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Attorney General Lockyer Obtains Patient Protections as Condition of Approving Major California Dialysis Provider's Purchase of Competitor

DaVita Will Divest 36 California Clinics in $3.1 Billion Acquisition of Gambro Healthcare
Tuesday, October 4, 2005
Contact: (415) 703-5837

(LOS ANGELES) – Attorney General Bill Lockyer today announced he has approved dialysis provider DaVita Inc.’s $3.1 billion purchase of competitor Gambro Healthcare after securing conditions that protect thousands of California patients’ care by preserving market competition for the crucial kidney disease treatment.

“This merger of California’s two largest dialysis providers threatened to undermine stable care and increase treatment costs for kidney disease patients throughout the state,” said Lockyer. “The divestiture required as a condition of approving the transaction will keep open clinics that patients need, and help control costs for consumers by alleviating the merger’s anti-competitive effects on the market.”

The divestiture and other approval conditions are contained in a consent decree filed by Lockyer today in U.S. District Court for the Central District of California. The consent decree resolves a lawsuit, also filed today in the same court, that alleged the merger violated federal antitrust laws (Clayton and Sherman Acts) and state law that prohibits unfair business practices. The court must approve the consent decree before it becomes final.

The Federal Trade Commission (FTC) today also announced it has conditionally approved a broader divestiture plan. The FTC issued for public comment an order that, in addition to identical California divestiture provisions, requires DaVita to sell clinics in Florida, Georgia, Illinois, Maryland, Michigan, Nebraska, North Carolina and Virginia. The FTC will take final action on the divestiture plan after considering the public comment.

Under the divestiture provisions in California’s consent decree, El Segundo-based DaVita will sell to Renal Advantage, Inc. 32 clinics now owned by DaVita or Gambro, which is headquartered in Lakewood, Colorado. Renal Advantage – based in Brentwood, Tennessee – will pay $320 million for divested clinics in California and other states.

DaVita also will sell the Gambro Westside Clinic in Los Angeles to S. Robertson Dialysis, the Dialysis Center of Colton to the Colton Partnership, and the Clinic at Roseville Dialysis Center to a purchaser approved by Lockyer and the FTC. In addition, DaVita will transfer management of the South San Francisco Dialysis Center to Peninsula Nephrology.

Gambro must divest all the California clinics, except the Roseville facility, within 10 days after the transaction becomes final. It must divest the Roseville clinic within 120 days from date the consent decree is signed.

In California, DaVita and Gambro operate a combined total of 193 clinics that provide dialysis, the medical treatment that eliminates waste from the blood of patients with kidney failure, formally called “end stage renal disease.” At the end of 2003, the two competitors’ clinics served 17,548 patients with failed kidneys.

Lockyer’s concerns about the merger’s anti-competitive effects centered on communities where the combined entity’s market share would range from 47 percent to 100 percent. According to Lockyer’s complaint, those areas include: Chico, Fairfield, Los Angeles-Orange counties, Palm Springs-Palm Desert, Riverside-Pomona-San Bernardino, Sacramento, San Diego, San Francisco-Oakland-San Jose, and Stockton.

Without the divestitures, the merger posed two dangers to dialysis patients. First, in areas where it gained market dominance, DaVita could have decided to close some clinics. That could have forced patients to travel longer distances to obtain treatment. Nephrologists agree longer drives pose health risks to end stage renal disease patients because of their fragile, weakened condition.

Second, DaVita could have used its market power to increase prices. That would have harmed consumers, insurers and health maintenance organizations because their ability to bargain for lower prices would have been reduced by DaVita’s market power.

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