DaVita Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2021

There are 10 speakers on the call.

Operator

Good evening. My name is Missy, and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to the DaVita Second Quarter 2021 Earnings Call. 2019. Thank you.

Operator

Mr. Gustafin, you may begin your conference.

Speaker 1

Nineteen. Thank you, and welcome, everyone, to our Q2 conference call. We appreciate your continued interest in our company. Eighteen. I'm Jim Gustafson, Vice President of Investor Relations, and joining me today are Javier Rodriguez, our CEO and Joel Ackerman, our CFO.

Speaker 1

Eighteen. Please note that 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 2019 guidance 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 Q1 earnings press release and our SEC filings, including our most recent Annual Report on Form 10 ks and subsequent quarterly reports on Form 10 Q and any subsequent filings that we make with the SEC.

Speaker 1

Eighteen. Our forward looking statements are based upon the information currently available to us, and we do not intend and undertake no duty to update these statements, eighteen, except as may be required by law. Additionally, we'd like to remind you that during this call, we will discuss some non GAAP financial measures. 2019. A reconciliation of these non GAAP measures to the most comparable GAAP financial measures is included in our earnings press release submitted to the SEC

Speaker 2

2019. I'm excited to talk to you today about our strong Q2 performance, our 2021 financial outlook and recent developments on our 2nd Quarter 20 2nd Quarter 20

Speaker 3

2nd Quarter 20 2nd Quarter.

Speaker 2

1st, let me start the conversation with a clinical highlight. A kidney transplant is the best treatment option eighteen. DaVita has worked hard over the years to help our patients gain access to transplant 2,000 patients to get on and stay on the transplantation wait list. Eighteen. The cumulative impact is meaningful.

Speaker 2

Last December, we announced a milestone of 100,000 DaVita patients 2,000. To further advance the cause of transplantation, DaVita 2019 and the National Kidney Foundation are collaborating on a year long pilot aimed at improving health equity in kidney transplantation eighteen with a focus on living donors. Increasing living donor transplant expands access to transplantation by increasing the availability of organs, which has been the limiting factor in the number of transplants performed annually. Eighteen. This pilot provides high touch and customized information to patients and families seeking a kidney transplantation from a living donor.

Speaker 2

We look forward to learning more from this pilot, improving the health equity of kidney transplant and continuing to be the leader in supporting our patients to receive

Speaker 3

2019. In our efforts to combat the COVID-nineteen pandemic over the past several

Speaker 2

months, new COVID infections among our patients continue to drop significantly through the last week 2019, down more than 95% from the peak in early January. However, similar to the rest of the country, we have started to see an uptick 2019. As of last week, on a rolling 7 day average basis, new infections are still down more than 90% 2,000. Thus far, our mortality continues to remain low on an absolute basis eighteen, as we believe that our vaccinated patients are more protected from severe cases of COVID. Eighteen.

Speaker 2

We continue to educate our patients about the benefits of vaccine to reduce vaccine hesitancy, and we remain confident in our policies and procedures 2019. Now let me turn to our financial performance in the 2nd quarter. 19. We delivered strong results in both operating income and earnings per share. Our margins expanded as we continue to manage costs while delivering Quality Care.

Speaker 2

As a result, we delivered 6% year over year growth in adjusted operating income and 35% year over year growth 2019 and our adjusted earnings per share. Our free cash flow was particularly strong this quarter, and we continue to return cash

Speaker 4

to our shareholders through our stock buyback.

Speaker 2

Eighteen. Let me transition to update our progress in our integrated kidney care efforts, otherwise known as IKC. Eighteen. Value based care for our patients with kidney disease is gaining momentum and appear to have reached an inflection point. We have always believed that coordinating dialysis care with the 20.

Speaker 2

The broader healthcare needs of CKD and ESKD patients could simultaneously improve outcomes and reduce total healthcare costs. For years, we've been participating in a variety of small programs and pilots to build our integrated care capabilities and better understand the economics. We believe we are at that point now where we are ready to shift to the next 18th consecutive quarter. You might be wondering why now. Eighteen.

