CEO's Corner: Why Health Care Reform Makes Dialysis Firm DaVita 'Nervous'

Kent ThiryNow that President Obama's landmark health-care legislation has cleared both the U.S. Senate and House, many patients and businesses are seeking clues on how the final outcome could hit their wallets. With key differences in each bill, the legislation must be merged before Obama can sign off on it.The wait has some businesses on pins and needles. According to the 2009 Business Leaders Survey by research firm Business Forward, nearly 9 out of 10 business leaders already rank health-care costs as their biggest business concern. Whatever the outcome of the health care overhaul, there is sure be a significant economic impact that could affect companies' bottom lines.

%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% DailyFinance chatted with Kent Thiry, CEO of dialysis service provider DaVita (DVA), to discuss his view on the current legislation and the company's explosive stock growth. Here are excerpts of the conversation:

DailyFinance: For our readers who may not be familiar with DaVita, can you describe your business model?
Kent Thiry: Most of us have a couple of kidneys. These kidneys are amazing organs -- some of the most complex, sophisticated organs in the human body, which is why they've been so difficult to replicate compared to other organs like the heart and lung and others. And when the kidney fails, you need to go on dialysis, unless you're one of the fortunate few to get a transplant. And we operate the centers that people come to if their kidney fails and they can't get a transplant.

And what we do in our centers is take care of these people typically three times a week -- four hours each time -- where we take their blood out of their body, clean out all the toxins that they would normally clean out themselves through the act of urinating. But you don't do that anymore once you've lost your kidney function. And we take that part out, take the toxins out and then put the blood back in with some other nutrients.

We do that at 1,500 centers across America for 115,000 patients every single week.

As a health care service provider, what's your view on the health care legislation currently being debated in Congress?
For us, 85% of our patients are in Medicare and the government doesn't cover the full cost of care. So the other 15% have to pay extra in order to subsidize and make up for the government deficit. So, if a Medicare extension means that human beings who are not getting good care today can get good care, that's great. But in our particular community -- the dialysis community -- we already take care of everybody and for us it could be quite economically dangerous.

In the health-care legislation, the parts that are very exciting for us are the parts that have to do with the government allowing us to provide more integrated care. Because we have done a number of experiments with the government over the last three years and proven that by providing more integrated care, we can simultaneously dramatically reduce the total cost of care and improve quality. And so that's the positive part.

The negative part? To the extent that we end up with more patients at Medicare rates, then we have a lot of centers that are at risk of being closed.

Your company has had a string of positive earnings results and you recently boosted your guidance. Could the outcome of the legislation hurt your outlook?
Depending on what they put in or take out the legislation could be very bad for our patients and caregivers or neutral, or there is a small chance that it could even be good. But we are quite nervous about the whole thing. Congress is appropriately so focused on hospitals and physicians and insurance companies because those segments are much, much bigger than dialysis is. But sometimes when they write a few pages to cover one of those big segments, they do some serious damage or disrupting of our little community.

What are you most concerned about?
What we're most concerned about is if they pass legislation which leads to a reduction in the number of private patients and an increase in the number of Medicare patients. Because we rely on our tiny percentage of private patients to offset the deficit traded by the big majority of Medicare patients for which the government does not cover the costs.

It's kind of ironic, when people talk about private insurance premiums going up and that being a sign that private insurance can't work right. In many cases the private insurance premiums go up because the private patients are being charged to make up for the Medicare deficit. So that's the part that scares us the most.

On the flip side, what we would be happiest about is if the government allows us to operate more out an integrated care model. Right now, most of American health care, including most kidney care, is reimbursed on a very fragmented basis.

We've proven that we can be the general contractor for taking care of these dialysis patients, not just doing their dialysis, but also trying to keep them out of the hospital; trying to make sure that they get to the right cardiologist or the right endocrinologist because more than half of our patients also have diabetes; more than a third have hypertension and more than half have cardiovascular disease.

So we can become the kind of coordinator that most Medicare beneficiaries don't have. These poor people trying to coordinate their own care is not feasible and very scary for them and it ends up being very expensive for the taxpayer because they end up going to the hospital far more often than they should.

So the part of the legislation than excites us the most are the parts that will allow us to do more of the integrated care for patients across all of their conditions instead of just providing dialysis care.

Q: DaVita's stock has shown explosive growth over the past decade. What would you attribute that to?
DaVita 10-year chart
I think it's four things. The first one is probably just dumb luck. But numbers two, three and four are loyalty, choice and value.

Loyalty is because we have created in many of our 1,500 centers a special kind of work environment where there is a higher level of mutual emotional commitment between staff and them and the patients and between them and the physicians. Because of that we have unusually high retention rates that patients and physicians that get exposed to us tend to want to keep working with us and/or being taken care by us. So the loyalty factor has played out very strongly over the last three, five or 10 years.

The second category is choice. For physicians or patients looking to make a new choice or patients making a new choice where they go on the web and look at where they talk to other patients where they go the public databases and check out clinical outcomes, where they will see that in every category that DaVita is among the best or is in fact the best category after category. You put all of that together and a disproportionate percentage of physicians and patients are making their first big decision or renewal decision about who they are going to primarily work with or be taken care of by. We're winning a lot of those battles.

The final category is value is quality. DaVita has been a successful innovator. I'll give you two examples. If you're going onto dialysis, you need to have an access created. What that means is that we have to have a way -- a hole, if you will, to take the blood out of your body and putting it back in. Once you do that those things can get clotted, they can get tired, they can get used up; things can go wrong.

We're one of the first organizations to start doing focused access centers where we have 70 operations that just take care of these patients and those all important access points for taking their blood in and out. And in that area, we're by far the biggest in America -- three times bigger than the nearest dialysis company. And this gives patients a higher quality, more focused result that saves taxpayers a lot of money because it's far cheaper than hospitals or most surgical sites.

A second example is pharmaceuticals. Our typical dialysis patient -- if you can imagine every day having to take eight different drugs because again our patients have cardiovascular disease, diabetes, hypertension, all on top of kidney failure. And these poor human beings have no one helping them try to coordinate that all. We started our own specialized kidney-care pharmacy. It's by far the largest in the world. It's about 20 times bigger than the nearest competitor. And in that pharmacy we now provide all the drugs that our patients need -- for 20,000 of our patients.

Q: What advice would you give to someone who is at risk of kidney disease?
This is so important. See you physician regularly and get your blood tested but also ask to have your kidney health measured as well.
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