DaVita Inc. reported improved earnings from its U.S. dialysis business for the fourth quarter of 2017 as it continued to divest itself of its medical group division and shore up other businesses.

During a call with investors on Feb. 13, the Denver-based company reported net income of $156 million for the fourth quarter of 2017, up from $143 million in the fourth quarter a year earlier. However, net income for the year was down, coming in at $901 million in 2017 compared to $1.032 billion in 2016. Part of that was the continuing disappointing earnings from the company’s medical group division, which posted a $5 million operating loss in the third quarter of 2017.

Medical group performance

DaVita Inc. agreed in December to sell the medical group to Optum, a division of UnitedHealth Group, for $4.9 billion in cash. Company CEO Kent Thiry said during the earnings call that the medical group had a “disappointing performance” and the company decided it was in the best interest of shareholders to sell the division and take a return on the capital investment.

“We did take out some cash, and it had some nice benefits on the kidney care side in terms of enhancing our integrated care capability … It doesn’t change the fact that it was disappointing at the end,” he said.

CEO Joel Ackerman said the company was targeting the last quarter of 2018 for a break-even point for its international dialysis business. DaVita has more than 200 dialysis clinics outside the United States. During the fourth quarter, the company took a write-down of $280 million on an investment in an Asia Pacific joint venture.

“This charge resulted from changes in expectations for the joint venture based on the [joint venture’s] continuing market research and assessments concerning the available market opportunities,” according to a company press release. In 2017, the company acquired six dialysis centers, opened two dialysis centers and closed one dialysis center outside of the United States.

The company reported that it benefited from the new federal tax law, recording a reduction in tax expense of $252 million for the quarter. It also has made an effort to repurchased company stock: 12,966,672 shares during the year for a total of $811 million at an average price of $62.54 per share.

“We have also repurchased 857,234 shares of our common stock for $65 million at an average price of $75.58 per share from Jan. 1, 2018 through Feb. 12, 2018,” according to the release.

Improved revenues for dialysis services

For services provided under DaVita Kidney Care, the company saw net income from its U.S. dialysis and lab business go up from $157 million in the fourth quarter in 2016 to $303 million in the fourth quarter of 2017. The company said during the earnings call that the kidney care division lost $14 million in the fourth quarter due to the hurricane season.

CEO Javier Rodriguez said one issue that could increase costs for the division is the inclusion of new injectable drug Parsabiv into the Medicare payment bundle to treat metabolic bone disease. Having the drug inside the bundle will add costs to patient care as providers cannot bill for it separately.

“How [nephrologists] will view the new drug option is difficult to predict,” Rodriguez said.

Likewise, a ballot initiative in California limiting profits for dialysis companies could have a “material adverse impact” on dialysis operations in that state and make operating clinics there
“financially unsustainable,” he said. A similar measure is being considered in Ohio, he said.

As of December 31, DaVita provided dialysis services to approximately 220,600 patients at 2,747 outpatient dialysis centers, of which 2,510 centers were in the United States and 237 centers were in 11 countries outside of the United States. During the fourth quarter of 2017, the company acquired nine dialysis centers, opened a total of 36 new dialysis centers, and closed four centers in the United States. – by Mark E. Neumann