德維特 (DVA) 2007 Q4 法說會逐字稿

Good evening. My name is Meyeta, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth-quarter earnings conference call. (OPERATOR INSTRUCTIONS) Thank you. Ms. Zumwalt, you may begin your conference

Thank you and welcome everyone to our fourth-quarter call. We appreciate your continued interest in our Company.

I'm LeAnne Zumwalt, VP of Investor Relations and with me today is Kent Thiry, our CEO, Jim Hilger, our acting CFO and Rich Whitney, who will be our CFO effective March 1st. I would like to start with the forward-looking statement disclosure.

During this call we may make forward-looking statements which can generally be identified by the content of such statement or the use of forward-looking terminology that include statements that do not concerned 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, included in our most recent quarterly report on Form 10(Q) and annual report on Form 10(K).

Our forward-looking statements are based on information currently available to us and we undertake no obligation up to date these statements, whether as a result of changes in underlying facts, information, future events or other developments.

Additionally a press release and related disclosures include certain nonGAAP 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 nonGAAP measures to the most comparable GAAP financial measures.

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

Thank you, LeAnne. As you already know our Q4 operating performance fell in the middle of our guidance. I'll go ahead and quickly review three items: Clinical results, government policy and our 2008 forecast and longer term outlook.

First to clinical results, we are first and foremost a care-giving company with 107,000 patients.

I'll quickly reference two specific outcome measures.

First adequacy which is essentially how well we clean the toxins from our patients blood. 94% of our patients received KKV of 1.2% or greater in the quarter.

Second clinical area we'll comment on is anemia where 82% of our patients had hemoglobin 82 or equal to 11, which obviously means that 18% of our patients were less than 11. This represents a 25% increase in sub 11s versus about a year ago.

It appears physicians are reacting pretty strongly to CMS new EMP policy and their efforts to keep patients below 13 are ending up with more patients sub 11. Our affiliated physicians have been very proud of their historically low percentage of patients less than 11 and we are working hard them in their efforts in this area.

Our clinical out comes continue to compare very favorably to the rest of American providers. Second topic area, Washington D.C., conversations have started on Medicare, once again.

The House of Representatives is starting with last year's Bill that they passed although they know it is weigh too big to pass in its current form. Bundling and an update once again be on the agenda - Congressmen's agenda that is, as well as, special need plans and maybe one or two other items. Too soon to do any predicting about what will happen there.

Topic number three is our outlook going forward. Several points.

Point A. We are maintaining the guidance that we previously provided.

Point B. Also, as we've explained before, the drop in our operating income run rate was in part driven by market factors and in part driven by under performance by me and the team.

Point C. We are entering in a a period of above average uncertainty around our operating income trajectory.

Point D. For those of us who are comparing us to FMC. it is relevant to note that if you adjust for geographic and other factors, one would expect their average revenue per treatment to be higher than ours on a simplistically normalized basis.

The primary driver of this is our disproportionately large presence in a couple of the geographies with average lower rates because of higher managed care penetration.

Point E. We are not providing any guidance for '09 at this time. Suffice it to say the range of O. I. outcomes is significantly larger than normal, if you look out into that time frame. And as we said as early as ten months ago, our '09 O. I. could be flat or down from '08.

We are acutely sensitive to the fact that this very substantial uncertainty around the O. I. trajectory makes it very difficult for you to value your equity investment, real or contemplate.

There's just simply no avoiding this uncertainty. However because on the payer side, point one, payers have consolidated. Number two, they are paying more attention to ancillary services and benefits like ours. And, number three, private rates have been increasing over the years. On the other hand, on the DaVita and provider side of the equation, in particular now from DaVita, we have a strong geographic footprint.

That's point one. Point two, we have strong clinical outcomes that save the payers a lot of money. Especially in terms of hospitalizations. Point three, we have strong relationships with physicians and patients. Point four, our competitors share the unfortunate reality of loosing money on nearly nine out of ten patients and point five, we have restored our internal capability to its historical levels.

When you put all these facts together it would simply be irresponsible for anyone to predict with confidence exactly how the next year or two will shake out. It appears there are going to be some long and intense negotiations and market skirmishes during that period of time and we are geared up to fight for reasonable rates, reasonable both in absolute terms and relative to our competition.

I'll now turn it over to Jim.

Thanks, Kent. I'll address a few questions about our quarter results.

First, regarding the major drivers in the quarter. O. I. results were primarily driven by several major factors. The first is treatment growth.

Second, a decline in dialysis revenue per treatment. The primary drivers of which were lower private insurance reimbursement and lower utilization of physician prescribed pharmaceuticals.

