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DaVita slips in patient growth during second quarter, but sees improvement in productivity
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DaVita Inc. reported second-quarter earnings this month with positive news in productivity mixed with an ongoing concern about a drop in overall patient growth.
The Denver-based company just recently promoted Javier Rodriquez to CEO, replacing long-time company chair and CEO Kent Thiry. Thiry remains as the chair of the company’s executive board.
“We saw strong financial performance in the second quarter,” said Rodriquez in his first earnings call to DaVita investors on August 1. “On the positive side, we had a sequential increase in revenue per treatment and a sequential decrease in our cost.”
Rodriquez said revenue per treatment “continues to be in line with the revenue guidance we provided at the beginning of the year. Commercial rates are slightly up year-over-year and the Medicare rates are growing in line with our expectation,” he said, referring to CMS’ proposed rule to raise the payments for dialysis treatments in 2020. “The team performed well on cost management with solid improvement in the quarter, primarily due to productivity improvements.”
Patient growth slips
Rodriquez said that he and the company were “disappointed,” however, with an ongoing slowdown in non-acquired growth, which “continues to fall below our expectations. While some of the decrease is related to the slowdown in industry patient growth, there is no getting around the fact that we’re underperforming the industry,” said Rodriquez. “The question we've been working through are, what is the potential for improvement and when will we see the results? Unfortunately, our response is dissatisfying. We’re not ready to commit to specific numbers or timing ... We’re evaluating opportunities market by market and trying to balance sometimes conflicting goals of growth, productivity and capital efficiency.”
Company chief financial officer Joel Ackerman said during the call that the number of centers being build by DaVita this year will be lower than expected. “[O]ur current forecast for new center construction for 2019 is approximately 80 centers. This will result in fewer certified centers reported next year.”
The company has only signed leases for two new facilities in California this year, a state hard hit by legislators trying to control profits made by large dialysis organizations like DaVita. Those two starts compare to a typical full year of closer to 25 to 30 clinics that are opened each year, Rodriquez said. “This will have a negative growth consequence in the future but will reduce capital deployment in a market where we feel it is not prudent to invest at this time, given the threats of disruption” from union groups, he said.
Trump initiative, preparing for new approaches to care
On the Trump administration initiative to reduce the occurrence of ESKD and send more patients to home dialysis and transplant, Rodriquez said the company is “well-positioned, well aligned, [but] it’s early and the economic impact is uncertain ... we’re well aligned with the administration’s overarching goal to provide better education to patients, to increase home hemodialysis and to increase the number of transplants.”
Rodriquez said the company has strong partnerships with nephrologists, and “we believe we’re well positioned across the continuum of patient care. We’re the largest provider of home dialysis in the country and have a full integrated technology platform to make it easier for patients to treat at home.”
When asked by an analyst whether the push for more patients to choose home dialysis could mean more vacancies in company clinics, Rodriquez said the shift will be gradual to home therapies and the company does not expect to start closing clinics as a result.
“ ... You’d have to look at this market-by-market, and there could be some markets where our in-center capacity becomes less utilized as a result of this,” Rodriquez said. “But if you look at it in general across the country, we don't expect to create any sort of ... underleveraging of the centers through the growth of home. We think there will be enough industry growth to satisfy the increased shift to home without emptying out centers.”
Based on one proposal released by CMS, called the ESRD Treatment Choices model, DaVita would see the proposed rate increase of 3% in year one for home dialysis – awarded based on meeting increases in home patient census – as an approximately $5 million to $10 million revenue pick up for the company in 2020, which will decline in subsequent years as the rate increase goes away.
“The second component, which is probably the most important, is the potential for a higher or lower revenue driven by performance on home and transplant,” noted Rodriquez. “CMS expects this to have a negative impact on Medicare reimbursement to the dialysis industry. Given that the dialysis industry already loses money on Medicare reimbursement, we will have to work with [Centers for Medicare and Medicaid Innovation] CMMI to ensure sustainably long-term economic growth.
“However, if it remains as announced and if 50% of our clinics nationwide are part of the demonstration, we should expect to also have some negative impact on our Medicare reimbursement. The community is working hard to better understand the rule and its implications. We intend to provide input in a 60-day common period to highlight where the regulation may be improved.” –by Mark E. Neumann
Reference:
http://pressreleases.davita.com/2019-08-01-DaVita-Inc-2nd-Quarter-2019-Results
Disclosure: Rodriquez reports no relevant financial disclosers.