DaVita at Barclays Healthcare Conference: Strategic Insights Amid Challenges

On Tuesday, 11 March 2025, DaVita HealthCare Partners Inc. (NYSE: DVA) presented at the Barclays 27th Annual Global Healthcare Conference. The company outlined its financial strategies amid challenges such as fluctuating treatment growth and potential subsidy expirations. DaVita expressed cautious optimism about maintaining its financial targets while navigating these complexities.

Key Takeaways

• DaVita aims for a 3% to 7% operating income growth despite flattish treatment volumes.
• The transition of oral phosphate binders to the SEDAPA program could add up to $50 million in profitability.
• Potential expiration of ACA subsidies may pose a $75 million to $120 million headwind.
• International acquisitions, especially in Latin America, are expected to drive growth.
• DaVita’s ITAC business is focusing on profitability with a breakeven target by 2026.

Financial Results

• Treatment growth is expected to be flat, but operating income is targeted to grow by 3% to 7%.
• Revenue per treatment is increasing at around 3%, while cost per treatment is rising by 4% due to wage inflation and turnover.
• The commercial mix remains stable at 11%, with slight growth anticipated from exchanges.
• International segment EBIT is projected to increase by $50 million this year.

Operational Updates

• The integration of oral phosphate binders into the SEDAPA program is progressing smoothly, with profitability dependent on volume and drug mix.
• Clinic closures impact patient retention but are not factored into treatment growth projections.
• Home dialysis penetration is at 15%, with challenges in increasing this due to preferences and logistical issues.

Future Outlook

• DaVita anticipates eventual recovery in treatment volumes, though exact timing remains uncertain due to admission and mortality rate variances.
• The potential expiration of ACA subsidies could significantly impact new dialysis patients.
• International growth is expected to outpace U.S. growth, driven by high organic growth and margin expansion.
• The ITAC business aims for profitability by 2026, prioritizing breakeven over rapid growth.

Q&A Highlights

• Treatment growth is sensitive to small changes in admissions and mortality rates.
• The company foresees benefits from new reimbursement for oral phosphate binders.
• DaVita’s agreement with Berkshire Hathaway on share repurchases will continue if Berkshire sells shares.
• Labor market challenges persist, with high turnover and wage pressures.

Readers are encouraged to refer to the full transcript for a detailed account of the conference call.

Full transcript - Barclays 27th Annual Global Healthcare Conference:

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Hi, good morning. Welcome back to the Barclays Global Healthcare Conference. My name is Andrew Malcolm, the Facilities and Managed Care Analyst here at Barclays, and I’m pleased to be joined on stage with Joel Ackerman, CFO of DaVita and Nikolas and Group Vice President of IR. Welcome to the conference. Thank you.

Let’s start with volumes. Last year at this time, you were guiding to 1% to 2% treatment growth. You finished the year close to flat and now you’re guiding to another year of flat treatment growth. On the one hand, I think it’s remarkable that you’re able to exceed earnings to the extent you did without treatment growth, but why does the visibility into treatment growth seem more clouded today than it did even just a year ago?

Joel Ackerman, CFO, DaVita: Yes. I don’t first, thank you for having us here and hello everyone. I don’t think it’s more cloudy. I think it’s not more uncloudy or more visible than it was. I don’t think our visibility though has deteriorated.

That said, look, we got it wrong last year and we didn’t want to get it wrong again. So, we put out flattish without a range, which we thought was a prudent way to approach it. Volume is challenging for a few reasons. One, we’re talking about very small numbers. People are asking about us about ten, twenty, 30 basis point moves, which are tiny in underlying variables like admissions, like mortality that historically have been quite volatile.

So, the signal to noise ratio is quite low. We’re talking about dynamics that are happening upstream from us, which is admissions with CKD4 patients and then downstream from us, which is mortality. Remember, these patients aren’t passing away in our clinics. They’re leaving our clinics. They’re not getting discharged.

