It’s been a long road for DaVita Inc. (NYSE: DVA) and Optum (NYSE: UNH), but the deal is finally done. On June 19, 2019, the Federal Trade Commission approved Optum’s acquisition of DaVita Medical Group, a $4.9 billion deal when it was announced on December 6, 2017. A year later, the final price was renegotiated down to $4.34 billion.
At the time of the initial announcement, Optum agreed to pay cash for the medical group and its network of nearly 300 medical clinics, 35 urgent care centers and six outpatient surgery centers. It operated and managed physician networks in California, Colorado, Florida, Nevada, New Mexico, Pennsylvania and Washington and served approximately 1.7 million patients per year.
DaVita decided to put the division up for sale after it posted a $5 million operating loss in the third quarter of 2017. The division was founded back in May 2012, when the giant kidney care specialist paid $4.2 billion (1.76x revenue) to acquire HealthCare Partners, LLC. At the time, HealthCare Partners operated medical groups with 700 physicians, and physician networks comprised of 1,800 physicians.
When the sale was first announced, DaVita was still in acquisition mode. On November 28, just a week before the Optum deal became public, it took on Northwest Physicians Network for an undisclosed price. The Tacoma, Washington-based group had more then 1,000 primary and specialty care physicians.
Optum’s Growing Network
Optum is known as a serial acquirer of physician groups. The DMG deal was its largest, by disclosed price. Earlier in 2017, Optum announced a take-private deal for Surgical Care Affiliates, paying $57.00 per share for SCA’s outstanding common stock. The $3.28 billion price included $974 milion in debt. At the time, SCA operated 205 surgical facilities, including ambulatory surgery centers and surgical hospitals, in partnership with 3,000 physicians.
Nearly a year after making the DMG deal public, the UnitedHealthcare division purchased The Polyclinic, a 240-doctor group with 14 locations in and around Seattle, Washington. No price was disclosed.
Enter the FTC
Almost immediately after the initial announcement in December 2017, the FTC began reviewing the deal and progress slowed. Remember that CVS Health (NYSE: CVS) announced its $78 billion acquisition of managed care provider Aetna that same month. And Humana (NYSE: HUM) was signing deals with multiple providers as rumors swirled it may be a takeover target by Walmart (NYSE: WMT). The Commission was serious about its inquiries into the announced transactions.
In December 2018, DaVita filed an 8K with the Securities and Exchange Commission that restated the purchase price as $4.34 billion. “As a result of underlying business perfomance and in an effort to expedite the process to obtain FTC approval of the proposed transtions, the parties agreed to amend the purchase agreement,” DaVita stated.
Six months later, DaVita and Optum have the FTC’s approval, with another condition. DMG agreed to sell its HealthCare Partners Nevada subsidiary to Intermountain Healthcare. Intermountain is a not-for-profit health system based in Salt Lake City, Utah. HealthCare Partners Nevada is a leading physician group and affiliate network in the greater Las Vegas area. And the FTC concluded that the Optum/DMG combination would harm competition in the Las Vegas area.
The Finish Line
Optum and DaVita closed their deal on June 19. Optum already serves more than 80 health plans and will now provide care for a combined 16 million patients. DaVita Inc. will continue to own and operate its U.S. and international kidney care business. At the end of the first quarter of 2019, the company served 203,500 patients at 2,689 outpatient dialysis centers in the United States and operates 234 outpatient dialysis centers in nine countries. It will not be adding more physicians in the near future. We can’t (and won’t) say the same for Optum.