Author Topic: DVA DaVita HealthCare Partners  (Read 216245 times)

MrB

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Re: DVA DaVita HealthCare Partners
« Reply #260 on: September 26, 2017, 09:45:26 AM »
I read some online stories by nurses who do dialysis. It's not that easy. New nurses make mistakes and some incidents are fatal. They need to well trained and guided by senior nurse. The work is very intense compared to working in the hospital, resulting shortage of workers. Also, nurses need special educations and pass tests, etc.. Anyway, my point is this is not a commodity business.

Maybe the issue here is DVA 's margin is capped. Its clients will never allow it to make excessive profits, nor will they want DVA lose incentives to open new centers. So DVA is like a regulated utility. But even with limited margin upside, current valuation is heavily discounted.

I understand what you're saying.  But are these training/testing requirements that allow for a high barrier to entry (and high returns), or is it the duopoly created by Fresenius and DaVita using loopholes and exploiting private insurance?

I'm still trying to fully understand the moat and what would cause it to be lost.

Surely if one considers DVA/FSN to be "exploiting private insurance" one cannot simply gloss over the fact that they are not allowed to make money on 90% of their patients? DVA's revenue per treatment from government increased by 0.3% per annum over the last 10 years. Consider inflation and see the attached chart to get an idea of how long this has been going on. Virtually no other healthcare providers have been going without meaningful basket adjustments for so long.
Now for another exception. How come insurers can kick back patients to government after 30 months? It was set 12 months in the 1981, 18 months in 1990 and 30 months in 1997 and it came very close to being set at 42 months in 2007 (Bush vetoed it). Surely it is time for the commercial guys to step up too, because the last time they did was in 2007! However, the question is how valuable is the 30 months? The more I look into it the more I realise it is a significant number. So at the moment after 2.5 years the patient goes to government, right. Mortality rates are often quoted at around 20% which is also the number that sits behind the frequent statement of dialysis patients living 5 years. However when you look at the actual data from USRDS.ORG you note that 16% of your ESRD population is over 75 years old plus another 23% 65-74 old and the survival rate of those are naturally low. Only 8.3% and 1.9% respectively will live 10 years and longer, which tells you the majority of the often sited 20% mortality number is made up of 65 years and older patients. However survival of 10 years and longer jumps to 27% for 45-64 year old, 54% for 22-44 year old and 75% for your 0-21 year old. These last three age groups make up the 61% of your ESRD population and what you realise is that the ability to kick back these patients to government after 2.5 years is extremely valuable to private insurers. Just basic insurance logic tells you the biggest asset is a young healthy patient versus your biggest liability of a young sick patient especially if they have what looks to me to be the most expensive chronic disease in the system. BUT WHY is private afforded this extremely favourable financial treatment? From my understanding this is really the only disease where commercial is allowed to do this.

In terms of the AKF (still digging into this one), but up to 1996 healthcare providers were allowed to pay the roughly 20% shortfall in patients premiums (Medicare Part B and Medigap) directly. This practice was stopped by the 1996 HIPAA "act". At his point AKF stepped into the gap and started working with healthcare providers to pool contributions in order to provide financial aid to patients' uncovered dialysis costs. https://www.bridgespan.org/bridgespan/Images/articles/hngrb-american-kidney-fund/american-kidney-fund.pdf?ext=.pdf
At the time the frequently sited "Advisory Opinion" was received https://oig.hhs.gov/fraud/docs/advisoryopinions/1997/kdp.pdf
Context is important and here there seems to have been an evolution of industry practice over decades under regulatory scrutiny, so maybe its a bit simplistic to view it as some nefarious scheme cooked up over the last 5 years. 

P.S. How long will I live if I choose to stop dialysis?
This varies from person to person. People who stop dialysis may live anywhere from one week to several weeks, depending on the amount of kidney function they have left and their overall medical condition.
https://www.kidney.org/atoz/content/dialysisstop

Its complicated....hence the moat?