Speaker 2

The trend towards value based care is not new either in kidney care or other segments of healthcare. So what's 18.5% change to make the developments of scale business viable today. There's a couple of reasons. First, with the growth of Medicare Advantage, 2, 000 patients. Payers are looking for innovative ways to manage the increasing number of ESKD patients choosing MA plans.

Speaker 2

20. These patients tend to be more complex than most MA patients and should benefit from tailored care management. 2nd, CMS recently initiated the payment models in kidney care. We are preparing to partner with nephrologists in up to 12 markets beginning in January of next year to participate in CKCC voluntary program. 2019.

Speaker 2

Our participation in the KCC model will also provide us with operational scale in more geographies to enter into other value based nineteen. Lastly, we've increased our confidence in our capabilities to deliver clinical and economic value at scale eighteen and have leaned in on our willingness to take risks. We believe we're well positioned to win an integrated care because 2019. Our strong partnership with nephrologists, our regular and consistent interactions with patients, a broad kidney care platform 2019 that spans various modalities and care settings and a clinical data set and analytics that we use to create, develop Clinical Intervention to support our patients holistically. We have a demonstrated track record of improving patient outcome, 2019 and lowering costs for patients in risk arrangements.

Speaker 2

For example, in our ESCOs, we were able to generate non dialysis cost savings 2019 in the high single digits, which translated into more than double the average savings rates compared to the rest of the industry over the life of the program. With our special needs plan, we have been able to lower mortality by 23% relative to other patients 20%. To give you a better sense of the scale of the business, eighteen. As of today, approximately 10% of our U. S.

Speaker 2

Dialysis patients are in value based care arrangements in which DaVita is responsible for managing the total cost of care. Eighteen. This represents almost $2,000,000,000 of annual medical costs under management. In addition, we have various other forms of value based care arrangement with payers in and the dollars under management. We also expect to see a dramatic increase in the number of CKD lives 2019.

Speaker 2

To prepare for this growth, we are currently scaling up our clinical teams and furthering building out our support function. Because of the investment as well as the delays in cost savings impacts of our model of Care and Revenue Recognition. We expect to incur a net operating loss of $120,000,000 in 2021 in our U. S. Ancillary segment.

Speaker 2

This outcome is consistent with the OI headwinds from IKC growth we called out at the beginning of the year and is, 2019, of course, included in our full year guidance. The doubling of the business next year could result in an incremental operating loss in our ancillary segment of $50,000,000 in 2022. We expect significant improvements in our financial performance beginning in 2023

Speaker 5

20, as we begin to recognize

Speaker 2

savings from the new contract that we entered in 2021 2022.

Speaker 4

2 1000. A

Speaker 3

sustainable driver of significant

Speaker 2

operating income growth. Currently, we serve approximately 200,000 dialysis patients across the country. 19. We utilized over $12,000,000,000 in healthcare services outside of the dialysis facility, including the cost of hospitalization, Outpatient Procedures and Physician Services. In addition, we see an opportunity to manage the care of upstream CKD patients who currently do not 20.5 percent of our dialysis patients eighteen, as well as other CKD patients at low to single digit margin, we believe that this could be meaningful financial opportunity.

Speaker 2

In summary, all of healthcare has been talking about value based for years. We are excited for DaVita to lead the way. Eighteen. With that, I will turn the call over to Joel.

Speaker 6

Thanks, Javier. We had a strong quarter despite 2019. Thank you, David.

Speaker 3

Thank you, David. Thank you, David. Thank you, David. Thank you, David. Thank you, David.

Speaker 3

Thank you, David.

Speaker 1

Thank you, David. Thank you, David.

Speaker 6

Good morning, everyone. Thank you, David.

Speaker 7

Good morning, everyone.

Speaker 6

Thank you, David. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone.

