DVA – DaVita HealthCare Partners

[DooDiligence]

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.

 

I guess what we're asking here is "Can Davita bump prices to commercial payers & if so, how much?"

 

And will govt EVER allow the company to earn a meagre ROI 4 this lifesaving service?

[MrB]

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.

Observation: I don't think it is what you meant, but the private insurance companies are not the customer.

 

Questions: Why do you say a) that DVA pulled a fast one on the insurance companies and b) how long has DVA been pulling "the fast one" and c) what options do the insurance companies have in terms of "reacting to this in the long run"?

 

I'm really interested to see where you came out on those after your research.

 

[DocSnowball]

Thanks - patients and payers are both customers for a health services provider like Davita, since the patient and their provider chooses the Dialysis center but insurance sets limits of what they can choose and what services are covered or not covered there.

 

As I understand it, Davita, indirectly through this "initiative" of the AKF shifted patients on insurances like Medicare to private insurances, to garner higher profits in the short term, which has not been received well by these private insurances. Insurers have many ways of pushing back, like questioning every nickel and dime of expenses and withholding payments until those questions are cleared up, or even denying payments. They do this routinely to hospitals for a small proportion of bills sent to them. Also, how well these private insurances will work to collaborate with Davita in the long run is what I am questioning. It is this situation of an unhappy customer that worries me a little bit, in this case the unhappy customers are the ones that make up a healthy contribution to Davita's bottom line. I would have liked to have seen a win-win being created to invest, here the situation is of win-lose and I wonder how these companies will try to hit back. I don't have the answer to your last question as to how.

[DocSnowball]

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.

 

I guess what we're asking here is "Can Davita bump prices to commercial payers & if so, how much?"

 

And will govt EVER allow the company to earn a meagre ROI 4 this lifesaving service?

 

Yes you're right, thanks for helping me clarify my not so specific comment - this incident is a negative to the brand or the moat, and may come in the way of bumping prices to commercial payers down the line. The Government has limited money to spend in healthcare, so its generosity is very limited. We feel the pinch every day in operations in healthcare when dealing with Medicare or Medicaid.

[cubsfan]

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.

 

I guess what we're asking here is "Can Davita bump prices to commercial payers & if so, how much?"

 

And will govt EVER allow the company to earn a meagre ROI 4 this lifesaving service?

 

Yes you're right, thanks for helping me clarify my not so specific comment - this incident is a negative to the brand or the moat, and may come in the way of bumping prices to commercial payers down the line. The Government has limited money to spend in healthcare, so its generosity is very limited. We feel the pinch every day in operations in healthcare when dealing with Medicare or Medicaid.

 

But what the government actually pays is money losing to DaVita and the rest of the industry - so the government is getting a bargain while the quality of care improves and lives are extended.

[MrB]

Thanks - patients and payers are both customers for a health services provider like Davita, since the patient and their provider chooses the Dialysis center but insurance sets limits of what they can choose and what services are covered or not covered there.

 

As I understand it, Davita, indirectly through this "initiative" of the AKF shifted patients on insurances like Medicare to private insurances, to garner higher profits in the short term, which has not been received well by these private insurances. Insurers have many ways of pushing back, like questioning every nickel and dime of expenses and withholding payments until those questions are cleared up, or even denying payments. They do this routinely to hospitals for a small proportion of bills sent to them. Also, how well these private insurances will work to collaborate with Davita in the long run is what I am questioning. It is this situation of an unhappy customer that worries me a little bit, in this case the unhappy customers are the ones that make up a healthy contribution to Davita's bottom line. I would have liked to have seen a win-win being created to invest, here the situation is of win-lose and I wonder how these companies will try to hit back. I don't have the answer to your last question as to how.

Ok, but how long has this "initiative" of DaVita been going?

Also, if we assume insurers are "unhappy customers", because they pay too much then how long has this been the case?

[DooDiligence]

Thanks - patients and payers are both customers for a health services provider like Davita, since the patient and their provider chooses the Dialysis center but insurance sets limits of what they can choose and what services are covered or not covered there.

