DIALYSIS CORPORATION OF AMERICA
1302 Concourse Drive, Suite 204
Linthicum, MD 21090
Telephone: (410) 694-0500
Telecopier: (410) 694-0596
October 28, 2009
Jim B. Rosenberg
Senior Assistant Chief Accountant
Securities and Exchange Commission
100 F Street N.E.
Washington, D.C. 20549
RE: Dialysis Corporation of America ("Company")
Form 10-K for fiscal year ended December 31, 2008 ("Form 10-K")
Form 10-Q for quarterly period ended June 30, 2009 ("Form 10-Q")
Schedule 14A filed April 27, 2009, File No. 000-08527 ("Proxy
Statement")
Dear Mr. Rosenberg:
This letter is in response to your October 16, 2009 comments to the
Company's responses of September 4, 2009, to your initial August 20, 2009
letter relating to the Company's Form 10-K, Form 10-Q and Proxy Statement.
We appreciate your assistance for the Company's compliance with the
applicable disclosure requirements and to enhance its disclosure in its
filings.
The following responses are keyed to your comments.
Form 10-K
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Results of Operations, page 38
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1. Comment re: comparative tabular format, payor mix computations and
related aging of accounts receivables
Response: Our September 4, 2009 response clarified why we believed this
disclosure was not necessary, and provided expanded disclosure relating to
unreserved accounts receivable, percentage of "patient pay" treatments, and
most revenue derived from government and commercial payors.
This was confirmed in a discussion between James Peklenk, Staff
Accountant, and Lawrence E. Jaffe, Esq. of Jaffe & Falk, LLC, our counsel.
First, as to the breakdown of revenues in the chart on page 36 of our
Form 10-K, since "other private payors" are less than 1% of revenues, as
discussed with Mr. Jaffe, that line item would be footnoted, which note would
read: "Private payors represent an insubstantial amount (less than 1%) of
revenues." If for fiscal 2009, private payors become more substantial, which
is not anticipated, we will break out "other private payors" and provide the
dollar amount for that category.
Further, we will modify our original September 4, 2009 response to this
comment, and add the following to this section of our 2009 Form 10-K.
As of December 31, 2009, approximately $XX million in
unreserved accounts receivable, representing approximately X%
of our total account receivable balance, were more than six
months old. Approximately X% of our dialysis treatments are
classified as "patient pay." Approximately $XX [or X%] of our
outstanding receivables are from private payors. These private
payors represent approximately X% of our receivables more than
six months old, and X% of receivables more than 12 months old.
Item 15. Financial Statements and Supplemental Data
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Notes to Consolidated Financial Statements
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Note 1 - Summary of Significant Accounting Policies
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Accrued Expenses, page F-10
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2. Comment re: revised disclosure to comment three of staff letter
August 20, 2009.
Response: Accrued expenses are comprised as follows:
December 31,
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(in thousands)
2008 2007
---- ----
Accrued compensation $1,486 $1,342
Duplicate insurance payments 1,113 726
Excess insurance payments 3,575 2,063
Health insurance premium payable 341 687
Other 971 1,343
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$7,485 $6,162
Duplicate insurance payments occur when we are paid more than once for
the same service. Excess insurance payments represent amounts paid by
insurance companies in excess of the amounts earned from associated
treatments that are not duplicate insurance payments. On a quarterly basis,
we perform an analysis to determine whether these excess insurance payments
result from payments in excess of contractual agreements, payments made as
primary payor when the party is a secondary payor, or variances to estimated
fee schedules used for payors to whom we are not contracted. Our analysis
includes communicating with payors to determine the reason for the excess
payment. These amounts remain in excess insurance payments or duplicate
payments until resolution, which can vary from several months to several
years.
Based upon our quarterly analyses, we determined that approximately
$553, or 0.7% of medical services revenue for 2008, and $442, or 0.6% of
medical services revenue for 2007, that had been included in excess insurance
payments was nonrefundable. These amounts were primarily related to earned
revenues greater than the estimated fees recognized as medical services
revenue from payors to whom we were not contracted.