You don’t get discharged from a dialysis clinic typically. You just you don’t show up. And then we have to go and try and find that mortality data, both who passed away and why. So, I think for those reasons, these analytics are challenging, but I wouldn’t say they’re less visible than they were a year ago.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Got it. So you’ve embedded the flat treatment growth, but is there an expectation at least internally that these volumes should recover? I think you’ve been saying this for a few years now. So is there kind of a disconnect on what you think and what you might have in the guide?

Joel Ackerman, CFO, DaVita: So, I don’t think the disconnect, but I do think, yes, we do think volumes will recover. We think the dynamics that are affecting us today will ultimately prove to be transitory. And as you said before, we’ve been able to continue to deliver on our financial guide of 3% to 7% OI growth even without the volume. So we think those two things will continue to be true. We’ll get back to 2% volume growth and we can deliver 3% to 7% for a few years even without the volume.

On the volume, we’ve just been unwilling to speculate about when we think we get back there.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Right. And you’ve called out mistreatments and mortalities as factors weighing on the treatment growth, but haven’t really attributed anything to closed clinics, which accelerated in the back half of twenty twenty two and throughout 2023. When you close a clinic down, you’re not retaining 100%, right? So that seems to me like one of the more logical explanations for the lack of treatment growth. Why is that not the case?

Joel Ackerman, CFO, DaVita: So, look, I think you’re right. Closing clinics, we don’t retain 100% of the patients and the dynamic is even more complicated than that. Sometimes you retain patients, but ultimately they’re not getting shift they want, so they’ll end up leaving not immediately. There are admissions you may not get that you would have gotten had the clinic been open. So it’s a complicated dynamic.

Now that it’s been some time, the further you get away from the event, the harder it is to measure that those kinds of things. So we haven’t put it in our calculation.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Got it. Okay. Let’s shift to oral phosphate binders, which have historically been reimbursed through Part D and will now be reimbursed under SEDAPA for a few years before they enter the bundle as part of Part B. So you included $0 to $50,000,000 benefit in the guide for the first year of phosphate binders. How do you arrive at that number and what are some of the key swing factors at the bottom and top end of that range?

Joel Ackerman, CFO, DaVita: Sure. So, we build it up the dynamic in TEDAPA as you pointed out is different than in the bundle. It’s actually more complicated because it’s patient by patient and drug by drug calculating what ultimately the profitability will be. I think there are really three major swing factors here. One is volume.

What percent of the eligible patients will ultimately be on the drug? And history may not be the best guide there because now that patients actually benefit from orals being in the bundle, more patients will have access and the economics will be better for the patients. So, we think there may be some volume growth associated with that. So, that’s one. Second is mix.

These drugs range from very cheap generics to very expensive branded drugs and the mix will have a big impact on our profitability. We get paid a different amount from CMS for each of these drugs and we negotiate separate contracts with the different drug manufacturers, so our margins differ by drug. And the third are our internal costs of implementing this program, and that’s everything from bad debt to a whole slew of other costs associated with the delivery of the drug and the ultimate management of the program. So, I’d say those are the three big swing factors, and I think we’ll know a lot more about that over the coming quarter.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Can you share anything about the mix of your patients today or what do you need to get more visibility into the mix?

Joel Ackerman, CFO, DaVita: So, it’s a majority generic, but small swings in the mix, especially on the branded drugs can have meaningful impact on the different margins. So, that’s something we really need to see. Remember, we’re not prescribing these drugs. These are choices that physicians make and see how the physicians choose to choose the different drugs now that the formularies have changed and the access is better for the patients remains to be seen.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Understood. And maybe lastly on this topic, how would you compare the transition of oral phosphates now to the transition of calcimimetics from 2018 to 2020?

Joel Ackerman, CFO, DaVita: I’d say operationally, very similar, very smooth. We have just a remarkable team operationally. I think it’s one of the things David does so well is being able to anticipate the challenges roll through all the necessary changes, everything from IT to clinic level operations to reimbursement. And I think it’s gone quite smoothly.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Great. And if we adjust for phosphate binders out of your RPT revenue per treatment and cost per treatment, I think RPT is tracking close to 3%, cost per treatment is tracking close to 4%. Why is that underlying unit revenue cost spread a bit wider than we’re used to seeing?

