Q2 2020 DaVita Inc Earnings Call

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Good evening, my niece, Andy and I will be your conference later today at this time I would like to welcome everyone to Devito second quarter 2020 earnings call. All lines have been please UN mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If he would like to ask your question. During this time.

First part and the number one and your telephone keypad. If you would luxuries. While your question Press Star then to number two thank you Mr. Jonathan you May begin your conference.

Thank you.

Hi, everyone for second quarter Conference call. We appreciate your continued interest in our company.

The president of Investor Relations, and joining me remotely today, or albeit Rodriguez, our CEO ackerman or CFO lands on won't group Vice President. Please note that during this call. We may make forward looking statements within the meaning of the federal Securities Law. All of these statements are subject to known and unknown risks and uncertainties that could cause actual results.

The differ materially from those described in the forward looking statements for further details concerning these risks and uncertainties. Please refer to our second quarter earnings press release, and our SEC filings, including our most recent annual report on form 10-K, and subsequent quarterly reports on form 10-Q.

Our forward looking statements are based upon information currently available to us and we do not intend and undertake no duty to update these days.

Additionally, we'd like to remind you that during this call we will discuss some non-GAAP financial measures reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release submitted the FCC and available on our website I'll now turn the call over the Javier Rodriguez.

Jim and good afternoon, everyone. Thank you for joining us for our second quarter financial reasons, both burden I want to start as I did last quarter by acknowledging and thanking all of our teammates, especially the thousands of clinicians.

Divide our patients with life sustaining care each and every day.

Past several months had been amongst the finalists in most exceptional chapters in our history, reflecting the compassion and dedication of our teammates.

The company strong performance this quarter demonstrates the benefits of our patient centric comprehensive kidney care platform, beginning with CKD, all the way through yesterday and transplant.

Continuity of care that we offer a patient allow us to meet the patient where they are through offering modality options in the hospital in the patients hall or in the dialysis Center.

We're now nearly six months into this pandemic. If you were to walk into one of our centers you still would experience a high level of energy and intensity among third payment as they provide for the health and safety right patients.

We have supplemented our effective infection control policies by conducting cobot test for patients and teammates both within our lab as well as with special partnership with external labs.

Yes decision and clinician led efforts have enabled us to maximize the number of patient treatment outside the hospital, which of course is good for patients and has helped reduce the burden on hospitals.

While we cannot notes were certainly what lies ahead I can say that we feel prepared to continue our work to keep our patients in our teammates said.

We had a strong financial second quarter as a result, we're raising our adjusted earnings per share guidance for the year by 50 cents to 625 to 675.

Our strong operational performance came despite investments and expenses, we incurred in response to cobot offset by savings associated with the code in the form of reduced travel and health benefit expenses, among other items, which Joe will explain in more detail.

Today I'd like to cover for additional items.

Let me start off by talking about premium volumes and commercial mix two of the largest uncertainties associated with the pandemic that we identified last quarter.

Our patient census has been negatively impacted primarily by coated related death delayed by patient starts on dialysis.

And we expect our treatment volumes for the remainder of the year to fall below the low end of the range of 1.5% to 2.5% provided in September.

The patients that unfortunately passed away due to covert were primarily among our older population and therefore, we're more frequently cover by government insurance.

As a result, thus far we've not seen the material negative impact on our commercial mix, although with only three months of actual data on job losses any assessment of our commercial patient population in their ability to access private versus government health insurance our preliminary.

What we do know is that our private patients has fared better than expected in the quarter as our patients work hard to maintain their employment and their insurance coverage.

While the long term impact of cobot remain uncertain.

Natural offset exists.

And we believe in the resilience of our business model.

For the second topic I'd like to share some exciting developments in our home business. As you know we start from a leadership position in home with approximately 14% of our patient population on home modality and more than 25% utilizing a whole modality at some point during their care journey.

Our home growth continues to outpace our intent or dialysis growth by more than five times and during this endemic we've seen a slight uptick in interest from patient wanting to dialyzer at home.

We now have over 28000 on patients who received training education lab drug and medication at over 1700 50 programs across the United States.

In fact, 95% of dialysis patients live within 30 miles of a Davita home program.

The scale of our home business is the result of many years of investment that we have made in capabilities education and technology to help give patients and physicians the option to choose home dialysis. If it is right for them.

Let me provide a couple of examples.

First several years ago, we launch our home remote monitoring platform, which enables daily moderating vitals for approximately 5000 of our high risk patients.

In addition, early last year, we released a robust home telehealth platform, which now has a user base of over 19000 patients.

More recently, we've continued building out these platforms to provide patient support features like virtual disease management program virtual patient support groups and capabilities that promote continuity of care and support return home therapy for hospitalized patients.

We believe that these capabilities have allowed us significantly increased the frequency of home patient touch it to continue to enhance the quality of care and to help extend the amount of time outpatient spend on the therapy.

The fact that we already had tell health in place is all so served as a significant advantage in our ability to keep these patients and their caregivers connected during the pandemic.

A second example, we're excited about is the launch of our artificial intelligence system that helped identify PD patients that may be at risk for hospitalization, which is one of the largest causes of home patients switching to in center dialysis.

Home growth and innovation continue to be amongst my top priority and we continue to pilot many new programs and ideas around the country to help support patients for whom home dialysis is the best modality. We also believe that our full suite of modality offerings enable us to help patients seamlessly access the right look.

At the right time in their dialysis journeys are.

Our patients should continue to benefit from our national footprint, our physician partnerships in our unique capability as we seek to lead the industry in growing home.

My third topic is calcimimetic as many of you know we're now moving into the next phase of custom Medix reimbursement at CMS proposed including complemented the Medicare bundled payment in that recently issued propose payment rule for 2021.

We believe the DARPA period gave CMS sufficient time to observe utilization and pricing data.

Absolutely in the light of the mix of Ivy therapy and oral therapy.

Over the last couple of years, our position in our clinical teams developed patient centric protocols to achieve our high quality standards for care, which in this instance, also drove down the cost for health care system, because it protocol resulted in a higher mix of low cost generic drugs and a lower mix of higher costs.

Ivy alternative.

We believe that the new rule will result in similar economics for Calcimimetic 2021, as we had guided in 2020, which will help to offset the underfunding of the remaining Medicare bundle.

My last topic is Medicare advantage as many of you are aware and 2016 Congress enacted the 21st century Cures Act to provide all Medicare eligible patients with the option to enroll in Medicare advantage plans, including all srd patient.

We believe that the ending of the barriers that have prevented active dialysis patients from enrolling in Medicare advantage will be positive development for many patients providers in managed care organizations. As this new rule will expand the opportunity to provide coordinated care patients who suffer from multiple chronic conditions.

Unfortunately, CMS is recent ruling that loosen M- network adequacy requirements for only dialysis services calls into question the breadth of the choices available to dialysis patients.

There are many factors that will shape the eventual enrollment in Medicare advantage plans and although we have no clear visibility. We do continue to believe that enrollment in may plan by year, Toby deep patients will be gradual over the coming year.

Now I'll pass it onto Joe to provide an update on our Q2 results and to discuss our financial outlook.

Thanks Javier.

Strong quarter, despite the net headwind from our co. Good response, primarily as a result with improved adjusted margins in our core kidney care business here are some specifics.

Our non acquired treatment growth slowed from 2.3% Q1 to 1.6% in Q2, we believe the primary drivers of this decrease recoded related increased mortality and lower new patient starts were partially offset by a nationwide decrease in kidney transplant and lower.

Ms treatments.

We expect this net co good nag headwinds to persist at least until this time next year.

Total revenue was inline with our expectations as a result of lower volumes offset by higher revenue per treatment.

RPT was due to normal seasonality and co insurance and deductibles and the temporary Medicare sequestration release, partially offset by lower Calcimimetic revenue.

As Javier said, while the long term impact of Kobin remain uncertain, we did not see any net impact on our commercial mix quarter over quarter.

There are a number of factors that we believe underlie this dynamic including among other things job loss rate for our commercial patient population with lower than the national unemployment rate.

Many of our commercial patients who were initially furloughed have since return to work or expect to return to work and finally, we believe that our patients who were laid off have been enrolling in other commercial insurance, just Cobra and exchange plans at a higher rate and we've seen in the past.

Adjusted operating income margin was strong for the quarter at 16% on a year over year basis, our margin expanded due to strong cost management across the PNM and an improvement in our PT.

Calcimimetic contributed approximately $19 million to our operating income in the second quarter.

Now let me give you some details about the impact of co. Good on our financial results.

For Q2, we estimate that we incurred expenses and other negative impact on our operating income of approximately $85 million.

Incremental compensation and benefits to our teammates was the largest contributor to these costs.

Offsets in the quarter to the 85 million include among other things decreased travel lower health benefits expenses and lower facility and training costs.

We also had the benefit of the temporary hall on Medicare sequestration that started in May.

As a result of these offsets we estimate that the net impact of coconut on our operating income for the quarter was between $20 million to $30 million.

Looking forward to the second half of 2020, the impacts of Cobiz is hard to forecast given the uncertainty in the progress of the virus and the economic impact.

While extreme situations could occur that are beyond our range, we have incorporated a wide range of scenarios in our updated guidance, including scenarios in which the net financial impact of Coca 19 in each of Q3 Q4 could be similar to what you experienced in Q2.

Let me next turn to our 2020 guidance.

Given the strength of our first half performance, we're updating our guidance ranges.

We are raising our adjusted diluted earnings per share guidance range by 50 cents.

$6 in 25 cents.

Dollars and 78 cents.

We are raising the guidance range for adjusted operating income margin.

14%.

14.75%.

We're increasing our cash flow guidance.

800 million $2 billion, an increase of $200 million over our previous guidance range.

We are maintaining our guidance range revenue of 11, and a half to $11.7 billion.

But we now expect to be below the midpoint of the range due to the anticipated slowdown in volume growth.

I'm capital expenditures, we provided an estimated range of $700 million to $750 million. We now expect to come in at the bottom end of that range as the pandemic has delayed some project spending while we will not provide.

Alright, and some 2021 today I do want to highlight some of the larger anticipated headwinds and tailwinds compared to our 2020 non-GAAP adjusted operating income.

Primary anticipated headwinds are the volume and mix implications of co. Good.

The primary anticipated Tailwinds include the assumed lack of ballot initiative defense cost.

Hopefully a reduction in net co good related direct impact.

Im calcimimetic, while we still need to wait for CMS. This final rule later this fall we do not expect for calcimimetic to be a large headwind or tailwind to adjusted ROI.

Finally on share repurchases.

