Q4 2022 DaVita Inc Earnings Call
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 2022 earnings call.
Today's conference is being recorded if you have any objections you may disconnect at this time.
All lines have been placed on mute to prevent any background noise.
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 then the number one on your telephone keypad.
If you would like to withdraw your question Press Star then the number two thank you. Mr. Eliason you may begin your conference.
Thank you and welcome to our fourth quarter Conference call. We appreciate your continued interest in our company I'm Nicolaisen Group, 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 of the federal Securities laws.
These statements are subject to known and unknown risks and uncertainties that could cause the actual results could differ materially from those described in 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 on Form 10-K, all subsequent quarterly reports on Form 10-Q, and other subsequent filings that we may make with the SEC.
All forward looking statements are based on 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 to the most 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.
Okay.
Thank you Nick and thank you all for joining the call today, we start 2023 with a mix of optimism and uncertainty about the year ahead.
With continued conviction in our long term capabilities and strategy for.
Grateful for getting through the winter without a surge of COVID-19 related mortality and like a bunch of society wondering whether the worst of the Covid pandemic is finally behind it.
I'm encouraged by the progress we've made in the recent months to improve that which is within our control while we continue to invest.
In our future.
Said, we're cautious in our optimism today, because we are still experiencing the impact.
On volume and labor.
For today I'll spend a few minutes on our fourth quarter results and then focus on the future with a summary of our 2023 strategic priorities.
And then with our 'twenty to 'twenty three outlook.
Before I dive into these topics I'll start as I always do with a clinical highlight.
Our most impactful clinical initiatives are those that directly improve the quality of life and vitality of our patients.
There are many measures serving that important purpose and today I will take a moment to recognize the successful efforts to decrease infection rates amongst our vulnerable patient population.
One way, we measure success by tracking bloodstream infection.
Proud to share that we achieved an all time low blood stream infection rate for our patients.
As of the third quarter last year.
Reflect a 20% improvement within the last year alone.
These results represent just one of many efforts we have undertaken to reduce hospitalizations and mortality, which is a tremendous gap for our patients and their families.
I will now pivot to our results our full year 2022, adjusted operating income came in at the top end of our revised guidance at 145 billion adjusted earnings per share from continuing operations for the full year 2022 was $6 60.
And we generated.
$817 million of free cash flow.
The primary driver of our fourth quarter performance coming in at the high end of our range was improvement in labor costs.
The labor environment continues to be challenging across many dimensions, but fourth quarter was certainly better than third quarter one.
One particular highlight our focus on reducing contract labor produce results earlier than expected.
We still expect contract labor it will be higher than pre COVID-19 levels in 2023, slide $20 million to $40 million, but that will be significant improvement in 2022 weeks.
We continue to make progress in hiring teammates during the quarter as we work to stabilize center staffing level and increase retention.
Of note. This increase in labor capacity will continue to drive higher than typical training and onboarding costs in 2023 until retention normalizes to historical level.
We continue to expect wage pressure above historical norms in 2023, but anticipate wage growth at levels below 2022.
Despite early optimism for improvement in 2023 labor markets remain highly dynamic and will remain a key swing factor in our performance.
Our fourth quarter results give us increased confidence in achieving the improvement we did Scott last quarter.
Onto volume overall results for Q4 were in line with our guidance from last quarter.
Covid infection and mortality rates in December and January were lower than in prior years, which is a welcome relief for our patients and our caregivers.
Because of the winter surge has historically occurred late in December the lack of a surge did not result in material improvement in our treatment volumes in Q4 relative to our expectation.
But have reduced our expectations for total excess mortality in 2023 by approximately 1000 patients as compared to our expectation in the range provided last quarter.
Last quarter, we also highlighted the patient admissions and mid treatment rates is a key variable to our volume we continue to see pressure on both of the metrics, but at the level in line with our most recent expectations.
For 2023, we continue to use a wide range of possible volume outcomes in our guidance given the uncertainty of the virus.
We have shifted the range up to account for the lack of a meaningful winter surge, so far but have not fully discounted the possibility of a COVID-19 charge later.
The year.
Our 2023 volume guidance include a treatment range of down 3% to flat relative to 2022.
