DaVita healthCare Partners Inc. (DVA)

DVA 
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DaVita (DVA)

Q2 2011 Earnings Call

August 03, 2011 5:00 pm ET

Executives

LeAnne Zumwalt -

Luis Borgen - Chief Financial Officer

Jim Gustafson - Vice President of Investor Relations

Kent Thiry - Chairman and Chief Executive Officer

Analysts

Andreas Dirnagl - Stephens Inc.

Kevin Ellich - Piper Jaffray Companies

Gary Lieberman - Wells Fargo Securities, LLC

Justin Lake - UBS Investment Bank

John Ransom - Raymond James & Associates, Inc.

Matt Weight - Feltl and Company, Inc.

Ben Andrew - William Blair & Company L.L.C.

Darren Lehrich - Deutsche Bank AG

Gary Taylor - Citigroup Inc

Kevin Fischbeck - BofA Merrill Lynch

Presentation

Operator

Good afternoon, my name is Ali, and I will be your conference operator today. At this time, I would like to welcome everyone to the DaVita Second Quarter 2011 Earnings Call. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Jim Gustafson. Sir, you may begin your conference.

Jim Gustafson

Thank you, Ali. And welcome, everyone, to our second 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 Chief Executive Officer; Luis Borgen, our Chief Financial Officer; and LeAnne Zumwalt.

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 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, 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 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 Thiry

Okay. Thank you, Jim. Second quarter was a strong one as most of you of have no doubt noted, both in terms of our results and our momentum going forward, both clinically and financially. I'll try to quickly cover 4 topics before turning it over to Luis: Clinical outcomes, government reimbursement, government inquiries and our outlook.

First, clinical outcomes, which we always present first because that is what comes first. We are first and foremost a caregiver company, now serving approximately 131,000 patients. With respect to adequacy, which is essentially how well we are doing at removing toxins from our patient's blood, this quarter 97% of our hemodialysis patients had a Kt/V greater than 1.2. Second, with respect to vascular access, 69% of our patients have fistulas, which is the preferred form of vascular access. For these and virtually all other clinical measures, our patient outcomes compare very favorably to national averages. This quality of clinical care not only results in healthier patients but it also drives reductions in hospitalizations and surgical procedures, and therefore, brings significant savings to the United States healthcare system.

Second topic, government reimbursement. Luis is going to report on a bunch of the details there but I just make 4 contextual comments. A, no doubt, downward pressure will be greater going forward than it has been looking backwards. B, nonetheless, dialysis centers are unusually discrete within the context of the Medicare program, with 87% of our patients being either Medicare or Medicaid and almost all centers being freestanding, which means that if government reimbursement becomes inadequate, centers close. There are virtually no parts of American healthcare where cause and effect is as clear. Point C, with all the pressure on government deficits, there's always the chance that over the next few years, MSP will be extended. And the fourth, Point D, is that we have significant hopes that the pressure on government spending and the government deficit will finally get us over the finish line in terms of the government implementing a bigger bundle than currently, where we already have the proven ability to drive quality improvements and total cost savings for our patient population, if they only put in place the architecture for us to do it on a scale basis. Again, Luis will cover some of the government reimbursement details but those are some of the broader perspectives.

The third subject, government inquiries. We did learn from the U.S. attorney's office from the District of Colorado that it has opened up a grand jury investigation. I'll make 3 specific comments and then 3 generic ones that you've heard before many times if you've been with us over the years. But the first specific comment is, it is clear that this is very preliminary at this stage. Second, however, we always take these things seriously and we look forward to cooperating with the government. And we mean that, literally, when we say that because we are eager to educate them as to exactly what we have done or not done. And then point 3, it appears there's a lot of overlap with subjects covered, particularly physician relationships, by the old St. Louis investigation, which was started in 2005. They looked into those subjects, spent time with us and it's been quiet for over 2 years. But separate from the specific comments, I'll make 3 generic points and again, I ask the forbearance from those of you that have been with us for a long time. We do thousands of transactions, including hundreds with physicians, and we work very hard to get every one right, technically and in terms of spirit. We are comfortable and confident with our business practices, and these practices regularly go through extensive internal and external review. And finally, none of those words would mean much of anything except our track record of compliance over the last 11.5 years is exceptionally well established and documented. And we did not design the system whereby instead of having discussions, the review process starts with publicly announced investigations, but we've dealt very successfully with that system for 11 highly public and transparent years.

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