DaVita healthCare Partners Inc. (DVA)

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DaVita (DVA)

Q4 2010 Earnings Call

February 10, 2011 5:00 pm ET


LeAnne Zumwalt - VP of IR

Kim Rivera - Vice President, General Counsel and Secretary

Luis Borgen - Chief Financial Officer and Senior Vice President

Jim Gustafson - Vice President of Investor Relations

Kent Thiry - Chairman and Chief Executive Officer


Andreas Dirnagl - Stephens Inc.

Shelley Gnall-Sazenski - Goldman Sachs Group Inc.

Frank Morgan - RBC Capital Markets, LLC

Unknown Speaker

Justin Lake - UBS Investment Bank

Gary Lieberman - Wells Fargo Securities, LLC

Jeff Hoernemann - Feltl and Company, Inc.

Darren Lehrich - Deutsche Bank AG

Mark Arnold - Piper Jaffray Companies

Gary Taylor - Citigroup Inc

Ilan Chaitowitz - Redburn Partners LLP

Kevin Fischbeck - BofA Merrill Lynch



Ladies and gentlemen, thank you for standing by, and Welcome to the DaVita Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] Mr. Gustafson, you may begin your conference.

Jim Gustafson

Thank you, Beverly, and welcome, everyone, to our fourth quarter conference 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; Luis Borgen, our CFO; and LeAnne Zumwalt.

I'd like to start with our forward-looking disclosure statement. 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 report on Form 10-Q and annual report on Form 10-K. 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 for any reason.

Additionally, I'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 Form 8-K submitted to the SEC and available on our website.

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

Kent Thiry

Okay. Thank you, Jim. Greetings to everyone. Thank you for your interest in DaVita. The fourth quarter reflected solid operating performance on two different levels: A, the results from sales; and B, our work to prepare for the bundle. I will cover four topics: clinical outcomes, our recently announced acquisition, bundling and our outlook.

Let me start with clinical outcomes. We always put that first because it must come first. We are first and foremost a caregiving company, serving more than 125,000 patients. First, with respect to adequacy, which is essentially how well we are doing in removing toxins from our patients' blood, this past quarter, 96% of our hemodialysis patients had a Kt/V greater than 1.2. Second, with respect to vascular access, 67% of our patients have fistulas, which is the preferred form of vascular access.

Third, with respect to anemia management, physicians have managed 73% of our patients to hemoglobin levels between 10 g/dL and 12 g/dL over the last three months. For these and virtually all other clinical measures, our patient outcomes compare very favorable to the national averages. And this quality care not only results in healthier patients, but also drives reductions in hospitalizations and surgical procedures and therefore, drives significant savings to the U.S. taxpayer.

Next, a few words about our recently announced acquisition of DSI. As always, we have received some questions about the price and expected return. The short answer is that there is a high probability that we will earn a satisfactory return when we apply the same return on capital discipline to this transaction as we have to the many, many large and small acquisitions we've done over the past 11 years. And one distinctive feature of this asset is that it has some particularly attractive geographies and physician group affiliations as well as many, many excellent caregivers and other employees. And we are very excited that we're going to be able to offer our much broader range of integrated services to these wonderful centers, improving clinical outcomes, improving service offerings to patients and physicians and reducing the overall cost of care for payers.

As you know, this transaction is subject to antitrust review. We will have to divest a fair number of centers. We are already seeing strong demand for whatever divestitures we will make, and we're even contacted by a number of potential buyers. There will be minimal operating income impact from this deal in 2011 because the transaction is likely to close in the second half of the year. And we will, of course, incur some transaction and integration costs in the first few quarters post close, and it will take some time to achieve the ultimate synergies.

Next subject is bundling. As of January 1, we are in the bundle as most of you know. You will also recall that we are being subjected to an annual cut of approximately $140 million in Medicare reimbursement for our 2010. We are working hard to fill this gap and are making solid progress. There are still also a few uncertainties under the new reimbursement itself. We do not yet know how the clinical changes that physicians are implementing will play out across our entire patient population. We will not receive our first payments for a couple more weeks, and we continue to have to work on being able to identify and capture case mix and outlier adjusters. This is one of the frustrating exceptions to the otherwise collaborative process we have had with CMS in implementing the bundle.

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