All else equal the lack of a COVID-19 event over the remainder of the year would move us toward the better end of our volume range.
Looking forward to 2023, we kicked off the year with a robust and exciting set of priorities. We remain resolute in our commitment to pursue strategic goal they create a strong future for our patients and our company.
I will highlight five of these priorities today, beginning with innovation.
Further we're approaching a key milestone in our journey towards digital modernization after years of development. This year, we are deploying our next generation clinical IP platform.
New cloud based system is designed to provide seamless access to patient records across locations.
<unk> integrated kidney care and enhancing data reporting and analytics.
Rollout is well underway and we expect this system will be alive in our centers across the country in 2023.
This platform will provide a superior experience for our teammates and physician partners, while enhancing clinical care for a patient.
Second on policy, the kidney care community remains active working with CMI to enhance innovative model that improve care coordination and advanced initiatives around transplant.
And health equity.
At the same time, we're advocating for an update to the industry bundled payment system to better reflect year over year cost increases in.
And finally, we continue working with the broader kidney community to restore benefit protection for our patients through legislative and regulatory efforts.
Third operationally, we remain committed to educating our patients are and are positioned to increase adoption of home modalities, where clinically appropriate.
In support of our over 1700 existing home program, we are launching transitional care program across the country to educate new dialysis patients on their modality option.
We're also working toward a full integration of.
Our technology platform to create a holistic informational ecosystem for better patient management.
Florida.
Our integrated kidney care business is expected to deliver another year of significant patient growth.
The benefit of increased scale it will be important year for us to continue building on our capabilities for <unk> to achieve its purpose of driving better outcomes for our patients better collaboration with physicians and an economic alignment with our payer partners, particularly within a growing Medicare advantage segment.
And finally to fuel these initiatives were maintaining a disciplined approach with our cost structure.
For example, this includes our ongoing transition on Esa therapy in the ongoing consolidation of our facilities footprint to align capacity with treatment volumes.
Discipline is particularly important in the context of Medicare fee for service rates, which as you know have not kept pace with our increasing patient care costs.
As you can see 2023 will be a dynamic year across many of these efforts and we remain firmly focused on the key operating drivers I previously mentioned.
Now shifting to outlook for 2023, we're initiating guidance for adjusted operating income of $1 4 billion to $1 6 billion and adjusted earnings per share of $5 45.
$206 and 95.
This reflects our latest views on continued but moderating labor headwinds over the balance of the year persisting volume pressures to offset by the positive impact of avoiding a winter surge.
And the benefit of the cost saving initiatives, we have previously outlined.
Looking longer term, if we continue to see a diminished impact from Covid and moderating the labor pressure, we would expect to return to a more normal adjusted Oi growth trajectory of 3% to 7%.
I will now turn it over to Joe to discuss our financial performance.
And our outlook in more detail.
Thanks, Javier let me first share a few more details on Q4 performance and then I'll add some color on 2020 through guidance for Q4, we delivered $317 million of adjusted operating income and a $1 11 of adjusted earnings per share from continuing.
<unk>, which resulted in the full year coming in right at the top of the updated guidance range, we provided last quarter.
For the U S dialysis segment treatments per day were down one 3% compared to the third quarter in line with our expectations.
This was the result of lower patient count due to excess mortality and a higher seasonal miss treatment rate.
Adjusted patient care cost per treatment was up $1 78 sequentially there.
There were three primary drivers of this increase seasonal flu expense year end benefits and lower fixed cost leverage because of the decline in treatment volume.
These were offset by lower contract labor costs in the quarter.
Adjusted G&A was down $24 million quarter over quarter.
This decrease was primarily driven by the $28 million of California ballot initiatives expense in Q3.
Turning to our other segments for our IC business operating income was roughly flat quarter over quarter.
International adjusted operating income decreased $15 million quarter over quarter.
This is primarily driven by $7 million and foreign exchange headwinds and an expense related to acquisitions in Brazil.
This acquisition expense has an offsetting decrease in taxes. So there was no net impact on the P&L.
During Q4, we did not repurchase any shares as we communicated on the Q3 call. Our primary deployment of excess capital will be to pay down debt to return to our target leverage ratio of three to three five times EBITDA.
