Author Topic: DVA DaVita HealthCare Partners  (Read 215681 times)

rb

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Re: DVA DaVita HealthCare Partners
« Reply #60 on: October 28, 2016, 08:39:58 PM »
At current prices Mr Market seems to be pricing in a large hit from the recent article about steering customers to AKF. Can someone who has followed or invested with DVA for a while explain the workings of these higher paying commercial plans and give a valid argument for why they won't go away? If the CMS is able to revise enrollment rules for Medicare and Medicade and/or make "regulatory changes that would allow individual market plans to limit their payment to healthcare providers to Medicare-based amounts" it seems this entire division would be unprofitable. Since this would put them out of business resulting in catastrophic consequences for their patients, it seems a long shot, but its hard to invest with the knowledge and comfort I currently have on why this couldn't or won't happen.

Any links or recommendations to help me understand this outside of DVA filings/calls would be helpful. So much of their profitability comes from these plans and it seems there is a lot of pressure on them while their leverage to fight back is hard to see.

Thanks for any help.

I am long.

Here's the short story to get you started.
 Davita is the low cost provider.... 10-15% lower cost per patient vs fresenius by my unit economics estimates. Davita and Fresenius have around 1/3 of us market each. The other 1/3 Is mom in pops not benefiting from the economies of scale. Davita and Fresenius have slowed their acquisitions in the us at this point to keep the current market share balance. As a result, any change in pay would cause mom and pops to shut down. Also, patients may have to drive further to get their treatments.
Flesh, you seem to have done quite a bit of research on this so you you don't mind, can you provide a bit more detail regarding a couple more issues.

Firstly, DaVita seem to be very aggressive in sales/marketing. This is not their first scandal. In your view is this just stupid over zealousness at the top or is this kind of stuff what drives a good chunk of profits? If they ease up on the pressure will that be a small decrease in profits or will it be significant?

Secondly, what always bothered me about DaVita is that the bulk of the patients are Medicare. In those cases Medicare dictates the terms and they don't seem to make any money off these patients. They mostly service them to pay the rent and the power bill shall we say. The profits seem to be made off of the few patients with private insurance for whom they seem to charge a pretty penny. Give this do you think that their profits are sustainable? What prevents Medicare to cut the rate (i know there were some issues around this a couple of years ago) and push DaVita in a loss per medicare patient? Or otherwise what prevents private insurance to cut payments for dialysis? Or maybe a shift in the mix of private/public insurance? It seems to me like DVA is very exposed to these issues. If any of them would come to be it would evaporate a good chunk of DVA profits.

You seem very confident in the company so I assume you understand these issues better than me. I would appreciate it if you could share your thoughts around these issues.


DooDiligence

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Re: DVA DaVita HealthCare Partners
« Reply #61 on: October 29, 2016, 12:19:48 AM »
DaVita Falls on Report It Encouraged Unneeded Insurance (Sunday) By Lee Spears

(Bloomberg) -- DaVita Inc. fell as much as 3.9% to lowest since 2013 after St. Louis Post-Dispatch reported Oct. 23 that DVA encouraged patients who were eligible for Medicaid to buy private insurance.

Not an exact corrolary to Wells Fargos operation but damn, WEB must be beside himself.

Anyone seen any comments from Munger on this?
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Graham Osborn

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Re: DVA DaVita HealthCare Partners
« Reply #62 on: October 29, 2016, 02:19:00 PM »
DaVita Falls on Report It Encouraged Unneeded Insurance (Sunday) By Lee Spears

(Bloomberg) -- DaVita Inc. fell as much as 3.9% to lowest since 2013 after St. Louis Post-Dispatch reported Oct. 23 that DVA encouraged patients who were eligible for Medicaid to buy private insurance.

Not an exact corrolary to Wells Fargos operation but damn, WEB must be beside himself.

Anyone seen any comments from Munger on this?

Given Munger's comments on VRX, it is indeed ironic that BRK owns DVA.  Not saying the situation is as extreme, but these healthcare rollups have certain common traits.

whiterose

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Re: DVA DaVita HealthCare Partners
« Reply #63 on: October 29, 2016, 04:27:36 PM »
Quote
Secondly, what always bothered me about DaVita is that the bulk of the patients are Medicare. In those cases Medicare dictates the terms and they don't seem to make any money off these patients. They mostly service them to pay the rent and the power bill shall we say.

This is correct, but on the other hand, rather than seeing it as a weakness it could possibly be a strength at the same time. While negotiating with the government/public payer they can truthfully argue that they are already at cost today, any rebate in reimbursements is not economically viable. Noone wants to be responsible for killing of the whole industry. Dialysis is a much needed medical service, keeping patients/voters/humans alive.
« Last Edit: October 30, 2016, 01:29:51 AM by whiterose »

rb

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Re: DVA DaVita HealthCare Partners
« Reply #64 on: October 29, 2016, 09:06:55 PM »
Quote
Secondly, what always bothered me about DaVita is that the bulk of the patients are Medicare. In those cases Medicare dictates the terms and they don't seem to make any money off these patients. They mostly service them to pay the rent and the power bill shall we say.

