Author Topic: DVA DaVita HealthCare Partners  (Read 216025 times)

MrB

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1145
Re: DVA DaVita HealthCare Partners
« Reply #170 on: August 11, 2017, 03:46:37 AM »
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

2016 report
https://www.usrds.org/2016/view/Default.aspx


Spekulatius

  • Hero Member
  • *****
  • Posts: 4344
Re: DVA DaVita HealthCare Partners
« Reply #171 on: August 11, 2017, 04:38:18 AM »
I think this stock is undervalued and mispriced because most investors think of the govt and private insurers as two separate groups of clients of dva.
They failed to evaluate them as a group, and the dynamic and interplay of the two groups.
It's also wrong to say govt clients are not profitable. DVA's profit model is like a pyramid, similar to amazon's model, where most customers are not profitable (but cash flow helped building up infacstructure) and a small group of customers are very profitable.

I fail to see why this prevents the private insurers to demand lower rates  for dialysis. The current structure that private insurance pays 3-5x more for the same service than the government  is certainly not rational. I understand that the government underplays and private insurance overpays to compensate, but this still does not make sense.

And how can DVA say no to a private insurance  that demand the price to go from 5x to 2x, when they take Medicare patients for a much lower treatment term at the same price. It sounds like an Implicit agreement that is just meant to be broken.
Life is too short for cheap beer and wine.

matts

  • Sr. Member
  • ****
  • Posts: 271
Re: DVA DaVita HealthCare Partners
« Reply #172 on: August 11, 2017, 07:12:06 AM »
I think this stock is undervalued and mispriced because most investors think of the govt and private insurers as two separate groups of clients of dva.
They failed to evaluate them as a group, and the dynamic and interplay of the two groups.
It's also wrong to say govt clients are not profitable. DVA's profit model is like a pyramid, similar to amazon's model, where most customers are not profitable (but cash flow helped building up infacstructure) and a small group of customers are very profitable.

I fail to see why this prevents the private insurers to demand lower rates  for dialysis. The current structure that private insurance pays 3-5x more for the same service than the government  is certainly not rational. I understand that the government underplays and private insurance overpays to compensate, but this still does not make sense.

And how can DVA say no to a private insurance  that demand the price to go from 5x to 2x, when they take Medicare patients for a much lower treatment term at the same price. It sounds like an Implicit agreement that is just meant to be broken.

Agreed. I think some are just refusing the see the larger picture. It reminds me of people trying to rationalize Valeant charging thousands for a tube of foot cream. "That's how the system works, and if insurance companies demand a lower price then Valeant will just say no"

Can someone provide evidence that the MARGINAL client will unprofitable for davita if the private rates go lower by 10%?
 Seems to me like DVA is making too much money for that to be the case. And if the marginal client is profitable, then I believe Thiry will whine and complain but in the end eat it, not close any centers, and everyone who gets care now will continue to get care. He's trying to get paid, and knows that the larger the company is, the more he can shovel his way.

 

cubsfan

  • Hero Member
  • *****
  • Posts: 1647
Re: DVA DaVita HealthCare Partners
« Reply #173 on: August 11, 2017, 07:40:53 AM »
It seems the market agrees with both of you guys, that DaVita will have to take these lower re-imbursement prices forever.
Could be. There is no certainty.  Maybe the best solution is for the government to take over the clinics and run them like the VA Hospitals. That should be good for the quality of care.

sleepydragon

  • Hero Member
  • *****
  • Posts: 781
Re: DVA DaVita HealthCare Partners
« Reply #174 on: August 11, 2017, 07:46:56 AM »
If private insurer want lower payment from dva, and dva say no, where else the patience can get the treatment? They will go to hospitals, and the hospitals will bill much higher amount (plus maybe other tests). So the reality is DVA is already the low cost solution for private insurers.

Rasputin

  • Full Member
  • ***
  • Posts: 237
Re: DVA DaVita HealthCare Partners
« Reply #175 on: August 11, 2017, 08:19:31 AM »
Private payor rate/treatment down 10% is a reasonable downside.  Assuming government rate/treatment remains the same, it will cause revenue/treatment to be down $11 from $347 to $336, 85 MLR.  EBIT will be down $300 million, which DVA will offset in 3 years. 

I have made mistake with Valeant, so I went through the lists.  One of them is: Can payors threaten to exclude DVA's service?   For VRX derm rx, the answer is yes.  For DVA the answer is no, since it's the lowest cost option. 

I think getting $347 for a service that costs $286 is reasonable.  And DVA's cost is similar to Fresenius's. 