Joel Ackerman, CFO, DaVita: Yes, I’d say probably the single biggest dynamic is that labor and inflation are running higher than they were pre COVID. And when I say labor, I mean wage rate inflation and other inflation. And while our reimbursement is up, we have not gotten reimbursement rates high enough to completely offset that. So we’re dependent on driving efficiencies in the cost structure to offset that. And it’s just it remains a more difficult environment.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Right. And you saw some nice benefits to RPT and revenue cycle management, both in 2023 and 2024. Can you help us understand what’s embedded in that 3% RPT number for 2025? Are there incremental or annualizations of benefits from 2024? And I think you also made increased investments in G and A late in the year last year.

Should we expect to see incremental gains on those investments in 2025?

Joel Ackerman, CFO, DaVita: Yes. So, the 3% is rate increases, mix and then some annualization of the benefits we’ve seen in our revenue operations. In terms of the G and A, I think part of G and A is revenue operations. It’s actually a fairly big chunk of our G and A number. We continue to invest in there.

I think we have certainly picked the low hanging fruit and even some of the middle hanging fruits that we’re going up after the apples at the top of the tree now. There’s probably a little bit left, but I wouldn’t expect continued benefits in our RPT from the revenue operations that we’ve seen in the past. Great.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: And you mentioned mix is contributing to the RPT growth. What are you seeing? What are the latest trends you’re seeing in commercial mix? Where did it end the year? And what’s the underlying assumption for 2025?

Joel Ackerman, CFO, DaVita: Yes. So commercial mix continues to be at around 11%. For 2025, we think it’ll grow a little bit, largely driven by continued growth in

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: the exchanges. Got it. Okay. Maybe sticking on the exchanges, you previously laid out a multi year headwind of about $75,000,000 to $120,000,000 should the enhanced ACA subsidies expire. Would love to dig into the underlying assumptions here.

So one, what level of attrition would you expect if industry enrollments down, call it 20 or so? And how would you contrast the decision and likelihood for your patients to keep ACA coverage versus the broader market?

Joel Ackerman, CFO, DaVita: Right. So, first, on the range of $75,000,000 to $120,000,000 we still think that’s a good range. We think we’ll be towards the high end of the range because of the growth in the exchanges that we’re seeing early this year. I think the right way to think about it is to bifurcate what happens with our existing patient base at the beginning of twenty twenty six versus new patients, new incidence of dialysis. We think for our existing patient base, they’re likely to stay on the exchanges for the same duration they would have even without the enhanced premium tax credits.

Our patients tend to inertia tends to bring them along with where their coverage is. They tend to prefer commercial over Medicare. And many of these patients because of the they’ll still have premium tax credits, they just don’t have the enhanced ones. MA will be the most economically advantageous coverage for them even relative to Medicare fee for service. QHP.

You said MA there. Yes, QHP. Sorry. Thank you, Nick. So, we think the ones we have, they’ll trip the way they normally would and most of them will be back on will be on Medicare after call it three years, but it’ll take some time.

And what we expect to see though is for incoming patients, a much lower utilization of the exchanges. And that’s where and as that becomes the dominant component of our population and the ones who are prevalent at the beginning of 2026 decline, that’s how that’s why we think it’ll take two to three years for us to feel the full impact of this rather than a cliff decline at the beginning of 2026.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Right. So okay. So there’s no cliff decline event. Are you is there other premium assistance available to those patients? Just trying to understand why they wouldn’t see the economic sensitivities there.

Joel Ackerman, CFO, DaVita: There could be other premium assistance. Some of them could go on eGHP. Some of them there are other alternatives for them. And it was probably one of the biggest lessons we learned at the beginning of COVID when you might remember a big concern at the beginning of COVID was what was going to happen to commercial mix and patients were very resilient in finding ways to maintain commercial coverage.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Right. Okay. So you think the same factors would be at play for ACA coverage for 2020. Great. Moving on, I do want to hit on this topic.

