DVA – DaVita HealthCare Partners

[loganc]

Well HCP seems to be in a certain amount of disarray.  They only just hired Samitt last year to lead HCP.  Both Margolis and Thiry talked him up pretty big at the December investor day.

 

I don't have much to add here, but I concur that one can only infer disarray at HCP.  It will be interesting to see the HCP results in the next few quarters.  DVA seems pretty cheap to me in the current market environment and the kidney care segment is a juggernaut of a business. 

[rogermunibond]

Interesting point about trying to extend the 30 month commerical payer coverage period before Medicare takes over.

 

 

********************

 

DaVita CMO Dr. Allen Nissenson on renal care and Medicare ACOs

 

By Modern Healthcare

 

Posted: August 9, 2014 - 12:01 am ET

 

Dr. Allen Nissenson has been chief medical officer for Denver-based DaVita Kidney Care, a division of DaVita HealthCare Partners, since 2008. DaVita Kidney Care has more than 2,000 outpatient dialysis centers in 46 states and is one of the largest dialysis providers in the U.S. Nissenson formerly served as associate dean and director of the dialysis program at the David Geffen School of Medicine at UCLA, and as president of the Renal Physicians Association. Before that, he served as a Robert Wood Johnson health policy fellow of the Institute of Medicine, working with the late Sen. Paul Wellstone. Modern Healthcare editor Merrill Goozner recently spoke with Nissenson. This is an edited transcript.

 

Modern Healthcare: How are dialysis patients faring today?

 

Dr. Allen Nissenson: If you look at the outcomes for all U.S. patients over the past decade, they've improved significantly. The patients are still really sick but survival is better. They're in the hospital less and they're generally healthier.

 

MH:How have Medicare payment changes for end-stage renal disease, specifically going to a bundled payment system, affected DaVita?

 

Nissenson: The problem is, Medicare payment is not equal to the cost of the treatment, so for the 85% of patients we treat who depend on Medicare, we lose money on every treatment. That only works because the 10% of patients who have private insurance subsidize all of the others.

 

MH: In 2012, DaVita acquired Los Angeles-based HealthCare Partners. Yet the deal hasn't paid off in the short run. What's happening?

 

Nissenson: The reason we acquired HCP is that their vision of healthcare for the broader American population is exactly our vision for kidney patients. We've got to figure out a way to take the current fragmented system and coordinate it. In the short term, HCP is not thriving to the extent we'd like it to.

 

HealthCare Partners was a physician-led, physician-focused organization. Naturally there's some tension there. So we're in the process of figuring out how do we take the best of HealthCare Partners and the best of DaVita, with its business discipline and organizational skills, and bring these two together.

 

MH: How do you see working with chronic kidney disease patients served by HCP?

 

Nissenson: It's critical to move upstream and start looking at chronic kidney disease (CKD) patients before they reach end-stage disease. HealthCare Partners has thousands of CKD patients. We have a program called Kidney Smart, which is a CKD educational program directed at primary-care doctors and patients, that we are introducing in Southern California in HCP. The upstream work is really going to pay off in the long run.

 

MH: The Medicare Innovation Center is coming out with pilots to coordinate care for end-stage renal disease patients, called ESRD Seamless Care Organizations. How do you plan to participate in ESCO pilots?

 

Nissenson: We're hoping to do anywhere from two to five of them. We haven't heard yet if we've been selected to do that many, but we're confident we'll do some. We really believe in the accountable care organization approach. We would have liked to do this much more broadly. But there are some issues around the way the financing is done and other important issues in terms of the regulations. We're enthused but kind of sad that the full potential probably won't be realized.

 

MH: Before CKD patients wind up in dialysis, they usually are covered by private insurance. But once they are on dialysis, they're covered by Medicare. What can be done to coordinate care across these two payers?

 

Nissenson: There's no question this is a problem. When you go on dialysis, your private insurance remains the primary payer for 30 months. Because of the inadequacy of the Medicare payment, that gives us 30 months working with the commercial payer so it can help us cover the cost of the Medicare patients. The whole renal care community has been trying to get the CMS to extend that period, so that commercial insurance will be the primary payer for a longer period. In the past, private insurers were against it because they said they'd be stuck with these really sick patients for longer. What they found is, if they collaborate on care coordination, their total costs of care actually go down. So now even the private insurers aren't against it. We're working very hard to get Medicare to extend this, which we think would help everybody.

[elevensecsrt4]

I have just recently started studying dva and the business.  I have a close friend who has been going to dva for 4 years now.  I'm puzzled as I have been told by him that everyone who has esrd (on dialysis) is eligible for government payment ( Medicare). So who chooses private insurance ($ out of their own pocket) over Medicare?  So far I'm impressed with this business.

[yadayada]

I would keep an eye on George Church and Intrexon. You could buy a small position of Intrexon here to hedge your bet. I think he played an important role in getting the costs down for genome sequencing and is high regarded in field of synthetic biology.