We had indicated in March that we are temporarily suspending share repurchases.

We did not repurchase any shares during Q2 or during the month of July we are carefully considering when to restart or share repurchase activity and we'll do so at the discretion of management and within the authorization provided by our board of directors with that operator. Please open the line for QNX.

Thank you we will now begin the question and answer session of today's conference for participants over the phone if he would like to ask your question. Please press star followed by the number one in your phone on mute your phone and record your name when prompted your name is required to introduce your question and to cancel your request press star followed by denim re queue.

One moment, please for incoming questions.

Okay. Great. The first question is from Peto, She Karim from Deutsche Bank. Your line is now open.

Good morning, guys. Thanks for taking my questions pick talk a little more about operating income guidance looking out the first half a year or 16.2%. Despite all these covet costs and looks as though the implied margin for the back half a year is for between 12% for 13.4 percents are pretty big.

Decline useful walk us through for how we would get there as it is it from the treatment growth for flowing down to talk through the detailed as sort of how we get to sort of pretty big margin contraction the back half here.

Sure So Hello, Peter I'll take several here so.

If you if you take the middle of our rainfall again, we're not guiding to OAI, but taking the middle of our guidance I think you would calculate roughly 175 million dollar decline in Oh why from the first half of the year the second half a year.

Three the three biggest component of that are the reduction in calcimimetic profits, which as we've talked about in the past.

Most of our our number our 40 to 70 million in by the way that we do expect that number to be in the top half of that range. So most of that comes in the first half of the year.

Second is the ballot initiative in California, we've talked about that as 50 cents a share cost and that is.

Primarily in the back half of the year.

And then third I'd point to co bid that while.

The cost associated with co bid could come down over the course of the year. The offsets, but also comes down and we're we're using a pretty wide range of assumptions around what could happen in the back half of the year with co bid, but the back half of the year, we'll have two quarters worth of co. Good.

While the first half of the year really only had one quarter's worth of Copel get so if you put those three things together, you'll get the vast majority of that hundred 75 million dollar decline couple of other things I'd point out one is there were some relatively small onetime things in the front.

After the year that.

Aided why and those could.

There could be some negative onetime things in the back half of the year and finally.

Because of co bid and potentially other dynamics there are some costs that.

We didn't incur in the first half of the year and we think those could show up in the back half a year and that could be anything from GE in a projects to.

Facility maintenance and those would be the other two components that would get you to that hundred 75 million dollar adjusted a wide decline at the center of the guidance range.

Okay, and then as a follow up to talk a little more about the funnel Medicare advantage rule of thumb Kieser walk us through through how that impacts your negotiations with any plans.

When you think you'll start seeing impact from the changing rules the 2021 event.

As a multi year contracts is more spread out and then your discussions with the May plans have you had conversations around bonus point, a bonus payments for better managing patients or is it too soon and then finally, what's the checks and balances on M&A plans. They don't certified network that is to narrow.

Peter Let me, let me grab that and Joel if you want to supplement it and you had several pieces. So if I Miss anything please come at me again. The short answer is we don't know what the implications are what we do know is that from a network adequacy. There you should be an objective standard that.

Time and distance and now it's subjective standard it might mean, nothing you might mean that that the plans just now a test and life goes on as it did in the past. It also might mean that some plans might get aggressive and not have adequate standard.

And network. So it's too early to tell but from our perspective, it is pulling out and discriminate against the us or the patient because if you don't have the proper network adequacy, you in essence or dis encouraging enrollment and so.

From our perspective, it's just an unusual thing.

And it goes against the patients right, we waited for very long time.

Have you started the patients being equal footing to everyone and they deserve the right to pick M&A, just like anyone else and so that was a disappointing part as it relates to negotiate negotiations as you shut.

We have multiyear contracts with most of our M&A plans.

We are working with them, we think that we combined can can work well together can work on MLL R and can do really good things for the patients as it relates to coordination of care.

But it is too early to tell as not many contracts have occurred.

Right did I Miss any of your question no notice going I mean.

I guess, a logical would be what are the checks and balances. So if if I may plan has a self certify what what's a balanced mix or that they don't self certify in their workers to narrow.

Yes, I mean, and that's part of the problem there right now it goes into some kind of subjective to station that they have proper network and from our perspective curse. What we're doing is keeping our radar up to make sure that.

The spirit of the law is adhered to and but we don't know how it will be enforced great. Thanks, so much.

Thank you.

Thank you. The next question is from Kevin Fischbeck from Bank of America. Your line is now open.

Great. Thanks.

Just wanted some any follow up on that I guess, you mentioned most of your contracts are multiyear contracts. It does that mean that you're entering 2021 with relatively similar economics within your M&A plans as you have today in 2020.

I think I think it's fair to say.

Yes on any given year you have renegotiations, but it's the same every every year once in awhile they overlap.

But it is a fair assumption at this juncture of course, we still have the back end of the year to do negotiations and there is a big big appetite from us and from the planned on trying to do something that is.

Useful in creative to the system, so that we take.

More risk and provide a higher and services to the patient so.

We're still in the conversations we'll see how pans out.

Yeah, I guess, it's just happened a couple of months ago. So maybe not many contracts that have been implemented.

I mean are you are you at all I assume you're you always have conversations with health plans I mean does it sound like.

They're planning for aggressive changes at this point or give any sense.

Yeah, I think the reality Kevin is that everybody is trying to do something constructive.

As it relates to this opportunity for the patients have coordinated care and so the plan then us or trying to see what risk appetite. They have what can our system to work in their system do but for both both sides have big appetite to do something that's useful for this patient population and so.

We'll see how that pans out overtime.

And is there a point in time this year, where you think you would have a better sense of of this with on the Q3 call will you pretty much.

Good visibility as far as at least 2021.

Goes or do we have to wait until Q4 results.

I think it'll take a little longer to play out because of the interplay of expirations and when contracts come up.

Coupled with the fact that I don't know, how covance going to impact and Goshen. So if I had to guess I think it's going to take a bit longer than that.

Okay, and then so I guess as far as your cosmetics point, I guess, you're saying that next year.

We will be neutral to earnings so if you're making close to $70 million this year.

It is that it should be a similar number next year is that the right way to think about it.

Yes. So look there is there remains some uncertainty for next year, but there was certainly a scenario where the O Y went to zero so relative to that we feel like we're much better shape and.

I'd say 70 ish is or is it reasonable midpoint of the range.

That said I would highlight what im saying that's important for the way, we're thinking about Oh, I going forward, which is.

We have called out Calcimimetic as.

Something that I guess I'd call nonrecurring because of the to DAP a period and the nature of to adapt a reimbursement. It is it is not permanent has this enters the bundle next year.

I would consider the ROI that we are generating from Calcimimetic Ics to now be part of our core lie because it has permanent finding its a permanent component of the bundle, we're going to stop calling it out and in my mind It will become part of our core.

Earning power of the business.

And Kevin I'll, just add one point in case, it's not clear for some reason why we don't have a precise number and Joe give you a bit of a range is because CMS is going to adjust the amount with Q4 SP and we don't have an exact number we have an estimate.

Okay.

All makes sense I guess, the right to think about it is that in the first half of next year it'll be a headwind, but in the back half of next year year over year, it'll be a tailwind because it will be uniformly spread out throughout the year sort of front loaded this year I think thats a good way to think about it.

All right and then maybe last question the.

I wasn't clear to me exactly you mentioned about why the commercial mix with strong it thinking that you made some comments around.

You know your patience signing up for Cobra alternative coverage that makes sense to me, but some of the comments about.

Less job loss and things like that can you go back over what you were getting out there and why why it would be the case that maybe so far at least that the the job losses than less impactful to your.

Okay. Since then than it would be otherwise you would expect.

Sure so.

There.

There are three dynamics affecting mix. The unemployment question is one of them. So let me tackle that and.

We highlighted three things one is.

Job loss in our population is lower than what we're seeing in the national averages and we think that because.

The the employ the employee men mix I'm not exactly what to call. It of our commercial population leans more towards things like government and education and less towards things like hospitality and travel so the.

Sectors that are employees, our patience work in have been less impacted by the economic effects of cold bid. So that's number one.

Second.

A lot of the unemployment that we saw in our population was was the result of furloughs, rather than job losses, and a lot of those have reversed so those patient never lost their coverage and they're now back at work, where we where they expect to be back at work and third.

As our patients have lost there.

Employer based commercial coverage they have worked hard to maintain alternative commercial coverage.

Hi, there through Cobra or the exchanges.

And we're seeing that happening at a rate higher than what we've seen historically that said, we don't have a lot of historical experience with exchange is because the exchanges didnt exist during the great recession in Oh, eight and nine so that's the that's why we're library.

Why we think we're seeing less of a mix decline on commercial related to unemployment.

I would also point out that mortality is actually beneficial to commercial mix in the short term because.

All their patients are passing away.

At a higher rate than younger patients and government patients tend to be older and commercial patients tend to be younger. So that's helping and then the decline in transplants is also helping commercial patients get transplanted at a much higher rate than.

Supplement patients.

Kevin I'd like to state one thing and over arching important part that we've learned and that is that in talking with our commercial patient. It has really reinforce how hard our patients work to keep their commercial insurance and how much they value it.

And so that has been an absolute clear take away from this period.

Great. Thanks, Thank you.

Thank you then next question is from Andrew mock from Barclays. Your line is now open.

Hi, good afternoon. Thanks to the question just wanted to follow up on Medicare advantage as we approach the fall open enrollment season, what's the awareness level among your traditional Medicare patients that they're going to have the option to enroll in a private Medicare plan this fall and relating to being what it. So what are some of the patient education efforts you're doing on this topic. Thanks.

Let me grab that one the as you would expect with any population in anything new.

The information flow is wide and range from the people that are up to speed to the people that are completely.

Uninformed on it and what we're working really hard to do is to have totally on bias an objective training that is.

Customized to each person. So you can you can look at it from your personal perspective, because what's good insurance for one person might not be good insurance for the other depending on what you have as a secondary coverage or what your family means our or where you are in your life and so our main objective it's Rick.

People to have a balanced perspective than are aware of their choices and actually get some to pick whats right for them.

And and the knowledge base is pretty much all over the place.

Got it Okay and then just wanted to follow up on the strong cost management in the quarter can you put some numbers around some of the productivity of Gionee gains you saw on Q2 and how much of that you think it's sustainable heading into 2021. Thanks.

Yeah. So there's nothing in particular I'd I'd call out on on either of those things.

The.

There is I'd say on the Gionee, maybe there's a little bit of a question on whether we're going to give some of that back in the back half of the year and that some of that.

