Q4 2020 DaVita Inc Earnings Call
Okay.
[music].
Good evening My name is Sheila and I will be your conference facilitator today.
At this time I would like to welcome everyone to the Davita fourth quarter, 'twenty and 'twenty earnings call.
Lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer period.
I'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
We'd like to withdraw your question Press Star then the number two thank you. Mr. Gustafson you may begin your conference.
Thank you and welcome everyone to our fourth quarter Conference call. We appreciate your continued interest and our company I'm, Jim Gustafson, Vice President of Investor Relations and joining me today are Javier Rodriguez, our CEO and Joel Ackerman. Our CFO. Please note that during this call we may make forward looking.
Statements within the meaning and federal Securities laws and all of these statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described and the forward looking statements for further details concerning these risks and uncertainties. Please refer to our fourth quarter earnings press release, and our SEC filings, including our most recent annual report.
And on form 10-K, and subsequent quarterly reports on form 10-Q, and any subsequent filings we make with the SEC are forward looking statements are based upon information currently available to us and we do not intend and undertake no duty to update these statements except as may be required by law. Additionally, we'd like to remind.
You that during this call we will discuss some non-GAAP financial measures a reconciliation of these non-GAAP measures. The most comparable GAAP financial measures is included in our earnings press release submitted to the SEC and available on our website I will now turn the call over to Javier Rodriguez.
Thanks, Jim Good afternoon, and thank you for joining the call today to discuss our 2020 performance and thoughts on 'twenty and 'twenty one for.
For Davita, and 2020 showcase our caregivers and their commitment to patients with kidney disease.
Covid created challenges that we could never have imagined one year ago.
These challenges clinical operational and financial led to opportunities for us to harness the strength of our teams and our platform to support our patients and our community.
When I reflect on linear and three things, particularly stand out first or.
Caregivers teams focus on health and safety of our patients.
Second the creativity and innovation showed by our organization to adapt to the changing landscape and.
And third the love empathy and dedication of our team to each other and to our patients.
Despite the good work in 2020, the challenges of Covid remain.
And the latest search has been particularly difficult for our patients and our care team.
The disproportionate impact Covid had on patients with underlying health issues and the elderly continues to manifest itself and the dialysis community.
Higher rates of patient mortality that we talked about last quarter. Unfortunately accelerated November and continued through January.
We estimate that our patient census at the end of 2020 with approximately 7000 less than what it would have been otherwise absent COVID-19.
As we look to the future some leading indicators such as fewer new Covid cases, fewer hospitalizations and the recent vaccination effort give us hope.
This leads me to our clinical focus on vaccine over the past few months ebay and engaging with the federal government with state agencies and the CDC to identify ways for our caregivers and patients to gain access to the vaccine we are uniquely positioned to administer vaccine safely and efficiently and our clinics.
Given our infrastructure, our clinical expertise delivering flu vaccines, each year and our ability to monitor patients health each week.
Our conversations with the CDC and federal government are ongoing and we're getting set up and their direct vaccine distribution system to be ready to start the moment, we get the green light on.
And states like Minnesota, and several large counties across California, where we have been able to secure direct allocation vaccination rates are as high as 70%.
Because we have access but also because general acceptance rates are higher when patient and see other patients receiving the vaccine.
Across much of the rest of the country with logistics for signing up and the access at separate vaccine sites has been challenging for many patients. Therefore, our ultimate goal remains to obtain direct allocation from the federal government.
Now onto our financial performance.
Spike and the challenges of Covid, we significantly outperform our original financial guidance for 2020.
We knew it would be a tough year to deliver profit growth given the headwinds from cosmetic revenue decline and the cost of freight and the ballot initiatives in California and.
Covid hit and challenge and delivered growth only increase with Covid created significant uncertainty on our financial results. Despite this uncertainty we grew our adjusted operating income by double digits absent the impact of cosmetic valid costs and net COVID-19 impact we.
We delivered growth and adjusted earnings per share from continuing operations of 34%.
And generated free cash flow from continuing operations of almost one 2 billion.
While returning $1 4 billion to our shareholders through our share buyback.
And Q4, specifically, we experienced a net COVID-19 impact of approximately $60 million, which was higher than we expected.
Through the first three quarters of the year. The net COVID-19 impact was reduced and increased costs associated with COVID-19 were offset by lower benefits travel and G&A expense.
And Q4, we saw on accelerating impact of higher mortality coming out of the holiday season, combined with fewer offsets and benefits and G&A expenses.
The result was a negative COVID-19 impact there was roughly $35 million higher than what we anticipated.
And our Q4 earnings below the guidance range, we provided last quarter.
Excluding this increased COVID-19 impact in Q4, our earnings would have been in the middle of our guidance range.
And we look ahead for the coming year, our guidance range will be $7 75.
And two 875 per share, which incorporates our expected impact of Covid and demonstrates our belief and the underlying earnings growth of our business.
We believe that our core performance and 2020 creates a solid foundation for us to deliver on the long term financial goal.
Before I hand, it over to Joe to cover our quarter and our outlook in greater detail, Let me touch briefly on our recent Medicare advantage enrollment.
As a reminder, 'twenty 'twenty, one and the first year and which existing dialysis patients have the option to enroll and the Medicare advantage plans.
Previously MAA coverage for ESR D had been limited only to patients already enrolled and in MA plan b for kidney failure or to certain patients and the MAA special need plant.
By the end of 2020 and percentage of our Medicare patients, who enroll in MA plan was approaching 30% and based on our preliminary enrollment data. We now expect our percentage of MA patients among Medicare patients to be in the mid <unk> in 2021, which is still below the Nash.
So on average.
As you would expect the new enrollment was predominantly from Medicare patients previously without secondary coverage because these patients will benefit from the expanded benefits of MMA and the cap on out of pocket expenses.
The growth and the ESR DMA population creates opportunities for us to build additional momentum towards value based care and we've been investing.
This is an exciting trend and were eager to lead the way with our payer and nephrology partners to deliver comprehensive care to our patients, which we believe will help lead to better clinical outcomes and lower overall cost of care.
