德維特 (DVA) 2005 Q3 法說會逐字稿

Good morning. My name is Dusty and I will be your conference facilitator. [OPERATOR INSTRUCTIONS] Thank you, Ms. Zumwalt. You may begin your conference, ma'am.

Thank you, Dusty, and welcome everyone to the DaVita third quarter conference call. We appreciate your continued interest in our Company. I'm LeAnne Zumwalt, Vice President of Industrial Relations, and with me today are Kent Thiry, CEO, and our acting CFO, Tom Kelly.

I will start with the forward-looking statement disclosures. During this call we may make forward-looking statements, which can generally be identified by the content of such statements or the use of forward-looking terminology and include statements that do not concern historical facts. All such forward-looking statements are subject to known and unknown risks and uncertainties that could cause the 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 annual report on Form 10-K and our most recent quarterly report on Form 10-Q. Our forward-looking statements are based on information currently available to us and we tak -- undertake no obligation to update these statements, whether as a result of changes in underlying factors, new information, future events, or other developments.

Additionally, our press release and related disclosures include certain non-GAAP financial measures. These measures should be considered in addition to the results prepared in accordance with GAAP, and should not be considered a substitute for GAAP results. Also included in the press release is a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures.

I'll now turn the call over to Kent Thiry.

Thank you, LeAnne. We'll start off by addressing five specific areas before going to Tom Kelly, who will reflect on the economics in more detail. Area number one are clinical results; number two, the Gambro deal and integration; number three, public policy; number four, the third quarter performance; and number five, the outlook for Q4 and '06.

First, clinical results. With respect to them, we'll provide the same two scores we have historically, including most particularly, last quarter. Adequacy, which is essentially how well we are doing at removing toxins our patients' blood, 94% of our patients had a Kt/V greater than 1.2 in the third quarter. The second measure is the percent of patients who have had fistulas placed for the access to their bloodstream and dialysis. We'll repeat the explanation of why this is important.

Fistulas have a lower rate of infection and require less frequent revision than any other type of vascular access for the dialysis, so it's very good for the patient and it's very good for the tax payer. The importance of this area is reflected by the fact that CMS itself made fistulas one of its primary areas of focus and, in fact, launched a program called Fistula First. Our own fistula initiative preceded CMS's by a couple of years, and as of September, we now have 46% of their patients receiving their dialysis treatments through a fistula. Incidentally, the clinical stats I have presented relate to patients who have been with DaVita for 90 days or more.

Second big topic area, the Gambro integration. What are the key integration challenges? There are six; Number one, the CIA; Number two, IT; Number three, revenue operations; Number four, private contracting; Number five, operating policies and procedures; Number six, clinical protocols. It is way too early to do any significant handicapping of how we are doing across those six, but in the interest of trying to be helpful, we will, nevertheless, do some out of the gate handicapping. Number one, the CIA, we are doing fine. Number two, on IT, we are doing fine. Number three, on revenue operations, we are behind. Number four, on private contracting, it is simply impossible to say anything this quickly. Number five, on operating policies and procedures, we are fine. Number six, on clinical protocols, simply too soon to say anything.

One very significant piece of good news is that the new combined IT system will include within it enhancements, which will make it clearly superior to the IT system than either company had ahead of time. So we've got to do the hard work and run the marathon of putting the two systems together, but the result will be a better system for patients, caregivers, and shareholders than either company had before.

Our forecast for year one net integration economics remains the same negative 50 million we discussed before and, in addition, we continue to think that we'll spend about $25 million in IT-related capital in 2006 to support all the system upgrades. Big topic number three is public policy, I will turn it back to LeAnne for that.

I'll discuss three topics: The 2006 Medicare reimbursement; The pending EPO HMA; and 2006 legislative outlook. First, with respect to 2006 Medicare reimbursement, how will our reimbursement change? We are expecting pharmaceutical reimbursement to move from average acquisition cost to ASP plus six. Based on our preliminary CMS calculations provided in correction notice dated September 1, we would expect the reimbursement change to be negative in 2006 to the combined Company for approximately $5 million annually, as a result -- excuse me, as a reminder, the negative impact results from the way CMS has implemented this reform. Specifically, the creation of a single add-on factor in an environment, where reimbursement for non-EPO hospital-based drugs remains unchanged on a cost-base system.

This shift in economics between providers is not what Congress intended. Our estimate could change when we have access to the final payment rule, which should be this week. An additional negative consequence of the change in pharma reimbursement to ASP plus six is the six-month lag between when a manufacturer raises price and when the government reflects the increase in the ASP reimbursement amount. At this time, we cannot determine to what extent this lag will impact our 2006 economics.

Second, to EPO policy. We're now hearing that the Medicare coverage policy will be published very soon. The expected implementation date for the policy is April of 2006. We are concerned that CMS will restrict reimbursement for certain patients and will distrup -- disrupt the progress that has been made in managing anemia for our patients. It is our current expectation that the new policy will negatively impact our operating results and as we have indicated in prior quarters, the DaVita stand-alone impact was five to ten million, so a reasonable estimate of the combined annual downside is ten to 20 million. However, until the final policy is issued, it is difficult to be precise.

Third, the status of ESRD legislation. The good news is that the Senate finance committee has proposed a 1.6% increase to our composite rates, starting in January of '06. The bad news is that this is a very tough year for getting any new Medicare money allotted to our program.

Primary topic number four is the third quarter itself, and our economic performance, therein. Just a small number of important points. First, yet another quarter of rock-solid rolling free cash flow, $287 million to be specific, and that excludes the tax benefits from stock option exercises. if you include those, it was 343, another rock solid quarter of rolling free cash flow. On the volume side, treatments were up 12.9% over the year-ago quarter. Operating income up about 7.6% versus that same period. Operating margins right around 16.5%. So all that lays the immediate foundation for a discussion of the fifth big topic, which is the '06 outlook.

As we look ahead into 2006, there's a simple reality that the range of financial outcomes is broader and less certain than really any time since 2000-2001 for the many of you who have been with us for awhile. That's how far you have to go back to run into the same sort of uncertainty and broad range. In addition, the uncertainty in this situation is different in a couple ways. First because a lot more of the uncertainty has to do with the external world, as opposed to back then when the uncertainty was more internal. And secondly, the private payer environment is more intense now than it was then by a good margin.

So let me address each of the different areas: The integration; Government reimbursement; Private rates; Pharma intensity; and the uncertainty in treatment growth that lead to us put more caveats around the guidance than we have in the past, because the net of it all is that based on these variables, we should expect 2006 operating income in the range of 600 to 670 million.