Turning to 2023, let me add some more detail on our guidance.
Our 2023 adjusted operating income guidance.
One 4 billion to $1 6 billion.
Compared to our comments on the Q3 call about our expectations for 2023, the only significant update to our expectations is higher treatment volume due to the lack of a winter COVID-19 surge.
To give some more color, let me run through our latest expectations on the three drivers of the U S dialysis business in 2023.
First we expect the year over year change in treatment volume to be between zero and negative 3% due primarily to the annualized nation of excess mortality in 2022 and continued excess mortality through 2023.
Second we anticipate revenue per treatment will increase approximately two to two 5% year over year, driven roughly two thirds by rate increases and one third by higher Medicare advantage and commercial mix.
Third we expect patient care cost per treatment to increase approximately two to two 5% driven.
Driven by wage rate growth and inflationary pressures.
<unk> offset by savings from our new anemia contract and other cost saving initiatives.
A few additional things to help your thinking about 2023, each of which is incorporated in our guidance.
Year over year adjusted operating income is benefited by approximately $50 million due to the absence of the ballot initiative spend in 2023.
Regarding timing of adjusted operating income in 2023, we expect Q1, adjusted Oi to be approximately $75 million to $100 million.
Lower than the average of Q2 to Q4 due to typical seasonal factors impacting among other things RPT.
Treatment days per quarter in labor.
Regarding our previously disclosed agreement with Medtronic.
Anticipate the transaction will close in the first half of this year.
Our initial cash investment will be approximately $300 million at closing.
On the P&L, we expect approximately $60 million of pre tax losses below Oi in 2023.
Which assumes approximately $30 million in the second quarter.
And $15 million per quarter over the remainder of the year.
The EPS impact of this will be approximately 47%.
In 2023.
For <unk>, we expect.
<unk> Oi to be flat to slightly down in 2023 relative to 2022.
This is driven by additional growth expenses offset partially by increased shared savings.
Our interest expense assumption for the year is $405 million to $425 million.
For income tax, we anticipate an effective rate of 25% to 27%.
I am cash flow, we expect free cash flow from continuing operations of $650 million to $900 million.
And finally, we anticipate our leverage ratio at the end of 2023 to be in the range of three six to three nine times 2023 EBITDA.
That concludes our prepared comments for today operator, please open the call for Q&A.
Thank you at this time you May press Star one on your telephone keypad to ask a question.
I would like to withdraw your question you May Press Star two one moment. Please for the first question. Our first caller is Andrew Mok with UBS you May go ahead Sir.
Hi, good afternoon.
To start you delivered the high end of the guidance the revised guide that this quarter, but you're leaving the Oi growth for 2023 unchanged. So can you help us understand those dynamics a bit better because it sounds like labor costs and volumes are both trending better which would presumably lead to a better outlook for 2023%.
Yeah, Andrew Hello, I'll take that one so I would say relative to the guidance. We gave on the Q3 call. We've really learned two things. One is as you highlighted the quarter came out at the high end of our range largely as a result of labor and the second is we didn't have a winter sir.
Serge.
As we looked at guidance for the year, we incorporated the volume improvement from no winter surge, we looked at the labor day.
Dynamic and ultimately we concluded to leave our labor guidance for 2023 unchanged really for two reasons. One we did see improvement in Q4, but some of that was improvement that we really anticipated in the front half of 2002.
Three it just came in earlier than expected. So you wouldn't expect that to change 23. The second is we're in a really dynamic labor environment and given all the moving pieces. We ultimately concluded one quarter's worth of outperformance wasn't.
Enough yet for us to change our views. So for that reason, we kept labor where it is and the improvement in the guide for next year is really the result of better volume because of no COVID-19 surge in the winter.
Got it do you have the number for our contract labor cost in the quarter.
Yes, our contract labor cost in Q4 was down about $14 million relative to Q3.
Okay.
And then in the prepared remarks, you noted that you would expect to return to a more normal oi trajectory of 3% to 7% of Covid normalizes can you help us understand what level of visibility you have into incidence rates for new patients to drive the car.