Half one over half to bridge that I'd put back that I that I'd pointed out at the beginning of the call, but there's nothing.

Unusual that I'd call out.

Other than that.

Okay. Thanks.

Thank you. The next question is from Justin Lake from Wolfe Research. Your line is now open.

Thanks.

Afternoon appreciate the question.

Just a one more on Medicare advantage networks.

Well there was little surprised when you answered the previous question. So you might not go out the networks looks.

Your next by your next fall.

The my understanding of a.

The players up a quote out their products.

Because mid October.

Yeah, if they were at that point, we don't they have to publish their networks.

You know, whether you're in or out of the network at that point.

I want to at least.

Yes, you you're absolutely correct, Justin So maybe I was answering a different question, which is I.

I think what I was answering is fully understand the sustainability or if there's going to be macro changes in the short term networks I don't I don't anticipate anything major changing I could be surprised but I don't anticipate that.

What I was answering is how will it change over time.

And I thought that by then we would not see how it will behave over.

An extended period of time.

Got it sort of take only as Youve given your conversation given how we R&D youre already.

I think those March likelihood of.

Even though the Vito being removed from network in Medicare advantage for 2041.

Yes, there could be some level.

Evaluation overtime.

The 2020 to 2023 in terms of pricing.

We got worked with them.

Yeah, I mean, it said differently you you have some bad but you won't have.

A significant part of the portfolio or anything and so that'll play over time.

And so you are correct in there in your assumptions that in the fall, we will have clarity, but as you know.

You can be in the network in the fall and then a month or two later you can be out of network. So I don't know how much you can bank on that fall in network statement holding for the future.

Got it thanks.

And then I wanted to ask about the I apologize if I Miss those Joel.

And your revenue per treatment was off pretty significantly sequentially or can you give us as much detail enough Swift.

Also medix looking like its.

Declining.

X calcimimetic, what's the number there and.

A sequential increase and what are they kind of key drivers that you want to focus on.

Sure. So ex Calcimimetic, it's between five and $6, we're talking quarter over quarter or P.T. change a lot of that is seasonal.

And think of co insurance and deductible.

Some lower bad debt associated with with patients flowing through those.

That is by far the biggest factor.

The other stuff is is just some I'd say typical bouncing around.

Hey mix and commercial mix and a little bit of pricing.

It's mostly a seasonal impact.

Yes, Joe the only thing to add to that is the there's a there's a little sequestration in there as well.

Yes, Oh, yes that is well.

Got about just trying to your Javier Yeah me too.

So that's a little debt I'm, sorry, just to juggle, but just to be clear the number I gave.

Backed out the sequestration, so that five to six was without sequestration.

Cooperation is wasn't about a buck and a half.

Okay, and what was calcium rabbits work.

But since along the problem.

No someone was going to ask me that I think it was 50 cents, although I'll I'll get should that exact number.

Yep Revenuer problem.

Oh Im sorry.

Ignore the 50 cents number the RPP from Calcimimetic.

Went from $9.55 to $7.

So about a two and a half dollar decline as a result of Calcimimetic RPT the Oh why.

So the dollar number went from 35 million in Q1 to 19 million in Q2.

Okay, and then in terms of commercial mix and commercial fleet and growth.

Mix was flat.

And therefore promotional promotional patient growth was similar to overlook that should grow.

Mixed didnt have most of do with us in terms of August six Bucks.

Right.

It is this a reasonable number to jump off of X calcimimetic.

So you think that he didn't number for Threeq Fourq is that we should think about.

I think it is a reasonable starting point, although I think you'll you'll see that that negative seasonality in Q1, you'd expect to see that next year. So.

Don't use that as an annual run rate, but use that as a number for the next couple of quarters.

Okay, Great I'll go back into queue, but.

Thank you. The next question is from with male friends you'd be ask your line is now open.

Oh, Thanks, I'm still trying to wrap my head of <unk> around the implied to core growth and and the quarter.

You guys, usually have tremendous visibility into a lot of the expenses as you set your original plan and now we're looking at a number that's much higher so it certainly seems to imply that something got much better. So I'm I'm really kind of curious what that is because as we.

Let out the Colby costing calcimimetic sequester everything you've laid out I mean, it implies by my math that decor why was up.

8% year over year, So I'm, just trying to take a crack at this from a cost structure standpoint again as there is there anything else you can point to that has come in you know meaningfully below what your original expectations were coming into the year.

So with if I were to try and.

To explain why is the numbers are better than what we expected.

First it's all core margin Theres nothing.

The usual here the business the core business is performing well I would point to productivity being a bit better than we expected facility costs are a bit better than we expected.

RPT is a little bit better, but that's offset.

A fair bit by volume being light.

So it's think of core margin.

Largely driven by good cost management.

Okay.

Is there any way to put numbers around either the cobra or the exchange uptake of and I presume you have a lot of data internally around your patience in there.

Their coverage and I'm, just sort of trying to wrap my head around the conversion rate into into Cobra, because I presume that it's it's fairly high so I thought I'd, just maybe asked a little bit more directly the question.

You know I looked at the the question you're asking we don't disclose it in details.

But I think what you're trying to get to Directionally is do we have a big spike in Cobra.

In 18 months or in some data in the future.

Oh come through says that is that fair.

Where are you grow that actually isn't the premise at all I mean, I think of the debate in the marketplace to be.

Perfectly candidate is that you have your you're very dependent on your commercial mix and so people have been concerned and I.

I think my point is that.

A lot of these patients find that they have alternative options in the great number of them high percent fine coverage through Cobra. So it was actually the premise was totally the opposite.

No I think what I would say is what we said earlier, which is and I think it's consistent the where you're saying, yes, our business relies on a patient population in an incredible way we have been very impressed.

With the passion that our patient tab to keep their commercial coverage and one way or another and as Joe said Theres, a big distinction between furloughed versus permanent job losses, and we have seen that a good chunk of our patients that are working that were furloughed are back.

The work and then out of the ones that have permanent job loss, which a number again was less than we anticipated.

Many have had alternative coverage.

That covers the whole spectrum there.

No. It's it's helpful. Maybe one last one and this is perhaps an impossible question, but I thought I'd ask it hobby or what does a hypothetical Biden administration mean for davita and the industry, but the charitable premium rules been sitting out of the Ob forever, but that was obviously, they're under the prior administrations, who knows if that revives itself.

I have no idea with the status of it is and we rarely talk about public option Medicare expansion on these calls maybe world just smart enough to be more skeptical on policy like this but I'd just be curious to hear.

Your general thoughts.

About a what biden would mean.

Yeah, It's it's a it's a great question. The one that we've talked about in general what we try to do and we've done a decent job is to make sure that we're talking to both Republicans and Democrats because our issue goes across across both side I mean, the biggest change that we can think of.

As it relates the policy is probably one of tax.

And whether they're able if there is a bite administration, whether you also have the Senate or not we'll obviously be a big driver of tax policy as it relates to healthcare policy as you know it as a as you said a much much bigger lift to change and we will of course be a part of it but what we want to do.

It's continuing to push and advocate for our patients and for integrated care, regardless of who's in the White House.

Okay. Thanks, a lot. Thank you.

Thank you. The next question is from Gary Taylor from JP Morgan. Your line is now open.

Hi, Good afternoon, I wanted to just come back to one topic. That's been asked about a few different ways and I'll ask it a little bit different seems I get a little more help.

Obviously, an amazing job on expense management, maybe maybe to Q is turning out to be the you know the amazing cost management quarters, but.

When you'd laid out last quarter, you know up to an incremental 100 million of.

Over the expenses, which is like $13 a treatment certainly didn't think patient care costs would go up 62 cents sequentially. So I've heard you know the comments about the productivity of the facility costs.

Health benefits I guess could we just talk a little more about the source of the productivity.

I know you would even for a period of time I think we're paying an extra $100 a month to a fair number of your.

Teammates and you know, it's kind of the opposite of productivity you had set up some split shifts to sort of isolate coated.

Positive its expected patients so the whole orientation.

Well this is gonna be the opposite of a really strong productivity a quarter and yet you performed really really well so.

Maybe just some examples of how you're finding this productivity and what sort of facility costs and.

With the health benefits piece, just your own employees, you know consuming less health care and that was quite material I.

I know you've been asked several times, we'll just anything incremental would just help us sort of.

Think about you know modeling going forward.

Yeah, there's a lot going on and we're very proud Gary.

The cost management situation. So let me try to be is helpful. As possible because there are several things first a clarification, yes on our healthcare expenditures our teammates just like everybody else used less benefit on non essential care. So that is one.

Number two.

Our caregivers sense of purpose was really passionate and so therefore, we had less turnover because people felt.

That sense of obligation to take care of our patient and show the combination of economic need and appreciating a job well. So many people were for load and lay off in the sense of commitment to our patient had less training expense and then the last thing that I would say is.

That also there were some of our teammates that workover positive and so what we ended up doing is is that having two.

Basically in some places like New York and others were staffing was really at a premium and so when you cohort at centers et cetera, which is what you were alluding to earlier, sometimes those shifts we're not as inefficient as we anticipated because those two shifts tended to be more fool than my one sentence.

Paid it and so if you have a full cobot positive shift even though its cohort it it's not inefficient when it's really inefficient as we have one or two patients in it.

And so that's the cumulative Matt.

Compounded over the quarter and we were very diligent trying to manage it all.

That's helpful. Two more quick ones on the 35 million dollar legal charts was that related to any legal issues that had been historically disclosed in your filings or was this.

You know professional liability issue or any other color on that.

Yeah, I'll take that one Gary was related to shareholder litigation, that's been hanging out there for a bunch of years.

Related to SCPA.

Our view is what we did was appropriate but just clean this up and move on we thought it was worth settling this so it's related to that issue.

Kevin This last one for me.

And I've, just forgot and with the difference between your 0.7% increase in treatments per day.

And your 1.6% normalized.

When you have the exact same number of treatment days 78.0, 70 point of the calendar isn't.

Thriving that and I don't think there's been a divestitures so.

I'm just trying to recall, how we square that that yeah. There is there's a bunch of noise associated with divestitures and some other things, but there is one big movement that I would highlight there which is we had a bunch of clinics that we deconsolidated as of the first of the year.

And those are those are.

Treatments that we would back out of now, but we don't back them out of the treatment count and that's worth I think about 50 bips under the difference.

Okay. Thank you.

Thank you. The next question is from that lever there from William Blair. Your line is now open.