Let me cover each of those big swing factors, in turn. The Gambro integration is number one, and has already been discussed. Hard to nail down exactly what's going to happen in year one, although we remain confident in our three-year outlook there.

Second topic is on 2006 government reimbursement. LeAnne has elaborated on the specifics. The bigger point is that there remains several large ad-hoc economic balls in the air with respect to government regulation, and we still have the systemic problem that Medicare revenues are significantly less than expenses for the three-quarters of our patients that come from Medicare.

Third big topic is private contracting and collecting. Short term we have some up-side, but the payer market is more difficult than a few years ago. We continue to expect private margin compression as the years roll by, and we have, in fact, taken a large hit lately, which will play itself out in the quarters to come.

Fourth, physician prescribed pharmaceutical intensities and practices. There are differences between the two companies, given that about a third of our revenue is from physician prescribed pharmaceuticals. As we reconcile the differences in clinical protocols we, at this point, cannot be sure what the net economic impact will be. We can only be sure that we will do what is right for the patient.

Fifth, uncertain treatment growth. Gambro's treatment, you've seen the numbers; has been flat for sometime. It will take several quarters for us to tap into that growth potential. just as it took several quarters for us to tap into our own growth potential a few years ago. In addition, of course, some of our historical growth success, which, as will you recall, has been the best in the industry, non-acquired growth, that is, by a good margin the best in the industry. But, nevertheless, some of our historical growth has come at Gambro's expense, and, of course, now that will be in-house. A reasonable scenario is that you would expect our growth rate to be cut in half. All of these risk factors have been incorporated into our guidance and collectively, of course, they could cause us to be above or below the stated range in the end.

What about cash flow? What about cash flow given all of that? We expect operating cash flow, which we remind you is after paying all the interest on the new debt, to be in the neighborhood of $380 to $450 million, excluding proceeds from stock option exercises, which if you look empirically, you might estimate to be in the $40 million range. But excluding the proceeds from stock option exercises, operating cash flow after interest, 380 to 450. Subtract from that maintenance CapEx of 75 to 85 million, the IT integration capital of 25 million, and that puts your free cash flow in the neighborhood of 270 to 350 available for growth and debt repayment.

Assuming that we acquire centers with approximately 1,000 patients of census and open about 45 de novo centers, that would leave somewhere between 160 and 240 million for debt repayment. That, again, is after the growth investments. As a reminder, our mandatory principal payments are about $60 million. We should also note right now that we are also considering a tax strategy that would be financially prudent, but would result in ana additional payment to Gambro of up to $160 million up-front here in the fourth quarter. If we make the selection in the immediate term that will, of course, reduce the cash available for incremental debt payment above the mandatory requirements.

We are being quite cautious with respect to our commentary on '06 acquisition results, as we have seen pricing for these deals move outside of our comfort zone recently. We've been significantly outbid by our primary competitor over the last couple of months, and over several transactions they've been willing to pay 25% more than us. And if that continues, we will be doing fewer acquisitions, using that cash for other purposes.

The final question you might ask is netting out all those variables, netting out the '06 outlook, is what is happening out there and in here consistent with our views and assumptions when we agreed to purchase Gambro? The answer to that is yes. Nothing that has happened is inconsistent with our primary assumptions for how the world would evolve and how the integration would emerge, and is entirely consistent with our expectation to earn attract -- an attractive return on capital from this transaction.

A quick administrative note The SEC, of course, has delayed the requirement to expend stock options in accordance with FASB 123R. We plan to implement in '06, and our discussion of '06 excludes the impact of that requirement.

Quick comment on Q4 outlook. We expect Q4 results to be on track with Q3 before increased integration and retention expenditures, which could range up to about $10 million in the quarter, as we go full force in those two areas.

Let me now turn over to Tom Kelly.

Thanks, Kent. As Kent mentioned, we had another solid quarter financially. Our key financial data is summarized in our press release. I'll address a few key questions regarding financial performance, factors and trends.

First, what about operating margins in the quarter and going forward? Operating margins declined 20 basis points from the second quarter to 16.5%. The primary drivers were increased labor and benefit costs and G&A, primarily due to professional fees for legal and compliance, and integration costs associated with the Gambro acquisition. In 2006 we expect combined dialysis operating margins with DaVita and Gambro merged to be in the 14% range. With respect to minority interest, as we stated last quarter, it will continue to increase, as we do new deals with partners and partnership de novo's mature. The combined minority interest in quarter 4, 2005, and going forward, should be approximately .9% of revenue. This, of course, may vary depending on the number of new joint ventures we enter into.

What was the driver of improvement in dialysis revenue per treatment this quarter? Dialysis revenue per treatment was up $3 per treatment, driven primarily by a favorable mix of private price increases versus private price decreases in the quarter. What are the likely near-term drivers of dialysis revenue per treatment? With respect to Medicare, as LeAnne mentioned, there is some downside risk, both with rates and the possible implementation of an anticipated new EPO administration policy. With respect to private rates, as Kent mentioned, we believe there may be some short-term opportunities, and we'll be assessing these as the year progresses. Longer term, we expect that we will experience private margin compression.

With respect to our contracting strategy it remains unchanged. We don't believe in exclusive contracts. In the past they have never worked for patients, providers, or payers, and don't see a scenario where they would work today.

What about treatment volume trends this quarter? Q3 treatments per day were up 12.9% year-over-year, with 5.2% from non-acquired growth and the balance from acquisitions. In Q3, lost treatments from hurricane-related closures negatively impacted non-acquired growth by approximately .4%. With respect to non-acquired growth for the combined Company, going forward a reasonable scenario is 2 to 3%, as it will take us awhile to realize the growth opportunity on the Gambro base. And once again, as Kent mentioned, some of our historical growth has come at the expense of Gambro. With respect to acquired growth, we expect about 1,000 new patients acquired in 2006.

Why was absolute G&A higher than last quarter? The increase primarily related to legal compliance professional fees and Gambro integration costs. What is the final number of clinics you divested, and the current EBITDA associated with the units? We have completed the sale of 71 centers and terminated two management contracts. The sale of three additional centers is pending licensure approval in Illinois. The divested centers' annualized EBITDA is approximately $66 million, before related G&A. As we expect to grow in proportion to this loss over the next year, we won't be eliminating much of the G&A related to the divested centers. As a reminder, the pretax sale proceeds for all divested centers were approximately $328 million, excluding net accounts receivable of approximately $40 million. As several of the facilities were de novo units, their tax base is relatively low, and thus we expected to pay tax on the transaction of about $95 million.