Speaker 6

And continued discipline on cost. For the quarter, operating income was $490,000,000 eighteen and earnings per share were $2.64 Our Q2 results include a net COVID headwind of approximately $35,000,000 similar to what we saw in Q1, primarily the impact of excess mortality on volume eighteen and elevated PPE costs, partially offset by sequestration relief and reduced travel and meeting expenses. 20. Turning to volume. In Q2, treatments per day increased by 0.4% compared to Q1.

Speaker 6

18. Excess mortality declined significantly in Q2 from approximately 3,000 in Q1 2,000,000 to fewer than 500 in Q2. At this point, we are cautiously optimistic that the worst is behind us, eighteen. We're closely monitoring the potential impact of the Delta variant, especially within pockets of the country that have lower vaccination rates.

Speaker 7

20

Speaker 6

2.0 Our U. S. Dialysis revenue per treatment grew sequentially $6 this quarter, primarily due to normal seasonal improvements from patients meeting their coinsurance and Deductible Obligations. We also saw favorable changes in government rate and mix, including the continued growth in the 20.5 percent of patients enrolled in Medicare Advantage. Patient care costs and G and A expense per eighteen.

Speaker 6

Treatment in total were relatively flat quarter over quarter. Our patient care costs decreased sequentially, eighteen. Our G and A increased slightly, primarily due to charitable contributions 2019 and increases in personnel costs. As expected, our U. S.

Speaker 6

Dialysis and lab DSO decreased by approximately six 2nd Quarter 20 2nd Quarter 20 6 days in Q2 versus Q1, primarily due to collections on the temporary billing holds related to the winter storms in the Q1. 18. The majority of the impact of the storms on DSO and cash flow were reversed in Q2, 20. During the Q2, eighteen. We generated a gain of approximately $9,000,000 on one of our DaVita Venture Group investments, eighteen, which hit the other income line on our P and L.

Speaker 6

We have a small investment in Neuromatrix Medical that recently went public. Eighteen. The value of this investment at quarter end was $23,000,000 Going forward, we will mark it to market every quarter. 22. Now turning to some updates on the rest of this year and some initial thoughts on 2022.

Speaker 6

21. As Javier mentioned, we are raising our guidance ranges for 2021 as follows: adjusted earnings per share of $8.80 $9.40 adjusted operating income of $1,800,000,000 to 1.87 $5,000,000,000 and free cash flow of $1,000,000,000 to $1,200,000,000 Also, 2019. We now expect our 2021 effective tax rate on income attributable to DaVita to be between 24% 26%, 2019. Lower than the 26% to 28% range that we had communicated at the beginning of the year. Eighteen.

Speaker 6

These new guidance ranges exclude the potential impact of a significant 4th COVID surge later this year. Eighteen. I'll call out 2 notable potential headwinds during the second half of the year. First is COVID. Eighteen.

Speaker 6

We continue to expect the impact of excess mortality will be higher in the back half of the year than in the first half of the year due to the compounding impact of mortality through 2021. We're also expecting an uptick on costs related to testing, 2019. As a result, we are $250,000,000 That implies a $30,000,000 headwind from COVID in the second half of the year depending on the impact of the delta or other variants and any additional COVID mandate. 2nd quarter. We expect to experience losses in our U.

Speaker 6

S. Ancillary segment of approximately $70,000,000 in the second half of the year compared to $50,000,000 in the first half of the year. This incremental loss is due primarily to new value based care arrangements 2nd Quarter 20 20 2. 22. Looking forward to 2022, we do not expect anything unusual among the primary drivers of the business, including RPT, 2018 cost per treatment or capital expenditures.

Speaker 6

However, we expect pressure on OI growth 22. From the increased spend on growing our IKC business, the possibility of union activity in 2022 2019 that we did not face in 2021 and the 1st year of depreciation expense associated with our new clinical IT platform nineteen that we have been developing for the past several years. We will provide more specific 2022 guidance on a future earnings call. 2018. Operator, let's open the lines for questions.