 

In general scientific break throughs are moving much faster now then 20-30 years ago.

[loganc]

I would keep an eye on George Church and Intrexon. You could buy a small position of Intrexon here to hedge your bet. I think he played an important role in getting the costs down for genome sequencing and is high regarded in field of synthetic biology.

 

In general scientific break throughs are moving much faster now then 20-30 years ago.

 

I don't know anything about the Intrexon technology, but have you considered the regulatory hurdles in this potential hedge?  In my experience, the generation of new technology or "scientific breakthroughs" isn't necessarily the rate limiting step - it is getting regulatory clearance to commercialize new technology. 

 

[elevensecsrt4]

For some reason I am having a hard time understanding why davita would continue to accept (allow) medicare paid patients who make up 90% of the dialysis market where they lose money on every treatment.  I find it hard to believe private insurance companies are basically paying for everyone to be on dialysis ( or all of the profits davita generates) That has got to be a rather large difference in payment.

 

 

Do you all feel the goal is to expand efficiently to lower overall operating costs to make marginal profit (very tiny) on all govt paid patients? I am in awe the company has a profit at all with just 10% of its patients being profitable patients.

 

HealthCare partners acquisition was definitely aimed at getting more private insurance payers connected with Davita ( in their system), although patients not on dialysis yet but with kidney issues and for improving overall well being.

 

Is it just me or did anyone notice Ted W. buys were basically after or around the time the "merger" or Aquisistion of HC partners was announced?

 

He obviously knows the company well and has been invested for years but his brk $ buys happened shortly after the M&A and could just be a coincidence.

 

I guess I'm just making a general comment that private insurance payers paying for services from DVA should be welcomed with both arms.

 

Sorry for the newbie discussion points.  I'm in the early stages of understanding the business.

 

Love this site by the way! ;D

 

 

[ItsAValueTrap]

That has got to be a rather large difference in payment.

They more or less are getting gouged due to the limited supply of dialysis centers and doctors.  Sometimes the doctors receive financial compensation from dialysis centers so they may be participating in the gouging.  There are laws against this; DaVita had to pay a settlement because it kind of broke these laws.

 

From a patient's perspective, you want to go to a dialysis clinic that is close to you.  Otherwise you are spending a huge chunk of your time each week traveling to the dialysis clinic.  Because of this, the clinics kind of have pricing power.  In some areas it is close to a monopoly.  In some areas, DaVita will own most of the dialysis clinics so it becomes more of a monopoly.

[compounding]

Interesting, via @PlanMaestro On Twitter:

 

http://news.harvard.edu/gazette/story/2014/10/giant-leap-against-diabetes/

[ItsAValueTrap]

Interesting, via @PlanMaestro On Twitter:

 

http://news.harvard.edu/gazette/story/2014/10/giant-leap-against-diabetes/

 

Stem cell research seems to be very slow.  We haven't done much beyond skin.

 

HART (which pays for stock promotion) is researching stem cells for the human esophagus.  They're having problems with the technology.  More complex body parts seem to be far, far away.

[fareastwarriors]

DaVita Pays $389M to Settle Illegal Kickback Claims to Doctors

 

 

 

http://blogs.wsj.com/pharmalot/2014/10/23/davita-pays-389m-to-settle-illegal-kickback-claims-to-doctors/?mod=WSJ_LatestHeadlines

[Fat Pitch]

DaVita Pays $389M to Settle Illegal Kickback Claims to Doctors

 

 

 

http://blogs.wsj.com/pharmalot/2014/10/23/davita-pays-389m-to-settle-illegal-kickback-claims-to-doctors/?mod=WSJ_LatestHeadlines

 

That's one way to expand your network... limit competition.

[compounding]

DaVita Ranks First in Clinical Outcomes According to Government Reports

 

http://finance.yahoo.com/news/davita-ranks-first-clinical-outcomes-110900312.html

[ni-co]

If you are in the market for some DVA shares, today'd be the day to buy them.

 

HCP, $33 million NOI, right in the middle of the guidance for the quarter. But let's hit the bad news right up front, and that is that CMS may make multiple changes to Medicare Advantage reimbursement. And in aggregate, this could mean that HealthCare Partners 2016 NOI could be below and even well below 2015, so unambiguous, potential bad news on that side.

 

We incorrectly handicapped the Medicare Advantage reimbursement cuts last year, and I apologize that -- for that. I got it wrong. This actually is becoming a strategic issue for Medicare Advantage in our minds that it is crucial for CMS to protect the incentive to innovate to create health where now there is sickness and reduce risk where it is high for these patients, and we hope they realize that in their near-term decision-making.

 

http://seekingalpha.com/article/2914006-davita-healthcare-partners-dva-q4-2014-results-earnings-call-transcript

[LC]

I exited my position yesterday...basically pure luck saved me 5pct. I read Glenn's post on DVA and just said I don't want to deal with companies doing potentially unethical stuff. It's hard enough to get a handle on normal business factors...throw in the unethical/illegal stuff and it's just too much brain damage.