Third, patient care cost per treatment declined when normalized for the 6.8 million of one-time insurance settlements in Q3. This cost decline is due to a decrease in utilization of physician prescribed pharmaceuticals.

And, fourth, an increase in G&A due to seasonality, the timing of consulting and other purchase services and for the ramp up for the launch of additional Village Health special needs plans, which will continue in 2008.

As in the past, G&A will fluctuate from quarter to quarter, but you should expect us to be in the range of 9% to 9.5% of revenue for the year. A few things that you should consider as you look to Q1 2008 operating performance.

First, Q1 has 2.2 fewer treatment days than Q4. Second, Q1 will see seasonally hirer payroll taxes, which we estimate to be about a dollar a treatment. For these reasons all else being equal. O. I. in Q1 could be flat or down relative to Q4.

What about cash flow for 2007? Operating cash flow for 2007 was strong at $533 million. Cash flow for Q4 was particularly strong due to the timing of working capital and, in particular, the collection of accounts receivable. DSO decreased two days due to strong collections performance in the quarter and two days due to ary class of our health plan receivables to other receivables on the balance sheet.

In addition, you should remember that cash flow will tend to be higher in Q2 and Q4 due to the timing of our semi-annual bond interest payments.

What about cash flow for 2008? Well, operating cash flow for 2008 is expected to be in the range of 480 to 530 million. Maintenance Capex should be in the range of 120 million.

I will now turn over the call to Kent for closing remarks before we move to Q&A.

Separate from the short-term intensity around private rates, it is useful just to reflect for a moment on the fact that we still have a strong market position, strong recurring demand and absolutely no clinical ambiguity about who needs Dialysis and who doesn't. Operator, could we please go ahead and turn it over to Q&A?

Yes, sir. (OPERATOR INSTRUCTIONS) Your first question comes from the line of Gary Lieberman.

Thanks, good afternoon.

Could you elaborate a little bit on some of your comments. I guess to start specifically with what you might have meant by the under performance by yourself and the team in the quarter?

With respect to some contracts that we were working on and negotiating, some of the analytical work, some of the contractual specific work and some of the negotiating was just not done up to our historical levels. And as a result, some of the outcomes were different in a bad direction than they should have been. And there's just know other way to put it than that.

And last quarter you actually gave some real good detail in term of in one market where you saw some pressure.

Was that similar this quarter, was it one market or was it more widespread in terms of the pricing pressure that you saw?

If you look at the four-month period late in '07 there was a bit of a perfect storm. No one market explained any massive chunk but we lost a dispute on a contract in one case. We had a dispute abruptly start in another. Then we concluded some contracts, and in some of those we had some of the performance problems that I just referred to a moment ago.

So it was not explained in any one dominant way in any one market. It was more sort of a perfect storm combining the types of examples that we provided at the Capital Markets and, of course, some of those examples rippled through and affected the full quarter - the full fourth quarter, in a way that they hadn't in the third quarter.

One more follow-up. Just in terms of the guidance of saying you are going to be at the low end of the EBIT range, which is consistent with last quarter. Does that take into account - sort of a continuation of the storm or the perfect storm or does that incorporate an improvement in the performance and negotiating and some of the other factors that impacted you?

Let me take a stab at it then you come back at me if I don't answer sufficiently. We do feel we've restored our operating performance with respect to all the facets around this issue to what it was historically. So that, there shouldn't be any more of that.

Second, a number of those things that happened that were negative, either because of market forces or because of our under performance are done now. And they are in the run rate. And so in that sense they are behind us.

We've got more battles ahead and it would be naive to predict exactly how they are going to come out but we have we have a very reasonable chance of winning a whole bunch of them. I don't know if I'm getting to the core or not, you want to come action me again?

I guess just another way, are you more optimistic as you look out to '08 than at commercial pricing front than perhaps you've been in the past let's say two quarters?

All I can say is, we've incorporated a very somber, intense chunk of analysis into our guidance for '08, and our comments on '09. And so that's probably the best - sort of net answer- to the question.

I certainly believe we are not going to replicate the performance of the last four months of the year from an operating point of view.

But it's just so difficult to predict how negotiations are going to go because there's the other side and what competitors do. So I think that I can't go further than pointing to the guidance, unless you can made sit in the queue for a bit and come back and take another swipe at another question.

Maybe I'll do that. Thanks a lot.

Next question,

Thanks, good afternoon. A couple of things. I guess with regard to revenue per treatment and this is the second consecutive quarter in which it was down sequentially.

So just take another stab at what Gary was asking and just want to get your view on revenue per treatment over the next several quarters. Do you expect it to stabilize around this level or do you think it continues to drift down?

I will answer in the terms of the year not the quarter because Jim commented on dynamics of what happened in the first quarter.

