DENVER—DaVita Inc. said Sept. 6 that it will divest 30 clinics for $91 million in order to comply with federal regulators in closing its acquisition of DSI Renal.
DaVita Inc. announced Feb. 4 that it had agrees to acquire DSI Renal Inc. for approximately $690 million. At the time of the deal, DSI operated 106 dialysis centers serving approximately 8,000 patients. DSI's annualized revenue is approximately $360 million.
In a news release, DaVita said a majority of the 30 divested clinics were acquired from DSI. In a separate news release, the U.S. Federal Trade Commission said that it required DaVita to sell 29 dialysis clinics in order to close the acquisition.
“The proposed settlement preserves competition in 22 geographic markets where the FTC alleges that consumers would be harmed by DaVita’s acquisition of DSI,” the FTC wrote. “The settlement requires DaVita to sell the clinics to Dialysis Newco, Inc., a corporation formed by venture capital firms Frazier Healthcare and New Enterprise Associates.”
According to the FTC’s complaint, without the divestitures, the proposed combination would illegally reduce competition, resulting in higher prices and lower quality for outpatient dialysis services. The FTC alleged that in 16 local markets, the proposed acquisition would either give DaVita a monopoly, or reduce the number of dialysis providers from three to two. In six other markets, the merged firm would have a large share of the market and face only two significant competitors.
In addition to requiring the sale of 29 clinics, the FTC settlement contains several provisions designed to make sure that the divested clinics will compete effectively after they are sold. For example, DaVita will have to obtain the agreement of the medical directors affiliated with the divested clinics to continue providing physician services after the clinics are transferred to Dialysis Newco, Inc.
DaVita also will have to get agreement from the landlords of all the divested clinics to assign the leases to Dialysis Newco. Furthermore, DaVita will have to provide certain, limited transition services such as payroll, billing and collection, with appropriate firewalls, to the divested clinics to ensure that Dialysis Newco is able to take over the operations of these clinics quickly and without undue interruption.
"The DaVita Village is excited to welcome the good people of DSI,” said DaVita Chairman and CEO Kent Thiry stated. “We look forward to being able to bring the broader line of DaVita chronic kidney disease services to DSI patients, and we believe that this combination will enhance our ability to meet the needs of patients, physicians, payors and taxpayers over the long-term."