UnitedHealthGroup is buying DaVita Medical Group in health care's 2nd big deal of the week

UnitedHealth Patient Care
This Tuesday, Oct. 16, 2012 photo, shows a portion of the UnitedHealth Group Inc.'s campus in Minnetonka, Minn. It said Dec. 6, 2017, that its Optum segment will buy the DaVita Medical Group from DaVita Inc. in a cash deal expected to close next year

UnitedHealth Group Inc. will buy DaVita Inc.’s physician network business for $4.9 billion, adding hundreds of medical clinics to United’s growing business of not just paying for benefits but providing medical care directly.

The all-cash takeover will bulk up UnitedHealth’s growing business of clinics and physician practices, which it operates under the OptumCare name. Already the biggest U.S. health insurer, the company has been expanding its front-line care business to take more control over how its insurance dollars are spent.

“Combining DaVita Medical Group and Optum advances our shared goal of supporting physicians in delivering exceptional patient care in innovative and efficient ways,” Larry Renfro, chief executive officer of Optum, said in a statement Wednesday announcing the deal.

DaVita shares were up 12 percent to $67.98 at 7:36 a.m. in New York. UnitedHealth was down less than 1 percent.
The purchase agreement comes less than a week after pharmacy chain CVS Health Corp. agreed to buy insurer Aetna Inc. for $67.5 billion, another takeover merging a health insurance provider with front-line care — in that case, CVS’s pharmacies and in-store clinics.

Late last month, UnitedHealth said it planned to keep expanding Optum’s physician business by adding new markets and doctors. Less than a year ago, the company acquired the surgery-center chain Surgical Care Affiliates, adding outpatient procedures to its offerings.

Hundreds of Clinics

DaVita Medical manages physician groups in California, Colorado, Florida, Nevada, New Mexico and Washington, and sees about 1.7 million patients a year at its 300 clinics, 35 urgent-care centers and six outpatient surgery sites, according to the
company.

The sale represents a retreat for the Denver-based company, whose main business is dialysis care centers and treating kidney patients.

In 2012, DaVita bought HealthCare Partners for $4.42 billion as part of an effort to expand into broader medical services. At the time, DaVita CEO Kent Thiry called it a chance to expand on “where the puck is headed for American health care and to
establish a really massive additional avenue for future growth.” Then, in 2016, DaVita acquired the Everett Clinic, another physician group, for about $385 million.

DaVita said it plans to use the funds from the sale to repurchase shares over one to two years after the deal is completed in 2018, and to repay debt. The company’s biggest holder is Warren Buffett’s Berkshire Hathaway Inc., which owned 21 percent of the shares as of Sept. 30, according to data compiled by Bloomberg.

Kent Thiry, chairman and CEO of DaVita, said the company expects to pursue other investments in health-care services.
Joe Mello, chief operating officer of DaVita Medical Group, will continue in a leadership role under Optum, the companies said in the statement.

Peter Grauer, the chairman of Bloomberg LP, the parent company of Bloomberg News, is a member of DaVita’s board.