Q3 2024 DaVita Inc Earnings Call
Michelle: Good evening, my name is Michelle and I will be your conference facilitator today.
Michelle: At this time, we would like to welcome everyone to the DoBita 3rd Quarter 2020 for earnings call.
Michelle: 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 the 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. License. You may begin your conference.
Speaker Change: Thank you and welcome to our third quarter conference call. We appreciate your continued interest in our company. I'm Nic Eliason, group vice president of investor relations, and joining me today are Haviah Rodriguez, our CEO and Joel Ackerman, our CFO.
Speaker Change: 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 the actual results to differ materially from those described in the forward-looking statements.
Speaker Change: For further details concerning these risks and uncertainties, please refer to our third 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 make with the SEC.
Speaker Change: Our 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.
Speaker Change: Additionally, we'd like to remind you that during this call, we will discuss some non-GAAP financial measures.
Speaker Change: 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.
Javier Rodriguez: Thank you, Nick, and thank you all for joining the call today.
Javier Rodriguez: I'm grateful for the incredible effort of our front-line caregivers as we deliver outstanding care for our patients while also navigating recent hurricanes and related supply disruption.
Javier Rodriguez: Alongside these challenges, we continue to execute on operating efficiencies and innovate across the continuum of care.
Javier Rodriguez: Today, I will cover our third quarter performance, which was in line with our expectations, provide an update on our supply chain, discuss our expectations for upcoming CMS 2025 Final Rule,
Javier Rodriguez: and wrap up with some comments about next year. But first, we will start the call as we always do with a clinical highlight. This quarter, we'll use this opportunity to highlight the remarkable resilience our patients and teammates have demonstrated in the face of recent storms.
Javier Rodriguez: Over the past month, millions of lives were impacted by the devastation caused by Hurricanes Helene and Milton.
Javier Rodriguez: Despite hundreds of centers being in the path of these storms, most were open within days of the storm relenting, and all but one is fully operational today, providing care in these communities.
Javier Rodriguez: Many inspirational stories emerged from the dialysis community, which came together to support those in need.
Javier Rodriguez: In the immediate aftermath of these storms, our care teams from across the country rallied to support the regions affected.
Javier Rodriguez: DeVita deployed generators, water tankers, over 20,000 gallons of fuel, and high water crews to conduct wellness checks and search for missing patients and teammates.
Javier Rodriguez: Local leadership worked tirelessly to account for all patients and teammates and to coordinate transportation for urgent access to the dialysis care many patients needed to survive.
Javier Rodriguez: Our Asheville Kidney Center opened on the Sunday immediately after Hurricane Helene under generated power to provide the care for patients from six nearby facilities.
Javier Rodriguez: We, and others in the kidney care community, open our doors to anyone needing treatment, including those who normally treat with other providers.
Javier Rodriguez: I was proud to see the dialysis community come together in common support of patient care. Combined with the dedication of our local care teams, our successful emergency response has again underscored the importance of scaled resources and operating discipline.
Javier Rodriguez: Although the storms have since passed, our efforts are ongoing to coordinate humanitarian needs including food, housing, and other assistance. We continue to work with the impacted communities to rebuild.
Javier Rodriguez: Thank you all to the teammates who have gone above and beyond to care for one another and our patients.
Javier Rodriguez: Beyond the community impact, key supply lines were disrupted by Hurricane Helene due to the closing of Baxter's North Cove facility.
Javier Rodriguez: Baxer supplies us with the majority of our peritoneal dialysis or PD solution used for home PD therapy and the majority of our saline used during each in-center hemodialysis treatment.
Javier Rodriguez: Baxter and other manufacturers have been able to provide sufficient supply for all our current PD patients to continue their treatment relatively uninterrupted.
Javier Rodriguez: While we have had to temporarily suspend new patient starts
Javier Rodriguez: on PD. Thanks to the great efforts of our regulators, government officials, and Baxter, we expect to resume new PD starts next month and we expect supply dynamics to normalize in the first quarter.
