德維特 (DVA) 2009 Q4 法說會逐字稿

So thank you very much and I think we are starting. First I want to start just with our Safe Harbor Statement, forward-looking statement. For those of you listening in on the phone call this is available on our webcast and please refer to the webcast to read the statement.

Now I would like to introduce Rich Whitney, our Chief Financial Officer who is going to is that right off the presentation.

Is the mic working okay? It sounds like it is. Good morning. Okay. Roadmap for today. We'll start with our comments on the fourth quarter performance, move on to an overview of DaVita, then we'll have a discussion of risks and opportunities of investing with us, on to a deep dive in our business fundamentals, financial review and we will wrap up with a summary and taking your questions.

Q4 results. First of all, nonacquired growth continued to be solid at 4.8%. It was a nice bounce back from a low of 3.8% back in Q3 of 2008. The other comment I'll make on treatments will you notice they are a little bit light sequentially this quarter and that's due to two things. Number one, the way the calendar fell, more Tuesday, Thursday, Saturdays in this quarter which tend to be light treatment days for us, as well as the holidays. Revenue, almost $1.6 billion, up 7%, on about 5% volume growth on 2% revenue per treatment growth. Revenue per treatment as I said up 2.1% from last year and then sequentially down $3.71, a little more than 1%. A couple of factors drove that. First of all, lower physician prescribed intensities of pharmaceuticals. That was about 60% of it. About 20% of that change were rate changes. Most notably a reduction in ASP rates, medical reimbursement of drugs. And the final 20% was due to a deterioration in our private pay mix.

Operating income, up 7% from last year's quarter four, up 8% for the full year which was in line with our guidance and then sequentially down 3%. And that was driven by the revenue per treatment decline, the impact of the calendar on treatment volumes as well as a sequential increase in G&A spend, which is typical for us in the fourth quarter. Finally EPS, up 13% from last year, and that was driven by the operating income growth, the impact of our balance sheet leverage, lower interest rates and lower share count. Operating cash flow continued consistent cash generation. Okay.

2009 results, very similar set of numbers. Revenue up 8%, operating income up 8%, EPS up 15%. Underlying cost trends generally stable, as were margins at 15.4% in both periods. Revenue per treatment, the full year over the full year was up 2%. Three components there. About a half of that was the Medicare composite rate increase as well as ASP rate increases year over year, and then another 40% was due to commercial rate increases partially offset by mix decline that we've been talking about for the past few quarters. And finally about 10% of that is due to increases in physician prescribed pharmaceuticals year over year. And then operating cash flow, $667 million growing in line with our operating income growth and above our guidance of $600 million as we indicated last quarter that it likely would be. Okay.

On to our 2010 outlook. Operating income guidance of $950 million to $1.020 billion remains unchanged from last quarter and that represents a range of 1% to 9% growth off of where we finished 2009. We are launching our cash flow guidance, operating cash flow and free cash flow. As you can see generally expected to grow in line with our operating income. Growth Capex plus or minus $250 million. Of course as we always say, the final number is dependent upon the availability of projects with attractive returns. Maintenance Capex plus or minus $125 million which is pretty consistent with history. And on to the DaVita overview, Kent?

Before you come up I want to say one more thing and that is what we always say about Q1, we want to make sure you keep in mind that Q1 is a seasonally weak quarter as a result of fewer treatment days, high payroll taxes the beginning of the year and the impact of copays and deductibles. As is typically the case we would say that we would expect it's quite possible that Q1 could be down a little bit sequentially. So please keep that in mind as you think about 2010.

Okay. Good morning. Good to see many of you again and to the new folks as well. Our objective today is the same as it is every year which is to provide you with analytically thorough, intellectually honest characterization of our industries situation, our Company's situation and hopefully have a meaningful dialogue about the risk reward relationship in those situations and try to facilitate your ability to evaluate our coherence and competence in taking advantage of the rewards and avoiding the risks. That's the spirit in which we come here today and hopefully will you help us pull that off.

It is important for to us start with a mission particularly for those who are new, our mission is to be the partner, player and provider of choice, the way we think about you first is if you were one of our patients. And it is our first priority to please you in that scenario in which you are in one of our centers being taken care of first and secondarily are as the shareholder. In addition the employer of choice is our third and final component of the mission that we take a lot of provide in being able provide 34,000 people with a suite of benefits and hopefully a life sustaining income. And so these are important elements of what we are about and what our people are focused on while simultaneously bringing amazing intensity to our fiduciary responsibilities. We also think over the long time the fact that we are maniacally focused on providing superb, ever improving care and compassionate care will rebound to our shareholders benefit, although in our system we finds a directly casual relationship in the short term but hopefully with the work we are doing in DC that become increasingly. For full disclosure it's important for you to know that we always put the mission slide first, because that is in fact how we guide our decision making.

This is a patient, for those of you that haven't been in our center being taken care of. It's worth going over quickly for those who are new. When you have kidneys all of us are going to go to the bathroom today and urinate out the toxins you are accumulating with the coffee you are drinking and the cream cheese you are eating on your bagels and things like that. Once your kidney fails your body couldn't urinate out those toxins, so we are the substitute for that urination. We take the blood out, toxins out blood and put the blood back in. If we don't do that, you die. And this is, I would say this is not a typical center. This is what a typical center that would look like if there weren't a lot of people working there all the time and we had it sitting around perfectly clean. There are about 1500 of these and here's how an average one looks, to give you a sense of the decentralized nature of our service business. Then in aggregate you can see that we have continued to gain share. We are now up to about three out of every ten patients in America as opposed to going back a decade ago and it was about, whatever, nine or so out of every 100. This is very, very good for our shareholders looking backwards and very good for our shareholders looking forward and you know our equity market cap better than us.

On to investment highlights. So what we are trying to do here is to try to help you characterize for your partners who aren't here the pros and cons associated at looking at the upside and downside in our space. First from an industry perspective independent of us the Company what are some of the things one might want to say to summarize to your partners some of the positives around this space. First it is wonderfully stable demand growth. Looking backwards, looking in 2010, looking in the out years. And we will elaborate on each of these briefly. The steady cash flow, it's in the numbers historically and also for a whole bunch of structural reasons which we will elaborate on in the course of the conversation today, looks awfully steady going forward. The consolidation has been steady throughout the decade with some spurts of acceleration when people do things like our buying Gambrel and FMC buying RCG and it will continue. At the same time there's going to be small independents for a very long period of time and that in fact is an important structural safety net for our shareholder which we'll touch on later. The Government is accountable for this space. There is no other program like the ESRD program. Am I blocking you guys? Should I move? Its okay.

There is no other program like the ESRD program as uniquely carved out as the as the ESRD program in North America. That's why the government has accountability for that reason. It also has differential accountability because we are so discrete and so our microeconomics, our clinical decision making, our uniquely homogenous and transparent which has a lot of pros for us in our mind, more consumers are demonstrating our superior outcomes and business acumen and forces the government to take more accountability because they can't hide behind the myth of saying they don't really know what's going on or what impact their policies have. Therefore, it's important in that context where the government is going to get differentially involved for the community to be differentially effective and we are, obviously in a highly imperfect and uncertain world we will talk more about that and the transparency I referred to.

Let's step through each in turn. This slide hasn't changed much for ten years for the small number of you that have been around. That in itself, is not a reflection of the fact that we are intellectually stale or just lazy, it's because the reality hasn't changed in ten years which is kind of the whole point, it is still the case that there is no critical controversy of when your kidney has failed. There's no clinical controversy around extra kidneys for transplants sitting around not being used. There's no controversy around need unlike other sessions where there's controversy or uncertainty about whether or not it will be continued. For most patients, it's three times a week for the rest of your life unless you are one of the fortunate few that gets transplanted and if anything, there's modest amount of upward pressure on this as there is more science that suggests that maybe getting a fourth treatment is a good idea. It's not cyclical, or seasonal. You need this multiple times per week or you get very sick and die. There's very strong center loyalty in every direction, us to the doc, us to the patients, the patient to the center, the doc to the center, the doc to the patient, patient to the doc, whatever, a very strong loyalty for a whole bunch of structural reasons and then just the human reasons of being so tightly engaged in with another in a life saving therapy. If you doubt this, visit some of our centers, in particular, and you will feel the kind of bond that exists. We in particular are proud of the bonds between our center teammates and the physicians and have had situations as each of you know who have been around where the physicians have left a practice elsewhere and 90% of the patients stay with us, in other words, choosing to stay with the people who are with them every day, excuse me, every time they visit, three times a week. They are very few therapeutic alternatives on the horizon although certainly if one looks out a number of years one hopes to a change to that bullet point but there's nothing dramatic going on now.

And then basic demography trends. Kidney failure is wildly disproportionately significant in the Hispanic , African American elderly communities. These are all growing communities in America. This is again incredibly boring demand growth side. You wonder if we smoothed it out but it's pretty much as if you plotted the individual points because that's how regular the growth has been. It does tweak a little bit each year. Sometimes inexplicably where you wonder if the government has the data wrong. That's not reflective in what we see. This is pretty much the trend line.

