Q4 2021 DaVita Inc Earnings Call

Speaker 1: Good evening, my name is Michelle and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita fourth quarter 2021 earnings call. All lines have been placed on mute to prevent any background noise.

Good evening My name is Michelle and I will be your conference facilitator today at this time I would like to welcome everyone to the Davita fourth quarter 2021 earnings call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question. During this time simply press Star and then the number one on your telephone keypad. If you would like to withdraw your question Press Star then the number two today's call is being recorded.

Speaker 1: After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, press star and then the number two.

Speaker 1: Today's call is being recorded. If anyone has any objections, you may disconnect at this time. Thank you, Mr. Gotswissen. You may begin your conference.

If anyone has any objections you may disconnect at this time. 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 in the company I'm, Jim Gustafson, Vice President of Investor Relations and joining me today are Javier Rodriguez, our CEO Joel Ackerman our CFO .

Speaker 2: Thank you and welcome everyone to our fourth quarter conference call. We appreciate your continued interest in the company. I'm Jim Gutserson, Vice President of Investor Relations and joining me today are Javier Rodriguez, our CEO , and Joel Ackerman, RCS.

Speaker 2: 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 to differ materially from those described in the forward-looking statement.

Please note that during this call we may make forward looking statements within the meaning of the federal Securities laws. All of these statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in the forward looking statements.

Speaker 2: For further details concerning these risks and uncertainties, please refer to our fourth quarter earnings press release and our SEC filing, including our most recent annual report on Form 10-K and all subsequent quarterly reports on Form 10-Q and any subsequent filing we make with the SEC. Our 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.

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 on Form 10-K , and all 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.

Speaker 2: 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 to the more comparable GAAP financial measures is included in our earnings press release furnished to the FCC and available on our website. I will now turn the call over to Javier.

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 to the more comparable GAAP financial measures is included in our earnings press release furnished to the SEC and available on our website I will now turn the call over to Javier Rodriguez.

Thank you Jim and thank you all for joining today's call to discuss our fourth quarter performance.

Speaker 3: Thank you, Jim, and thank you all for joining today's call to discuss our fourth quarter performance and our thoughts on 2022.

On 2022.

Speaker 3: Each quarter for the last two years, I hope it's the last time that the pandemic is the start of my discussions with you. Yet, COVID continues to evolve and have a direct impact on our world, especially on our healthcare system.

Each quarter for the last few years I hope, it's the last time that depend on that because it started with my discussions with you yet.

Covid continues to evolve and have a direct impact on our world, especially on our health care system.

Speaker 3: Similar to what's been seen in the general population, COVID infections within our patient population spiked significantly in late December through January . At its peak during the second week of January , the new case count was more than twice as high as a peak from last winter. Gratefully, the mortality rate to date with the latest surge has been lower than in prior surges.

Similar to what's been seen in the general population Covid infections within our patient population spiked significantly late December through January .

During the second week of January the New case count was more than twice as high as the peak from last winter.

The mortality rate to date with the latest search has been lower than in prior surges.

Speaker 3: For the fourth quarter, we estimate that the incremental mortality due to COVID was approximately 1,100 compared to approximately 1,600 during the third quarter.

The fourth quarter, we estimate that the incremental mortality due to Covid was approximately 1100 compared to approximately 6800 during the third quarter.

Despite the challenges associated with Covid.

Speaker 3: Despite the challenges associated with COVID, I continue to be in awe at the resilience and dedication of our teammates across the Davida village, from our direct patient caregivers to our corporate teammates.

<unk> to be at.

The resilience and dedication of our teammates across the Davita village.

From our direct patient caregivers to our corporate teammates.

Speaker 3: All are unrelenting in their commitment to provide high quality care, respond to quickly changing environment and show incredible compassion and support for our patients.

All are unrelenting in their commitment to provide high quality care respond to quickly changing environment.

So incredible compassion and support for our patient.

Speaker 3: For the balance of my remarks, I will cover five topics, transplant, labor market, our supply chain, integrated kidney care, IKC, and then I will wrap up with our fourth quarter results and our outlook.

For the balance of my remarks, I will cover five topics transplant labor market, our supply chain integrated kidney care high KC, and then I will wrap up with our fourth quarter results and our outlook.

First transplants.

Speaker 3: At our Capital Markets Day presentation November , I discuss our focus on innovation to improve the patient experience at every single stage along the patient's kidney care journey, from delaying the progression of kidney disease to transplant, and from acute hospital care to dialysis at home or in-center.

At our capital markets Day presentation November I discussed our focus on innovation to improve the patient experience.

Every single stage, along the patient kidney care journey from delaying the progression of kidney disease to transplant and from acute hospital care to dialysis at home or in center.

Speaker 3: Transplant is the preferred treatment option for most of our patients. And during 2021, despite the challenges posed by the COVID pandemic, we celebrated that nearly 8000 DaVita patients received a transplant exceeding our pre-pandemic level. With that said, the transplant process is long and complicated with an average wait time of between four and five years for an organ.

Implant is a preferred treatment option for most of our patient and during 2021. Despite the challenges posed by the Covid pandemic, we celebrated at nearly 8000 davita patients received a transplant exceeding our pre pandemic levels with that said the transplant process is long and complicated.

With an average wait time of between four and five years for an Oregon staying active on the wait list for such a long time as difficult as it was.

Speaker 3: Staying active on the wait list for such a long time is difficult. As a result, patients sometimes miss their window for a transplant. We've been working to address some of these challenges through our industry-leading transplant smart education program and our partnership with the NKF to help more patients find living donors.

Patients, sometimes missed their window or a transplant, we've been working to address some of these challenges through our industry, leading transplant Smart education program and our partnership with the MKS to help more patients fine living donors and.

Speaker 3: In early January , we announced the acquisition of MedSluice, whose software enables closer partnerships and better coordination between transplant centers, nephrologists, and kidney care providers, with all three working together to support our patients' transplant journey.

Early January we announced the acquisition of Med Sup, who software enables closer partnerships and better coordination between transplant centers that project and kidney care providers with all three working together to support our patients transplant journey.

Speaker 3: These efforts can also benefit another meaningful goal of ours.

These efforts can also benefit another meaningful goal of ours.

Speaker 3: to improve health equity. Many process and outcome results in transplants are quite inequitable, different by race and ethnicity, economic means, and insurance coverage. We believe it doesn't have to be this way. Removing barriers to access, making process as easy as possible, and providing strong care coordination and support through the transplant journey can all contribute to making transplants not just more available, but also more equitable for our patients. Now, let me shift to another.

To improve health equity many process and outcome results in transplant are quite inequitable different by race and ethnicity economic mean, an insurance coverage. We believe it doesn't have to be this way removing barriers to access making process as easy as possible and providing strong care coordination and support to the <unk>.

Transplant journey.

All contribute to making transplant not just more available, but also more equitable for our patients.

Now, let me shift to an update on the labor market.

Speaker 3: I've been fortunate enough to be part of the Beada Village for over 20 years. And in all that time across my many roles, I've never experienced the labor market as challenging as we face today.

I've been fortunate enough to be part of Davita village for over 20 years, and then all that time across my many roles I've never experienced the labor market as challenging as we face today.

Speaker 3: To help deal with the challenge, we have provided incremental pay and benefits to help our frontline caregivers during COVID. We've also accelerated wage increases with a particular focus on our teammates in the clinic.

To help deal with the challenge, we have provided an incremental pay and benefits to help our frontline caregivers. During COVID-19 . We've also accelerated wage increases with a particular focus on our teammates in the clinics.

Speaker 3: As previously communicated, we expect higher-than-usual wage increases in 2022, which will put some additional pressure on our cost structure going forward. We believe this investment in our people will contribute to our ability to track and retain the talent needed to achieve our long-term objective. That said, the labor markets remain highly dynamic and will continue to be a swing factor for the year.

As previously communicated we expect higher than usual wage increases in 2022, which will put some additional pressure on our cost structure going forward we.

We believe this investment in our people will contribute to our ability to attract and retain the talent needed to achieve our long term objective.

That said the labor markets remain highly dynamic and it will continue to be a swing factor for the year.

Speaker 3: Over the years, in particular during the pandemic and natural disaster, we have navigated many supply chain challenges. To date, our supply chain has proven very resilient. Currently, we're working through a supply shortage primarily related to dialysis, which is a fluid solution used in hemodialysis to filter toxins and fluid from the blood.

Over the years and particularly during the pandemic and natural disaster, we have navigated many supply chain challenges.