Operator

Yes, sir. It is now time for the question and answer session of today's call. Our first question comes from Pito Chickering from Deutsche Bank. Sir, your line is open.

Speaker 8

Eighteen. Hey, guys. Good afternoon and thanks for taking my questions. Lead off here on the IKC that you're talking about that you disclosed in the script, $2,000,000,000 of gross revenues and seeing that double in 2022. Can you remind us how that flows through the P and L in both the dialysis segments and other ancillary services.

Speaker 8

When will you begin to disclose these revenues and costs on the P and L so you can model it? 2.5 years, where do you think this can go? Is it a $12,000,000,000 number you referenced in the script? And from a margin perspective after year 1,

Speaker 6

eighteen. Thanks, Pito. I hope I got all that, but please jump in if I didn't catch it. So starting off, in terms of where it is on the P and L, we've got a segment, our strategic initiatives, which breaks down between 20%. The U.

Speaker 6

S. Component of strategic initiatives is an excellent proxy for our IKC P and L. We've Simplified what exists in that segment over the last few years as we've exited some of the strategic initiatives. 2019. So, I think as you think about both revenue and operating income, using the U.

Speaker 6

S. Component of SIs as a proxy for 2019. Our IKC business is a really good way to look at it. So that's number 1. In terms of where this can go over time, look, there are a lot of questions around nineteen.

Speaker 6

How many members we can enroll here, what our savings rate can be, how much of that will ultimately capture. I think eighteen. A reasonably simple way to model it would be to start with something like a third of our ESKD population in this, 2019. And that will give you a medical cost under management. And then the question is what percent of medical cost under management do we think can turn into 2019.

Speaker 6

And I would say a reasonable number would be something in the low single digits, eighteen. Something equivalent to what a typical MA plan would drive as margin. So 1%, 2%, 3%, 2,000,000. Maybe 4% in that range as a percentage of medical cost under management, I think is the right way to think about what the potential for this is in the out years. Peter, I think you had a third question, which I didn't catch.

Speaker 8

Yes. So There's a few questions there in there. I guess, will you guys begin disclosing what those gross revenues are as well the patients under management just to help us model this

Speaker 6

Yes. So, I don't think we're not going to disclose a number that we would call gross revenue. I think the number that 2019. We will disclose what the revenue would be if we used gross revenue accounting, nineteen, which would be the medical cost under management. And we've seen this before.

Speaker 6

Under DMG, there were components of the business 2019. That were gross accounting and some were net, and we would disclose a medical cost under management or something like that, and that's 2,000,000 number that Javier talked about in the script. Okay.

Speaker 8

And then a sort of quick follow-up here on just the Treatment Growth. Can you guys disclose the number of pages you had at the end of 1Q and 2Q? I'm trying to understand what treatment growth is in the back half of the year as the excess 2.0 percent mortality from COVID hoping is behind us. And if we assume they remain at these current levels, is it fair to model treatment growth going positive in the 4th

Speaker 6

Yes. So, look, I think the right number to look at is not patients, but treatments per day. And 2019. Let me try and walk you through. First, the good news is treatments per day grew in Q2 over Q1.

Speaker 6

And I think 2019. A sequential view of it will get you a better model than a year over year view. So, Sequentially, treatments per day grew in Q2 over Q1 about 400 treatments per day. There's a bunch of things going on in there. And so 19.

Speaker 6

Let me try and break it down for you. First, the good news is the new to dialysis treatment starts 20%. So the question that we've gotten in the past about what has happened within the CKD population as a result of 2019. We continue to see strong new to dialysis treatment admissions, so we don't feel any pressure there right now. In terms of Q2 over Q1, Q2 did benefit from the storms in Q1.

Speaker 6

So you'll remember, 20. The storms in from Yuri led to lower treatment volume 2, 000G and A. And so the comparison in Q2 was a positive there. That said, there are a few things weighing on the quarter. 19.

