Renal Care aiming at increased market share across U.S.
Nashville Business Journal - by Molly Cate Nashville Business Journal
Dialysis provider Renal Care Group Inc.'s (Nasdaq: RCGI) decision to crack the New Mexico market will strengthen the company's already strong Southwestern presence and is the most recent proof of the Nashville company's aggressiveness across the country.
The company will own 80 percent of a recently formed joint venture with Dialysis Support Services of Las Cruces, N.M. The venture, named Renal Care Group of South New Mexico LLC, covers three dialysis facilities, which provide services to about 175 patients. Renal Care Group will manage the operations of the centers.
"New Mexico fits their profile perfectly," says Joel Ray, analyst with First Union Securities, who has Renal Care stock rated at buy.
That fit, says Ray, is created by Renal Care Group's strong market presence in the Southwest. The company, which owns about 200 dialysis clinics, has 30 properties in Arizona and 30 in Texas, including 38 percent of the market share in the Phoenix, Ariz. area.
Overall, according to company figures, Renal Care has about 5 percent of the market share for the U.S. dialysis market, behind industry leaders Fresenius (24 percent), DaVita (16 percent), and Gambro (14 percent). The number of patients under care at its centers has risen from 5,200 in 1996 to 16,000 in 2000, and the company expects overall U.S. market growth to be in the 5 percent range annually.
The New Mexico buy is typical of Renal Care's strategy of buying up market share in a specific region. The company has bought four dialysis centers, with 1,450 patients, in the last year. It now holds the dominate market share in the Portland, Ore. area and market shares of 40 percent or better in Indiana and Ohio; south and east Texas; Mississippi; and western Kansas.
"Typically, you want to go where you've got about 35 percent of the market share, which gives you increased abilities to negotiate with insurers. You want to avoid environments where HMOs rule the roast," Ray says.
That type of environment in New Mexico, coupled with a strong demand for dialysis services among the Hispanic population, is present in New Mexico, Ray says.
The properties in the venture represent about $5 million - $6 million in revenue, says Dirk Allison, chief financial officer of Renal Care Group.
Allison would not disclose any other terms of the transaction until the company files an 8-K filing with the Securities and Exchange Commission before April 15.
"As a company, we try to strengthen regions in which we already operate," Allison says of the company's decision to move into New Mexico.
Allison is confident in a smooth transition because of similar operational and financial systems between Renal Care Group's existing properties and those of the joint venture, he says.
Over the next year, Renal Care Group is estimating a 15 percent increase in earnings because of inflationary adjustments made to government reimbursements.
"This was very, very positive for the company," Allison says of the 2.4 percent increase in composite rate gained under recent legislation. It replaces a 1.2 percent increase that was due to take effect this month.
The 2.4 percent increase, due to kick in April 1, was the first inflationary adjustment for the dialysis industry in eight years. It was part of the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000.
The Act also called for a study to examine the proposal of a permanent, annual adjustment, which Ray considers almost as important as the raise itself.
"If [the dialysis industry] could get that, it would be really wonderful," he says. "However, it certainly isn't the death nail if you don't. Medicare represents under 50 percent of revenues in the dialysis industry... [Renal Care Group] continued to grow solidly through the Balanced Budget Act of 1997. Their margins weren't being hammered at like other segments of the health care industry. But, it certainly would be advantageous if they could get a permanent adjustment."
Renal Care Group has a "good pipeline of acquisitions lined up for the next year," Allison says.
Reach Cate at mcate@bizjournals.com or 615-248-2222, ext. 111.
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