To date, our supply chain has proven very resilient currently we're working through a supply shortage primary related to dialysis, which is a fluid solution using hemo dialysis to filter cockpit and fluid from the blood.

Speaker 3: The shortage has rippled through the entire kidney care community, and as a community, we have once again come together in support of our dialysis patients, and thus far, have been able to provide uninterrupted, life-sustaining care.

This shortage is rippled through the entire kidney care community and as a community. We have once again come together in support of our dialysis patients.

Thus far have been able to provide uninterrupted life sustaining care.

Speaker 3: We expect that these challenges related to dialysis will remain with us until the second quarter.

We expect that these challenges related to dialysis it will remain with us until the second quarter.

Turning now Casey, we now have confirmation on the markets, where we will partner with physicians under the federal government, new five year seek ATC demonstration. These programs added approximate 12000, J D patients and an additional 12000 TKD patients across 11 value based programs and different <unk>.

Speaker 3: Turning to IKC, we now have confirmation on the market where we will partner with physicians under the federal government's new five-year CKCC demonstration. These programs added approximately 12,000 ESKD patients and an additional 12,000 CKD patients across 11 value-based programs in different markets.

Market.

We're gauging with our Nephrologist partners to develop personalized care plan for each cover patients and identify opportunities to improve clinical outcomes and lower costs for each patient.

Speaker 3: We're engaging with our nephrologist partners to develop personalized care plans for each covered patient and identify opportunities to improve clinical outcomes and lower costs for each patient.

Speaker 3: Participating in these and other programs will more than double the number of patients we serve in value-based care arrangements.

Participating in these and other programs will more than double the number of patients we serve and value based care arrangements.

Speaker 3: In light of our upfront costs of these programs and the lag of shared savings payments, as we discussed in November , we continue to expect that our operating loss in 2022 in our U.S. ancillary segment will increase by approximately 50 million, although this could increase or decrease depending on the number of new arrangements we enter into during the year.

In light of our upfront cost of this program and the lag of shared savings payment as we discussed in November we continue to expect that operating loss in 2022 in our U S. Ancillary segment will increase by approximately $50 million, although this could increase or decrease depending on the number of <unk>.

New arrangements, we entered into during the year.

Speaker 3: We believe that we are well positioned for the future and in particular to deliver positive clinical and financial results in our IKG business over the long term.

We believe that we are well positioned for the future and in particular to deliver positive clinical and financial results and our <unk> business over the long term.

Speaker 3: Now let me finish with fourth quarter results in our updated outlook. Despite the negative impact of the Omicron surge, our fourth quarter results were slightly above the midpoint of our revised guidance.

Now, let me finish with fourth quarter results and our updated outlook. Despite the negative impact of the omicron surge our fourth quarter results were slightly above the midpoint of our revised guidance.

Speaker 3: This resulted in a full year adjusted operating income increase of approximately 3% over 2020. Adjusted EPS from continuing operations grew by approximately 26% year over year, and we generated more than $1.1 billion of free cash flow, which we largely deployed to return capital to our shareholders.

This resulted in a full year adjusted operating income increase of approximately 3% over 2020 adjusted EPS from continuing operations grew by approximately 26% year over year, and we generated more than $1 1 billion of free cash flow, which we largely deployed to return capital to our shareholders.

Speaker 3: For 2022, we expect adjusted operating income guidance of $1.525 billion to $1.675 billion.

Or 2022, we expect adjusted operating income guidance of $1 $5 5 billion to $1 $6 75 billion.

Speaker 3: The midpoint of this guidance range is 35 million below our expectations from Capital Markets Day last November , which is primarily driven by our updated views on COVID and labor costs.

The midpoint of this guidance range is $35 million below our expectation from capital markets Day last November which is primarily driven by our updated views on COVID-19 and labor costs.

Speaker 3: As we said previously, while 2022 will be a transition year due to some near-term investment and challenges that we're facing, we continue to believe that we're well positioned to perform across the kidney care continuum in the years to come. We still believe we can deliver the long-term compounded annual growth of adjusted operating income of 3% to 7% that we discussed at Capital Markets Day.

As we said previously while 2022 will be a transition year due to some near term investment and challenges that we're facing we continue to believe we're well positioned to perform across a kidney care continuum in the years to come we still believe we can deliver that long term compounded annual growth of adjusted operating income was 3%.

The 7% that we discussed at capital markets day.

Speaker 3: With that, I will turn it over to Joel to discuss our financial performance and outlook in more detail.

With that I will turn it over to Joe to discuss our financial performance and outlook more detail.

Speaker 3: Thanks, Javier. As Javier mentioned, our fourth quarter results were slightly above the midpoint of our revised guidance.

Thanks Javier.

<unk> mentioned, our fourth quarter results were slightly above the midpoint of our revised guidance.

Speaker 3: Q4 results included a net COVID headwind of approximately $80 million, an increase relative to the quarterly impact that we experienced in the first three quarters of the year, primarily due to the impact of the incremental mortality from the Delta surge in Q3, and some temporary labour costs increase.

Q4 results included a net COVID-19 headwind of approximately $80 million, an increase relative to the quarterly impact that we experienced in the first three quarters of the year, primarily due to the impact of the incremental mortality from the Delta surge in Q3, and some temporary labor cost.

<unk> for the year, we experienced a net COVID-19 headwind of approximately $200 million.

Speaker 3: For the year, we experienced a net COVID headwind of approximately $200 million.

As Javier said, the incremental mortality due to COVID-19 in the fourth quarter was approximately 1100 compared to approximately 600 in Q3.

Speaker 3: As Javier said, the incremental mortality due to COVID in the fourth quarter was approximately 1,100, compared to approximately 1,600 in Q3.

Speaker 3: While it's too early to accurately forecast incremental mortality in 2022, given the significant uptick in infections in January , we expect COVID-driven mortality in the first quarter to be at or above what we experienced in Q4.

While it's too early to accurately forecast incremental mortality in 2022, given the significant.

<unk> Tic and inspection in January we expect Covid driven the mortality in the first quarter to be at or above what we experienced in Q4.

Speaker 3: U.S. dialysis treatments per day were down 135 or 0.1% in Q4 compared to Q3. The primary headwind was the increase in mortality and higher missed treatments as a result of the ongoing COVID pandemic.

U S dialysis treatments per day were down 135, 1% in Q4 compared to Q3.

The primary headwind was the increase in mortality and higher missed treatments as a result of the ongoing COVID-19 pandemic.

Speaker 3: US dialysis patient care costs per treatment were up approximately $6 quarter over quarter, primarily due to the increased wage rates and health benefit expenses.

U S dialysis patient care costs per treatment were up approximately $6 quarter over quarter, primarily due to the increased wage rates and health benefit expenses.

Our integrated kidney care business saw an increase in its operating loss in Q4, which is due primarily to positive prior period development and our special needs plans recognized in the third quarter and increased costs incurred in Q4, including preparation for new Valley.

Speaker 3: Our integrated kidney care business saw an increase in its operating loss in Q4, which is due primarily to positive prior period development in our special needs plans recognized in the third quarter, and increased costs incurred in Q4, including preparation for new value-based care arrangements effective in 2022.

Based care arrangements effective in 2022.

Our adjusted effective tax rate attributable both to the beta was 16% for the fourth quarter and approximately 22% for the full year.

Speaker 3: Our adjusted effective tax rate attributable to the beat up was 16% for the fourth quarter and approximately 22% for the full year. The adjusted effective tax rate was lower quarter over quarter, primarily due to a favorable resolution of a state tax issue during Q4. Our adjusted effective tax rate was 16% for the full year.

Adjusted effective tax rate was lower quarter over quarter, primarily due to a favorable resolution of a state tax issue during Q4.

Finally in 2021, we repurchased 13 9 million shares of our stock reducing our shares outstanding by 11, 5% during the year.

Speaker 3: Finally, in 2021, we repurchased 13.9 million shares of our stock, reducing our shares outstanding by 11.5% during the year.

We have repurchased to date, an additional one 4 million shares in 2022.

Speaker 3: We have repurchased to date an additional 1.4 million shares in 2022.

Speaker 3: Now looking ahead to 2022, our adjusted OI guidance is a range of $1.525 billion to $1.675 billion, and our adjusted EPS guidance is $750 to $850 per share.

Now looking ahead to 2022.

Our adjusted Oi guidance is a range of 152 5 billion to one $6 $75 billion and our adjusted EPS guidance is $7 50 to $8 50 per share.

Speaker 3: The midpoint of the OI guidance range is $35 million below the $1.635 billion that we discussed during our recent Capital Markets Day due to offsetting puts and takes.