<unk> isn't that restored growth rates should COVID-19 normalizes.
Sure I'll grab that one.
In essence, when we think of growth we think of it in two categories.
One is what's within our control and the others the macro factors within our control as we've said in the fourth quarter. We made some progress we will continue to make progress on being staffed and ready to accept new patients.
On the macro which is sort of the question that many are asking what is upstream new patient looking like.
There are some questions that we still can't quantify some variables that we still can't quantify that.
That said there is nothing we've seen that leads us to conclude that there's a permanent change to new starts and.
So the best assumption at this juncture is to assume that after COVID-19 plays out that add minutes would revert to the roughly 2% that we experienced historically.
Got it and just a follow up.
Wanted to ask about the Esa switch from <unk> to Mircera, what sort of cadence are you expecting with respect to transitioning patients what have you done so far and when do you expect that transition to be complete.
Yes, the cadence has obviously done very carefully with the coordination of all the physicians, making their own independent decisions as to what's right for each patient.
It will rollout throughout the year and we should be done by the end of 2023.
Alright, thanks for the color.
Thank you.
Thank you our next caller is Peter Chickering with Deutsche Bank You May go ahead Sir.
Hey, guys. Good afternoon sticking with the the incidents for for a few minutes.
Frequently but looking at the U S. Rds incident count in the first half of 2019 was down sort of 5% versus 21, I guess could you guys help quantify sort of what your new adds washroom quarterly throughout 2022.
And were you guys determine assuming that to be in 2023.
Yeah. So.
Our admission rate in 2022 was lower than what we've seen prior to Covid, we called that out and I think thats really one of the big drivers of why.
What I'd call organic volume organic growth is down.
That's been persistent kind of picked up through the back half of the year and we haven't seen it come down which is why our guide for 2023 continues basically to track what we saw in <unk> in 2022, we haven't built in any material improvement to that that said as Javier.
<unk> noted, we expect that to revert back to what we saw pre COVID-19 once the direct and indirect impacts of Covid are done.
Okay. So.
At the press release has added about 1200 patients sequentially I guess.
I guess can actually cant quantify for us just like 3000 ads.
With the Delta being sort of mortality I mean, just any color just so you know again.
Quantify what the new outdoor.
In the fourth quarter.
We haven't historically reported our new ads number and I'm hesitant to give it now I think there'll be a bunch of different ways to calculate it.
So I'm not sure I have a good answer for that number that said look it is it continues to be depressed. We saw that in Q4, there is seasonality that number it tends to pick up in the front half of the year and so obviously, we're going to be looking for that in the front half of 2023.
<unk>.
Yes, if you were going to use really high level map and I'm just trying to help get the direction you're in and you say, we guided to negative three to zero.
I would give you a midpoint of negative one five.
And if you just do the math of the excess mortality starting off.
In 2023, that's a sort of a negative two theres other variables going into it but that would get you to.
Plus 50 basis points for new admits give or take and there's other dynamics, but that gives you direction. Okay.
Okay.
And as a segue and I mean, I guess prior to Covid.
<unk> thousand 19, and you saw us or tell me about a 17% term mortality rate gets you to just as a nurse for six years on average and during 2020. It was you know.
So our 20 plus percent mortality rates or a sub five years I guess as you're looking at the fourth quarter or are we seeing term mortality rates I'll go back to previous levels. The owners' expectations of one point that they want to be extended.
Pull forward due to a customer talking to Covid you know in 2020 wanted to see.
If that number starting to extend back again.
Yes.
You just look at the numbers just to make sure because there's new people to the story is.
In 2020, we announced like roughly 6800, or so excess mortality and where guidance roughly 3000 in 2023. So it is coming down.
Quite aggressively and I think.
You know again, we don't have visibility exactly as to when that would revert, but as COVID-19 unwind it looks like it would.
It should go with the visibility we have back to normal.
And just Peter just to add to that to help you with your modeling the excess mortality number in Q4.
On what we know now and these numbers get updated as the as the data catches up was roughly 900 do you want to compare that to Q4 of 2021 that number was somewhere around 1500. So.
Q4 over Q4, the numbers come down significantly.