The, so moving on to steady cash flow. That second investment highlight. First of all driven by everything we just said about demand, the characteristics of demand. But additionally unlike so many healthcare facilities segments, we are low fixed cost. If you been to our centers, they will be in a strip mall, they will be next to an auto supply store. It's very low cost space. We don't have to be in a hospital campus and we don't need a dramatic set of leasehold improvements and high technology equipment, expensive high technology equipment, we have high technology equipment but it's a percentage of our cost structure, very, very tiny compared to surgery centers, compared to hospitals, compared to most of the facilities that you are forced to invest in. So very low fixed cost and most of our growth absent the periodic big acquisition like Gambrel is done through very small capital investment expenditures. So you put all that together it just means architecturally for reasons nothing to do with our strategy we have a very nice cost structure and growth structure when you think about generating steady cash flow.

Onto this concept of unique government accountability which I submit to you is very important consideration as you compare this part of healthcare service to other parts. And I've worked in most of them over time. It is significant that about 87% of the dialysis centers in America stand by themselves and they essentially do one thing, which means that for what is very rare, what is a very rare reality the government actually knows what our costs are to a very significant degree. We argue over small movements in the cost structure in a way that they never could for what is one surgery cost in a surgery center for the other, were does one patient caused in a some of versus other, wasn't does one patient cost in a hospital, long-term care center, versus other. That's all a mix, a jumble. Not in our case. 87% stands alone and they do one thing. And the government pays for 88% Medicare, 6% Medicaid It's a wildly different conversation and there's pros and cons to this between us and them and between other segments and them. Importantly, we have about 1000 independent years ago and about 1,000 independent centers today because of the growth in the market and it's very important to know that these independent centers onezies, twozies, threezies, fourzies and they cannot go out of business. You cannot have Congress or CMS pass laws or institute regulations which drive 300 of these puppies out of business. Because the political flash back would be immediate and intense because these are real human beings going in three times a week. So there's a governor on what can be done from a policy point of view with any prudence because the feedback loop is incredibly immediate, transparent, clear and harsh. And there have been closures. There is a steady stream, right now a small stream but a steady stream of closures. Were that to tip up at all, it would be immediately noticed. So you put all that together and the back news is, the government is not going to be a dumb thing and suddenly dramatically improve our reimbursement many like they did with subacute reimbursement eight year ago. The good news is they are not going to do something sudden that drives a whole bunch of centers out of business without some sort of quick reversal. The system couldn't sustain it.

Therefore, this can be a net positive over the long-term for our shareholders if we have reasonable coherence and credibility in Washington, D., which is a market that is as every bit as efficient as the capital markets. We have one of the few legitimate community wide coalitions and we personally sweat bullets for a few years to help put this together to keep this going and not secret that DaVita was more involved in this stuff than anyone else as unfortunately sort of an industry utility to try to protect the aggregate communities economics and ability to take care of these patients. And our coalition has been unusually coherent in actually having and there aren't any other segments of healthcare that could talk about this, the legitimate leading patients groups, the legitimate leading nursing group, the legitimate leading physician groups, the for profit providers, the not for profit providers, all agreeing on primary legislation and signing their organizational names to that legislation and advocating for it with their members of Congress. It doesn't exist anywhere else in American healthcare. There are now other people trying to replicate it. That is a very good thing. Because divisions across those groups and segments tends to kill any kind of coherent defense or offense because it gives Congress and CMS a free out to say, since I heard different things I had to make my own call. So you see there is a caveat. It's unusually coherent so far.

Like all coalitions and they are inherently fragile and the fact that we pulled this off the last few years shouldn't make any of us complacence and over confident in thinking that it will continue. But it has yielded not only coherent but distinctive positions that are pleasing to the government for good reasons and they would be pleasing to you as taxpayers which is very, very unusual among coalitions, we are in favor transparency on clinical outcomes and public reporting thereof. We offered up proposal on legitimate substantive pay for performance, tying quality to what people were paid. This doesn't happen very often in healthcare. We would able to work out the mechanics and propose them. Some of the good thing that happened for our patients and shareholders the last few years are a direct result of the fact that we played ball with the dominant ideas of the day and even though the dominant ideas didn't pass through Congress, we got a lot of points for having played ball in a substantive way. And we, as long as DaVita is involved, will work hard to try to maintain a long-term perspective, which is there is always the issue of the year, equally or more important is making sure that you are working every year to incrementally enhance the credibility that the community has with the membership at large so that over the long-term no one wins every year in DC, not even the leaders in DC as we've seen recently. So that we are well positioned to have a higher batting average than the average segment.

It would not be intellectually honest to not also give you the investment low lights hopefully in some reasonably cryptic but accurate way to take back to your partners. We have significant reimbursement risk in the private and government side and we can talk more about that as the day goes on. This is not exactly a new phenomenon and one can argue whether it's more or less intense than the past but it is there. We have had some mix deterioration over the last six quarters. It is striking that the resilience of the business model has been able to absorb that and generate the results you have seen in 2009 versus 2008 but it is there with 10% unemployment and everything else going on in the economy, this is not a surprise. It was anticipated and talked about six and eight quarters ago. But there it is staring us in the face mathematically. The treatment growth can be looked at two different ways. 3.8% is pretty healthy and the stability of it is wonderful. On the other hand you can say, gosh, there's other places where you get more than 3.8% growth that has to be nudged by acquisitions or denovas. We are always going to get investigated. It comes with being a prominent healthcare service company in America. When the government finds a new theory or scores and gets some kind of settlement from one healthcare service provider they take that proven product, that intellectual property that they've created and immediately see if they can efficiently apply it to other comparable companies. That's how it works and the easiest way for them to do that is to start with a subpoena. You don't start by learning a whole bunch about the company and then deciding whether or not to subpoena. You start with the subpoena is the most ruthlessly efficient way to find out if there's anything there and we will talk a little bit later about our track record in this area. But those are the four low lights. Hopefully a reasonable characterization and you will talk to us today if you think there are others or I didn't characterize them fairly.

Moving on to DaVita. So within that, we think favorable industry context, how do we stack up? First our clinical outcomes are wonderful. We are the best or among the best in every single category that's publicly reported and we are very, very good and unique in a whole bunch of areas that aren't publicly reported. So that's doesn't just feel good because it's good for human beings. It's are it also means that you don't have to live in fear that you are going to wake up some morning and find out that the stock down 30% because someone found out that the Company that you had invested in is delivering slack care, inappropriate care, undisciplined care. Our market share nationally 30%. This is a big deal. It is very difficult for a payer to contemplate doing business without us, not impossible, I suppose, but very difficult. Our operating track record, Rich will be going over more of the numbers later, but we've been solid in that regard on a consistent basis. I'll talk about our unique compliance record because it is so important in terms of managing the risk side of the equation. And then our integrated care model which is where the world is going in fits and starts, but it is where the world is going.

On a quality side I won't bore you with the details but if any of you have any aspects of our clinical care these are just some of the publicly reported metrics. And the important thing on the clinical outcomes is we are very proud of where we stand now, I'm not going to talk to these but these are specific initiatives that continue to drive improvement. We think four years from now we are going to be providing much better care in a documentable sense than we are today just as we are today versus four year ago. And so our operating initiatives on improving clinical care are disciplined and intellectually rigorous as our initiatives are on improving productivity or information systems or denovo growth. And the cumulative effect of all of these industry and DaVita specific trends is we do have 30% as you know FMCs in the neighborhood, 33 and from a shareholder point of view other investor entities are an additional 13% so much you have a segment that is almost uniquely represented by investor owned facilities here in kidney care. This is just a quick historical characterization of our performance versus guidance on an annual basis, the ranges that were provided prior to the year starting. And the results in the subsequent year so far each year we have done what we said we would do or better.

This is the EPS slide. It's comparable to some of the stuff that Rich showed you and will be showing you. But this has been a period for a whole bunch of reasons tied to externalities and in some cases, perhaps because of risks that we highlighted where we experienced significant multiple compression it's important not to confuse that with what's going on with the fundamental business model through this period of time. You can see the flatness back in the period when we Gambrel, which if you recall, we purchased without purchasing additional share that would dilute your interests. It was all debt in a very well constructed deal. And what we've done since that time year after year after year.

The, on the compliance front, we would now have a ten year track record. We don't have any other scale healthcare service company that can put up a slide like this, certainly none in our space, and there are a number of large entities, not only two but we've gotten our fair share of subpoenas. There's nothing different there. They've been very broad based. We've had our share of four-year long investigations, which is what a number of these have been. You can tell by the dates. These are very extensive, and then you see the results, closed, closed, closed, expired. We have the wrong more recent batch, it's almost like wine, there's the vintage. And so we don't know anyone else who has gone through so many scrubings and emerged paying zero and in one case the money exchanged hands the government had to pay us $95 million, which they withheld because they were so sure they were right but the Courts decided they were wrong, the administrative law judge, we were right and that's why the $95 million has a plus sign in front of it. Now, it would be really foolish for DaVita or you to get complacent or cocky about this because this is a very complex area. A lot of the rules is inherently ambiguous, there's no way for us to sends a note to the government, if we do this, is it fine, we you don't get to do that. All you can do is choose a policy knowing it's going to be retroactively assessed in a very critical way. In some cases, playing it safe would be the same as unilaterally disarming and existing the market. It's not to day that we are not going the next ten years not issuing a check that wouldn't be prudent rather than going through a battle. Having said that, the data is the data and we bring incredible rigor, and intellectual intensity to the task every year and our Chief Compliance Officer is a person who used to prosecute companies like us with great energy I might add and so we know how the process works and we work hard to be compliant in letter and spirit and prepared to defend that which we've done on your behalf.