MrB

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Re: DVA DaVita HealthCare Partners
« Reply #261 on: September 26, 2017, 09:49:56 AM »
So CMS has already ruled that DVA cant proactively sign up patients to enroll in AKF. That resulted in only a small number of reduction in AKF patients
The battle ground now is if CMS will rule if AKF is outright illegal. If AKF is completed baned, yes that will hurt DVA badly. But will CMS ban AKF? Any thoughts?
http://www.npr.org/sections/health-shots/2017/02/14/515041363/texas-judge-upends-effort-to-limit-charity-funding-for-kidney-care
http://www.dialysispatients.org/sites/default/files/17-00016%20-%20Docket%20No.%2036%20-%20Order%20Granting%20PI%20%25282017.01.25%2529.pdf

MrB

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Re: DVA DaVita HealthCare Partners
« Reply #262 on: September 26, 2017, 09:59:36 AM »
My wife works at a home infusion pharmacy.  It is a similar but different service provided by dialysis companies.  They have nurses that install PIC lines in patients and deliver IV drugs with pumps.  With the exception of hemophilia patients, the margins aren't amazing.  Even the hemophilia patients are not always worth the trouble anymore because of the competition to get these patients.

They have about a 60/40 mix of medicare/medicaid to private insurance mix; and they typically don't lose money on either.  I guess I see the dialysis business working this way with all things being equal. I am probably biased.

The long term solution seems to be a re-balancing between government, commercial and providers. Government should pay a bit more, commercial a bit less and longer or a mix of the two and providers should make less. The main challenge to the industry is to transition without interrupting service delivery, because people's lives are at stake. 

Then...you have to address diabetes, hypertension and glomerulonephritis. Nothing is going to change unless the long term drivers are addressed.

Spekulatius

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Re: DVA DaVita HealthCare Partners
« Reply #263 on: September 27, 2017, 04:08:54 AM »
I read some online stories by nurses who do dialysis. It's not that easy. New nurses make mistakes and some incidents are fatal. They need to well trained and guided by senior nurse. The work is very intense compared to working in the hospital, resulting shortage of workers. Also, nurses need special educations and pass tests, etc.. Anyway, my point is this is not a commodity business.

Maybe the issue here is DVA 's margin is capped. Its clients will never allow it to make excessive profits, nor will they want DVA lose incentives to open new centers. So DVA is like a regulated utility. But even with limited margin upside, current valuation is heavily discounted.

I understand what you're saying.  But are these training/testing requirements that allow for a high barrier to entry (and high returns), or is it the duopoly created by Fresenius and DaVita using loopholes and exploiting private insurance?

I'm still trying to fully understand the moat and what would cause it to be lost.

It is a commoditized business in the sense that the treatment and the price they charge is standardized, but that is true for a lot of other medical treatments too.

They definitely need to operate with RNs on the floor at all times and a doctor needs to be on call. as mentioned above, the quality of care is very important, most patients are very sick and their blood pressure and medication (Heparin, EPO etc) needs to be managed. Nurses need to be trained on the machines and the treatment and patients management and the work is quite intense as stated above, which in conjunction with the moderate pay results in considerable turnover. Mistakes on the floor can easily result in death of a patient.
 This is certainly not a business that every idiot can run. FWIW, I dont like the CEO and I think he has outlived his usefulnes, but he regards DVA as his baby (somewhat justifiable so).
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Foreign Tuffett

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Re: DVA DaVita HealthCare Partners
« Reply #264 on: September 27, 2017, 04:24:35 AM »
I read some online stories by nurses who do dialysis. It's not that easy. New nurses make mistakes and some incidents are fatal. They need to well trained and guided by senior nurse. The work is very intense compared to working in the hospital, resulting shortage of workers. Also, nurses need special educations and pass tests, etc.. Anyway, my point is this is not a commodity business.

Maybe the issue here is DVA 's margin is capped. Its clients will never allow it to make excessive profits, nor will they want DVA lose incentives to open new centers. So DVA is like a regulated utility. But even with limited margin upside, current valuation is heavily discounted.

I understand what you're saying.  But are these training/testing requirements that allow for a high barrier to entry (and high returns), or is it the duopoly created by Fresenius and DaVita using loopholes and exploiting private insurance?

I'm still trying to fully understand the moat and what would cause it to be lost.

It is a commoditized business in the sense that the treatment and the price they charge is standardized, but that is true for a lot of other medical treatments too.

They definitely need to operate with RNs on the floor at all times and a doctor needs to be on call. as mentioned above, the quality of care is very important, most patients are very sick and their blood pressure and medication (Heparin, EPO etc) needs to be managed. Nurses need to be trained on the machines and the treatment and patients management and the work is quite intense as stated above, which in conjunction with the moderate pay results in considerable turnover. Mistakes on the floor can easily result in death of a patient.
 This is certainly not a business that every idiot can run. FWIW, I dont like the CEO and I think he has outlived his usefulnes, but he regards DVA as his baby (somewhat justifiable so).

Can you elaborate on your feelings about Thiry?