The midpoint of the guidance range is $38 million below the 163 5 billion that we discussed during our recent capital markets day due to offsetting puts and takes.

Speaker 3: First, we have a tailwind from both higher final Medicare rate update, as well as a partial extension of Medicare sequestration relief. However, this is more than offset by headwinds due to the recent COVID surge, as well as incremental wage rate pressure.

We have a tailwind from both higher final Medicare rate update as well as a partial extension of Medicare sequestration relief.

However, this is more than offset by headwinds due to the recent COVID-19 surge as well as incremental wage rate pressure.

Speaker 3: At the midpoint of our guidance range, we have incorporated the following assumptions related to COVID.

At the midpoint of our guidance range, we have incorporated the following assumptions related to Covid.

Speaker 3: excess patient mortalities due to COVID of 6,000. This, along with our normal growth drivers, would result in a total treatment growth range of approximately 1.5 to 1%.

Excess patient mortality due to COVID-19 of 6000.

This along with our normal growth drivers would result in a total treatment growth range of approximately.

One half to 1%.

Our year over year improvement to various COVID-19 driven costs, such as PPE, which will be largely offset by the loss of revenue from Medicare sequestration relief beyond the Q2 2022.

Speaker 3: a year-over-year improvement to various COVID-driven costs, such as PPE, which will be largely offset by the loss of revenue for Medicare sequestration relief beyond Q2 2022.

Speaker 3: As you would expect, the high and low end of our guidance incorporates a range of COVID scenarios for 2022.

As you would expect the high and low end of our guidance incorporates a range of COVID-19 scenarios for 2022.

Speaker 3: There are scenarios that could lead us to performance above or below this range.

There are scenarios that could lead us to performance above or below this range.

Speaker 3: In addition to COVID, the expected headwinds I talked about on the Q3 earnings call and that our capital markets they remain. As a reminder, we expect to incur expenses related to the VIA's portion of the industry effort to counter the expected ballot initiative in California.

In addition to Covid the expected headwinds I talked about on the Q3 earnings call and at our capital markets Day remain as a reminder.

We expect to incur expenses related to the <unk> portion of the industry effort to counter the expected valid initiative in California.

Speaker 3: Our guidance assumes an incremental increase of between $100 and $125 million in labor costs above a typical year's increase.

Our guidance assumes an incremental increase of between 101 hundred $25 million in labor costs above a typical year's increase.

Speaker 3: which is 50 million dollars higher than what we communicated at Capital Market today.

Which is $50 million higher than what we communicated at capital markets day.

Speaker 3: Third, we anticipate a year-over-year incremental operating loss in the range of $50 million as we continue to invest to grow our IKC business. And fourth, we will also begin to depreciate our new clinical IT platform, which we expect to be approximately $35 million in 2022 and will begin in Q2.

Third we anticipate a year over year incremental operating loss in the range of $50 million as we continue to invest to grow our <unk> business and.

And fourth we will also begin to depreciate, our new clinical IP platform, which we expect to be approximately $35 million in 2022, and we will begin in Q2.

Speaker 3: A few additional things to help you with our current thinking about 2022.

A few additional things to help you with our current thinking about 2022.

We expect to offset a significant amount of these incremental costs with continuing MA penetration growth above historical levels and strong management of non labor patient care costs.

Speaker 3: We expect to offset a significant amount of these incremental costs with continuing MA penetration growth above historical levels and strong management of non-labor patient care costs.

We are forecasting our tax rate at 25% to 27% due to non deductibility of valid expense regarding seasonality remember that Q1 had seasonally higher payroll taxes and seasonal impact of copayments and deductibles.

Speaker 3: We are forecasting our tax rate at 25 to 27% due to non-deductibility of ballot expense. Regarding seasonality, remember that Q1 had seasonally higher payroll taxes and seasonal impact of copayments and deductibles.

Speaker 3: The vast majority of our ballot related expenses will fall in Q3.

The vast majority of our ballot related expenses will fall in Q3.

Speaker 3: We have historically experienced higher GNA in Q4.

We haven't historically experienced higher G&A in Q4.

Speaker 3: Looking past 2022, we continue to expect compounded annual OI growth relative to 2021 of 3 to 7 percent and compounded annual adjusted EPS growth relative to 2021 of 8 to 14 percent.

Looking past 2022, we continue to expect compounded annual NOI growth relative to 2021 up 3%, 7% and compound compounded annual adjusted EPS growth relative to 2021 of 8% to 14%.

Speaker 3: Finally, we expect free cash flow of $850 million to $1.1 billion in 2022. As we communicated at Capital Markets Day, we expect free cash flow to remain above adjusted net income, with that difference contracting over time. Operator, please open the

Finally, we expect free cash flow of $850 million to $1 $1 billion in 2022.

As we communicated at capital markets day, we expect free cash flow to remain above adjusted net income with that difference contracting over time.

Operator, please open the call for Q&A.

Thank you Sir at this time, if you would like to ask a question you May Press Star one to withdraw your question you May Press Star two one moment please.

Speaker 1: Thank you, sir. At this time, if you would like to ask a question, you may press star 1. To withdraw your question, you may press star 2. One moment, please.

Sarah James from Barclays. You May go ahead.

Sarah Thank you.

Speaker 1: Thank you. Yes, hi. So, I wanted to get a sense, you know, as we go through Omicron and we think about the waves that are coming ahead, there seems to be more...

Yes, hi.

So I wanted to get a sense as we go through <unk>. When we think about the waves that are coming ahead, there seems to be.

Sure.

Mild outcomes like you mentioned today and I'm wondering if that's contemplated when we think back to your capital markets day, when you talked about the $160 million to $200 million.

Speaker 1: mild outcomes, like you mentioned today. And I'm wondering if that's contemplated when we think back to your capital markets today, when you talked about the 160 to 200 million in OI drag over the next four to seven years from excess mortality, if that contemplates a continuing more mild COVID trends as the years go on.

In a lot of drag over the next four to seven years from excess mortality.

That contemplates.

<unk>.

More mild COVID-19 trends as the years go on.

Well I'll, let Joe talk about the numbers in a second but let me just start by saying.

Speaker 4: Well, I'll let Joe talk about the numbers in a second. But let me just start by saying, the way we're talking about an internally in the company is that we are no longer going to speculate how this is going to behave because we have been so surprised over time. We all had such hope when the vaccines came out. And then when the boosters came out. And of course, it has resulted in a milder hospitalization and mortality. But at the end of the day, I think we can all

The way, we're talking about it internally in the company is that we are no longer going to speculate how this is going to behave because we have been so surprised overtime. We all had such hope when the vaccines came out and then when the boosters came out and of course it.

It has resulted in a milder hospitalization and mortality, but at the end of the day I think we can all now accept that no. One can speculate where this is going our hope is that it does become less impactful on our business and eventually it's something that we can deal with them.

Speaker 4: now accept

Speaker 4: that no one can speculate where this is going. Our hope is that it does become less impactful in our business and eventually it's something that we can deal with in the normal course of business.

Normal course of business, but that would not be a prudent thing to assume so why don't you go ahead, Joe and talk about what we've built into the number sure. Thanks Sarah.

Speaker 4: But that would not be a prudent thing to assume. So why don't you go ahead, Joel, and talk about what we've built into the numbers. Sure. Thanks, Sarah.

Speaker 4: So as I think about how COVID impact will play out going forward relative to

As I think about how COVID-19 impact will play out going forward relative to.

Speaker 4: a wave like Omicron or a wave like Delta, there are a whole bunch of impacts that COVID has across the P&L. And what we've said, and remains to be true, that there are a lot of offsets in everything except the excess mortality. And the net impact that we expect from COVID will largely be the net impact of excess mortality.

Weighed like omicron or wave like Delta there are a whole bunch of impacts that COVID-19 has across the P&L and what we've said and remains to be true that there are a lot of offsets in everything.

<unk>, the excess mortality and the net impact that we expect from Covid will largely be the net impact of excess mortality, what you see with OMA crown as well, yes. It is it is.

Speaker 4: What you see with Omicron is while, yes, it is a milder disease, because it was so much more transmissible, that it still led to a big wave of excess mortality. We saw that in Q4. We're continuing to see that in Q1. So, as I think about.

Milder disease, because it was so much more transmissible that it's still led to a big wave of excess mortality. We saw that in Q4, we're continuing to see that in Q1, so as I think about it.

Speaker 3: different variants and how they might play out going forward. I think net net the question is what's the impact on excess mortality?