What about your capital structure? We've now entered into a new credit facility with an available revolver 250 million, a term loan A of 350 million, and a term B loan of 2.45 billion dollars, for total borrowing of up to $3.05 billion. The new relov -- revolver and term A bear interest at LIBOR plus a margin of 2%, and the term B bears interest at LIBOR plus a margin of 2.25%. 1.58 billion of this has been economically fixed through swap agreements, which have blended average effective rates of about 6.1%. As a result of our swap agreements and the notes issued last quarter, approximately 70% of our total outstanding debt post-merger will be fixed. Additionally, we will have about 11 million of annual non-cash amortization expense related to the debt financing fees. The required principal payments are $60 million for the next few years. Our Q4 post-acquisition leverage ratio is expected to be approximately 4.8.

At this, I'll turn the call back to our host for questions.

[OPERATOR INSTRUCTIONS] And your first question comes from the line of Darren Lehrich. Darren, your line is open.

Thanks. Good morning, everyone. Just a couple of things here. I wanted to key into some of your prepared remarks, and obviously you've been talking to us for several years now about private payer compression out there and just want to hear a little bit more about what you've said with regard to a large hit [lee], and if you could just talk a little bit more about contracting going into 2006 specifically.

I don't think there's much we can add beyond what we've said, number one. We're -- we're thinking we've got a good shot at some short-term up-side because there's a lot of places where the two companies had different prices and in some of those areas we may, on a net pay basis, do better. In other areas, it'll certainly come out worse. The second broader point is that over the long term, we believe that private margins are going to compress in a material fashion, and I know we have talked about that for awhile. And number three, we did take a large hit recently that will be rippling through our numbers in the quarters to come, as just a tangible example of what we're talking about. So I think that's probably about 80% redundant, but I don't know how much more we can add. It's not the sort of thing that you can put a more precise number on. It is simply our job to alert to you and keep you acutely sensitive to the risks that we face there.

Sure. Well, that -- Okay. And then, you know, as far as Gambro goes, thanks for kind of outlining the areas of the integration. Generally speaking I guess you mentioned that you were a touch behind in the revenue operations piece and if could you just give us a sense as to what's driving that and, you know, what kind of near term remediation we should expect to see there and maybe just if you could be a little bit more specific.

Once again, so -- so early out of the gate, we felt it was our responsibility to be open with respect to the fact that we're disappointed with where that operation sits. At the same time, this is the first inning, so to speak, and you don't want to get too excited whether things are going well, as many of them are, or not so well, as they are there. You don't want to get overconfident nor over react. So at this point, you can't really put any numbers on anything. I don't know how to provide more detail.

It's just we prefer to be a Company that doesn't wait until something definitely goes wrong to talk about it, but instead give you a pre-emptive heads-up on the stuff that we're worried about, so that you can lay awake at night worried about the same thing as us. We're on it with a lot of intensity and a lot of talent. We're simply pre-emptively answering the straightforward question; what are the key parts of the integration process, which ones are you happy about, neutral about, and unhappy about. And here we are less than month after closing the deal, we just can't do any more in terms of answering.

All right. If I could, just maybe one more and I'll get back in the queue here. As far as the baseline DaVita business, just curious to know what operating income you're using for '05 and what's baked into the assumptions for next year? I guess the year-to-date number suggests that operating income could get to around 435 million or so for base DaVita, and that's up a little bit higher versus the 4 to 6% growth that you've talked about previously. Just trying to get inside the -- the guidance for next year on the base business.

Well, operating income, I guess, what we're looking at, maybe the major difference would be the start of the integration expenses as well as the interest expense. I don't know how to be more specific than that.

Okay. And will you be, just on a go forward basis, will you be breaking out integration costs for us?

Not on the face of the financials, no.

Okay. And would was the incremental cost this quarter?

We haven't -- we're declining to make that disclosure.

Okay.

It's not declining to make a disclosure. It's impossible to segregate. You come up with a safe accounting number, but in the real world knowing exactly what percentage of a whole bunch of managers' time is spent on this stuff, exactly -- asking them to parse out exactly how much of this they would've bought in a make-believe world where we hadn't done the deal, that for probably half of the integration expenses it's a relatively subjective assessment, the other half being pretty discrete. So, as opposed to coming up with an accounting fiction for you, we're going to report our aggregate economics relative to the aggregate guidance we provided.

Okay. Thank you.

Your next question comes from the line of Bill Bonello.

Hey, guys, just a couple of follow-up questions. One is just asking you to repeat something. I apologize. But can you repeat the figure you gave for sort of the range of expected cash available to repay debt?

Yes, I can, Bill. I hope you are well. Let me take from the the top, just so it makes sense. Operating cash flow after interest, 380 to 450 million, excluding stock option proceeds. Subtract from that maintenance CapEx of 75 to 85. Subtract from that the incremental integration IT capital of about 25 million, and ignoring all other small stuff, you end up in the ballpark of 270 to 350 free cash flow to spend either on growth or debt reduction. If we then assume we do acquire centers with census -- total census of approximately 1,000 patients, open 45 more de novo centers, then we'd have about 160 to 240 million dollars left for debt repayment and the mandatory payment is about 60 million. And then there's that potential tax opportunity off on the side.

Okay. So bottom line was 160 to 240, is where you ended up there?

Yes.

Yes, sir.

Just wanted to make sure I heard that right. The second question is just why exclude the expected proceeds from options? Does that imply that you might be changing strategy regarding issuing options?

No. No does it not. It is merely because we wanted to focus on the operating economics of the business, and everybody can -- has pretty good access -- everybody has total access to the empirical trends and option exercises and proceeds and the tax benefits. So the good news is you can run a good number on that yourself, but we wanted to focus exclusively on our operating economics.

Okay. So theoretically, what's available for debt repayment could be a little higher, then? Or the amount of debt you repay could be a little higher?

Correct. That any -- any dollars that come from stock option proceeds would be additional cash available to repay debt.

Okay. And then, just on the large hit, can you just -- you don't have to give -- can you just explain what you mean by that? Do you mean you took a rate cut, or you lost a contract, or what is a large hit?

It was a rate -- it was a rate cut.

Okay. And was that fully reflected in the Q3 results?

