DaVita healthCare Partners Inc. (DVA)

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DaVita HealthCare Partners (DVA)

Q4 2012 Earnings Call

February 14, 2013 12:30 pm ET


Jim Gustafson - Vice President of Investor Relations

Kent J. Thiry - Chairman and Chief Executive Officer

James K. Hilger - Interim Chief Financial Officer, Chief Accounting Officer, Vice President and Controller

Matthew Mazdyasni - Chief Financial & Administrative Officer and Executive Vice President

Robert J. Margolis - Chairman and Chief Executive Officer


Matthew J. Weight - Feltl and Company, Inc., Research Division

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Justin Lake - JP Morgan Chase & Co, Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Brian Zimmerman - Goldman Sachs Group Inc., Research Division

Darren Lehrich - Deutsche Bank AG, Research Division

Gary Lieberman - Wells Fargo Securities, LLC, Research Division

Ben Andrew - William Blair & Company L.L.C., Research Division

Gary P. Taylor - Citigroup Inc, Research Division

John W. Ransom - Raymond James & Associates, Inc., Research Division

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division



Good afternoon. My name is Laportia, and I will be your conference operator today. At this time, I would like to welcome everyone to the DaVita HealthCare Partners Fourth Quarter Earnings Call. [Operator Instructions]

Mr. Gustafson, you may begin your conference.

Jim Gustafson

Thank you, Laportia, and welcome, everyone, to our fourth quarter call. We appreciate your continued interest in our company. I'm Jim Gustafson, Vice President of Investor Relations. And with me today are Kent Thiry, our CEO; Bob Margolis, the CEO of Healthcare Partners; Matthew Mazdyasni, HealthCare Partners' Executive Vice President and CFO; Jim Hilger, our interim CFO of DaVita HealthCare Partners; and LeAnne Zumwalt, Group Vice President.

I'd like to start with our forward-looking disclosure statements. 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. For further details concerning these risks and uncertainties, please refer to our SEC filings, including our most recent quarterly form on Form 10-Q and annual report on Form 10-K. 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 for any reason.

Additionally, we'd like to remind you that during the 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 Form 8-K submitted to the SEC and available on our website.

I will now turn the call over to Kent Thiry, our Chief Executive Officer.

Kent J. Thiry

Okay. Thank you, Jim, and thanks to all of you out there for your interest in DaVita HealthCare Partners. Fourth quarter was a momentous one in one important respect, in that we completed the acquisition of HealthCare Partners to become our new company. That's transformational for us and hopefully, over time, transformational for many markets in American health care. I'll talk about kidney care a bit, then I'll make a couple of quick comments on HealthCare Partners and then talk about our near-term outlook, followed by a summary of things to feel good about, things to worry about.

So kidney care first. It was another solid quarter. We performed well both clinically and operationally. Let me elaborate on the clinical side. We will present these outcomes first because that is what comes first. We are first and foremost a caregiving company which, on the kidney care side alone, serves approximately 153,000 dialysis patients in the United States. With respect to adequacy, which is essentially how well we're doing in removing toxins from our patients' blood, once again, we hit the 98% level in terms of a Kt/V greater than 1.2.

With respect to vascular access, we set yet another personal best, with 71% of our patients having fistulas, which is the preferred form of access, not only better clinically but saving taxpayers' money. Third, vaccinations, this year, over 91% of our patients were vaccinated for influenza and pneumonia, once again improving health care and reducing taxpayer cost. And number four is just a moment's reflection. Since 2009, we have reduced the use of catheters by 43% among our substantial population, 1/3 out of all the dialysis patients in America. Once again, that constitutes wonderful clinical improvement, wonderful taxpayer savings.

For these and virtually all other clinical measures, our patient outcomes compare very favorably to national averages, and this quality not only results in healthier patients but drives reductions in hospitalizations, surgical procedures and costs. So good news on the clinical front. We think that's not only good news for our patients and the taxpayers, but it's good news for you.

On to public policy on the kidney care side. As part of the fiscal cliff negotiations, as most of you know, Congress mandated a rebasement of part of the bundle for 2014. It's sort of a bogus way to do it, but that is what they did. This could create a headwind for providers in 2014. So let's just revisit the core facts surrounding this issue: number one, we and the rest of the community still lose money on Medicare; number two, many of the dialysis centers in America are in a fragile financial states already, including a bunch of ours; number three, the legislation did not mandate a savings level, therefore, a, while CMS is directed to rebase a portion of the bundle, they have both the authority and the obligation to ensure overall payments are adequate to take care of these human beings, and so we'll have to wait and see what they do.

But in order for you to think about some of the facts that they will be thinking about, while it is true that pharma utilization, particularly ESAs, has gone down over the past 2 years, it's good to remember the following. We took a 2% cut going into the bundle because of the changing clinical science and physicians' points of view on ESAs. We took a 2% cut going in because people knew physicians were going to start prescribing fewer of them, and since pharma was about 25% of our costs, that meant you would need an 8% cost reduction in pharma to offset that 2% cut on the overall bundle.

Fact number two, industry pricing for EPO is up about 15% since the bundle went into effect. So if you put those 2 things together, 15% higher pricing, more or less, on average and the 2% cut on the total bundle going into it, you need pharma utilization reductions of around 23%, which is right about what has happened. So there has been no tick-up on an aggregate basis in the industry. These are facts that CMS must take into account.

In addition, there were other unexpected cuts, at least by us, included in the bundle because of what happened with the case-mix adjusters, outlier payments, et cetera, and so the net economics were actually worse than what I just summarized. And of course, on top of this is any additional sequestration that will further strain a lot of the centers across the country. And if they get it wrong, the centers will close, patient access will be hurt. So we'll have to wait and see what happens.

Second significant bit of policy news on the kidney care side is that we were excited that CMMI released an RFA for a renal-specific integrated care program. We have waited for years for the opportunity to give the gift of integrated care to every kidney care patient in America. Unfortunately, based on our current understanding of the terms, we would not participate in this program. The proposal is incomplete, first of all. But second, some of the stuff that is there and is definitive is sufficiently negative to make the program unattractive, and we'll have to hope that there are some changes.

Read the rest of this transcript for free on seekingalpha.com