There is still downward pressure on commercial rates and so if we lose a bunch of the battles then our revenue per treatment will go down. If we win in a bunch of them, it will go up. And so I think the were word stability is not one that we can talk about. Although of course, the net effect could be one that looks stable on the surface.

So there's a lot going on here over the next year or two and there's upside and there's down side. Does that help?

A little bit, LeAnne, did you want to say something?

Yes, I was just going to refresh the memory on Q3. Remember that was mostly the ASP change for Epogen and Epogen utilization. So Q3 was really more driven by pharma-than it was payer negotiation.

Okay. So on the pharma-piece maybe just refresh us? Hemoglobin percentage but what's your view on Epogen utilization having an impact over the next several quarters and next year, just as it relates to the impact on revenue per treatment? Just so we can understand where you are in your view on that as a factor over pricing.

Yes, predicting EPO utilization right now is difficult because the EMP regulation clearly affected a bunch of physician prescribing in the way that I outlined. So one of the factors that creates some of the uncertainty around our revenue per treatment comments is E.P.O.

And exactly what's going to be used and what's not. Now a whole lot of the changes in utilization have virtually no impact on economics because we don't have to by the drug and most of our patients are Medicare and there's a tiny margin there. But in the contest of the question about revenue per treatment, EPO uncertainly is one of the things contributing to revenue per treatment uncertainty.

If I could switch gears here to the balance sheet and some commentary around capital deployment. I know you said Rich was on the call. Hi, Rich. In your prior tenure, you did a great job restructuring the balance sheet. I was wondering if you could give us feedback on how you feel about the balance sheet? What you'd do differently?

I think there's a view that you may be holding too much cash and you could be buying back some stock given where leverage is. Would love to just get your thoughts.

Sure. Sure. I think since 2000 and continuing till today, the company has been very consistent on its views as a later to capital structure management.

I think the actions have followed the words all through that period. And our view on is that it is a business that can support a reasonable amount of financial leverage and it is a business that should have some financial leverage in order to improve the returns to the shareholders. So that hasn't changed.

We've always characterized the term reasonable leverage as an estimate of three to three and a half times debt to EBITDA.

And we've also always said, as you would expect because this is really sort of a long-term target, that therefore, there would be periods of time where we would be in that range. Periods of time where we might be below that range. Periods of time where we might be above that range.

And again if you go back and look at the history that's been actually pretty accurate. As we sit here right now, if you look at our leverage ratio on a net basis, debt minus cash. We are right around three times. So we are not really outside of that so-called sweet spot.

And I haven't been part of the conversations on the topic here but from my perspective given the state of the financing markets, it's probably not a bad idea to hang on to that cash rather than to have been paying down debt.

I think that if we thought we could reborrow the money readily on the same terms, we probably would have just paid down debt during this period. So that's my perspective.

Very helpful. Thanks a lot.

You're welcome.

The next question comes from the line of Bill Bonello.

Good afternoon, you guys. Hi, Rich. A couple of things. Can you remind us again, or just say again, because I didn't hear it, why G&A went up $14 million sequentially to 10% of revenue?

G&A went up full year a number of reasons. One is seasonal. The other is the ramp up of our special needs plans for Village Health. And the third is the timing of consulting and other purchase services.

Okay. And just when you think about G&A going forward, I mean it seems like back when you did the Gambro acquisition there was an immediate step up in G&A and one of the exciting opportunities was that that could probably come back down as you integrated that. But instead, it's essentially kind of all eaten up by this R&D or whatever.

I mean, should we permanently think of G&A of having to be above 9% of revenue? Is that kind of where you have to operate as a company?

I wouldn't concede that point and it remains true that we, on an apples-to-apples basis brought down G&A as a percent of revenue a fair amount since the deal and it's partially offset by the change in the stock option accounting. I think that's something like 0.6%.

And then as you point out so the G&A, some of the new R&D and strategic initiatives, but I would guess that over the next couple of years, some of those initiatives are either going to start growing their top line in a way that brings down that ratio, or we are going to conclude that they are not working and therefore we'll scale down the expense.

And so one way or another, I think there will be some pick up, some leverage, in this part of the cost structure. But not in '08, '09.

And, of course, if we come up with some other R&D or experiment idea that could change what I've just said.

But we put some pretty significant stakes in the ground and within the next two, three years, we'll have a pretty good idea if they are going to add materially to the shareholder value or not.

Just to make sure I understood the answer, in '08 or '09 still above that 9% probably?

Right, for '08 we said nine to nine and a half and for '09 I wouldn't see any reason to suggest it being any who are right now as we sit here today.

To revisit your cash question, that Rich, your comments about cash versus paying down debt, you make a heck of a lot of sense but with almost half a billion dollars of cash on your books and your stock down 13 bucks points since October is there a point at which share repurchase becomes attractive?