We would equate similarly, Q1 'twenty three over Q1, 'twenty two because of the.
The lack of the surge.
Okay.
One quick follow up can you sort of talk about the nurse turnover at that sort of stabilized at this point.
And then on the contract labor what was contract labor running sort of in 2019, just as we think about this normalizing out kind of where we are suspending Patrick Waite burner pre COVID-19.
Pre COVID-19 was roughly a little below $20 million.
When we got too high we got to roughly $100 million last year and what we've told you is that we would run roughly $20 million to $30 million higher in 2023, So that would put you right around 50.
Or so so I'm trying to get a.
Halfway through if you will.
Okay, great. Thanks, so much guys.
Thank you.
Thank you once again, if you would like to ask a question you May Press Star One our next caller is Gary Taylor with Cowen You May go ahead Sir.
Hey, good afternoon, guys couple of quick questions.
Back to.
Integrated kidney care.
42000 full risk patients what is the what is the guidance of what's built in for 2023, how much patient growth.
Yeah.
I'd say, 50% is a good number to use there Gary.
So on the 50% patient growth and then you're saying the loss is going to be fairly similar to slightly better than that 125 right.
Right I think the way the way to think about that.
Rough numbers is up $50 million improvement in AR.
Shared savings revenue and that's really driven by the shared savings in 2023 that we get for patients that we were at risk for in 2022, and that's offset by roughly $50 million of cost.
Good with that growth that we're going to see in 2023.
That makes sense and I think I understand the accounting you do for that but the $378 million of revenue that you booked this year for that segment, you've got about $3 5 billion of spend I know that's.
That's not all ratable necessarily but that implies like your net savings that's going into your revenue numbers like 11% of the spend is that the right way to.
Think about the results you're achieving so far.
<unk>.
I think it's tough to do that calculation.
The 377% of revenue in 'twenty, two really comes in two buckets three.
300 of it is from the Snips, which is what I'll call gross revenue think of it is accounting similar to our health plans accounting, where the full medical cost comes through revenue.
And then the other $76 million is shared savings revenue, where we only book the actual shared savings amount. We don't book the full cost of the medical amount and I think if you really wanted to.
Look at a number you take the call it the gross margin associated with that $377 million. It's not it's not that's not an accounting gross margin. This is kind of.
A financial calculation, we would do it wouldn't wouldn't comply with gap.
And.
You divide that number which is call it $100 million by the prior year.
Medical spend or the dollars under management from the prior year because of that.
That shared savings revenue is associated with the prior year and that ratio would get you to what I'd call. It a net savings number.
Got it.
I appreciate it.
Last one.
Javier you talked about Hey, Gary I'm, sorry, just a quick correction I think you said that 23 would be flat to slightly better than 'twenty, two and I agreed with that what what I said in the prepared remarks, it would be flat to slightly worse. So I just wanted to.
To clean that up.
Thanks.
I just wanted to go to.
Marietta for a second Javier I mean, Fresenius is talking about having a lot of confidence in regulatory or legislative and you suggested you're still active there I guess is there anything else you can share.
Share on where you think that relief is more likely to come CMS, making a regulatory language change or the.
The legislation that was introduced last year, then and the last part of it would just be any evidence at all any of the regional tpa or doing anything with this yet it sounds like not given your commercial mix guide for 'twenty, three but just want to see.
Yeah. Thanks for the question, Gary won't speculate as to how it will come or if or when it will come but we continue to work very diligently with the kidney community and disability groups to restore our protection for a patient.
As it relates to you know.
What are we seeing we have not seen any significant uptick.
But we wouldn't expect that given the time of the year, we're in because there's a lag in claims and payments.
So.
Right now it's growing.
As expected.
But one of the things that we're working with our congressional champions.
Is that they've asked that we produce examples because they are very interested in protecting.
Patient.
So.
That's all we have at this juncture.
Okay, great. Thank you.
Thank you.
And our next caller is Justin Lake with Wolfe Research.
Hi, everyone. This is Austin on for Justin I appreciate the questions here, Joe I guess I wanted to start real quick just on sort of the leverage outlook in that three six to three nine that you're speaking to.