Javier Rodriguez: Shifting to sailing, Vaxxer is now able to supply us with approximately 60% of their pre-storm levels as they continue their work to bring the North Cove facility back online. Fortunately, we've been successful in securing alternative supply to ensure continuity of care and safety for our patients.
Javier Rodriguez: Because these challenges occurred near the end of the quarter, the impact on Q3 financial results was minimal.
Javier Rodriguez: For the fourth quarter, we estimate an impact of approximately $10 to $20 million due to the high supply costs, lower PD patient starts, and lower productivity from our home caregivers.
Javier Rodriguez: This is now included within our 2024 Adjusted Operating Income Guidance Range, and we expect portion of this quarterly impact will continue into 2025, depending on the duration of the supply challenges.
Javier Rodriguez: I'll transition now to our expectations for the ESRD final rule from CMS, which we anticipate will be published shortly.
Javier Rodriguez: While there are many aspects of the rule, we will be primarily focused on two areas. First, the market basket update, including how CMS handles the new proposed wage index and the base rate.
Javier Rodriguez: As a reminder, the proposed rule led to an approximate 2.1% increase.
Javier Rodriguez: Second is a transition of oral-only drugs into the bundle beginning January 1st.
Javier Rodriguez: As a reminder, this is a statutory mandate by which oral-only drugs, which are mostly phosphate binders, will transition from the Medicare Drug Benefit over to Medicare Part B.
Javier Rodriguez: While CMS made clear it intends for these drugs to enter the bundle, we are waiting on information such as initial reimbursement and the treatment of unbillable items.
Javier Rodriguez: We continue to believe this transition to the bundle will provide more patients with access to these important therapies.
Javier Rodriguez: We recognize that some pharmaceutical manufacturers continue to advocate for the legislation to delay the implementation of this long-standing rule, but urge legislators to put patient access first. We are prepared to implement this transition in support of our patients.
Speaker Change: Transitioning to our third quarter performance, adjusted operating income was 535 million dollars and adjusted earnings per share was two dollars and fifty nine cents.
Speaker Change: Review our third quarter results as fairly straightforward, consistent with how we have delivered value through this entire year.
Speaker Change: Although treatment volume growth remains a challenge, our business continues to demonstrate resilience as we mitigate the volume headwinds with margin expansion, including the momentum of our IKC and international results, all while continuing to invest in our future.
Speaker Change: Cash flow remains strong and we continue to deliver on our disciplined capital allocation strategy, returning capital to shareholders through share repurchases.
Speaker Change: Turning to the full year, we remain on track to deliver results consistent with our 2024 guidance range.
Speaker Change: We're reconfirming our 2024 Adjusted Operating Income Guidance of $1.91 billion to $2.01 billion.
Speaker Change: This forecast now includes the impact of Baxter's supply shortage.
Speaker Change: It is a bit early to give specific guidance for 2025, although I know that many of you are already looking ahead to next year.
Speaker Change: Over the next few months, we'll learn more key factors including open enrollment, oral drugs in the bundle, integrated kidney care, and others. So we will provide formal 2025 guidance on the fourth quarter call consistent with our normal cadence.
Speaker Change: That said, some multi-year context may be helpful. After challenging years in 2021 and 2022 during the pandemic, we're now on track to deliver our second consecutive year of double-digit adjusted OI growth despite continuing volume and labor pressures.
Speaker Change: Looking forward, we expect to return to adjusted OI growth more consistent with our historic pre-pandemic multi-year guidance. I will now turn it over to Joel to discuss our financial performance and outlook in more detail.
Joel Ackerman: Thank you, Javier.
Joel Ackerman: For the quarter, adjusted operating income was $535 million, adjusted EPS was $2.59, and free cash flow was $555 million.
Joel Ackerman: Let me start with some details behind the Q3 results.
Joel Ackerman: Quarter-over-quarter treatment volume per day was flat.
Joel Ackerman: This was in line with our expectations and is the result of continued strong admissions offset by elevated mortality and slightly higher mistreatment rates resulting from inclement weather, namely Hurricane Beryl in July and Hurricane Helene in September.