[SwedishValue]

They are cost leaders at providing a life sustaining service, and they provide it with the best clinical results in adjusted groups. I'm not denying the charges that have been brought to DVA before, but I would strongly disagree with it being an unethical business. (I can appeal to authority and hint at Ted Weschler's opinion as well).

 

I don't see the big news dropping the share down today. Thiry and his colleagues have said repeatedly that Medicare Advantage and cuts in reimbursement rates will pose significant challenges for the coming years, a statement that now was re-iterated for probably more than the 10th consecutive conference call. DVA has been very good at coping with changes in reimbursement rates historically, and the underlying growth of the most important business segment (dialysis) is organically very high (unfortunately, I really wish this would stop but it's not going to).

[Homestead31]

Ted adding

 

http://investors.davitahealthcarepartners.com/phoenix.zhtml?c=76556&p=irol-secText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwMDgxOTY1JkRTRVE9MSZTRVE9JlNRREVTQz1TRUNUSU9OX0JPRFkmZXhwPSZzdWJzaWQ9NTc%3d

[buylowersellhigh]

Anybody know the reason behind DVA's latest move from $72 to $83?

 

 

[Homestead31]

the last move higher from $72-83 appears to be tied to the filing that Weschler bought more in Q4'14

 

anyone else taking a look at this?  EV/ FY '14 FCF (on a maintenance capex basis) is 20x, and PE/ FY '14 FCF (maintenance capex basis) is ~14x...  still a long runway for growth, albeit slower than in the past, and room for operational improvement at HCP as they figure that business out.  you know capital allocation will be top notch, and revenues are defensive (absent gov't interference of course)...  i am gravitating toward ideas like this these days - it may be a form of market timing, but i'd rather be in defensive businesses with excellent capital allocators that can still grow given how i feel about the world and markets in general.  something like this won't double over night, but it can prob do 10-15% a year, which is fine by me, and it should survive any crash better than more cyclical / leveraged companies.

 

any recent thoughts?

[orthopa]

Starting to look interesting again down here near a 52 week low.

[twacowfca]

Starting to look interesting again down here near a 52 week low.

 

Has Weschler bought any more stock recently?

[thefatbaboon]

No

[sleepydragon]

I bought DVA today. It seems cheap to me.

Trading around 10x pre tax earning.

Very high roe, even higher if u just look at the tangible equity.

The debt is a little high but they have interest rate caps in place.

Company bought back 400m stocks last year.

If Ted can trust so many of his own wealth in this stock, i think i will be fine putting in 10%.

 

Also, why everybody is so sure this is not a web purchase? I think it may very well be. There is an interview on cnbc where Web talked about health costs, and that he thinks reforms are needed for the health delivery system where low cost providers shall be incentivized. He definitely understand the sector very well. There would be a little conflict of interests for Ted to buy DVA for Berkshire, but not so if Web is buying it. So i think there's a good chance it's a Web holding.

[Happy]

Also, why everybody is so sure this is not a web purchase? I think it may very well be. There is an interview on cnbc where Web talked about health costs, and that he thinks reforms are needed for the health delivery system where low cost providers shall be incentivized. He definitely understand the sector very well. There would be a little conflict of interests for Ted to buy DVA for Berkshire, but not so if Web is buying it. So i think there's a good chance it's a Web holding.

 

Weschler has owned DaVita in his hedge fund for over 10 years prior to joining BRK and bought it for BRK shortly after getting hired. And in the last year there was an interview where Weschler was asked why he likes DaVita in particular. They also have confirmed that it is Weschler's holding and not Buffett's.

[rogermunibond]

Pretty big news this week in the NEJM on unmatched/HLA incompatible kidney transplant.  Likely won't eat into DVA's dialysis business for a while but something to be aware of if you are a long-term investor in DVA.

 

http://www.nejm.org/doi/full/10.1056/NEJMoa1508380

[Larry]

DVA has come down about 20% from previous highs, probably due to an investigation launched to see if dialysis firms are steering patients. I think this one has become quite interesting again. Current market cap is 13.42B and their operating cash flow for the last 12 months is 2.061B. FCF is 6.05 per share and the stock sells currently for 64.87.

 

I like the overall characteristics of the dialysis side, very steady, stable and recession proof and it creates a lot of cash flow. Surely you can debate whether this is ethical or not but Im not going to that discussion here. The HCP acquisition has been a mistake in hindsight and it has not performed well. This was also quite a large deal, I guess this has also put pressure to share price. I think they should stick to dialysis in the first place, as it is what they do best and probably get rid of HCP. There is not as much m&a possibilities in dialysis as before and I believe they have slowed down from previous years in opening new clinics. I think they should just repuchase shares with excess cash flow. But we will see what happens with HCP, dialysis side is still performing very well.

 

Anyone else following this?