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DVA – DaVita HealthCare Partners

ni-co

By ni-co
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Foreign Tuffett Newbie

Foreign Tuffett

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One issue that I don't think has been mentioned yet is that Kent Thiry is seriously exploring running for governor of Colorado. Obviously this it would bring invite even more scrutiny of DaVita, as well as mean that the company would have to find a new CEO. Regardless of his eccentricities (which I think are more calculated than they appear at first glance), Thiry's been a very good CEO. I suspect uncertainty over this is one of the factors depressing the stock price.

 

http://www.denverpost.com/2017/06/25/kent-thiry-davita-ceo-colorado-governor-race/

 

Also, DaVita recently launched "DaVita Health Solutions", a platform to provide home-based care to chronically ill patients. Given the lack of success they've had thus far, I'm a little puzzled by their continued attempts to expand beyond kidney care. Does anyone have any thoughts on this?

 

 

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cubsfan Newbie

cubsfan

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I'm surprised by the drastic selloff today. Q2 results were pretty much sure and steady and nothing major unexpected. Wondering what disappointed people so badly. The pause in repurchases perhaps?

 

I don't think so. I read the con call transcript. They bought 2% of shares during qtr. And they are continuing with repurchases.  I do think there is nervousness over some proposed California legislation that would raise costs. Apparently has to do with the skilled nurse to patient ratio. But DaVita has stellar ratings on care - so it seems very unnecessary. Also another CA legislation effort to cap fees.  Both are driven by CA unions.  But California is DVA's largest market by far.

 

My sense is you have this typical reimbursement uncertainty with HC changing landscape.

 

Would like to hear other opinions - but it just seems like uncertainty, not facts.

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jgyetzer Newbie

jgyetzer

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Yeah - I see your point on the legislation question but I can't remember a time in the last several years where there wasnt some regulatory or reimbursement related uncertainty...in all cases Davita would be hurt but other providers would hurt worse so I always chalked these issues up as a wash.

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cubsfan Newbie

cubsfan

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Well, I hope you're right cause I own DVA and bought more today.

 

But the CA legislation also proposes a cap on profits - above 15% gets rebated to payors.

What do you expect from a socialist state like CA?

 

Here's a few links for you:

 

http://www.salon.com/2017/06/10/california-bill-addresses-safety-concerns-at-dialysis-clinics_partner/

 

http://www.mercurynews.com/2017/03/28/dialysis-centers-california-bill-proposes-to-improve-staffing-inspections/

 

State Bill (SB349) Proposed legislation to fix personnel to patient ratios:

 

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB349

 

AB251 - Proposed legislation to cap profits at 15% - and force rebates back to payers

 

https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180AB251

 

I don't know if this is why the stock got hit so hard - so I'm speculating here.

 

In there Capital Markets Day a couple months ago, they talk about around $3.5B if FCF being generated over the

next few years. With a market cap of $11B - let's hope they step up the repurchases.

 

 

 

 

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Foreign Tuffett Newbie

Foreign Tuffett

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5b in free cash flow ex development capex 2017-2020. 11b market cap.

 

i stand corrected!

 

thanks

 

Didn't they include the ~$538 million VA settlement they received in Q1 of this year in the FCF guidance? I would probably exclude that amount from any valuation work since (1) it's a one-off and (2) has mostly been spent already on buybacks.

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Foreign Tuffett Newbie

Foreign Tuffett

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Well, I hope you're right cause I own DVA and bought more today.

 

But the CA legislation also proposes a cap on profits - above 15% gets rebated to payors.

What do you expect from a socialist state like CA?

 

CA is going to end up with a shortage of dialysis clinics if they continue down this route.

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MrB Newbie

MrB

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https://data.medicare.gov/data/dialysis-facility-compare

 

CMS has made dialysis center data available, and they have consumer comparison site.

 

From my perusing Davita and Fresenius did about avg, mostly 3 stars.  Some nonprofits did much better, but the thing is a lot of nonprofits that had their own dialysis have gotten out of the biz.

Attached chart from the above data might provide a bit more insight.

