DVA – DaVita HealthCare Partners

[cubsfan]

I like Chanos, but this seems like a terrible stock to short.
A smart management team can absolutely kill you with their options when you generate so much cash:
buybacks, debt reduction, divestures, cost cutting, etc.
And you're shorting the survivor in an oligopoly business.

Reminds of when Dave Einhorn presented and shorted Moody's in 2010.
Chanos and Einhorn are really bright and convincing, but they can be too smart for their own good.

The only thing DVA can't control is the reimbursement rate.

[Gregmal]

I like Chanos, but this seems like a terrible stock to short.
A smart management team can absolutely kill you with their options when you generate so much cash:
buybacks, debt reduction, divestures, cost cutting, etc.
And you're shorting the survivor in an oligopoly business.

Reminds of when Dave Einhorn presented and shorted Moody's in 2010.
Chanos and Einhorn are really bright and convincing, but they can be too smart for their own good.

The only thing DVA can't control is the reimbursement rate.

Two of the cardinal rules of shorting, at least the way I learned, was never short on valuation alone, or when you need something to change in order for the short to work out. When you look at a lot of the mistakes of guys like Chanos(VRX was hailed as a success but he shorted in like 2011 in the 50's and had to hold for 5 years), Einhorn (AMZN and many more) and Ackman(HLF) a lot of pain could have been avoided simply adhering to this. DVA would fall into the same category. Barring a major regulatory change, this will likely be a bad short.

[sleepydragon]

It's year end. Chanos probably need to do some fund raising so he can have a good Christmas. And it won't hurt for him covering some shorts to harvest some tax credit

[sleepydragon]

I just talked to a friend who used to cover healthcare and used to follow DVA for many years.
It seems to me the thesis can be summarized as following:
1. Insurance companies don't really care much about the payments to dialysis companies. It's not much compared to other stuffs they have to pay. And they know their payment is capped, which is more important to them.
2. Govt has be very careful and will fight an uphill war to lower payment. Because they are not dealing with a single drug company. They are dealing with all these mom and pop shops and low income people who depend on it. A lot of administrative burden for them to do that :)Plus, the profit is not excessive.
3. They are a duopoly. They have a lot of power in controlling their input costs such as paying for the drugs needed.
4. The current payment scheme is written into law for a long time. It's unlikely going to change.

 

[DooDiligence]

I just talked to a friend who used to cover healthcare and used to follow DVA for many years.
It seems to me the thesis can be summarized as following:
1. Insurance companies don't really care much about the payments to dialysis companies. It's not much compared to other stuffs they have to pay. And they know their payment is capped, which is more important to them.
2. Govt has be very careful and will fight an uphill war to lower payment. Because they are not dealing with a single drug company. They are dealing with all these mom and pop shops and low income people who depend on it. A lot of administrative burden for them to do that :)Plus, the profit is not excessive.
3. They are a duopoly. They have a lot of power in controlling their input costs such as paying for the drugs needed.
4. The current payment scheme is written into law for a long time. It's unlikely going to change.

This.

---

I do somewhat agree with Chanos' idea concerning Caremark/Aetna.

His remark about payers finding more innovative ways NOT to pay seems relevant re: Amazon becoming a drug dealer (never disappoint the customer.)
(maybe he'll find a way to express pessimism on Amazon's aspirations?) 

[cubsfan]

I just talked to a friend who used to cover healthcare and used to follow DVA for many years.
It seems to me the thesis can be summarized as following:
1. Insurance companies don't really care much about the payments to dialysis companies. It's not much compared to other stuffs they have to pay. And they know their payment is capped, which is more important to them.
2. Govt has be very careful and will fight an uphill war to lower payment. Because they are not dealing with a single drug company. They are dealing with all these mom and pop shops and low income people who depend on it. A lot of administrative burden for them to do that :)Plus, the profit is not excessive.
3. They are a duopoly. They have a lot of power in controlling their input costs such as paying for the drugs needed.
4. The current payment scheme is written into law for a long time. It's unlikely going to change.

That's good input. The rate has to be attractive enough for the DVA and others to keep expanding. You sure don't
want the gov running this type of business. Just look at the VA Hospitals.

[Spekulatius]

I just talked to a friend who used to cover healthcare and used to follow DVA for many years.
It seems to me the thesis can be summarized as following:
1. Insurance companies don't really care much about the payments to dialysis companies. It's not much compared to other stuffs they have to pay. And they know their payment is capped, which is more important to them.
2. Govt has be very careful and will fight an uphill war to lower payment. Because they are not dealing with a single drug company. They are dealing with all these mom and pop shops and low income people who depend on it. A lot of administrative burden for them to do that :)Plus, the profit is not excessive.
3. They are a duopoly. They have a lot of power in controlling their input costs such as paying for the drugs needed.
4. The current payment scheme is written into law for a long time. It's unlikely going to change.

That's good input. The rate has to be attractive enough for the DVA and others to keep expanding. You sure don't
want the gov running this type of business. Just look at the VA Hospitals.

I am fairly certain that the costs would increase and potentially double, if the government would run this business.

[RichardGibbons]

I am fairly certain that the costs would increase and potentially double, if the government would run this business.

Just out of curiosity, what about DaVita makes you think its costs would double?  Healthcare expenses across the world vs. the USA shows conclusively that one thing the government does much more inexpensively than private business is medicine, so I'm curious why you think DaVita's doesn't fit that model.

[cubsfan]

DaVita is all about efficiency and high quality of care and lower cost. Seems the complete opposite of the
federal government. It would be hard for me to imagine a government run dialysis business caring one lick about
throughput. Plus this dialysis business is very people intensive with highly skilled personnel.

[RichardGibbons]

Makes sense.  Thanks, Cubs.