Bill, the I think we've already said about the business and I don't think this has changed is over an extended period of time it's likely that the business is going to generate more cash than we can invest in attractive growth opportunities, primarily acquisitions and de novos but also some of the strategic initiatives that Kent mentioned.

Therefore, if you put on a multi-year hat, it is always reasonable to think that we might buy back some stock, particularly given what we say about thinking the business should have a reasonable amount of leverage on it.

So to take it further and kind of ask us to speculate on when the stock price is undervalued or over valued, I think is just not something that we would be comfortable doing. And we probably would get it wrong.

Okay. Well I'll just follow up and then I promise I'll hop back in the queue, but it's a massive amount of cash and so I guess you don't need that much cash, I presume for working capital and so the alternative then - is that you're keeping things available strategically.

It doesn't seem like within the dialysis world you can put anything near that kind of money to work, so should we be at least contemplating a relatively large spend on something outside of dialysis?

I think that's highly unlikely in the near term, Bill. The fact is, however, there could be some things that come available within the dialysis space that could eat up a bunch of that cash.

And in addition, if you are willing to go outside of '08, we did by the home IV company this past year and we are intensely learning and listening and observing and hoping that we conclude that that's a place where we'd like to deploy some capital, since that's still a pretty fragmented market in some respects. That's another factor that affects our planning for '09 and 2010.

So I think your word choice was a little more dismissive of the capital that might be productively deployed in the dialysis space. Particularly during a time of payer uncertainty. And then separate from that, we hope we conclude that this new segment is worth putting some growth capital into..

Thank you, Ben, that's actually helpful.

At the risk of being redundant to be sure that we communicate this clearly, given the state of the debt market - our debt the last time I checked was trading at like 94.

So if we were to, instead of holding this cash right now, pay down the debt, as it stands right now it would be much more expensive to reborrow it.

No questions on that front.

Thanks, Bill.

Your next question comes from the line of Andreas Dirnagl.

Good evening, guys. To keep connecting some of the dots that Bill was trying to connect there, could take your commentary, can I be more blunt, you said there was some dialysis assets that may become available.

Is it a safe assumption to say that given the FTC problems had you last time around, it's unlikely that you are going to make a domestic dialysis acquisition of the size that would eat up a significant portion of your cash?

No, that's not safe to say. We have the ability to buy a significant number of additional dialysis centers in America without any significant anti trust issues.

And the question then becomes, are those available in a group or is that going to be sort of one off transactions that you would complete over a year or two?

Both is the short answer. There are a number of as we call them MDO's. Medium Dialysis Organizations so those are pretty sizeable chunk, and then there are a host of the independents and the iron knee is if in fact the entire community starts to experience significantly more intense rate pressure, the percentage of those independents and medium-size organizations that are interested in selling will go up.

So to get back to your original question, it is not a good assumption right now to say that we could not deploy a significant amount of that cash to buy domestic Dialysis businesses. On the FTC front you recognize it's not a precise science but we've certainly done our share of the work on it and lots of parts of the country we have very substantial latitude.

Then maybe just two other quick questions. Talking about EPO utilization, in the past quarters you've sort of discussed it as being down in this sort of 3% to 5% range and I think specifically in the third quarter you said it was clearly a little bit more towards the 5% range in terms of the declining in EPO utilization.

Are we still sort of within that range even in the fourth quarter with the additional decline or are we seeing greater declines than that sort of 5%, significantly greater decline?

Yes, just to recap the history for people that are newer to this aspect of our situation, what we said about a year ago -- well almost exactly a year ago was 2% to 5% reduction in EPO was our guesstimate as to what would happen with all the trauma and publicity and all the rest. And then in the fall, we said that we were at that 5% number, sort of nine months later, we were at right where we had put the upper ends of our guesstimate. And we said we could no longer predict what would happen next, because we had no idea what the EMP policy would do and how physicians decision making would be affected by that and whether or not there would be any spill-over from the controversy in oncology and all the rest of the stuff going on. So at Capital Markets and in the fall we just said, we are at the 5%, that's consistent with what we said, and now for the next 9 to 12 months, all bets are off.

Since then, there have been additional declines in EPO use but it would be inappropriate to put a number on it because it's only been a couple of months and it could be just too misleading in either direction?

Was there any sort of, and I know you dont like the word - stability - or even upward trajectory, once we went past the actual new label, in the November time frame? And I know you're halfway through the first quarter of '08.

Yes, I know what the answer is to that specific question and I'm looking at LeAnne, she does not either. So maybe follow up with us on that.

But I don't think you're going to be able to glean -- even the precise numerical answer to your question about post the label. I don't know that that's going to help trying to guess what's going to happen in the next six months.