 

As I understand it, Davita, indirectly through this "initiative" of the AKF shifted patients on insurances like Medicare to private insurances, to garner higher profits in the short term, which has not been received well by these private insurances. Insurers have many ways of pushing back, like questioning every nickel and dime of expenses and withholding payments until those questions are cleared up, or even denying payments. They do this routinely to hospitals for a small proportion of bills sent to them. Also, how well these private insurances will work to collaborate with Davita in the long run is what I am questioning. It is this situation of an unhappy customer that worries me a little bit, in this case the unhappy customers are the ones that make up a healthy contribution to Davita's bottom line. I would have liked to have seen a win-win being created to invest, here the situation is of win-lose and I wonder how these companies will try to hit back. I don't have the answer to your last question as to how.

Ok, but how long has this "initiative" of DaVita been going?

Also, if we assume insurers are "unhappy customers", because they pay too much then how long has this been the case?

 

My assumption is that payers should be secretly happy to NOT be shelling out for extended hospital stays (win/win)

and Davita CANNOT slack off on this metric just to prove a point (which they obviously wouldn't do to begin with.)

 

Anyone can pick nits about the charitable assistance but

once again, courtesy of Matt Brice there's this thought:

 

"There is no other medical condition where commercial insurance can kick its enrollees off after a specified period (dialysis=36 months)"

 

https://twitter.com/TheSovaGroup/status/911269877163241472

 

---

 

Also, big ups to MrB, DocSnowball, cubsfan, RB & others who've made this as clear as I think it can be made (warts & all.)

[walkie518]

Dialysis is covered under medicare part b for in-center dialysis, if dialysis is done in a hospital, it's under part a.  Of course, centers are cheaper and more prevalent. 

 

Nearly half of all dialysis patients are under the age of 65, which means previous to being diagnosed with end-stage renal disease (ESRD) and starting the first dialysis session, these patients were not eligible for Medicare. 

 

If Medicare rolled the age of eligibility back by 5 years, we would be in a different scenario. 

 

Why?

 

There is a 3-month lapse from the first dialysis session until coverage is in effect.  And that patient is on the hook for those three months. 

 

"When you enroll in Medicare based on ESRD and you’re on dialysis, Medicare coverage usually starts on the first day of the fourth month of your dialysis treatments. This waiting period will start even if you haven’t signed up for Medicare. For example, if you don’t sign up until after you’ve met all the requirements, your coverage could begin up to 12 months before the month you apply. (link: https://www.medicare.gov/sign-up-change-plans/get-parts-a-and-b/when-how-to-sign-up-for-part-a-and-part-b.html#collapse-5778)"

 

These are people, on average, around 60 years old who have ESRD. 

 

What are the choices? In-Center hemodialysis, at-home hemo-dialysis, or peritoneal dialysis. 

 

At-home and peritoneal is not available from many dialysis providers because these are not cost-effective or financially feasible to provide the service.  As a result, from what I understand, many are left with only one option: in-center hemodialysis. 

 

Now, the patient has to make a hard decision: find another center or hospital, who knows how far away, that will provide at-home or peritoneal dialysis services (these medicare covers immediately), or request subsidies from the AKF and get in-center care immediately. 

 

 

 

[MrB]

Thanks - patients and payers are both customers for a health services provider like Davita, since the patient and their provider chooses the Dialysis center but insurance sets limits of what they can choose and what services are covered or not covered there.

 

As I understand it, Davita, indirectly through this "initiative" of the AKF shifted patients on insurances like Medicare to private insurances, to garner higher profits in the short term, which has not been received well by these private insurances. Insurers have many ways of pushing back, like questioning every nickel and dime of expenses and withholding payments until those questions are cleared up, or even denying payments. They do this routinely to hospitals for a small proportion of bills sent to them. Also, how well these private insurances will work to collaborate with Davita in the long run is what I am questioning. It is this situation of an unhappy customer that worries me a little bit, in this case the unhappy customers are the ones that make up a healthy contribution to Davita's bottom line. I would have liked to have seen a win-win being created to invest, here the situation is of win-lose and I wonder how these companies will try to hit back. I don't have the answer to your last question as to how.

Ok, but how long has this "initiative" of DaVita been going?

Also, if we assume insurers are "unhappy customers", because they pay too much then how long has this been the case?

Thanks for the PM Doc and just for the benefit of the board the following.

