德維特 (DVA) 2009 Q3 法說會逐字稿

Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to the DaVita third quarter 2009 investor conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Ms. LeAnne Zumwalt, you may begin your conference.

Thank you. Welcome, everybody, to our third quarter conference call. We appreciate your continued interest in Davita. I'm LeAnne Zumwalt. With me today is Kent Thiry our CEO and Rich Whitney our CFO. I'll start with forward-looking statement disclosure.

During this call we may make forward-looking statements. All of these 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 10-Q and 10-K based on information currently available to us. And we do not intend and undertake no duty to update these statements. Additionally, we'd like to remind you that during the call we will discuss some non-GAAP financial measures. A reconciliation of these non GAAP measures to the most comparable GAAP financial measures is included in our Form 8-K submitted to the SEC and available on our website. I will now turn the call over to Kent Thiry.

Thank you, LeAnne. I'll cover critical performance, bundling, healthcare reform and our outlook. First, clinical outcomes, which we've always done first because that is what needs to come first. We are, in the end, first and foremost a care giving Company, now at nearly 117,000 patients.

First, adequacy. Essentially, how well we are doing at removing toxins from our patients blood. This quarter, 95% of our hemodialysis patients had a Kt/V greater than 1.2 That's 90-day data. Second, with respect to vascular access 64% of our patients had fistula's in place. Again, 90-day data. Third, (inaudible) management, physicians have managed 88% of our patients to hemoglobin levels between 10 and 13 in the last three months. For all these and other critical measures, our patient outcomes compare very favorably to national averages, and the numbers would be even better on both an absolute and relative basis if we were to exclude acquisitions and de novos in both those categories. We do more than anyone else, and in both those categories it takes awhile to get those centers on average to the level that all the rest of our centers are at. Our quality outcomes not only result in healthier patients and families but also create substantial savings for the American taxpayer and insured populations.

On to bundling. Proposed rule as you all know, as a lot of issues and mistakes and incomplete analyses, and this is totally normal. The bad news is if they get their final rule wrong in any significant way, patients will be hurt badly, and centers will close. Potentially, a lot of centers, since we are a single DRG industry with lots of small centers and very high patient variability in terms of costs.

The good news is that this bundling program can also be a win-win for patients and the government if CMS is able to fix the stuff that they're relentlessly working object. Big negative is that the proposed rule cuts the industry's reimbursement by significantly more than the 2% that Congress intended. That's a big negative. On the positive side. It's nice to look out there and see a market basket minus 1% in the future. It's nice to look out there and see $1 billion of spending that wasn't previously bundled, now bundled, creating whole new avenues of competition and innovation. It's nice that we're better situated than most others, the more integrated the service and product that our customers want, customer is broadly defined as doctors, government, private payors, patients, the better off the LDOs are. And finally, the challenges of bundling themself could lead to some very important acquisition opportunities. So big negative and some positives. A lot of it hinging on the final rule.

Just to wrap up the bundling commentary, a lot of work in a short time frame so we have a lot of empathy for the folks in CMS. Are you listening? Congressional intent was clear, which was 2% savings for taxpayers, while having a bundle which protects beneficiaries and encourages innovation, and it's good that the kidney care community has a solid track record of working with CMS. On to healthcare reform.

The outcome, of course, is highly uncertain as we all know. For us, it gets pretty simple, although that's always dangerous to say. Any reduction in the number of private insurance patients is bad. Any increase in the number of private insurance patients is good. This is because 87% of our patients are government, and we lose money on those 87% and rely on the cross subsidy from the 13. There's a new category one has to consider now which is any increase in the number of publicly insured patients, but for whom the rates are negotiated in the market. And that may very well be a good but hard to go any further than that, until it actually gets defined, that new third category relatively new on the reform scene.

The other important point to note is that the more pressure there is on ESRD or Medicare spending in general, the more incentive to pass an MSP extension, which is not only good healthcare policy, but blatantly (inaudible) that our patient are the only Americans who can't keep private insurance even if it's better for them and their family. Doesn't happen to any other American unless you're on dialysis.

Fourth and final topic for me, our outlook. We've raised our operating income guidance for 2009 to the 930 to 950 range, reflecting our performance through the year to date. We also expect that we may modestly exceed our prior operating cash flow guidance of $550 million to $600 million, and we are initiating 2010 operating income guidance at a range of $950 million to $1.20 billion. I'll now turn over to CFO Rich Whitney.

