DaVita Inc (DVA.N), the biggest U.S. operator of dialysis clinics, sought to better align itself with government efforts to cut healthcare costs with a $4.42 billion deal to buy HealthCare Partners, an operator of physician practices.
The deal will allow DaVita to offer a more integrated group of services that the government is looking to incentivize through its accountable care organizations (ACO) model.
"We believe this diversification towards a wider patient population makes sense and follows the government's savings goals and most recent incentives more closely," Nomura analyst Martin Brunninger said.
The Medicare reimbursement model was changed last year to encourage clinical service providers, including dialysis operators, to reduce costs and use drugs more sparingly.
This could favor large players such as DaVita and its biggest rival FMC, the U.S. arm of Germany's Fresenius Medical Care (FMEG.DE), because they are better placed to cut costs, but it also creates revenue pressures.
The Healthcare deal helps mitigate this risk through the ACO model, which integrates patient treatment across care settings, such as doctors' offices, hospitals and long-term care facilities.
Privately held HealthCare Partners, based in Torrance, California, runs medical practices and physician networks in Southern California, Central Florida, and Southern Nevada. Its revenues in 2011 were about $2.4 billion.
"This is not a cost-synergy play at all," a DaVita executive said on a conference call with analysts.
The purchase price consists of $3.66 billion in cash and about 9.38 million shares of DaVita common stock, DaVita said.
The company, whose shareholders include Warren Buffett's Berkshire Hathaway Inc (BRKa.N), expects to fund the cash portion through a combination of available cash, borrowings and debt financing.
The transaction is expected to close in early fourth quarter, and the combined company will be named DaVita HealthCare Partners Inc, DaVita said.
JP Morgan Securities LLC (JPM.N) served as financial adviser for the deal.
DaVita shares, which have lost 10 percent of their value since the company reported quarterly results earlier this month, were up 3 percent at $83.24 in morning trade on the New York Stock Exchange.