Renal Care Group, Inc.

2525 West End Avenue, Suite 600
Nashville, Tennessee 37203
Telephone: (615) 345-5500
Fax: (615) 345-5505
Web site:

Public Company
Employees: 7,352
Sales: $1.34 billion (2004)
Stock Exchanges: New York
Ticker Symbol: RCI
NAIC: 621492 Kidney Dialysis Centers

Renal Care Group, Inc., provides dialysis services to individuals with chronic kidney failure. The company serves the majority of its patients through its own dialysis centers and a lesser number though contractual relationships with hospitals. Renal Care operates 425 outpatient dialysis facilities in 33 states, performing more than four million dialysis treatments annually. Through contracts, the company provides acute dialysis services to more than 200 hospitals. Renal Care also provides practice management and administrative services to groups of physicians. Roughly 50 percent of the company's annual revenue is derived from Medicare reimbursement payments. In mid-2005, Renal Care agreed to be acquired by Fresenius Medical Care AG, the largest integrated provider of products and services for individuals with chronic kidney failure.


Renal Care was formed to provide a specific service: to help those with chronic kidney failure. Individuals with chronic kidney failure, also known as end-stage renal disease (ESRD), faced three treatment options for their affliction. A kidney transplant offered the only cure for ESRD; without a successful transplant, the disease was irreversible and ultimately fatal. A shortage of kidney donors severely limited the number of transplants, however. Only 5 percent of ESRD patients in the United States could hope for a transplant, leaving dialysis (the removal of waste and toxins from the blood) as the only treatment option for a vast majority of ESRD patients. With dialysis, there were two treatment options: peritoneal dialysis and hemodialysis. Peritoneal dialysis usually was performed in the patient's home, and hemodialysis, the most common form of ESRD treatment, typically was performed in a hospital or an outpatient facility. Of those on dialysis in the United States, an estimated 92 percent received hemodialysis, a treatment that used a dialyzer to remove toxins, fluid, and chemicals from the patient's blood and another device that controlled external blood flow and monitored the patient's vital signs. Hemodialysis typically was administered three times a week to an individual patient. Renal Care intended to focus on providing hemodialysis at its facilities, targeting the vast majority of all ESRD patients.

From a business standpoint, Renal Care courted a large customer base. As the company set out, it also benefited from two other qualities of the market it served. In macabre terms, ESRD was a growth industry. According to the Centers for Medicare and Medicaid Services, the number of ESRD patients in the United States who needed dialysis increased exponentially between 1982 and 2002, jumping from 66,000 to 309,000. These patients were treated by nephrologists in either a hospital setting or in a freestanding outpatient facility. Historically, outpatient dialysis facilities composed a loosely-knit, fragmented industry, with ownership of the centers held by groups of nephrologists. During the 1990s, however, the industry began to consolidate, giving rise to multi-center dialysis companies like Renal Care. In a consolidating industry, Renal Care presented itself as a consolidator, focusing on capturing market share and achieving the economies of scale realized by size. In Renal Care's case, increased size gave the company more leverage with local health payers in local markets.

Renal Care entered the race for national dominance in the dialysis services industry as the demand for such treatment was increasing with each passing year. The company's role as a consolidator began with an act of consolidation in June 1995, when a group of leading nephrologists decided to create a company with the clinical and financial capability to offer comprehensive care for ESRD patients on a cost-effective basis. The nephrologists represented six companies, the six founding companies of Renal Care. In a single transaction, Kidney Care, Inc., Medical Enterprises Ltd., D.M.N. Professional Corporation, Tyler Nephrology Associates, Kansas Nephrology Association, and a Tennessee-based company, Renal Care Group, Inc., joined together. The transaction was paid for with an initial public offering (IPO) of stock in February 1996 that marked the official start date of the combined company. In the IPO, 3.9 million shares were sold to the public at $18 per share, yielding net proceeds of $64 million that paid for the foundation upon which the company would build.

Renal Care's growth was achieved through acquisitions, which occurred on an almost monthly basis during the company's formative years. When the company started out, it provided dialysis services to 2,700 patients at 41 outpatient facilities located in eight states. The company also had contractual relationships with 21 hospitals, offering acute dialysis services in a hospital setting. These were the primary markers used to chart Renal Care's growth, the starting point of the company's attempt to build itself into a national dialysis-services provider. Although the company operated an ancillary business offering wound and diabetic care services and a practice management and administrative services business for physicians, the basic indicators of its expansion were patients served, facilities owned, markets penetrated, and hospital contracts signed. Renal Care was a company formed to provide medical services, but to be successful, a business perspective had to be maintained. The company was involved in a growth industry populated by small, independent operators that offered a consolidator the opportunity to provide dialysis services to the bulk of the nation's ESRD patients.