Joel Ackerman: We remain confident that our full-year treatment volume growth will fall in the range of 0.5 to 1 percent.
Joel Ackerman: Revenue per treatment was up more than $4 versus the second quarter, in line with our expectations.
Joel Ackerman: Our revenue cycle performance is sustaining the strong RPT results we've seen throughout the year.
Joel Ackerman: We still expect full-year RPT growth to be within the range of 3.5% to 4%.
Joel Ackerman: Patient care costs per treatment increased two dollars sequentially.
Joel Ackerman: This was primarily the result of continued labor cost pressure plus higher medical benefits expense in the quarter.
Joel Ackerman: G&A costs increased by 19 million dollars quarter over quarter due to typical quarterly variability in expense timing.
Joel Ackerman: Depreciation and amortization increased by 11 million dollars in Q3 versus Q2 as a result of higher center closure costs.
Joel Ackerman: International OI increased slightly in the quarter as the result of strong operational performance offset by four million dollars of unfavorable foreign exchange impact.
Joel Ackerman: Adjusted operating results within Integrated Kidney Care, our value-based care segment, increased $32 million sequentially due to lower costs in our special needs plans and timing of revenue recognition related to CKCC.
Joel Ackerman: the Government Value-Based Care Demonstration Program.
Joel Ackerman: As always, we recommend evaluating IKC performance on an annual basis given the propensity for quarterly variability.
Joel Ackerman: We still believe IKC will have a full year operating loss of approximately $50 million.
Joel Ackerman: This was due to two main factors. First, our 2% interest rate caps expired at the end of June, and our current caps have a weighted average rate of approximately 4.3% for the rest of 2024.
Joel Ackerman: This impact is in line with our expectations and consistent with our guidance from the beginning of the year.
Joel Ackerman: The second factor contributing to the increase this quarter was the additional debt raised in August.
Joel Ackerman: Following our second quarter earnings call, we successfully completed two debt transactions totaling $2.1 billion.
Joel Ackerman: Leverage at the end of Q3 was 3.17 times EBITDA, a slight increase from Q2 while remaining below the midpoint of our target range of three to three and a half times EBITDA.
Joel Ackerman: In the third quarter, we repurchased 2.7 million shares, and we have repurchased approximately 600,000 shares to date in October.
Joel Ackerman: Let me close out with some comments on what remains of 2024 and our thoughts as we look towards 2025.
Speaker Change: As Javier said, we are reaffirming our adjusted OI guidance range of $1.91 billion to $2.01 billion.
Speaker Change: Despite the anticipated hurricane-related OI impact in the fourth quarter, we expect continuing operating momentum to offset the headwind.
Speaker Change: We are also maintaining our adjusted EPS range of $9.25 to $10.05 and our free cash flow range of $950 million to $1.2 billion.
Speaker Change: Looking forward to 2025, as Javier mentioned, it is too early to give formal guidance.
Speaker Change: Regarding some of the components of earnings, I would like to call out a few unique potential headwinds and tailwinds outside of our normal dynamics. For the headwinds, first we expect mortality will remain elevated in 2025.
Speaker Change: Second, we expect the impact of the Baxter facility closure will continue in 2025.
Speaker Change: Third, the full year impact of the expiration of our 2% interest rate caps will negatively impact EPS.
Speaker Change: For the tailwinds, first is the declining center closure costs in 2025 that we called out last quarter.
Speaker Change: Second, is the positive OI impact from our international business driven by our Latin America acquisitions.
Speaker Change: And finally, we expect that the inclusion of orals in the bundle would be a tailwind if the pharma companies are unable to get legislation passed to delay the inclusion.
Speaker Change: Lastly, regarding RPT and PCC growth, we expect both to be elevated relative to pre-COVID levels. We will give an update on all these factors along with more quantitative guidance on the Q4 earnings call.
Speaker Change: That concludes my prepared remarks for today. Operator, please open the call for Q&A.
