DaVita HealthCare (DVA) Climbs Almost 9 Percent as Medicare Scraps Dialysis Payment Cut

The shares of DaVita HealthCare Partners Inc (NYSE:DVA) climbed 8.86% or $5.01 to $61.55 per share after the Centers for Medicare and Medicaid Services (CMS) finally decided to dump the proposed 9.4% reduction in Medicare payment for companies providing dialysis treatment next year.

The CMS maintained the current Medicare payment for dialysis treatment for 2014, and it will implement a three- to- four-year transition for the drug utilization adjustment to the base rate mandated by the Congress under the End Stage Renal Disease (ESRD) Prospective Payment System (PPS) as part of the American Tax Payer Act. In addition, the agency also implemented a 50% increase to the add on payment adjustment on home dialysis training particularly for peritoneal dialysis and home hemodialysis training treatments.

In a statement, Jonathan Blum, principal deputy administrator of CMS said, “The bundled payment system that CMS implemented in 2011 has improved the health of Medicare beneficiaries who require dialysis services. We are confident that our final policies will continue to improve the quality of care while ensuring that our final payment rates better reflect the cost of care.”

DaVita HealthCare Partners Inc (NYSE:DVA) is the second largest provider of dialysis treatment in the United States. The company is operating 2,042 outpatient dialysis centers in the country providing treatment for approximately 166, 200 patients as of September 30, 2013. The proposed cut on Medicare payment for dialysis treatment could have a huge impact on the profits of the company if implemented next year.

DaVita says CMS Rule offers bad news and good news

Commenting on the final rule of the CMS, DaVita HealthCare Partners Inc (NYSE:DVA) said, “On the dialysis rule, the bad news is that CMS appears to have accepted the premise that the language in the American Taxpayer Relief Act of 2012 required it to make a partial rebasing of the bundle. This could unfairly result in cuts of nearly $30 per treatment over a three to four year period by looking only at pharmaceutical economics. This means that Medicare dialysis rates will be flat in 2014 and 2015 in an environment of increasing expenses.”

On the other hand, the company said, “The good news is that Medicare rates will not be decreased next year, when most thought rates would be down. In addition, we get to work with Congress and CMS on trying to mitigate future cuts, and CMS has a number of appropriate reimbursement levers to pull to offset cuts a few years out if it chooses to do so, since Medicare reimbursement already fails to cover the full cost of caring for Medicare patients.”

DaVita issues 2014 operating income guidance

In light with the CMS rules, DaVita HealthCare Partners Inc (NYSE:DVA) issued its enterprise operating income guidance for 2014. The company expects to achieve in the range of $1.675 billion to $1.850 billion. In terms of operating income for dialysis and related ancillary businesses, the company projected that it will be able to generate around $1.425 billion to $1.540 billion while its operating income from HealthCare Partners is expected to be in the range of $250 million to $310 million.

Warren Buffett gains big from DaVita’s stock price increase

Berkshire Hathaway Inc (NYSE:BRK.A) (NYSE:BRK.B), the conglomerate headed by billionaire investor, Warren Buffett gained approximately $257 million from the increase in the stock value of DaVita HealthCare Partners Inc (NYSE:DVA) today given the fact that it owns 31,446, 839 shares of the dialysis treatment provider as of September 30.