Acquisitions in the Late 1990s

Renal Care was not alone in the pursuit of nationwide dominance. Joining Renal Care as industry consolidators were DaVita Inc., Gambro Healthcare, and a German company named Fresenius Medical Care, the band of big, publicly traded, dialysis companies with national, if not global, aspirations. The industry was in the midst of consolidating as Renal Care completed its IPO, creating a sense of urgency for the Nashville-based company to begin its drive for growth. The acquisition campaign began in earnest in early 1997. By the beginning of April, Renal Care had acquired seven federated dialysis facilities in Indiana, adding 600 patients to its customer rolls and contracts with four hospitals. The acquisition, which gave the company offices in Indianapolis, Richmond, Greensburg, and Kokomo, also included an agreement to manage the practice of 17 physicians, 12 of whom were nephrologists. One week later, the company signed acquisition agreements that provided it with entry into New Jersey. The company agreed to acquire dialysis operations in Toms River, New Jersey, and to jointly develop a new dialysis center capable of serving 260 patients. At the same time, Renal Care reached an agreement with Southern Ocean County Hospital in Manahawkin, New Jersey, to jointly develop a new dialysis center capable of serving 40 patients. In May 1997, the company strengthened its presence in Texas, acquiring Bay Area Dialysis Services of Corpus Christi. The purchase added 330 patients, six dialysis centers, and contracts with two hospitals. By the time the transaction was concluded, Renal Care served 6,300 patients in 103 centers spread across 17 states and through contractual relationships with 51 hospitals.

Renal Care's pace of expansion continued at the rate established in 1997. By the end of the 1990s, the company represented a formidable national force, having taken hold of a sizable portion of the nation's dialysis business. In early 1999, Renal Care entered Illinois for the first time, completing the acquisition of Dialysis Centers of America, a Chicago-based operator of 12 centers that served 1,700 patients and provided acute dialysis services to six hospitals. The acquisition gave Renal Care a total of 172 centers in 21 states serving 13,200 patients. The addition of six hospitals served by Dialysis Centers of America gave Renal Care contractual relationships with 102 hospitals. The company's stature by this point was large enough to attract attention from the mainstream business press. In the fall of 1999, Renal Care was on Fortune magazine's list of the "One Hundred Fastest-Growing Companies" in the United States, earning the recognition the first year it was eligible for consideration. To make the list, companies were required to post a minimum 30 percent growth rate in both revenues and earnings per share for three years, a record Renal Care exceeded during its first three years in business. By the end of the year, the company provided dialysis and related service to 14,200 patients, nearly 12,000 more than it served three years earlier. During the same time span, Renal Care's network of company-owned facilities leaped from 41 to 181, driving geographic expansion that fanned out from a territory of eight states to 23 states. The growth of the company's annual sales totals reflected the robust expansion, jumping exponentially from $163 million in 1996 to $520 million by 1999.

Renal Care established an impressive rate of growth during its first years in business, one that would be shattered during the first years of the 21st century. The race to seize control of the estimated $13 billion U.S. dialysis center industry picked up pace in the new decade, but only after a lull in activity on the acquisition front. In 2000 and 2001, the national competitors made relatively few purchases, focusing on internal challenges instead—a pause to refresh and to reorganize before resuming the chase for market share.

Company Perspectives:

Renal Care Group is dedicated to improving the quality of life and to providing optimal care for patients with chronic and acute renal disease. We are committed to the philosophy that optimal care is attained through the application of continuous quality improvement, staff education, patient/family education, and state-of-the-art technology. We seek to achieve superior patient outcomes and to provide the best value in patient care.

As Renal Care entered the mid-2000s, fast-paced expansion propelled the company's financial growth. Acquisitions in 2003, particularly in Ohio, Illinois, Arizona, Mississippi, and Texas (Renal Care's five biggest markets), pushed sales beyond the $1 billion mark and net income beyond the $100 million mark for the first time. In 2004, the company continued to press forward, completing the massive acquisition of a Nashville neighbor. After acquiring the 14-center Midwest Kidney Centers in January, which added 850 patients, the company agreed to acquire Nashville-based National Nephrology Associates, a company with a solid presence in Phoenix, Chicago, Portland, Oregon, and in Mississippi. The National Nephrology acquisition was a $345 million deal, adding 87 dialysis centers and 5,600 patients to Renal Care's 22,300-patient base.

