Optum buying DaVita Medical Group

Modern Healthcare is reporting that United Health Group’s Optum is buying DaVita Medical Group for $4.9 billion.

This is a blockbuster deal nationally but has particular near term implications for those markets where DaVita Medical Group currently works.

DaVita Medical Group’s physician network provides care to approximately 1.7 million patients every year via its 300 clinics in Florida, California, Colorado, Washington, Nevada and New Mexico. The group also runs 35 urgent-care centers and six outpatient surgery centers.

In Washington State, DaVita recently acquired The Everett Clinic and Northwest Physicians Network.  Those entities will now apparently be owned by United.

Recently, DaVita has struggled to provide medical services in any model outside of the traditional fee for service care model.

In a conference call in 2016, DaVita specifically cited The Everett Clinic as having too low reimbursement volume in fee for service contracts as a threat to its finances.

Moreover, DaVita has been losing money for some time.  One reason cited in their 4th quarter 2016 call was “changes in regulations or enforcement of regulations.”  In other words, some of DaVita’s strategies were causing lawsuits, regulatory action by HHS, and a Department of Justice investigation were all eroding some of their reimbursement strategies.

From a State of Reform story on this from earlier this year.

Cited on the results call was the temporary restraining order against an HHS regulation that limits 3rd party payment of premiums. HHS specifically targeted dialysis facilities, such as DaVita, with that regulation for using an intermediary to pay premiums for patients. The scheme went like this:

  • Dialysis treatment companies like DaVita (and Fresenius) made contributions to the American Kidney Foundation (AKF)
  • AKF would then pay for premiums for patients in need of dialysis
  • Treatment facilities like DaVita would steer patients to coverage, paid for by AKF

That’s a no-no, because those with a potential financial gain from the payment of premiums can’t be 3rd party payers, directly or indirectly. Thus, the HHS rule clarifying the issue, and perhaps more significantly, activity by the  Department of Justice looking into activity by DaVita and Fresenius on the same topic.

The scheme that led to activity at multiple federal agencies is more problematic than improper 3rd party payments. It included enrolling people eligible for Medicaid and/or Medicare onto private insurance — at no cost to the patient thanks to the 3rd party payment — because private insurance, including in the individual market, reimburses at significantly higher rates than government programs. Same patient, same treatment, much higher reimbursement to the dialysis provider.

The Modern Healthcare article connected this sale to the operational losses DaVita was incurring.

The dialysis provider put DaVita Medical Group up for sale after it posted a $5 million operating loss in the third quarter. UnitedHealth said the deal will allow the medical unit to focus on delivering high-quality care while Optum handles the administrative work.