Hey, just kind of curious what sort of needs to happen to reach both ends of that range and then off of that on the share repo thinking is there any timing or outlook embedded in the 'twenty three guide of when that might resume.
Or alternatively, what are you guys kind of need to see on the debt side.
Two to start to reserve resumed the repurchase activity.
Yes, so we have not built any share repurchases into our guidance for next year. We just think that's the prudent way to model things out.
The range is is largely driven by the range in Oi, which translates into a range in EBITDA.
So that's what drives the range there in terms of what we need to see we look we'd need to see a very clear path to getting back into the range before we'd shift our capital allocation priorities back too.
To share repurchases.
Okay, Great and then on the follow up kind of on a clinic closures like you guys did 44 last quarter to 50 this quarter like as we think ahead to 'twenty. Three is there kind of a like a point in time number that you guys are kind of targeting in terms of further clinic consolidation and then off of that just kind of an update on how the patient retention is tracking all of that.
So we don't have a target per se as you can imagine it's a process that we take incredibly seriously to make sure that patients are taken care of and that the community has taken care of and we evaluate a lot of dimensions.
It looks to be that the range will be in the 50 to 70.
In 2023 clinics will likely consolidate as it relates to retention of patients.
That is an equation that goes that's part of that calculation and we continue to see strong retention of patients wanting to stay at Davita.
Great and then just one last one from me kind of on an AKC follow up the number of at risk patients bounces around a little bit during the year. Just wondering what are the drivers of that in terms of attribution to you guys. And then is there an expectation that like patient mortality on a certain centers sort of showing up there.
And then on the met costs under management, just I guess, what are the expectations for cadence and how that moves through 2023.
Yeah.
Yes, so there's nothing I'd call out in terms of the movement on the lives over the course of the year.
Contracts go up or down the number of lives in our SNP plans can can move around a little bit some of it I think this quarter was was more around rounding than any major moves.
In terms of.
Medical spend under management I think.
For next year, we'd expect that number to end somewhere in the $5 billion range.
With with a lot of that growth coming at the beginning of the year.
Great and then sorry, let me squeeze in just one more you guys mentioned the other commercial mix in that Matt just wondering kind of where that track in <unk> and then what's kind of embedded for year end 'twenty three based on the mix side.
We ended the year with a mix of 10 four.
We don't usually give forward guidance on mix, that's where we ended the year.
Alright, thanks, guys.
Thank you.
Our next caller is Kevin Fischbeck with Bank of America, You May go ahead Sir.
Okay.
Great. Thanks.
Last quarter, you mentioned a lot about the Ms treatment dynamics is.
Is there any update there it sounds like Youre, saying it came in line with.
Seasonality does that mean gets back to normal or back you know.
As you would've expected based upon how things have traded that played out in Q3, plus Q4 seasonality.
Kevin on the mistreatment, we just highlighted that it was trending higher than it had historically by a percentage point.
We also said that this is a dynamic that's going to take some time to understand and then be fixed.
And so in our guidance, we do not have.
Any significant progress in there until we can really understand the dynamic and lowered so it came in line in the sense that it wasn't modeled to improve in any dramatic way.
And so youre, assuming that in your zero to three zero to down three.
It just stays stable.
Correct.
Okay.
Then as far as the Medtronic JV goes you.
It sounds like 15 million a quarter. This year, we're assuming what when does that become breakeven in your minds is that kind of ratable so whatever that euros.
Yes, I'd say ratable to 2026 is a reasonable.
Estimate.
Okay.
And so if you're still going to be at three six to three nine leverage I guess going back to the earlier point.
Is it safe to assume that there probably won't be share repo in the first half of next year or two or.
If you feel like Theres core growth going on you could potentially see that pathway to delever.
Deleveraging that would allow you to you'll start repo before you're actually kind of.
Right at that range.
I think it's a little early to speculate, but we certainly want to retain the optionality too.
To start the share repurchase program before we get there I'm not saying, we will but we had one that we'd want to know that we've got a clear path to.
Getting there.
Okay, and then I guess, maybe going back to the mix point you guys did highlight that I think there was a third of the rate growth driver for 2023.
Even that the.
Is that theres going to be some sort of recession at some point come in.