Note 7 - Acquisitions
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3. Comment re: clarifying why no customer related intangible assets
recorded; please address:
a. customer related intangible
b. any customer lists; can they be sold
c. hospital contracts acquired
d. support statement that no separable patient relationship
intangible exists that can be sold; any commercial payor contracts
and if transferable; structured relationships with nephrologists
and why no separable customer relationships exist.
Response: It is a standard practice in the dialysis industry to value
dialysis acquisitions based upon a multiple of cash flows. For convenience,
companies analyze transactions and present information on a per patient basis
because the number of patients is normally known to interested parties,
whereas cash flow is not. The consideration for our acquisitions has never
been determined on a per patient basis.
As explained below, we do not have contracts with our patients and
neither acquire nor subsequently enter into contracts with the patients of
any acquired facility, either individually, through commercial payors, or
through nephrologists who refer patients to our facilities. Also, we do not
have relationships with patients that are separable and capable of being
exchanged or sold.
Under Medicare regulations, the Company may not promote, develop or
maintain any kind of contractual relationship with patients that, directly or
indirectly, obligates a patient to use the Company's services, or gives the
Company any rights other than those related to collecting payment for
services provided. As part of an acquisition, the Company is given the
medical records of patients in order to understand their treatment history,
but we are not able to exchange or sell records related to specific patients
or a patient list, which would be illegal under Medicare regulations. We have
not acquired any hospital contracts in any of our acquisitions.
About 15% of our patients have private health insurance and are referred
to as "commercial patients." On average, about 50% of our commercial patients
have an insurance plan where we have a contract with the commercial payor.
The commercial contract specifies what the payor will pay us for dialysis
treatments. It is routine for the Company to have commercial contracts in
place under which it is not treating any patients. It is also routine for the
Company to already have a commercial contract in place before acquiring a new
unit. Commercial contracts are typically annual and can be cancelled by
either party usually upon short notice (i.e. 30 days). We are not contracted
with a commercial payor for the remaining 50% of commercial patients. These
commercial patients use our facilities on an out of network basis.
The Company has no legal basis to require a patient to receive
treatments in its facilities. The patient's primary relationship is with his
nephrologist. Nephrologists for patients at our centers are lawfully
prohibited from, and do not receive referral fees for, recommending our
centers to their patients. The nephrologists are under no obligation to
refer our centers to their patients, who are free to select and change
nephrologists as well as the dialysis facility where they will be treated.
As a matter of law, patients at our centers are free to decide where to be
treated for dialysis. Therefore, a separate customer related intangible is
not created with our acquisitions.
Schedule 14A
Elements of Compensation, page 28
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4. Confirm where compensation committee makes recommendations to the
board inconsistent with those of the CEO, disclosure will be included of
the reasons and circumstances.
Response: We appreciate the staff's note to our prior comment 8. We
confirm that in instances where the compensation committee makes
recommendations to the board of directors inconsistent with the
recommendations it received from the Company's CEO, the Company will include
in its disclosure a discussion of the reasons why and circumstances
surrounding the committee's decision to exercise its discretion to modify the
CEO's recommendations.
Feel free to contact Andrew Jeanneret, Vice President, Finance and CFO,
at (410) 694-0500 to discuss the responses to the financial statements and
related matters. You may contact Lawrence Jaffe, Esq., one of our counsel,
at (305) 364-1300 with questions regarding any of the other matters. Also,
do not hesitate to call me relating to these responses at (410) 694-0500.
We thank the staff for its time, assistance and consideration.
Very truly yours,
Dialysis Corporation of America
/s/ Stephen W. Everett
By:____________________________________
Stephen W. Everett, President and
Chief Executive Officer
cc: Joel Parker, Accounting Branch Chief
James Peklenk, Staff Accountant
Laura Crotty, Staff Attorney