ClinicChart.JPG.6399e06d83b66b352e13596da453ef92.JPG

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cubsfan Newbie

cubsfan

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Well, I hope you're right cause I own DVA and bought more today.

 

But the CA legislation also proposes a cap on profits - above 15% gets rebated to payors.

What do you expect from a socialist state like CA?

 

CA is going to end up with a shortage of dialysis clinics if they continue down this route.

 

From some of the links and the conference calls you can see the dialysis industry is fighting this - saying it will force many, perhaps 20% of these clinics to close, because they are unprofitable and not enough skilled help. This will flood the ER's with patients. You wonder if CA politicians actually have any brains at all. These unions are self serving. Bad for everyone except some employees.

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MrB Newbie

MrB

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Don't think I've seen this posted here. Long term history of Davita from 1979 and background to the industry; good read.

Favorite quote "We are very much a new company," Thiry explained in an October 23, 2000 interview with the Los Angeles Business Journal. "The previous company was almost exclusively focused on shareholders, and our new mission is to be the provider, partner, and employer of choice. We realize that we have to satisfy our shareholders with a reasonable return, but that is not our primary mission." He did not do that bad considering returns were not his primary focus.

 

http://www.referenceforbusiness.com/history2/15/DaVita-Inc.html

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sleepydragon Newbie

sleepydragon

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Don't think I've seen this posted here. Long term history of Davita from 1979 and background to the industry; good read.

Favorite quote "We are very much a new company," Thiry explained in an October 23, 2000 interview with the Los Angeles Business Journal. "The previous company was almost exclusively focused on shareholders, and our new mission is to be the provider, partner, and employer of choice. We realize that we have to satisfy our shareholders with a reasonable return, but that is not our primary mission." He did not do that bad considering returns were not his primary focus.

 

http://www.referenceforbusiness.com/history2/15/DaVita-Inc.html

 

This one is good study too:

https://www.usrds.org/2015/download/vol2_USRDS_ESRD_15.pdf

 

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sleepydragon Newbie

sleepydragon

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From Bank of America research, I found following is interesting:

 

One of the dynamics within the US health care system broadly is the implicit cost

shifting from the government onto the private sector. The government (both Medicare

and Medicaid) set rates and although providers can lobby the government, they cannot

negotiate rates and are a rate taker. Historically, the government has set rates below

inflation as a way to help balance the budget. When 60% of your revenue is paying less

than inflation, providers go back to the 40% where they can negotiate, and try to get

rates that are above inflation. This has been a specific problem for dialysis, because

until 2014, dialysis was not guaranteed an automatic market basket update and each

year had to lobby Congress for an update. As a result, many years the industry didn’t

receive any update, and we would estimate that over the past 40 years, the update has

averaged about 1%. Below we provide a theoretical example that is illustrative of what

has happened to dialysis rates over time. If we assume that rate in 1972 for both

commercial and Medicare were set at $150, but grew by 1% for Medicare each year and

commercial by 4%, then in 2016, Medicare rates would be $232 and Commercial rates

would be $842

 

----

so before 2014, medicare rates have failed to grow with inflation. On average it grows only 1% prior to 2014.

Good if it can grow with inflation going forward. Even a small growth compounded will make 70% of DVA business become profit positive.

 

However, the 2018 rate was only a growth of 0.8%: https://www.healthindustrywashingtonwatch.com/2017/07/articles/regulatory-developments/medicare-medicaid-services-regulations/cms-proposes-update-to-medicare-esrd-pps-payments-for-2018/

 

 

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Rasputin Newbie

Rasputin

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On top of pressure on CMS ESRD PPS, mortality rate has come down, causing higher percentage of treatment paid by government.  It's crept up from 87% to almost 90% now  since 2005. 

 

While DVA Kidney Care rev per treatment has only grown $25 from 2005 to 2017 (from $322 to $347), I estimate commercial rate per treatment has grown from $830 in 2005 to $1150 in 2017.  It's a rough estimate because Davita rounds percentage of treatment paid by government to closest percent. 

 

In a sense, DVA KC is not rewarded for driving mortality rate lower.  It's a crazy payment system, but I like the moat.  It's an 8% position for me now. 

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