DaVita HealthCare Partners Earnings Call Nuggets: Integrated Care Model and New Contracts

DaVita HealthCare Partners Inc (NYSE:DVA) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Integrated Care Model

Matt Weight – Feltl: Kent, you’ve spent years working on an integrated care model, so I wondered if you could provide a little bit more specifics where the actual shortcomings are that would cause you not to participate?

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Kent J. Thiry – Co-Chairman and CEO of DaVita HealthCare Partners Inc.: Yeah, I’d be happy to and you’re right. I’ve been waiting for and hoping for this for a long time. Let me list off a couple of the issues. Number one, and these are not in order of importance and again in some instances their language is ambiguous and so we need to clarify on that hand. So it’s not so ambiguous. Their methodology penalizes those people who had better outcomes and therefore lower cost in the past and of course for us that’s a big problem given how differentiated our quality is in some of the areas. Number two, the actual benchmark methodology they use and how they treat the base line groups and how they think about mortality appears to be fraud in a way that doesn’t work in a population like kidney care. Third, they are talking about rebasing in a very near-term, and given the investment required particularly on a subscale set of pilots like they appear to be contemplating. You don’t have time to make the investment and get a return before they are talking about rebasing. And fourth, they also have some explicit economic discrimination against the larger organizations which we think makes no philosophical or pragmatic sense and penalizes the physician that were associated with penalizes the patients that we take care of and just as it make philosophical sense either. So, there is four example, now given the thoughtfulness that they have brought to so much of this for so long, we hope that through constructive conversation with them they will realize that what they have here can get in the way of thousands of human beings getting better care in a totally transparent fashion that would save the taxpayers in a very quantifiable in demonstrable way a lot of money. So, I want to emphasize we have not given up hope at all after 10 years of working on it, we are not going to give up that quickly, but we were a little bumped out by some of the – a little, we were very bumped out by some of the provisions.

Matt Weight – Feltl: It did sound like there was going to be a common period. So, how can I swear that was kind of what conversations you guys are having with CMS?

Kent J. Thiry – Co-Chairman and CEO of DaVita HealthCare Partners Inc.: Even if there is not an official common period, they have the right to make adjustments if they decide to and we hope they do.

Matt Weight – Feltl: Switching over to a little bit to HCP, can you give us an update on the ABQ acquisition and maybe kind of shed some of the – what you may have learned but some of the difficulties you had over there?

Kent J. Thiry – Co-Chairman and CEO of DaVita HealthCare Partners Inc.: It’s a fair question, Matt. We don’t want to go into a lot of detail despite the legitimacy of the question because it isn’t that big a deal and we’ve already acknowledged that it expose the fact that we – as we had already indicated before it happened. We knew we had to work on our new market capability and so you’ve got sort of the macro point and there has been a lot of learning’s on a micro point basis, but it’s not really in I think our shareholder’s best interest that we go into also to detail to talk about an ongoing market spat.

Matt Weight – Feltl: With that said, with that slow, does that impact how you think about future new market acquisitions?

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Kent J. Thiry – Co-Chairman and CEO of DaVita HealthCare Partners Inc.: Well, yeah, I guess yes and no. Yes, in the sense that we are now having to spend more time there than we thought and that chews up some of the people that would otherwise be working on other new markets because we’ve had so many people contact us, someone to talk to us, so yes in that sense. It changes our deployment of scarce resources. No, in the longer term sense, not one bit.

Matt Weight – Feltl: I have got last question here, I will jump off. With the (orals) being delayed until 2016, I’ve heard some talk about trying to get some momentum to bring that in potentially a little earlier than 2016. Anything possible with that and how disappointed were you with that getting pushed out to 2016?

Kent J. Thiry – Co-Chairman and CEO of DaVita HealthCare Partners Inc.: The answer to the second question is we were very disappointed not because of reimbursement because we didn’t even know what reimbursement was going to be, rather because that we know that we’ve proven that we can improve the care of our patients and save taxpayers money, even if you held reimbursement equal to cost. So we were disappointed. And then as to whether or not some of the stuff going on in DC about changing it will get any traction, I think that’s anyone’s guess. We don’t have any particular insight and we’re actually much more focused on all these other things.