For <unk> 'twenty 'twenty, one guidance range reflects our expected cost and investment to build our model of care for a value based agreement.
Now, let me hand, it over to Joe.
Thanks, Javier I will begin with some additional color on our Q4 results and then focus on our 2021 guidance.
Our full year 2020 results exceeded our initial expectations and the core earnings power of the business remains strong. However, our Q4 results reflect the strong headwinds from the latest COVID-19 surge on.
Operating income was 382 million and earnings per share from continuing operations was $1, 67% below the guidance from our last earnings call.
The middle of our adjusted EPS guidance range contemplated a net headwind from Covid of approximately $25 million. However, as Javier referenced the actual impact was approximately $60 million, excluding the impact of Covid, our EPS from continuing operations would have been and the middle.
<unk> of our adjusted guidance range.
Relative to Q3, we experienced changes and first mortality, which has had a compounding effect throughout the year.
Second a reduction in the expense offsets and the quarter, particularly related to the health care cost for our teammates which had helped to temper the net financial impact of Covid in Q2, and and in Q3 and third higher direct costs related to COVID-19, including certain benefits to help our frontline.
And teammates with the hardships of Covid and higher PPE costs.
Other than Covid notable factors for the quarter include non acquired growth of negative 3% due to the monthly mortality trends worsening during the quarter.
Revenue per treatment was up and the quarter as a result of normal fluctuations and Medicare reimbursement and seasonality.
Patient care costs increased sequentially, primarily due to various impacts of COVID-19 that I previously mentioned.
G&A decreased sequentially, primarily due to the elimination of balance cost.
And we saw continued core profit and our international business offset by a $6 million foreign exchange loss.
And the fourth quarter, we purchased four 2 million shares of our common stock and Additionally to date in 2021, we repurchased approximately one 1 million shares so our share count as of today is approximately $109 million.
When estimating our diluted share count and your models you need to consider the dilutive impact of EPS.
Of outstanding Equity awards, which and the fourth quarter was approximately four 3 million shares.
Looking forward to 2021 as you can see on the press release, our guidance for adjusted operating income is one $6 75 billion to $1 $8 billion to $5 billion and.
Adjusted earnings per share is $7 75 to.
For $8 75.
And free cash flow is $900 million.
115 billion.
Our guidance ranges are wider than in a typical year.
This is the result of the wide range of potential impacts of Covid on our 2021 results at.
At the midpoint of our range, we have incorporated and estimate of the net costs associated with Covid of approximately $200 million.
Declining treatment volume as a result of higher mortality is the primary driver of the growing impact relative to 2020.
Our guidance assumes that the higher mortality will continue for the first half from 2021 and returned closer to pre COVID-19 level and the second half of the year as a result of widespread use of effective vaccine. However, COVID-19 does to introduce a significantly higher level of uncertainty and are for.
Cash and.
And there are certain scenarios that could result, and are performing outside this range.
Looking through the impact of Covid.
We believe that 'twenty and 'twenty, one will be another year of solid underlying operating income growth with strong free cash flow.
And we expect to continue to invest and our strategy and and innovation.
Let me now provide a few additional details on our outlook.
Now let costs should be a significant year over year tailwind as we spent approximately $67 million and 2020 to defeat the ballot initiative and California at 'twenty and 'twenty. One is not a general election year, we do not expect this expense to occur.
<unk> should be relatively flat year over year for the.
Although the quarterly contribution will be evenly spread throughout 2021, rather than the declining trend we experienced in 2020 now.
Now that <unk> has become a permanent and component of our Medicare run rate, we will no longer call out the financial impact going forward.
Other swing factors include the benefit from increasing Medicare advantage enrollment offset by our investment and our value based program. These.
And these investments include G&A costs associated with enhancing our model of care and startup costs associated with new contracts.
A few more quick notes on 2021, we expect our capital expenditures in 2021 to be similar to our 2020 spend.
A reminder, that our current run rate interest expense is 60% to $65 million per quarter.
We expect tax rates to remain between 26, and 28% absent any material changes from the new administration.
And as usual Q1 has two fewer treatment days in Q4, and higher bad debt and payroll taxes.
Year over year Q1 will have.
Six fewer treatment days from last year because of the leap year.
With that operator, please open the line for Q&A.
Thank you we will.
Now begin the question and answer session. If you would like to ask a question. Please press star one on mute your phones and record your name clearly itchy and each withdraw your question Press Star Q again to ask a question. Please press star one.
Our first question will come from Justin Lake with Wolfe Research. Your line is open.
Thanks, Good afternoon, and appreciate the detail there I wanted to kind of follow up on 2021, and just make sure I understand some of the moving parts here first.
You said $200 million from Covid is that comparable to my math is $60 million. This year, when I add sequestration and the COVID-19 costs and all that.
Savings from Covid together, those sales that would mean.
I'll remind you on Matt there's a lot of uncertainty associated with Covid. So we tried to be helpful by focusing on a scenario in the middle of our range, but yes. The 200 is apples to apples with a roughly $60 million number from 2020.
Okay and so the mortality. The mortality is is the remainder of about 140, and then on Medicare advantage, where you're saying the cluster and offset does that mean and Medicare advantage overall as a debt kind of wash or is there still some benefits from Medicare.
And any color you can add to that and turns us how meaningful it is would be helpful.
Yes, so the way I think about the DMA is.
The penetration rate went up call. It 5% a couple of percent is what we would normally see and in a typical year and 3% is the.
And the result of the Cures Act and the fact that some of our patients had access for.
For the first time, and we think about the upside from that 3%.
And that's in the same range as the excess spending we're doing and 2021 related to the growth of our value based contract business, what we call <unk> or integrated kidney care. So a positive from that extra 3% and investment related to integrated kidney care.
And those two things are roughly and the same ballpark. So think of those as a wash in terms of impact on 2021 Oi growth.
Got it and then last question for me I mean, I've been covering the stock a long time and I.
And I've always struggled to think about the debt.
Rental margins on lost membership.
Membership per outpatients, right and patient treatments and I assume the mortality is probably more focused on the Medicare side number one can you confirm that to me and then secondly can you help us understand like it's real.
Really helpful and $140 million, but how much revenue or.