Thanks, Kent. Third quarter was again characterized by healthy volume growth, stable private pricing, strong cost controls, and very strong cash flows. Compared to Q3 of last year revenue was up 9%, operating income was up 10.5%, and EPS was up 19% on a 1% lower share count. Non acquired growth was 5.2% in the quarter, which was an increase from recent quarters. You should note that, however, when normalizing for the number of Monday, Wednesday, Friday days in the quarter, non acquired growth would be 4.8%. Still a solid number. Dialysis revenue for treatment increased $2.79 from Q2. The main contributors were increase in physician prescribed pharmaceuticals, an increase in EPO ASP, and an improvement in commercial rates. These items were partially offset by some deterioration in private mix.

Dialysis operating expense increased $3.28 per treatment sequentially. There were three drivers. Increased pharma utilization, increased pharma pricing, and a bunch of small puts and takes across a number of line items. Our quarter end cash balance was $582 million, and over the last six weeks, we have purchased a total of 2.2 million shares for $121 million.

In summary, Q3 was a strong quarter across the board. Volume, revenue, costs, cash flows, as we look into Q4, there is risk that some operating costs could be higher and operating income could be lower as we often see a seasonal decline in labor productivity and an increase in G&A expense in the fourth quarter. Additionally, as we move into 2010 there is risk that we could experience a more significant private mix decline due to sustained levels of high unemployment, as well as losses of private patients as a result of payer negotiations. Our expectations regarding these swing factors are reflected in our operating income guidance range for 2010.

Okay, shifting gears, a little more on the proposed bundling rule. We do not plan to discuss every detailed aspect of the rule in the prepared remarks of the Q&A. I'm sure you can appreciate why. But there are four major areas of concern that we will cover. One, orals. Two, labs. Three, case mix. And four, the transition adjustment.

Okay, so the first issue, the inclusion of oral phosphate binders and sensipar in the bundle. Four points to make. The $14 per treatment proposed for the oral drugs is clearly inadequate to provide the appropriate level of care to patients. In fact, we estimate the cost is at least three times CMS's calculation. Second point, CMS simply does not have the data to calculate these costs. Third point, a pilot or a demo would really need to be done in order to help them capture the information. And fourth point is that our legal analysis supports that they do have the authority to properly fund orals in the bundle, or to delay this provision if they choose to move forward on including orals in the bundle.

Okay, so the second issue, bundling of lab tests. CMS has underestimated the quests and added a 20% copay to labs. The kidney care community is recommending a discrete list of tests so that the costs can be determined accurately. Also, CMS should fully fund the labs and should not subject them to coinsurance, which would be consistent with the rest of the Medicare program as well as the intent of the MIPO legislation. So these two issues combined amount to a shortfall of about $3 per treatment.

The third issue, the expanded case mix adjusters. As you probably know, CMS has proposed to expand the case mix adjusters from three currently, to 17. Many of these proposed adjusters are not the best predictors of high-cost patients and, in fact, have significant underlying issues in the real world. For example, some of the adjusters are highly subjective. Others require data that is simply not available to us, and for many, the administrative burden would be very high.

Issue number four is the phase-in adjuster. CMS has proposed a 3% phase-in adjustment which would apply to both the bundled rate and to the transition rate. And they're doing this in order to account for a predicted optimization by providers of their individual decisions to transition or not. This methodology, the one they use to estimate this phase-in adjustment, is flawed, and, in fact, it negates the original intent of having a transition period, and would result in reimbursement cut greater than the intended 2%.

So, covered a lot of the things that are issues with the rule. On a positive note, CMS did listen to the industry in a number of areas in the rule when putting forth the preliminary rule. And they are engaging productively with the industry on many of the issues. So we are hopeful that the industries analysis will inform them and assist them in making the appropriate adjustments in the final rule. But, in the end, with no changes to the rule, centers will be forced to close. It is that black and white. The good news is that we do expect there to be changes in the bundling rule, and, of course, all of the uncertainty is around exactly how much the rule will change between preliminary and final. So, I will now turn the call back to Kent for a few closing remarks.

I actually think anything I would say at this point would be redundant to what either Rich or I have said so let's go straight to questions, operator.

Absolutely. (Operator Instructions) Your first question comes from the line of [Steven Silber]. Please go ahead, sir.