I'm not looking trying to guess for the next six months, I'm just anything to figure out what it did in the last quarter. And that leads me to my last question, which is, you've kind of identified the pieces of the negative drivers to average revenue per treatment as being sort of contract changes as well as this EPO utilization.

And I'm trying to figure if you could give a little bit more color just in terms of was it one more than the other, were they relatively equally waited in terms of their impact?

It was dominantly in the private rate side by a very significant margin versus EPO.

And that probably leads to the comments that you made both at our conference as well as today in terms of that's not something necessarily that you would expect or want to extrapolate going forward, i.e.

You think that there was a certain aspects of that that was your own fault for lack of a better term?

Correct. But I have to add on to that, we are not going to repeat some of the mistakes we made in a four-month period of a couple different flavors that cost you and our other shareholders a bunch of money. That is not going to happen.

We've fixed that stuff.

Having said that, we got some very intense negotiations coming up. And a wide range of out comes from positive to negative.

And even assuming our historical level of performance in the payer contracting area, it would just be dumb of us to say that we could more precisely predict what the outcome would be.

Am I being clear on that.?

Absolutely. Final question, you made an interesting comment which is thank you talked about the fact that we are just beginning to start discussions about potential inclusion of some dialysis issues in what I would identify as the physician fix bill.

I think it would be interesting if you took a poll of investors on this call, most of them would probably tell you that they have heard, or considered it to be dead issues. Do you think that's correct or do you think it's true that you could get some legislation passed this year?

Meaning the physician fix being dead? Or dialysis -

Dialysis - specifically MSP extension and Medicare composite rate increase.

On MSP right now - there's -, as you know a lot - not a lot of opposition. There was small amount of very intense opposition to MSP in the fall and that killed it, as you know. And so right now it would be - anybody who tells you that they are optimistic about MSP being resurrected in the next few months you should lose all faith in their judgment.

Having said that, it's good health care policy and it's a pay for and those ideas are never dead. But right now, nobody is running around promoting it. But there is a broad base of buy partisan support for it as a matter of policy that just happens to not really matter right now.

On an update, anybody who tells you that that's dead for being part of the physician fix, I would say is being premature.

Okay. Great. Thank you.

Thank you.

Next question, Justin Lake a couple questions here. You mentioned the very intense negotiations coming up.

Thanks. A couple questions here. You mentioned the very intense negotiations coming up. I think - I would be curious to hear your thought process on comparing how did the negotiations slate looks for 2008 versus 2007? Do you have more bigger contracts that you're going to be renegotiating here or do you think it's kind of in line with how 2007 looked? ?

Right now and, of course, all this stuff can change. Right now the sort of bulk of business that on the table or in play is comparable.

The level of resources and proficiency and competence and attention we are bringing to it is better. More like what we did in '06, '05, '04, '03, '02, '01. It's not going to guarantee us anything but it's better than nothing.

Absolutely. As you think about the - you mentioned the third quarter most of the decline was in from a utilization standpoint on the pharma-side, the fourth quarter you said was mostly commercial and you kind of through out a couple of pieces there.

I'm just curious, since you said one was a difficult competitor, one was under performance and the other was just kind of the normal win some, lose some.

Given the fact that, we'd like to think your competitors are not going to do anything dumb going forward and your under performance issues are being cleaned up. I'm curious as to whether you can break that down for us, how much of the fourth quarter decline was a function of the kind of normal win some, lose some as opposed to the other two performance issues we were told will not occur?

It's a very reasonable question but it gets to be so darn subjective and arbitrary to try to allocate since all those things sort of tend to overlap.

Maybe let me take one establish l stab at it see if it's helpful. I'm going to say is true, but I worry you can going to draw an inappropriate conclusion from it. A very substantial chunk of what happened to us in Q4, the end of '07, should not have happened. And we underperformed.

That explains a substantial part. So that part is not 10% of what happened or 18% . So that's embarrassing. And on the other hand one might say that bodes very well if they are being realistic and saying that they restored their historical level of competence.

That's where I would say just be careful because there's a real formidable set of football team on the other side of the ball and even if we play better than we have in the past, we are not cocky about how this stuff plays out.

So that's more data then goes a pretty long way of answering your question about the fourth quarter. But I worry if you infer too much from that and extrapolate

I think that was very helpful and we'll try not to extrapolate too much.

Just on the fourth quarter compression on the payer side .Should we expect - given that these, that these renegotiations always take place at different time in the quarter.Can you tell us if most of the private rate compression that you saw is run rated in that number that you recorded here? Or could some of it have happened in December and we should see some of it kind of ease out into the first quarter?