Bill, you know us well enough. I appreciate the logic of the question, but we're not going to start going into detail on individual contracts. We offered it up just as a tangible example of private margin compression, because, otherwise, we talk about it and sometimes people become a little numb to it. So it's a real-life example, and I don't think we're going to go into any more detail on it.

Okay. I was just trying to figure out if we should be substantially worried about next quarter's numbers as a result of it.

We did take -- we did take the time to incorporate the results of it into our guidance.

That's kind of you. Last question here, just -- you previously, in a press release stated the impact on DaVita stand alone of the change to ASP would be about one to two million, so that implies a bigger impact at Gambro, I guess, than DaVita or a change in thinking, and I'm just curious, why would the impact be worse at Gambro than at DaVita?

Yeah, it would be slightly worse. Their pharma utilization is slightly higher than us, so the revenue from pharmacy are a little bit different.

Great. Thank you.

Your next question comes from the line of Justin Lake.

Good afternoon. Thanks. Just have a couple of quick questions. I guess I'm going to ask one quick follow-up on the question today on that commercial contract. You said it was a rate cut. Can you just give us a little more clarity on whether it was a negotiated rate cut, or was it the imp -- was it the impact from a -- an acquisition from a larger purchaser buying a smaller one?

It was a rate cut.

Okay. That's great. Thanks. And I guess the other question's on -- was on your EPO contracting for 2006. Can you tell us where you are there and any expectation of what you expect to be able to offset from Amgen's pricing increases?

We don't know what's going to happen yet.

Any idea when that will -- when that's normally negotiated?

Current contract expires 12/31, so the new one ought to be wrapped up by the 29th or so.

Okay. That's helpful. Just two other quickies. The number of parents acquired in the quarter?

Just give us one sec, please.

Sure. And while you're looking for that, I know you didn't want to parse out the Gambro costs on the quarter. Can you tell us what you say the legal and compliance added in the quarter?

Legal and compliance added a couple million dollars to the quarters le G&A, and with respect to your question on acquisition of centers, we acquired 11 centers and those centers had 575 patients.

Thank you very much.

Your next question comes from the line of Eric Percher.

Thank you. First just a clarification, on the guidance for operating income next year, is that after taking out minority interest of the .9%?

It is.

Okay. And then with respect to reimbursement -- thank you for the outline -- what do you think at this point would be a reason, or are there reasons that this year you may see a little bit more interest in going beyond a 1.6% increase and maybe adjusting to a yearly increase? And I know you don't like to give problem-ability, but do you think there are more reasons now than before?

Let me just make sure I understand the question. What do we think the odds are that -- that they'll go beyond giving us a 1.6% update and actually give us an annual inflation update of some sort?

You don't have to give odds, but what factors are pushing in your direction, in your favor?

At this point, very few. What we are doing is fighting to retain the 1.6, in fact, and the odds that they will move beyond it in conference, when we could only get the 1.6 in the Senate, are very low. The macroeconomic picture, which everyone on the phone is quite familiar with, dominates some of this micro policy discussion stuff. So I'd say the odds that we'll get an annual update, even a discounted annual update, at this point are quite low. The odds that we'll retain the 1.6% are very reasonable. Is that responsive?

That's perfect. Thank you.

Your next question comes from the line of Matt Ripperger.

Hi, thanks very much. Just a couple of questions and at the risk of sounding redundant, I think what we're struggling with is just trying to reconcile two statements in the prepared comments. One was the large hit comment and the other was related to the short-term opportunities on the private payer side. Can you just help reconcile those two statements in terms of how we should look at them in combination over the next couple of quarters?

Yes. I don't know that I can say anything new, but I, perhaps by repeating what we've said, it'll start to make more sense. We're sensitive to the tension between the two comments. However, in combination, they accurately reflect reality, which is we're going to be involved in a lot of negotiations over the next six to nine months, as we integrate the two companies. And on a net basis, we have a good chance of emerging with a weighted average net higher rate at the end that period, very good chance. That should not, however, mask the fact that the more fundamental trend is one of private rate compression overall in the long-term portfolio, sometimes marked by significant reductions, as we experienced recently as I referred to. So, is that a better way of putting it?

Ye -- no, that's very helpful. Thank you very much. The second question I had is, just based on Gambro's release last week, where they broke out the segment results from the healthcare operations, it looks like they're sort of third quarter EBITDA was around 98 million. Is that a good number off of which we can sort of establish a baseline, then make these associated adjustments going forward? Or are there some adjustments to that number that we should make?

Yes, this is LeAnne. That is what they reported for EBITDA, and at this time, we haven't gone through all the nuances of each line item in the quarter, so we cannot opine as to precisely that that will be the run rate. I think within a few million that will probably turn out to be reasonable.

Okay. Then just following up on that, then, if you assume that that's a rough ballpark for the acquired EBITDA and you make the key major adjustments, which is taking out 65 million of EBITDA from the divestitures and taking out 50 million of net negative synergies, it looks like your sort of current run rate operating income is around sort of the mid-600 range. Is that a fair representation off of which we can build going forward?

I believe it is. I didn't track exactly with you, and let me give you one other piece of advice with respect to the Gambro Q3 results. As you will see, the results were much better than they had been in the preceding two quarters, dramatically better, and so we do have some questions around that.

So the 98 million might not be a good profitability number to build off of?

We can't validate it yet, nor would we say you should be exceptionally skeptical around it, but we can't validate whether or not it is the right recurring number. And I guess I'll just make the obvious statement, but it's worth remembering, this was a company that has been for sale for sometime, and the interim economics reflect the fact that they were investing in -- they were not investing in a lot of the normal stuff and ongoing concern would invest in, which necessarily leads to some significant reductions in what otherwise be ongoing business expenses.

So there's both just making sure we understand all the accounting decisions and we're going through that with great rigor. And then, secondarily, there's clearly some operating areas where we would not replicate their economics, because they weren't the economics of an ongoing concern. This is no surprise. This is not new information. We talked about it nine months ago, but it's just worth reminding people.

Okay, great. And one last question, if I could. You mentioned a tax strategy where you might have an opportunity to pay out 160 million up-front to Gambro. Can you just elaborate on what the thinking is behind that and how that would be beneficial long term?

Yes, this is Tom Kelly. There's a strategy that's available to us on the -- on a valuation decision that Gambro would, in fact, make that would provide a stepped up basis on a significant portion of the assets that were acquired as part of the transaction. We have the option under the merger agreement to make that election, and if we decide to do so, we are obligated to pay Gambro their additional tax cost from having made that election. So it would increase the purchase price, and we would realize the tax benefit over a period of 15 years.