Steven? Is your mute on, Steven? Operator, perhaps we can go on to the necks one and come back to him.

Absolutely, of course. Next question comes from the line of Gary Lieberman.

Thanks, good evening. Looks like you had some pretty good facility growth. Can you comment on Texas? You had noted before that had been a bit of an issue with getting some new facilities opened. Has that cleared up at all?

The short answer it's cleared up some, and we're continuing to work at to the get it cleared up the rest of the way. We're neither optimistic or pessimistic. The fact that we made progress is encouraging. The fact that there's still a bunch sitting there is a little depressing. So we're on it working and leading an industry coalition.

Okay. Any more color? Is it just that they've actually hired some people to assign to the project, or what exactly has cleared it up to the extent that it's been cleared up?

I don't know the details any more. I know the details from a few states but I don't know which details pertain to which states. In some cases it means they've hired extra people. In some cases it means we're paying for the surveys. In other cases it just means that they got enough letters that they reprioritized themselves. It's kind of a mixed bag of solutions depending on the situation. There's no one silver bullet that's going to solve it in every state.

Gary, on the issue overall, just to give you a sense, we're pretty much in the same spot that we were last quarter in terms of the overall number that are delayed. However, I will say at this point we're do you down to somewhere around 15 that are in the category of having been waiting longer than six months, and the rest of them are more recently constructed centers. So there has been some progress in getting some of these centers certified, but the extended time that it's taking means that the states are just not keeping up with us in terms of the number of new centers we're putting into the pipeline to be certified. So that's generally, overall, obviously in target states like Texas it's a bit more difficult.

Great, that's helpful. Then maybe can you talk a little bit about how the bundling of commercial contracts is going? Is that going according to whatever schedule you might have? Is it -- are there any issues in terms of transitioning from a rate perspective and any other issues associated with it?

Yes, we don't have any particular schedule. I think as we've said in the past that our percentage of bundled business has been increasing for the last several years, really, and it continues to increase this year, and we expect it to continue going forward. So we don't have any particular schedule, and in some cases we'd prefer to be bundled. In some cases we don't prefer to be bundled. It's really situation dependent.

Would going towards bundling be the cause of any of the issues you noted in terms of potentially losing contracts or anything of that nature?

No. Just the typical rate discussions with big payors and trying to figure out a long-term solution.

And then maybe finally, just in terms of uses of cash, I guess you're up to about $580 million of cash on the balance sheet. It was nice to see you guys repurchase shares and get a new authorization. I guess in terms of thinking of what the priority is for uses of cash could we potentially see an increase in the number of acquisitions, or where are you guys thinking on that front?

Our priorities stay the same, we always look first at strategically leveraged growth at an attractive return on capital. That's always what we would like to do first. When there's not enough of that in our near-term future is when we turn to doing other things with the cash like buying back stock. It's so difficult to predict when those attractive targets are going to be available. So we continue -- we have our fishing lines out. We just can't predict if we're going catch anything soon.

Okay, thanks a lot.

Thanks, Gary.

Thank you. Next question comes from the line of Kevin Ellich.

Good afternoon. Thanks, guys. Rich, I wanted to go back to one of your comments from your prepared remarks about deterioration in the private mix. Could you talk about how much you guys are seeing, what is the payer mix now and how much do you expect in 2010?

What was the last part of your question?

Oh, how much you're expecting to see the mix shift in 2010.

Okay, got it. Okay, well, we have seen a trend of private mix deterioration, and it's been in the neighborhood of 50 basis points over the past year or so. Kind of depends on exactly what time period you look at. You should note that our private patient count is still growing. Just more slowly than our government business. That's what weighs on the mix. There's really two primary drivers. One is actually improving mortality. So our patients on dialysis longer than 33 months is growing faster than our patients that were on dialysis less than 33 months. This is, of course, a good thing, and is a reflection of our focus on high quality outcomes and a lot of the good work of our clinical teams. But it does, obviously, mathematically, weigh on our mix.

And then the second driver is a deterioration in our admissions mix, or the mix of our patients at admission. And this is where we would see the impact of unemployment and the decline in insured lives that are commonly reported by all the major insurers. The final point that I will make is that to date, the mix shift has occurred primarily in the lower rate segment of our commercial population, and that's minimized the impact on our overall rates. Does that answer your question?