Speaker 6

1st, acute volumes are down as you would expect with the pandemic getting better in Q2 over Q1. 2nd, excess mortality remained above normal. It was well below what we saw in Q1. It 2,000. It came down from 3,000 approximately to less than 500, but it still remained above normal.

Speaker 6

And finally, the mix of treatment days in Q2 was unfavorable. We do fewer treatments on Tuesday, Thursday, Saturdays than we do on Monday, Wednesdays and 20 Fridays, and that had about a 50 basis point headwind in Q2 over Q1. So eighteen. Just to summarize, the good news is we're back to a situation where treatments are growing quarter over quarter. The new to dialysis admissions remain strong.

Speaker 6

That said, there continues to be a bit of noise

Operator

nineteen. Our next question comes from Justin Lake from Wolfe Research. Your line is open, sir.

Speaker 5

Thanks. I wanted to follow-up on the value based care. So, the DaVita's question, it would be great if you can give us those numbers. And Is that going to be just for the government programs? Or are you going to be able to split are you going to also put any kind of MA commercial value based contracting that you have in there that's above and beyond the dialysis side.

Speaker 6

Yes, that would include all of that, Justin. It would include MA, it would include traditional Medicare as well as anything on the commercial side.

Speaker 5

Okay. So that number will be all profitability. And I assume does that include or exclude

Speaker 3

1,000,000,000

Speaker 6

It includes the dialysis number.

Speaker 7

Okay. So the per 2,000. Perfect.

Speaker 5

19. And in turn you mentioned on the call on the in the press release, I should say, That your payer mix changed a little bit to the positive. Can you talk a little bit about commercial volume versus government?

Speaker 4

Justin, the reality is there's not a lot to say. This is a bit of a numerator denominator issue. You had more mortality on the Medicare side and the commercial side held strong 2019 as people really valued their income and their insurance. And so it was a lot more resilient than we anticipated. So That's the dynamic that we're discussing here.

Speaker 4

A couple of other things, Justin, while you were asking about the value based eighteen. And then you have to put in there that the payergoverment have a participation in the savings, eighteen. The nephrologist then has a participation in the savings and that's how you trickle down to the percentages, the 1%, 2% or 3% roughly that Joe talked about.

Speaker 5

Okay. Thanks for that. And can you just give the can you help me with the commercial treatment growth in the quarter?

Speaker 6

I can tell you commercial mix was up about 20 bps in Q2 over Q1.

Speaker 5

Okay, great. And

Speaker 6

then in terms of As a reminder, you don't get as much from that

Speaker 5

20. Okay. And then just last question on you mentioned 2022, I apologize if I missed this, but the tax rate change for this year. Do you expect that to continue in 2022? Or is this a reasonable new tax rate to assume?

Speaker 5

Or

Speaker 6

2019. How it will play out, I think it is reasonable to assume some, if not all of the benefit we're seeing this year 2019. So for 2022, yes, 2023, I'd say no.

Operator

Thank you. Next question comes from Kevin Fischbeck from Bank of America. Your line is open, sir.

Speaker 7

All right, great. Thanks. Wanted to dig into this, the investments that you're making around this value based care. I just want to make sure I had the numbers right. I think you said $120,000,000 this year.

Speaker 7

And eighteen. And then it sounded like you said $50,000,000 Did you say $50,000,000 incremental, so like $170,000,000 or did you mean the $120,000,000 goes to 50,000,000

Speaker 2

Incremental.

Speaker 7

Incremental, okay. Is there I guess, as we think about that number, is that a net number? 2.5% margin on the value based care, is that an offset to that or is that kind of inclusive It's

Speaker 4

a net number.

Speaker 7

Net number, okay. And then it sounded like you were saying that the $120,000,000 included 2019. The CKCC as well. Is that true? And does that number I guess just trying to think about the 120 to 170 And the roll off there, is that all included?

Speaker 6

Yes. So Kevin, the CKCC doesn't start till the beginning 2022, but we will start investing in the back half of the year in anticipation of that growth. So it's not it's expense that we are building in anticipation of growth related to CKCC.

