DVA – DaVita HealthCare Partners

[walkie518]

I agree wholeheartedly with Cigarbutt here.

DooDilugence- DVA couldn’t dump the patients because they still would get paid the prevailing Medicaid rates. DVA accepts these rates( which barely cover costs) right now for the majority of patients, so they can’t refuse service on existing patients either, imo.
If DVA would refuse service to existing patients, and patients die because of this, the ensuring lawsuits would probably do the company in.

Davita's acceptance of Medicare's prevailing rates is a fine point which I didn't pay attention to until you pointed it out.

I also agree with Cigarbutt's insightful thoughts.

I believe the business will survive for a long time (while constantly being beaten & battered by those with opposing interests.)
A tight focus on operational excellence might minimize the ability of opponents to gain traction.

DaVita has reduced costs to the national healthcare; DaVita clinics are better than hospitals and smaller operations; and as long as people continue to eat and drink more than they need, dialysis will continue to grow with continued global population growth and/or GDP.

The largest risk to the business might be when kidneys can be printed?  I don't see other forms of dialysis sticking as in other countries?

[DooDiligence]

I agree wholeheartedly with Cigarbutt here.

DooDilugence- DVA couldn’t dump the patients because they still would get paid the prevailing Medicaid rates. DVA accepts these rates( which barely cover costs) right now for the majority of patients, so they can’t refuse service on existing patients either, imo.
If DVA would refuse service to existing patients, and patients die because of this, the ensuring lawsuits would probably do the company in.

Davita's acceptance of Medicare's prevailing rates is a fine point which I didn't pay attention to until you pointed it out.

I also agree with Cigarbutt's insightful thoughts.

I believe the business will survive for a long time (while constantly being beaten & battered by those with opposing interests.)
A tight focus on operational excellence might minimize the ability of opponents to gain traction.

DaVita has reduced costs to the national healthcare; DaVita clinics are better than hospitals and smaller operations; and as long as people continue to eat and drink more than they need, dialysis will continue to grow with continued global population growth and/or GDP.

This is the same reason I'm confident in NVO too.
Many people simply will not modify their behavior to avoid health problems.

The largest risk to the business might be when kidneys can be printed?  I don't see other forms of dialysis sticking as in other countries?

Agreed.

[Cigarbutt]

DaVita has reduced costs to the national healthcare; DaVita clinics are better than hospitals and smaller operations; and as long as people continue to eat and drink more than they need, dialysis will continue to grow with continued global population growth and/or GDP.

The largest risk to the business might be when kidneys can be printed?  I don't see other forms of dialysis sticking as in other countries?

In essence, I agree with your long-term assessment.

Reaching the long term trajectory however may be more rocky because of regulatory risk and social perception as DVA and other large dialysis providers can be depicted like the Frosted Mini-Wheats cereals ie they seem to have a dual personality. They are efficient providers and excellent at capital allocation but are often described as "predatory" entities racking up "obscene profits" through "greed". Standard Oil had such a dual personality and, with muckrackers such as Ida Tarbell and associated underlying political and social movements, the company eventually lost the public opinion battle, the Supreme Court (1911) called it "unreasonable" and was eventually broken up.

Even if you (and I) are convinced that DVA is bringing a huge net positive to society, in certain scenarios, the regulatory monster may look into the growing dialysis industrial complex and impose a way to "share" the efficiencies between the profit line and the end-consumers (patients). In the end, an argument could be made that Rockefeller was made richer by the anti-trust laws and the forced break-ups and DVA can certainly adapt but helpful to consider that regulatory challenges will continue to be on the horizon.

[sleepydragon]

I think if DVA reduce their debt, though their roe will be reduced, the stock will become much less volatile.

[Cigarbutt]

I think if DVA reduce their debt, though their roe will be reduced, the stock will become much less volatile.

1+
Also, it may be reasonable to expect that DVA will come to work in an environment where they will be bounded by an "authorized" capital structure.

Going forward, using leverage to maximize returns may become more difficult because of the ease of regulatory measurement.

IMO, the main competitive moat in the more stringent environment (I think this has been well explained by Mr.B using different words, earlier in this thread), will continue to be the capacity to be ahead of regulators by explaining the overall net gains brought to the system by running a large and efficient operation. What could be considered gaming of the system when returns are shared in order to make a "reasonable" profit can be reconciled using an intelligent dialogue with the agencies showing that gains from efficiencies are reasonably passed on to the immediate customers (dialysis patients) and customers at large (population) while maintaining satisfactory outcomes. There is room for relatively "aggressive" strategies on the operating side because, if costs happen to be lower than planned when negotiating reasonable returns, DVA can focus on efficiency gains for justification and not be looked upon as a firm cutting costs to the point of causing a negative impact on clinical outcomes.

This is a tough game to play but Kent Thiry and his team have been unusually good at this in the last few years overall and it is reasonable to expect more of the same going forward although regulatory volatility is to be expected.

[DooDiligence]

I think if DVA reduce their debt, though their roe will be reduced, the stock will become much less volatile.

1+
Also, it may be reasonable to expect that DVA will come to work in an environment where they will be bounded by an "authorized" capital structure.

Going forward, using leverage to maximize returns may become more difficult because of the ease of regulatory measurement.

IMO, the main competitive moat in the more stringent environment (I think this has been well explained by Mr.B using different words, earlier in this thread), will continue to be the capacity to be ahead of regulators by explaining the overall net gains brought to the system by running a large and efficient operation. What could be considered gaming of the system when returns are shared in order to make a "reasonable" profit can be reconciled using an intelligent dialogue with the agencies showing that gains from efficiencies are reasonably passed on to the immediate customers (dialysis patients) and customers at large (population) while maintaining satisfactory outcomes. There is room for relatively "aggressive" strategies on the operating side because, if costs happen to be lower than planned when negotiating reasonable returns, DVA can focus on efficiency gains for justification and not be looked upon as a firm cutting costs to the point of causing a negative impact on clinical outcomes.

This is a tough game to play but Kent Thiry and his team have been unusually good at this in the last few years overall and it is reasonable to expect more of the same going forward although regulatory volatility is to be expected.

Thiry does seem pretty adept at politics.

https://www.denverpost.com/2018/06/22/unaffiliated-voters-impact-colorado-election-2018/

[walkie518]

rumors that the bill gets a veto?

[DooDiligence]

rumors that the bill gets a veto?

For now it's just a rumor started by this guy (fingers crossed X)

"Analyst Gary Taylor raised his rating on the shares to Neutral from Underweight, maintaining a $68 price target. He writes that it’s now more likely that California’s governor will veto a recently passed bill, which would curtail the financial arbitrage dialysis providers get from charitable premium assistance. Shares of DaVita are down nearly 10% since the bill was passed, and Taylor sees better prospects for it the stock to recover near term. In the longer run, however, he warns that the concerns about charitable premium assistance may persist, as it’s a “cat and mouse” game between insurers and dialysis providers."

https://www.barrons.com/articles/after-the-bell-dow-jumps-150-points-on-whispers-of-trade-resolution-1536873464