The conference call for DaVita's third quarter 2023 earnings is being led by Jordan, with Nic Eliason, Javier Rodriguez, Joel Ackerman, and Dr. Jeff Giullian in attendance. Forward-looking statements will be made and non-GAAP financial measures will be discussed. The call will be available for replay on the company's website.

The company had a strong start to the year and has maintained momentum into the third quarter. They have focused on both short-term operations and future growth, while also prioritizing employee satisfaction and patient care. The company has seen improvements in clinical outcomes in their international business and has outperformed benchmarks in all countries. In terms of financial performance, the company exceeded expectations in the third quarter, with strong operating income and earnings per share. This was partly due to seasonality and timing.

In the third quarter of 2023, there were three main drivers impacting the company's performance: patient census, patient care costs, and integrated kidney care (IKC). The patient census remained steady and is expected to increase by 1,500 to 2,000 patients by the end of the year. Patient care costs decreased due to the conversion to Mircera for anemia management, but wage growth remains above historical trends. The IKC business had a strong quarter and is ahead of forecast for the year, generating savings that are shared between DaVita and their partners. The company is also investing in growth while managing costs and remains on track to achieve breakeven by 2026. There has been discussion about the potential impact of GLP-1 drugs on dialysis growth rate, but the company is optimistic about their potential to improve the health of many people worldwide.

Despite evidence of positive impact on obesity, diabetes, and cardiac disease, the impact of GLP-1 drugs on dialysis volumes is expected to be limited. This is due to uncertainties in disease progression and the long timeline for end stage renal disease. Factors such as adoption rate, CKD progression, cardiac mortality benefit, and patient age may also have an impact, but the overall forecast is neutral in terms of dialysis growth rates and payer mix. This may seem counterintuitive, but there are several misunderstood characteristics about kidney disease that must be considered.

Despite the potential positive impact on slowing disease progression, the majority of people with CKD Stage 3 and beyond will still pass away before reaching end stage kidney disease due to major cardiac events. The company has also considered a scenario where the drugs have no impact on cardiac mortality, resulting in a 0.5% annual growth headwind and approximately $25 million of operating income headwind per year. However, the company remains confident in achieving their long-term operating income growth targets, even with strong adoption of these drugs. The company has consulted with external experts and pressure tested their assumptions.

In the fourth quarter, the company is revising its adjusted operating income and earnings per share guidance for 2023. They expect positive growth in volume and operating income in 2024, driven by their operating initiatives. The company also saw flat volume and improved mortality rates in the third quarter, with an increase in revenue per treatment due to better revenue cycle performance and an uptick in private pay mix. They expect to be near the top end of their revenue per treatment range for the full year and have received the Medicare PPS final rate for ESRD for 2024.

Despite CMS acknowledging a larger forecast error for 2022, the net rate update for 2024 was only 2.1%, which is below what is considered appropriate. However, the company is still finding ways to expand margin despite this. Non-GAAP patient care cost per treatment decreased and IKC saw improvements due to higher shared savings revenue and positive adjustments from reconciliations. However, this increase in revenue was offset by higher costs and the IKC business is expected to see a decline in Q4. The company expects a full year 2023 IKC adjusted operating loss of approximately $110 million. The updated operating income guidance for Q4 implies a sequential decline of $145 million, mainly due to IKC and seasonality.

In the fourth quarter, IKC's results will be lower due to timing and typical seasonality factors such as increased mistreatment rates, higher health benefit spending, and year-end costs. The company closed or consolidated 15 clinics in the third quarter and plans to continue evaluating its footprint. The tax rate for 2023 is expected to be lower than previously anticipated. The company's capital allocation strategy remains focused on capital efficient growth and they plan to resume purchasing shares this quarter. They will fund these repurchases using excess cash flow and their revolving credit facility. The company also manages its exposure to rising interest rates.

The speaker discusses the company's debt, with half being long-term notes with attractive fixed rates and the other half being floating rate. They have implemented interest rate caps to manage the exposure through 2025. The operator then opens the call for Q&A. The first question is about patient care costs, which have seen a reduction year-over-year and sequentially. The speaker explains that this is due to wage rate pressure, offset by lower contract labor. They have also saved money by controlling anemia costs and consolidating their footprint due to lower patient volumes. When asked about 2024, the speaker expects to continue seeing wage rate pressure.

The company is not ready to give guidance on where their cost level will land, but they expect some continued savings from Mircera and facility closings. They will also look for other opportunities to bring costs down to mitigate higher wage rate pressure. The analyst asks about the company's 10-year model for GLP-1s and the impact of CKD patients switching to HCL2 inhibitors. The CEO suggests getting a common foundation by having the Chief Medical Officer and CFO provide an overview of the clinical and financial impact of the medications before discussing assumptions.

The speaker is encouraged by the potential of GLP-1 agonist drugs to improve the lives of people with heart and kidney disease. However, only about 40% of studies have shown efficacy in delaying progression of kidney disease. The greatest impact has been seen in a subset of patients. The speaker addresses common questions about the potential impact of these medications, estimating that about 30% of CKD patients could eventually take them. The speaker also mentions high discontinuation rates and the use of other medications as factors in this estimation.

The paragraph discusses the potential impact of new medications for chronic kidney disease (CKD) patients. It estimates that about 40% of eligible patients could receive these medications, translating to about 30% of the total CKD patient population who ultimately progress to dialysis. The estimated impact is based on a 25% delay in progression, which was determined by looking at data from clinical trials. The paragraph also mentions that no therapy has been shown to halt or reverse kidney damage. Additionally, it notes that about 8% of CKD patients are currently on SGLT2 medications, but many discontinue them, which has already been factored into the model.