Yes, that's helpful. Then going back to the bundling and the case mix adjusters, I think that was the third point that was brought up, I was wondering if there's any case mix adjusters that Medicare did not include that you think should be included.

Yes, race. Race is actually -- has far more predictive power than any of the variables they played with, and it also has more pragmatic relevance in that there are dramatic differences in preponderance of different races across different centers. So from a policy point of view, it's both feasible, it's humane, it's implementable, and it's mathematically relevant. So we hope they do that.

Okay. And then what about thoughts on alternative therapies like home heal and nocturnal analysis? I think there's some commentary about an add-on payment for those therapies. What are your thoughts behind that?

We just have to wait for the final rule. There was no clear direction or statement or analysis in the proposed that would lead to us conclude anything significant yet. So we just have to wait on that one.

Okay, thanks, guys.

Thank you.

Next question comes from the line of Kevin Fischbeck.

Thank you. I guess you mentioned a couple times you thought that the rate cut from bundling would be significantly more than the 2%. Have you guys come up with an estimate of how much you think that this proposal would actually cut rates?

Kevin, we haven't. It's in part because the case mix adjusters are virtually impossible for us at the moment to estimate the impact on us, and there are so many different aspects of the rule that we sort of know it's significantly more than 2%. There are a couple of big bucket that make up the vast majority of the difference. You can kind of calculate what those are based on the information that we gave you. But trying to be any more precise than that right now, I think we would just get it wrong, and we do believe a lot of it is going to change. So we're focused in on really those big four issues being the material matters that need to be dealt with.

Okay. And then sounds like did you most of the share repurchase in September and October. Is it at all related to the proposed rule? I guess we could maybe talk about the decision to get back into share repurchase after not doing it in Q2. Is that just a matter of cash balance being 10 times your equity value and that's too much, or was there something about -- now you have a sense of what (inaudible) is with this proposal out there you felt more comfortable buying back stock?

I don't know that we really want to parse it that finely. I think it really is what Kent said is that we prefer to spend our cash on growth opportunities, and high return net capital and when we can't do that and don't -- think we have more cash than we can invest in those kinds of activities in the near term, we choose usually to do some share repurchases. I think maybe the only other thing I would say is earlier in the year, if you wind the clock back, the economy and the financial markets were in a very different state of play than the -- than they were at the end of the summer here. And healthcare reform I think was in a much scarier point at that time as well. So I think some of those things moderated, I think that did influence our thinking as you look at our behaviors earlier in the year versus later.

And then I guess you mentioned that the guidance is up with the results in the quarter, but would love to kind of hear -- I can see where you beat our numbers, but would love to hear where you saw up side versus your internal estimate that helps you feel the need to raise guidance?

Well, I think first of all being three-quarters through at the level that we're at was sort of the primary reason to raise guidance. In terms of where we are outperforming versus our internal estimates, I really reiterate what I said. Very good performance across the board. We were pleased with the performance on volume. Pleased with, in spite of some continued mix deterioration, pleased with the revenue trends, and the cost control has been really good, due to some great work by the teams. And cash continues to be very strong with our LCM cash flow of greater than $700 million at the operating cash flow line. I'd say really across the board, I could get into a lot more detail, but I'm not sure that it would be particularly helpful.

If I could follow up on that mix shift point you made earlier about losing some of the lower paying commercial business, is there a reason for that? Is it just the way it worked out? Is it something you can point to, that that's actually why we're losing some of the lower paying and not losing the higher paying?

Honestly, we don't know. We have a few hypotheses that we haven't been able to prove out, but we honestly don't know. But it is factually true.

Last question, Heparin, got to ask the Heparin question. One of your competitors is talking about moving to an alternative drug option. What's your thoughts there about Heparin or an alternative?

Citrisate could in fact help reduce the dependency on Heparin. We think that's true. To how much that is yet to be proven and we will be entering a pilot with them on that. And we'll keep you posted.

Great, thanks.

Thank you. Next question comes from the line of (inaudible).

It's actually Darren Lehrich calling from Deutsche Bank, how's everybody doing? I just wanted to circle back on revenue for treatment. It's been holding up very well, in fact growing and I guess I just wanted to hear your comments about how your book of business and repricing into 2010 may have influenced your 2010 outlook, and maybe just the bottom line question is are your 2010 rate increases from your managed care book consistent with what we've seen in recent periods?