Are you, losing their so we can kind of try to understand the decremental margin.
On that lost business, and maybe think about as things normalize what that could be going forward.
Sure. So first let me just clear up on the you keep using the 140, let me let me clear up how we're thinking about the 200 and it and in many ways mimics what we saw in 2020 I would bucket our COVID-19 impact into three categories. One is direct.
Costs associated with Covid and think of enhanced benefits, we're giving to teammates to help them with the hardship associated with Covid Chink of Inc.
Increased <unk> spend so that's bucket one bucket two are the offsets lower T&D, the Medicare sequestration revenue lower benefits associated with our self insured employer and what we saw in 'twenty and 'twenty is those were big numbers, but.
And generally offset each other it wasn't true quarter to quarter and that's why you see some of the big swing from from Q3 to Q4, but if you look at the full year of those two numbers offset each other and net net impact in 2020 was the result of this accumulating.
Loss treatments associated with with some of our patients passing away as a result of Covid. So you can think of $60 million as the impact in 2020 associated with mortality that $60 million in the scenario. We laid out grows 200 next year and again in 2020.
One, we're anticipating more or less debt the increased cost will be offset by.
On the offsets, although the costs will come down and the offsets will come down and and the nature of the cost will be a little bit different PPE. We anticipate will remain elevated as the unit cost of some of the PPE stays high obviously, we'll keep the sequestration for Q1, but that will go away, we think T and he will.
We remain low, but the health benefits associated with teammates will come down so again direct costs and offsets.
Blend to roughly zero and the $200 million is the impact from mortality now let me get to your fundamental question too.
Two things, yes, the day patients who are passing away from Covid are older on average than our average patient and as a result, they're more likely to have Medicare and the commercial mix. There is lower in terms of thinking about the how it impacts our cost structure, it's tough to model it depends.
On where these patients are how long it takes over what period. This extends but it is safe to say that our G&A. You can think of it is relatively fixed and our patient care costs are a majority of our patient costs are variable.
Thanks for the color.
Thank you. Our next question will come from Peter Chickering with Deutsche Bank. Your line is open.
Oh, good afternoon, Guy and say my questions to Justin's question, if we take the midpoint of guidance and.
And at 200 million to at.
The back half of the year is typically over 40 or 50% of your operating income for the year, So Debbie and the operating income for the back half for years to be above $975 million.
No.
Are you are you, saying excluding COVID-19.
Correct correct, because like you said that that Covid is impacting and the first half of the year and then minimal and the back half of the here and I'm just curious and help me think about the back half of the year for debt excluding COVID-19 for.
Or even actually within your assumptions and how it back up and your operating income should be.
Sure. So let me let me clarify what we meant by the from half of the year, what what we were saying and the scenario. We're painting there is that the the lost treat that the increased.
Mortality that we are seeing and our patient population as a result of COVID-19 would be highly concentrated in the front half for the year.
That though.
The loss treatments associated with those patients who unfortunately have passed away early.
That remains through the back half of the year and Unfortunately will remain through 2022. So those treatments are lost and.
What you would see in the back half of the year as you'd you'd hopefully you'd see nag bottoming out and starting to increase and the back half for the year, but it will take some time for the the loss treatments to play through the system. So I don't think you can say the back half of the year will not be impacted by Covid.
It certainly will be impacted by Covid.
Okay, and then that's a nice.
Segue for that one.
Total on guidance.
Because he had been provided revenue guidance can you just help us think about sort of where first quarter treatment growth will be and then what are you modeling the ranges our fourth corporate events growth to be has a deep against it and.
Yeah on the ESR D returned to normalized levels and are you seeing and some modest tailwind and a lack of kidney transplants.
Yeah. So if you think about all the other factors that that impact Mag in terms of treatment and the volume in terms of transplant volume and new to ESR D. Admit that stuff has largely returned to normal so we're not anticipating much impact of that.
So the NAV story for 2021 is largely around the mortality question.
If you think about Q1 and I'll talk in terms of the Nag, we see NAV continuing to decline in Q1, and then again in Q2 and this is really driven by this scenario we've painted of increasing mortality and then it's hard to.
Nowhere will bottom out again, there's a lot of uncertainty here, but in terms of trying to see what the NAV might be Q2, you could anticipate something as low as negative two or even negative 3% for that one quarter and then it will start to recover from there if you thought about.
Our full year 2021, Nag again, we're not guiding to NAV, but just to help you. All think about this I think it's safe to think of a negative NAV for the full year, certainly probably I think it's reasonable to model. It is somewhere in the negative one to negative 2% and then.
And you don't see Nag really returned remember Nag is a year over year number. So you wouldn't see it return to normal till mid 2022.
And then the one other thing I'd point out about Nag is once.
Once.
The mortality has worked its way through the system in terms of.
On a quarterly basis, we're not seeing excess mortality and once you've had a full year for the for the NAV. The lagging effect of NAV to play through than you would anticipate us having a bit of a tailwind associated with nag debt.
The unfortunate mortality that we've seen as a result of Covid should lead to a lower mortality over the next few years as a result of some of the patients who passed away of Covid would have otherwise passed away in 2022, or 2023 et cetera, So youll see youll certainly.
We see a real headwind on NAV in 2021, you would expect a bit of a hangover from that and 2022, but going forward from the back half of 2022 and again. This is all caveat it on our scenario whereby the vaccines work and our and our patients.
Get access to them you would start seeing a nag that would be.
Higher than normal and the back half of 2022, and and I apologize for how many numbers I'm throwing around and how confusing. This can be so if anything wasn't clear please follow up.
Alright, thanks, so much.
Our next question will come from Andrew Mok with Barclays. You May proceed.
Hi, Good afternoon first wanted to follow up on B and a discussion can you speak to some of the value based arrangements that you were able to strike with their MAA partners for 'twenty and 'twenty one both in terms of construct and materiality to your patient base.
Andrew let me grab that.
And the reality is.
And that we have a lot of different structures. So if you look at just historically, we had the special needs plans and then and we added the ESCO models, which were the CMA. My models those are now winding down.
And then of course, Jim and Mike came up with new models, so and that we have.
