A California bill that would significantly affect dialysis revenues for companies like DaVita Inc. and Fresenius Medical Care AG & Co. passed the state assembly and senate this week.
DaVita shares DVA, +4.18% dropped nearly 9% on Thursday before lifting 4.2% on Friday, while Fresenius stock FMS, -1.54% declined about 2% on Thursday and declined a further 0.8% on Friday.
The legislation, SB 1156, would restrict the financial assistance that dialysis companies can offer patients. It next heads to the desk of Gov. Jerry Brown, who has until the end of September for a decision.
“Providers have a right to make a profit, but certainly not when those profit motives can compromise the health and well-being of patients and raise premiums for other Californians,” the bill’s sponsor, state Sen. Connie Levya, said in a statement earlier this year, describing the financial assistance as geared toward maximizing how much companies are reimbursed for dialysis services.
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Individuals with kidney disease need regular dialysis to remove waste from the body and keep blood pressure under control, functions that are normally handled by healthy kidneys.
The California legislation has been backed by the Service Employees International Union (SEIU) and the insurer Blue Shield of California, while the industry — with significant financial ramifications at stake — has vigorously opposed it.
California voters will also vote this fall on a ballot measure called Proposition 8 that would limit how much revenue a dialysis provider can earn from commercially insured individuals.
The odds of SB 1156 becoming law are around 45%, according to Height Capital Markets analyst Andrea Harris, who estimated that it could lead to operating-income losses of up to $95.5 million a year for DaVita.
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“While Gov. Brown is difficult to predict, we believe he has more reasons to veto this legislation than to sign it — chief among them is SB 1156’s uncertain interaction with Proposition 8 if voters pass it into law this November,” Harris said, noting that if Brown does veto the bill he will likely wait until the end of the month to avoid alienating the legislation’s supporters.
DaVita shares have dropped 1.4% this month, while Fresenius shares have been lifted 3.9%. Those performances compare with a 3% gain by the S&P 500 SPX, +0.01% and a 2.2% rise in the Dow industrials DJIA, -0.09% .
