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HealthCare Partners to be bought by DaVita in $4.42-billion deal

The Torrance owner of physician groups in Southern California, Nevada and Florida is becoming the latest big medical provider swept up in a consolidation wave triggered by federal government efforts to tame rising healthcare costs.

May 22, 2012|Los Angeles Times

HealthCare Partners, the Torrance owner of physician groups in Southern California, Nevada and Florida, agreed to be acquired in a $4.42-billion deal by dialysis chain DaVita Inc., as large healthcare companies continue snapping up doctor groups and clinics.

HealthCare Partners, a privately held company led by founding physician and Chief Executive Robert Margolis, is becoming the latest big medical group swept up in a consolidation wave triggered by federal government efforts to tame rising healthcare costs.

The company, which has more than 50 medical offices and 550,000 patients across Southern California, has been a leader for years nationally at emphasizing coordinated patient care. Experts say that track record made it an attractive target for DaVita, the second-largest provider of dialysis services for patients with chronic kidney failure in the U.S.

"Medicare is searching desperately for ways to make the delivery system more cost effective, and groups like HealthCare Partners have been doing just that for 20-plus years so they have particular value going forward," said Glenn Melnick, a Rand Corp. health economist and a USC health-policy professor. "But I must say DaVita comes out of left field."

The biggest buyers lately have been the country's largest health insurers. UnitedHealth Group Inc. and WellPoint Inc. have been acquiring medical groups and clinics to diversify their businesses and enhance their market power.

Last year, UnitedHealth's Optum unit acquired the management arm of Monarch HealthCare, the largest physician group in Orange County, after acquiring two other medical groups in Southern California. WellPoint purchased Cerritos-based CareMore Health Group last year for about $800 million, and it is looking to expand CareMore's chain of clinics serving seniors with chronic medical conditions.

DaVita, based in Denver, operates or provides services at 1,841 dialysis facilities in the U.S. and had revenue of nearly $7 billion last year. Investors cheered the deal Monday, bidding up DaVita shares by $3.99, or 5%, to $84.80.

Margolis, who started HealthCare Partners in 1992, said he wasn't interested in merging with a health plan or hospital system because they have poor track records historically of managing doctors.

"Neither one of them have the culture or clinical inclination to truly take on accountability for coordinating care and improving people's lives," he said. "That doesn't mean they don't try."

HealthCare Partners had $2.4 billion in revenue last year, and its operating income was $488 million, according to the companies. Overall, it serves more than 667,000 managed-care patients through a team of 700 physicians either employed by the company or its affiliated medical groups.

Nationally, much of the merger activity stems from Medicare, which is moving away from fee-for-service payments that encourage volume rather than quality care or efficiency. Instead, Medicare is adopting new payment methods that reward medical providers that keep patients healthy and curb excessive spending.

If those so-called accountable-care organizations succeed at managing their pool of patients, Medicare allows them to share in the savings and boost their profits.

In December, Medicare selected HealthCare Partners to be one of its first such organizations, which were included in the federal healthcare law to help reduce government spending. The company has about 40,000 Medicare patients in California participating in that program.

Experts say it remains to be seen whether these shifts in reimbursement can be implemented on a wide enough scale to have a substantial effect on the country's $2.6-trillion healthcare market. These payment changes put a premium on having frontline clinicians who can monitor patients' needs and work with hospitals, nursing homes and other medical providers across a fragmented system.

"HealthCare Partners is well-positioned to take advantage of these dynamics," said John Ransom, a Raymond James analyst.

Monday's acquisition, which includes $3.66 billion in cash and about 9.38 million shares of DaVita stock, is expected to close in the fourth quarter. Margolis, 66, will continue running Healthcare Partners as a subsidiary of DaVita and he will also join DaVita's board of directors as co-chairman.

Melnick, the Rand analyst, said Margolis deserves credit for being an early believer in managed care and using his charisma to win over other physicians.

"If DaVita is smart," Melnick said, "they will use him to spread the gospel to other parts of the country to get other doctors to go along."

chad.terhune@latimes.com

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