United Health, the largest U.S. health insurer, is adding hundreds of clinics to its growing medical services business by acquiring a unit of DaVita for $5.9 billion.
The purchase of Davita Medical Group continues United Health’s strategic shift to patient care after its similar acquisition of Surgical Care Affiliates for about $2.3 billion in March. It also comes only three days after rival Aetna agreed to be acquired by CVS Health.
“Health insurers are trying to cut medical costs by playing a more direct role in medical services, arguing they can save money by shifting patients to cheaper, more accessible locations for routine or non life-threatening emergency medical services,” Reuters said.
DaVita Medical Group serves approximately 1.7 million patients per year through nearly 300 medical clinics and also operates 35 urgent-care centers and six outpatient surgery centers. It will become part of United Health’s Optum unit, which operates a large pharmacy benefit manager and offers a wide array of health care services.
“Combining DaVita Medical Group and Optum advances our shared goal of supporting physicians in delivering exceptional patient care in innovative and efficient ways while working with more than 300 health care payers across Optum in ways that better meet the needs of their members,” Optum CEO Larry C. Renfro said in a news release.
SeekingAlpha, however, said United Health was paying a “shockingly high price” for DaVita Medical, which was expected to generate only $50 million to $85 million in operating income this year. DaVita acquired the business from HealthCare Partners in 2012 for $4.4 billion.
“UNH is paying 100x taxed earnings for a business that DVA has struggled with since its acquisition in 2012,” Seeking Alpha said, adding that United Health probably perceived a need to “bulk up” in the face of the CVS/Aetna deal.
DaVita’s chief executive, Kent J. Thiry, described the medical group’s most recent quarterly results as “extremely disappointing” but on Wednesday, he said he was proud of its accomplishments and “The combination of DaVita Medical Group and Optum should lead to even higher levels of performance.”