Thanks for the welcome Kevin: Follow some notes i have collected, More coming soon.
Dialysis, like so many other niches in healthcare services, is coming of age. Today, providing dialysis is an exceptionally attractive business: it is a cottage industry well insulated from price competition, with predictable revenue and margins, and it serves a strongly growing market. Dialysis, because it is driven almost entirely by a special Medicare program, has barely been affected by managed care: in some ways the sector has been in a backwater. That is changing, and may be the outcome will be positive for the public-company providers.
Few are the healthcare niches where the growth opportunities are so significant and the risks so circumscribed. Hence, investment in dialysis is unusually attractive.
Risks are Circumscribed
Dialysis is less vulnerable to the sudden dislocations that afflict so many healthcare providers. This is because:
Reimbursement is tightly controlled by the dominant payor, Medicare and the miserly HMO's. The politics of the Medicare program in general make sudden change quite unlikely. Remarkably, in the case of dialysis, Medicare reform promises to benefit providers!
Excess utilization in the industry is extremely low. Simple clinical criteria, on which there is broad consensus, dictate who is eligible for treatment. Accordingly, patients are not overtreated.
There are no "turf battles" as to what treatment patients receive. Patients receive either a transplant or dialysis, or they die. Other specialists and other healthcare facilities simply do not compete for these patients.
These characteristics apply broadly to all providers of dialysis services. However, public market investors are interested in the public companies, which are larger "chain" providers whose corporate growth strategies include continued acquisitions. The most serious risk for these companies is their ability to complete sufficient acquisitions on acceptable terms.
Positive Near-term Outlook: Summarized
Sustained strong and predictable growth in a large market -- domestic dialysis expenditures will be about $7 billion+ in 1998 and are growing about 10% annually Continued rapid consolidation, supplementing ongoing strong internal growth Potential reimbursement upside; limited downside Potential for additional vertical integration achieved by suppliers' buying public dialysis companies at premium valuations
Long-term Outlook:
Further Upside as the Industry Emerges from the Backwater The industry will evolve from a simple manufacturing paradigm to a disease-management paradigm, yielding improved clinical and financial results. The "widgets" that dialysis companies currently produce are discrete, homogeneous dialysis treatments.
Increasingly, the most advanced companies will market outcomes:
Companies will begin assuming risk on healthcare utilization, through case rate reimbursement (where the providers will be paid a fixed fee per treated patient, or case). This will enable the companies to access significantly greater revenues and profits with minimal capital investment. (The relevant market potential could as much as double under such a scenario -- refer to the section Potential New Products.").
The Medicare program for the elderly is moving to managed care, although perhaps only gradually (to perhaps 25% or more of eligibles in five years from slightly over 10% now). In the case of dialysis, though, the transition to managed care could conceivably be accelerated (refer to the section "Payors -- Government"). The ongoing transition to a disease-management focus will prepare dialysis companies well for such a scenario.
New products, including the management of greater medical-cost risk, will distance the better providers from competitors. Payors will become increasingly discriminating and will prefer what only sophisticated companies can provide. Some dialysis companies may move to treat renal-transplant patients. This could widen the companies' market.
Currently, dialysis companies essentially do not participate in their affiliated physicians' practice revenue, a defining characteristic of physician practice management companies
(PPMs). Over half the typical nephrologist's practice revenue stems from dialysis, though, and expect some dialysis providers to begin managing and acquiring nephrology practices.
Superior growth for public companies should continue for at least several years. All can expect internally generated annual EPS growth to be in the 10% to 15% range, supplemented by a contribution to annual EPS growth from acquisitions of as much as 10% or considerably more.
Some publicly traded dialysis providers are very likely to be bought either by competitors or by suppliers.
Private-pay-pricing pressure will continue but will be modest because few insurers have enough dialysis patients to make a significant difference, enabling margins to be sustained.
Hope all enjoy this snippet.
Regards,
Sri. |