I think that was very helpful and we'll try not to extrapolate too much. Let me, what I'm going to do is put you on mute for 30 seconds here and see if there's away we can ad value and give an answer that makes sense.

Okay? So bear with me rather than have me just sort of say I can't answer the question, just give it a try, okay?

Happy to wait.

Okay. Thanks for everybody's patience. I think you'll be happy we did.

Right now everything bad that has happened, if we just put that title on it, is in the run rate that you're seeing. So there's nothing that happened on December 15th, which is not fully reflected therefore in the quarterly run rate number.

And, of course, no statement is 100% true, but the statement I just made or we just made is certainly 90% or more true, that all of the serious incremental things that happened are reflected in the run rate you saw and going forward, it will either go up or down or stay the same based on new big outcomes, not the rolling forward of old ones.

Last question just on CMS. I heard that there potentially could be a bundling proposal imminent. Is there, anything you might be able to share with us on that?

The rumors are that perhaps as early as tomorrow, CMS will come out with the bundling report that was commissioned a long time ago. And on which they did a lot of work and it got held us for various and sundry reasons.

So that therefore, the rumors are of reasonable quality, as rumors go, and therefore, there's a significant probability that it will come out soon. And if you would ask us to guess what it will say, we would guess that it will say something like, "Bundling is a good idea.

We think bundling is doable but be careful because if you do it wrong, it could really below up in your face."

That's great. I'm all done. Thank you.

Thanks, Justin.

Your next question comes from the line of Chuck [Ross].

Good afternoon. I may have missed it when you gave maintenance Capex for this year, did you also give was expect to spend in growth Capex, as you've done in the past through de novo or small acquisitions? If not can you give that, please?

Maintenance Capex for 2008? Is expected to be.

Yes, you gave that, what I missed was you normally give growth Capex, de novos, et cetera.

We project growth Capex for 2008 to be in the range of 150 to 200 million.

Okay. And you spent in this past year - you spent about 400 million on Capex acquisitions, you are obviously going to spend three, 270 to 320 in total Capex this year.

I'm trying to understand, when you talk about flattish operating profit this year, maybe flat to even down a little bit next year, and all the uncertainty, yet you obviously, continue to spend at a very healthy rate for growth. So I'm trying to understand kind of how those two things go together?

Yes, it's a pretty, very legitimate question and fortunately there's a very straight forward answer. That if you have a very attractive return on equity on a risk adjusted basis and then some bad things happen and it goes down a little bit, but it is still an attractive return on equity, which is risk adjusted, you keep on investing capital because it's way better than the alternative things to do with it. So that's why.

Chuck, it's LeAnne, remember this past year we bought the infusion business which was 85 million of that, so that was slightly different than what we historically just spend on dialysis.

Okay. Okay. Thanks.

Your next question comes from the line of John Ransom.

Good afternoon, I apologize, I'm joining the call a little late from the airport. Could you quantify both fourth quarter and 2007 the total investment in both the DaVita Village as well as the dilution from the home infusion deal?

The home infusion deal is just not material because it's so small. I don't even not mathematical answer offhand but it's very tiny.

And then on Village Health, what we disclosed in Capital Markets is that if you look at '07 and you look at '08, the operating income deficit in each of those years would be somewhere between $12 and $20 million.

Is there anything else you are doing from an R&D standpoint that could be characterized as discretionary?

Short answer is yes and the largest item in that category outside of Village Health is our specialty pharmacy and in the Capital Markets, we talked about that in '07 and '08 having losses in the same range as Village Health.

And in fact what was happening is one was going from kind of 12 in '07 to 20 in '08. The other was going from 20 in '07 to 12 in '08. So the aggregate is basically identical year over year for the two as a group.

Outside looking in and recognizing there are a lot of things we don't no outside looking in. Between the negative that you have on your cash and the knocks you are making here, one could easily conclude, I mean, there's $0.30 of earnings right there that's not being shown by the way you're choosing to run the business. Not that there's anything right or wrong about that, but just the earnings power of the company is being masked a little bit by some discretionary decisions you guys are making.

Very fair point but we might just want to changes the verbs a little bit. It's not being masked because we disclosed it.

Sure.

In order that everybody could evaluate the longer term upside versus the short term trade-off, which you've accurately characterized.

So we didn't mask, quite the opposite. But everything else you said is very true and our board is very intense about continuing to push on if these investments make pragmatic sense.

Here's the stupid question of the call.

I've never asked a company this - but if your debt is trading at 94, company's tender for bonds all the time at various prices, what's to keep you from going to a hedge fund or some holder of your debt and making an offer less than par as a more accretive way to deleverage? I guess in a cash flow is one thing, I really don't understand the deliberate negative arbitrage cash versus debt that you're choosing to do? Is there a way to circumvent the par versus 94 math that you talked about?

