DaVita (NYSE: DVA) is the second largest provider of dialysis services in the United States with about 1/3 of the market. The company has more than 1,300 outpatient dialysis facilities and 800 acute units hospitals.
DaVita is heavily dependent on both Medicare and private insurance programs. Over 87% of its patients are covered by Medicare, making the government program the single largest source of revenue for the company. Any changes to Medicare reimbursement policy for dialysis or related services could have a substantial impact on the company's performance - and dialysis has been a frequent target of Medicare budget cuts, most of which have been successfuly parried by coalitions dialysis companies, drug manufacturers, doctors and patient groups. Although only 13% of DaVita's clients pay using private insurance, DaVita charges these patients 2 to 3 times more than those affiliated with Medicare, and most of the company's margin comes from these patients. DaVita is facing pressure from insurance companies to lower its rates for privately insured patients. If the insurance companies are able to negotiate better rates, it could have a disproportionate impact on the company's earnings.
Dialysis services are used by people diagnosed with chronic kidney disease (CKD), also known as end stage renal disease. Dialysis removes toxins, fluids and salt from the blood, and patients usually require dialysis at least three times per week for the rest of their lives or a kidney transplant.
DaVita's revenue comes from fees charged for dialysis sessions and the sales of complementary treatment drugs such as Epogen. Because dialysis is a life-sustaining treatment, Medicare covers treatments for everyone (including those under 65). This coverage begins within three months for those not covered by a commercial health insurance plan and within 33 months for those initially covered by a commercial payer. Payment for dialysis is usually 2-3x higher for commercial payers than for Medicare.
In 2009, DVA generated a net income of $422.7 million on revenues of $6.11 billion. This represents a 13.0% increase in net income and a 7.9% increase in total revenues from 2008, when the company earned $374.2 million on $5.66 billion in revenue.
DVA is divided into two business segments:
While DaVita and its competitor Fresenius together account for more than 65% of the outpatient dialysis centers in the United States, the industry is competitive in terms of acquiring existing centers. About half of the centers not owned by these two players are owned or controlled by non-profit organizations or hospitals, and physicians can also buy centers.