Different variants and how they might play out going forward I think net net the question is what's the impact on excess mortality.

Okay.

Speaker 1: And can you update us on your conversations with payers if when you're talking about future rates you're building in inflationary factors for wages? I don't know if it would be for twenty-

Can you update us on your conversations with payers.

When youre talking about future rates Youre building in inflationary.

Inflationary factors for wages.

I don't know if it would be for 24 hour contracts now.

Well those conversations are playing out in real time, but the reality is that as you know and we've talked about for some time, our contracts tend to be longer term in nature and so the bulk of our contracts are not up for renegotiation. So we'll have to of course assess how inflation behaves.

Speaker 4: Well, those conversations are playing out in real time, but the reality is that, as you know, when we've talked about for some time, our contracts tend to be longer term in nature, and so the bulk of our contracts are not up for renegotiation. So we'll have to, of course, assess how inflation behaves over time when each and every one of those contracts comes up.

Over time, when each and every one of those contracts comes up.

Speaker 4: And so right now, let's call it in what was negotiated previous to seeing this ramp up in inflation.

So right now there let's call it in and what was negotiated previous to seeing this.

Amp up in inflation.

Thank you.

Thank you.

And our next caller is Justin Lake from Wolfe Research.

Speaker 1: And our next caller is Justin Lake from Wolf Research.

Speaker 5: Hey, Justin. Thanks, guys. Hey, uh, so I wanted to go through a few things in detail. First, uh, Joel, you talked about the first quarter being similar to the fall quarter in terms of the mortality headwinds.

Hey, Justin Thanks, guys Hey.

So wanted to go through a few things in detail first.

Joel you talked about the first quarter being similar to the fourth quarter in terms of.

The mortality headwinds.

Speaker 5: OI perspective. Can you walk us through again, and I might have this somewhere, the OI headwind by quarter, first quarter through fourth quarter?

From an Oi perspective can you walk us through again and I might have this somewhere but the oi headwind by quarter.

First quarter than fourth quarter in 2001.

Speaker 3: The OI headwind by quarter, I'm going to do this off the top of my head. It was in the 30s, each of the first two quarters, so mid 30s, 55 in Q3, and then 80 in Q4. And I'm getting thumbs up.

Oh, I headwind by quarter I'm going to do this off the top of my head. It was in the thirties each of the first two quarters. So mid <unk> 55 in Q3, and then <unk> in Q4.

And I'm getting sums up in the room, So I got it right.

Okay. So then 80 years 80 is the number for Q1.

Speaker 5: OK, so then 80 is 80 is the number for Q1. No, no, Justin, let me let me clarify before before you go. What what I said in the script was that the excess mortality in Q1 was going to be at least as large as what we saw in Q4.

Justin Let me, let me clarify before before you go what what I said in the script was that the excess mortality in Q1 was going to be at least as large as what we saw in Q4.

Speaker 3: So that's about the mortality. Remember, in terms of COVID impact, excess mortality has a cumulative effect. So adding another 1,100 deaths or more, you would add that to what we're seeing in the quarter. There are other dynamics, of course, but when you just focus on the excess mortality, which is the dominant dynamic, you'd expect that number to go up a bit.

So that's about the mortality remember in terms of Covid impact excess mortality has accumulative effect, so adding another 1100.

Deaths or more you would add that to what we're seeing in the quarter. There are other dynamics of course, but when you just focus on the excess mortality, which is the dominant dynamic you would expect that number to go up a bit.

Speaker 5: Got it, so 50 to 80 might be 80 to 110, something like that.

Got it so it's 50 to 80 might be 80 to $1 110, something like that.

Given its similar.

Speaker 5: trajectory incrementally. Is that a way to think about it? That sounds a bit high.

Trajectory incrementally.

Got a way to think about it.

That sounds a bit high.

Speaker 3: And I think that's really a function of two things. There were a significant number of mistreatments in Q4, which is a temporary negative impact of COVID. That would, we would expect that to go down. And second, there were some non-recurring labor components to the COVID impact in Q4 as well.

And I think that's really a function of two things. There was there were a significant number of missed treatments in Q4, which has it is it temporary negative impact of Covid that would we would expect that to go down and second there were some nonrecurring labor components to.

The COVID-19 impact in Q4 as well.

Speaker 5: Got it. Is there a, I apologize that you said this, but is there a number like 200 in 2021? Is there a number that you gave for 2022? Do you think that that's embedded in God?

Got it.

I apologize if you said this but is there a number like 202021 is there a number that you gave for 2022 do you think that that's embedded in guidance.

Speaker 3: It's embedded in guidance, I think, as as we think about COVID impact, we've we've spent the last seven quarters calling it out on a cumulative basis. As we get further and further away from the beginning of COVID, it gets harder and harder to estimate what the cumulative impact is. The baseline is we're so far removed from the baseline that it's hard to talk about the cumulative impact.

It's embedded in guidance I think as we think about Covid impact. We have spent the last seven quarters, calling it out on accumulative basis, as we get further and further away from the beginning of Covid It gets harder and harder to estimate what the cumulative impact is.

The baseline is where so far removed from the baseline that it's hard to talk about the cumulative impact. So we're thinking about what the COVID-19 that's baked into the numbers as effectively the new normal from which we're going to go forward. We'll continue to talk about the impact we see quarter over quarter.

Speaker 3: So we're thinking about what the COVID that's baked into the numbers as effectively the new normal from which we're gonna go forward. We'll continue to talk about the impact we see quarter over quarter. But I think we're gonna move away from talking about it as a cumulative number.

<unk>, but I think we're going to move away from talking about it as a cumulative number.

Okay, and then you talked about Medicare advantage penetration being.

Speaker 5: Okay. And then you talked about Medicare Advantage Penetration being an offset year. Can you tell us what that was at year-end and where you are kind of after open enrollment?

It offset here can you tell us what that was at year end and where you are kind of.

So open enrollment euromoney.

Speaker 4: Yeah, at the end of the year, which is the most recent number I have, Justin, we were at 42.3% on MA.

Yeah at the end of the year, which is the most recent number I have Justin we were at $42 three.

3%.

On M&A.

Speaker 4: And I think that's the latest one we want to say. Yeah, if we think about it for the year, I would say we would expect growth to continue to be strong, but not as strong as we saw in 2021.

And I.

I think that's the latest one we want to yes, if we think about it for the year.

I would say, we would expect growth to continue to be strong, but not as strong as we saw in 'twenty one.

Okay, Great and then last question just on the dialysis issue.

Speaker 5: OK, great and then last question just on the dialysis issue.

Speaker 5: Can you tell us, you know, you talked about that and I've, you know, there's been some discussion of this in the, in the industry for Zinnias apparently has an issue. Can you confirm that, like, where the issue is, is coming from? And you said it'll continue to at least the second quarter. You think for the second quarter, is there any visibility on this improving?

Can you tell US you talked about that.

There's been some discussion of this in the in the industry presenting is apparently has an issue.

Could you confirm that like where the issue is is coming from and as you said it'll continue to at least the second quarter or do you think for the second quarter is there any visibility on this improving.

Okay.

Speaker 4: Well, yes, the community, you know, this is a national issue for all providers, so there has been a shortage in supply. You can trace it back, of course, to the chain supply issues across the country.

Well, yes. The community you know this is a national issue for all providers. So there has been a shortage in supply.

You can trace it back of course to the chain supply issues across the country and the distribution centers and the labor issues. So it's a cumulative of all of them.

Speaker 4: and the distribution centers and the labor issues. So it's a cumulative of all of them.

Speaker 4: So there was labor, transportation, everything all came together as it has happened in so many other places.

So there was labor transportation everything all came together as it has happened and so many other places.

Speaker 4: What we did as a community is, of course, the first thing is get the clinical leadership to make sure that we were doing safe dialysis. Then we started to basically titrate so we would use less of the product.

What we did is it community is of course, the first thing is to get the clinical leadership to make sure that we were doing shaped dialysis. Then we started to basically tied trade. So we would use less of the product and then we made sure that everybody understood what kind of inventory was at each location.

Speaker 4: And then we made sure that everybody understood what kind of inventory was at each location so that we would not have anyone stack or stock inventory.

With that we would not have anyone.

Stock or stock inventory, so the entire community that the visibility that we have right. Now is that again that will play out and we will be back to normal sometime in Q2 is what we're being told and so we will continue on the state where we're all.

Speaker 4: So the entire community did that. The visibility that we have right now is that, again, that will play out and we will be back to normal sometime in Q2 is what we're being told.