Well, I would say that our experience in 2009 has been relatively consistent with prior years in terms of our ability to get reasonable rate increases. As to how that will play out for 2010 increases, we don't yet know.

Okay. But you have a set of guidance out there, so maybe just comment on the visibility you have into the business that's been repriced, or the contracts that have been repriced thus far that will take you out into some point into 2010.

Yes. I'm not quite sure I'm getting the question, but certainly we have a percentage of our book that is longer term and where the pricing is known. We have another component of our business where we would have had activity in negotiating rates this year that would give us visibility into next year. And then we have what ends up being a majority of the business that is more short-term, we might not yet have visibility into our 2010 rates. But I'm not really sure that I'm answering your question. I think as we sit here in October we have reasonable visibility into what rates are for a lot of our book of business and going into the first half of 2010, but we also have lots of open conversation wise payors as we always do about whether our rates should go up or go down or stay the same.

Okay, that's fair.

I don't feel like I'm answer your question, but I'm not sure that I understand it.

Let me switch gears just to G&A. In the fourth quarter, in the last several years we have seen, as you mentioned, Rich, an increase sequentially on G&A. I guess my question there would just be, is there anything different about this year, such that G&A wouldn't follow that pattern? I think you said in your prepared remarks that it's typically been higher, but perhaps you've been able to do some things to alter that pattern, and I'd just like to hear your thoughts on that.

Yes, it's typically been hire. Of course, we're doing our best to manage that. But we would predict that it would be somewhat higher in Q4 than in Q3. Nothing particularly different about this year than prior years.

Okay. And then Kent, maybe just an update from you, if we could, on the ancillary businesses. They continue to be a modest drag overall and I think are more or less in line with what you've guided to at the outset of this year. Can you just maybe provide with us some thoughts on what -- where are we relative to getting to break even, what do you think needs to happen there, and just timing around that.

Well, the portfolio is very close to break even now. And in 2010, we would not anticipate anything dramatically different, but why don't you come at me again, Darren, so I can do a better job than that for you.

How's DaVita Rx doing, and I think you claim that you were going to be close to break even in DaVita Rx by the end of this year. Can you just update us specifically on that? And overall, I guess the portfolio of those businesses, when would you expect break-even to be reached?

Okay, good, thank you. DaVita Rx is profitable now, and that makes us as happy as you, and we hope it stays that way, of course, forever more. Lifeline, our vascular access business, remains profitable, and it looks like it will nicely into 2010. And then, Bill of Shelf the third of the big ancillary businesses, our integrated care model that one, the economics are tough to parse out a little because there's the business side, which has revenue, including our two demonstration projects with Medicare, then there's the part of it which is just R&D expense, which you really can't count in the same way, and we'd have to do some of that and want to do some of that anyway. And village health will probably be slightly less unprofitable next year as this year. So the one that was profitable remains and looks like it will stay. The one that wasn't now is and the last will stay unprofitable through 2010.

Okay, and I know I'm getting in the weeds, but CRO and infusion, are those two also profitable?

Infusion is also profitable, yes, nicely So what's the other one?

The CRO business?

Yes. That is also. So four of the five are profitable. Thank you for bringing up the other two.

Just a last question I have would just be around the buyback. I know people have asked this, but should we be think about your buyback activities around your free cash flow in any period, or should we consider leverage to be an option as you look at your buyback?

Rich will grab that one in a second, but let me add one other fact that is relevant for the portfolio question you were asking a moment ago. Separate from those five business lines, although, again, one of them, village health, our integrated health model is half business, half R&D. Also in the numbers that you see we have some IT expense for our work on our electronic medical record, and that's exciting stuff, but it's pure expense, and so that is another R&D number that shows up in that category. But now I will turn it over to Rich for your second question.

So I think that leverage is certainly a possibility, as we've said in the past, we think the optimal leverage for this business is somewhere in the nature of 3, 3.5 times. Of course, that's -- there are lots of external factors that could cause to you want to be higher or lower than that at any particular point in time. Generally we still believe that is a reasonable amount of leverage for the business. And right now we're somewhat below the low end of that range, and generating a lot of cash. So it's quite possible that that could be a component of the plan over time.

Very good, thanks a lot.

Thank you, Darren.

Next question comes from the line of Justin Lake.

