Author Topic: DVA – DaVita HealthCare Partners  (Read 215685 times)

Read the Footnotes

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Re: DVA – DaVita HealthCare Partners
« Reply #270 on: September 27, 2017, 11:58:54 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 RN’s 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 don’t like the CEO and I think he has outlived his usefulnes, but he regards DVA as his baby (somewhat justifiable so).

I'm actually not bullish on DaVita, but . . .

If this is a commodity, how do you explain the oligopoly or duopoly then? Duopoly typically does not develop or endure in commodity businesses with no moats.

Do you believe there is the potential for economies of scale in this business?
What about the fact that high volume centers tend to produces better medical outcomes in most treatment areas?


roark33

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Re: DVA – DaVita HealthCare Partners
« Reply #271 on: September 27, 2017, 12:17:45 PM »
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.



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One part of this analysis that doesn't get as much focus is the lobbying power of the insurance companies.  The main reason I don't own DVA right now, despite being ok with the payor relationship is I think the insurance companies have now decided that they are strong enough to push back against the AFK, and are fine with DVA's threat to go after the 30 month rule.  The insurance companies are large enough now that they will lobby to keep a lid on that limit.  DVA is a small fish and the insurance companies have decided to circle the wagons on this issue.  My two cents.

Jurgis

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Re: DVA – DaVita HealthCare Partners
« Reply #272 on: September 27, 2017, 12:24:28 PM »
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

Did they release "Twenty Years After"?  8)

"Human civilization? It might be a good idea." - Not Gandhi
"Before you can be rich, you must be poor." - Nef Anyo
"Money is an illusion" - Not Karl Marx
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MrB

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Re: DVA – DaVita HealthCare Partners
« Reply #273 on: September 27, 2017, 02:24:21 PM »
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One part of this analysis that doesn't get as much focus is the lobbying power of the insurance companies.  The main reason I don't own DVA right now, despite being ok with the payor relationship is I think the insurance companies have now decided that they are strong enough to push back against the AFK, and are fine with DVA's threat to go after the 30 month rule.  The insurance companies are large enough now that they will lobby to keep a lid on that limit.  DVA is a small fish and the insurance companies have decided to circle the wagons on this issue.  My two cents.
I think the lobbying is a big part of the story and also an important factor in the research process, because just about every piece of research, study, opinion piece, complaint, legal opinion, you name it seem to have some lobbying behind it. For Davita "Kidney Care Partners" seems to be the main one. http://kidneycarepartners.com/kcp-partners/ Hell, I struggle to keep my own bias in check.

Having said that lobbying has been a big part of the story since the birth of the industry in 1971 (see expert to follow for a rather unorthodox example!). Also I think one has to ask why DVA/FSN have been able to establish an oligopoly in the presence of significant lobbying power of other industry players, including the private insurers. In my mind the latter always had significant power.

Not to discount your point about the private insurers' power, it's a valid point. However, the issue around the AKF is not so simple. It has precedent and operate under "legal cover" from shortly after the the changes brought about in 1996 as mentioned earlier in the thread. This fight is not new and any sudden changes in policies around the AKF will cause significant disruption to a big part of the patient population. Lastly the very fact that the only real beneficiary in disrupting the AKF model is the insurance industry counts against it especially since the argument from the patient side is that these are "efforts by certain health insurers to discriminate against individuals with ESRD" as you can see from this (biased) letter
http://kidneycarepartners.com/wp-content/uploads/2014/10/Patient-Protection-and-Affordable-Care-Act-HHS-NBPP-for-2018-October-6.pdf

Not saying it cannot happen-just that I'm thinking its easier said than done! Again, it's complicated...hence the moat?

Taken from "Origins of the Medicare Kidney Disease Entitlement: The Social Security Amendments of 1972"
https://www.ncbi.nlm.nih.gov/books/NBK234191/
"Glazer, at a New York NAPH press conference on November 3, the day before the
hearing, had announced his intention to undergo dialysis before Chairman Mills
and the Ways and Means Committee. The National Kidney Foundation opposed
the effort—directly in discussions with Glazer and indirectly through Eli
Friedman, advisor to NAPH. Schreiner and Plante had been lobbying Congress
assiduously, seeking support for kidney treatment programs from all sources—
the tax committees, the health legislative committees, and the appropriations
committees. They feared that an accident would cancel all the progress they had
made, and Schreiner stressed this possibility when he tried to dissuade Glazer
from dialyzing before the committee. Given these activities, Schreiner's incredulity
was all the greater when he received a telephone call at home on the evening
before the hearing. Glazer had arrived in Washington, D.C., from New York, and
was calling to ask Schreiner if a Georgetown University dialysis machine could be
brought to the hearing room the next morning for use at that time (Institute of
Medicine, 1989). Schreiner, suppressing his anger, trucked a machine over to the
Longworth House Office Building on Capital Hill. Barred from attending the hearing by the National Kidney Foundation, which did not wish him to lend its prestige to the event, he sent a Georgetown nephrology fellow, James Carey, to act as attending physician....