Hi, Good afternoon, one of that's a little about the footprint I think we heard on the first quarter that in terms of footprint Bill do you think you said, hey, wait and see interest what happens with industry volumes, what happens on home side, and obviously, a 28 new centers and then maybe added onto that after a couple of years.

Okay stagnant, Oh, U.S. number I know, there's a lotta rationalization going on now added about 40, new centers O U S and the last four quarters, maybe just an update on a it because it about that both on the U.S. and I guess side.

Yeah, I'll pick that one Javier.

So most of the action is on the U.S. side as you would expect.

The the number there is a bit of a lagging indicator.

Because.

It was on when we get certified by CMS. If you wanted to think about a number that track more carefully with with the decision, making and the Capex number it would be based on when when the clinics are are completed what we call a certificate of occupancy.

And you'd see that number much lower so for next year I don't want to give a range yet, but you'll see that number come way down again.

And I assume going forward.

People want to understand how we're doing in terms of building capacity and being capital efficient I think the development Capex now is going to be a better indicator of that then the clinic number that we've disclosed historically and that's that's driven partly by this time dish.

It's also driven by the fact that we're building more home only clinics, which tend to be cheaper and aren't in the clinic count that we've historically disclosed so I think the messages.

The de Novo continues to come down as as now comes down as as we move more to home there could be a kind of an additional delay associated with co bid.

Partly because of a temporary decline in nag, partly be it's just hard to build clinics in the context of cobot, but relative to the commitment we made around capital efficiency I think we were continuing to deliver on what we said we would.

That's helpful and then or.

I just want to ask a little bit about comment you made around NIST treatment I know you mentioned that commercial patients and to.

The higher higher Conns transplants, but what do you see in terms of discrepancies.

If a pair classes per visit patterns did patients in that kept population tend to have higher Miss treatments. During this period and wasn't midstream is much lower commercial I guess just wanted to look like amongst payer classes.

Yeah, we didnt break it out by payer classes, but one other thing that we are very.

Very happy about is the fact that Mistreatments went down during this period, meaning that our patients were taking the virus very seriously. They were taking care of themselves and then we were able to take care of them outside of the hospital into.

I would have to say that the math the way. The math works then it was across all payer classes, but I don't know that with certain me because I didn't divided.

By period class, but in general.

We were very happy to see that hospitalization went down for our chronic population in a significant way.

And there was there any change in terms of referral origin throughout the quarter or anything you see from Covidien don't normally about half your patient start thousands in the hospital spending, but just curious as cohort has progressed.

Hospital visit patterns have changed little bit what you're seeing in terms of origination.

So I think your question is is.

The way that we get our patients change, meaning is there is less crashers into the hospital and going into our center first.

And in the short answer is that we have not seen a change and noticeable change in the way that our patients come.

Okay fair enough. Thanks, Thank you.

Thank you. The next question is from Kevin Fischbeck from Bank of America. Your line is now open.

Hey, just a follow up a couple of things I guess first you met you obviously, a wet the little under treatment a guidance for the quarter. It sounds like you're below that for just a few more quarters.

Yeah how.

Confident argue that this is purely cobot related and not a you know.

Continuation of the decline I get that we've been seeing the last couple of years.

I had a much higher growth rate.

A few years ago, taking that down a couple of times.

What about visibility you have this is a temporary thing we'll get back to the one an app to an app.

Yeah, Kevin will why don't I give you a little the variables and then if you want to test the assumptions you can because there is an interplay of several variables and so in essence, what would happen in the quarter is a mortality increase and as we've told you it skewed toward.

More older population.

The acute volume.

Acute treatment went down.

And that's obviously in our mind because of non essential care are being delayed. So we think that that is absolutely code related.

The incidence of our new patients came down as we talk to our Nephrologist.

They you know we tend to think just in the high level. Okay. Your kidneys, Phil you have to go dialysis, but the reality is that it's more nuance in that you have some remaining renal function in sometimes your nephrologist has the decision to make are you better off starting dialysis with some renal function.

Showed that you do better on the therapy and right now during the pandemic, they're saying is it better to start you off a little later, so we saw our new patient incident decrease.

We of course saw no visitors because of travel restrictions and then and then we show a decrease in transplant, because obviously transfats were shut temporarily which in essence was an offset and so and then as we already talked about we saw mistreatment go down so that.

Got it was also an increase to volume so when we net all of that and we'd give you what we expect in the backend.

Our assumption is that overtime. This is likely to normalize except of the impact on mortality overtime.

So oh that makes sense is that doesn't mean that kind of in response to the last question about.

Yeah, how patients are coming in that you're not seeing more patients crashed now, but you think that if this continues that we will then.

See that it and.

That's a good sign at all but it would be good sign that fundamental demand as it is higher than what you're seeing.

Yeah that would be all speculative I'm, just telling you what our nephrologists are telling us about their practices in most of the practices for little while obviously were shut down for the non essential care there were still running in the hospitals. So what we're anticipating now that we're talking on a prologis and their practices are back open is that they.

I've not seen any dramatic change in of course.

That's that's not scientific were just telling you what we're hearing from our nephrology practices.

Okay, and then I guess, yeah, you talked earlier about how this quarter's kind of better because productivity has come in better than expected.

Is there a reason to think that these parts of the game cannot be maintained through a more normal operating environment if cobot yeah.

Start to go way next year can you keep this productivity.

Going to I don't think you'd mentioned that is one of the headwinds.

The 2021.

Yeah productivity will be interesting of course, some other things will go away you know people will end up going back to the Doctor in our benefit expense will go back up as it relates to a training expenses and retention I think that will be highly linked to the economy and how.

It's doing and how people are feeling about value in their job and in the sense of purpose that we're giving them and so I think in general you could say it would it could stay.

And then you could make an argument that it'll go back to what it was but I think it will be highly link to what the broader economy is doing and how cobot is impacting the time.

Alright, great. Thanks.

Thank you.

Thank you. The next question you spend Justin Lake from Wolfe Research. Your line is now open.

Thanks, a few follow ups, you're a one Joe your corporate and ancillary segments looked down pretty materially more twoq versus what you.

Just curious if you can milled anything there and how to think about those numbers it looks like.

Yeah.

Hi, I'm trying to remember if there's anything in particular, we we had a we had severance charge built in is about 12 million and I'm trying to remember that was Q1 or Q2, I'll I'll get you to ask that Joel that was.

You too and that was held in the corporate segment Q1 had a large benefit in international which is in the strategic initiatives segment from exchange rate, where I am right you know it swung a little bit the other way.

Yeah, we had thank you Jim I appreciate it.

We had 10 million a positive foreign exchange in Q1 through through international and that swung to a 4 million negative in the second quarter.

Oh, well explained with rights, so Dan or.

You know back to woods question into the obviously the on or your your comments around Coburn extremes take off being greater.

Given the where the economy's going that's a pretty important swing factor.

And obviously it sounds like its own better than expected. So it would be helpful to most of them understand where it's been historically.

And where are and where it is now.

Could you share this evening round numbers.

Yeah, well give you round numbers and then let me make sure I'm answering the right question Justin are you asking.

Mix of Cobra versus other commercial insurance.

No I'm asking the are you said, there's you know it's been a pretty much no material increase in a number of people signing up for kroeber extreme somebody loses their job.

Would you seem to the other periods like this.

Yeah, what I, what I would say right now without getting into details is I'll just reinforce what I said.

That our patients are very passionate about keeping their commercial insurance for for a variety of reasons, including their family coverage and some I believe that it enhances and they're odds of getting a transplant and in some instances, it's obviously the cheapest.

Our coverage with with the most flexibility and so they're making those decisions carefully as they know it impacts are like in a non trivial weight since they consume so much health care.

No and then Joel.

You gave 2021 headwinds tailwinds.

And the you didn't mention Medicare advantage accelerating growth as a tailwind the 2021.

I'm curious what do you feel is your view that we shouldn't expect it to be impactful next year. Many you don't pick ups in a way up versus what we've seen the last two or three years and if so what else.

Well like I think we've been pretty consistent with what we've said about Medicare advantage, which is we don't see 2021 is this huge inflection point in enrollment.

We think m- enrollment will continue to grow it could grow a little bit faster next year.

But.

We've we've just had a different view than others in the industry. We think a lot of our patients are happy with their Medicare fee for service coverage. There is some level of inertia.

And we just don't see it being is this massive uptake in one year.

Got it might be I, just think there's a pretty big Delta between you know massive uptake and what looks like you don't couple percent increasing penetration to your maybe a little more.

Well. It's are you, saying that you really think it's probably going to be the typical two to 300 basis points degrees.

That we've seen the last few years.

Relative because you know what I think some might have expected it to be more like 500 plus.

Yeah, Let me, let me jump in because.

You have as much information as we do on this just in what we can tell you is were roughly around 25% of the Medicare patients are picking him have in may in our population you probably have a better number than I do but the industry tell is around 35% right and so everybody continues to say well will it be more than 30.

Five are we going to get to 35 in year, one of enrollment and what we've consistently said quarter over quarter is that we think it'll be more gradual and we think it's more gradual for some of the dynamics that have been said today that there's a patient population. It's uninformed, there's a patient population that like status quo.

So don't underestimate inertia.

If you say will even though there might be a better product for me.

Like my product or I'm satisfied with my product and in many people just don't have interest in switching because they fear the unknown and so we're just saying a change for some are hard and we think that it will be more gradual and we could be wrong, but where we want to make sure is there.

As a time, where there was a lot of people, saying that the change was gonna be very very.

Fast and it was going to be a quick ramp up and why they could be right. We don't think that that's the way it will play out.

Okay.

First of all cause us.

Thank you Justin.

Thank you then next question is from Pinochet Green from Deutsche Bank. Your line is now open.

Hey, guys. Thanks to the follow ups all keep his brief due to the time can you remind us what your commercial pricing was during two Q and has it been relatively stable for 2020, so far.

I'm sorry, what is a question on commercial pricing I cant. He can you tell us what a course of pricing was you know did increase in into Q. It has what you've seen a course of pricing being fairly stable so far in 2020.

Yeah, there's nothing to call out.

On our commercial pricing.

Okay.

How much productivity that you guys saw onto Q came from shifting people into the home setting.

I don't know the answer that Joe do you know the answer that I mean in general I I think we're we're we're not going to get into the the nuances of a productivity changes on a quarter to quarter basis I think the message. We're trying to deliver is we'll continue to do a good job.

I'm cost management, it's driving good margins in the core, but I don't think we're going to get into that level of detail.

Alright, and then walk from here is a mass is properly on the call I guess it will open up 28 centers are into Q to your point, that's a lagging indicator where things are going if we think about sort of 2021 in terms of the split between home clinics is thinner clinics, what's the right split as these eventually flow through into where are you guys.

