short a large basket of healthcare companies... Is there any timeline you can point to for the injunction? I see FMC was quoted as saying it is "indefinite in duration" as long as the court does not change it. Additionally, when and how does the rule actually get overturned? Thanks. Are you referring to the CMS rule that was struck down in TX? If so then the next development seem to be the CMS ruling that most are expecting towards yearend, which will clarify the above. Don't recall being a limit on it. Think it has to be a new rule. Also do you have the main points about Chanos' ESRX short thesis please? Link to comment Share on other sites More sharing options...
MrB Posted October 12, 2017 Share Posted October 12, 2017 https://www.nephrologynews.com/house-bill-would-require-health-plans-to-accept-3rd-party-payment-assistance/ On Oct. 5, Representative Kevin Cramer, R-N.D., introduced legislation that would amend the Affordable Care Act to allow third-party payments and charitable assistance. H.R. 3976, called the Access to Marketplace Insurance Act, would open the door to charitable contributions like the American Kidney Fund’s Health Insurance Premium Program (HIPP), which is funded largely by dialysis companies to help patients pay their health coverage premiums........ Link to comment Share on other sites More sharing options...
cubsfan Posted October 13, 2017 Share Posted October 13, 2017 Sadly, if this report is to be believed - obesity trends worldwide are alarming: http://www.who.int/mediacentre/news/releases/2017/increase-childhood-obesity/en/ Link to comment Share on other sites More sharing options...
rogermunibond Posted October 13, 2017 Share Posted October 13, 2017 Huge problem in Mexico (sugar/soda tax), huge problem in the Middle East. ESRD is kind of the pessimists bet that human genetics are wired to seek out sugar, alcohol, fat, dopamine. Link to comment Share on other sites More sharing options...
MrB Posted October 13, 2017 Share Posted October 13, 2017 Macabre, but in business terms, despite the small international presence DVA has it is already number 2 globally. Link to comment Share on other sites More sharing options...
Read the Footnotes Posted October 13, 2017 Share Posted October 13, 2017 Macabre, but in business terms, despite the small international presence DVA has it is already number 2 globally. In terms of human suffering, Sadly disease growth rates internationally will likely grow at significantly more than twice the domestic growth rates. Unfortunately that does not necessarily present the business opportunities you might expect. You cannot extrapolate the revenues or profitability numbers from the US to international healthcare markets. The US healthcare market is a market unlike any other. This is basically the worst off all possible worlds, suffering will increase. Those suffering will not have access to treatment on the same terms as the US and it will not present an equivalent business opportunity to that which emerged decades ago in the US. It is possible that markets will start to resemble US healthcare, but to me that is a low probability speculative bet. Last time I tried to analyze that question, I saw little to support that thesis. With that said, there is some chance that the budget constraints abroad might allow them to leapfrog to better treatment at lower prices. Just because US healthcare is in general excellent doesn't mean it is not simultaneously disfunctional and suboptimal. Link to comment Share on other sites More sharing options...
MrB Posted October 14, 2017 Share Posted October 14, 2017 Macabre, but in business terms, despite the small international presence DVA has it is already number 2 globally. In terms of human suffering, Sadly disease growth rates internationally will likely grow at significantly more than twice the domestic growth rates. Unfortunately that does not necessarily present the business opportunities you might expect. You cannot extrapolate the revenues or profitability numbers from the US to international healthcare markets. The US healthcare market is a market unlike any other. This is basically the worst off all possible worlds, suffering will increase. Those suffering will not have access to treatment on the same terms as the US and it will not present an equivalent business opportunity to that which emerged decades ago in the US. It is possible that markets will start to resemble US healthcare, but to me that is a low probability speculative bet. Last time I tried to analyze that question, I saw little to support that thesis. With that said, there is some chance that the budget constraints abroad might allow them to leapfrog to better treatment at lower prices. Just because US healthcare is in general excellent doesn't mean it is not simultaneously disfunctional and suboptimal. You are correct about the US spending way more than anybody else on healthcare, but the attached from a recent dbAccess presentation from Fresenius shows them achieving significantly higher margins than the US in EMEA and very importantly Asia Pacific, which is the highest growth area globally and it has the most patients. Link to comment Share on other sites More sharing options...
MrB Posted October 16, 2017 Share Posted October 16, 2017 The following was released today, which is in addition to the CPA data of OCT 10 DaVita Provides Additional Information Regarding Patients Receiving Charitable Premium Assistance http://pressreleases.davita.com/2017-10-16-DaVita-Provides-Additional-Information-Regarding-Patients-Receiving-Charitable-Premium-Assistance Link to comment Share on other sites More sharing options...
DooDiligence Posted October 17, 2017 Share Posted October 17, 2017 The following was released today, which is in addition to the CPA data of OCT 10 DaVita Provides Additional Information Regarding Patients Receiving Charitable Premium Assistance http://pressreleases.davita.com/2017-10-16-DaVita-Provides-Additional-Information-Regarding-Patients-Receiving-Charitable-Premium-Assistance They left out how Davita subsidizes government patients by losing money on treatments (humble, I like that.) It all sounds plausible to me & I'm way more comfortable with this than I was with Express Scripts. Link to comment Share on other sites More sharing options...
DocSnowball Posted October 19, 2017 Share Posted October 19, 2017 I've been considering this investment thesis as well, and yes the document helps. However, it still bothers me that Davita has openly tried to pull a fast one on its customers, these private insurance companies. How they will react to this in the long run involves more than just these numbers put out. This still gives me pause and puts it in the "too hard" investment pile for me. Link to comment Share on other sites More sharing options...
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