 

The risk regarding the AKF is not immaterial, but I take issue with the fact that the discussion is generally defined too narrow and viewed over too short a period. Simply put, the AKF is just one part of broad based premium assistance which has been an integral part of healthcare in the US since at least 1990. It was formalised, in the case of Medicaid by way of section 1906 (1906-Omnibus Budget Reconciliation Act of 1990 and amended in the Balanced Budge Act of 1997) and waivers allowed under section 1115. For the non-profit side by various OIG opinions as in the 1997 one (previously mentioned in this thread) for the AKF as a direct result of the mentioned Balanced Budget Act of 1997. So the assumption of the AKF suddenly not being allowed premium assistance seems overly simplistic and pushes back against a lot of history. The AKF and DaVita did not cook up some scheme overnight. If anything was a catalyst over recent years then it was ACA/non discrimination against pre-existing conditions.

 

Anyway the above is just my opinion, for some of the facts see below. 

 

To get the basic idea read this http://www.maximus.com/sites/default/files/DecisionPoint_Premium_Assistance_WEB.pdf

More detailed https://www.macpac.gov/wp-content/uploads/2015/03/Premium-Assistance-Medicaid%E2%80%99s-Expanding-Role-in-the-Private-Insurance-Market.pdf

 

For self flagilation

https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/FAQ-03-29-13-Premium-Assistance.pdf

http://web1.ctaa.org/webmodules/webarticles/articlefiles/NEMTreportfinal.pdf

https://kaiserfamilyfoundation.files.wordpress.com/2013/02/8417-premiums-and-cost-sharing-in-medicaid.pdf

https://www.gpo.gov/fdsys/pkg/FR-2013-07-15/pdf/2013-16271.pdf

 

Lastly, this is a recent and interesting example of how some States behave when threatened with cuts to what they think is morally important issues.

https://www.arktimes.com/ArkansasBlog/archives/2017/10/17/governor-promises-arkansas-works-will-remain-stable-despite-trump-executive-order

 

At the end of the day for me (please do your own work!) the issue of AKF being stopped comes down to, "easier said than done"!

 

[MrB]

Dialysis is covered under medicare part b for in-center dialysis, if dialysis is done in a hospital, it's under part a.  Of course, centers are cheaper and more prevalent. 

 

Nearly half of all dialysis patients are under the age of 65, which means previous to being diagnosed with end-stage renal disease (ESRD) and starting the first dialysis session, these patients were not eligible for Medicare. 

 

If Medicare rolled the age of eligibility back by 5 years, we would be in a different scenario. 

 

Why?

 

There is a 3-month lapse from the first dialysis session until coverage is in effect.  And that patient is on the hook for those three months. 

 

"When you enroll in Medicare based on ESRD and you’re on dialysis, Medicare coverage usually starts on the first day of the fourth month of your dialysis treatments. This waiting period will start even if you haven’t signed up for Medicare. For example, if you don’t sign up until after you’ve met all the requirements, your coverage could begin up to 12 months before the month you apply. (link: https://www.medicare.gov/sign-up-change-plans/get-parts-a-and-b/when-how-to-sign-up-for-part-a-and-part-b.html#collapse-5778)"

 

These are people, on average, around 60 years old who have ESRD. 

 

What are the choices? In-Center hemodialysis, at-home hemo-dialysis, or peritoneal dialysis. 

 

At-home and peritoneal is not available from many dialysis providers because these are not cost-effective or financially feasible to provide the service.  As a result, from what I understand, many are left with only one option: in-center hemodialysis. 

 

Now, the patient has to make a hard decision: find another center or hospital, who knows how far away, that will provide at-home or peritoneal dialysis services (these medicare covers immediately), or request subsidies from the AKF and get in-center care immediately.

 

Walkie what you said goes over my head. Can you rephrase your point please?

[walkie518]

apologies if the idea was not unpacked enough

 

one becomes eligible for Medicare when turning 65

 

Roughly half of those who need dialysis are under 65...most of those who need dialysis are around 60

 

The Social Security Amendment during the Nixon years allows for ESRD patients to be eligible for Medicare regardless of age

 

From day 1 and session 1, ESRD patients are covered for at-home or peritoneal dialysis.

 

However, due to various factors, the most ubiquitous and available service is in-center hemodialysis. 

 

In-center hemodialysis, however, is not covered under Medicare until three months after the first dialysis session (as per the previous quotation taken from Medicare's website).  While helpful later, not so for new dialysis patients.

 

A new patient walks into a DaVita center needing dialysis and doesn't have appropriate coverage.  Though being the largest at-home dialysis provider in the US, not every center provides in-center let alone peritoneal dialysis.