There is an existing share repurchase agreement with Berkshire Hathaway to keep their ownership limited to 45%. There was a big transit or there was a transaction outside of that share repurchase agreement last month. Can you help us understand, one, the mechanics of the original agreement and two, any color you can add around the transaction that occurred outside of that agreement?

Joel Ackerman, CFO, DaVita: Sure. So, this agreement that you’re referencing was put in place a few quarters ago. It was in many ways a continuation of the agreement we’ve had with Berkshire. The old agreement prevented them from buying stock in the open market as their percentage ownership grew because of our share buybacks, we put in a new component whereby every quarter we would measure their ownership percentage. And if it went above 45%, we would buy shares from them to bring their ownership back down to 45%.

This happens every quarter. A couple of days before the earnings call, they get paid the same weight average price as we pay as we use for buying back stock that quarter. That test was the first time they went above 45% was in February. So, we bought back a couple of hundred thousand shares from them right before the earnings call. Then as you mentioned a few days later, they filed a Form four disclosing that they had sold 750,000 shares.

We really don’t have anything to add about why they did that. I’d recommend calling them if you want to understand their thought process. In terms of how this plays out going forward, it depends on what they do. If they don’t sell any additional shares, the likely impact is as our share buyback program plays forward, we will continue to buyback shares from them and they will remain at that 45 plus or minus ownership level. And the fact that they sold in the open market will only offset shares we would have otherwise bought from them through the established mechanism.

That’s again assuming they don’t sell more shares. If they continue to sell shares, again, it will depend on how many they sell. If it’s below what we otherwise would have bought them, it doesn’t have an impact on their ownership level. It just changes the dynamic of where they’re selling, whether they’re selling to us, whether they’re selling in the open market. And for us, it just impacts whether we’ll buy more from them or we’ll buy more in the open market.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Right. Understood. So presumably, to the extent they keep selling and reduce their ownership below 45%, it just means more open market share repurchase for your company. Exactly. Moving on to the Latin America acquisitions.

I think you acquired about $400,000,000 in revenue or so and are expecting international segment EBIT to be up $50,000,000 or so this year. That guidance would imply something to the tune of low double digit EBIT margins, which looks very attractive compared to the rest of the international portfolio. Can you comment on that integration and how you’re able to achieve that outcome this quickly?

Joel Ackerman, CFO, DaVita: Yes. So, there are a bunch of dynamics going on in that 50,000,000 OI growth for international for the year. One is a provision we took in 2024 for AR in Brazil and that relates to our existing business. It has nothing to do with the business we acquired from Fresenius. The Brazil component of that acquisition hasn’t even closed yet.

And then there’s obviously organic growth. So I don’t think you can take the $50,000,000 divided into the $400,000,000 and make a conclusion about the margins. I think we would expect the margins on this business to be similar to the margins we’ve seen in our existing business. But it’ll take time. These some of the countries, two of them closed earlier in 2024, mid ’20 ’20 ’4.

So we got part of the benefit in 2024 already, one closed at the very end of 2024 and the last one Brazil hasn’t closed yet and isn’t going to close for a few more months probably. So the number is not quite as clean on the year over year as you would think.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Got it. So that but that does imply some pretty significant growth in the international business on the kind of core portfolio outside of the acquisitions. Anything to add on there in terms of what you’re doing to drive better performance?

Joel Ackerman, CFO, DaVita: Look, international has always been a higher grower. It’s got more organic growth. The volume growths are higher. I think we have more margin expansion potential in international than we do in The U. S, because it isn’t scaled in every country.

So, we continue to be excited about international, but I wouldn’t expect $50,000,000 a year as our run rate OI improvement. It’ll be

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: a lot lower than that. Got it. Okay. You’re now a few years into the ITAC business. We’d love to hear your early learnings from this business is going upstream to serve patients.

Does that increase your visibility into the late stage CKD population? And are you seeing anything incremental that helps inform your view on the volume outlook?

Joel Ackerman, CFO, DaVita: Yes. So, I would say the big learnings, one, it’s a tough business. It is hard to change patient behavior. And I think because these many of these patients are in our clinics, we have the ability to interact with them more easily than others might and that’s a real advantage. I think our relationship with the nephrologist is an advantage, but no one should think this is easy.