Speaker Change: Thank you, sir. If you would like to ask a question during this time, simply press star and then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star then the number 2.
Speaker Change: Our first caller is Andrew Mock with Barclays. You may go ahead, sir.
Andrew Mock: Hi, good afternoon. It sounded like there was a fair amount of operational changes to help navigate the hurricanes But most of that would be felt in Q4 So I wanted to better understand, one, how much of an impact hurricanes had on 3Q treatment volumes, if any, and then Joel I think I've heard you reiterate foliar treatment growth between 50 to 100 basis points of growth
Andrew Mock: which would imply a fairly significant acceleration in 4Q against a presumably greater impact from hurricanes. So I just wanted to understand how we should think through that and square those comments. Thanks.
Speaker Change: Yeah, thanks Andrew. So for Q3, I'd call out the impact from hurricanes as about 10 basis points and that shows up in mistreatment rate.
Speaker Change: In Q4, I don't think this does much to change how we were thinking about Q4 before hurricanes.
Speaker Change: and many more! Thank you. Have a great day. Bye. Bye. Bye. Bye.
Speaker Change: So the hurricanes aren't expected to have an impact on Q4 volumes?
Speaker Change: significantly less than the 10 basis points from what we've seen so far. You know, the quarter's not over obviously, so there could be additional challenges, but so far, no, it would be less than the 10 basis points.
Speaker Change: Got it. Okay. And then appreciate the early comments on 2025 headwinds and tailwinds. Can you help us understand the order of magnitude of some of those and hoping specifically you could comment on the potential financial impact of the inclusion of phosphate binders that that could have on next year's results? Thanks.
Speaker Change: Well, let me start with the end on that, on the phosphate binders, because we really tried quite a lot to give you a useful range, and unfortunately we can't, and it's just because there's not enough information to give you a useful number. So let me just give you an explanation of the underlying dynamics.
Speaker Change: So everybody can be on the same page.
Speaker Change: So, first of all, there is a class of drugs, phosphate binders, that will be the biggest part of the world in a bundle. The first thing is, we do not know, because the rule hasn't come out, although we expect to hear shortly, what the reimbursement will be by the government.
Speaker Change: Secondly, there are four products within the phosphate binders, and we don't know the mix of those products.
Speaker Change: And the pricing is quite different between those four products, between branded and generic. And within that...
Speaker Change: be branded have had restrictions and authorizations and other things.
Speaker Change: that once those go away, we don't know what's going to happen with the mix.
Speaker Change: And then the last thing is the volume. There's about 10% to 15% of our patients that don't have Medicare Part D and weren't participating in these Oral-in-the-Bundle, and that's why we think that this is so good for access for those patients.
Speaker Change: And so we don't know what will happen with that volume. So if you start to play with the variable, they start to get quite wide, because you're, in essence,
Speaker Change: The volume could tighten up, but then the reimbursement has a wide range, and then the one that really throws a lot of dynamics into it is the pricing and the mix within that pricing.
Speaker Change: So, unfortunately, we're going to have to wait until next quarter to give you a better number, better sense of that.
Speaker Change: Yeah, and Andrew, to follow up on the first part of your question, so I called out five factors, three tailwinds, two headwinds that would impact operating income. There was one additional, the interest expense, but that only hits EPS.
Speaker Change: That said, I think a reasonable starting point for modeling would be that the headwinds and the tailwinds will offset each other at the OI line.
Andrew Mock: Got it. So when we think about the referenced target growth, which I think is three to seven percent pre-COVID, that's inclusive of all those headwinds and tailwinds. That's how we should think about it.
Speaker Change: I think that's, yeah, I think that's right.
Speaker Change: Great, thanks for the call.
Speaker Change: Thank you. Our next caller is A.G. Rice with UBS. You may go ahead.
A.G. Rice: Thanks, hi everybody.
A.G. Rice: I know last quarter you said that NUDA therapy was back to pre-pandemic levels. It sounds like it was positive again this quarter. I just want to, is there any, is it stronger or is it about the same? And then the elevated mistreatments, is that
A.G. Rice: on mortality. It sounds like you're now extending that into 2025. Is that just because this is the first time you're commenting on 2025, or is there something new that's making you call out 2025 on the heightened mortality rates?
