The more things change, the more they stay the same.
The merger between Liberty Dialysis and Renal Advantage Inc., announced in December of last year, symbolized a way forward for medium dialysis organizations to stay competitive in a bundled payment environment, share technology and management expertise, and benefit from the buying power of a larger patient population. It was a potential model for other MDOs trying to keep an arms-length away from being another acquisition target.
In announcing the merger, new CEO Mark Caputo said, “The completion of our deal signals a new era in the dialysis industry, uniting two patient-focused, physician driven and employee-oriented companies with great autonomy to build their brands," he said. "This transaction allows us to take advantage of the combined financial strength, purchasing power, and systems investment of two leaders in the industry… Our full expectation is that our teams will continue to work well together in the years to come."
Said Renal Advantage CEO Michael Klein at the time of the merger, “As we begin a new year with change on the health care horizon, we are well positioned for robust growth in the future through this deal. By focusing on the patient, partnering with talented nephrologists, and recruiting the best caregivers, we will optimize patient outcomes through active participation of both patients and caregivers.”
All that changed last week when the merged companies, now listed as Liberty Dialysis Holdings, agreed to be acquired by Fresenius Medical Care for $1.7 billion.
Sounds like the 'new era in the dialysis industry" will have to wait, and we see yet another buyout, with two megaproviders competing for 'king of the hill' and tipping the scales even further on the survivability of MDOs.
Who's the king?
Are these acquisitions about improving patient care, or just about ego? There is a history between Fresenius and DaVita competing for the No. 1 position. It started in December 2004, when DaVita bought Gambro AB's U.S. dialysis clinics for $3.1 billion. Not to be left behind, Fresenius bought Renal Care Group two years later in March 2006 for $3.5 billion, keeping its No. 1 position as the largest dialysis provider.
Flash forward seven years later. In February, DaVita Inc. announced it had signed an agreement to buy DSI Renal Inc. for almost $690 million. DSI operates 106 dialysis centers and, when the sale is finalized later this year, will increase DaVita's patient count by 8,000 patients. That moved the 'Give Life' provider within 2,000 of Fresenius' 137,325 patients (all numbers as of May 2011).
Then came Fresenius' Liberty/Renal Advantage acquisition, adding 19,450 patients to their total patient population. That secured FMC's 'king' status – at least for now.
Renal Advantage and DSI Renal represent spin-offs from the DaVita and Fresenius acquisitions in 2004 and 2006. Government officials were concerned the acquisitions created monopolies in some areas of the country, and required both Fresenius and DaVita to divest itself of certain clinics. From that sell-off, DSI Renal, originally headed by nephrologist Jerry Tannenbaum, and Renal Advantage, headed by Michael Klein, were born. Now both are owned again by large providers, just different ones.
MDOs: An endangered species
Between the two acquisitions, only American Renal Associates, U.S. Renal Care, and Innovative Dialysis Systems remain as independent, non-hospital-based, for-profit MDOs with more than 3,500 patients each (Together, they treat around 16,000 patients). They would seem to likely be in the target range for acquisitions down the road.
Both Fresenius and DaVita offer good dialysis care and have made great strides in improving quality over the years. Dialysis is a business; consolidation in this industry, like in other areas of health care, has been going on for years. Fresenius announced earlier this year that it had capital to invest (it also bought American Access Care at the same time it bought Liberty/Renal Advantage). Recently, it also bought the Critline product line, and will likely continue to buy other companies to strengthen its position in the market in response to the new ESRD bundled payment system.
But is this acquisition race good for patient care? Both Liberty and Renal Advantage have solid reputations in the renal community, with strong home dialysis programs and employees who say positive things about their work environment. Both Klein and Caputo are well respected and have focused on quality. On Liberty's website, testimonials flash on the screen from nurses and physicians who laud the company for offering "autonomy' and allowing the time needed to customize patient's prescriptions. Will that—and can that—approach for a company that treats 19,000 patients continue under new ownership that treats over 130,000 patients? Time will tell.
What about payers? Consolidation might offer a cheaper price, but it also puts the control over quality and patient choice in the hands of a few. And consolidation hurts suppliers, who see their customer pool shrinking. Having competition is good to keep prices fair, but is also good for patients looking for the best dialysis experience, and physicians, nurses, and the rest of the renal care team who want to work in this industry. As companies disappear, so do choices.
What's old is new again …
The dialysis industry is coming full cycle: there were very few providers open for business in 1972 when Congress approved the Medicare entitlement for the ESRD program. Then the industry flourished to take advantage of the new-found, government-backed funding. Today, the pool is shrinking once again. I'm not sure this "new era for the dialysis industry" is a good one.