Thanks. First question, just kind of following up on your commercial payer mix discussion, given the deterioration that you're talking about, I'm curious is there anything going on in the market that might leave you disadvantaged versus your peers, maybe geographic mix or commercial referral patterns?

Justin, not anything that we've seen or anything that we're aware of. We did note that the other major company didn't report a similar decline earlier today. But we don't have an explanation for you. We have not seen anything that would lead to us believe that it's a competitive issue in nature.

Okay. So if you look back over, let's say, the last five to ten years is this a type of normal volatility you're seeing here?

And I would also just reemphasize that there's really two components that are driving it. One is, the patients are staying with us longer, and that's a significant contributor. The other is, then, of course, as I said, the mix of the new admissions. But I want to make sure that you get that it's both of those things.

That's helpful. And then just on the deterioration, how much of that is built into 2010?

Certainly we have some. We have sort of our best view built into 2010. I don't think it would be productive to go into individual assumptions in the forecast because it's sort of the collection of lots of different assumptions, probability weightings and the like, as you know.

Okay.

And I think you asked whether there was -- I didn't answer your question about whether this is a normal mix trend.

Right.

I think the answer to that is no, which is why we've brought it up the last couple quarters that we have seen over the last several quarters a bit of a change in trajectory there.

Got it. But you do have something built in for 2010, you don't want to share the exact?

Correct.

Okay, and I guess just last question on 2010 guidance, can you walk us through some of the puts and takes, I know you normally do this type of thing at the investor day, where you talk about the things that could go right or could go wrong in that guidance range. Can you walk us through some of that?

Yes, so the things that could push us to the bottom end of the range I suppose is the question you're asking?

Right.

Would be, number one, this mix issue. This is not necessarily in order of importance, but this mix issue that we just discussed. Number two could be the outcomes of private pay negotiations. That always has to be on your list because of the nature of the economic structure of our business. And the third item that I would put on that short list would be our ability to maintain our cost performance, in particular in the area of labor. We're benefiting at some level right now from a looser labor market than we've had in the last few years, and to the extent that that tightens up, that will make it more difficult to maintain our cost trends in that area. Certainly we'll try as hard as we can, but that would be on my list as well.

If I could just take one whack at that commercial contract in question, and I'll jump out, can you give us a line of sight on what percentage of your contracts have been negotiated for 2010? I know there's always the potential, they're evergreen, they could walk away, you could walk away, but if that doesn't happen, is it 80% or is it 40%?

Yes, I don't have the number, Justin and I would -- I don't want to hazard a guess.

I'll take your best guess, Rich. Okay.

And I guess probably since the last point that you made about the fact that a number of them are evergreen and are not really longer term contracts, I don't know that I'd be comfortable answering the question, because it could change at any moment, either because we decide to change it or because the payer decides to change it.

Thanks for the help.

Thanks, Justin.

Next question comes from the line of Gary Taylor.

Hi, good evening. I missed the comments early in the call, or I think a question about commercial business being bundled. Was there any update that you provided, or can provide in terms of percentage of your commercial revenue that's bundled today?

No, there was no particular update that we provided. It's not a number that we'd typically disclose other than to say that a bunch of it is bundled and it's been a percentage that's been increasing over time.

Okay. A couple other questions. I guess there's some -- I'm sensing a fair amount of confidence that some of these significant issues in the bundling proposed rule are going to be fixed, so I don't want to misspeak, if that's not the case. But can you maybe talk a little bit about how you're involved in the process and kind of where the source of some of the confidence is that some of these significant issues are going to be rectified to a certain extent?

I think the way I would clarify our thoughts and feelings is that we are confident they're going to make some changes, because some of the mistakes are so clear, and so big, and so consequential. Having said that, that could still leave some bad stuff in there. And so if you ask if we're confident, they're going to get it to be exactly what Congress wanted, which is 2% savings, with patients well protected, then we'd have to qualify our answer and say despite our confidence that they're going give it a really good try, they will know if they're going get there or not. So that's the distinction between what we're very confident about, which is them correcting some of the big problems versus getting it exactly right consistent with the legislation, because that's hard. As for the process of what we're doing, in order to try to help them get it right, which is what most CMS folks want to do, I'll let LeAnne answer that.