 

As a result, DaVita tells the patient that s/he has to pay for dialysis out-of-pocket until Medicare kicks in or DaVita tells the patient, if eligible, to make a request for premium assistance via the AKF. 

 

If/when the AKF approves, the patient gets in-center hemodialysis coverage and faces no possible out-of-pocket costs. 

 

Also, I would note, that the John Oliver piece argues that DaVita should tell its patients to get transplants.  This is not feasible given the number of ESRD patients versus the number of available organs for transplant thereby rendering his argument solely sensationalist. 

[cubsfan]

 

Also, I would note, that the John Oliver piece argues that DaVita should tell its patients to get transplants.  This is not feasible given the number of ESRD patients versus the number of available organs for transplant thereby rendering his argument solely sensationalist.

 

Even if there were enough kidneys for transplants, that would never solve the problem. Many of these individuals are

way too unhealthy and may not survive the transplant or complications that occur after surgery due their other issues

such as obesity and heart issues.

[Rasputin]

According to the SIRF article getting dialysis patients transplant is bad ok?  lol

 

Asked what the biggest concern she has with the state of dialysis today, Browne argued that dialysis patients switching to private plans from Medicare/Medicaid are often put at major financial risk should they get a transplant. (The AKF’s premium assistance doesn’t cover transplants.)

 

“Higher premiums and co-pays are the patient’s obligation if they get a transplant,” said Dr. Browne, who added “patients can harm their listing eligibility for transplants by switching.”

[Rasputin]

To add to the documents that MrB graciously uploaded, here are some docs on cost analysis of a hemodialysis center from 2005, and a recent article of a county estimating the cost per treatment for hemodialysis (2015 cost estimate).  Also what happened in 2007 when Congress tried to lengthen the MSP period.

Dialysis_conversation_continues___Local___ifallsjournal.pdf

2005_Cost_analysis_for_hemodialysis_center.pdf

Battle_erupts_over_Medicare_coverage_of_dialysis___TheHill.pdf

[rogermunibond]

In terms of health care practice, there's no easy solution to ESRD.

 

The solution is prevention.  So sugar sweetened beverage (SSB) tax would be the way to start.

 

Mexico's data is showing sizeable reductions in purchases over the first two years of the tax.  Waiting for more recent data to see if that trends is continuing.

[Happy]

If they strongly cut reimbursements, smaller dialysis providers would go broke. DaVita/FMC either would buy them (making the government even more dependent on them to provide the service) or the replacing treatments would be significantly more expensive. In the end DaVita should be allowed to earn a good profit as long as they provide the service better and more efficiently than the alternatives.

 

People like to ridicule managers that do things differently when things aren't going so well. When all is great, he has "real character".

 

 

[Spekulatius]

 

Also, I would note, that the John Oliver piece argues that DaVita should tell its patients to get transplants.  This is not feasible given the number of ESRD patients versus the number of available organs for transplant thereby rendering his argument solely sensationalist.

 

That part is a joke, DVA is clearly a service organization, since when should they do consult on treatment options? That is what the doctors are for. Also, obtaining an organ transplant isn’t easy and the waiting list is long. Patients are generally aware of the transplant option, but it they just aren’t enough transplants available and many patients are ill suited for the procedure.

[MrB]

apologies if the idea was not unpacked enough

 

one becomes eligible for Medicare when turning 65

 

Roughly half of those who need dialysis are under 65...most of those who need dialysis are around 60

 

The Social Security Amendment during the Nixon years allows for ESRD patients to be eligible for Medicare regardless of age

 

From day 1 and session 1, ESRD patients are covered for at-home or peritoneal dialysis.

 

However, due to various factors, the most ubiquitous and available service is in-center hemodialysis. 

 

In-center hemodialysis, however, is not covered under Medicare until three months after the first dialysis session (as per the previous quotation taken from Medicare's website).  While helpful later, not so for new dialysis patients.

 

A new patient walks into a DaVita center needing dialysis and doesn't have appropriate coverage.  Though being the largest at-home dialysis provider in the US, not every center provides in-center let alone peritoneal dialysis.

 

As a result, DaVita tells the patient that s/he has to pay for dialysis out-of-pocket until Medicare kicks in or DaVita tells the patient, if eligible, to make a request for premium assistance via the AKF. 

