Supreme Court Ruling Raises Uncertainty for DaVita and Fresenius

Shares of U.S. dialysis service providers declined substantially on June 21 after the U.S. Supreme Court offered a surprising decision in the case of Marietta Memorial Hospital Employee Health Benefit Plan versus DaVita. In that decision, the majority of the court ruled that Marietta's decision to keep DaVita (and its key peer Fresenius Medical Care) out-of-network for Marietta's insured population did not break the law since it treated all insurance plan holders equally. As a result of this ruling, we are raising our uncertainty ratings for DaVita and Fresenius Medical Care to high from medium (and keeping Fresenius SE's uncertainty rating at high) since this decision could allow insurers to push outpatient dialysis services out of network for all plan members, including dialysis patients. We suspect such a shift, if unchecked by a statutory language change by Congress for example, could create a significant financial burden on the roughly 10% of U.S. dialysis patients that currently receive treatment through commercial insurance plans and represent the vast majority of U.S. dialysis service-related profits.