« Last Edit: September 27, 2017, 02:26:34 PM by MrB »

sleepydragon

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Re: DVA – DaVita HealthCare Partners
« Reply #274 on: September 27, 2017, 02:48:45 PM »
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 he 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.

Who is the "he" you are referring to? Thanks!

sleepydragon

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Re: DVA – DaVita HealthCare Partners
« Reply #275 on: September 27, 2017, 03:02:41 PM »
Maybe this is the moat: I am keeping a lot of patient alive, and they can't go anywhere else. You want to pay less, you need to move these people or you have to step over their dead bodies.

maybe I cut price for you, but I can't take on new patients anymore as I am not making much here. The new patients have no place to go and will cost you 10x more in hospitals.

Read the Footnotes

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Re: DVA – DaVita HealthCare Partners
« Reply #276 on: September 27, 2017, 04:09:26 PM »
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 he [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.

Who is the "he" you are referring to? Thanks!

My apologies for the confusing use of quotes from the thread. I was reponding to posts about Kent Thiry, CEO of DaVita. Years ago he had the respect of many industry experts I met. I was never really convinced or swayed by all the praise I heard, but I am always interested to hear details of a reversal in common opinion, whether about companies themselves or company leadership.

Of course, this is also fertile ground for mockery without regard for serious analysis, but John Oliver seems to have the funny stuff covered for us on this subject.

Read the Footnotes

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Re: DVA – DaVita HealthCare Partners
« Reply #277 on: September 27, 2017, 04:15:39 PM »
Maybe this is the moat: I am keeping a lot of patient alive, and they can't go anywhere else. You want to pay less, you need to move these people or you have to step over their dead bodies.

maybe I cut price for you, but I can't take on new patients anymore as I am not making much here. The new patients have no place to go and will cost you 10x more in hospitals.

These are good points, but they address market demand and price inelasticity, whereas a moat refers to a barrier to new entrants or supply. These desirable demand attributes should attract entrants unless their is a barrier to entry.

sleepydragon

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Re: DVA – DaVita HealthCare Partners
« Reply #278 on: September 27, 2017, 05:02:35 PM »
Maybe this is the moat: I am keeping a lot of patient alive, and they can't go anywhere else. You want to pay less, you need to move these people or you have to step over their dead bodies.

maybe I cut price for you, but I can't take on new patients anymore as I am not making much here. The new patients have no place to go and will cost you 10x more in hospitals.

These are good points, but they address market demand and price inelasticity, whereas a moat refers to a barrier to new entrants or supply. These desirable demand attributes should attract entrants unless their is a barrier to entry.

Scale/Size is maybe a moat. As a patient, he/she will choose one that has high ratings (life at stake!) and hopefully is close to work/home. It will take time and a lot of efforts for any new entrants to establish that track record of good ratings. It's also hard to earn a profit without scale (the new player needs to have enough patients that are from private insurance and can't reject anyone from lower paying medicare).

sleepydragon

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Re: DVA – DaVita HealthCare Partners
« Reply #279 on: September 27, 2017, 05:14:35 PM »
Goldman Sachs' US analyst has a sell ratings on DVA for the last two years. The Analyst left earlier of 2017, but I think now his Associate took over and still have the Sell rating. Anyway, they have nothing good to say about DVA. :) However, here is what' Goldman's europe analyst, who has a conviction buy rating on FMS, says in his research note about FMS:

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We hosted Mike Brosnan, CFO of Fresenius Medical Care, at our 6th German Corporate Conference ...
3) Constructive conversations with commercial payors: In spite of commentary from peers to the contrary, management stressed that its relationships with
commercial payors have remained constructive ytd, and that the company has not witnessed the tensions that peers have talked about to-date. Importantly, FMC is
increasingly working with payors to deliver total care savings by reducing hospitalizations: all three of the major contracts renegotiated ytd included an element of value-based care. The company has now begun renegotiating contracts with the smaller regional payors, ie the Blues; these discussions will conclude by
year-end.
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