And when do you expect to have resolution on that?

Probably by the end of the year.

Okay. All right. Thanks very much.

Thank you.

Your next question comes from the line of Gary Liberman.

Thanks. Good morning. What's the term of the 1.58 billion swap that you currently have on?

They amortize -- those swaps amortize over the next five years. They are staggered. I don't have those specific dates with me, but I could provide those to you at a later time.

Okay. And then on Amgen's conference call they made some comments, I believe, about seeing increased use of Aranesp® in the ESRD population. Can you make any comments on that? Are you seeing that? Or you have any part in sort of driving that?

The answer to the second part is no, we have no part in driving it. The hypothesis on the first part of it has more to do on what's going on in hospitals than free-standing centers.

Would you anticipate that evolving and becoming more widespread, or in the stand-alone service centers not really?

Well, right now we have the option to buy , but it's at a higher price than EPO. So, for us, as long as it's more expensive, since there's no clinical benefit and no practical benefit for our patients, we will not. If they ever reduce the price, we will. So it's pretty much 100% under their control.

Yes, Gary, we would be up side down on the ASP.

Okay. And then just on the managed care side of things, if you could maybe talk more broadly about what you anticipate changing or what you've seen changing. Are the managed care companies focusing more on their payments? Has consolidation in the industry impacted that at all, or what other factors are you seeing?

I think it's just consistent with the overall evolution of that industry segment. That is, consolidation has increased. They have more and more power, and in addition, as employers push back more on premium increases, that gives insurers the ability to impose more constrictive covenants into policies. So it's kind of -- you kind of go back ten years and see that cycle, and you look at what we might be experiencing some of today, and it's kind of that normal macro stuff that ends up rippling down through the provider system. Is that responsive to your question?

Yes, that's helpful. I guess, in terms of what would you anticipate seeing, since we've talked a lot or implied a lot about managed care companies having increased bargaining power with you? To what extent does the acquisition offset that, or is tha -- or should we not really assume that there would be any increase in your bargaining power with the commercial payers because of that?

We are still tiny, and they are still very big.

Okay. Thanks a lot.

Your next question comes from the line of John Ransom.

Good morning. I had bunch of clever questions, but my competitors beat me to it, so I'm down to options. It looks like in your last 10-K, options were about $0.09 dilutive. Forgive me if there's been some subsequent disclosure that I've missed, but is there a different number we should be thinking about once 123 is implemented?

Well, 123 will have an impact on a little less than 5% of OI. Is that what with you're looking for?

Sure.

Yes.

Has the Company's -- given that we now have a new accounting system, but nothing's changed in reality, has the Company made some adjustments in a thought process about equity-based comp, in reaction to this new environment?

The board's point of view, at this point, is that they think about equity in the same way. In other words, they always considered it to be a real expense, and so the fact that now that the accounting treatment is changed doesn't diminish or increase the economic substance of the decisions they were making.

Having said that, in general, we may move to using more restricted stock not tied to this accounting treatment, but that's something that we started doing a couple years ago before all of this newer conversation around the expensing of options began. And in addition, in some cases, we've started moving to larger cash bonuses instead of equity awards. Again, we started this before all the public conversations around the expensing of options. So both those trends that were kicked off about three years ago at DaVita may very well continue, but all within the context of the fact that our board always looked at options as a real economic investment by shareholders that only made sense if the right return was forthcoming.

Okay. And my second question is I am aware there's a start-up that's using a partnership model with physicians as opposed to a medical director model. And now you have this new Welsh, Carson entity. What sort of thought process has the Company gone through in terms of thinking about physician retention now that it's a much larger job, and thinking about the future if the EPO incentives change? Is there a thought process to try to tie the physician incentives in a little bit more to, you know, what might be some changes coming down the road with bundling and what have you?

Okay. Well, first of all, with respect to EPO incentives, right after I came six years ago, we developed a totally clinically-driven EPO/Anemia management protocol that is driven all decisions since then. Incentives have never had anything to do with it and have never been incorporated into anybody's comp within the Company or with any doctors. So I want to be very clear on that. Until such time as we lose money on a drug, at which point we face a zero-sum decision about whether or not to use more of the drug versus give a nurse a larger raise so we increase the chance of keeping her or him, until the point that we lose money in the administration of a drug, we are economically agnostic.

Can you go back to the first part of your question? I got totally distracted by the reference to EPO incentives, so could you repeat the first part? I'm sorry.

Well, I guess we have a couple of new start-ups out there, and one of which I am aware is using a partnership model as opposed to a medical director model.

Okay. Let me --

And I just didn't know if there -- if Medicare does move to bundling, and I know we're talking about hypothetical to a hypothetical, but is there any kind of forward thinking that maybe this model that was designed six years ago in a different environment, maybe it needs to be tweaked, or not?

Okay. Sorry, I forgot the first part. We do partnerships with physicians also, in a process very tightly defined by our compliance department, so that is not a source of differentiation by any new company. In addition, everyone who operates a certified dialysis center has to hire a medical director, so what we have are in the medical director model, whether you like it or not.

Third, do we anticipate having to fight very hard to retain some of the Gambro physician affiliations where the change in control triggered a release from some of their contractual obligations? Absolutely. We'll be fighting very, very hard in order to retain the Gambro-affiliated physicians, just as we had to fight very, very hard to retain the TRC/DaVita physicians four and five years ago.

Lastly, with respect to bundling, the first point to make there is that given the government has shifted all sorts of reimbursement out of pharma and into the composite rate, that even according to their own calculus and suspicions, there really isn't much in the way of economic incentive to use a drug, if one was going to be influenced by economic incentives. So, their logic and rational for bundling has been largely reduced by their decision to shift pharma reimbursement into the composite rate.

Having said that, if they still move to bundling, that is fine with us, as long as they calculate the number on a budget-neutral basis. Our experience with them is that, even when they purport to intend to calculate things in a budget-neutral basis, that some money always falls out of the system.

Thank you very much.

Thank you.

Your next question comes from the line of Chuck Ralph.

Good morning. The net integration cost, Ken, I know you've always said 50 million in the first year. Can you kind of break it out between '05 and '06?

No, is the short answer. We've always said a net negative 50 million of net integration economics, that's im --

Right.