A.G. Rice: largely in EBITDA, there's the potential for a little bit in the revenue line if we lose some patients.
A.G. Rice: to another provider that's able to provide peritoneal dialysis and a patient, for whatever reason, chooses to go that direction. But I would say the vast majority of it will not be revenue.
A.G. Rice: On the three factors affecting volume, nothing new on ADMITS. It's running consistent with what we've talked about in the past.
A.G. Rice: You know, it's never just storms, right? Historically, it's always been somewhere around.
A.G. Rice: 6% on average during the year, although not the same quarter-to-quarter. Q1 and Q4 tend to be elevated.
A.G. Rice: and Q2 and Q3 less so. So the 10 bips from the storms was kind of the 10 bips more than what we probably otherwise would have expected, but it's not the total mistreatment rate.
A.G. Rice: And then on mortality, I don't think there's anything new here that negatively impacts
A.G. Rice: our view of 2025. I think the fact that the elevated mortality continues and hasn't gone back to pre-COVID levels, you know, every quarter that that happens, it informs our views a bit, but
A.G. Rice: I don't think we saw anything over this quarter that changed our views for next year significantly.
A.G. Rice: Okay, thanks a lot
Speaker Change: Thank you. Our next caller is Peter Chickering with Deutsche Bank.
Peter Chickering: Any color on how many you lost to transplants sort of this year, any color on those patients moving to other centers or geographies. You know, I'm just looking for sort of any other, you know.
Peter Chickering: you know, reasons besides mortality and trying to tie up the treatment growth. They get, they're looking at, you're showing with a delayed USRDS quarterly data on incidents and prevalence. Thank you.
Speaker Change: Thank you. Bye.
Speaker Change: Thank you, Peter. Let me just grab it at the high level because...
Speaker Change: There is sort of, let's call it a restless energy of trying to figure out...
Speaker Change: what's happening with volume, but the reality is...
Speaker Change: is that it's just as straightforward as elevated mortality. That when you look at the admit growth, it is healthy when you look at the mix. It is healthy when you look at transplants. They are constant, it moves a little, but it doesn't really move the needle at all. It goes up and down a bit. Our share of transplants has continued to be constant.
Speaker Change: So, at the end of the day, we could have mistreatments move a little here and there because of storms or other things that are seasonal, but the bulk of it is elevated mortality.
Speaker Change: Yeah, and let me just, let me just pop on to the...
Speaker Change: The first question was about the nag in the quarter and let me just give you a little bit on that Quarterly nag has some volatility in it It's if you're if you're trying to do what I think you're trying to do Which is trying to piece out the the volume trends, which we're all trying to figure out I don't think looking at quarter over quarter nag is a great number for that within that number is
Speaker Change: factors, including this treatment rate, a lot about timing of census during the quarter. So it's down 60 bips quarter over quarter. I don't think that says anything material about where the volume overall is trending.
Speaker Change: Okay, fair enough. So follow-up here on IKC, usually you true up with your payers during the third quarter. You know, payers have had a lot of
Speaker Change: We'll say politely volatility this quarter. Just curious how that true up went with the payers for 2023 during the third quarter.
Speaker Change: Yeah, so...
Speaker Change: We are on track for the year. I would say, I would encourage you and everyone, as we always have, let's look at IKC on an annual basis rather than a quarterly basis. We're reaffirming our negative $50 million for the year, which has been our number all year long. And I would say...
Speaker Change: The volatility that we read about in the payer market largely has not impacted us.
Speaker Change: Okay, but then don't you guys do your big annual true-ups from the previous year during the third quarter? We do them in the third quarter and the fourth quarter, and they're going as planned.
Speaker Change: Okay, okay, fair enough. Okay, and then, you know, last question here, just looking at commercial, you know, NMA price increases for 25, are these tracking in line with historical levels? Thank you so much.