Speaker 7

Yes. Okay. And then as far as the sequential enrollment or treatment growth, I guess it does look like, that's a better way to look at it. It's a lot of puts and takes into that number. I guess, 1, once you get back to normal, what should that number look like?

Speaker 7

I guess like 0.4%, I'm thinking that means 1.6% annualized. Like what do you think When it's all normalized, what is the growth rate in volume? Is it a 2% number? Is it a 3% number? What would it ultimately annualize to?

Speaker 4

I think at the end of the day, Kevin, one of the things is you heard from Joel, there's a lot of different dynamics in interplay. For us, The positive is that we're seeing, let's call it, the new admin stabilize pre COVID. And so the best eighteen. The data we have right now is that we'll revert to the pre COVID numbers. And so I think that's the best assumption and we 20.

Speaker 7

Okay. And it sounds like you're not really seeing anything on the labor side. A number of companies are complaining about labor pressure. Eighteen. I guess, could you talk a little bit about what you're doing there?

Speaker 7

And then, it sounds like you talked about

Speaker 4

eighteen. Yes. So let me grab a couple. We're not going to complain about the pressure, but it's absolutely there. Nineteen.

Speaker 4

It is a very dynamic and competitive marketplace. We continue to invest in a differentiated workplace 2019. And I find that our teammates find great fulfillment in the purpose of the work that we do. That said, again, the marketplace 2019. As it relates to the second question, yes, we're talking about, the union might come up with another ballot.

Speaker 4

And that it is not a good use of the resources, but we just want to continue to talk about it, so no one's surprised.

Speaker 7

Yes. Okay. And then last question. I guess, as we think about the Growth in the value based care opportunity. Is what you're doing differentiated?

Speaker 7

Do you think that there's going to be share shifts nineteen. As a result of this, are other smaller players or midsized players going to struggle to do what you're doing and you're resonating with the payers and so you can actually see Volume lift from this or is this kind of where the industry is going and your push into this is largely kind of The same, so that you wouldn't expect it's just really more about the revenue and the margin than it is about gaining share.

Speaker 4

It's an interesting play. From our perspective, we believe that we're really well positioned. And of course, there's a lot of dynamics on Volume and mix, how a patient gets to us all the way from a patient choice to a payer Choice to physician. And so that dynamic has got a lot going on. Can the whole Chain there, really see the value that we create.

Speaker 4

I think that over time, the answer will be yes, because the clinical outcomes will show it eighteen. And there will be transparency where people say, gosh, if I can live there longer, if I can get more transplants, if I can get my CKD and not be hospitalized, 2019. I want to go there, but as you know, that takes time. And so from my perspective right now, I'm not assuming 20%. A change in sort of a shift in decision making until this plays out a bit more.

Speaker 7

All right, great. Thanks.

Operator

2. Thank you. Our next question comes from Lisa Kley from Bernstein. Your line is open, ma'am.

Speaker 9

19. Apologies if I missed it in the prepared remarks. So what did you say your vaccination 19. Have you been giving 3rd doses for selected patients given that the immunocompromised seems to not respond as well to the 2019 in terms of the efficacy. And then lastly, are you still testing patients and teammates before every session and just wondering how that is going to evolve in the coming quarters.

Speaker 4

All right. Well, let me grab them and then if I miss The patient vaccinated complete with 2 doses is around 72% or so. 2, 000G and A. Teammates is in the 68%. We're starting to tracking those people that intend to get a vaccine, And we're tracking somewhere in the 1% or 2% that are either thinking of getting in or in their first cycle.

Speaker 4

To my knowledge, there's nothing of significance in the 3rd dosage yet in our population. And so I know that the physician community is discussing it, so but I don't have any major numbers on that. 2019. And then what was your last question?

Speaker 7

Just in terms of

Speaker 4

that? The testing, we didn't test all the patients. I think that was in the assumed eighteen. What we do is, we, of course, test anyone that has any symptoms. 20.