Speaker 4: And so we will continue in the state where we're all, if you will, in a much lower inventory level. That makes – did I answer your question?

If you will at a much lower inventory level.

That makes a.

Did I answer your question Justin.

Yeah. Thanks, I appreciate it I'll jump back I don't know if it was.

Speaker 5: Yeah, thanks. I appreciate it. I'll jump back in. And I don't know if it was entirely clear as to this whole notion of why we don't want to go back to this baseline because it's so far. So just to put a finger on something that we are all experiencing is travel and entertainment, which we, of course, at one quarter over another, you could say we used to have a run rate. Has the world actually changed? And travel and entertainment is going to be completely different.

Entirely clear as to this whole notion of why we don't want to go back to this baseline because it's so far so just to put a fifth.

On something that we are all experiencing as travel and entertainment.

Which we of course have one quarter over another you could say we used to have a run rate as the world actually change in traveling and entertainment is gonna be completely different.

Speaker 4: Then we had benefits, which we told you we had a run rate, but the benefits have changed in the run rate. So that's why it starts to get a little harder to go to that. And as Joel said, we want to go now into sort of let's call it the new normal and go off of that. And so hopefully that made sense to you.

Then we had benefits, which we told you we had a run rate, but the benefits of change in the run rate.

So that's why it starts to get a little harder to go to that and as Joel said, we want to go now into sort of let's call. It the new normal and go off of that.

So hopefully that makes sense to you.

Got it thanks.

Speaker 1: Thank you. Peter Chickering from Deutsche Bank, you may go ahead. Hey, good afternoon, guys.

Thank you Peter Chickering from Deutsche Bank, You May go ahead.

Hey, good afternoon, guys. Thanks for taking my questions here.

Speaker 2: Going down into the OI guidance for 2022, so we're down 35 million. Did I hear you right that there's an additional $50 million of labor costs versus the analyst day? And then you obviously have the more COVID excess mortality than you'd expected, and you now assume 6,000 excess mortality deaths in 2022. It seems like a lot of headwinds versus your guidance of going down 35 million. So just wanted to understand what were the tailwinds versus your previous...

Drilling down into the <unk> guidance for 2020 twos were down $35 million did I hear you right that there is an additional $50 million of labor costs versus the analyst day.

And then you obviously have the more coveted excess mortality than you'd expected.

Now to them 6000 excess fatalities. That's in 2022, it seems like a lot of headwinds versus your guidance and went down $35 million. So just wanted to understand what was the tailwind.

In your previous guidance.

Speaker 3: Yeah, Peter, I'd point to two tailwinds. One is the final Medicare fee-for-service rate came in at 1.9%, which was above our estimate. And the second is we got partial sequestration relief for the year, which is about $25 million. So those two offset those, and you wind up with a net $35 million decline.

Yeah, Peter I'd point to two tail wins, one is the final Medicare fee for service rate came in at one 9%, which was above our estimate and the second is we got partial sequestration relief for the year.

Which is about $25 million. So those two offset those and you wind up with a net $35 million decline.

Speaker 2: Okay, and on the excess mortality, I understand that that's impossible to forecast.

Okay and on the excess mortality I understand that that's impossible to forecast as it is at this point.

Speaker 2: with the 1,100 for the first quarter. It's a little unclear as to what the incidence rate is for new patients entering dialysis. So any chance you can give us sort of the color of how many patients you guys had at the end of the third quarter, how many you had at the end of fourth quarter, and where that's tracking sort of at this point in the first quarter.

Yeah with like 100 for the first quarter, it's a little unclear or what the incidence rate is for new patients entering dialysis. So any chance you can give us sort of the color of how many patients you guys had at the end of the third quarter. How many you have the end of fourth quarter and where that's tracking for at this point and in the first quarter.

Yeah.

I'm not sure I understand your question Pedro.

Speaker 2: yet so so it uh... you give it up the the excess mortality for death you know for for the fourth quarter in the first quarter and i guess on the other side equation you have been uh... of new patients entering into dialysis so just curious to give it through what how do you think that you had to get a third quarter how do you have the end of fourth quarter to where they did at this point today

Yeah. So so.

You've given us the excess mortality or deaths for for the fourth quarter and the first quarter and I guess on the other side of equation you have.

Of new patients entering into dialysis. So I was just curious if you can give us sort of what you know how many patients you had if you had a third quarter. How many had at the end of fourth quarters for where that is at this point today in the first quarter.

Speaker 3: Yeah, so the patient count is relatively flat.

Yeah. So the patient count is relatively flat in terms of the underlying drivers that drive the new to dialysis add Mitch we really haven't seen any changes there. It continues at the pattern that we saw pre COVID-19 and the.

Speaker 3: In terms of the underlying drivers that drive the new to dialysis admits, we really haven't seen any changes there. It continues at the pattern that we saw pre-COVID.

Speaker 3: And there are really only two dynamics if you were looking at treatment count or treatment volumes or treatments per day between Q3 and the end of the year. And that's really important.

They are really only two dynamics. If you were looking at treatment counter treatment volumes are treatments per day between Q3, and the end of the year and Thats one the exit to continued excess mortality that we talked about and the second is the dynamic of Miss treatments.

Speaker 3: One, the continued excess mortality that we talked about, and the second is the dynamic of mistreatment.

Speaker 3: So that if you're asking about the pipeline of new to dialysis patients, that remains quite healthy.

So if you if you are asking about the the pipeline of new to dialysis patients that remains quite healthy.

Speaker 2: Okay, and then from a modeling perspective, as you think about first quarter sequential treatment versus the fourth quarter, we obviously had the excess mortality, sort of the time lag between different quarters, and then the lost treatments that we had during the fourth quarter due to patients that were in hospitals. Should we be modeling first quarter down a little bit versus fourth quarter or relatively flat?

Okay, and then from a volume perspective, as we think about first quarter sequential treatment versus the fourth quarter. We obviously had the excess mortality or the time lag between different quarters and then the loss treatments that we had.

During the fourth quarter.

Patients that were in the hospitals should we be modeling for the first quarter down a little bit versus the fourth quarter or relatively flat sequentially.

Speaker 3: It'll depend a lot on mistreatment rates. I'd say for the, actually there's one other dynamic. We did make an acquisition in Q4.

It'll it'll depend a lot on Ms treatment rates I'd say for the.

Actually there is one other dynamic we did make an acquisition.

In Q4.

Speaker 3: And that was almost 1,000 patients, about 750 patients.

And that that was almost 1000 patients a little bit about 750 patients. So that that adds to the dynamic in that will help Q1, as well, but I'd say for the course of the full year. We are based on the Covid numbers that we built into our <unk>.

Speaker 3: So that adds to the dynamic and that'll help Q1 as well.

Speaker 3: But I'd say for the course of the full year, we are.

Speaker 3: Based on the COVID numbers that we've built into our forecast, we're thinking of treatment volume growing somewhere between half and one percent for the year. Obviously, as COVID plays out, that number could vary.

Forecast, we're thinking of treatment volume growing somewhere between half and 1% for the year, obviously as Covid plays out that number could vary okay. And then on the I can see I think at the analyst day, you guys use for $50 million and 75 million of cash.

Speaker 2: Okay, and then on the IKC, I think at the end of the day, you got to do sort of $50 million, $75 million of incremental costs in 2022. On the script, I think you said $50 million. I just want to see if the incremental costs for IKC have changed versus what you told us.

<unk> costs in 2022 on the script I think you had said $50 million is let's see if the economic cost for IQ C. R. R I've changed versus leased holes at the analyst day.

Speaker 4: Yeah, I think that the number hasn't changed, Peto. So it is a 50, just to clarify, incremental 50. Perfect. And then, sir, one more question for IKC.

Yeah, I think that the number hasn't changed so it is a 50 just to clarify incremental.

Perfect and then sorry, one more question for I K.

Casey.

Speaker 2: Looking at the class of patients that you guys enrolled into the first quarter of 2021 in terms of how those losses were in the first quarter when you first got them versus the end of the fourth quarter of 2021, any clarity on sort of how that class of patients or how those losses progress around.

Looking at the class of patients that you guys enrolled into our first quarter of 2021 in terms of how how those losses were in the first quarter and one for Scott and versus the end of the fourth quarter of 2021, any any clarity on sort of how that class of patients or how how those losses progressed throughout the year.

Speaker 3: Yeah, not not yet, Peter. Remember, in the first year, we generally drive no revenue. So it'll really be sometime in 2022, where we'll start to get it see that playing through in the financial

Yeah, not not yet peto remember in the first year, we generally drive no revenue. So it'll really be some time in 2022, where we will start to get it you see that playing through in the financials.