And we did say that for year one. Then year two, we'd end up having the transaction be EPS-neutral. And at this point, trying to sort out exactly how the fourth quarter of '06 is going to be different from the quarter that preceded, we're just not prepared to do that. I wish I knew the answer, and then I could -- then I would have the option of deciding whether or not to disclose it, but we're simply not at a stage where we can extract the fourth quarter of '06 and separate it out.

okay. And can you tell us the average cost of the debt as it stands right now, with the understanding that 30% of it is variable? As it stands today, after the acquisition and the divestiture, what's the average cost?

Well, let me give it to you in components. We have half a million of senior notes that are at 6-5/8.

Half a billion or half a million?

Half a mil -- half a billion, excuse me.

Yes.

And then we have 850 million of senior subordinated notes which are at 7.25. The credit facility right now would be blended at about ap -- at approximately 6.2, but you have to take into consideration as you move into next year, the LIBOR curve, which is likely to go up slightly. So, as we said,, we have 1.58 billion fixed through swaps at about 6.1. So you'd have to take the balance, which is 870 million, and draw some conclusions about where LIBOR would be. Is that helpful?

You said the 500 mil was at what rate?

6-5/8ths -- shou -- yes, 6-5/8th.

Okay. Then you've got 850 at 7.25, and how much currently at 6.2?

That would be 2.465 billion.

Okay.

Then you've got to throw on there some amortization.

11 million a year?

Yes.

Okay. Great. And it looked like you bought $87 million worth of stock. I think that was all in the third quarter, correct?

No. I think if you're looking at the PR Newswire. They got their columns mixed up in the release. I'd be happy to e-mail you the version from ourselves that will show you, of course, that that activity was in last year.

Okay. That answers that. And what kind of depreciation amortization number should we be looking at for '06, with the acquisition and the divestitures now?

Yes. You know, all of the opening balance sheet items are still a little bit in play, but absent that, you could target around 180 million.

180. Okay. And lastly, I assume the net cost of the hurricanes on the operations is a very small number, or do you have a number could you share with us?

Well, the -- what we've given you is the impact on same-store growth in the third quarter was .4%. We do have right now in Florida a number of centers that are still not open, about six, or waiting for generators. And we have permanent closures in Louisiana between five and ten centers. Some we hope will be able to get back and running, but five will probably not -- we will not rebuild. So we have not has given you specific P&L impact of these items and, quite frankly, haven't quantified exactly the fourth quarter impact from Wilma.

Okay. Thank you very much.

Your next question comes from the line of Balaji Gandhi.

Good morning.

Good morning.

I just wanted to get back to Gambro third quarter for a second. One number they did share with us there was some pricing improvement they had sequentially from the second quarter to the third quarter. Their revenue per treatment was up $7, so now they're at 305 and you guys are at 316, so the gap has narrowed. Your comments earlier about some near-term opportunities, how much does this improvement on their part diminish that, if at all?

It's too soon to tell, and some of their increase comes from pharmaceutical intensities, as opposed to anything else. But as to your broader question, we just can't say. Clearly to the extent that they have achieved actual rate improvements recently, that would take away from rate improvements that would have happened after the close. So it's hard to, I guess, in one sense, answer the question any other way that you would think that -- that it displaces some of what we hope to do after the close. But it's good news, because it actually happened.

Right. Did that come as a surprise to you, the $7 improvement sequentially?

We didn't have a point of view on what the revenue per treatment was likely to be on the third quarter.

Okay. The only other question I had was on M&A activity in the quarter. You guys, it says, acquired 11 clinics. I was just wondering where those were located and were they in they new markets for you?

Balaji, you can call me off-line on that. I don't have every market in front of me.

Okay. Thanks.

Your next question comes from line of Art Henderson.

My questions have been answered, but I just had two others. The first one is, on integration costs that you talked about, the 50 million, as I recall the 25 million of IT spending is on top of that?

Yes, that's capital, IT capital.

IT capital, okay. And then second, Kent, you mentioned the acquisition environment out there that your largest competitor is paying 25% more. Is that something that has just come up recently, or is that something that you've seen over the past three months, and is there kind of a target acquisition price that you're looking for?

The answer to the first question it's a change, that kind of Delta. And the answer to the second question about what we're looking for is not changed from what we've always said, that we want to pay four to six times the first year EBITDA, but we also want to feel like it's a recurring sustainable EBITDA.

And so in your guidance for free cash flow you said you had a thousan -- did you say 1,000 patients?

Centers.

I'm sorry?

We said we hoped to buy centers with a total census of about 1,000 patients.

Okay, I'm sorry. And then lastly, any chance we could get you to host an investor day?

We are going to have a capital markets day, and it will probably coincide with our Q4 earnings release, and it will be in New York. And like the ones we used to do regularly before this transaction was announced and made communications more difficult, it'll be a long and analytically comprehensive.

Great. Look forward to the.

Thank you.

Next question comes from the line of Miles Highsmith.

Morning, guys. Just wondering if you could give us one -- just one numbers question. Can you provide LT and EBITDA on a pro forma basis for DaVita Gambro?

LT and EBITDA for what?

Just on a pro forma basis for both Gambro and DaVita?

Why don't you, Miles, call me later on that.

Okay. Thanks.

The next question comes from the line of Dax [Valasis].

Yes, I have two questions. Can you talk about -- a little bit about next stage? Their EPO, maybe a little about the technology and what that means for DaVita?

And I wanted to go back, Miles. The reason I can't provide that you information now is we don't have U.S. GAAP numbers yet from Gambro, so -- audited numbers, so we have to wait for that. I apologize. Can you ask the question again?

Yes. Next Stage recently had a EPO. Can you talk about the technology and what that means for DaVita?

Next State --this is Tom Kelly. Next Stage is probably the most interesting dynamic piece of new home technology available, so it's begun to generate kind of pools, isolated pools of interest out there, where Next Stage has promoted and talked about it. A good deal of interest among physicians, particularly physicians who are already interested in home alternatives to in-center dialysis.

So still a relatively -- you know, relatively small demand out there. Still lots of impediments in the payer market over how they might pay for this and whether they'll pay for it. Still a lack of recognition that home patients need more treatments. So it's still very hard to tell how quickly or if this market will develop uniformly. But it's an interesting piece of technology where we're actively employing it with patients who choose home dialysis, and we're hoping to have some authoritative clinical outcomes around it in the quarters that follow.