Speaker 4

And then of course, our patients get tested a lot more because they're using so much healthcare that when they go to other physician 2023. Offices or hospitals or other things, they get tested. So, they're disproportionately tested,

Operator

Thank you. Our next question comes from Pito Chickering from Deutsche Bank. Your line is open, sir.

Speaker 8

Eighteen. Hey, guys. Thanks for taking some follow ups here. Let me go back to the IKC piece, as investors are a bit confused on these disclosures. Eighteen.

Speaker 8

My understanding today is you collect $2,000,000,000 of sort of gross revenues, about half of that is located in the dialysis costs and the other half are in medical costs

Speaker 6

Either way works. We've decided to standardize on the full cost, but either way is perfectly

Speaker 8

Okay, perfect. And then let me actually hit one on patient care costs.

Speaker 2

Obviously, with a lot

Speaker 8

of investor concern around labor inflation, so during 2Q, obviously, your cost per treatment were down sequentially, driven by a number of areas. But eighteen. As I think about for patient care costs over the next couple of years, can you give us additional color on what can drive further efficiencies here,

Speaker 4

Well, let me grab it. As it relates to the inflation, of course, we've been 20. Over time, if you do our CAGR over the last 5 years or so, I believe we're right at 1 1% or so, slightly below. And so we view the levers quite thoughtfully over time. In there, we're managing, in essence, pharmaceuticals, we're managing productivity and, of course, 20.

Speaker 4

Wage rate when there's other things like supplies and other miscellaneous items, which we are very diligent on. So we don't think those dynamics will change much other than during COVID, of course, the PPE has gone up dramatically, eighteen. And we hope that that stabilizes over time. As it relates to the wage inflation, we have nothing really particular to say about it. We are another player in this really dynamic marketplace and it feels like it's shifting quite aggressively right now.

Speaker 4

2019. Is that a short period or does that sustain itself? So I don't think I can comment on the multi year. It is fair to say that we are aggressively eighteen. Looking at all the pharmaceutical and all the options to make sure that our physicians have the choice of their pharmaceutical, but at the best price possible.

Speaker 4

So I don't know if that got to all of your questions. I think the last part of it was around capacity utilization. Eighteen. And of course, we are watching it very aggressively. We went from a time where we were very aggressive on the de novo build to, as you can see, We really tapered that back and we're building a lot more home centers, which are a lot more capital efficient.

Speaker 4

Eighteen. We will keep that sort of balance in check because we know the patients need the interplay between the home and the center. And so there needs to be that capacity available. And as we lost here roughly 5% of our patients

Speaker 8

2,000 Okay. And then sort of last follow-up question for you on the IKC, at least for now. Eighteen. Is it fair to think about the operating income in the Dialysis segment being unchanged

Speaker 6

20. Yes, I think that's fair. We are trying to

Speaker 3

20%.

Speaker 6

We'll present this in a way that represents the fact that the business is they're not independent insofar as they are intricately 20. They are linked and that's why we think and we're excited about our opportunity to win in IKC, but trying to present them as separate income statements, if you will, so you can assess how is the core historical dialysis 2019 business doing and how is the new IKC business doing?

Speaker 8

And then last one here, is it fair to think that kind of as you roll into sort of 3rd quarter

Speaker 6

We're taking a careful look about what's the right level of disclosure as

Operator

Thank you. There are no further questions in queue at this time.

Speaker 4

Okay. Well, thank you, Missy. Let me 2019. Make a couple of closing comments. Number 1, our core business is strong.

Speaker 4

Number 2, we are entering an exciting and dynamic time Point 3, the clinical and the economic prices are absolutely meaningful and like most valuable prices, 20.4, if for whatever reason we cannot accomplish 2, 000G and A. The economic risk is limited structurally because there are termination rights and off ramps. So in summary, there's a big price with limited downside. So hopefully, that helps you think 2019. We thank you for your support, and

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