Yes, we have a process with the community because the community is quite aligned here in terms of protecting patients and providers. And so there's two coalitions which you've probably heard of before which is the Kidney Care Partners, broad coalition of manufacturers, patient groups, physicians, other folks in the community, and that process is working well and very well coordinated, where we bring our concerns together in an organized way and writing a group comment letter to CMS, with the appropriate backup in terms of analytics and legal support. Then there's the kidney care council, which is the coalition of providers, again very well coordinated. Again, very good resources. Does That answer your question?

Yes. And just maybe a couple of follow-ups, LeAnne, because I think you're doing a lot of work on this. One, when do you expect the final rule, I guess presumably by law they have to issue 90 days before implementation, which could be as late as October of next year, but I think we're all hoping, given the amount of changes that we see the final rule well before then. So when do we see the final rule, and what are your thoughts on this slipping past January 1,'11 implementation?

First and foremost today, I should clarify that they gave us an extra 30 days for the comment period. I'm not sure if everyone on the phone knows that. So our comments now are due on December 16 versus November 16. Which is good in terms of the data that we'd like to (inaudible). Probably what that does is back up a little where we'll see the final rule. And I don't have a date certain to which they would do that. But probably spring, late spring, would be my best estimate, although I'm not good at predicting these things, and as you know, the CMS process can change. As to delay beyond January 1 of 2011, we don't have any indication that they would be trending in that way. I don't know if you have any other data, but we have no evidence that they would be thinking in that direction.

Okay, thank you.

And next question comes from the line of Mark Arnold.

Good afternoon. Great quarter, guys. Maybe just start with -- and I think I missed this in the prepared remarks, so part of me asking it, but the revenue treatment growth drivers, can you just talk about that, and we've seen a couple quarters in a row here of very strong revenue per treatment growth. Can you give us any sense as to where this is headed in the next few quarters? Are some of those drivers going to continue, in your estimation here in the coming quarters?

Okay, Mark, the drivers sequentially in the quarter were an increase in physician prescribed pharmaceuticals, an increase in the EPO ASP, and an improvement in our commercial rates. And then those items were offset by some deterioration in the private mix, so those were the words that we used to capture the reality. I would say then that as it relates to pharmaceuticals, we have seen pharmaceuticals increase over the last couple of quarters, although I would say it's pretty stable at this point, as you look at Q3 and kind of compart to where we ended Q2. Doesn't seem to be a lot going on at the moment.

Going forward, sort of hard to ask us to predict what our rate trends will be, because it will be two things. It will be our rate trends, and it will be our pharmaceutical intensities. On the rate trends, all we can tell you is what we've been experiencing which is normal, reasonable increases. And we can tell you what our intention is which is normal, reasonable increases. Which is very important for us given the Medicare losses that need to be subsidized. On the intensities, as I said stable right now, tough to handicap. I guess we would say, if anything, maybe a little bit of downward risk.

That was helpful. Just a couple others here. Home infusion, I think Darren asked a question about the profitability, but is there any -- Kent is there any update you can give us on this business just in general, and are you at a point yet where will you look to maybe grow this business through acquisitions?

We would like to grow it, a little bit of history. We bought it, and then the first year promptly smothered it with big Company attention. A pretty embarrassing performance on our part. So year two was one of recovery, and we give a lot of credit to the leaders of that group and some of the leaders within the bigger ship DaVita who stepped in and did that. Now we've got nice economics, nice clinical outcomes we're building the organization. We're driving some growth, and so we're not prepared to say anything bold, because there's too good a chance we would fail to satisfy anyone downstream, but we are hoping that we can ramp up the growth, and whether time will turn that into material growth, given the size of the rest of the enterprise, that's for us to try to figure out if we can deliver or not with adequate return on capital. So we're wide open to it. And we'll see what happens.

Okay. One last question, and I guess this one is probably for Rich again. Can you just reconcile the share repurchases and the share count in the quarter and then kind of to the cash flow statement the difference between the 62 million in shares that you repurchased versus what the cash flow statement is kind of showing on the purchase of treasury stock plan?

I think the answer to your question is the delay in settlement of the repurchases made in the last days of the quarter. That would be why there would be a difference between what shows up on the cash flow statement and the reported purchases.

Great, thank you, guys.

Thank you.

I'm showing no further questions at this time, sir.

Okay. Well, thank you all very much for your interest in our Company, and we will do our best to do well for you in the months and quarters to come. Thank you.

Thank you, all, for joining today's conference call. You may now disconnect.