The other point that I think's important to make when people talk about home-care technologies is that anything that could be used at home could also be done in the center. In other words, if you have a patient who's significantly more self-sufficient, it is again much cheaper for the healthcare system to have them in a center with proportionately less oversight and direct care. In the history of American healthcare, that's why a lot of home-care technologies that look so promising never play out, because you end up changing the in-center model which has inherently more care oversight and lower variable costs, proportionately. So, that's not to take away from anything Tom said. It's just to reinforce his closing comments.

Right. Then can you talk about the trend in your cost to open a de novo, what it cost today and the trend in that? Then also the opportunity within the domestic marketplace to open de novos, you know, in the existing markets you're in, you know, if buying them is going to be more difficult in the future? Thanks.

There have been no dramatic changes in the cost of opening a de novo, which is divided into three components; the equipment, the leasehold improvements and the operating losses until you reach cash flow break-even, There's been no dramatic change in that now versus one year ago or two years ago. Some creeping costs tied to what's happening in general costs of manufactured goods for building things in the same way that's affecting other parts of the American economy. And then, with respect to opportunities, as we mentioned in our prepared remarks, we are thinking that 45 de novos in '06 is a reasonable scenario.

Looking out beyond that, it's just very difficult because it depends so much on what's happening with government reimbursement and what's happening in terms of competitor activity, so we probably have to fall short of saying anything beyond our '06 thoughts.

Okay. Thanks.

Your next question comes from line of Blake Goodner.

Good afternoon, or good morning. I just had quick question on the guidance. When I look at the 600 to 670 for next year, I know you'd mentioned there's still a lot of balls up in the air from a Medicare reimbursement standpoint. And, since historically we've grown accustomed to being consistently disappointed by the reimbursement updates that we're always getting from Medicare, I guess I'm just curious, does the high end of the guidance include some of the potential up-side, like a potential composite rate boost or any adjustment to the current bifurcated model?

It's so hard when you do aggregate guidance after pulling together all of the different revenue versus expense and government versus private, blah-blah-blah, it's pretty impossible to pull in our -- certainly all the up-sides are incorporated on a probabilistic basis. But if a whole bunch of good things happened, we would beat the range on the high side, just if a whole lot of bad things happened, we would beat the range on the bottom side. So it's impossible to pick out one variable and say, is it assumed in or out of the guidance, because It's all problematically weighted.

That's helpful. And then, Ken, I know in the past you also talked about how one sort of key thing you were going to be watching as you guys move through the Gambro integration was going to be the medical directors. I heard you mention earlier you're going to fight to keep all the Gambro medical directors. But, I just was curious if now that you have a better chance to go through the contracts and look at that time non-competes that existed and didn't exist, if maybe you could just give us a little bit of an update on how that aspect of the integration is going?

I'm tempted to just say -- I think I'd just have to stick with too soon to tell on that one. We've got very active conversations going on with a lot of Gambro-affiliated physicians, for whom certain portions of their contracts were expired, that expiration triggered by the change of control. So we are just way too early to handicap it. Clearly we did our best cut at it for providing guidance, but it's way too early to predict how we're going do any more specifically with that group. And so just -- it's a huge amount of defensive work. That's the one, maybe, the other point that we should make.

Okay. Thanks very much.

Next question comes from the line of Chris Smith.

Yes, hi, good morning. Just a couple of quick admin items. The press release you mentioned you used about 250 million of cash to fund a portion of the acquisition. Is that correct?

Yes.

Now, does that include the 47 million for fees, or is that in addition?

That includes those fees.

So you've got roughly about 90 million of cash on the balance sheet as of today?

We have some -- the divestiture proceeds, net proceeds.

Oh, from the 70 or so centers?

Right. Net, and you'd have to take that net of tax.

Are those proceeds still going to debt pay-down?

The proceeds were never dedicated to debt pay-down. What they did allow us to do, we drew $100 million less on the term loan B than we had authorized, and then debt pay-down really will depend on what we decide to do about the step-up basis of elections.

Okay. I thought I read somewhere, maybe I mistaken, that those were kind of earmarked. Anyway, have you ever disclosed the percentage of non-contracted private payers? Do you break that out?

You mean percent of patients?

Well, you know, basically you've got your government and your private payer groups, it's kind of 60/40, right, of total revenues? I'm just wondering, within the private payer group, what percentage is non-contracted?

We haven't discussed those details.

You don't? Okay. Thanks.

Your next question comes from the line of Gary Taylor.

Hi, good morning. I got disconnected, so hopefully I'm not repeating something that's been asked. Two questions. First, could you update us on the CFO search? Anything in terms of timing and are you still committed to bringing in someone from outside the Company?

Search is proceeding and we are still committed to bring in someone from outside the Company.

But no target date at this point?

No.

Then secondly, I guess more for LeAnne, to your comments about the EPO policy and the potential impact on the combined Company, should we read into that that you now are less optimistic that CMS is going to take into account some of the industry's comments on the proposed rules or should we just assume it means that they're not communicating about this, as has been the case over the last several months?

It is the latter.

Okay. So we just don't know what they're going to say at this point?

That's correct.

Okay. Thank you.

Your next question comes from the line of Andreas Dirnagl.

Yes, good morning. Just a couple of clarifications on some of the statements that were made. Kent, specifically when you were talking about the 1.6% EPO - I'm sorry, composite rate update that was included in the Senate finance bill, you commented that, you know, given sort of the difficulties in Washington with trying to get the savings in there. you were kind implying a negative outlook. But then later, you said that you were actually quite hopeful it would stay in in conference. What do you think at this point, in terms of the possibility or the likelihood for that remaining in during conference committee?

Well, you could probably conclude from my specific comments that I have no idea, and that might be the best take-away because anyone who pretends to have distinctive insight into this is probably someone who should be ignored. I think the words I used were reasonably consistent, and the second time around the phrase was we have a very reasonable chance at preserving the 1.6. So it is a tough world. In my first set of comments I referred to the fact that we've got a lot of hurdles to clear, but there is a reasonable chance. So is that --

I'll take reasonable chance from you, certainly. Another question just on the physicians, I guess there's probably going to be a lot of feeling of deja vu, as we go through some of the Gambro issues, sort of harkening back to a couple years ago with some of your own issues. In terms of physician contracts, obviously some, if not all of them, were triggered by a change in control clause for the employment contract. Can we assume or do you have any idea, as part of your due diligence even before agreeing to the deal, did Gambro have non-competes in place, as is normal? I know Total Renal did not.

They had non-competes in place on the majority of their portfolio of contracts. But, in some cases, they did not or do not, and in some cases they expired. So, the good news is it's a minority. Bad news, it's non-zero, so it is a little bit like 2001 revisited.