The four choices CMI has and then we had the executive order for that.
And that's on the government side Theres, a fair amount of innovation on the value base on the commercial side.
And we of course are now doing more with our MA partners and so we structured anything from share.
Share savings to something that looks a little more like a full cap and so as you can see the menu is extensive and.
And the more important thing to grab out of it and we're committed to moving to value based and we're taking bite sizes to make sure that we can deliver on all the commitments that we're making.
So.
That's why we're investing to make sure that we can deliver on whatever way the format comes.
Is that helpful. Andrew.
Yeah, do you have a patient number and towards a mix in terms of whats and value based arrangements today.
We do but that number is going to fluctuate dramatically because of the filing of all these government. She had on my products and so we are not sure how that whole process is going to play out since they start in April and how many patients.
We are going to enroll so that'll be the bulk and the and the largest size of it.
Got it Okay. That's helpful and can you comment more broadly on how the pandemic and excess mortality influencing your strategy around patient clinic optimization and home dialysis more broadly do you see an acceleration and both of those initiatives playing out over the next 12 to 18 months. Thanks.
I appreciate it and the short answer is no because the most important thing and that we have the modality of choice for the patient and the physician thinks is appropriate.
For the right care and so.
So that is first and foremost and that the first thing that is considered.
And secondly of course, if if if there is an area that severely impacted we are looking at that to see what capacity is and those centers and.
So we're taking a close look at it.
But as you can imagine.
Our centers are needed and most of these communities and it's something that we have to be very responsible of because if you had mortality there's still other patient there.
And as you know for a very long time, we've carried several hundred centers.
And that have lost money and then it's a very difficult decision one that we don't take lightly whether we close a center or not.
Got it and then just lastly, you mentioned that the vaccine rates are as high as 70% them on your patient and some geographies do you have a vaccination rate for your total patient population and today. Thanks.
Yes, the patient.
Vaccine rate is low and.
And teammate vaccine rate is actually starting to get into the 40%.
And we are working as I said and the remarks.
Very diligently with the government because our hope is that we can get direct allocation. If we were to use the flu the normal flu vaccine as an example, we get close to 90% across the entire cohort and we do it and a very very quick time period, and so we're making a case and the government but of course.
So as you know and you've read Theres, a lot of demand and a lot of different groups and so we're trying to break through that line.
Got it thanks for all the color.
Thank you.
Our next question will come from Kevin Fischbeck with Bank of America. Your line is open.
Great. Thanks wanted to ask a little bit more about the M. A investments it sounds like.
And it's going to offset the bench.
The benefits from it this year. These investments are ones that you know.
We need to kind of get in and then that business that book of business will become more profitable over time or are you, making an investment and kind of assuming that there'll be other five per cent or 10 per cent patients and ultimate moving in and for this is kind of and.
And if that's what you're going to need more and more patients that come in to actually kind of leverage and.
And and start to make a profit on how should we think about that.
Mark and profile of that many patients over time or in a calculated arrangement.
Yeah. So.
There's a lot we're going to learn about that over the next few years, Kevin but I think.
Low to mid single digit is a reasonable margin if you if.
If you think about it as a.
Using a full cap kind of accounting approach on some of these we don't take you and all the revenues so that that plays with the margin, but in terms of our margin per patient you'd wind up at about the same dollar amount.
But Kevin maybe and maybe let me pull up just a little.
Because it might not be clear, what kind of investments, we're making for value base and.
So there's two categories that I think one is for G&A stuff software.
Models of care for non srd things like diabetes mental health and of life those type of models that with scale and.
And different kinds of frameworks and there and then theres a startup cost for each individual contract that has the custom element to it so care models.
Health assessments and other things that are specific to each contract so hopefully that helps.
Yeah, no that does and I guess.
Just to make sure I'm clear about when you're talking about a little bit. So there's give me your point about the the revenue I think that the revenue and it kept political dialysis patients and that May day.
And is about $96000 at least and premiums.
So are you talking about something.
Something like 85 per cent of that number is kind of how you're thinking about the revenue or are there other adjustments, but I'd have to make.
I I would say if I were trying to model that and again a lot of uncertainty going forward I would think about us making a margin.
And on the component of the cost that is not dialysis.
So think of us as a medical manager of value based care deliver on the call. It two thirds of that $90000 that doesn't go to dialysis. The dialysis cost is relatively fixed and I. So I I'd apply the margin number to that 60000.
And number.
Okay. That's helpful.
And then I guess for 7000 and.
Patient impact for.
On mortality.
And I guess, that's like about three percentage treatments and the quarters that mean that you think that a normalized.
Treatment growth for the business is now three per cent and then you guys have been doing more like 2% or even less kind of heading into <unk>.
Covid is that where you think things ultimately get back to post COVID-19 or are you kind of thing that the other dynamics have normalized but only because of COVID-19 and when Covid goes away those factors will come back and and and lead to a sub three and.
Just for growth.
Yes, so Kevin and I appreciate the math Youre trying to do which is used for loss treatment count to back into what our normal Mag would've been it's a very tough piece of analysis to do the 7000 was and end of quarter number. So you can't just multiply that and there's actually a little bit more.
Weighted towards November and December when the Spike began so I don't think you can back into a a nag number and frankly, we're having trouble backing into it because there is a lot of play in the question of more of excess mortality and and which of these pay.
<unk> really passed away of Covid versus other things so.
I'd avoid trying to interpret late to what our underlying Mag is.
Okay.
Last question.
On the guidance as you mentioned, a little bit wider than normal and I understand and COVID-19.
Creates a lot of uncertainty is it just really this mortality thing is that the thing that we should be watching most or are there other kind of major swing factors and should be keeping our eye on.
Well I think I think there are a bunch of other swing factors that could impact the year. So if I were to run down the list, obviously theres the effectiveness of the vaccine and the variance and that will play through on the mortality line.
There is the potential economic impact of Covid and how that could play through with private pay mix early in the pandemic, we talked a lot about that and we were very concerned about it we've been very pleased with the resilient and see our patients have shown in terms of maintaining their coverage, but I think you can't lose sight.
Good day.