When it started opening of clinics.

I do not have been number in here, but Joe keep me honest there's been a number is roughly 50 50 on our growth for next year between and center and home centers.

That is correct.

Thanks, guys very much I appreciate your time, thank you it.

Thank you live in next questions from with Mayo from you'd be asked your line is now open.

Hi, Thanks, you guys just have to cut us off I forgot one more because I've had several emails on the topic of revenue per treatment and you've reported 352 in the quarter take out you know $7 for Calcimimetic. So we're down to 340 fives I calculated the sequester maybe being a.

60, so I'm getting down so you know 344 and you do the same maps last quarter. It was 338 so.

You've got $6 of growth in the second quarter versus the first quarter. So I guess the question is if your commercial mix is largely.

Flat versus the first quarter, what drove that incremental improvement and historically, there's not that much seasonality in the pricing when we reflect back on prior years. So just trying to.

Flesh out theres anything else that might be influencing that that number off.

Yes, so with its it is largely seasonality I think we're seeing a little bit more seasonality this year because of some bad debt dynamics, but I would.

Say about two thirds of that $6 and your math is pretty spot on is seasonality the balances I'd say normal fluctuations.

So when you when you see bad debt does this mean that patients have already run through their deductible I guess I want them, maybe understand a little bit more.

Exactly yeah as as patients run through their deductibles and their co insurance.

And there are some other dynamics that play through in bad debt.

That's exactly what is it's exactly what you'd expect that.

Okay, Okay, but no other like.

Peer settlements or anything.

Usual that nothing else you know nothing else to call out. It was I think Justin asked me before is this a reasonable RPT to use to start your modeling for the rest of year and I think the answer is yes.

Thanks for the clarification.

Thank you at this time speakers, we didn't have any questions. Thank you.

Well, let me add thank you for all the questions.

And thank you for the interest in the company and let me finish with three statements number one I just want to reiterate how proud I am as the care in the accomplishment of the team. They are working nonstop and it is a beautiful thing number two our core business is strong and number three we continue to make great strides on it.

Capabilities to advance the care continuum across home hospital.

And in center, we look forward to speaking with you again next quarter be well stay safe.

And that concludes today's conference. Thank you all for your participation you may now disconnect.

[music].

[music].

Good evening, my niece, Andy and I will be your conference later today at this time I would like to welcome everyone to de Vito second quarter 2020 earnings call. All lines have been please UN mute to prevent any background noise. After the speaker's remarks, there will be a question on chirpy, yet if he would like to ask the question. During this time seems depressed hard and they didnt.

And one of your telephone keypad, if he would like to me the while your question probably starting to number two thank you Mr. I guess effect you may begin your conference.

Thank you and welcome everyone for second quarter Conference call. We appreciate your continued interest in our company, Jim Gustafson, Vice President Investor Relations and joining me remotely today, our Javier Rodriguez our CEO.

Our CFO.

<unk> Vice President. Please note that during this call we may make forward looking statements, but in the meeting of the federal security laws.

These statements are subject to known and unknown risks and uncertainties that could cause actual results could differ materially from those described in the forward looking statements.

Further details concerning these risks and uncertainties. Please refer to our second quarter earnings press release, and our SEC filings, including our most recent annual report on form 10-K, and subsequent quarterly reports on form 10-Q.

Our forward looking statements are based upon information currently available to us and we do not depends and undertake no duty to update these days.

Finally, we'd like to remind you that spring. This call we will discuss non-GAAP financial measures reconciliation of these non-GAAP measures to its comparable GAAP financial measures included our earnings press release submitted the FCC and available on our website I'll now turn the call over the Javier Rodriguez.

Jane and good afternoon, everyone. Thank you for joining us for our second quarter financial result, burden I want to start as I did last quarter by acknowledging and thanking all of our teammates, especially the thousands of clinicians will provide our patient with life sustaining care each and every day.

Several months been amongst the finest in most exceptional chapters in our history.

Electing the compassion and dedication of our teammates.

The company's trunk performance this quarter demonstrates the benefits our patient centric comprehensive kidney care platform, beginning what CKD, all the way through yesterday and transplant. The continuity of care that we offer accretion allow us to meet the patient where they are through offering modality options in the hospital.

And the patient call or in the dialysis center.

We're now nearly six months into this pandemic and if you were to walk into one of our centers, it's still would expand to high levels energy and intensity amongst our team. It is they provide for the health and safety right patient.

We have supplementing our effective infection control policies by conducting cobot tetra patients in teammates both within our lab as well as special partnership with external lab.

Hey tradition and condition led efforts have enabled us to maximize the number of patient treatment outside the hospital, which of course is good for patients and has helped reduce the burden on hospital.

While we cannot know for certainly what lies ahead I can't say that we feel prepared to continue our work to keep our patients in our teammates sake.

We had a strong financial second quarter as a result, we're raising our adjusted earnings per share guidance for the year by 50 cents.

25 to 675 or.

Our strong operational performance came despite investments and expenses, we incurred in response to cobot offset by savings associated with the code in the form of reduced travel and health benefit expenses, among other items, which Joe will explain in more detail.

Today I'd like to cover for additional items.

Let me start off by talking about treatment volumes and commercial mix two of the largest uncertainties associated with the pandemic, we identified last quarter.

Our patient census has been negatively impacted primarily by Cobra related death delayed by patient starts on dialysis.

We expect our treatment volumes for the remainder of the year to fall below the low end of the range of 1.5% to 2.5% provided in September.

The patients that unfortunately passed away due to code for primarily among our older population and therefore, we're more frequently cover by government insurance.

As a result, thus far we've not seen the material negative impact on our commercial mix, although with only three months of actual data on job losses, any assessment of our commercial patient population and their ability to access private versus government health insurance our preliminary.

What we do know is that our private pay census fared better than expected in the quarter as our patients work hard to maintain their employment and their insurance coverage.

While the long term impact of cobot remain uncertain, some natural offset exists.

And we believe in the resilience of our business model.

For the second topic I'd like to share some exciting developments in our home business.

As you know we start from a leadership position in home with approximately 14% of our patient population on home modality and more than 25% utilizing a whole modality at some point during their care journey.

Our home growth continues to outpace our intent or dialysis growth by more than five times and during the pandemic, we've seen a slight uptick in interest from patient wanting to dialyzer at home.

We now have over 28000 on patients who receive training education laptop and medication that over 1700 50 program across the United States.

In fact, 95% of dialysis patients live within 30 miles of a Davita home program.

The scale of our home business is the result of many years of investment that we have made in capability education and technology to help give patient and physician the option to choose home dialysis. It is right for them.

Let me provide a couple of examples.

First.

Three years ago, we launched our home remote monitoring platform, which enable daily moderating vitals for approximately 5000 of our high risk patients.

In addition, early last year, we released a robust home Tele health platform, which now has a user base over 19000 patients.

More recently Weve continued building out these platforms to provide patient support features like virtual disease management program virtual patient support groups and capabilities that promote continuity of care and support return home therapy for hospitalized patients.

We believe that these capabilities have allowed us significantly increased the frequency of home patient touch it to continue to enhance the quality of care and to help extend the amount of time outpatient spend on the therapy.

The fact that we already had tell help in place and all so served as a significant advantage in our ability to keep these patients and their caregivers connected during the pandemic.

And second example, we're excited about is the launch of our artificial intelligence system that helped identify PD patients that may be at risk for hospitalization, which is one of the largest causes of whole patients switching and center dialysis.

Growth and innovation continue to be amongst my top priority and we continue to pilot many new programs and ideas around the country to help support patients for whom home dialysis is the best modality. We also believe it our full suite of modality offerings enable us to help patients seamlessly access the right Madame.

At the right time in their dialysis journey.

Our patients to continue to benefit from our national footprint, our physician partnerships in our unique capability as we seek to lead the industry in growing call.

My third topic as Calcimimetic as many of you know we're now moving into the next phase of custom Medix reimbursement as CMS proposed including complemented the Medicare bundled payment in that recently issued propose payment role for 2021.

We believe that adopted period gave CMS sufficient time to observe utilization and pricing data.

Absolutely in the light of the mix of Ivy therapy and oral therapy.

Over the last couple of years, our position in our clinical team developed patient centric protocol to achieve our high quality standards for care, which in this instance, also drove down the cost for health care system, because the protocol resulted in a higher mix of low cost generic drugs in a lower mix of higher costs.

Hi be alternative.

We believe that the new rule will result in similar economics for capital metrics in 2021, as we had guided in 2020, which will help to offset the under funding of the remaining Medicare bundle.

My last topic as Medicare advantage as many of you are aware and 2016 Congress enacted the 21st century Cures Act to provide all Medicare eligible patients with the option to enroll in Medicare advantage plan, including all srd patient.

We believe that the ending of the barriers that have prevented active dialysis patients from enrolling in Medicare advantage will be positive development for many patients providers in managed care organizations. As this new rule will expand the opportunity to provide a coordinated care patients who suffer from multiple chronic condition.

Unfortunately, CMS is recent ruling that loosen M&A network adequacy requirements for only dialysis services called into question the breadth of the choices available to dialysis patients.

There are many factors that will shape the eventual enrollment in Medicare advantage plans and although we have no clear visibility. We do continue to believe that enrollment and may plan by SRB deep patients will be gradual over the coming year.

Now I'll pass it onto Joe to provide an update on our Q2 results and to discuss our financial outlook.

Thanks Javier.

Strong quarter, despite the net headwind from our co. Good response, primarily as a result with improved adjusted margins in our core kidney care business here are some specifics.

Our non acquired growth slowed from 2.3% Q1 to 1.6% in Q2, we believe the primary drivers of this decrease recorded related increased mortality and lower new patient starts were partially offset by a nationwide decrease in kidney transplants and lower.

Ms treatments.

We expect this net kobin nag headwinds to persist at least until this time next year.

Total revenue was inline with our expectations as a result of lower volumes offset by higher revenue per treatment.

RPP was due to normal seasonality co insurance and deductible and the temporary Medicare sequestration release, partially offset by lower Calcimimetic revenue.

Thats Javier said, while the long term impact of Kobin remain uncertain, we did not see any net impact on our commercial mix quarter over quarter.

There are a number of factors that we believe underlie this dynamic including among other things job loss rate for our commercial patient population with lower than the national unemployment rate.

Many of our commercial patients who were initially furloughed have since return to work or expect to return to work and finally, we believed that our patients who were laid off have been enrolling in other commercial insurance, just Cobra and exchange plans at a higher rate than we've seen in the past.