Speaker 2: Okay, and then two more super quick ones here. What were your home treatments at the end of the fourth quarter? How should that progress?

And then two more super quick ones here.

Your home treatments.

The fourth quarter, how should I.

Progress through 2022.

Yeah.

Speaker 3: Yeah, the home penetration rate was in the low 15% range. Home grew about 3% in the year versus in center, which which shrunk 2%. So our continued path to to grow home and be a leader in that modality continues strong. We're not guiding specifically on that number for next.

Our home penetration rate was in the low 15% range home grew.

About 3% in the year versus in center, which which shrunk 2%. So our continued path to grow home and be a leader in that modality continues strong we're not guiding specifically on that number for next year. Okay. And then two to Justin's question on.

Speaker 2: Okay, and then to Justin's question on the dial state supply shortage, is there any inflationary cost pressures if you have to hit a spot market to get the dial states required, or, you know, are those...

Dallas had supply shortage is there are any inflationary cost pressures. If you have to hit a spot market to get the Dol states required or are those are those contracts. Thanks. So much.

Speaker 4: Yeah, thanks, you know, on the dial thing in particular, it is contracted. So no, the answer to that one. Great. Thanks so much.

Yeah. Thanks, Peter on the dialysis in particular it is contracted.

So no.

Answer that one.

Great. Thanks, so much.

Thank you once again, if you would like to ask a question you May press Star one to withdraw. Your question you May Press Star two Kevin Fischbeck from Bank of America. You May go ahead.

Speaker 1: Thank you. Once again, if you would like to ask a question, you may press star 1. To withdraw your question, you may press star 2. Kevin Fischbach from Bank of America, you may go ahead. All right. Great.

Alright, great. Thanks.

I guess not.

Speaker 2: Not 100% clear to me what you guys are signaling about the 2023 outlook. I know I'm still far out, but you gave us some comments last quarter about what 2023 would look like.

Hunter, it's unclear to me.

What you guys are are signaling about the 2023 outlook I know so.

So far out, but you gave us some comments last quarter about what 2023 would look like and.

It seems like some of the headwinds here might persist into 2023 as far as maybe higher labor costs or mortality being a little bit higher from a starting point perspective.

Speaker 2: It seems like some of the headwinds here might persist into 2023 as far as maybe higher labor costs or mortality being a little bit higher from a starting point perspective, but some of the tailwinds like sequestration delay would not. But at the same time, you're also kind of saying your growth rate off of 2021 hasn't changed. In fact, 2021 is a little higher, which would point to a little bit higher 2023 number. I'm just trying to think directionally how should we think about 2023 versus your prior

Some of the tailwind like sequestration delay would not but at the same time you also kind of thing your growth rate off a 2021 hasnt changed in fact, 2021 is a little higher.

I would point to a little bit higher 2023 number I guess I'm trying to think Directionally, how should we think about.

<unk> 23 versus your prior comments.

Yeah. So I would say the following first youre pointing out that labor and Covid remain big uncertainties through 2022, and potentially 2023 is spot on that said the the uptick that we've talked about in 2023.

Speaker 3: Yeah, so I would say the following. First, you're pointing out that labor and COVID remain big uncertainties through 2022 and potentially 2023 is spot on.

Speaker 3: That said, the uptick that we talked about in 2023 at Capital Markets Day remains to be something, remains something that we've got a lot of confidence in. And if I had to bucket them, I'd say the easier things that we can anticipate driving in 23 over 22, one would be the ballot initiative going away, right? We don't have those in odd years.

Capital markets day.

Remains to be something remain something that we've got a lot of confidence in and if I had to bucket them I'd say the easier things that we can anticipate driving in 'twenty three over 22, one would be the ballot initiative going away right. We don't have those in the odd years.

Speaker 3: Second would be IKC will start seeing revenue in 2023 from the big cohort of patients that are being added in 2022.

Second would be I Casey will start seeing revenue in 2023 from the big cohort of patients that are being added in 2022.

Speaker 3: Third are a number of cost initiatives that we are implementing across the P&L.

Third our a number of cost initiatives that we have that.

That we are implementing across the P&L and so those are the I'd say the ones that we've got a lot of visibility on the the one we have less visibility on is the Covid unwind. We have we continue to believe that as COVID-19 moves into the background in the future that will be a tailwind for us.

Speaker 3: And so those are the, I'd say the ones that we've got a lot of visibility on. The one we have less visibility on is the COVID unwind. We continue to believe that as COVID moves into the background in the future, that will be a tailwind for us. It'll be a tailwind for us on certain cost items, but most importantly, it'll be a tailwind for us on patient growth.

It'll be a tailwind for us in certain cost items, but most importantly, it'll be a tailwind for us on patient growth.

Speaker 3: So our views on those have not changed. And if I had to put a number on those, I think you could add those up and easily get to a $200 million opportunity that we're going at.

So our views on those have not changed and if I had to put a number on those I think you could add those up and easily get to a $200 million opportunity that we're going after.

And that but that would be over and above the normal growth. We would expect in a typical year.

Speaker 3: And that would be over and above the normal growth we would expect in a typical year.

Speaker 2: but your current outlook for COVID mortality.

But your current outlook for Covid mortality field.

Speaker 2: feels a little bit higher. So I would think that would kind of maybe delay kind of that re realization of that 200 million, which might make how much you recapture in 2023 less.

Feels a little bit higher so I would think that would kind of maybe delay.

That we do.

Realization of that $200 million.

Which might make how much you recapture in 2020.

Three less than what you would've thought.

Okay.

Speaker 3: It will depend on the timing, and we don't profess to have a crystal ball about COVID. We want to be crystal clear about what we built into our forecast, obviously it could be better, it could be worse, depending on how the timing plays out in 2022.

It will depend on the timing and we don't profess to have a crystal ball about COVID-19 , we wanted to be.

Crystal clear about what we built into our forecast and obviously it could be better it could be worse, depending on how the timing plays out in 2022.

There are different scenarios about what this number could look like in 2023.

Speaker 3: there are different scenarios about what this number could look like in 2020.

Speaker 2: Okay, that's fair enough. And then I guess in the quarter, it looks like you've closed 30 centers, which I think is like as many as you've ever closed in a year.

Okay, that's fair enough.

And then I.

I guess in the quarter. It looks like you closed 30 centers, which I think is like as many of you have ever closed in a year or.

Speaker 2: for the last decade plus that I've been covering VITA. So I want to understand what was driving those closures.

Over the last decade, plus I've been covering davita, so I want to understand what was driving those closures.

Speaker 2: in Q4, even if the year numbers twice was never done in the year before.

You know in Q4, and even into the year numbers twice, what you've ever done in the year before.

Speaker 4: Yeah, thanks for the question. Um, it is a little higher than normal, although we always have some center closures and consolidations, etcetera. I think the best way to think of footprint is we have three lenses. The very first one is, of course, access to patients to ensure that patients are safe and have the right access.

Yeah. Thanks for the question.

Is a little higher than normal, although we always have some center closures and consolidations et cetera, I think the best way to think of footprint as we have three lenses.

The very first one is of course access to patients to ensure that.

Our safe and have the right access.

Speaker 4: The second lens would be what is a mix of home and in-center and if that changes over time.

The second lens would be what is the mix of home and in center and as that changes over time.

Speaker 4: The third is utilization, which is we've had, of course, because of this excess mortality, we've had some utilization decrease. And then the last is sort of you think of the local market dynamics. And so we want to be really careful and want to be very thoughtful. But if you were going to say what's the net takeaway is that we continue to think that we will build less DeNovos and more home centers over time.

Third is our utilization, which is we've had of course because of this excess mortality. We've had some utilization decrease and then the last is sort of you think of the local market dynamics and so we want to be really careful and we want to be very thoughtful, but if you were going to say, what's the net takeaway is that we can.

Continue to think that we will build less de novo.

More home centers over time.

Speaker 6: Okay, but I guess, I mean, if, if the shift, if you're talking about recapturing the COVID headwind, then you're low.

Okay, but I guess I mean, if if a shift if youre talking about recapturing the COVID-19 headwind then.

They're low.

Speaker 2: volume this year would say that those sites just don't stay open.

Volume. This year, you would say that those sites should still stay open because theyre going to recapture that volume over because it is it really more of that shift to home is the biggest driver to that or is it.

Speaker 2: because they're going to recapture that line over. Is it really more that shift to home is the biggest driver to that?