Is that a.
Issue of member months and when those job losses happened. So it's more of a 'twenty four pressure that's why three pressure.
And then I guess, if you could provide a little color more color around where you are on the MA penetration side of things.
You might think that that can go over time. Thanks.
Well, let me grab the private pay mix and in the recession impact it will be of course very specific to what segments.
Get impacted and how long the recession lasts because our patients have shown that they would like to get Cobra and maintain coverage. In addition.
Also have had great success in their coverage in the exchanges.
So that would make it more resilient and then of course, if the recession is long lasting then who knows what the impact would be but if assuming that it is a normal recession in time length I think that our patients have shown a tendency to want to keep their private insurance.
On your second question, which I think was M a mix.
We ended the year at 47, 3%.
We continue to see is now we're into normal open enrollment and we have a little more of a check now every quarter.
And so it will continue to increase and if you had to put a leveling play silver.
Over the long term I think it would be slightly below 50 around 50, if you push me to speculate into the future.
Alright, Great and then maybe just one last question.
The cost cutting initiatives that you did I mean, maybe it's just that there's more specificity, but as far as the charges and everything else that you've outlined here I just want to make sure that this is this is more or less kind of as you envisioned it last quarter or did you accelerate anything or do anything differently as far as Q4 played out.
No I think Joel said it well we are doing what we said we would in Q3, along all the dimensions that we spoke of and then on labor. Some of the efficiencies just came in slightly faster than we anticipated the rest of the stuff remains.
Alright, great. Thanks.
Thank you.
Thank you Andrew Mok with UBS you May go ahead Sir.
Great just a few.
Numbers questions to follow up your DNA increased about $20 million sequentially is that from the new clinical it investments or is there something else driving that DNA higher in the quarter is that a good number to think about for 2023 from a run rate perspective.
Yeah I think.
I think modeling consolidated DNA for 2023, I'd say, we don't expect that to change very much from the full year 2022.
So DNA will be flat, even though it ticked up in the fourth quarter is what you're saying on a full year basis.
Yeah.
And what's driving the decrease that is that from lower clinics.
I think the important thing here, Andrew would be to focus on the non-GAAP .
DNA <unk> got to exclude the costs associated with clinic closures and anything else on a non-GAAP basis.
I think youll see its relatively flat in <unk>.
Q4 over Q3.
Okay got it.
Then maybe just a quick update on home dialysis initiatives Where's that tracking relative to long term goals of Azure shutdown clinics should we expect that number to trend higher over time.
Yeah. Thanks for the question, Andrew our home mixing it up.
15, 2%.
And that is tracking consistent to where we expected. We do not think there is a linkage between closing centers and having home mix increase but rather the transitional centers that we've talked about.
And making sure that our patients have home remote monitoring and other tools. So they feel confident in connected and want to be able to go home where in essence also reeducating nephrologists.
Can be comfortable to have more patients at home.
These variables will be way more important than.
The centers, because we're being so thoughtful as to which clinics, we close and so patients in essence still have access.
Got it.
Maybe on that point I think you.
Touched on this briefly but what exactly are you doing to ensure that you are retaining patients in the clinics that you do close what are you doing to prevent any sort of leakage there.
Well the patients have choice of course in their nephrologist have choices and they can go wherever they deem appropriate for their life.
But in general we have relationships with them and they feel comfortable with their care and so when we sit with a patient and tell them about our center closure, we tell them about their options and then they choose and many times they feel comfortable staying within Davita Center and then.
Once it obviously choose to go somewhere else choose to go somewhere else, but the vast.
Asked majority have decided to stay with the BLM Theyre nephrologist.
Got it thanks for all the color.
And at this time I am showing no further questions.
Okay, well, thank you Michelle and thank you all for your questions and for your continued interest in Davita I'll finish where I started with optimism for the year ahead, although we will continue to stay away from any COVID-19 predictions.
Encouraged by our recent progress.
As outlined today, we will continue to pursue our strategic priorities to create the best long term capabilities and outcomes for our patients teammates.
And shareholders. Thank you all for joining the call today and be well.
Thank you. This concludes today's conference call you May go ahead and disconnect at this time.