Its been a year of playing defense for DaVita Inc., one of the countrys largest dialysis providers.
A federal jury in Colorado this summer awarded to the families of three of its dialysis patients in wrongful death lawsuits. Then this month, the Denver-based company announced it would pay $270 million to settle a whistleblowers allegation that one of its subsidiaries cheated the government on Medicare payments.
But its biggest financial threat is a ballot in California that one Wall Street firm says could cost DaVita $450 million a year in business if the measure succeeds.
Despite these recent hits, the company continues to rake in profits and receive favorable ratings from stock analysts. Its shares are trading at about $65 a share, only about 19 percent below a 52-week high set in January. Thats largely because DaVita controls about one-third of a growing market, health experts say.
They dont really have many rivals, and they perform a necessary, lifesaving service, said Leemore Dafny, a professor of business administration at Harvard Business School. If youre producing something people want to buy and youre the only one making it, people are going to buy it.
Patients with chronic kidney failure often need dialysis to filter the impurities from their blood when their kidneys can no longer do that job.
And as Americans live longer and get heavier, more people become diagnosed with kidney disease and possibly need dialysis. In 2015, 124,114 new patients received dialysis, up from 94,702 in 2000, a 31 percent increase, according to the U.S. Renal Data System.
is one of the largest dialysis providers in the country, operating more than 2,500 clinics nationwide. In California, the company operates clinics, half of all chronic dialysis clinics in the state.
Its parent company, DaVita Inc., reported $10.9 billion in revenue last year and $1.8 billion in profits, almost all of which came from its dialysis business.
This year, company officials project the dialysis group will bring in $1.5 billion to $1.6 billion in profits. Its a big turnaround for a corporation that could barely make payroll in 1999, when it was under review by the Securities and Exchange Commission for questionable accounting practices. Its success has largely been credited to CEO Kent Thiry, a colorful personality who has dressed up as a and ridden a horse into corporate meetings to rally workers.
Now those big profits generated from treating sick patients has put a target on the companys back, as well as that of its biggest competitor, .
The Service Employees International Union succeeded this year in placing Proposition 8 on Californias Nov. 6 ballot, which would limit dialysis center commercial revenues to 115 percent of patient care costs. The ballot fight pits a well-funded industry against labor and the California Democratic Party.
DaVita declined to make anyone available for this article, but in a statement said Proposition 8 will limit patients access to life-saving dialysis treatments, jeopardizing their care.
Last year, roughly two-thirds of DaVitas dialysis revenue came from government-based programs, such as Medicare and Medicaid. But that isnt enough to cover its costs, according to the companys 2017 annual , which states that DaVita loses money on each Medicare treatment it provides. (Medicare covers dialysis for people 65 and older, and for younger patients after private insurance has provided coverage for 30 months.)
Instead, DaVita generates profits from commercial health plans, which it acknowledges pay significantly higher rates than government programs. The ballot measure targets those higher rates, which Dafny describes as their bread and butter.
The prospect of the measure passing led DaVita to delay or cancel plans to open new clinics in California despite growing patient demand, Javier Rodriguez, chief executive officer of DaVita Kidney Care, told investors on a in May, according to the online equity research website Seeking Alpha.
, Rodriguez declined to provide a dollar amount when asked how the initiative would impact the company. Rather, he warned investors that it would become unsustainable for the industry to treat the estimated 66,000 dialysis patients in California, should the measure succeed.
Wall Street analysts agree that Proposition 8 would wipe out DaVitas earnings in California, according to recent reports issued by investment firms and Baird. Passing the initiative would be so devastating, to the tune of $450 million a year, that DaVita would likely walk away from the state altogether, according to a .
DaVita $66.6 million into the opposition campaign as of Oct. 25, and rival Fresenius has contributed $33.6 million. That dwarfs $17.3 million in union contributions in support of the measure, according to campaign records filed with Californias secretary of state office.
Both Wall Street firms conclude that Proposition 8 is likely to fail, citing the industrys massive spending and the unions record of failure at the polls on other issues.
The companys legal troubles dont worry stock analysts, either; on DaVitas financial performance dedicates just two sentences to them. It notes that DaVita is subject to numerous ongoing government investigations and inquiries, similar to most large-scale, high-profile Medicare providers.
There are no specific references to the Colorado jury award this summer, which the company is appealing, over the death of three patients who died of cardiac arrest after treatment at DaVita clinics. Nor was there concern about this months $270 million settlement over Medicare billing.
Thats because those incidents are seen by investors as the cost of doing business one-time hits that dont affect a companys earnings power in the future, said Matthew Gillmor, a senior research analyst at Baird.
Almost all companies I follow, at some point, have had to pay a fine to the government, Gillmor said.
Thiry, DaVitas CEO, acknowledged that settlements, which arent good public relations, are a reality for large corporations, when asked him last year about the companys previous legal battles.
If, in a trial, you are found to be wrong on even a small part of the case, it could mean that you are excluded from Medicare, which typically would mean bankruptcy for your company, Thiry said. So, you are essentially forced to settle.
Harriet Rowan of California Healthline contributed to this report.
This story was produced by, which publishes, an editorially independent service of the.