Speaker 7: No, if you look at our utilization over time, we actually started to grow less pre-COVID than we had COVID, so the compounding of that actually has our footprint having less utilization than we've had historically.

You look at our utilization over time, we actually started to grow less pre COVID-19 than we had COVID-19 . So the compounding of that actually has our footprint are.

Having less utilization than we've had historically.

Speaker 4: And so we're just, and then you add the dynamic of home growing. And so that's what we're doing. We just want to make sure that we have the right modality in the right market. And so we continue to assess that at every market.

So we're just and then you add the dynamic of home growing and so that's what we're doing we're just wanted to make sure that we have the right modality in the right market and so we continue to assess that at every market.

Okay, and then just maybe the last question the the higher labor costs that you're building it now versus the previous guidance are these underlying wage increases at that kind of increase the base going forward or is there. Some component of that I think last time, you talked about increased training and things like that is it. There's some of that that would go away or that's 50.

Speaker 2: Okay. And then just maybe the last question, the higher labor cost that you're building in now versus the previous guidance, are these underlying wage increases that kind of increase the base going forward, or is there some component of that? I think last time you talked about increased training and things like that. Is there some of that that would go away, or is this $50 million kind of added to the base fund?

Canada added to the base going forward.

Speaker 4: Yeah, it's interesting. We were just talking about that because of course there has been a bit more turnover and we're working on how to get training to be a bit more efficient and effective, but the bulk of the number will stick with us. Okay, great. Thanks. Thank you.

Yeah. It does.

It's interesting we were just talking about that because of course, there has been a bit more turnover and we're working on how to get training to be a.

A bit more efficient and effective but the bulk of that number will stick with us.

Okay, great. Thanks, Thank you.

Thank you Gary Taylor from Cowen You May go ahead Sir.

Hi, good evening.

Speaker 8: Hi. Good evening. A couple of small questions and then a larger one. The comment about the increase in commercial mix sequentially that's playing out, is that still just the mortality impact, the primary driver there?

Couple of small questions and then a larger one.

The comment about the increase in commercial mix sequentially. That's playing out is that still just a mortality impact the primary driver there.

Speaker 4: Yes, and the consistent thing that the patients are really valuing choice of keeping their commercial insurance, it has really demonstrated through the pandemic resilience and value of the patient wanting to keep their insurance, and then the excess mortality coming, as you said, from a bigger number of Medicare patients.

Yes.

The consistent thing that the patients are really valuing choice of keeping their commercial insurance.

It has really demonstrated through the pandemic resilience and value of the patient wanting to keep their insurance and then the excess mortality coming as you said.

From from them bigger number of Medicare patients.

And then the dimension in the release about our part of the revenue sequential growth was flu vaccine I know that's a seasonal thing for you guys is that.

Speaker 8: And then the mention in the release about part of the revenue sequential growth was flu vaccine. I know that's a seasonal thing for you guys. Is that, how material is that? And is there any larger pickup in that this year that's material?

Is that how material is that and is there are any larger pick up in and that this year. That's that's material.

Speaker 8: in any way, just given, I imagine, patient awareness. Yeah. Oh, sorry. I thought you were done, Gary. The number is immaterial, and it's actually offset on the cost line item. So it's basically a service that we offer to our patients because it's good and convenient for them, as opposed to thinking of it as an economic.

And anyway.

I imagine.

Awareness yet.

Oh, sorry, I thought you were done Gary.

The number is immaterial and it's actually offset on the cost line item. So it's basically a service that we offered to our patients because it's good and convenient for them as opposed to thinking of it as an economic one.

Yeah.

Speaker 8: Last question. I just want to get your view. I haven't heard you guys talk about, you know, the Supreme Court case on ERISA plans that have made changes to

Last question I, just wanted to get your view I haven't heard you guys talk about you know the Supreme Court case on ERISA plans that have made changes to our dialysis payments and.

Speaker 8: benefit structure. I think the oral arguments are coming up on March 1st and presumably

Benefit structure I think the oral arguments are coming up on March 1st and presumably a ruling this summer.

Speaker 8: I think I'd understand your view would be that it's discriminatory practices, and I guess that's what the court's going to decide, but what do you think the implications are if

I I think I understand your view would be that it's discriminatory practices and I guess, that's what the court is going to decide but what do you think the implications are if you.

Speaker 8: know, if the 6th circuit is overturned and the 9th circuit, you know, is sort of upheld and it gives ERISA plans some leeway, I guess, to pursue cost containment.

The six circuit is overturned and in the ninth circuit, you know sort of upheld and it gives a ERISA plans some leeway I guess two.

To pursue cost containment strategies for lack of a better word.

Speaker 4: Yeah, thanks for the question. And I worry it's a complicated one if people haven't been tracking the details. So I'll probably just let me let me pull up a little and explain the case. And so at the heart of it, of the issue is, is Medicare in the Secondary Payer Act, commonly referred to as MSPA, protect patients

Yeah. Thanks for the question and I worry, it's a complicated one that people haven't been tracking the detail. So I'll, probably just let me, let me pull up a little and explained.

The case and so at the heart of it. The issue is is Medicare and the secondary payer Act.

Commonly referred to as M. S. P. A.

Patients from direct and indirect discrimination. So that's really kind of the question and so more narrowly is there a distinction between dialysis patient.

Speaker 4: from direct and indirect discrimination. So that's really kind of the question. And so more narrowly, is there a distinction between dialysis patient or what's in the statute, which is ESRD patient.

Or what's in the statute, which is ESR D patient.

Speaker 4: And so that might sound like words smithing, but it's really at the heart of it. And so you say, how did we get here? Could you explain how we got here? And it's basically, as you know,

So that might sound like.

Words, submitting but it's really at the heart of it.

So you say how did we get here could you explain how we got here.

And it's basically as you know.

Speaker 4: There's a small employer groups guided by third-party benefit design that limited benefits of dialysis patients and in essence de facto push them to Medicare.

Theres, a small employer groups guided by a third party benefit design.

Limited benefit of dialysis patients and in essence de facto pushed them to Medicare.

Speaker 4: And then that went into certain courts. And then, as you said, the Sixth and the Ninth Circuit split ruling and then Supreme Court said they wanted to take it up.

And then that went into certain courts, and then as you said the six of the ninth Circuit split ruling and then Supreme Court said they wanted to take it up.

Speaker 4: We won't speculate on the ruling, but you're basically asking, OK, what happens if you do lose? Of course, I get my energy from winning, but if you ask me what happens if we do lose, there's several scenarios. As you know, the Supreme Court is highly nuanced, and so it could be a narrow law, which may not have any impact, and they might provide a lot of clarity.

We won't speculate on the ruling but youre basically asking okay. What happens if you do lose a course I put get my energy from winning but if you asked me what happens if we do lose there are several scenarios as you know the Supreme Court is highly nuance and so it could be a narrow loss.

Which may not have any impact and they might provide a lot of clarity and then you might say, okay, well what happens if it's a broader loss.

Speaker 4: And then you might say, OK, well, what happens if it's a broader loss?

Speaker 4: The first thing is you probably want to quantify it, and I don't think I can help you there, because it is impossible to forecast what would plans do and how would they consider it in the light of their reputation risk and in the fact that there's all kinds of legal requirements under the ADA now. And in addition, we have discrimination provisions in the ACA.

The first thing is you probably want to quantify it and I don't think I can help you there.

Because it is impossible to forecast.

What plans do.

And how would they consider it in the light of the reputation risk and in the fact that there's all kinds of legal requirements under the a D. A now and in addition, we have discrimination provisions and the ICA.

Speaker 4: And so it might be that we're arguing one pillar, but the other two pillars are so strong that it actually has no impact. But we don't know. We will continue to advocate hard, and if we lose, we will continue to seek clarity in a legislative way.

So it might be that we're arguing one pillar, but the other two pillars are so strong that actually has no impact.

But we don't we don't know we will continue to advocate hard and if we lose we will continue to seek clarity and a legislative way.

Speaker 4: But the most important thing for us is that our patients are protected.

But the most important thing for us.

That our patients are protected.

Speaker 4: so that they have the right to get care just like in any other disease. And so we are going to be really, really focused on it and be aggressive both legally and legislatively because we believe that our patients deserve it.

So that they have the right.

To get care, just like in any other disease.

And so we are going to be really really focus on it and be aggressive both legally and legislatively.

Because we believe that our patients deserve it.

Yeah.

So I shut a lot let me because it's such an important thing.