During the first years of the new century, Renal Care greatly increased the number of centers it operated. By 2004, the company maintained a presence in 33 states through 418 outpatient facilities. Sales stood at $1.34 billion. The growth during the previous four years was substantial, increasing the number of company-operated facilities from 181 to 418, but the company still trailed in the race for national dominance. Fresenius Medical Care led the pack with a more than 25 percent share of the U.S. market, followed by Gambro Healthcare and DaVita, who each controlled 15 percent of the domestic market. Renal Care, despite the intensity of its acquisition campaign, ranked fourth, holding a 9 percent share of the market. There was a substantial gap separating Renal Care from Fresenius Medical Care, but at the end of 2004, the most threatening challenge was posed by Renal Care's closest rivals. In December, in a move that typified the pervasive trend toward industry consolidation, DaVita and Gambro Healthcare announced a definitive agreement to merge. Under the terms of the agreement, DaVita was slated to acquire Gambro Healthcare's U.S. dialysis business, which would make Renal Care a distant third behind Fresenius Medical Care and DaVita.

The End of Independence in 2005

As Renal Care entered 2005, its bid to achieve national leadership was all but over. The presence of a greatly enlarged DaVita coupled with an already towering Fresenius Medical Care (the largest integrated dialysis services company in the world) gave Renal Care's management little hope of seriously competing with its two rivals. Combined, DaVita and Fresenius Medical Care controlled an estimated 55 percent of the U.S. market, while Renal Care held a 9 percent share. In an industry that was consolidating, however, there was one way for Renal Care to fight back, and its management seized the opportunity. In May 2005, Renal Care announced that it had agreed to be acquired by Fresenius Medical Care in a $3.5 billion deal that offered a riposte to the DaVita-Gambro Healthcare merger. The deal promised to end Renal Care's nine-year history as an independent company, adding its 425 dialysis facilities to the 1,630 centers operated by Fresenius Medical Care in North America, Europe, Latin America, and Asia. In announcing the deal in a company press release, Renal Care's chief executive officer, Dr. Ben Lipps, offered what was likely the last independent statement to be issued from Renal Care. "This transaction demonstrates the value that Renal Care Group has built in the marketplace," he wrote. "It is a testament to the vision of our founders and the dedication and hard work of our associates and affiliated physicians during Renal Care Group's nine-year history that we have created this value and can now return it to our shareholders. By joining with Fresenius Medical Care, we will give our associates and affiliated physicians the opportunity to work with the world's leading dialysis therapy company, and our shareholder will receive an excellent return on their investment. We are convinced that our patients will be well served and will continue to receive high-quality dialysis care."

Principal Subsidiaries

RCG Mississippi, Inc.; Renal Care Group of the Southeast, Inc.; Renal Care Group East, Inc.; Renal Care Group Arizona, Inc.; Dialysis Management Corporation; Four State Regional Dialysis Center, Inc.; Renal Care Group Michigan, Inc.; Renal Care Group Northwest, Inc.; Renal Care Group Alaska, Inc.; Renal Care Group Southwest Holdings, Inc.; Physicians Dialysis Company, Inc.; Renal Care Group of the South, Inc.; Wound Care Group, Inc.; Renex Corporation.

Principal Competitors

DaVita Inc.; Gambro AB; Fresenius Medical Care AG.

Key Dates:

Renal Care is formed.
Renal Care completes its initial public offering of stock.
Renal Care acquires National Nephrology Associates.
Renal Care agrees to be acquired by Fresenius Medical Care.

Further Reading

Barker, Robert, "Bargain-Hunting in the Small-Cap Patch," Business Week, July 15, 2002, p. 142.

Barton, Christopher, "Healthcare Company Sells Memphis, Tenn., Unit to Nashville, Tenn.-Based Firm," Commercial Appeal, March 14, 2001, p. B2.

"Dialysis Services Co. Targets Up to 10 Buys," Corporate Financing Week, December 23, 2002, p. 7.

Lunday, Sarah, "Two Dialysis Centers to Open in Newton, Kansas," Knight Ridder/Tribune Business News, March 5, 1997, p. 305B1067.

Manning, Joe, "Bone Care International Questioned in Broader Probe of Dialysis Testing," Milwaukee Journal Sentinel, October 29, 2004, p. B3.

Reeves, Amy, "Renal Care Group Inc.," Investor's Business Daily, May 24, 2001, p. A9.

Roberts, Ricardo, "Renal Care M&A: Coming Back to Life," Mergers & Acquisitions, March 1, 2004.

Santiago, Racquel, "Renal Care Venture Opens Dialysis Centers," Crain's Cleveland Business, October 20, 1997, p. 4.

Shinkle, Kirk, "Renal Care Group Inc.," Investor's Business Daily, May 25, 2004, p. A6.

—Jeffrey L. Covell

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