On the integrated care front, the logos on the bottom represents some of the new product lines and service lines that we've instituted in and a number of them are the leader in America and we are the innovator. They are real good for parents. Really good for taxpayers. I will talk more about them later. The point is the improved quality of care in very demonstrable ways and hopefully overtime that will become a powerful equation for shareholders. It lowers total costs and very important for us in terms of our public policy advocacy. It puts us on the right side of the fence in terms of segment that's not only to make money on the current model but actually to innovate ways that are consistent with what everybody wants, hire quality, lower cost. So this would be the summary of the investment highlights. I won't recap the low lights because they are so painful to talk about but put that slide back up later, if you want.

Onto business fundamentals. First bundling, bundling the 4,000 pounds elephant in the room, which is much larger than a gorilla. The final rule is not out yet. You all know that. If it is a bad rule, centers will close and it will be quite the chaotic environment. Fortunately they know that too so they are probably not going to come out with a bad rule nor some dream rule that has where that we want. Where it's going to come out in between it's not a good use of time to speculate at this point. The interim rule, they knew it needed a lot of work, they got 1500 comments or something like that can a stunning number of comments. There was a remarkable consensus among the community on some of the key things that were wrong, and CMS was absolutely listening with great intensity. That doesn't mean they are going to buy off on everything the community said. Doesn't mean they are going to agree on everything. But we give them huge points for the intensity with which they listened to the community to try to get it right. Big Kudos for them.

In the short term, if we opt in 100% that means a pretty dramatic transition, IT changes and other things. On the other hand we may decide to opt in over the four-year phase in which would mean a less dramatic transition period. But either way there's going to be a lot of moving parts for awhile in the operating front. And that will be a lot of work. In the long-term, there is opportunity. Basically we've got $1.1 billion of stuff that used to be cost plus and now we have the flexibility to innovate within that. And the biggest chunk of that, $800 million of that, there's a monopoly sole source where there's going to be competition soon. So you put those two things together and we are eager to try to outperform our competition in that regard because, remember, the bar has to be set to keep dialysis centers open and then the art is to outperform underneath that bar and we think we are very well-positioned as an independent person not owning any drugs so that we have the total, total secular attitude about one drug versus another driven entirely by whether or not it's clinically equivalent and then economics as well as our scale. And so we are very attractive to the vendor who's will be competed in this new world where they can't sell their stuff cost plus any more and instead they have to compete on the quality of their drug. So we salivate at the prospects to outperform the rest of our space in this $1.1 billion of now liberated taxpayer dollars. And there's the market basket update with the pay for performs qualifier coming up. And market basket update for a couple of you in the room who are Veterans like myself, we've been pursuing the market basket update for nine years and so it was quite the surprise in Washington, D.C. when we got it and in the context of what was going on legislatively that year and is a tremendous incremental bit of security for our patients and our shareholders.

Four areas of concern. We talked about these on prior earnings calls and a lot of you have talked to Jim Gufstason one on one so I am not going to go through them, but if you have any questions about them we can come back to them. These have been fairly well vetted and in each case we have to wait and see what they actually come out with. This is just summarizes what I already said, that there's $1.1 billion, and the bad news is that the price of admission to innovating under this $1.1 billion is a 2% reimbursement cut, it's a huge cut and if they get parts of the rule wrong it's a bigger cut than that. Its serious bad news. We have a new sand box is play in is the good news and we look forward to that.

On to our normal dialysis trilogy which is to say in the end we do dialysis treatments. That's the dominant part of our economics. From your point of view we do about 16 million, 17 million of those a year, and so revenue per treatment minus expense for treatment times number of treatments is sort of the wholly trilogy of dialysis economics for you and for us. And so let's step through it this year as we have each year. Starting with number of treatments which of course is a function of nonacquired growth plus that which we buy. First with nonacquired growth, this is a nonacquired growth normalized number since there are different numbers, Monday, Wednesday, Fridays in different quarters, we normalized for that, and this is the data. We are very happy with how the year trended. And for those who might be skeptical of normalizing that there must be something hidden, some kind of subterfuge going on you and you want the raw data, this is the raw data but the normalizing actually you a better business answer than raw data.

Denovos, there's a lot of different elements to denovos and we've done more of these than anybody else by far in the community over the last five years, over the last ten years, over any period of time. Of course first and foremost generating solid returns on capital. We've done about 431 of these in the last X years. I can't remember what x is. Five of them have closed. These add capacity for growth and capital efficiency for growth and that's good. In partly, though, it also in different areas strengthens the geographic network which is very important to our physicians and very important to our conversations with private payors. In addition it helps our affiliated physician practices grow which is a very, very healthy thing for them. And sometimes it's part of an offensive competitive strategy so we can have situations where we have two center and we would very much prefer not to open a third center in between those two. If we could pick, the scenario where we did nothing, that is what we would pick. But a worse scenario is if our competitor puts one in the middle and generates a satisfactory return on capital by doing that, it is better for to us preemptively put that third center in there by reducing your return on capital on a percentage basis, but improving the long-term returns on capital in our aggregate profit per dollar of capital by retaining those patients. And so those are situations where we'll have a spurt much additional denovos beyond which we might have otherwise and it's very much in your best interest but we would have preferred to have done nothing. So that gets to this point about offensive competitive strategy.

And is it the typical economics? Of course there's the distribution around this when you do 431 of anything in the competitive market. But the fat part of the curve of reality is represented by these numbers, a couple million dollars which is more than five year ago and the returns comparables to five years ago, and the break even is about comparable to five year ago. Partly for those of you who are new a bunch of this capital isn't irrevocable because if a center fails although that hasn't happened very often we get to take the machines out and use them elsewhere and the lease goes away and the working capital of course is worked down until we get that back as well.

Here is the number of denovos, the number in 2009 as you already know went down versus 2008. A couple of reasons for that. The primary one being just a delay in certifications where the government got behind in certifying new facilities. We talked about that on earnings calls through the course of the year. And second in a way 2008 was a bit of a spurt, in part according to a lot of the preemptive work that I talked about in order to avoid losing share to competitors who would earn a competitive return on their actions. In 2010, we will probably do a comparable number of denovos that we've done in 2009, something like that can the 2008, 2009 range.

On to the acquisition part of growth, we will continue hopefully to do a nice portfolio of small acquisitions to the course of the year in 2010 just like we did in 2009 and 2008 and 2007. Maybe there will be a bump up of people concerned about bundling, maybe not. If it's a bad rule it could be a heck of a bump. The silver lining in a bad rule is we get to by a lot more stuff at attractive prices. But you can't predict that. The only other pointer to make on the acquisition front is we, as we said a year ago we would like to by another medium sized company. We could not agree on terms with any of them. We are elated that we didn't accept any of the sales prices that were offered to us 15 months ago and 12 months ago with where valuations have moved. So much better to have the cash than to have bought at those prices and hopefully in 2010 we will get to buy one at a price that you will be happy with. So the summary on treatment growth, the nonacquired parts, 3.5% to 5% is probably the right way to think about that as we look at 2010 and that percent or so that we've historically picked up in terms of doing lots of small deals resulting in that 4.5% to 6% range in total.

Moving on to the second part of the trilogy, revenue per treatment and starting on the private side of revenue per treatment where there's rate and mix. This slide hasn't changed much in years either other than perhaps the subsidy by the private sector to the government sector is even larger, it gets a little bit difficult to quantify exactly. But it is ironic when people talk about private insurance goes up more than Medicare and it shows private insurance can't manage things, it is unambiguously powerfully inconvertibly true, in our space private rates goes up in large part because the subsidy for the government side requires it. It is just black and white, fundamentally, significantly, materially, disgustingly true and it is not the way we would sign a system but it is the system we are in and that's the way it's worked for a long time and it's the same for all dialysis providers. There's no dialysis providing running breaking even, making money on Medicare and therein doesn't care about their private rates. Lots of stuff go on in payer dynamics of course and I'm sure will you ask questions about some of the specific aspects of that. But when you net it all out, payors are larger, more fist indicated and have more coherent data and more unified in terms of acquisitions they made X years ago. They are. At the same time so are we. Soy both football teams are better, both football teams bring all the right equipment to the game. And so anybody predicting victory I think you want to downgrade their assessment and judgment. Anyone pessimistically forecasting defeat I would say the same. This is a worthy battle in the capital low risk sense with us and them on rates and terms.