 

If/when the AKF approves, the patient gets in-center hemodialysis coverage and faces no possible out-of-pocket costs. 

 

Also, I would note, that the John Oliver piece argues that DaVita should tell its patients to get transplants.  This is not feasible given the number of ESRD patients versus the number of available organs for transplant thereby rendering his argument solely sensationalist.

https://www.kidney.org/atoz/content/insurance

So between the AKF and other HIPP operators such as some state Medicaid programs a good number of these patients must end up on private insurance via ACA due to not being allowed to decline a patient as a result of his/her pre-existing condition. This really makes it a case of I pay everything or a take on private insurance coverage. This might sound insensitive, but it is a bit like shopping for insurance after you crashed your car and the private insurers are forced to take you?

[MrB]

 

Also, I would note, that the John Oliver piece argues that DaVita should tell its patients to get transplants.  This is not feasible given the number of ESRD patients versus the number of available organs for transplant thereby rendering his argument solely sensationalist.

 

That part is a joke, DVA is clearly a service organization, since when should they do consult on treatment options? That is what the doctors are for. Also, obtaining an organ transplant isn’t easy and the waiting list is long. Patients are generally aware of the transplant option, but it they just aren’t enough transplants available and many patients are ill suited for the procedure.

Just to add and please check the data for yourself, because I'm not convinced it is the right way to look at it. If you look at the D.14 sheet of the modality data workbook put out by the USRDS (https://www.usrds.org/reference.aspx D.Treatment Modalities) then you will note that of all the ESRD patients 7% have a functioning graft (transplanted) kidney after 1 year, ramping up to 52% after 5 years and 80% after 10 years. Obviously anything less than 100% is not desirable, but probably not bad considering the limited supply of kidneys and latest cost estimates pegged at $414,880/transplant.

[MrB]

From 2015 "Renal ventures transaction" comments by FTC https://www.ftc.gov/system/files/documents/cases/1510204_davita_analysis.pdf

 

..Entry into the outpatient dialysis services markets identified in the Commission’s

Complaint is not likely to occur in a timely manner at a level sufficient to deter or

counteract the likely anticompetitive effects of the proposed transaction. By law, each

dialysis clinic must have a nephrologist medical director, and most dialysis clinics have

long-term (seven to ten year) contracts with nephrologist medical directors that also

include non-competes. As a practical matter, medical directors also serve as the primary

source of referrals and are essential to a clinic’s success. The relative shortage and lack

of available nephrologists, particularly those with an established referral stream, is a

significant barrier to entry into each of the relevant markets. These obstacles make entry...

[cubsfan]

From 2015 "Renal ventures transaction" comments by FTC https://www.ftc.gov/system/files/documents/cases/1510204_davita_analysis.pdf

 

..Entry into the outpatient dialysis services markets identified in the Commission’s

Complaint is not likely to occur in a timely manner at a level sufficient to deter or

counteract the likely anticompetitive effects of the proposed transaction. By law, each

dialysis clinic must have a nephrologist medical director, and most dialysis clinics have

long-term (seven to ten year) contracts with nephrologist medical directors that also

include non-competes. As a practical matter, medical directors also serve as the primary

source of referrals and are essential to a clinic’s success. The relative shortage and lack

of available nephrologists, particularly those with an established referral stream, is a

significant barrier to entry into each of the relevant markets. These obstacles make entry...

 

There's the moat that many do not see.

[DooDiligence]

https://www.bizjournals.com/denver/news/2017/10/26/davita-ceo-thiry-to-chair-colorado-effort-to.html

 

At the end of the article:

 

“Thiry spent more than $1 million of his own money in support of last year's pair of ballot measures to open up the state's primaries to non-partisan voters, propositions 107 and 108, both of which passed.”

 

I wish he lived in Florida (said another disenfranchised voter.)

[Gregmal]

Shit guidance it looks like

[cubsfan]

Damn, they bought back a lot of shares. 6M just since Sept 30th.

[walkie518]

net loss predominantly due to asset impairment (non-cash gaap loss) resulting from ruling on charity assistance, but both revenues +5% and cash flow from operations +6% are up

 

I would think they appeal? 

 

after hours action looks pretty bad (down 7%)...may or may not stick by the morning, but perhaps there is fear the downside is greater than where mgmt is guiding? 

 

Maybe this is another buying opportunity?