Speaker Change: Yeah, there's nothing interesting to call out, going as expected.
Speaker Change: Great, thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next caller is Lisa Clive with Bernstein.
Lisa Clive: How should we think about volume growth for the year? I think previously you were at 0.5 to 1%, and any thoughts into 2025? And also in IKC, can you give us any indication in terms of how your
Lisa Clive: Reimbursement is split between capitated, shared savings. That would be helpful. Thanks.
Speaker Change: Yeah, starting on the volume for 2024, we're still thinking 50 bps to 100 bps of growth, so no change there. On the IKC thing, I think we'll have to get back to you on that one.
Speaker Change: Did I miss a question, Lisa?
Lisa Clive: No, no, I was just, yeah, I think just trying to think through the potential growth of IKC both on the top line and revenue just it would be helpful at some point to get some indication of how the economics work in there. Thanks. But I'll wait for you to get back on that.
Speaker Change: Great, thank you.
Speaker Change: Thank you. Once again, if you would like to ask a question, you may press star 1. Our next caller is Joanna Gadjuk of Bank of America. You may go ahead.
Joanna Gadjuk: Hi, thank you so much for taking the question here, so I guess I just follow up
Joanna Gadjuk: On the last question here, around volumes, right, so you expect to still grow slightly for the year, and then how should we think about, I guess, next year and your kind of ultimate target of growing 2% volumes, same store?
Javier Rodriguez: As Javier mentioned, it's...
Speaker Change: Most of the story is about mortality and what happens to mortality next year. To put a little bit more color on that, I would say, you know...
Speaker Change: headwind on
Speaker Change: And that's pretty simple. There are some patients who might want to start PD now. We don't have the ability to start all of the new PD patients over the quarter, and they might go to another provider. I would call those two things, the clinic closures and the Baxter PD, as offsetting. So you really have next year, starting with a base of
Speaker Change: And so you start with a base of 50 basis points and then, you know, getting back to what Javier said.
Speaker Change: It's up to everyone to figure out what they think will happen to
Speaker Change: to mortality next year versus this year, and then obviously mistreatment rate can also be another source of variability from one year to the next. So that's the framework I would lay out for how to think about it.
Speaker Change: Okay, that's very helpful. Thanks for flying in. The day is intact. But if I may have another question, but before I go there, just follow-up on the PD patients. So I guess, yeah, what's your home dialysis mix? And then inside it, what's the PD versus HD home?
Speaker Change: So, our mix in PD hasn't changed because it happened by the end of the quarter, and that's in the mid-15s is the range. HHD is like a 2% or so mix.
Speaker Change: I would take this moment just to thank Baxter and the government, they've been amazing working literally around the clock to make sure that all of our patients
Speaker Change: get their supply. And so, as we look at what they've told us, we will obviously see a little deterioration in that through the fourth quarter, but we will normalize by the first quarter and try to get all our patients.
Speaker Change: back on track.
Speaker Change: And the one thing I'd add Joanna is
Speaker Change: of those PD patients, remember we expect to keep the vast majority of them. The new patients, many of them, about half of them are already dialyzing in our clinics.
Speaker Change: postponing dialysis, assuming they have residual renal function, they could go in center and then transition to PD. And then there could be some who decide that they don't want to wait and will go to another provider. So.
Speaker Change: What we would expect you to see is a decline, a potentially significant decline in our home mix over the next quarter. But the number of patients that actually leave DaVita or don't join DaVita, we don't think will be that high.
Speaker Change: Okay, that's super helpful. If I may, another question I had on next year's outlook, I guess following up on your on your comment around you expect the RPT growth next year to be so elevated? So are you kind of implying, you know, three to three and a half to four that you got in for this year? Is the number to think for next year or is it a little bit less, a little bit more? How to think about that? Thank you.
Speaker Change: It's too early to guide quantitatively, but I would think lower than that.
Speaker Change: Okay, so it's a lot lower than three and a half to four, but you're saying higher than like your histocle.
Speaker Change: Thank you very much.