Adjusted operating income margin was strong for the quarter at 16% on a year over year basis, our margin expanded due to strong cost management across the PNM and an improvement in RPT.

Calcimimetic contributed approximately $19 million to our operating income in the second quarter.

Now let me give you some details about the impact of co. Good on our financial results.

Q2, we estimate that we incurred expenses and other negative impact on our operating income of approximately $85 million.

Incremental compensation and benefits to our teammates was the largest contributor to these costs.

Offsets in the quarter to the 85 million include among other things decreased travel lower health benefits expenses and lower facility and training costs.

We also had the benefit of the temporary hall on Medicare sequestration.

Ordered in May.

As a result of these offsets we estimate that the net impact of cope it on our operating income for the quarter was between $20 million to $30 million.

Looking forward to the second half of 2020.

Impact with Cobiz is hard to forecast given the uncertainty in the progress of the virus and the economic impact.

While extreme situations could occur at or beyond our range. We have incorporated a wide range of scenarios in our updated guidance, including scenarios in which the net financial impact of Coca 19 in Egypt, Q3, Q4 could be similar to what we experienced in Q2.

Let me next turn to our 2020 guidance.

Even the strength of our first half performance.

Updating our guidance ranges.

We are raising our adjusted diluted earnings per share guidance range by 50 cents.

$6 in 25 cents.

Dollars and 75.

We are raising the guidance range for adjusted operating income margin.

14%.

14.75%.

We're increasing our cash flow guidance.

800 million $2 billion, an increase of $200 million over our previous guidance range.

We are maintaining our guidance range revenue.

Of 11, and a half to $11.7 billion.

But we now expect to be below the midpoint of the range due to the anticipated slowdown in volume growth.

Capital expenditures, we provided an estimated range of $700 million to $750 million. We now expect to come in at the bottom end of that range as the pandemic has delayed some projects spending while we will not provide.

Guidance I'm 2021 today I do want to highlight some of the larger anticipated headwinds and tailwinds compared to our 2020 non-GAAP adjusted operating income.

Primary anticipated headwinds are the volume and mix implications of coated the.

The primary anticipated tailwind include you assumed lack of ballot initiative defense costs.

Hopefully a reduction in net co good related direct impact.

Im calcimimetic, while we still need to wait for CMS final rule. Later this fall, we do not expect for calcimimetic to be a large headwind or tailwind to adjusted ROI.

Finally on share repurchases.

We had indicated in markets that we are temporarily suspending share repurchases.

We did not repurchase any shares during Q2 or during the month of July we are carefully considering when to restart our share repurchase activity and we'll do so at the discretion of management and within the authorization provided by our board of directors with that operator. Please open the line for QNX.

Thank you we will now begin the question and answer session of today's conference for participants over the phone if he would like to ask your question. Please press star followed by the number one in your phone on mute your phone and record your name when prompted your name is required to introduce your question and to cancel your request Crestar folic laden in late Q.

One moment, please for incoming questions.

Seekers. The first question is from Peto Chicory from Deutsche Bank. Your line is now open.

Good morning, guys. Thanks for taking my questions peak talk a little more about operating income guidance looking at the first half a year or 16.2%. Despite all these corporate costs and looks as though the implied.

Margin for the back half the year is for between 12% for 13.4%, it's a pretty big decline casual walk us through for how we would get there as it is it from the treatment growth for flowing down to talk through the detailed is sort of how we get to rethink margin contraction the back half the year.

Sure So Hello, Peter I'll take several here so.

If you if you take the middle of our rainfall again, we're not guiding to OAI, but taking the middle of our guidance I think you would calculate roughly 175 million dollar decline in Oh why from the first half of the year the second half a year.

Three three biggest components of that are the reduction in calcimimetic profits, which as we've talked about in the past.

Most of our our number our 40 to 70 million in by the way that we do expect that number to be in the top half of that range. So most of that comes in the first half of the year.

Second is the ballot initiative in California, we've talked about that as 50 cents a share cost and that is.

Primarily in the back half of the year.

And then third I'd point to co bid that while.

The cost associated with co that could come down over the course of the year the offsets, but also come down and we're we're using a pretty wide range of assumptions around what could happen in the back half of the year with co bid, but the back half of the year, we'll have two quarters worth of co. Good.

While the first half of the year really only had one quarter's worth of Copel get so if you put those three things together, you'll get the vast majority of that hundred 75 million dollar decline couple of other things I'd point out one is there were some relatively small onetime things in the front.

After the year that.

Aided why and those could.

There could be some negative onetime things in the back half of the year and finally.

Because of co bid and potentially other dynamics there are some costs that.

We didn't incur in the first half of the year and we think those could show up in the back half a year and that could be anything from GE in a projects to.

Facility maintenance and those would be the other two components that would get you to that 175 million dollar adjusted Allied declines at the center of the guidance range.

Okay, and then as a follow up to talk little bit more about the final Medicare advantage rules kieser walk us through through how that impacts here negotiations with any plans.

When you think you'll start seeing impact from the changing rules the 2021 event.

As a multi year contracts is more spread out and in your discussions with the May plans have you had conversations around bonus plant a bonus payments for better managing patients or is it too soon and then finally, what's the checks and balances on M&A plans. They don't certify network that is to narrow.

Peter Let me, let me grab that and Joel if you want to supplement it and you had several pieces. So if I Miss anything please come at me again. The short answer is we don't know what the implications are what we do know is that from a network adequacy. There you should be an objective standard that.

Add.

Time and distance and now it's subjective standard it might mean nothing you might mean that the plans just now a test and life goes on as it did in the past. It also might mean that some plans might get aggressive and not have adequate standards.

And network. So it's too early to tell but from our perspective, it is pulling out and discriminate against the us or the patient because if you don't have the proper network adequacy you in essence are just encouraging enrollment and so.

From our perspective, it's just an unusual thing.

And it goes against the patients rights, we waited for very long time.

Have you started the patients being equal footing to everyone and they deserve the right to pick M&A just like anyone else in so that was a disappointing part as it relates to negotiate negotiations as you said.

We have multiyear contracts with most of our M&A plans.

We are working with them, we think that we combined can can work well together can work on MLL R and can do really good things for the patients as it relates to coordination of care.

But it is too early to tell as not many contracts have occurred.

Did I Miss any.

Your question no notice going I mean.

I guess wasnt would be what are the checks and balances. So if if I may plan has a self certify what what's a balanced mix or they don't sell certify in there were kind of scenario.

Yes, I mean, and Thats part of the problem there right now it goes into some kind of subjective attestation that they have proper network.

And from our perspective of course, what we're doing is keeping our radar up to make sure that.

The spirit of the law is adhere to and but we don't know how it will be enforced great. Thanks, so much.

Thank you.

Thank you. The next question is from Kevin Fischbeck from Bank of America. Your line is now open.

Great. Thanks.

One it's in any follow up on that I guess.

I mentioned most of your contracts are multiyear contracts or does that mean that you're entering 2021 with.

Relatively similar economics within your M&A plans as you have today in 2020.

I think I think it's fair to say.

Yes on any given year you have renegotiations, but it's the same every every year once in a while they overlap.

But at this it is a fair assumption at this juncture of course, we still have the back ended the year to do negotiations and there is.

Big appetite from us and from the planned on trying to do something that is useful and creative to the system. So that we take.

More risk and provide a higher and services to the patient. So we're still in the conversations we'll see how pans out.

Yeah, I guess, it's just happened a couple of months ago. So maybe not many contracts that have been implemented but I mean are you are you at all I assume you're you always have conversations with health plans I mean, it does it sound like.

They're planning for aggressive changes at this point or give any sense.

Yes, I think the reality Kevin is that everybody is trying to do something constructive.

As it relates to this opportunity to for the patients have coordinated care and so.

The plan, then us or trying to see.

What risk appetite have what can our system to look in their system do but both both sides have big appetite to do something that's useful for this patient population and so we'll see how that pans out overtime.

And is there a point in time this year, where you think you would have a better sense of of this with on the Q3 call will you pretty much have.

Good visibility as far as at least 2021.

Those are just we have to wait until Q4 results.

I think it'll take a little longer to play out because of the interplay of expirations in when contracts come up coupled with the fact that I don't know how covance going to impact negotiations. So if I had the gas I think it's going to take a bit longer than that.

Okay and then.

So I guess as far as your cosmetics point, I guess, you're saying that.

Next year.

It will be neutral to earnings so if you're making close to $70 million. This year. The thought is that it should be a similar number next year is that the right way to think about it.

Yes. So look there is there remains some uncertainty for next year, but there was certainly a scenario where the O Y went to zero so relative to that we feel like we're much better shape and.

I'd say 70 ish is or is it reasonable midpoint of the range.

That said I would highlight what im saying that's important for the way, we're thinking about Oh, I going forward, which is.

We have called out Calcimimetic as.

Something that I guess I'd call nonrecurring because of the to DAP a period and the nature of to adapt a reimbursement. It is it is not permanent.

As this enters the bundle next year.

I would consider the Oh why that we are generating from Calcimimetic Ics to now be part of our core lie because it has permanent finding its a permanent component of the bundled we're going to stop calling it out and.

In my mind, it will become part of our core earning power of the business.

And Kevin I'll, just add one point in case, it's not clear for some reason why we don't have a precise number and Joe gave you a bit of a range is because CMS is going to adjust the amount with Q4 SP and we don't have an exact number we have an estimate.

Okay Thats all makes sense I guess the right to think about it is that in the first half of next year it'll be a headwind, but in the back half of next year year over year, it'll be a tailwind because it'll be a uniformly spread out throughout the year sort of front loaded this year I think thats a good way to think about it.

All right and then maybe last question.

The.

I wasn't clear to me exactly you mentioned.

By the commercial mix with strong it thinking that you made some comments around.

Your patience signing up for Cobra alternative coverage that makes sense to me, but some of the comments about.

Yes.

Less job losses things like that can you go back over what you were getting out there why why it would be the case that maybe so far at least that the the job losses than less impactful to your patience than than it would be otherwise you would expect.

Sure so.

There there are three dynamics affecting mix. The unemployment question is one of them. So let me tackle that and.

We highlighted three things one is job loss in our population is lower than what we're seeing in the national averages and we think that is because.

The the employ the employee men mix I'm not exactly what to call. It of our commercial population leans more towards things like government and education and less towards things like hospitality and travel so the said.

Actors that our employees our patience work in have been less impacted by the economic effects of coated so that's number one.