In my view, it's time to extend the MSP period, since mortality rate has come down from 20% in 1997 to under 14% (people living longer on dialysis), then private rates can come down and the difference between private rate vs govt rate won't be so stark. 

Rasputin

  • Full Member
  • ***
  • Posts: 237

matts

  • Sr. Member
  • ****
  • Posts: 271
Re: DVA DaVita HealthCare Partners
« Reply #177 on: August 11, 2017, 08:47:05 AM »
If private insurer want lower payment from dva, and dva say no, where else the patience can get the treatment? They will go to hospitals, and the hospitals will bill much higher amount (plus maybe other tests). So the reality is DVA is already the low cost solution for private insurers.

and if DVA says, no, what will happen to their business? They would only be left with the money losing government business. Thiry would take a 90% pay cut and fire thousands of employees? Let's not make it sound like Davita has nothing to lose by playing a game of chicken with the insurers. My view is that their negotiating leverage is a lot smaller than what the bulls think. In a negotiation where both sides have massive downsides if a deal doesn't get done, typically both sides make significant concessions, not just one.

Also, I picked 10% arbitrarily, the dynamics might be the same at 15% or 20%. Hence why I asked at what price the marginal patient is no longer profitable, because it's only at that point we can all agree for sure that it makes sense for DVA to say no and walk away. Based on some of the comments it sounds like with a 10% cut the company would still be printing money. what about 15 or 20%?




LC

  • Hero Member
  • *****
  • Posts: 4281
Re: DVA DaVita HealthCare Partners
« Reply #178 on: August 11, 2017, 08:59:29 AM »
If private insurer want lower payment from dva, and dva say no, where else the patience can get the treatment? They will go to hospitals, and the hospitals will bill much higher amount (plus maybe other tests). So the reality is DVA is already the low cost solution for private insurers.

and if DVA says, no, what will happen to their business? They would only be left with the money losing government business. Thiry would take a 90% pay cut and fire thousands of employees? Let's not make it sound like Davita has nothing to lose by playing a game of chicken with the insurers. My view is that their negotiating leverage is a lot smaller than what the bulls think. In a negotiation where both sides have massive downsides if a deal doesn't get done, typically both sides make significant concessions, not just one.

Also, I picked 10% arbitrarily, the dynamics might be the same at 15% or 20%. Hence why I asked at what price the marginal patient is no longer profitable, because it's only at that point we can all agree for sure that it makes sense for DVA to say no and walk away. Based on some of the comments it sounds like with a 10% cut the company would still be printing money. what about 15 or 20%?

Between the gov't, davita, and insurers, who has the worst leverage? the insurers. DVA provides a life saving service. The Gov't needs to pay for this service or people will start dying. The insurers want to save money.

I don't see how the gov't sides with the insurers who are doing not much of anything, as opposed to DVA who is providing a subsidized service to the gov't (saving them money) while keeping people alive.
"Lethargy bordering on sloth remains the cornerstone of our investment style."
----------------------------------------------------------------------------------------
brk.b | irm | nlsn | pm | t | v | xom

Rasputin

  • Full Member
  • ***
  • Posts: 237
Re: DVA DaVita HealthCare Partners
« Reply #179 on: August 11, 2017, 09:12:48 AM »
If private insurer want lower payment from dva, and dva say no, where else the patience can get the treatment? They will go to hospitals, and the hospitals will bill much higher amount (plus maybe other tests). So the reality is DVA is already the low cost solution for private insurers.

and if DVA says, no, what will happen to their business? They would only be left with the money losing government business. Thiry would take a 90% pay cut and fire thousands of employees? Let's not make it sound like Davita has nothing to lose by playing a game of chicken with the insurers. My view is that their negotiating leverage is a lot smaller than what the bulls think. In a negotiation where both sides have massive downsides if a deal doesn't get done, typically both sides make significant concessions, not just one.

Also, I picked 10% arbitrarily, the dynamics might be the same at 15% or 20%. Hence why I asked at what price the marginal patient is no longer profitable, because it's only at that point we can all agree for sure that it makes sense for DVA to say no and walk away. Based on some of the comments it sounds like with a 10% cut the company would still be printing money. what about 15 or 20%?

I think you can do the math yourself, the numbers are available, it's a very transparent industry.  I have taken the time to provide numbers for 1 downside scenario that I think is reasonably possible.

I'm saying if the payors have to operate with 80 to 85 MLR, forcing providers to operate with 90 plus MLR will be seen as unreasonable especially when it hurts dialysis patients.  DVA and Fresenius will just stop opening new centers, closing unprofitable centers, while # of ESRD needs grow almost 4% per year.  It costs roughly $3 million per new center.