The speaker has been working closely with experts in nephrology and epidemiology to understand the clinical aspects of GLP-1 drugs. They have based their assumptions on robust studies and have incorporated conservative estimates in their modeling. The two main assumptions are a 30% utilization rate among the CKD population and a 25% efficacy rate in slowing down CKD progression. The speaker then goes on to explain how they have modeled the potential impact on commercial mix, using a simplified framework to demonstrate their thinking. They assure the audience that the financial implications of this impact are not as serious as they may seem.

The speaker provides a framework for modeling the impact of a delay in progression from GLP-1s on commercial mix. They assume a 25% delay in progression and a 2.5-year window of incident patients. About 10% of their commercial population falls within this window and 30% are expected to be on GLP-1 drugs. This would result in a loss of 660 commercial patients, which is equivalent to 33 basis points of commercial mix.

The speaker explains that the cumulative impact of GLP-1s on the growth of CKD patients will result in a negligible reduction of 33 basis points over 10 years. This will not have a significant financial impact on the company's commercial mix. The speaker also mentions that the 30% figure for CKD patients who know they are progressing to ESRD and dialysis is based on the low uptake of generic medications that can slow disease progression.

The discontinuation rate for GLP-1 medications is slightly lower compared to other medications, and there is a strong baseline for uptake of these medications. About 40% of the applicable population is neither diabetic nor obese, and the assumption of 100% adherence is not normal. The take-up rate for patients at risk for kidney failure is only 18-30%, and there are various reasons for this, including access to physicians and medications, social determinants of health, and discontinuation rates. Research has shown that there are social and behavioral factors that limit the full uptake of medications for patients with CKD. The company's patient care costs from drugs are not specified.

The analyst asks about drug spending and the pace of buybacks. Joel Ackerman responds that they will use excess cash flow and available leverage for buybacks, and with a bigger revolver, they may tap into it for buybacks. He also mentions that the cost of treatment for anemia has decreased, making it hard to predict major savings in the future. The analyst then asks if the $3 million to $3.5 million is still the gating factor for buybacks, to which Ackerman responds that they may be comfortable going above that range now that they feel more confident about their base EBITDA growth.

Joel Ackerman and Kevin Fischbeck discuss the company's commitment to giving money back to shareholders and being capital efficient. They also mention their aggressive approach in taking advantage of opportunities. In terms of the drug's impact on the progression of the disease, Jeff Giullian explains that the time frame for moving from early CKD to end-stage kidney disease is usually 15 to 20 years.

The speakers discuss the potential impact of GLP-1 and SGLT2 inhibitors on patients with pre-CKD Stage 3 diabetes, estimating that it may take 11-12 years or longer to see any significant effects. They also mention the low uptake of these drugs in CKD patients and the potential offset from a reduction in cardiac mortality.

The speaker discusses the improvement in mortality rates and new starts in the quarter, which are back to expected levels. They mention that the 2% volume growth is a reasonable estimate and that the adoption of a new drug could potentially lead to more new starts. They also note that the IKC business is performing better, but they are still maintaining their 2026 target.

The speaker discusses the strong quarter for the company, but notes that it was largely due to timing and variability in IKC. They expect a $110 million loss for IKC for the year and anticipate improvement in the following years. When asked about the diagnosis rates for late-stage CKD patients, the speaker mentions that there has been a push to diagnose earlier, but there has not been a significant increase in diagnosis rates.

The paragraph discusses the availability of medications like ACE inhibitors, ARBs, SGLT2 inhibitors, and GLP-1s and their impact on the kidneys. The knowledge about these medications and their effects on the kidneys has been known to the nephrology community for several years. The prevalence of CKD has remained relatively flat over the past 20 years, potentially due to physicians focusing on other health concerns. As the obesity rate increases, there may be a potential relationship with CKD.

During a conference call, Joel Ackerman, a representative from a company, answered questions from analysts regarding the company's performance in the third quarter. One analyst, Pito Chickering, asked about the company's SG&A and revenue per treatment. Ackerman stated that there were no major changes in SG&A from the previous quarter and that there may be a slight increase in the next quarter due to seasonality. He also mentioned that revenue per treatment had increased due to progress in the company's collections efforts and a commercial mix uptick. He added that the company has multiyear contracts with managed care payers and the rate increases have been reflective of the current inflationary environment.

The speaker discusses the increase in prices due to the pandemic and the upcoming renewals for larger contracts. They also mention the improvement in IKC and the projected range for 2024 OI. The volume and new patient adds for the third quarter were consistent with pre-COVID levels, but excess mortality is becoming less relevant as it approaches pre-COVID levels.

The speaker expects the number of contract labor to continue to decline and become less important in the future. They are working to move away from this number. The next question is about home dialysis and the proportion of patients who are still employed versus on COBRA. The speaker does not have specific statistics on this, but mentions that the number has been steady and there has not been a shift in insurance cohorts. The speaker also mentions that the number of patients on home dialysis has been stable at around 15%, but there has not been a change in insurance cohorts. The questioner asks if more patients on home dialysis could mean more patients staying employed for longer, and the speaker responds that they have not seen a shift in insurance cohorts.

The speaker discusses the difficulty of analyzing the impact of home dialysis rates on financial results, and mentions the high dropout rate for home dialysis. They also mention the introduction of new drugs and their potential impact on kidney patients. Despite this, the company remains committed to their long-term plan and focused on providing the best care for patients.

The speaker realizes that this is the last scheduled conversation for the year and wishes the audience a happy and healthy holiday on behalf of their team. The operator then thanks the audience for participating and ends the call.

This summary was generated with AI and may contain some inaccuracies.