What is not changed are a whole bunch of important things which give us a fighting chance to get rates sufficient to subsidize the Medicare deficit. We are getting better and better at explaining and producing and them caring about the fact that differential quality leads to fewer hospitalizations leads to significant savings and since dialysis is only about 30% of the total cost of a dialysis patient per year and the hospital costs are greater than dialysis costs that it's penny wise and pounds foolish to save on dialysis and give it up and more by having someone be in the hospital more often. Second, it's very delicate to start telling people where to go when they might die and when they've got to go someplace three times a week. So this is not the most fun patient to start they will them what doctor they should go to or what center they should go to. Many referrals are network independent, and the thing with single payors is you say okay, if you are don't give me a good rate you are going to be out of network and you are going to loose business because patients are going to go when they are in network, when you are told your kidney has failed and you might die you go to blow through all sorts of deductible anyway and you care about living the month most robust life you can, first living period,second the most robust life. And so many of our folks choose a dialysis center independent of whether it's in network or not unlike what they might do for a less significant procedure.

I talked about the bonds earlier. In addition a payer has to have a certain kind of network adequacy, they have to offer a reasonable number of dialysis centers and most payors have relatively few patients per market. So we go into these discussions with the payer with a few substantive arrows in our quiver and they have a formidable array of those arose as well. And then we fall back, on the reassuring fact that about three out of every four dialysis centers in America are owned by people who recognize that unfortunately the private sector has to subsidize the government deficit.

A final question that people have asked sometimes in the past, gee, should you be concerned that someone will try to do a bold move of reducing price in exchange for volume. There's a whole bunch of reasons why in this particular space that tends not to be a very viable strategy. First very low fixed cost and very high variable cost so it's not a volume play. You run a surgery center, you run a hospital, getting another bypass in you can do a heck of a discount because a huge count of your cost structure is fixed you are not going to redo that OR suite for ten years. So from a cash flow point of view, incremental volume, it's like getting another person on the plane. We are the opposite of that. We are almost pure variable cost. So it's not a volume play. Is significant stickiness as well so it's not easy to switch patients around, it's not easy to tell new patients where to go. And, of course, they only have to pay for these patients for 30 months. You go through a lot of hassle for a very short period before you are going to hand them off to Medicare any way.

Moving on to the mix part of private. What are the negatives when you think about what's going on with mix? Well, the big thing is unemployment. And people losing insurance and not being able to afford insurance. So we are now in the worst period of time, the last 12 months with regard to this issue, than any time in the last decade. In addition, in environments like this payors tends to change their product mix and consumers change their selecting and get somewhat more skewed to HMOs versus PPOs although that hasn't happened nearly as much as some might have thought over the last 12 months. And third, good news, good news for our patients but does it change the percentage of our parents that are private pay is we are getting better and better at keeping people alive longer and longer. By definition those are all Medicare people because they are past their 30 months. For very nice reasons tied to our reducing mortality that's a mix, the percent of patients are private will go down as we improve our mortality overall.

On the positive side, separate from the obvious positive of the recession flattening out and any recovery beginning or the government saying, gosh, the public option is dead, we want more people to have insurance and we are going to somehow provide subsidy for people to buy insurance which would be good, separate from that we have the fact that our patients are the only ones in America who don't have the right to keep private insurance if they want it. It's better for them and their family. They are the only people in America that don't get to keep private insurance. A bunch of people in Congress don't think that's very rational. We haven't been able to get that past legislatively. It's good policy for the patient. It's good policy for society. We hope in the years to come we get this changed. And, of course, in Washington DC the world has changed dramatically in the last month and the need for payors, which is, a CV O documented pay for is much higher going forward than it was in the last year when they were printing money with reckless abandon.

So if you want to wrap up the all important private revenue side with your partners we would probably say three things. One, six quarters mix deterioration, then you say, kind of striking that they were able to navigate through that as they have, but big fact. Second, on the payer side, it's their fight. Awkward to predict one way or another how that nets out, probably the best indicator is what's happened historically but couldn't really drive too much die arrive too much comfort from that. And third where there is this powerful thing out there that the growing notion that our patients should have equal rights with respect to staying on private insurance or the government deciding that they wanted more people to have insurance, private insurance and subsidizing that in some way.

On to the government side of revenue per treatment. Here's just a factual update for those who haven't looked at us for a bit. It is a very important one. Separate from the Medicare fee for service monster, the big mass of our patients, we have Medicare advantage. We have the VA, we have Medicaid. They are small parts individual but in aggregate they are 15%, it's $900 million plus or minus in revenue. And each of these areas has serious rate pressure stuff going on. So as you think about the next year, two years, three years, we think if you have to incorporate into your thinking a scenario where 5% of this revenue going away. That may not happen. It may happen. And so you have to incorporate that math. Attaching a probability to it, very, very difficult. In each of these three areas, a lot of stuff going on. But there is more rate pressure in these three areas today than at any time in the last eight years. That is just factually true and so we want to present that to you and so you can assess in an objective way and incorporate that into your model in the next couple of years.

On to expense for treatment. And this story historically has always been kind of the boring part of the story. That all changes in a year or so with the bundle. But here are the actual metrics. 2007 to 2009. And you can see what happened with labor where we typically have rates go up a few percent a year and we offset part of that, a percent of that with productivity improvements and that's an ongoing, on going initiative for us. You can see what's going other than with pharma, this is holding utilization constant and this is purely what we pay. Other operating expenses is the outlier. We rarely had something going on like that over a couple year period, primarily driven by increases in physician fees and rent and the skew on this was tied primarily to that delay in certification of new centers. So we are incurring the expenses of the rent and the physician fees and we are not getting the benefit of the treatments because we weren't authorized to bring the patients in. That doesn't explain 100% of it but it's the dominant consideration. We would expect that to moderate going forward. Then you see that we've been successful in leveraging G&A. However, with respect to leveraging G&A, we failed in 2009 versus 2008.

Now on to strategic initiatives. Why do we do these first of all? Three reasons, one at the offensive reason that in some of these service lines we think we can make a very nice return on your invested capital or they help us attract a lot more physicians to do work with us and we will get a very nice return on the dialysis center business that's affiliated with those physicians. The second is our mission that we do want to transform kidney care in America and it will not happen unless we invest in this kind of innovation in the same way that great device companies do. Third is defensive. It is wonderful that we can put on the table this kind of value-added and in fact this year we literally circulated in some quarters a white paper that showed that we made in 2008 $300 X million of after tax profit. We paid $160 million in taxes. In addition, we saved the system about $350 million through reduced hospitalizations and reduced surgical procedures and or lower rates on surgical procedures through our vascular access centers, through specialty pharma, through our improved clinical outcomes, through our integrated care. So we were able to circulate an analytically legitimate document going line item by line item and you can, of course, disagree as to specific assumptions but the directional truth is very clear for those who want to be intellectually objective about it which of course is only a subset of the people in Washington, D.C. And that is that we are a net profit center for society because the benefits of our taxes and our innovation savings for the system exceed the profits that we take out. We also take the profits have benefit for society as well as. Even if you assume that as a cost to the society, we are a profit center for the American people and the government in part because of these innovations. That's a very important marketing point, legitimate, critical marketing point that protects your shareholder investment in Washington, D.C. and it's one that most companies either can't say or don't both to invest to say. We would submit that fundamentally alters the risk reward profile of our Company and derivatively unfortunately without us being paid for it our entire community. It's tiny, by the way. But 0.3 of 1% of revenue and it will be comparable in 2010 as we have some young parts of the portfolio and some old parts.

Here's some of the primary components of that. Vascular access centers, our life line business, we are the absolute leader in America in doing this. It's been profitable for us four out of the last five years, one year there was some significant reimbursement changes and then we got that set right. It's a relatively mature business. We are the leader and it has been profitable for the last five years. Our specialty pharmacy is again once again the unambiguous leader. It's a very good space to be in especially for pharma for patients that take six to eight drugs, $6,000 to $7,000 per year per patience. In the bundle if that happens, all more important to have this capability in house. And we moved as we told you we would into the black slightly, slightly, slightly in 2009. So you could call it break even. Technically it was in the black but it hit that on schedule as we told you.

Then an area of significant investment still is our integrated care model, the ability to take that $990,000 a year and managing it down to $70,000 and in so doing, liberating amazing amounts of taxpayer money while at the same time improving quality and that we are still investing in with great enthusiasm. On that one we came close in 2009 to actually having it inserted into the healthcare reform bill a very substantial pilot, a couple billion dollars pilot of globally integrated care of the same type that we've been doing smaller demos as well as (inaudible) has, proving that we can't move that 90 down in a highly transparent while while improving the quality of care. This is just a vascular procedure. This is a center, doesn't look any different. But the value proposition is very profitable. Its higher quality, lower cost. Patients love it because it's more convenient. The doctors have integrated data which they never get when stuff going into the hospital and it does lower over cost because our complication rate is a fraction of what the normal complication rates are.

On the pharma front, eight to ten oral medicine per patient. That's the normal. Some of you probably have patients who have cardiovascular diseases, diabetes, hypertension, most of our patients have a couple of those as well as their kidney condition so this is the average. The value of integrated data and value of integrated coaching of a patient is stunning. Its really a beautiful thing and we have more and more data that shows that the improved adherence improves hospitalization rates. So our data is very important to the pharma companies and the savings are very important to the system. So the value proposition are very important in DaVita Rx. You can see the growth in prescriptions with DaVita Rx. We crossed the 1 million mark this year in total and did about $160 million in revenue which is high fixed cost business, low margin business, so that kind of volume was important and necessary to get us to punch our nose into the black finally.

