DaVita Inc., the biggest U.S. operator of kidney dialysis clinics, on Monday, May 21 agreed to acquire HealthCare Partners Inc. for $4.42 billion in cash and stock as it looks to expand its operations in fast growing retirement locations and counteract pressure on revenues from new Medicare reimbursement policies.

Torrance, Calif.-based HealthCare Partners is the country's largest operator of medical groups and physician networks, generating Ebitda of $527 million on sales of $2.4 billion in 2011 from locations in southern California, central Florida and southern Nevada. The company coordinates care for more than 667,000 patients, providing primary and specialty care.

Terms of the deal call for DaVita, of Denver, to pay $3.66 billion in cash and about 9.38 million of its shares for HealthCare Partners. DaVita has also committed to pay the current shareholders of privately-held HealthCare Partners up to $275 million in cash should certain 2012 and 2013 performance targets be achieved. The buyer expects to fund the cash portion of the price using available cash, additional borrowings under its existing senior secured credit facilities and additional debt finding.

The acquisition follows a change in Medicare reimbursement rates for clinic operators. The government now makes a lump-sum payment per dialysis session, instead of paying for individual services and drugs, putting new pressure on operator revenues.

DaVita runs 1,841 dialysis facilities in the U.S. and 15 outpatient dialysis centers in three other countries. Company chairman and CEO Kent Thiry in a statement said the combination "will create a unique patient- and physician-focused organization," saying HealthCare Partners would remain a separate subsidiary run by its current senior management team.

"We believe our combined enterprise will offer new and exciting levels of clinical quality, service, and consumer/taxpayer savings," Thiry said.

DaVita has a history of growing via acquisition. The company in 2004 bought the U.S. dialysis business of Gambro AB for $3.05 billion, and last year added Centre Partners Management LLC-owned DSI Renal Inc. for $690 million. HealthCare Partners meanwhile until last year was majority-owned by Summit Partners, a Boston-based private equity firm that purchased a large stake in 2005.

Summit according to reports is still a shareholder in HealthCare Partners.

JP Morgan Securities, LLC is providing financial advice to DaVita, with Morrison & Forrester LLP serving as lead counsel to the company and Sheppard Mullin Richter & Hampton LLP providing regulatory counsel. Munger, Tolles & Olson, LLP and Nossaman LLP are serving as legal advisers to HealthCare Partners.