Javier Rodriguez: Okay, great. Thank you so much for taking the question. This is Javier. Just to clarify the comment I said, because I don't think I was clear as I should have been, 15.5 is our mix of home patients,
Javier Rodriguez: total, of which 2% are HHD and 13% and change are PD. I don't think that that was correct.
Speaker Change: 13% is PD. Okay, great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next caller is Ryan Langston with TD Cowan. You may go ahead sir.
Ryan Langston: Hi, thank you. In the release, I think it said that 3Q advocacy costs had increased, but I think in the second quarter, those were down year over year. Can you just kind of give us a sense on what those are related to?
Speaker Change: We've got several things going on through the advocacy costs, but a couple of the main drivers are California.
Speaker Change: and the elections there, and then of course, what we're doing with the restore.
Speaker Change: of the patients in Washington, D.C.
Speaker Change: And then the last one would be the Orals in a Bundle, because as you might have heard, there's some campaigns from pharmaceutical companies that are trying to delay Orals in a Bundle, and so we're having to mobilize our resources in Washington, D.C., to make sure people are educated as to the good that Orals in a Bundle can do.
Speaker Change: Got it. And then just last for me, I think on mistreatment, second quarter in a row, just elevated from weather, assuming we don't have any more, I guess, hurricanes, other weather events, et cetera, would we expect those to revert back to sort of normalized historical levels? Thanks.
Speaker Change: so
Speaker Change: The pace of that is to be determined.
Speaker Change: That said, remember they do go up seasonally in Q4, so even without additional storms you'd expect mistreatment rate to be up in Q4.
Speaker Change: Got it. Appreciate the help.
Speaker Change: Thank you. Our next caller is Justin Lake with Wolf Research.
Justin Lake: Thanks, good evening. First question, just going back to your headwinds and tailwinds, I didn't hear you mention RPT annualizing, the strength of 2024 annualizing next year.
Justin Lake: You know, just my numbers, I have you going from two and a half to three to three and a half before, right? So you've got it up by one percent. A lot of that ramps in the second half of the year. So I would have thought the annualization of that strong second half 24 growth would be a pretty good tailwind to 2025.
Speaker Change: Any comment on that? Am I missing something? Yeah, Justin, your math is all right, and we stand by our comments. We had a lot of debates, as you can imagine, about what to call out as unique.
Speaker Change: headwinds and tailwinds versus non-unique headwinds and tailwinds. So I think we stand by that, and that's why we called out RPT is going to be higher than normal next year. We just chose not to put it in the bucket of headwinds and tailwinds we called out.
Justin Lake: Okay, I'll take that offline. Then the $135 million of interest expense, is this a good run rate or does it potentially migrate higher into 2025?
Speaker Change: No, I think it's a good run rate. Our caps for next year are actually slightly lower than our caps for this year.
Speaker Change: So that could work. Just to be clear, the $135 million is the uptick for next year. So I think you should think about this as $270 million for the year. Oh, hold on one second. My team is looking at me.
Speaker Change: Thank you.
Speaker Change: Let me come back to you in a second, Justin.
Speaker Change: Our caps are a little bit lower.
Speaker Change: But if you think of the two things that are driving the number up, it's more debt, which I wouldn't expect us to incur more debt over the next few quarters, and then our caps aren't going to change materially.
Justin Lake: okay do those caps expire or are they kind of at a reasonable rate like you could re you could re-up them right now you know if they expired at the end of next year and interest rates didn't change you'd be fine
Speaker Change: Yeah, so we changed the way we do it we've had we have about a we have a cliff
Speaker Change: We had a cliff at the end of Q2 because we used to do a three or four year cap. Now we do it rolling, so going forward you wouldn't see a big change like this. It'll gradually move up and down depending on where interest rates are when the caps are put in place.
Speaker Change: Perfect and then lastly just apologize if I missed this but did you give a mixed number for the for the quarter versus I think the 11% you talked about last quarter?
Speaker Change: Yeah, there was really nothing material changes in the mix for any of our usual mix numbers.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. Andrew Mook with Barclays. You may go ahead, sir.