Speaker 4: So I said a lot, so let me because it's such an important thing. So any follow up questions?

Any follow up questions.

No I think I mean, obviously you know it.

Speaker 8: Obviously, investors are trying to think about how to quantify the possibility of a loss and I'm struggling with that as well.

There's what you now are trying to think about how to quantify the possibility of a loss and I'm struggling with that as well and.

Speaker 8: I tend to agree it would be a big step to think a lot of plans would significantly change behavior. So I think for now I just appreciate what you laid out there.

Tend to agree it's it would be a big step to think a lot of plans would significantly change our behavior. So I think for now just I just appreciate what you laid out there.

Thank you.

Thanks.

Thank you Lisa Clive from Bernstein, you May go ahead.

Speaker 1: Thank you. Lisa Clive from Bernstein, you may go ahead.

Speaker 9: Hi there, two questions. Just number one.

Hi, there too.

Two questions just number one could you give us the.

Speaker 10: Give us the percentage of your Medicare-eligible patients that are in MA now. I think the last number you gave us was around 41% around your Q3 results.

<unk> percentage of your patients of your Medicare eligible patients that are in and they now I think the last number you gave us was around 41%.

It's around the Q3 results.

Speaker 9: And, and then number two, just on the labor costs, is it wage inflation, mainly? Or is it also sort of staffing shortages? Or if you could just give us an idea of how that, how that splits out.

And and then number two just on the labor cost is it wage inflation, mainly or is it also staffing shortages or if you could just give us an idea of how that how that.

Splits out.

Speaker 3: Yeah, so quickly on the MA, it's a little north of 42% of our total Medicare patients are on MA.

Yeah, so quickly on the on the MAA.

Little north of 42%.

Of our total Medicare patients are on M. A.

Speaker 3: On the labor side, it's generally wage inflation that we're talking about.

On the labor side, it's it's generally wage inflation that we're talking about.

Okay. So you don't have a lot of vacancies are meeting. He is you know agency staff that sort of thing.

Speaker 9: OK, so you don't have a lot of vacancies or needing to use agency staff, that sort of thing.

Speaker 4: No, we do. But we're pretty good at that being kind of short term. So I think we're answering to be as helpful as possible as to you're saying, is this a good stepping stone to go into the future? And the fact is that that it is, even though we're struggling, one of the things that we do and when we have labor shortages is sometimes

No, we do but we're pretty good at that.

And that being kind of short term. So I think we're answering to be as helpful as possible.

You're saying is this a good stepping stone to go into the future and the fact is that it is even though we're struggling one of the things that we do and when we have labor shortages and sometimes.

Speaker 4: leadership, which is fixed salary, will step into the floor because we have a lot of our facility administrators that are nurses.

Leadership, which is fixed salary will step into the floor, because we have a lot of our facility administrators that our nurses.

Speaker 11: That's not something we want to do for a long period of time. It's unsustainable, but that's very helpful when you're short-staffed. So there's a lot of dynamics, as you know, in interplay when you're looking at staffing, but I think if you were going to say what's the bulk of that number, it is inflationary in the way.

That's not something we want to do for a long period of time, it's unsustainable, but that's a very helpful. When you're short staff. So theres a lot of dynamics as you know an interplay when youre looking at staffing, but I think if you were gonna say, what's the bulk of that number it is inflationary and the wages.

Okay, Great and one last question just on home dialysis.

Speaker 9: Okay, great. And one last question just on home dialysis.

Speaker 12: How has the growth rate changed, if at all, over the last year or two? I guess there may be more interest in it, but are you also having...

How has the growth rate changed if at all.

On the last you know year or two.

Yes.

There may be more interest in it but are you also having.

More of a sort of bottleneck around being able to train patients because of.

Speaker 9: more sort of bottlenecks around being able to train patients because of stretch staff. That would be helpful to understand how that's going.

Staff that would be helpful to understand how that's going.

Speaker 4: Yeah, I think, you know, COVID, of course, creates some air pockets as it relates to growth. And we've talked a lot about during the call, excess mortality. So if you were going to just step back and look at the mix overall.

Yeah, I think you know.

Covid of course creates some air pockets as it relates to growth and we've talked a lot about during the call excess mortality. So if you were going to just step back and look at the mix overall in the last couple of years, we basically gone from a little over 12% to 15% of our patients being.

Speaker 4: In the last couple of years, we've basically gone from a little over 12% to 15% of our patients being in some kind of a home modality. So the modality was driving double digit growth for quite some time, and then COVID occurs.

And some kind of a home modalities. So the modality, what's driving double digit growth for quite some time and then COVID-19 occurs and so what happened during the year, we were between two and 3% growth during the year, but then again our in center shrunk.

Speaker 4: And so what happened during the year is we were between 2 and 3 percent growth during the year, but then again our incentive shrunk.

Speaker 4: And so the modality is still thriving, people are still picking it.

So the modality is still thriving people are still picking it.

Speaker 4: We continue to create the best home suite.

We continue to create the best home suite out there surrounding patients with all kinds of things so that they can get onto the modality as it relates to training of course Covid has added some challenges and then also Covid has had some tailwind in the sense that people said gosh. If this happens again, maybe I wanted to.

Speaker 4: out there surrounding patients with all kinds of things so that they can get onto the modality. As it relates to training, of course, COVID has added some challenges. And then also COVID has had some tailwinds in the sense that people say, gosh, if this happens again, maybe I want to dial as at home. So it is not an easy answer. But hopefully those trends give you a sense of the appetite for the modality.

Dialogues at home. So it is a it is not an easy answer, but hopefully those trends give you a sense of the appetite for the modality.

Great. Thank you very much.

Thank you.

Speaker 1: Thank you. Peter Chickering from Deutsche Bank. You may go ahead, sir.

Thank you Peter Chickering from Deutsche Bank, You May go ahead Sir.

Speaker 13: Hey there guys. Thanks for taking my last follow up here. Just a really quick question here and I understand is it possible to model excess COVID mortality from COVID just because you know these waves are possible to predict, but could you give us some sensitivities around operating income impact if excess mortality is 3000 versus 6000, you guys are assuming?

Hey, there guys. Thanks for taking my last follow up here just a really quick question here and I understand it's impossible to model, our excess COVID-19 mortality from Covid piece, because you know these waves are possible to predict but could you give us some sensitivities around operating income impact if excess mortality of 3000 versus.

Six hours and you guys are assuming.

Yeah.

Well I think the rough math on that would be about a $30 million delta.

Speaker 3: I think the rough math on that would be about a $30 million delta.

Speaker 3: So basically, and that's for the year, that's for the year, and that uses a mid-year convention.

So basically.

For the year, that's for the year and that uses.

Mid year convention.

Yep, So said differently. If he is you know hadn't taken years you know.

Speaker 2: Yep. So since I definitely, if you guys, you know, hadn't taken your, you know, excess.

Excess cover mortality with up to 6000.

Speaker 2: that probably would have been almost a delta between the guidance provided the analyst today versus today. Yeah, I think that math works, Peter.

That probably would've been almost adults between the guidance you provided at the analyst day versus today.

Yeah, I think that math works Peter.

Okay. Thanks, so much guys.

Sue.

And at this time I'm showing no further questions.

Alright, well, thank you Michelle and thank you all for your interest in our company and as you can see them like many other company in the short term is a tough one with the macro landscape being quite complex and dynamic in particular in the labor markets that said hopefully you hear from our voices that in the long.

Speaker 7: All right. Well, thank you, Michelle. And thank you all for your interest in our company. As you can see, like many other companies, the short term is a tough one with the macro landscape being quite complex and dynamic, in particular in the labor markets.

Speaker 4: That said, hopefully you hear from our voices that in the long term we continue to build the differentiated capability and that we are very positive on how we are positioned to deliver integrated care for our patients, deliver world-class outcomes, and bring savings to our payers.

Term, we continue to build a differentiated capability and that we are very positive on how we are positioned to deliver integrated care for a patient.

And deliver world class outcomes.

And bring savings to our payers.

Speaker 4: I would be just remiss if I don't finish by saying that this is all possible because the resilience, the passion, and the dedication of the DEDU team that wakes up every single day to deliver life-sustaining therapy. So thank you for your time, and we'll talk again next quarter. Be well.

I would be just remiss if I don't finish by saying that this is all possible because of the resilience the passion and the dedication of the <unk> team that wakes up every single day to deliver life sustaining therapy. So thank you for your time and we'll talk again next quarter be well.

Speaker 1: Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.

Thank you. This concludes today's conference call you May go ahead and disconnect at this time.