And PPE costs are something that debt remain relatively dynamic issue less in terms of volume utilization and more in terms of price.
Additional government assistance is certainly a possibility extending the sequestration halt or something like that.
So those are a few things I'd point out to keep your eye on that said, yes.
The mortality question is certainly the one that is dominating our modeling for 2021.
Alright, that's helpful. Thanks.
Our next question will come from Lisa Clive with Bernstein. Your line is open.
Okay.
Hi, there are few questions number one just on the 200 million headwind from the incremental from the Covid and mortality and and I guess, the $140 million of that is incremental given.
Given your guidance it looks like you're pretty confident that you're from you can sort of fully offset that at least at the midpoint of your guidance I'm just trying to understand where this incremental cost savings is coming from.
It's been a pretty lean organization for a long time.
Just trying to understand sort of what are the additional levers there, especially when you do expect.
NAV to be potentially even slightly down for the year and then.
Second question just on home modalities.
Obviously, you have to just do what's best for each patient, but have you seen increased interest and home modalities since the pandemic hit and.
Specifically as we think about the shift to home whether its peer H D. R.
Are you catching these patients early enough that it makes a difference in terms of whether they stay employed potentially keep their private insurance, where they otherwise would have.
Dropped dropped their job and either gone and the Cobra for a period of time or just switched switch directly and in Medicare I guess I'm really just trying to understand the longer term impact on patient mix from a greater use of home. Thanks.
Sure. So Lisa let me take the first and I think Javier will grab the second one so.
And as I interpreted your question is what's the bridge from 2020 to 2021, given the headwinds and and here's the way I think about it is if you take on.
Our.
Non-GAAP or adjusted Oi in 2021, and add back the $67 million for the ballot initiatives and then add back the $60 million for Covid.
And then you compare that to the middle of our range, adding back Covid. So this show 1950, you would get about a 4% growth rate.
And that's how I think about how is the core doing year over year and to me, 4%. It's a solid stable year on the core with this very challenging very uncertain calcium emetic.
Covid on top of it the 4%.
And it's kind of what our normal year would look like low to mid single digit revenue growth stable margins again, driven by RPT increases below inflation and good cost management I talked about the MAA and the Ik see offsetting themselves. So that's how I think about.
The 4% growth. It's just it's a it's a stable steady year masked by Covid.
And Lisa let me grab the second part of that which is on home modalities.
Short answer is we have a lot of excitement on the home modality.
Because it really enhances the quality of life and so our physicians and our patients are responding quite well and we are innovating a lot so that our patients when their home they have the confidence and security as if they were in center and so we're developing a lot of tools like remote monitoring and telehealth and other things.
And so our patients can feel that security of doing dialysis at home.
It does continue to grow and a significant way and as it relates to getting the patients earlier and.
What does that have impact on on mix. The short answer is that debt. That's work in progress. We continue to work with our physician practices to make sure that they're educating the patient and then we have developed world class free to anyone in the community to access.
Training. So that you can know your modality selection and the hope is that of course, you make your selection early enough. So that you can have the transition without that big spike or without any depression or mental issues and as you acclimate to dialysis.
Okay. Thanks, and just one follow up for Joel on the.
Cost structure can you just remind us of where you are with your email contract with Amgen and I know you.
And I had a long term contract with them when does that for new and you.
Is that a potential avenue for for lower costs.
Yes, so Lisa.
Contract ends at the end of 2022 as you know we've always been a little challenged as a result of confidentiality agreements in terms of what we can say it'll it'll certainly be interesting times as has that contract and.
Regarding hips and some other dynamics so it remains to be seen what's gonna happen and then.
Okay. Thanks for that time and and that's helpful.
Thanks Lisa.
Yeah.
Thank you next we'll hear from Whit Mayo with UBS you May proceed.
Thanks, Good afternoon I'm back on the mortality dynamic I was just thinking about hospitalizations that don't result in death and based off of some of the industry data that we've seen I don't know if this is right or not but it's got the rate of hospitalization may be three to four times higher than the deaths and I know this.
It is dangerous, but would imply you know maybe 20000 of your patients could have been hospitalized around the same time that you experience this higher mortality and other.
And I can appreciate it's hard to parse out.
Did COVID-19 drive the mortality or was this and other factor, but I'm just broadly kind of wanted to hear your your.
What youre seeing with just overall hospitalizations and and missed visits and the numbers cumulatively, you're probably fairly low.
Yeah. So it's early early and the pandemic, we actually saw benefits from lower Miss treatments, which you would suppose as our patients avoiding the hospital.
That has largely normalized so isn't really playing through on the on the treatment numbers right now I would remind you part of our platform, we have a decent sized acute business and that that has seen some benefits.
As a result of this so but in terms of the overall impact on on the year, it's not significant.
Yes.
I'll I'll stop and mortality, that's either pretty much covers it but maybe just one other question I had was.
I think you guys are back and network with Humana, maybe technically you were never out of network, that's probably the more accurate statement, but.
Just anything to share about about that contract and maybe more broadly just an update on the debt.
Network adequacy modifications and any changes that you're seeing differently with how payers are behaving just on.
And I'm curious on that topic.
Sure well, let me, let me grab that one and this Javier I think the great outcome of the Humana and negotiation is that we both ended up.
And with our goals accomplished.
Both Humana and Davita wanted to have make sure that more patients had access.
And that we were innovating and making sure that we were creating what we call the win win arrangement.
And that had better outcomes at a reduced cost that unfortunately has a lot more complexity and takes a lot longer because you have to do a lot of analytics to make sure that we're set up to be a win win and.
In general the.
MA book as we told you last time is mostly contracted and has been for quite some time, the time and the humana contract and just happened to be.
At the end of the year and it was.
Obviously because of its size its more complicated.
But we're very happy with how it ended up and we're looking forward to a multi year.
Relationship that delivers on this value based contract.
Okay and actually just one last one just not.
Joe I don't think you want to give specific guidance around the quarters here, but anyway.
Any way to think about how what percent of your earnings you think you may have and the first half versus the second half I'd hate for us all to get things terribly wrong with.
How you guys internally or are looking at the cadence of earnings.
