Acknowledging “underlying business performance,” DaVita Inc. has agreed to shave $560 million off the sale price of its medical group division to UnitedHealth Group, according to a regulatory filing by DaVita on Dec. 11.
United reached an agreement with DaVita in December 2017 to buy the physician practice organization and place it under its OptumCare division. Completion of the sale has been delayed because of regulatory issues; the Federal Trade Commission has yet to approve the sale.
“As a result of underlying business performance and in an effort to expedite the process to obtain FTC approval of the proposed transaction, the parties agreed to amend the purchase agreement,” DaVita Inc. said in the regulatory filing with the Securities & Exchange Commission. “The purchase price to be paid to DaVita in connection with the proposed transaction has been reduced from $4,900,000,000 to $4,340,000,000.”
The medical group division agreed to pay $270 million last fall to settle claims that it provided inaccurate medical information on patients enrolled in Medicare Advantage plans, leading to overpayments by Medicare to DaVita.
When DaVita acquired the physician services company, then called Healthcare Partners, in October 2012 for $4.2 billion, it operated in California, Florida and Nevada and covered 667,000 patients through 152 medical clinics. Annual revenue was approximately $2.4 billion at the time. DaVita expanded the medical group’s reach and currently serves approximately 1.7 million patients per year in six states through nearly 300 medical clinics. The medical group also operates 35 urgent-care centers and six outpatient surgery centers.
Despite the expansion into other markets, DaVita has struggled to turn a profit with its medical group division, recording disappointing quarterly earnings for most of the past 5 years. The medical group posted a $5 million operating loss in the third quarter of 2018.
DaVita said in the filing that “the parties are working together to close the proposed transaction as expeditiously as possible and expect to close in the first quarter of 2019.”