Andrew Mook: Hi, thanks. Thanks for letting me back in. I just wanted to follow up on GNA. It looks like that was up 7% sequentially and 10% year-over-year. What were the drivers of that in the quarter?
Speaker Change: In the GNA, we have a lot going on because we're trying to really go through the entire continuum of care and unite it, all the transitions of care. But the big bulk of it is going into IT.
Speaker Change: is going in, and the second part is, of course, you've got
Speaker Change: the reimbursement operations investment that rendered the increase in revenue per treatment. So those explain the vast majority of the increase.
Speaker Change: and Javier Rodriguez, Nic Eliason, Joel Ackerman, Nic Eliason, Joel Ackerman, Nic Eliason, Joel
Speaker Change: Got it. Okay. And then maybe on the follow-up to the commercial mix, how much is the ACA exchange mix within the commercial mix within that 11% and how much growth are you seeing on the ACA exchanges this year? Thanks.
Speaker Change: So, just to make sure I've got the right language, I think on the QHP,
Speaker Change: On the QHP, the country's running around 7% to 8% mix.
Speaker Change: and our population is running around 3% mix and so we're underrepresented because in QHP, if one of our patients picks Medicare, they are out of the QHP, so that's why we're underrepresented.
Speaker Change: Scott, can you give us a sense of how much growth you've seen in that payer class bank? We're growing exactly as the market grows, so that has been literally the lines are on top of each other.
Speaker Change: All right. Thanks, Robert Culler.
Robert Culler: Thank you.
Peter Chickering: Thank you, Peter. Checkering with Deutsche Bank. You may go ahead, sir.
Peter Chickering: Hey guys, it's a quick fall here for 2025. Will depreciation be another tailwind for next year?
Peter Chickering: I'm sorry, I didn't hear that. Peter, can you say that again? Yeah, you bet. Will depreciation be another tailwind for next year EPS?
Speaker Change: It'll be flat to down.
Speaker Change: pretty much solved in the first part of the first quarter. To Justin's question on interest rates capped, that's just math.
Speaker Change: You know, depending upon where the bundle goes, when you put together the headwinds and tailwinds, depending upon the bundle, isn't it a possibility this will be more of a tailwind than headwind? But we just want to see where the bundle ends up. Is that a fair way of thinking about this?
Speaker Change: I'm just help me again with the end of the question Peter what what specifically are asking if it's a headwind or tailwind the bundle?
Speaker Change: yeah so so
Speaker Change: The tailwinds, you know, seeing, you know, just, you know, putting the math together on the headwinds.
Speaker Change: You know, understand those, you know, and understand the math of the tailwinds. The biggest variable here seems to be with the bundles.
Speaker Change: and Javier Rodriguez, Nic Eliason, Joel Ackerman
Speaker Change: That will define whether the headwinds or tailwinds are a tailwind versus a, you know, maybe your commentary about a push, if, depending upon the pricing we've got soon, this could be, I guess, more favorable, depending upon what the government says in a week or two, is that a fair way of thinking about it?
Speaker Change: You know...
Speaker Change: Orals could be better, it could be worse, but all of these probably have a decent amount of play in them. So I think it could go either way, a net headwind or a net tailwind.
Speaker Change: Okay. Fair enough. Thanks, guys.
Speaker Change: Thank you. At this time I am showing no further questions. I'll turn the call back over to you for closing comments.
Speaker Change: Okay, thank you, Michelle, and thank you all for your interest in DaVita. I will end the call where we started, with appreciation for the hard work of our DaVita care teams on behalf of our patients.
Speaker Change: Although we will incur some additional expenses related to recent storms, we expect to absorb these costs within the continued strong performance of our underlying business.
Speaker Change: We've covered a lot on volume, and as we said, while mortality remains elevated, our investments in people and infrastructure and capabilities has returned our operating income to the pre-pandemic trajectory.
Speaker Change: Thank you for your continued interest and be well.
Speaker Change: Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.