DaVita healthCare Partners Inc. (DVA)

DVA 
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DaVita (DVA)

Q3 2012 Earnings Call

October 30, 2012 5:00 pm ET

Executives

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

LeAnne M. Zumwalt - Group Vice President

Analysts

Darren Lehrich - Deutsche Bank AG, Research Division

Gary Lieberman - Wells Fargo Securities, LLC, Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

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

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Gary P. Taylor - Citigroup Inc, Research Division

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

Andrea Bici

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

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

Presentation

Operator

Good afternoon. My name is Jona and I will be your conference operator today. At this time, I would like to welcome everyone to the DaVita Q3 Earnings Conference Call. [Operator Instructions] Jim Gustafson, you may join your -- start your conference.

Jim Gustafson

Thank you, Jona, and welcome everyone to our third quarter conference call. We appreciate your interest in our company. I'm Jim Gustafson, Vice President of Investor Relations, and with me today are Kent Thiry, our CEO; Jim Hilger, our interim CFO; LeAnne Zumwalt, Group Vice President; and Matthew Mazdyasni, HealthCare Partners Executive Vice President and CFO. Also, Bob Margolis, HCP's CEO, may be joining us later in the call as well.

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 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 the 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 are 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 for joining on this call, and we are hoping that all of you and your families and friends are safe and are going to get through the storm okay.

The second quarter was a solid quarter. We did well both clinically and operationally. I'll cover 3 topics: Clinical outcomes, our outlook and then HealthCare Partners in turn.

But first, clinical outcomes, as we always do, because that is what comes first. We are, at our most basic, a caregiving company serving approximately 151,000 patients now, and soon many more when we close the HealthCare Partners combination. With respect to adequacy, which is essentially how well we're doing at removing toxins from our patients' blood, this quarter, 98% of our hemodialysis patients had a Kt/V greater than 1.2. Second, with respect to vascular access, 71% of our patients have fistulas. Third, with respect to phosphorous, 81% of our patients have phosphorous levels less than or equal to 5.5 milligrams per deciliter. We also did very well in vaccinations in a number of other areas. And for these and virtually all other clinical measures, our patient outcomes compare very favorably 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, significant savings to the U.S. health care system.

Subject #2 for me is our outlook. But the good news is that both DaVita and HealthCare Partners have continued to perform according to our plans and expectations, perhaps even a little better than that. And the ultimate 2012 outlook reflects that trend. In addition, we are initiating operating income guidance for 2013 and that's to be in the range of $1.75 billion to $1.9 billion NOI, which of course includes the HealthCare Partners contribution, and this guidance incorporates the majority of the probabilistic outcomes.

We also have a significant number of headwinds and challenges to face on both sides of our enterprise. On the dialysis side, some of the most significant risk factors that we had to take into account are: a potential 2% cut to Medicare reimbursement due to sequestration; additional risk around additional Medicare reimbursement reductions, as there is risk that the physician fixed will take place and will be paid for by across-the-board cuts to other Medicare providers or not across-the-board cuts to other Medicare providers; and then third, the uncertainty around our commercial book of business, both mix and rates, because sadly, we continue to lose money on Medicare treatments and have to rely on private insurance to fill that gap.

Despite these formidable risk factors, the fundamentals of our core kidney care business remained noteworthy, both in terms of excellent and continually improving clinical care, strong market position, steady volume growth and a history of strong stable cash generation. So as we look at the intermediate and longer term, we're well positioned in this essential therapy and we're eager to get the government's permission to expand our abilities to provide integrated care to more patients and families across America. We will improve quality and save money once we're unleashed and allowed to do that.

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