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Matt Weight – Feltl: Thank you.

Kent J. Thiry – Co-Chairman and CEO of DaVita HealthCare Partners Inc.: Thanks a lot Matt. And sorry, it doesn’t make sense to go into more detail on the Albuquerque situation.

Matt Weight – Feltl: Understood.

New Contracts

Kevin Ellich – Piper Jaffray & Co.: I guess first starting off with HCP. I was just wondering in the other revenue segment, which was $24 million, what does that consist of and then on top of that do you guys still own the Camden Group?

Matthew Mazdyasni – EVP and CFO and CAO, Healthcare Partners: Yes. This is Matthew Mazdyasni. That is – the answer to your second questions is yes, we do own Camden Group and that revenue, some of that is in that line plus we have other management fees where the joint venture we have. So that’s all reflected in that line item.

Kevin Ellich – Piper Jaffray & Co.: Is the Camden the majority of that $24 million, or do we want to get to that level of specificity?

James K. Hilger – Interim CFO and CAO of DaVita HealthCare Partners Inc.: No.

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Kevin Ellich – Piper Jaffray & Co.: And then what percent of clinics Kent, so you think would shut down or close if you are basing goals through in 2014?

Kent J. Thiry – Co-Chairman and CEO of DaVita HealthCare Partners Inc.: fair question but impossible to answer without knowing the actual number of rebasing. Is it just literally impossible to answer.

Kevin Ellich – Piper Jaffray & Co.: Jim Hilger made a comment on the international discussion, saying that you guys are bidding on some more contracts. Just wondering if you could provide anymore color behind that.

Kent J. Thiry – Co-Chairman and CEO of DaVita HealthCare Partners Inc.: What’s happening across the globe and part of why we decided to do this and I hesitant to add if was a better CEO, we would have started doing this 6 or 7 years ago, but one of the reasons we decided to do it now is because there is a lot of governments deciding that they need to guarantee funding for dialysis because the global transparency around healthcare is leading a lot of people to find out it exist and with it you live in and without it you die and when it’s low quality it’s not nearly as good for instance high quality and so that creates a lot of pressure and then as soon as government realize that there is going to be a fair amount of it and they got to figure out where to fund it. They want to get out of the business of actually providing it for all sorts of reasons including the fact that they are not that good at yet and they don’t like being accountable for things like that. And so across the globe, you have more government focused on creating supply of quality dialysis as a real policy objective. In the same way that in America 20 and 30 years ago you had similar thoughts and similar actions, and so in those cases sometimes when government hospitals have been providing a lot of this care, they issue outsourcing contract proposals where they will make a decision to transfer a whole bunch of patients from their organization to someone else’s. Those are the kind of things that we’re competing on.

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Kevin Ellich – Piper Jaffray & Co.: Then two last questions on HCP. First off, the ratio of patient care cost as a percent of total segment net revenues, which was 71.1%. Should we think about that as kind of a medical loss ratio? Is that the right way to think about it?

Dr. Robert J. Margolis MD – Co-Chairman of DaVita HealthCare Partners Inc. and CEO of HealthCare Partners: Kevin, no because that does not reflect all the institutional revenue and cost because we are showing in some of our markets the net number. So, I wouldn’t want that to be confused with the medical loss ratio.

Kevin Ellich – Piper Jaffray & Co.: Okay. Appreciate that. Just trying to get a better understanding and then I think tonight ends the Medicare Advantage I guess disenrollment period. Are you guys expecting any changes or many changes?

Dr. Robert J. Margolis MD – Co-Chairman of DaVita HealthCare Partners Inc. and CEO of HealthCare Partners: We don’t. We usually – there is that 45-day period that the patients can disenroll, but we have not seen since the open enrollment was instituted few years ago a significant drop. As a matter of fact, in some of our markets, it’s close to none.

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Kent J. Thiry – Co-Chairman and CEO of DaVita HealthCare Partners Inc.: Let me just add, while we are in conversations with several governments across the globe, I wouldn’t want anyone getting overly optimistic about the timing. Often governments, separate from our own, miss their deadlines. So we needed to highlight to you the fact that there might be one in particular that has some significant investment, but if history is any guide, it’s more likely that it won’t onto the next question please operator.

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