So that’s number one. Second, there’s a lot of variability in it. I mean, you follow the managed care industry, you know how much variability they’ve had in their business recently. A lot of those same dynamics apply to our business maybe on different timeframes, but we’re managing $5,000,000,000 of costs. So small percentage differences in that can have big changes for our bottom line.

And third, I think the other learning is that it is a great opportunity for our patients, for our physicians, for the whole system and for DaVita. It’s really a win win win across the board, if we can get this to really work at huge scale. In terms of CKD, CKD is harder for us than ESKD. These patients aren’t coming to our clinics. By definition, they don’t have renal failure yet.

I think we learn a lot about the dynamics of CKD and in particular about the transition from CKD to ESKD. I don’t think we have enough scale to really come to any conclusions about what’s happening with volumes and admit growth in the CKD population. We’d need a much larger business to really have enough statistical just scale to figure that out.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: And then I guess from our seats, it’s a little bit difficult to measure the progress of some of these programs. What are the key markers and KPIs that we should be monitoring here? And how do you think the earnings contribution of this business will evolve over the next several years?

Joel Ackerman, CFO, DaVita: Yes. So, look, I think growth is an important one, and we disclose medical cost under management and the number of lives. And we’ve seen a lot of growth recently. We’re anticipating less growth in the near future. I’d like to quote a managed care executive who I worked with for many, many years and he used to say, it’s easy to grow an HMO and it’s easy to get an HMO profitable.

It’s doing both at the same time that’s challenging. And our focus right now is more on achieving profitability, breakeven rather than on growth. So that’s the number one metric I would point to. And the second one would just be the bottom line. And we’ve to your other part of your question, we’ve set out a target of getting to breakeven by 2026, and we continue to view that as the right target for us.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Great. Maybe with the last few minutes here, a couple of follow ups on some of the earlier questions. You mentioned wage inflation driving higher CPT for this year. Would love to hear your perspective on the broader labor market. How does the labor market kind of the post pandemic labor market compare to the pre pandemic labor market?

Where are you seeing the greatest challenges? And when you do lose some of your employees, like where are they going?

Joel Ackerman, CFO, DaVita: Yes. So I’d say I’d point to two big challenges. One is just wage rate pressure, which remains higher than it was pre COVID and the other is turnover. And the way you see turnover in our P and L, the most explicit is in training productivity, which is expensive. I mean, it takes the better part of three months to train a patient care technician and then if they turnover, that’s really three months of unproductive compensation.

So, those that’s kind of the difference that we’re seeing right now is continued wage pressure and higher turnover.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Got it. And then home dialysis is a topic that we haven’t been talking as much today as maybe we were five years ago when some of these programs were implemented. I think there was a target at one point to get to 25 penetration. Where is the latest where does the latest penetration stand on home dialysis? And what’s holding back the industry from getting to those higher levels of penetration?

Joel Ackerman, CFO, DaVita: Yes. So, our penetration took a dip in Q4. There were some PD supply issues, peritoneal dialysis supply issues associated with the hurricane at a big facility in North Carolina. But we think that will rebuild back into the 15% plus. In terms of the 25% goal, I think we always knew that was aspirational.

And the challenge really, I think, ultimately lies with the patients and the physicians. Home dialysis is a great modality for many patients, but not all patients. It’s a challenging modality. It’s not about a nurse or a technician coming to your home. It’s about self care.

And there are a lot of patients for whom it’s not appropriate, a lot of patients who go on home dialysis, but ultimately wind up in the clinic. And there are some physicians who remain uncomfortable with the modality. So, we’re investing a lot of money and a lot of effort to continue to grow that and make sure patients get access to the right modality for them. But I think it remains a challenging goal.

Andrew Malcolm, Facilities and Managed Care Analyst, Barclays: Great. Well, we’ll leave it at that. We’re out of time here. Thank you so much for joining and please enjoy the rest of the conference.

Joel Ackerman, CFO, DaVita: Thank you. Thanks everyone.

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