I think the answer to your question of what's keeps us from doing that and the answer to that is nothing.

So that is a possibility. The issue however is that once we do that our ability to reborrow is on similar terms is quite limited. So that would be the trade-off.

Right.

Certainly but certainly your point is, is something that can be considered.

If you keep going you are going to have $800 million plus of cash by the ends of the year .The same shares outstanding and thats going to be - that seems like an abundance of conservatism. I will leave it at that. Thanks.

The interesting thing is that had we just paid down debt and we are sitting here at three times gross leverage instead of three times net leverage, maybe it would be a different conversation.

So I really do come back to this issue of there's some short term uncertainty in the financial markets and therefore, we need to be careful about having enough financial flexibility to meet the business needs.

When I say business needs I mean the ability to invest in growth opportunities, et cetera.

Your next question comes from the line of Paul Lee. Hello?

Yes, sorry, my phone line was muted. I noticed that you have closed 20 centers, which you provided administrative services. Can you discuss what's the thinking behind that decision?

We didn't close them. We have been providing administrative services over a long period of time to a group and they have been building their management capabilities and they have taken on the administrative duties related to those centers themselves. They are building and have built their capabilities.

If my counting is right you still have 13 centers you provided a administrative services for, right?

I think the number is higher than that but let me look here for a second.

It approximates 1% of the, whatever the exact number is, it's only about 1% of the install base.

Thirteen - where we provided a administrative services and then there's ten additional ones where we have a minority (Inaudible)

The 13, we should expect that you are going to terminate those service contracts, are your customers, once they develop their own capabilities, they are going to terminate the contract? Is that a reasonable assumption?

I don't think so, no.

Okay. That's all the questions I have.

Thank you.

Your next question comes from the line of Mark Arnold.

One follow-up question. You mentioned the home infusion business.

Can you, are you guys at a point where you could at least give us an update now that you've had that business for a full quarter? As to kind of how its progressing in term of your evaluation of that space? I know there was an acquisition just last week, a pretty good sized one in that space here. I'm just curious how you guys are evolving in terms of how you're looking at the home infusion opportunity?

Sure. Were very pleased that the team is as good as we hoped they were and as to any more striking conclusions about the business, we really have nothing to add.

We felt good about it, of course, which is why we entered the space but we haven't made any serious dramatic incremental conclusions beyond that.

We are probably going to take a nice measured approach towards learning it before we do anything more dramatic.

Just one other question. I'm thinking back to your analyst day.

Have you guys given, you've given guidance for Capex spending and growth Capex but have you given an acquisition, a number of acquired patients target like you have in the past for 2008?

Actually we didn't set a number historically. We've been in the range of targeting centers with about a 1,000 to 2,000 patients.

Okay. Great. Thank you very much.

Yes, ma'am?

Operator, do you have someone else.

Yes, sir, (OPERATOR INSTRUCTIONS) We do have a follow-up question from the line of Darren Lehrick.

Thanks for taking the question.

There's been quite a bit of activity on the out of network benefits issue and I'm sure you saw the New York AG get involved.

I guess just a couple of questions. Do you see pressure related to how payers apply reasonable and customary rates that differ from your own? And do you think the AGs case could be beneficial to the industry? Just wanted to get your read on this recent event?

Okay, let me take a stab, before I do let me just clarify a couple of parts that have been raised in previous questions.

Just so people no, we did close one or two centers in the most recent quarter and that was for the classic reason, where we didn't have enough private patients or the private rates, while significantly higher than Medicare weren't high enough to offset the losses on the 90% of the patients who are Medicare and Medicaid, and after that happens for awhile, we have to close some of those. And so separate from the termination of the administrative services agreement, I did want people to know that we did close one or two and we are not trying to mask that.

Second, on the acquisition front, our guidance for '07 was we thought we'd end (Inaudible) centers with average sentence of about 1,000 patients and that's probably the right number to think about for '08.

And then third, on your question, Darren, we don't no enough about that New York case. What we've been told is that the Attorney General is concerned about insurance companies doing things with respect to out of network benefits that are not appropriate and if that's what it's about, then that is probably good for all providers because it is bad for us when our patients don't get the out of network rights that they bargained for when they bought the policy.

But that's a really superficial response to your question because we don't no much about that action at all.

That's fair. Then the lastly here for LeAnne. Do you have any enrollment information to share with us on Village Health, this new product? I think the CMS data came out but it does lag the February data lags, was wondering if had you anything there?

No, nothing to contribute now.

Okay. Thanks.

Your next question comes from the line of Jeff More.

Good afternoon everyone.