Moving ton to integrated care for those of you who are Veterans you've seen comparable things like this before. The way to go to the next level in terms of shareholder value or one of the ways to do that is to crack the code with respect to the delaying the onset of dialysis, reducing the incidence of inefficient crashes into dialysis, which are very expensive and lead to a lot of clinical and economic waste and reducing hospitalizations which on average are about 14 days per patient per year once you're on dialysis. So this is one of the ways to take shareholder value to the whole next level and just repeating what many of you already know, hospitalizations is a huge chunk of expense many of which are avoidable and this is not theoretical we've proven that we can do it in specific real world scenarios. And just a quick update on some of our demos, we have a globally capitated demo where we reduce nondialysis cost by 10% we have a whole bunch of initiatives and we know we are going to make it a better number in 2010 than it was in 2009.

We have another demo where we are focused on delaying the onset of dialysis and you can see that literally with a control group all of the data is similarly scrubbed by CMS, we are reducing the percentage of points that have gone to dialysis by a certain time by 19%. The math in that is huge. The familial and societal benefit is huge and we restructured this expensively but powerfully in a way that's statistically significant where there's a control group plus by Medicare so this is a kind of thing where you could construct a focused DRG that everybody who has certain clinical characteristics black and white specifically defined according to lab values can go into a pocket with reimbursement focused on delaying the on onset versus the norm. It's not going to happen this year. But we are four years into this and we expect that 2010 data to be even better than this. We'll see. So these very powerful stories from a marketing point of view have significant present value potential not in 2010, not in 2011, probably.

So overall it's an evolving portfolio. We are always going to do some of this R&D for offensive and defensive reasons I cited. In the meantime they give us a lot of differentiation with physicians and payors and creates that society benefit which exceeds after tax profits which we think is very good for insurance for you as well as very, very fulfilling for us. Rich, are you doing

Give me one second to get a little bit of water. Okay. Into the financial review. Going on a couple hours here so I will try to zoom through this and get to the Q&A. Starting with revenue. About $6.1 billion this year, three-year [kagger], about 8% which is consistent with the performance in the current year 2009. If you look at revenue per treatment we've been on a pretty steady [kagger] of about 1% for the last year's. If you wound that back a few more years, very similar story. And as I mentioned before, 2009 did a little bit better than that 1% trend line for reasons that we mentioned. Patient care costs, similar, about 1% [kagger] over that time period. Get, winds it back, doesn't change that [kagger], does not change that [kagger] story very much. And then like revenue, we had a little bit higher cost trend in 2009 versus 2008.

Operating income, margins pretty stable given that the cost from the revenue, [kagger] are pretty comparable and you can see that we are right around 15.4% operating income margin. EPS growth you've seen this slide already a couple of things, five-year [kagger], 14%, that's consistent with the 15% in 2009. Of course we are benefiting in the last year or two from a low interest rate environment. Okay. Strong cash flows. Consistent growing and the other point I would make is that in each one of these years our free cash flow is more than 100% of our net income. So from a quality of earnings standpoint we turn our earnings into cash. Okay.

Move our are over to our balance sheet. We have on a net debt basis, net of cash about $3.1 billion of debt. That's a leverage ratio of about 2.6 times debt to EBITDA you can see the components of that debt on the slide. And we exited the year at a blended, all in blended rate of 4.7%. Okay. This is how our leverage has proceeded over time. Of course we leverage the balance sheet to buy Gambrel and that was at a time when we would delever back down to our target range and in fact we have and right now sits a little bit below our target range of 3 to 3.5 times debt to EBITDA. Okay. When does that, all that debt mature? About $150 million over the next two years which will obviously pay out of cash flow and then our senior (inaudible). I bet no one in this room has a blackberry. Okay, so in 2012 or senior credit facilities mature so you should anticipate that some time in 2011 we will be looking to refinance that debt. That debt is priced at LIBOR plus 150 so it costs us about 1.7% right now on the variable portion. So we would like to hold on to that as long as we can or as long as is prudent. But, however, we are continually monitoring the capital markets looking for opportunities to refinance that debt earlier.

Okay. About $390 million of our credit facilities are hedged. The rates are fixed pursuant to swaps. This is how the swaps roll off. They all roll off in 2010. They have an average all in interest rate right now of 5.8%. And so you would expect we have a little bit of an interest rate benefit as those role off which is good because we would anticipate that LIBOR rates are going to go up. And so hopefully this will pride at least a partial offset and a rising interest rate environment.

Okay. What about your exposure to writing interest rates? What's your fixed floating rate, your total amount of debt? $3.6 billion of total debt not counting the cash and you can see right now we are just about 60% fixed. Then on the right-hand side what you see is pro forma for the roll off of the swaps, just the roll off of the swaps. It doesn't count any deleveraging throughout the course of the year and doesn't count any principal repayments of which we will make some during the course of 2010. Just for the swaps, that would bring us down to about 50, 50. Final point, if you count the cash, look at this on a net debt basis which is how we look at it because the cash is a natural hedge since the rates we earn on cash are directly moved with LIBOR rates. So if you look at the cash as well, pro forma for the swaps falling off, we would still have about 60% of our debt fixed. I think the number is 58, 59. So we don't typically like to take a position on interest rates until we have a pretty balanced fixed floating ratio.

You notice we have a little bit of cash on our balance sheet and so the question is, why do we continue to hold on to some cash. I think wait to answer that question is to step back and say, okay, what is the context of the last 18 months during which we've had a reasonable amount of cash on our balance sheet. And the reality is that that last 18 months has been pretty unprecedented in terms of its uncertainty and turmoil, three primary areas, the credit markets with unprecedented seizing up of the credit markets that you are all very familiar with. Of course we are weighting on a bundling rule and now we have a preliminary bundling rule. Don't yet of course have the final bundling rule then healthcare form you have all been familiar as we've been tracking the progress with healthcare reform. So if you look back over the eighteen-month period, some are coming into a little bit sharper focus now although there's still uncertainty at least the last two. But if you look back at these last 18 months, think about that, probably not too surprising that we've been a little bit conservative with our cash. Now in spite of that we used some of our free cash flow to return capital to shareholders and you can see almost $400 million over the last two years. Okay.

That's a look at our performance, how has the stock done over that time period? On a relative basis the answer is pretty well. This is a comparisons, the top line is DaVita from 2003 and you have that indexed against two relevant index indices, the S&P 500 S&P healthcare indices, and you can see what our performance has been relative to those indices. Including, in the last couple of years, during this turmoil the gap has widened a little bit even in the more recent years have outperform those indices. Hopefully we can continued to so. Okay.

What about going forward? What is the future look like? Well, as we did last year, we would like to share with you what we think is a very reasonable scenario for EPS growth over the next few years. With start at the topline with revenue growth. Same store nonacquired growth, 4% to 4.5%. Add on top of that the normal level of acquisitions we do if a typical year and add on top of that a little bit of revenue per treatment growth, very consistent with the long-term trend that we've shared with you. And you get 5% to 6% topline growth. Okay, from there we get a little bit of fixed cost leverage. As Kent mentioned our business is dominantly variable cost but we do get a little bit of fixed cost leverage then yields operating income growth of 5% to 7%. The financial leverage on our balance sheet translates into a little bit higher net income growth, 7% to 9%, and then we generate a lot of free cash flow and depending upon how we use that free cash flow to pursue additional acquisitions beyond the normal or to buy back stock, that adds a little bit more leverage to the bottom line be and you see EPS growth range of 9% to 11%. We think that's a reasonable scenario.

Now, this is pretty much the same slide we showed you last year but we might say, would you, you are going into bundling now in 2011, how does that change the basic financial model of your business. And we think the short story is, it probably doesn't. So we have bundling coming in 2011 and depending upon the final rule 2011 could be a little bit choppy. So Medicare revenue is going to come down. We know that. So are costs. And I say it could be a little bit choppy is because the timing of those two things may not match up perfectly. But as we look beyond 2011 as we think about the opportunity and the risks related to bundling we think that this scenario is still a very reasonable growth scenario .

This may be my last slide. Let me check. It is. I guess I would make one or two more points on this slide and that is as you think about bundling, it's our belief that the scale providers and this is a little bit representative from what Ken said, the scale providers are likely to do better than most under a bundling rule. And market consolidation is likely to accelerate. I think the net of those things means in our view that the basic financial model of the business should be intact and this should still be a very reasonable multiyear scenario. Okay. That is the last slide for me. Kent, you want to

Summary for your partners, the reasons not to invest, gosh, rates could come under more pressure. There's no way to dismiss that risk. And we already know there's a rate cut coming up next year on the Medicare side and if the economy gets worse or sustained this bad what might that do for people planning for private insurance? Good news is clinical outcome is strong and getting better and that's increasingly relevant from a shareholder point of view. The demand and cash flow routes awfully steady so, boy, what a floor that puts under the downside scenarios. Hard to have a much better market position although we have every intent of making it better over the next few years and ironically if there is some bad news the fact that we are a buyer with cash is over the longer term, immediate term and longer term a big positive. And then the markets increasingly thoughtful about the value of integrated care. Our data for establishing the value of it is cumulatively getting a lot better. And so we are not only well-positioned for the current system but we are very, very well-positioned to both facilitate, accelerate and take advantage of the new system.