Second lot of the unemployment that we saw in our population was was the result of furloughs, rather than job losses, and a lot of those have reversed so those patients never lost their coverage and they're now back at work, where we where they expect to be back at work.

Third.

As our patients have lost there.

Cloy are based commercial coverage they have worked hard to maintain alternative commercial coverage.

Either through Cobra or exchanges, and we're seeing that happening at a rate higher than what we've seen historically that said, we don't have a lot of historical experience with exchange is because the exchanges didnt exist during the great recession in Oh, eight and nine so.

That's the that's.

Why were why were.

Why we think we're seeing less of a mix.

Cline on commercial related to unemployment.

I would also point out that mortality is actually beneficial to commercial mix in the short term because.

All their patients are passing away.

At a higher rate than younger patients and government patients tend to be older and commercial patients tend to be younger. So that's helping and then the decline in transplants is also helping commercial patients get transplanted at a much higher rate than.

Women patients.

Kevin I'd like to state one thing and over arching important part that we've learned and that is that in talking with our commercial patient. It has really reinforce how hard our patients work to keep their commercial insurance and how much they value it.

And so that has been an absolute clear takeaway from this period.

Great. Thanks, Thank you.

Thank you then next question is from Andrew Mark from Barclays. Your line is now open.

Hi, good afternoon. Thanks to the question just wanted to follow up on Medicare advantage as we approach the fall open enrollment season, what's the awareness level among your traditional Medicare patients that they're going to have the option to enroll in a private Medicare plan. This fall and related what what are some of the patient education efforts you're doing on this topic. Thanks.

Let me grab that one.

As you would expect with any population in anything new.

The information flow is white and range from the people that are up to speed to the people that are completely.

Uninformed on it and what we're working really hard to do is to have totally on bias an objective training that is.

Customized to each person. So you can you can look at it from your personal perspective, because what's good insurance for one person might not be good insurance for the other depending on what you have as a secondary coverage or what your family means our or where you are in your life and so our main objective it's Rick.

People to have a balanced perspective than are aware of their choices.

And actually get some to pick whats right for them.

And and the knowledge base is pretty much all over the place.

Got it Okay and then just wanted to follow up on the strong cost management in the quarter can you put some numbers around some of the productivity Gionee gains you saw in Q2 like how much of that you think it's sustainable heading into 2021. Thanks.

Yes, so there's nothing in particular I'd I'd call out on on either of those things.

The.

There is I'd say on the Gionee, maybe there's a little bit of a question on whether we're going to give some of that back in the back half of the year and that some of that.

Half one over half to bridge that I'd put back that I that I'd pointed out at the beginning of the call, but there's nothing.

Unusual that I'd call out.

Other than that.

Okay. Thanks.

Okay.

Thank you. The next question is from Justin Lake from Wolfe Research. Your line is now open.

Thanks.

Good afternoon appreciate the question.

Just one more on Medicare advantage networks.

Well there was little surprise when you answered the previous questions that you might not go networks look.

Your next stop all your next fall.

The my understanding of a.

The players up a quite outdoor products.

Because mid October.

If they were at that point, we don't they have to publish their networks.

You know, whether your gain or out of the network about point.

I want to at least.

Yes, you're absolutely correct, Justin So maybe I was answering a different question which is.

I think what I was answering is fully understand the sustainability or if theres going to be macro changes in the short term network I don't I don't anticipate anything major changing I could be surprised but I don't anticipate that.

I was answering is how will it change over time.

And I thought that by then we would not see however behave over.

An extended period of time.

Got it sort of take only as Youve given your conversation given how we R&D you're already.

I'll take those March likelihood of.

You know devito being removed from network in Medicare advantage for 2021.

There could be some level.

Evaluation all the time.

The 2020 to 2023 in terms of pricing.

We've got work through loan.

Yes, I mean said differently you you have some bad but you won't have.

A significant part of the portfolio or anything and so that'll play over time.

And so you are correct in there in your assumptions that in the fall, we will have clarity, but as you know.

You can be in the network in the fall and then a month or two later you can be out of network. So I don't know how much you can bank on that fall in network statement holding for the future.

Got it thanks.

And then I wanted to ask about the I apologize if I Miss the store.

And your revenue per treatment was up pretty significantly sequentially.

Can you give us as much detail in that slip.

Calcimimetic is looking like it in a declining.

Well X calcimimetic, what's the number there and.

The sequential increase and what are they kind of key drivers into auto focus on.

Sure. So ex Calcimimetic, it's between five and $6, we're talking quarter over quarter RPT change a lot of that is seasonal.

And think of co insurance deductible.

Some lower bad debt associated with with patients flowing through those that is by far the biggest factor.

The other stuff is is just some I'd say typical bouncing around.

Hey mix and commercial mix and a little bit of pricing.

It's mostly a seasonal impact.

Yes, Joe the only thing to add to that is there's a there's a little sequestration in there as well.

Yes, Oh, yes that is awesome.

We got about thank your Javier lead through so that's Oh, I'm, sorry, just to juggle just to be clear the number I gave.

Back out to sequestration, so that five to six was without sequestration.

Cooperation is wasn't about a buck and a half.

Okay, and what was calcium rabbits work.

But since along the problem.

No someone was going to ask me that I think it was 50 cents, although I'll I'll get should that exact number.

Yeah Revenuer problem.

Oh I'm sorry.

Ignore the 50 cents number the RPP from Calcimimetic.

Went from $9.55 to $7.

So about a two and a half dollar decline as a result to Calcimimetic RPT the Oh why.

So the dollar number went from 35 million in Q1 to 19 million in Q2.

Okay, and then in terms of commercial mix and commercial fleet and growth.

Mix was flat.

And therefore commercial promotional patient growth was similar to overall growth.

Mixed didnt have lots to do with us in terms of August benchmarks.

Right.

It is this a reasonable number to jump off again calcimimetic.

So you think you didnt number for Threeq Fourq here that we can pick up.

I think it is a reasonable starting point, although I think you'll you'll see that that negative seasonality in Q1, you'd expect to see that next year. So.

Don't use that as an annual run rate, but use that as a number for the next couple of quarters.

Okay, great I'll jump back into queue effects.

Thank you. The next question is from Whit Mayo friend you'd be ask your line is now open.

Hi, Thanks, I'm still trying to wrap my head around the implied core growth and in the quarter.

You guys, usually have tremendous visibility into a lot of the expenses as you set your original plan and now we're looking at a number that's.

Such higher so it certainly seems to imply that something got much better. So I'm really kind of curious what that is because as we.

Net out the coal the cost in Calcimimetic sequester everything you've laid out I mean, it implies by my math that the core or why was up.

8% year over year, So I'm, just trying to take a crack at this from the cost structure standpoint again this or is there anything else you can point to that has come in meaningfully below what your original expectations were coming into the year.

So with if I were to try and.

It to explain why is the numbers are better than what we expected.

First it's all core margin Theres nothing unusual here the business the core business is performing well.

I would point to productivity being a bit better than we expected facility costs are a bit better than we expected.

RPT is a little bit better, but thats offset.

They are bit by volume being light.

So.

Think of core margin.

Largely driven by good cost management.

Okay.

Is there any way to put numbers around either the cobra or the exchange uptake of and I presume you have a lot of data internally around your patience in there.

Their coverage and I'm, just sort of trying to wrap my head around the conversion rate into into Cobra, because I presume that it's it's fairly high so I thought I'd, just maybe asked a little bit more directly the question.

You know I looked at the the question you're asking we don't disclose it in details.

But I think what you're trying to get to Directionally is do we have a big spike in Cobra.

In 18 months or in some date in the future.

We will come through says that is that fair.

There you go that actually isn't the premise at all I mean, I think of the debate in the marketplace to be.

Perfectly candidate is that you have.

Your your very dependent on your commercial mix and so people being concerned and.

I think my point is that.

A lot of these patients find that they have alternative options in the great number of them high percent fine coverage through Cobra. So it was actually premise was totally the opposite.

No I think what I would say is what we said earlier, which is and I think it's consistent to what you're saying, yes, our business relies on a patient population and an incredible way we have been very impressed.

With the passion that our patients have to keep their commercial coverage in one way or another and as Joe said Theres, a big distinction between furloughed versus permanent job losses, and we have seen.

A good chunk of our patients that are working that were furloughed.

Back to work and then out of the ones that have permanent job loss, which the number again was less than we anticipated.

Many have had alternative coverage.

I think that covers the whole spectrum there.

No. It's it's helpful. Maybe one last one and this is perhaps an impossible question, but I thought I'd ask good hobby or what does a hypothetical Biden administration means for Davita and the industry Minta charitable premium rules been sitting out of the Ob forever, but that was obviously, they're under the prior administrations, who knows if that revives itself.

I have no idea with the status of it is and we rarely talk about public option Medicare expansion on these calls maybe we're all just smart enough to be more skeptical on policy like this but I'd just be curious to hear your general thoughts.

About off what Biden would mean.

Yes, it's a great question. The one that we've talked about in general what we try to do and we've done a decent job is to make sure that we're talking about Republican and Democratic because our issue goes across across both side I mean, the biggest change that we can think of.

As it relates the policy is probably one of tax.

Whether they're able if there is a bite administration, whether you also have the Senate or not we'll obviously be a big driver of tax policy as it relates to healthcare policy as you know it as a as you said a much much bigger lift to change and we will of course be a part of it but what we want to do.

It's continuing to push and advocate for our patients and for integrated care, regardless of who's in the White House.

Okay. Thanks, a lot. Thank you.

Thank you. The next question is from Gary Taylor from Jpmorgan. Your line is now open.

Hi, Good afternoon, I wanted to just come back to one topic, that's an ask about a few different ways and I'll ask it a little bit different seems like it a little more help.

Obviously, an amazing job on expense management, maybe maybe to Q is turning out to the a you know the amazing cost management quarters, but.

When you had laid out last quarter up to an incremental 100 million of.

Of covert expenses, which is like $13 a treatment certainly didn't think patient care costs would go up 62 cents.

Sequentially. So I've heard you know the comments about the productivity the facility costs.

Benefits I guess could we just talk a little more about the source of the productivity.

I know you would even for a period of time I think we're paying an extra $100 a month to a fair number of your.

Teammates and you know, it's kind of the opposite of productivity you had set up some split shifts to sort of isolate coated.

Positive unsuspected patients so the whole orientation I guess.

Well this is going to be the opposite of a really strong productivity a quarter and yet.

Performed really really well so.

Maybe just some examples of how you're finding this productivity and what's sort of facility costs and.

The health benefits piece, just your own employees consuming less healthcare and that was quite material.

