Healthcare Merger Will Affect 700,000 Patients

When Torrance-based Healthcare Partners merges with DaVita, Inc., the new company will have $3.8 billion in new debt.

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    In a move that has investors scratching their heads and consumer advocates voicing concern, a Southern California medical group responsible for nearly 700,000 patients in three states has been acquired by a company that runs dialysis clinics.

    In the $4.4 billion deal announced Tuesday, Torrance-based Healthcare Partners merged with DaVita, Inc., a Denver-based firm with deep roots and a rocky financial history in Southern California.

    The merger is the latest example in an ongoing trend toward consolidation in health care, and raises a number of red flags for patients, said Anthony Wright, executive director of the consumer advocacy organization Health Access California.

    “There’s always a concern about consolidation, about whether the patients get lost in the shuffle,” Wright said. “It raises all sorts of red flags about lack of competition and treatments based on financial concerns rather than the actual needs of specific patients.”

    The deal will leave the new company, to be based in Denver and called DaVita Healthcare Partners, with $3.8 billion in new debt.

    Kevin Ellich, a research analyst with the financial firm Piper Jaffray Companies who follows DaVita, said investors were surprised by the move because the two companies offer very different services.

    DaVita may be trying to position itself to take advantage of lucrative Medicare payments offered to managed care companies for offering HMO-style coverage to seniors, Ellich said.

    Healthcare Partners is one of the original Southern California managed care companies. It works with doctors to provide in-network care for patients, many of whom receive their coverage through Health Maintenance Organizations or similar plans. The company operates in California, Nevada and Florida, with a large presence in Southern California.

    DaVita runs dialysis clinics that provide services to thousands of Medicare patients and others with diabetes and kidney problems.

    But the two companies share common roots in the South Bay.

    DaVita was originally called Total Renal Care, and based in El Segundo. Its CEO, Kent Thiry, has known Healthcare Partners founder Robert Margolis, for fifteen years, and has tried to buy Healthcare Partners in the past.

    A spokesman for the newly merged company did not immediately respond to requests for interviews by NBC4 on Wednesday.

    But DaVita CEO Thiry said in a conference call with Wall Street analysts that the type of tightly managed care provided by Healthcare Partners is the way of the future in healthcare.

    “It’s where the puck is headed,” said who is credited with turning DaVita around after a series of disastrous years in the late 1990s and early 2000s, as well as changing its name and moving the headquarters to Denver.

    DaVita conceded that the merger’s success was not guaranteed. But he said that in the long term, it would be good for patients as well as investors.

    “That does not mean it will be easy to achieve, and it does not mean it will be quick to happen,” Thiry said. “But it is a very attractive risk-adjusted bet.”

    Shares of DaVita's stock closed up slightly on Wednesday, at $80.39.

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