This is correct, but on the other hand, rather than seeing it as a weakness it could possibly be a strength at the same time. While negotiating with the government/public payer they can truthfully argue that they are already at cost today, any rebate in embursements is not economically viable. Noone wants to be responsible for killing of the whole industry. Dialysis is a much needed medical service, keeping patients/voters/humans alive.
Ok, so what's your point? We're just gonna keep our fingers crossed and hope it doesn't happen? Is this the first time a company would have a loss leader? In the context of Davita Medicare would be almost the portrait of a loss leader.

But while the public sector clients are a concern, my bigger concern in about the private sector insurance business. What prevents them from saying well if Medicare pays you so little why should we pay you so much? Why should we subsidize your profits?

DooDiligence

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Re: DVA DaVita HealthCare Partners
« Reply #65 on: October 29, 2016, 10:21:57 PM »
Quote
Secondly, what always bothered me about DaVita is that the bulk of the patients are Medicare. In those cases Medicare dictates the terms and they don't seem to make any money off these patients. They mostly service them to pay the rent and the power bill shall we say.

This is correct, but on the other hand, rather than seeing it as a weakness it could possibly be a strength at the same time. While negotiating with the government/public payer they can truthfully argue that they are already at cost today, any rebate in embursements is not economically viable. Noone wants to be responsible for killing of the whole industry. Dialysis is a much needed medical service, keeping patients/voters/humans alive.
Ok, so what's your point? We're just gonna keep our fingers crossed and hope it doesn't happen? Is this the first time a company would have a loss leader? In the context of Davita Medicare would be almost the portrait of a loss leader.

But while the public sector clients are a concern, my bigger concern in about the private sector insurance business. What prevents them from saying well if Medicare pays you so little why should we pay you so much? Why should we subsidize your profits?

Yeah; and then it'd be pointless for Davita employees to get patients to buy private insurance so Davita could switch payers & make better margins.

Then they might be able to eliminate that scandal at the expense of lower margins (a not so virtuous circle...)
BRK.B - 24.9% // Healthcare 22.5% - EW NVO // Auto's & Oil 18.4% - CLB GPC PSX VDE

Banking 9.4% - WFC // Entertainment 4.7% - DIS // Drinkers & Smokers 6.4% - MO

Retail 9.0% - ULTA VLGEA

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18 months of $

i trumpet my ignorance

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DooDiligence

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Re: DVA DaVita HealthCare Partners
« Reply #66 on: October 29, 2016, 10:46:17 PM »
DaVita Falls on Report It Encouraged Unneeded Insurance (Sunday) By Lee Spears

(Bloomberg) -- DaVita Inc. fell as much as 3.9% to lowest since 2013 after St. Louis Post-Dispatch reported Oct. 23 that DVA encouraged patients who were eligible for Medicaid to buy private insurance.

Not an exact corrolary to Wells Fargos operation but damn, WEB must be beside himself.

Anyone seen any comments from Munger on this?

Given Munger's comments on VRX, it is indeed ironic that BRK owns DVA.  Not saying the situation is as extreme, but these healthcare rollups have certain common traits.

In the October 1967 partnership letter WEB spoke of the trend of capital heading to momentum funds & he said "Essentially I am out of step with present conditions."

This is of course one sound bite from an exceedingly forthright letter (as all have been) but it leads into his shift to relying more on qualitative "high probability insight" (sic) decisions which he says "really make the cash register sing." (sic - again...)

It seems that he has relied a lot on a gut feel for the quality of managements character & may have been conned by Stumpf & now Rodriguez, Thiry & Kogod.

Still doesn't take anything away from the man himself who I believe has impeccable character!
« Last Edit: October 29, 2016, 10:48:04 PM by DooDiligence »
BRK.B - 24.9% // Healthcare 22.5% - EW NVO // Auto's & Oil 18.4% - CLB GPC PSX VDE

Banking 9.4% - WFC // Entertainment 4.7% - DIS // Drinkers & Smokers 6.4% - MO

Retail 9.0% - ULTA VLGEA

---

%'s held @ MV 2/25/20 fully invested
18 months of $

i trumpet my ignorance

https://twitter.com/tunawis

whiterose

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Re: DVA DaVita HealthCare Partners
« Reply #67 on: October 30, 2016, 01:49:06 AM »
Quote
In the context of Davita Medicare would be almost the portrait of a loss leader.
But while the public sector clients are a concern, my bigger concern in about the private sector insurance business. What prevents them from saying well if Medicare pays you so little why should we pay you so much?

I'm not an expert on this, but I guess the industry-dynamic is comparable to the commodities sector, in which DVA is the lowest cost producer (due to sheer size and the accompanying effects of scale, good management, company culture) and medicare the external set market price. The private insurers have not that many options besides DVA, once the mom-and-pop centers close/get bought. If the competition is losing even more on medicare, they have to be even more expensive for the private insurers to get even. As said, I'm not an industry insider nor am I living in the US, maybe I'm missing sth. obvious.

orthopa

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Re: DVA DaVita HealthCare Partners
« Reply #68 on: October 30, 2016, 06:18:16 PM »
So how does divination become more profitable over time if market share is purposefully kept steady? More patients? Raise prices on commercial only patients?

KCLarkin

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Re: DVA DaVita HealthCare Partners
« Reply #69 on: October 30, 2016, 06:29:20 PM »
So how does divination become more profitable over time if market share is purposefully kept steady? More patients? Raise prices on commercial only patients?

Demographics.