And final slide, bundling is this big thing but as Rich indicated, bundling is kind of a one time discontinuity that has some bad news in it and then has this sort of stunning opportunity to innovate $1.1 billion of costs which some $750 million is currently sole source with $600 million of gross margin and it's not going to be sole source. So, gosh, that's a nice offset to the fact that the rate cut hurts. And the good news is the rate cut applies to everyone in the space so in some ways might intensify our competitive advantage. That's the Ying and Yang of bundling. It's a discontinuity, very, very hard to exactly calibrate but your back to the fundamental business reality where you have the industry structure, where you have 1,000 small units where you can't have a lot of them close. It's not acceptable. There's no capacity to it. And it will be totally transparent if it starts to happen within the feedback loop. In that environment our continued ability to outperform other folks in whatever the new environment is suggests that perhaps the EPS scenario that Rich described could sustain itself where there's going to be centers open. We are going to be better than some of those other centers. It does mean units will grow. It does mean there will be operating income. It does mean we can leverage income on the cash flow line through stock buybacks or whatever to get to the EPS line. And so if you look at the last decade with lots of stuff going on, good and bad in individual years, our performance good and bad, what's happened in Washington, D.C. , good and bad what happens in private insurance, the resilience of the business model is striking. It is not clear why that should change going forward once the discontinuity resolves itself. And I guess we've talked about that enough.

So that's our summary. And now it is time for as many questions as you all want to ask or advice that you want to provide. It's good to introduce

It's Darren Lehrich with Deutsche Bank. Thanks. I want to do ask a few questions about your volume growth which has been quite strong and if you compare your numbers versus your large peer, you've been outperforming fairly consistent but it seems you are in fact taking shares. I remember years ago you presented medical director turnover as a head wind. Maybe if you just help us think about some of the things that you think are driving that out performance and the market share gains that you're having and maybe if you could just help us assess the risk of some of the joint venture strategies that we are starting to see with some of the smaller players and how that may play into the competition on the volume growth side?

Could you first elaborate on the risks you are starting to see the and the joint-venture strategies with some of the smaller players?

I think the risks that I'm asking about is, do you see increased activity of joint venture strategies with smaller players and do you think that's a legitimate risk factor to your ability to grow market share?

Okay. Let me take a cut at this and then Rich will correct my mistakes. On the fact that there are a few small players and that they are aggressively out there is a competitive reality and it does mean that we are going to lose some deals to them particularly sometimes when you have a very strong position in the market that can make someone else more attractive to a small group because they are worried about being a second class citizen being affiliated with a big group. That's a reality. We've done very nicely against them. We've done more joint ventures than anybody else by far and so there's nobody that has our track record in duration nor in depth, no share peculiar, nor big player in joint ventures. That's probably how that spurt of 86 denovos in 2008 because part of it was that preemptive element that I talked about. Getting out there and reducing your return on capital, your shareholder return on capital versus what would have existed in a perfect world but improving it versus if we hadn't been preemptive and gone out there and done a bunch. And so we feel very comfortable that with our heightened level of intensity which is reflected in the math for the last 18 months that we are going to do very nicely versus the small players, who will still get some victories.

And then as to the broader nonacquired growth question, we are thinking we still can hit in that 3.5% to 5% range. But we are monitoring very closely that will which you should also monitor closely which is, my gosh, if FMC is going to do more denovos and the small guys are doing denovos and we are going to do more denovos and what does that do to weighted average returns. I think that is an issue and all we can do ask track the data quarter by quarter. As you can see we went up this year as opposed to holding constant. We got back to gaining more share again and in general our weighted-average returns are holding up. We told you all a couple of year ago that we had too high a return on our denovos which is to say we were being over the selective and that was going to put at risk market share gains that were at acceptable risks on capital and the spurt that you saw that will also mean that we will have more centers that fail than we ever had before. So that will be a good thing because, again, before our batting average was too high and that meant we were leaving acceptable opportunity to others. So put all that together, we don't see any dramatic discontinuity out there. We are still generating these numbers and we can just track it together quarter by quarter to see if anybody is getting a leg up against us.

I will ask just a question on the cost side and turn this over. You mentioned in your comments, Kent, that you failed to leverage G&A in 2009. I'm just wondering if you can help us think about the ability to leverage G&A going forward, what types of things do you think led to that failure as you said in 2009 and how should we think about better cost management on the G&A side going forward?

Yes. Two things led to the failure and they are both relevant to why we don't know exactly what's going to happen in 2010 at this point. We are not going to put a stake in the ground. One was inadequate management by us. The second was conscious decisions around making an investment which we think have very much in your best interest in terms of protecting our revenue per treatment and our unit growth. And then changes in the IT system and some of the things around integrated care. So those are the two things that caused it in 2009. Hopefully we will address the inadequate management side of it. That I own but on the other hand we are playing with a bunch of things that we think are quite powerful once again in the IT sectors in particular and then stuff in integrated care. So right now we cannot commit that we are going to leverage it more in 2010.

Do you think the --

You said one more.

This relates to the G&A question.

If you can change your numbers, I can change mine.

The head quarter move to Denver, does that do anything at all for corporate G&A over the long-term, do you think there will be some ability to consolidate costs there?

In general it won't be material for a long time. In the short term there will be a miniscule incremental G&A cost over the intermediate term there will be some savings. But it's not going to be material. Economically on a microeconomic basis it will be very powerful for shareholders in terms of improved decision making. As we've gotten bigger we never really had a corporate headquarters in terms having most of our executives in one place and as we have become bigger and more complex it was no longer right, the distribution of executives across America which worked very well for us for the first decade was not right for the seconds decade. The move to Denver will be the best decision for shareholders in the second decade but it's not going to be a material savings.

Just to give you specifics for context, about 16% of our business right now is joint ventures and if you look at the pace of which we are adding about a third of the center that is we at are joint ventures. As Kent pointed out we do like some of the other players we do a fair number of joint convenience.

Okay. Kevin Fischbeck from BofA Merrill Lynch, in Darren's defense, you did say we could ask as many questions as we want, which is kind of dangerous to say to analysts. So, I guess, Rich, when you mentioned that sequentially the rate was down you mentioned 20% of that was due to commercial rate pressure, was that actual rate pressure or were you talking about mix shift, I just wanted clarity on that given that -- .

It's worth repeating three pieces. The biggest was declines in physician prescribed pharmaceutical intensities and that was 60% of the sequential change. Second part represents 20% of that change were rate changes and the biggest one there was change in ASP pricing on Medicare drugs. Okay? And then the last 20% is the commercial mix, not rate, mix. That is the phenomenon that Kent was talking about which is, I don't know if you mentioned the breakdown, is about 50/50 due to retaining patients longer on the one hand and on the other hand the actual impact of the economy and the declines in insured lives that I'm sure you all are tracking with your other HMO managed care investments.

Okay. Then you talked a little bit about the transition of bundling whether to go full in or go in overtime and one of the considerations was IT spending as potentially a head wind. I just wanted to understand how real of a head wind because it sounds like an IT spend you are going to have to make any way over the next four years and the cash doesn't seem to be a head win. Can you give a sense of how much of a cost that might be and how much of a head wind do you think that might be?

A lot of IT work is required for the bundle because you have to change the way you submit every Medicare claim. And we don't know exactly all the ways in which we have to change it until they come out with a final rule. So as much as it were a one DRG enemy there's a lot of line items in that DRG.

And we are going to have to do it on an accelerated basis because of the rule.

As far as the math we won't no it exactly until with see the rule. Leveraging the G&A it doesn't take a lot of math to go from 4.7 to 4.3. We can't have a specific number until we get the final rule. But it's enough to tweak that G&A.

And I guess you said we don't have the final rule. One of the numbers we don't have and I don't know if you have a perspective on since they are going to be setting the rate base on the lowest drug utilization level in 2007, 2009, do you know what kind of headwind that will be to the rate?

I will defer to LeAnne. I do not have a number in my head, LeAnne, do we have a number in our head, that they are probably going to go for 2008, right? And what kind of cut that represents from the industry? I doubt that we have industry 2009 data yet so we probably don't know.

I would just say 2008 looks like it would be the year but we don't have all the data and neither does CMS. And it is ability in cut for us because just mathematically if you take the lowest of three years of which 2009 was one of those years and we are going to have a cut as it relates to that and in addition to that our pharmaceutical intensities and by the way our clinical outcomes are higher than the average. Now if you compare them to the other large provider, [Persinuses], who are virtually identical when you compare to the overall industry average they are higher, so for those two reasons, we have a bigger hill to climb as it relates to that issue.

My last question, I think it's the last question, the demand growth slide, demand growth slide that you had before, the same slide that we've had for the last ten years, what are your thoughts about the slide being the same ten years from now, you mentioned about therapies in the works and it sounds far off, what do you think the biggest risk of having to change that slide is and how far away do you think that is?