Yeah look Q1, Q1 is usually a weak quarter we've got.
Higher bad debt higher payroll taxes.
One other thing that slipping my mind.
But.
I wouldn't but I would say relative to last year, it'll be very different because last year, the calcium and med ex number really skewed things to add add to the ballot initiative Oh, yes, there are fewer treatment days in Q1, sorry.
But I don't I don't think it'll be a dramatic.
I don't think the pattern will be that different than a normal year and given the fact that the mortality issues that we are raising we're really spike in Q1, and then come down.
It is not.
It's not unreasonable to think of Covid as being relatively evenly spread across the year.
Okay. So as I think about the first half versus the second half.
Are you, saying, we should apply like normal seasonal patterns looking back at 2019, 2018 2017, we could look at that.
As a reasonable for.
Take between your first and second half.
I think if youre looking at the core yes, you could look at historical reasonable patterns, and how look COVID-19 uncertainty uncertain enough over the course of the whole year, how it's going to play out quarter by quarter is hard to predict we obviously saw that in Q4, but.
A relatively even spread across the year it seems like a reasonable starting point for a very uncertain number.
And the Big assumption there is of course, if the mortality is is in the front end of the year and it continues to play out which is very different than what happened in 2020, which happened to be the spike.
Ended up and the backend of the year.
And so.
Analytically of course that is on the premise that the vaccines work and that the fourth quarter and the third quarter or look more.
Normal then and where we are now.
Okay. Thanks.
Thanks for all the color. Thanks.
Thank you.
Yeah.
Thank you. Our next question will come from John Ransom with Raymond James Your line is open.
Good evening.
So given that I'm always looking for simple answers. The complicated question, if we think about 'twenty one versus 'twenty.
What is the.
What was your MA mix and 'twenty I know you said 'twenty one.
And how does that compare to 2000.
I think what we said is that at the end of 'twenty, we're getting close to the 30th.
Sorry, the 30% and we're now in the mid thirties and remember the rest of the market is roughly around 40%, meaning the non dialysis.
What was the average for 'twenty and now you said the and below is it.
Because I remember it was mid 'twenty well if you if you assume that it moves roughly two percentage points and the year.
You can you can do the math around that but at a.
Hi, Hi twenties.
I can do 30 minus two I think [laughter] alright.
And you are going to simplify on them.
Yes, I have a simple and then continuing on the simple theme.
I know youre going to spend out some of this advantage, but I think we were thinking about the <unk>.
Right left and its something around $50 a treatment is that is that crazy.
From Medicare fee for service to Medicare advantage.
Yes.
Sorry, John.
Avoided commenting on this number for a while you can imagine us sitting across the table from from an MA plan and just not wanting them to know exactly what the average rate is so.
We're not going to comment on it we wanted to be helpful. In terms of thinking about how to model 'twenty one over 'twenty, which is why we called out the Ik investment as comparable and scale. So youll see that theyre, largely a wash year over year.
And again that that washes relative to the extra 3%.
MA growth not the full 5%. So we will get the benefit of the 2% that we get year on year out.
But the we don't want to comment on what the rate differential is between MAA and and normal Medicare fee for service.
Sure.
And then just.
Feel like and under explored theme is your heroic our labor force.
So if you were to hazard a guess.
What percent of your Labor Force do you think will agree to be vaccinated by the end of the year.
It's a great question John.
And we've been asking and and are on the flu, we ended up somewhere and the high Eighty's.
Low ninety's and.
And so.
This is obviously, a very unique experience, they're going through and they've seen.
And what what's going on with Covid.
And our data shows us right now slightly lower than the normal flu and then the question becomes once you have the vaccine if you can make it convenient and.
Could you know you can get the momentum for that number go back to the normal flu and the short answer is we don't know.
But right now roughly 40% of our labor force in the field has been vaccinated.
Sure.
And just back on labor for a minute do you think.
There they are over the hump in terms of my.
And our neighbor is a porsche with and all.
And it goes.
I don't have a portion of that.
And do you think the and I'll meet this in a minute.
But what do you think there over the hump, if you will in terms of burn out and tabs and exhaust.
Exhaustion.
Is that and unusual challenge for you or do you think that's still continues into next year for this year actually.
Well John first of all I really appreciate your empathy for this team because their commitment and resilience and and just dedication has been just incredible and and integration to the rest of us.
But no there actually and the thick of things this spike and the and the end of the year beginning of this year with steeper and more acute than anyone would anticipate and so they've been working working working and trying to keep everybody safe. So.
The fatigue is real and the emotional drain and the attachment that they have to our patient and seeing this mortality that we've talked about and emotional and and a heavy heavy.
Thing to deal with and so I think that this is gonna have consequences for the entire caregiving system for years to come.
Yeah, I I do.
Lastly, when you think about global risk and you guys had.
Eight or so years left.
For your former Davita Medical group.
And how do you think about.
Controlling the two thirds downstream that you don't.
You don't control directly at that.
Medicare rates for the downstream and gross contracts or is it just we control the patient we can make them healthier and they account for helps us and that they will but we think having a frontline and state with a patient. We can we can sort of control their behavior to make them healthier and does it sort of the average that wish you and again.
Well, let me grab it and then Joe you can supplement and because I'm not sure I understand exactly where you want to go but at the end of the day I think the answer is on my wife never does either I never know where and when again so that's on.
[laughter] I never won.
My.
The two thirds, we're going to we're going to address some of it and our centers ourselves and.
And in areas, where we think we can add a lot of value and then we're going to we're going to deal with with providers that we have a lot of trust with and other areas and so I think it's going to be a hybrid and we're learning a lot and we've learned a lot and our ESCO that to where we have strength. So for example, if you were to do a health assessment and the center and when you have.
And the patient for four hours, you can be quite thorough and and you can have the systems to make sure that you do the appropriate therapy to intervene and so did you get the two for their and other areas of health care as you know.
And just getting a hold of the patient number one and then number two actually doing something about it and intervening and so we do have what let's call. It a strategic advantage and the access to the patient.
Did that answer your question.
Well, but let's say they go on to a local hospital I mean, these Medicare rates that you're assuming I mean, I'm just trying to understand.