MrB

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Re: DVA DaVita HealthCare Partners
« Reply #265 on: September 27, 2017, 04:50:17 AM »
I read some online stories by nurses who do dialysis. It's not that easy. New nurses make mistakes and some incidents are fatal. They need to well trained and guided by senior nurse. The work is very intense compared to working in the hospital, resulting shortage of workers. Also, nurses need special educations and pass tests, etc.. Anyway, my point is this is not a commodity business.

Maybe the issue here is DVA 's margin is capped. Its clients will never allow it to make excessive profits, nor will they want DVA lose incentives to open new centers. So DVA is like a regulated utility. But even with limited margin upside, current valuation is heavily discounted.

I understand what you're saying.  But are these training/testing requirements that allow for a high barrier to entry (and high returns), or is it the duopoly created by Fresenius and DaVita using loopholes and exploiting private insurance?

I'm still trying to fully understand the moat and what would cause it to be lost.

It is a commoditized business in the sense that the treatment and the price they charge is standardized, but that is true for a lot of other medical treatments too.

They definitely need to operate with RNs on the floor at all times and a doctor needs to be on call. as mentioned above, the quality of care is very important, most patients are very sick and their blood pressure and medication (Heparin, EPO etc) needs to be managed. Nurses need to be trained on the machines and the treatment and patients management and the work is quite intense as stated above, which in conjunction with the moderate pay results in considerable turnover. Mistakes on the floor can easily result in death of a patient.
 This is certainly not a business that every idiot can run. FWIW, I dont like the CEO and I think he has outlived his usefulnes, but he regards DVA as his baby (somewhat justifiable so).

Can you elaborate on your feelings about Thiry?
Can you two take that part of the discussion offline please?  I hate to listen to a man's "bleeding heart" ;D

Jurgis

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Re: DVA DaVita HealthCare Partners
« Reply #266 on: September 27, 2017, 06:04:57 AM »
Can you two take that part of the discussion offline please?

Can you not take that part of the discussion offline please.  8)
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rb

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Re: DVA DaVita HealthCare Partners
« Reply #267 on: September 27, 2017, 09:31:55 AM »
Can you two take that part of the discussion offline please?

Can you not take that part of the discussion offline please.  8)
LOL! You want hear more about Citizen D'Artagnan?  ;D

DooDiligence

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Re: DVA DaVita HealthCare Partners
« Reply #268 on: September 27, 2017, 10:47:50 AM »
I read some online stories by nurses who do dialysis. It's not that easy. New nurses make mistakes and some incidents are fatal. They need to well trained and guided by senior nurse. The work is very intense compared to working in the hospital, resulting shortage of workers. Also, nurses need special educations and pass tests, etc.. Anyway, my point is this is not a commodity business.

Maybe the issue here is DVA 's margin is capped. Its clients will never allow it to make excessive profits, nor will they want DVA lose incentives to open new centers. So DVA is like a regulated utility. But even with limited margin upside, current valuation is heavily discounted.
DaVita IS a commodity business. The reasons you've listed don't invalidate that. It doesn't matter how hard the work is. Let me give an example. Oil is a commodity business and Coke is not. But making oil is hard. I can't just go out there and produce oil. The work is very intense and you need lots of very expensive equipment and highly trained people. I can however make Coke. The process is easy and doesn't require much in terms of capital. These things don't change the commodity/not commodity aspect.

In the case of dialysis the equipment is commercially available, there are lots of nurses already trained and you can create/train more nurses. Yes it would take some time, but there are no barriers to making nurses. There is nothing proprietary here.

One thing that dialysis centres have is a sort of first mover advantage. It's hard to travel for dialysis so patients choose the centre closest to their home. On top of that there's not enough people with ESRD. So if you open another centre in an area that has an existing one I suspect that capacity utilization would drop so much as to make both centres unprofitable. That's typical of a commodity business and not really a moat.

Very sharp, thanks for unpacking this!
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Read the Footnotes

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Re: DVA DaVita HealthCare Partners
« Reply #269 on: September 27, 2017, 11:53:13 AM »
Can you two take that part of the discussion offline please?

Can you not take that part of the discussion offline please.  8)

Years ago Kent Thiry was very well respected. If there is a well reasoned and respectful argument why he did not or does not deserve that respect, I would be very interested in hearing it.

I haven't been following DaVita closely for updates, so I would be very interested in hearing what if anything has changed.
« Last Edit: September 27, 2017, 04:01:07 PM by Read the Footnotes »