Over ten years if treatments for diabetic and private insurance significantly improves while that will not have a large effect on aggregate demand it could have a material impact on that portion of demand which subsidizes most of our population. So that's the most significant negative on the ten-year front or any other comparable advances that are disproportionately taken advantage of by that segment. The most significant positive over ten years would be if science emerges that more and more people should have more than three treatments.

You are not worried about medical technology like portable kidneys or thing like that, that sounds like its way too far from the future.

At this point, what I'm told and this is a function of me listening to people who we think know a lot who either work for us or work for others that the portable technologies, I guess if you go to the ten-year time frame that is feasible Kevin. However, it's not all clear that that's a bad business model for us. Just as we have more patients than anybody in the world today. I think that's why I don't have it on the short list. It's not clear to me that's a negative. In addition, the way it works now if you are a company with new technology, who is the first person you go to in the world? Us. This wonderful company is going to be your competitor and so if it's anyone other than [Persinuses] they come to us first so there's a tremendous opportunity to partner with new technologies and if it is [Persinuses] they come to us because we have a wonderful working relationship and we can drive an amazing enhancement on their return and there's hellacious antitrust consequences for not coming to us with proprietary technology. So that space that you brought up probably has more upside for us than downside in part because it really could change the capital intensity of growth to the extent that you don't have to build all the centers. So that would be an answer to a different question that has nothing to do with demand change but structural change which we think is good for us.

Kent, Kevin Ellich of RBC Capital Markets, I had a couple questions, Rich, I was wondering if you could help us why nonacquired treatment growth increased faster than total treatment growth in Q4, it was 4.8% for nonacquired and 4.5% for total.

If you look at it on a treatment per day basis you wouldn't see that same relationship treatment per day growth year over year with higher than nonacquired treatment growth so that's part of the problem now. You say why would that be the case? It has to do with the way the calendar falls on treatment days. The sequential growth in treatment is actually lower than it typically would be for the reasons that I mentioned and as we look at January we see the effect of that bouncing back. So I think it's, it may just be the number that you've looking at. If you look at treatments per day growth it does have an increment above nonacquired growth. It was a smaller increment than it was earlier in the year then later to the timing of the acquisition with the way they've rolled out.

Does it have anything to do with the center closure or the five center that is were merged.

No, because in, Jim or anyone else, correct me if I'm wrong, the center closures are baked into the nonacquired growth calculation.

Then thinking about the DaVita Rx and the bundle, Kent, I was wondering if you could give us your thoughts behind opting in or what you plan to do if CMS doesn't change the oral medication payment amount, $14 per treatment and how much would you like them to include in the bundle?

To fully fund accepted clinical protocols of orals in the bundle at current economics would be something like $43 or $45. Are those the right words, LeAnne? And $14 is a ridiculous number. And they are stuck and working hard to figure out what to do because since there are so many patients right now who don't get what they should get, how do you estimate what that number is when you don't even have the data so you don't know for sure how many patients are getting what now. So you might know a number of what you're spending but you don't know what exact percent of patients it covers and how compliant they are. So they are in a very tough spot because they can't accept our number, although we have given them an honest one. They know their originally number is totally wrong. They want to move in this direction for very sound reasons. We are not against orals in a bundle in theory, we just want it to be at the right number so patients get the right drugs even the right quantity which is why we advocate they spend a couple of years working with us so they can feel comfortable with calculating the number, testing the number, the assumptions, seeing all the data and then putting it in. And so that's the spread and that's sort of the quandary they finds themselves in. We hope they work with us over a couple of years to figure out the right number and implement it in a very transparent way. Is that responsive?

Yes. And then the DaVita Rx, can you give us some information how many patients you have using the pharmacy and how the grassroots efforts have been going?

The answer to the question is the grass routes efforts have been going well. 2009 was our best year for incremental penetration and the total number of patients on is sort of between 18,000 and 20,000. Anybody know the exact number? It is by far the largest focused kidney care pharmacy in the world and we have a growing database that's unique for helping pharma companies think about enhancing the penetration of their drugs, I mean for remarkable influence to make sure the right people get the right drugs as well as data tying it to reduced hospitalizations when patients do comply. So it's so it is really a unique data set, separate from incremental margin on delivering the script.

My last question has to do with people and your thoughts on the new (inaudible) tests coming to the market soon like [hempatied] and also the upcoming government meeting for ES A's. I think there's one at the end of March, what are your thoughts going into that meeting and what do you think it's all about.

On the new assays coming to market we are very excited. We think the world of Amgen as a company and their drug has been a great gift to thousands of patients. At the same time, we would love for them to be a competing great gift because there's an awful lot of GMs sitting there. And the meeting you don't know how they are going to come out, you talk to 20 different nephrologists you get 20 different opinions as to what the new studies suggest or don't suggest, prove or don't prove and they have not yet even published the exact questions they are going to address in some of those meetings and they end up hyper speculating which just isn't time well spent, so I think that's both questions.

The gentlemen in the back has had his hand up for quite awhile.

Thank you. Your profitability in part is derived from a pricing floor that is set by the less efficient providers in the industry, by your own description, we can't have them go out of business at a rapid rate. And I'm wondering therefore if you can decide what the size and shape of the industry cost curve is sort of with an eye to how many years is it until we have nothing but efficient providers in which case who knows what the profit structure would look like?

We don't know, you can look right now at our current nonacquired growth 4.5% to 5%, what FMC is doing, what the MD Os is doing, the medium investor owned enterprises and if you just extrapolate out a straight line it's a long time before you have a critically material body of independent. And some of them will never sell. They may loose share. So maybe they've gone from 30 patients to 40 to 50 to 60 and then go from 60 to 50 to 40 as they loose share from us to others but they are still going to have their center because if a doctor doesn't want to sell or a hospital doesn't want to sell or an investor doesn't want to sell. Then that further delays the curve. So absent some discontinuity like a really bad bundle that leads a lot of people to want to sell quickly it's quiet sometime but I don't have the model in my head.

I think the other interesting thing is we are about to go through an industry transition here where several billion dollars is going to move from cost plus into the bundle and so you that has the potential to widen the gap between the floor and the efficient providers as scale advantages are likely to be more important in the bundle than they were previously.

A follow up again, how large is that more inefficient part of the market and at what rate is it departing today?

About 25% of the market. 1,000 centers more or less, again defining the boundary is somewhat subjective, but that gives you a senses, and the market is growing 3.8% and you will see we are at 6%, FMC is at right about the market, and the MDO are a little hard to quantify but they are so tiny so you are not moving much each year on a share basis. But we can give you an actual set of the numbers. So I can only give you the directional business answer and some of the mathematical components.

I can't do it in my head and I don't have the numbers memorized.

Andreas Dirnagl from Stephens.

You usually wait until closer to the end.

Well, I can always come back.

Its been twelve years and you don't age ever.

Kent, just to pick up on a turn term that you used a couple times arc really bad bundle. Would you characterize the current proposal as a really bad bundle?

The interim rule, oh yes. That would be an understatement.

The $14 versus $45 makes it a really bad bundle?

It's an abomination.

On the same line when it comes to the current rule then as it's proposed now assuming that there would be no changes, do you have an opinion as to whether DaVita would opt in immediately or whether it would take it in over the four years?

On the current rule you would head for the hills. You would opt to resign. The and under a new rule you have to wait to see it to know what you would do.

And the majority, you put out three or four different things that you and the industry were working on, would you say that the oral drug is sort of the number one key focus of your conversations now?

The math of a few of them. A few of them have striking math, if they get them as wrong as what's contemplated. I want to go back and emphasize. They were very open in saying, we had to get this out because the fastest way for us to get a better handle on it is to get it out and start the communication in a more intense and open and deadline kind of way. We know they are going to change some of that stuff which is you get caught, how much do we have to talk about it, it doesn't mean we should tell anyone that we try to be incredibly open and honest in our analysis to them we try to get to the budget neutrality that the legislation mandated. We just wanted what the legislature wanted. We don't want leakage. That's really, if works for us. So it's not a case of we are trying to add stuff in. But they did the right thing by bringing it out the way they did to accelerate progress and learning and they listened with great intensity. And there you go. That's all we can say factually.

Okay. And another issue then, you made a comment that what would be positive for both DaVita and the industry would be an expansion of coverage with no public option. Do you therefore see the Senate version of healthcare reform as a positive to the industry and to DaVita as being the most likely thing if we are going to get reform to pass?

If the legislation that passes creates subsidies of any sort which make it easier for citizens to buy or retain private insurance which parts of the Senate bill might do, that is an unambiguous good. And as probably you all know, I don't want to state facts here that are very time sensitive here, a fact that is true today may not be true tomorrow but the public option is quite severely politically damaged yet the desire to have more people covered by insurance remains strong. And so ergo someone this year sooner or later might try to do something in order to show their constituents that there is more insurance coverage without tackling the monster, the third rail of the public option. I'm not predicting that but it wouldn't surprise me if someone tries to do it. The big factor as a just spending money is very difficult right now and the countervailing fact is in our case, if you extend private pay you can pay for it providing coverage.

