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DaVita estimates $25 million to $40 million impact on revenue if California restricts dialysis profits
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If recently re-introduced legislation in California restricting dialysis profits and use of third-party payers to cover Medicare premiums becomes law, dialysis provider DaVita Healthcare Partners could see up to $40 million in lost revenue, company CEO Kent Thiry said last week.
“As you can imagine, the legislation moves and there's different ways to interpret, and of course you can never predict how it'll play out,” Thiry said in response to an analyst’s question during the company’s fourth quarter earnings call on Feb. 14. “But to try and be constructive and give you a range, I think it would be useful to have somewhere between $25 million to $40 million as a range.”
Thiry said the dialysis services company, which reported $2.8 billion in revenue for 2018, will continue to keep a close eye on AB 290, introduced on Jan. 28 by state Assemblyman Jim Wood, D-Santa Rosa. His bill is similar to one vetoed by then California governor Edmund G. “Jerry” Brown Jr. last October. Voters also turned down Proposition 8 a month later, a ballot initiative that would have capped dialysis clinic profits at 15% over patient care costs.
DaVita said it spent $30 million in the fourth quarter of 2018 countering union policy efforts, including the California ballot initiative, and spent $93 million overall last year on advocacy efforts.
Boost in treatments
DaVita reported an increase in revenue for the fourth quarter of 2018, including $388 million in income and had $307 million in cash flow. While the company saw increases in treatments in the fourth quarter compared to the same quarter in 2017, DaVita Kidney Care CEO Javier Rodriquez said it is monitoring growth in the number of new patients starting dialysis. “As we mentioned earlier this year, some recent data suggests that ESRD industry growth may be slowing, but we don’t know whether this is a short-term impact of increased transplantation availability or whether there is a long-term implication ... we plan to build fewer centers to keep pace with patient demand.”
Thiry added that “the data is quite clear that nothing dramatic happens quickly ... we’re not predicting any significant change in either direction of the (patient growth) trend. But recognize that there is an awful lot of dynamism underneath. On the one hand, treatment for diabetes and hypertension, some of the primary causes of kidney failure, are getting better. So, you could argue that would lead to a reduction in dialysis patients. On the other hand, the African-American and Hispanic populations are growing significantly in America, and they are far more likely to have kidney disease and kidney failure. So that pushes (the incident rate) exactly in the opposite direction.”
Company CFO Joel Ackerman said growth in the number of treatments per day in the fourth quarter was 3.1% and normalized nonacquired growth was 2.6%. “We continue to expect non-acquired growth (in treatments) to range between 2.5% and 3.5% in 2019,” he said.
Revenue per treatment was down $0.65 in the fourth quarter compared to the previous quarter, partly due to changes in the use of calcimimetics. “If you exclude the impact of calcimimetics, revenue was up a little more than $1 per treatment sequentially,” Ackerman said. Commercial mix revenue was also down slightly in 2018 compared to the previous year – from 10.5% in 2017 to 10.4% in 2018. Revenue was also negatively impacted by the company’s wind down of its DaVita Rx pharmacy business, including an approximately $100 million loss from fourth quarter 2017 to fourth quarter 2018, Ackerman said. Patient care cost per treatment was also up $1.26 when looking at 2017 vs. 2018 fourth quarter costs, primarily due to an increase in professional fees, Ackerman said. “We expect operating income to be between $1.54 billion and $1.64 billion” for 2019, he said, including 3% to 4% U.S. total treatment volume growth, 0% to 1% U.S. revenue per treatment growth and 0.5% to 1.5% U.S. cost per treatment growth.
Thiry said increases in Medicare payments per treatment, now in place for 2019 and expected to go higher in 2020, should help the company’s revenue picture. “... The next few years Medicare year-over-year fee for service rate increases will be better than the almost zero increases over the last few years,” he said.
As of December 31, 2018, DaVita provided dialysis services to approximately 227,700 patients at 2,905 outpatient dialysis centers, of which 2,664 centers were in the United States and 241 centers were in 9 countries outside of the United States. During the fourth quarter of 2018, the company opened 34 new dialysis centers, acquired 13 dialysis centers, closed two centers and sold one center in the United States. International dialysis operations acquired 10 dialysis centers, developed two dialysis centers and sold 22 dialysis centers during the fourth quarter of 2018. – by Mark E. Neumann
References:
http://pressreleases.davita.com/2019-02-13-DaVita-Inc-4th-Quarter-2018-Results