For the insurance company downstream contracting around access for the rest of health care system, and how you all okay and I think I understand your question most of them and you say like and the congressmen and our margins on the other two thirds and so I'm just trying to figure out that and you get that margin and they are about two thirds expense.
Yeah I got you know most of the time the contract assumes that you get the payers network.
And and Youre basically going after utilization and better care and so you're trying to reduce utilization as opposed to price.
I Gotcha, that's perfect. Thank you.
Thank you.
Thank you. Our next question will come from Gary Taylor with Jpmorgan. Your line is open.
Hey, good afternoon, I wanted to understand a little better.
Magnitude of of this movement, you're talking about towards Ah.
Our risk taking with your with you and.
And they population so.
Are there any numbers you can give around going forward ex percent of the MAA enrollment is in.
Capitation contract or a material gain sharing contract that isn't just a couple of points a couple of points based on.
Quality of care and you know what that's looked like.
Historically.
Is it a material portion you know and 2021 of your M, a patient and that'll be and something close to kept dated contracts.
It's it's still relatively small but growing.
<unk>.
Look I'd say fundamentally we see.
We see this business as being on the right side of health care, It's a big opportunity and we think we've got a right to win because of what Javier was talking about in terms of our ability to deliver quality and manage the care of the non dialysis side today, it's still relatively small we're keeping them.
Very careful eye on it I think to me the important point that I emphasize is we view this as a new business rather than viewing it as some new way to finance.
The cost of dialysis, but in terms of magnitude today, it's still small.
And what about as direct contracting.
Increases obviously got professional global this year, you've got a limited theoretically rollout and 10 cities of geographic direct contracting next.
And next year, so you're you're going to have the same health plans.
Now you know taking risks for your Medicare fee for service population would you anticipate do you.
And risk base contracts, it's it's.
Direct contracting.
<unk> takes off and gross.
Or do you have any now.
It's an interesting.
Proposition I mean at the end of the day I think it's unlikely, but we would be open to explore it because if someone's upstream take the risk and the example, you laid out and direct contracting.
We would be.
Receiving Medicare fee for service and that example.
Direct contracting so unless day, they literally said hey, because of your strategic.
Advantage of actually spending so much time with the patient we think that you can partake with us that would be very interesting.
Of course, the other way to look at it as you know.
Can we be the direct contracting entity and.
So we will be looking and all these things and see how they play out.
But that's that's where it stands now.
My last question just wanted to understand this better and and maybe it sounds like I'm, just a little stale like I thought you guys had consistently said 25 per cent of.
Medicare was with and May so if we're going to average, 35% and 2021 debt that's quite a.
Pick up I know you're saying.
For like 28 to <unk>.
Some would always happen to be incremental but.
It's obviously very well understood debt and <unk>.
Payers paid above a fee for service I can understand why you don't want to.
Disclose that differential but we all had estimates of it. So you know if we were gonna see at MA penetration go to 35 per cent. We had estimates of what that meant to you in terms of incremental rate and EBITDA.
The question is.
Has the movement.
Making all thousands of patients eligible for MA has that created some.
Rice compression and that historic and a book.
Because it doesn't sound like with with capitation being so small that the related investments to that.
Be enough to offset.
Our estimates of your incremental rate pick up so.
Any color around that would be would be helpful.
Yeah, Gary let's just.
Make sure we're all working with the same MA penetration rates. So the 25 number is from a couple of years ago and that grew 2%, maybe a little bit more each year over the last couple of years. So at the beginning of let me get my years right at the beginning of 2019.
That was probably in the ballpark, but you add a couple of percent maybe a little more in 19, and then again in 'twenty and that's how you get to the the number of Javier side, which is coming up right on 30% at the end of 2020 and adding another five points in 2021 and again those five.
<unk> being two points that we would've gotten anyway without the cures Act because this has been growing 2% a year and then another 3% for the Cures Act. So if you're trying to model, what's the upside in 'twenty and 'twenty one as a result of the Cures Act coming.
Coming on line I'd use that 3% number.
Got it and any comment about how that's impacted you know the rate environment. It sounds like it's certainly engendered more risk based on discussions, but with the bulk of it and they still paying fee for service.
Don't have have you held up.
Despite the fact that theres more volume moving in that direction.
I think in general.
The plans have paid a lot of attention to it but they always have and so.
It's a discussion and the conversation has really gotten more into a shift of Kent would do value base.
But the short answer is that we didn't have that many at bad because most of the contract where longer term so get to be seen.
Okay. Thanks.
Thank you.
Thank you. Our next question will come from Matt Larew with William Blair. Your line is open.
Thanks, just on on Eastern development and gave us some nice context around Mag and in terms of new tenant development I guess, maybe help us think about what 'twenty, one and 'twenty two might look like you had mentioned the <unk>.
Number of fading into mid 'twenty, one and then ramping back up but maybe just curious given the higher mortality youre seeing and I've seen on the outside looking in and we don't have a sense for geographic context on that but has that affected the way you're thinking about new center builds and any change to sort of a 50 50 target home versus.
Our non them.
Yes so.
It will impact our thinking about new center development, but there's a real there's a long lead time from when you conceive of a center until you build it and you get it certified so I don't think you'd see much impact in the new center numbers in.
'twenty, one or even 'twenty two that said look the numbers have come down we certified a little more than 80, new centers in 'twenty and 'twenty I think we actually build something and the mid Forty's and then if you look forward to next year again, Youll see the number of certified come.
Way down and the actual number we're going to build next year will will probably be more likely and the twenties.
So that number was coming down fast before COVID-19.
Yeah, that's helpful and then.
Just maybe one more on sort of a day base care side, just curious if any.
And after your conversations have it all started to include a price that's not moving upstream with Payors and to maintain the detainee population and not for change.
And here pretty robust resources like like kidney smart.
Yes is the short answer and.
Everybody is new with this meaning that plans are and we're working through what that means and what the implications are.
Going upstream and then of course, there's some regulatory restrictions to deal with and.
But at the end of the day, we're all trying to manage that patient as soon as possible to make sure that that transition is as smooth as possible.
