The Health Care M&A Monthly: DaVita Diversifies --

Buys HealthCare Partners Holding For $4.22 Billion

 

May’s largest health care M&A deal caught most observers off guard. Renal care operator DaVita (NYSE: DVA) announced a $4.22 billion merger with HealthCare Partners Holding, LLC, a physician-centric provider of integrated care services in three states. What operational and financial sense, many wondered, could be made by combining an operator of dialysis clinics with a manager of physician practices? Stranger combinations do exist, such as Chemed’s (NYSE: CHE) two segments, Roto-Rooter and Vitas Healthcare, but DVA’s purchase of HealthCare Partners still leaves us scratching our heads. We’ll try to make sense of it by placing it in the context of larger trends in health care.

Based in Denver, Colorado, DaVita provides integrated dialysis services for patients suffering from end-stage renal disease (ESRD). It currently serves 124,000 patients through 1,800 facilities. On a trailing 12-month basis, DVA generated revenue of $7.3 billion, EBITDA of $1.5 billion and net income of $528.0 million. The company has grown over the years through various acquisitions to the point that it is the country’s second largest provider of dialysis services after Fresenius Medical Care AG & Co. KGaA (NYSE: FMS).

Based in Torrance, California, HealthCare Partners provides physician-centric integrated care services through its physician groups (700 physicians) and physician networks (1,800 physicians). It currently serves 667,000 Medicare, commercial and Medicaid patients in California, Nevada and central Florida. It has 111 affiliated hospitals, so there are many points of access to the provider network. The company has expanded through tuck-in acquisitions in the markets it currently serves. Although the company has some aspects of a managed care organization, such as contracting for capitated payments, it is not a licensed insurance company and therefore is not subject to the medical loss ratio (MLR) requirements of the Affordable Care Act. In 2011, the company generated revenue of $2.4 billion and EBITDA of $502.4 million. In that year, it had total care dollars under management of $3.3 billion.

What may have drawn DVA’s attention to HealthCare Partners Holdings (HCPH) is the fact that it is one of the 32 pioneer ACOs and the only multi-state ACO to be working with CMS. Unlike more traditional organizations that focus on fee-for-service and patient volume, HCPH’s model is to focus on integration of care, disease management and patient outcomes. Many of these themes are driving the current restructuring of the health care delivery system, but this hardly seems justification for the deal. Other than providing a general philosophy of managing patient care, it is unclear how HCPH’s model could be applied to DVA’s; moreover, the only overlap between the two companies is that HCPH currently manages the care of 1,100 of DVA’s patients, or under 1%..........Want to read more? Click here for a free trial to The Health Care M&A Information Source and download the current issue today