Okay. And then, just a general question. In terms of acquisitions can you just refresh or remind us, as part of the FTC divestiture requirements, there's a period of restriction that you have in terms of making acquisitions in those markets in which you divested or is it just specifically the assets you divested?

Separate -- in addition to the fact that we can't buy back the assets we divested for a very long time, I don't know the number of years on that, we also -- in many of the markets we have certain restrictions within a certain number of miles of the center that we sold. In many instances, those restrictions might apply more to our right to build another center within the radii, as opposed to restrictions on buying a neighboring center. And so -- does that cover it? Because it differs a little bit by situation. It wasn't a -- there wasn't a blanket arrangement where X number of miles around each divested center we can neither build nor buy. It was far more customized, based on the actual dynamics, competitive dynamics of the market.

Okay, that's helpful. Or just in general, maybe just a sort of an add on. Is there any restriction beyond the fact you're seeing some pricing increases, perhaps from some competition for acquisition, would there be any restriction beyond those specific restrictions of the markets that would keep you from, say is acquiring some of the centers that are likely to come out of the [Frezeneous] Renal Care Group transaction?

The biggest restriction there is that FMC has said they don't want to sell anything to us.

Okay. Then just two final quick things. One, just a mechanical issue, the 1. -- what was it, 7 million dollars from the loss in the net swap valuation, can you just explain that? Was that related to putting on or unwinding a transaction or is that an ongoing expense?

Oh, no, that was the valuation adjustments of the swaps and you will not see that moving forward.

Okay. And then finally, Kent, you've been sort of hesitant in the past because you didn't quote unquote own the assets, and I realize it is a bit early still. But, can you give any sort of color or any general commentary in terms of looking at the Gambro assets? Are there any major clinical differences or reimbursement differences? You mentioned that their increases were from pharmaceutical intensity. For example, I mean, is that a good or a bad thing, or are there differences in their pharmaceutical intensities and are there differences in their treatment or their clinical protocols?

There is a lot of consistency in the approach to clinical care. There's a lot across many, many facets of the clinical side of what we do. They do use more EPO. That's the, perhaps, single biggest clinical difference.

Great. Thank you.

Okay. Thank you, Andreas.

Your next question comes from the line of Seth [Tyke].

Hi. Good morning. You previously outlined some of the assumptions for the Gambro transaction, meaning as relates to '06. I think you were talking about 0 to 3% income growth for DaVita, flat for Gambro, your net synergy some 50 million outflow and then the interest on the debt. It would seem to me that that, even those assumptions, get roughly towards the low end of the range of operating income that you get provided today, I was curious to know what of those assumptions do you need to make to get to the high end of the range? Any kind of color you can put on those assumptions as it relates to high end would be great.

I don't think that you'll find my answer very useful, given all the different variables. If we do better with private contracting, if medicare doesn't cut our reimbursement, if we can manage the integration without having significant impairment to our productivity, if the blending of the different pharmaceutical protocols is smooth, those are some of the things that could bump -- bump the Company up from the lower end of the range to the higher end.

But I don't think any part of my answer's that useful, because it's -- it's kind of the obvious sort of round up the usual suspects of what could make our numbers better or worse.

Would you comment on whether my math was within the ballpark as it relates to the original assumptions that you had highlighted with your range of guidance?

Could you repeat them, please?

Well, I was just saying if you used the gui -- the original assumptions that you had issued for the transaction, I was asking whether that math would get me towards the low end of the range of guidance that you provided today?

Yes, so you're talking about the comments we made ten months ago when we announced the transaction?

Correct.

To be honest, I will not be able to remember with sufficient accuracy exactly what we said then, and compare that to where that would lead us to in the '06 range we just disclosed. I do not -- I'm trying -- I'm running through it in my head. I cannot do that with confidence.

Okay. Thank you.

Your next question comes from the line of Bill Bonello.

Hey, I just wanted to follow-up on the question about the Gambro revenue per treatment in Q3. Just -- I want to make sure that my understanding here is correct, that the Gambro revenue per treatment is not necessarily an apples-to-apples comparison with the DaVita dialysis revenue per treatment. Don't you include some things in non-dialysis revenue that they might include -- that might show up in their revenue per treatment figure?

Yes, there are two distinct differences. We do have a category of other revenue, which would be management fees, the -- our laboratory, et cetera. They do not. They also, for the European report, have bad debt expense netted against the 305 that your were saying, Netted against revenue.

And then, Bill, going back to your previous question to me, we were strictly talking about the impact in Medicare other than the EPO HMA, correct as you were asking in your question.. Back to your original question on our outlook for Medicare reimbursement.

Yes, right, right.

Yes, I just wanted to make sure you were talking about the components of revenue other than the EPO HMA.

Yes, yes. That is correct. That's all. Thank you.

Your next question comes from the line of Darren Lehrich.

Thanks. I'm sorry. I just want to clarify one thing that you did alluded to in your press release as it relates to the cost side, and specifically labor. If you could isolate for us the labor cost trend in the quarter on a year-over-year basis. And, Tom, maybe just talk about turn-over trends that you're seeing, whether there was any change in that in the quarter?

On the turn-over front, there was no significant change, a slight improvement. On -- hold on one second, please.

This is Tom Kelly. On the labor rates side, the increase over the last year has been similar to what we had forecast, which is 3 to 4%.

Okay, great. And then I just want to go back to this question about medical director contracts with Gambro subject to change in control provisions. I guess it would be helpful to use if you could give us a sense, realizing that it's probably a minority, but if you could give us a -- just frame for us the proportion of centers where you have medical directors subject to change of control provisions?

Yes, we -- we're not going to disclose that.

Okay.

Back in 2000-2001, when we first came here, we did disclose in significant analytical detail the physician contract portfolio and the percent of the centers that had different forms of contractual exposure. And then for a while we did present a quarterly update on the percentage retained versus lost. And after a year and a half or so, when we had achieved credibility with respect to being able to estimate and incorporate into our guidance, we stopped the practice because it was just a little disfunctional.

So we mention it because it's a reason for you to appropriately be conservative in forecasting, based on the current publicly-reported numbers.

Sure. Okay, very well. Thank you.

There are no further questions at this time.

Alright. Thank you all very much for your attention and interest, and we do look forward to spending some significant time with you early in the new year at a capital markets day where, hopefully, we can get you even more familiar and comfortable with our perspectives. Thanks a lot.

This concludes today's conference call. You may now disconnect at this time.