Okay. Thank you.
Thank you.
Our next question will come from Lisa Clive with Bernstein. Your line is open.
Hi, Thanks for the follow up.
Alright.
Thanks for the top and can you.
And you gave us and update on the timeline for the lawsuit over the network adequacy rules and what do you think the chances are the new rule gets overturned.
And then assuming it doesn't get overturn them what is your best guess on the impact on that change and.
Dynamics over the next five years.
Think that I mean, right on dialysis treatment could go down for the number of clinics decrease of clinics are not R. R and far away, obviously that doesn't seem to me.
And all it problem right now I'm, just thinking thinking out a few years. Thanks.
Yeah, Thanks, Lisa and let me, let me step up.
A couple of feet in case people haven't been tracking and ask.
There is a network adequacy demand on MA plans and for dialysis patients there was a shift.
And our objective measure that had time and distance.
And then basically they drop the yeah.
Objective criteria and made it more subjective and just saying you had to have and adequate network.
The update on that and that there was basically a technical reason.
And then the case, there's no longer.
Active right now.
As we look into whether we and community and patients will pursue the next one.
We are actually waiting to make sure that we have harm and so we're waiting to see if a plan actually.
It doesn't abide by the spirit of making sure that there's adequacy right now we have not experienced any of that and we hope that we don't and but that's the status on the update.
Okay. So the original challenge.
It is no longer moving forward.
Correct.
Okay. Thanks for that clarification.
Thank you Lisa.
Thank you next we will hear from Justin Lake with Wolfe Research you May proceed.
Hey, Thanks for the follow up a.
Joe I wanted to go back to the 60 million that you talked about and it being entirely coming from mortality effectively with everything else watching out.
Can you give us some color in terms of how that 60 million progressed through the year. It was more fourth quarter base or you know what there I assume there was some drag and to Q3 Q for mortality.
Yeah, there was a bit in into it grew and three and I think about half of it was in Q4, and it's a number that accumulates right because the impact of loss treatments on Q4 is associated with with our patients who passed away in Q.
Two and in Q3, and and Q4 and that's why you see at accumulating that way and and Youll see that pattern continuing in the from half of the year in 2021.
That's exactly why I'm asking for that so it's about 30 million 10 2030, it sounds like you have a big.
And as the way to think about it.
And so I'm actually surprised given you know the COVID-19 spike and the fourth quarter that it was only up.
You know similar to one Q2 Q3 Q.
And not like it by the end of the year and the reason for that is the Spike happen did November and December and remember generally mortality lags the spike and the infection curve by three or four weeks.
Right. So that's a good point. So maybe you can can you give us a number maybe that are that we can think about as if adjusted at year and given.
Given the number of patients God had passed away.
What would that number look like if you kind of you know and.
Not annualized so maybe we can talk about on annualized that 12 31 number.
No one else no one else passes what's the number and you kind of year and that we're gonna see quarterly for the rest of the year.
Yeah, I I don't I don't have that math in front of me, but again, if you think about how the 200 million and this one scenario, we played out and I and I just want to emphasize again. This is this is one scenario, we think it's a reasonable middle scenario, but it could play out.
And many different ways, but if you think about what how to model that $200 million over the course of the year. I think you can think about it as as relatively flat most of most of the the increase and our patients passing away will happen in Q1 Q1 is also more.
Likely to be burdened with some other expenses than the later quarters. So it's it's complicated math.
Maybe Q2 was a little higher than Q1 as a result of the the mortality growing but.
Oh flat across the year is not an unreasonable starting point.
Got it.
And I'd say, it's going to pick up significantly and the first quarter, there and it's gonna go from like $30 million, a quarter to like 60 or $70 million.
For quarter call. It 60, and maybe increase a little from there and then go forward and that's how you're going to be up well.
Well actually I'm wrong, sorry can increase that much it'll be 50, like you said or something for the quarter. Okay and is there I tried to look at the patient care.
And you you did an acquisition that looks like and the U K.
That's going to change that number or is there any way I can I can get you guys to share that and maybe before we hop off for boy Javier.
No you you had been focused on and kind of.
Right sizing the footprint internationally, so I'm, a little surprised to see us to be doing more acquisitions internationally.
Do you plan on.
Maybe you can share with other strategically why that was important.
Sure a couple of things I think where we stayed consistent to the discipline that we outlined on capital market, which is basically we would be very very diligent on on where we could add clinical value, where we had the right to scale, where we had a talented management team.
And we thought from a compliance perspective, it was a place where we could operate safely and.
And then that we had capital efficiency and.
UK has been going from a government led program to a private and it is and.
There's a very interesting market, where we're at it's predictable and and we understand it and so we won a tender and we think that the returns will be.
Good.
Yes, just and I just said, it's I think it's a great acquisition for the international team and exciting for them to get back to get into a new country. After we had been pruning the platform.
And then maintaining the discipline of capital efficient growth. So from that standpoint, it's great from a materiality standpoint in terms of impact on O Y. It's it's pretty small.
And the other patients required for mutual.
It will take.
Yeah.
I don't have the number off the top of my head, we'll see if we can get it for you if not we'll get it to you after the call.
Thanks, a lot.
Thank you Justin.
Thank you and we are showing no further questions at this time.
Okay, well. Thank you, let me close off with some comment share none.
Number one.
Our team's commitment and dedication to the safety and health of our patient is absolutely unwavering.
It is really sad and unfortunate that our patient age and comorbid conditions make them significantly more vulnerable to COVID-19, we are going to work diligently to get as many vaccinated as soon as possible.
Number two we share with you today some of the dynamics of the pandemic has had on our company on our patients and on our teams.
Hope it was helpful of course the ranges, we'll follow the trajectory of this very unpredictable pandemic and then lastly, absent the pandemic impact, which is very hard to say that sense because everything here starts with the pandemic our business plan has shown resilience.
C and in line with our multi year outlook that we discussed at the capital market.
And with hopefully some optimism that I like you hope that this vaccine can move US past. This stage. Thank you for interest and Davita and we'll talk soon stay safe.
That does conclude today's conference. Thank you for participating you may disconnect at this time.