I know you've been asked several times, so just anything incremental would just help us sort of.

Think about modeling going forward.

Yes, there's a lot going on and we're very proud.

Gary the cost management situation. So let me try to be it's helpful. As possible because there are several things first a clarification, yes on our healthcare expenditures our teammates just like everybody else used less benefit on non essential care. So that is one.

Number two.

Our caregivers sense of purpose was really passionate and so therefore, we had less turnover because people felt.

That sense of obligation to take care of our patient and show the combination of economic need and appreciating a job well. So many people were for load and lay off in the sense of commitment to our patient had less training expense and then the last thing that I would say is.

That also there were some of our teammates that.

Workover positive and so what we ended up doing.

Is that having to have basically in some places like New York and others were staffing was really at a premium and so when you cohort at centers et cetera, which is what you were alluding to earlier, sometimes those ships were not as inefficient as we anticipated because those does shift tended to be.

The more fool than once anticipated and so if you have a full cobot positive shift even though its cohort it it's not inefficient when it's really inefficient as we have one or two patients in it.

So.

The cumulative Matt.

Compounded over the quarter and we were very diligent trying to manage it all.

That's helpful. Two more quick ones on the $35 million legal charts was that related to any legal issue that has been historically disclosed in your filings or with the.

Professional liability issue or is any other color on that.

Yeah, I'll take that one carry it was related to shareholder litigation, that's been hanging out there for a bunch of years.

Related to SCPA.

Our view is what we did.

Was appropriate, but just clean this up and move on we thought it was worth settling this so it's related to that issue.

Thank you and this last one for me.

And I've just forgot the difference between your 0.7% increase in treatments per day.

And your 1.6% normalized.

When you have the exact same number of treatment days 78.0, 70 point of the calendar isn't.

Driving that and I don't think there has been divestitures so.

I'm just trying to recall, how we square that yeah, there's there's a bunch of noise associated with divestitures and some other things, but there is one big movement that I would highlight there which is we had a bunch of clinics that we deconsolidated as of the first of the year.

And those are.

Those are.

Treatments that we would back out of Nag, but we don't back them out of the treatment count and that's worth I, just think about 50 bips of the difference.

Okay. Thank you.

Thank you. The next question is from that leverage from William Blair. Your line is now open.

Hi, good afternoon.

One of that's a little about the footprint I think we heard on the first quarter that in terms of footprint Bill do you think you said, hey, wait and see in terms what happens with industry volumes.

EPS on home side, and obviously, a 20 centers and then maybe added on to that after a couple of years.

Okay stagnant U.S. number I know, that's a lotta rationalization going on.

That is about 40, new centers lesson last four quarters, maybe just an update on.

It does it about that both on the U.S. and I guess side.

Yeah, I'll pick that one Javier so most of the action is on the west side as you would expect.

The the number there is a bit of a lagging indicator.

Because.

It is on when we get certified by CMS. If you wanted to think about a number that track more carefully with with the decision, making and the Capex number it would be based on when.

When the clinics are.

Our completed what we call a certificate of occupancy and you'd see that number much lower so for next year I don't want to give a range yet, but you'll see that number come way down again.

And I think going forward.

People wanted to understand how we're doing in terms of building capacity and being capital efficient I think the development Capex now is going to be a better indicator of that then.

Clinic number that we've disclosed historically and that's that's driven partly by this time issue. It's also driven by the fact that we're building more home only clinics, which tend to be cheaper and aren't in the clinic count that we've historically disclosed so.

The messages.

The de Novo continues to come down as as Mac comes down as as we move more to home there could be a kind of an additional delay associated with co bid.

Hardly because of a temporary decline in nag, partly because it's just hard to build clinics in the context of cobot, but relative to the commitment we made around capital efficiency. I think we are continuing to deliver on what we said we would.

Got it that's helpful and then.

Just wanted to ask a little bit about comment you made around no treatment.

And as mentioned that commercial patients tend to.

The higher higher Conns transplants, but what do you see in terms of discrepancies.

I don't care classes per visit patterns did patients in that kept population tend to have higher mistreatments. During this period and wasn't instruments much lower commercial I.

I guess just wanted to look like amongst payer classes.

Yes, we didnt break it up by paired class, but one other thing that we are very.

Very happy about is effective Mistreatments went down during this period, meaning that our patients were taking the virus very seriously. They were taking care of themselves and then we were able to take care of them outside of the hospital until.

I would have to say that the math the way. The math works then it was across all payer classes, but I don't know that with certain me because I didn't divided up by period class, but in general.

We were very happy to see that hospitalization.

Went down for our chronic population and a significant way.

And there was there any change in terms of referral origin throughout the quarter or anything you see from Covidien don't normally about half your patient start dialysis and the hospital spending, but just curious as.

Well if it has progressed.

Hospital visit patterns have changed little bit what you're seeing in terms of origination.

So I think your question is.

The way that we did our patient change meaning is there is less crashers into the hospital and going through our center first.

And the short answer is that we have not seen a change and noticeable change in the way that our patients come.

Okay fair enough. Thanks, Thank you.

Thank you. The next question is from Kevin Fischbeck from Bank of America. Your line is now open.

Hey, just a follow up a couple of things I guess first.

Obviously, a right the lender treatment a guidance for the quarter. It sounds like you have been below that for just a few more quarters.

How.

Confident are you that this is purely cobot related and not a you know.

Continuation of the decline I get that we've been seeing the last couple of years.

I had a much higher growth rate.

A few years ago, taking that down a couple of times.

What about visibility you have this is a temporary thing we'll get back to the one an app to an app.

Yeah, Kevin will why don't I give you a little the variable and then if you want to test the assumptions you can because there is an interplay of several variables and so in essence, what happened in the quarter is.

Mortality increase and as we've told you it skewed toward the more older population.

Acute volume the acute treatment went down.

Thats, obviously in our mind because of non essential care.

Being delayed so we think that that is absolutely code related incidents of our new patients came down as we talked to our nephrologist.

You know we tend to think just in the high level. Okay. Your kidneys, Phil you have to go dialysis, but the reality is that it's more nuance in that you have some remaining renal function in sometimes your nephrologist has the decision to make our you better off starting dialysis with some renal function.

Showed that you do better on the therapy and right now during the pandemic, they're saying is it better to start you off a little later, so we saw our new patient incident decrease.

We of course saw no visitors because of travel restrictions and then and then we show a decrease in transplant, because obviously transfats were shut temporarily which in essence was an offset and so.

And then as we already talked about we saw mistreatment go down so that that it was also an increase to volume. So when we net all of that and we give you what we expect in the backend.

Our assumption is that overtime. This is likely to normalize except of the impact on mortality over time.

So oh that makes sense does that mean that kind of in response to the last question about.

Yeah, how patients are coming in that you're not seeing more patients crashed now, but you think that if this continues that we will then.

See that it and after that the good sign at all but it would be if it's a good sign that.

Let them at the demand is this is higher than what you're seeing.

Yes that would be all speculative I'm, just telling you what our nephrologists are telling us about their practices in most of the practices for little while.

Obviously were shut down for the non essential care there were still running in the hospitals.

So what we're anticipating now that we're talking on a prologis in their practices are back open as it they have not seen any dramatic change in of course.

That's that's not scientific were just telling you what we're hearing from our nephrology practices.

Okay, and then I guess.

You talked earlier about how this quarter is kind of better because productivity has come in better than expected.

Is there a reason to think that these parts of the game cannot be maintained to a more normal.

Operating environment, if cobot yeah.

Our to go way next year can you keep this productivity.

Going to I don't think you'd mentioned that is one of the headwinds.

The 2021.

Yes productivity will be interesting of course, similar things will go away.

People will end up going back to the Doctor in our benefit expense will go back up.

As it relates to.

Training expenses and retention I think that will be highly linked to the economy and how that's doing and how people are feeling about value in their job and in the sense of purpose that we're giving them and so I think in general.

Could say it would it could stay.

And then you could make an argument that ill go back to what it was but I think it will be highly linked to what the broader economy going and how cold it is impacting the time.

Alright, great. Thanks.

Thank you.

Thank you. The next question is from Justin Lake from Wolfe Research. Your line is now open.

Thanks, a few follow ups here, a one Joe your corporate and ancillary segments look down pretty materially more twoq versus one Q.

Just curious if you can milled anything there and how to think about those numbers of the second half.

Yeah.

Hi, I'm trying to remember if there's anything in particular, we we had we had a.

A severance charge built in is about 12 million and I'm trying to remember that was Q1 or Q2, I'll I'll get you to ask that Joel that was getting too and that was held in the corporate segment Q1 had a large benefit in international which is in the strategic initiatives segment from.

Exchange rate.

Right it swung a little bit the other way.

Yeah, we had thank you Jim I appreciate it we had 10 million a positive foreign exchange in Q1 through through international and that swung to a 4 million negative in the second quarter.

Oh, well explained with rights, So then or.

Back to Woods question in at the obviously the on.

Your your comments around Cobrand extremes take off being greater.

Given the where the problems going that's a pretty important swing factor.

And obviously it sounds like it's on better than expected. So it would be helpful to us, but that I understand where it's been historically.

And where all and where it is now.

Could you share this evening round numbers.

Yes, well I won't give you round numbers and then let me make sure I'm answering the right question Justin are you asking.

Mix of Cobra versus.

They are commercial insurance.

No I'm asking the are you said, there's been a pretty much material increase.

In a number of people signing up for Groberg stayed reasonably weak as job versus what you're seeing with other periods like this.

Yeah, what I, what I would say right now without getting into details I'll just reinforce what I've said.

That our patients are very passionate about keeping their commercial insurance.

For a variety of reasons, including their family.

Average and some I believe that it enhances and.

There are odds of getting a transplant and in some instances, it's obviously the cheapest.

Coverage with with the most flexibility and so.

They're making those decisions carefully as they know it impacts your life in a non trivial weight since they consume so much healthcare.

No then or.

Joel.

You gave 2021 headwinds tailwinds.

And you didn't mention Medicare advantage accelerating growth as a tailwind the 2021.

I'm curious as to what's your view that we shouldn't expect it to be impactful next year. Maybe you don't think it's been a way up versus what we've seen the last two or three years and if so what else.

Well like I think we've been pretty consistent with what we've said about Medicare advantage, which is we don't see 2021 is this huge inflection point in enrollment.

We think have may enrollment will continue to grow it could grow a little bit faster next year.

We believe just had a different view than others in the industry. We think a lot of our patients are happy with their Medicare fee for service coverage. There is some level of inertia.

And we just don't see it being is this massive.