Kent, just a couple of loose ends kind of questions, most of them have been answered. You guys spent it looks like about $17 million in the fourth quarter, relative to assets that are unconsolidated.

Is that consistent with what you have in your opening remarks there in the press release, the 50% noncontrolling ownership interest in six centers? And if it is, give us a perspective on the degree to which you might anticipate more of that kind of activity going forward. That would be question one.

Yes, that is a correct correlation and no specific comments now about future transactions that we might undertake.

And owing to your conservatism, I assume the answer to this is 91 but is it true with your cash balances there's nothing in the way of esoteric securities?

No, no, we have looked at the quality of the securities that we place our cash and we are very comfortable that they are either U.S. securities or AAA rated securities.

Fair enough. Last but not least just as a point of clarification. I think I understand you guys have articulate well the reasonsings behind keeping the cash on hand. For what it's worth I think it's debt is actually $0.90 or $0.91 today, Rich.

Great, thanks.

All right, guys, thanks very much.

Thanks, Jeff.

Appreciate it, Kent.

We do have a follow-up question from the line of Andreas Dirnagl.

Just a couple of quick housekeeping things. Can anyone there maybe provide a little bit of comment just what's going on on the non-treatment revenue line?

We saw a pretty significant jump this quarter and I don't think it can be explained what way by the infusion business because the jump is probably half what have they generated last year in revenue alone.

The growth in non-dialysis revenue is principally the full effect of the home infusion business, as well as, some small growth in our pharmacy and Village Health operations.

Okay. And I know you guys only provide operating income guidance but can you maybe just provide some commentary on sort of the composition of your interest rate structure at the moment? And to the extent that would you benefit from the significant decrease in rates that we've seen over the past couple of weeks?

Can you repeat the question?

Sure, basically I'm trying to get an idea what your fixed floating percentages are and how much you think you are going to benefit from the decrease in rates that we've seen.

We are going to have to come back to you, we don't have that in front of me right at this moment but we'll answer in a second.

Okay. And while you're doing that, maybe, Rich, one or two questions or commence. Personally just gather to see you back, but I notice that you specifically said in the press release today that you're only going to be doing this part-time. Is there not enough to keep you busy there full time or is it that you are going to be working on specific projects?

There's plenty to keep me busy. The reason is I'm just not available right now to offer more than that amount of my time.

And is that sort of short term or would you expect over the next one to two years that probably by the end of it you will be doing it more full time or is that going to be part-time for the entire time?

I would expect it to be part-time for the entire time.

Great. One more sort of question or comments, Rich, when you had gotten this pressure, this push back in terms of what you are going to do with your cash and all the different options that you had. You keep pointing to the fact that, yes, you could repay debt at - or rebuy your debt at somewhat of a discount but that it would cost you more than if you need to do reborrow that.

The kind of only way that that argument is really valid is if you expect to need to reborrow it within a reasonably short time frame.

So is that one way of potentially signaling that to the extent that you if you do do something on the acquisition or share repurchase side - that it's going to have to be in a relatively six short term? Because otherwise, I don't think that argument makes sense because of the carrying cost of the cash.

Yes, I wouldn't directly imply that from our statements.

But we are trying to keep from getting into a situation where if in fact we do have an opportunity that requires some cash that we wouldn't be in a situation for taking advantage of that. We would have to re-fi all of our debt at much, much higher rates.

So that's the reason why.

Okay. And so just to be clear, I mean sort of the idea of keeping cash on the balance sheet in these uncertain times, which is what you've said. Really has more to do with taking advantage of potential opportunities, not because you think you need more cash?

Again this is my perspective because it's literally my first day. So from my perspective it is prudent at the moment to hang on to some cash rather than to pay down debt for the reasons that I've mentioned.

And Andreas, on your question, 80% of the debt is at fixed rate.

It is. Okay. Great. Thank you very much.

Thanks, Andreas.

You do have another follow-up question from the line of Justin Lake.

Thanks, one quick follow up. The incremental other revenue that you mentioned, the $14 million up or $11 or $12 million up. Can you just walk us through, so the home infusion, pharmacy and Village Health is where you came from, where is the offsetting cost running on the P&L for that?

Both in-patient care cost and in G&A.

Okay. So the patient care costs are actually inflated somewhat because those would be kind of nondialysis costs? So they don't run through dialysis and revenue per treatment in dialysis but they do run through patient care cost?

They do run through patient care cost.

Can you give us an idea of the split there?

No.

Okay. Thank you very much.

At this time, there are no further questions. Ma'am, do you have any closing remarks?

No, thank you all for your attention and consideration and we will do our best here between today and the next time we get together on the phone. Thank you.

Thank you. This concludes today's fourth quarter earnings conference call. At this time, you may all disconnect.