One or two quick ones, can you remind us when your current Amgen contract is up and when you've done in terms of starting to renegotiate that?

There hasn't been a period in ten years where we are not negotiating with Amgen and, I don't know, do we disclose when it ends? I don't remember. It's the ends of 2010, December 31, 2010, isn't that right?

Yes.

You mentioned going, switching to acquisitions for a moment you've been talking for a year or a little bit more than a year about your desire for potential MDO acquisition. You mentioned today that you haven't been able to get there in price which has been a good thing. Can you talk about sort of not for any specific transaction but just in general what you are willing to pay for acquisitions in terms of say on a per patient basis the way we always looked at them in the past?

I don't think it's in your best interest for me to talk about that publicly. But maybe the generic answer might be useful.

Looking at the Gambrel acquisition if I recall correctly you paid about $75,000 or $80,000 a patient. Looking back on that, is that sort of, yes, we think that's a good pricing level in general or, no, we got a bargain, you shouldn't be expecting that going forward.

I don't even know our per patient numbers for 2009. We just simply don't look at it that way. We look at it two ways, an IRR and a year three after tax cash return on the actual net capital invested to do the deal. One very, very hardcore intermediate term pragmatic cash, cash, cash, cash, cash, and the other, the more normal conventional financial IRR with terminal value and all that stuff. That's what we use, in evaluating an MDO one takes into account it could be by buying, having two more centers in Milwaukee you actually help strategically the performance of the four other that is you already own which adds a return on that doesn't have anything to do with the multiple you are paying on their profit. And so all I can say is we want to be very comfortable that we are going to get a sustainable after tax return on capital, that's what it's going to do.

Then finally win for me for now and you've hated this one in the past but it's been awhile so I will ask again, your own commitment to the Company, can you remind us of what the length of your employment contract is and options for renewal?

You are still trying to get rid of me? There's no date set for, there's no date set by me as to when I will go and I'm totally committed and loving what we do and are trying to do. Of course if someone at the Board wants to fire me any time soon it's not something I can control but I have no personal date set and I'm very, very, very excited about some of the stuff we are doing. We will go here and then there's a gentlemen in the middle.

One quick question, you talked about village health and coordinated care both of you presently pretty vocal about the opportunity. Understanding MS P has some political opponents in Washington, who could be the gaining factor in getting course to care pilot large or more on track?

Who could be an obstacle or getting factor?

What or who or why hasn't it been more?

Well, it was frustrating this last year because we were told, we were advised by the right people not to pursue a large globally capitated pilot because they just were sick of dealing with us after the whole HIPAA legislation for the bundle. They spent a lot of time on dialysis and they wanted a break. They knew they were tackling healthcare reform. They had to deal with the aircraft carriers and they weren't going to have time. Against odds, we refused to listen and moved forward anyway and created a significant body of support to the point that they were working with us and crafting language. So all the legislation, the language was drafted. And it got sent to the CV O. And so we climbed a tall tall mountain and got people excited, even in the context of, my gosh, we are already working 18 hour days and why would we add to this thing which is not sort of the political main event. And then we tried very hard to make clear to the CVO that we will do anything to try to avoid a concern that we would cherry pick which is a concern when losing global capitization will people cherry pick and somehow pick patients where they are going to make money just because they were superior underwriters. And we will put whatever language we want, you want, but they don't craft language for you. They still had a concern so they didn't give us a neutral or a savings score. They gave us a slight costing score which then knocked us out in this go-around. So we overcame all the obstacles and got into the legislative red zone and stopped by a relatively small costing score but it was a costing score and so the optics of that for that were not acceptable. But it does put us in a very good position going forward because there's a lot of familiarity with the concept. And everything they talk about if you've familiar A.C. O is with a big, concept in the Senate bill or other people talk about integrated care. We can be a poster child for the kind of thing they want to deal with all chronic care in America and that's what we were offering up, a substantive political victory and so we will be back at it but that's what happened this past year. Is that responsive?

Thanks, Gary Lieberman from Wells Fargo. You talk about the cost opportunity from bundling recollection there any revenue opportunities from bundling, will it take more sense to be more home or more P. V.

Actual question. Excellent question. We have to wait for the final rule.

From the proposed rule is there anything that stands out that might give an opportunity.

We know it is a moving target. We spend more times on trying to get the problems fixed so I don't honestly know the answer to the question, Rich?

I would say, no, I think the dominant focus is really on the cost side.

Then with regards to EPO you talked about there being an opportunity and the contract with AmGen ends in 2010, I guess is there any opportunity to get some significant cost savings prior to the expiration of the patents?

Don't know. We would like that.

So I guess the other piece of that is it sort of in your mind if you could share with that, what do you think the potential size for the savings is on that $800 million piece that is EPO?

It's going to be fascinating, they have what they have. You know the facts. How this place out is, who knows. Its quite exciting.

Alright, I am zero for two, I will go for my third one. Is there anything you are doing in terms of the long-term contracts you have with your directors, is there anything you are doing different because of some of the competition from some of the new entrants or some of the other guys doing JVs, is there anything that you are doing different in your contracts to keep those physicians either longer or to keep, or to get physicians the first time?

The short answer is no. Our medical director agreements are quite similar to what they've been in the past. What we've demonstrated the last few years back when we talked about some of the headwinds is that we had a lot of physicians who's contracts were expiring who didn't have tails, who didn't have noncompete tails. And what we've demonstrate is there very, very, very high percentage capability of renewing even with that which is why we don't even talk about it any more because our hit rate is so strikingly high. And so that was the one watch that we throughout there a couple of years ago but the ends for all going forward contract noncompete tails are a part of doing the business and virtually always achieved. So that would be the only difference. But it's only a difference for those contracts. It was always the standard. But we inherited a bunch of contracts that didn't have that provision. Everything else is pretty much the same.

We generally are as a matter much course entering into a discussion about renewals far in advance of expirations. That's something that's not different over the last couple of years but it's one of the reasons why we had pretty good success. I guess the last thing is people don't take the impression that it's all about contracts is the other thing is all the work we've done to improve our position as a high value provider and high value partner is really critical for a lot of docs, particularly as we go into a time of significant industry changes with the bundle.

Thanks a lot.

Thank you.

Thanks, Justin Lake with UBS, just a few questions on your commercial mix, the number was 13% last year, it looks like it went down to 12%, can you give us color on that? You can get from 13% to 12% in a lot of different ways?

I don't know the answer to that.

Less than 100.

Less than 100?

I remember the I was told the rounding has moved. I know it was less than 100 but I don't know the exact.

It was probably a full year average was it materially different coming out of the year than the 12% or that decline?

No, if I'm answering the question correctly or incorrectly let me know, it did continue to deteriorate in Q4, so the number we are giving you is where it declined to.

That's the Q4 spot number?

Yes, yes and again sort of half, the reason half the retaining patients longer, half tied to the economy, and then the other thing for a little bit more color that we've been saying for the last several quarters is it seems to be disproportionately in the lower rate segment of our business. That was a little bit different in Q4. Still disproportionate to the low rate but not as quote, unquote favorable as it had been in previous quarters.

Is there anything you could figure out as to why it's been the case?

Honestly, no.

You've been pretty clear that the existence of cobra your ability to get people covered there has buffered the economic impact to some extent? I know you track this pretty closely so as you go through the year, as you see people ticking off in that cobra coverage expiring, do you have an idea of where you think that number, nothing else changes in the economy, if we came out at the same unemployment rate that we came in at the end of the year where do you expect that 12% number to be just because of cobra expirations?

Yes, I don't have a number for you because we haven't isolated it in that way. As we think about mix going forward we are hoping that it's not going to continue to deteriorate but planning for it to. And we don't have a handle on is the lag time between sort of the impact of unemployment and the related decline in commercial membership. And the impact on our business, we are working furiously to get a better view on it but we at this point in time don't have a forecast that we have a lot of confidence in in terms of what our mix will be as the year progresses. So as I said hoping that it doesn't decline, planning that it will.

Cobra and you correct me if I'm wrong, LeAnne, Congress passed a temporary cobra extension provision. That did not apply to our patients. And so when that expires, it doesn't affect us. So the only thing that would change our cobra reality, nothing tied to all that legislative, the stuff that got all the legislative attention but just that a few fewer people in the normal course of life sign up for cobra.

Just from a commercial contracting standpoint, it's pretty clear that you have an understanding with commercial payors that they are the subsidy for Medicare since more people are on Medicare is there anything you can do from a rate perspective in 2010 or have done from a rate perspective to increase that subsidy to offset the mix change.

2009 was a solid year in terms of our rate trend and we hope 2010 will be solid as well.

You think it will be better or worse? I would assume most of that is already contracted?

Well, no. Because I think as you know most of our business is up for renegotiation early every year because they are not long term contracts. It's not a situation where you go into the year with rates locked and loaded. In some cases that is the case but predominantly there's a lot of discussion that have to take place between January and December. I don't think we are in a position to predict.

Then just last question.

And, Justin, we are doing a better now of analytically establishing the fact of the credibility that the rates are higher to subsidize the government. However, having said that when we go to them and say that our Medicare deficit is going to grow this year they beg to differ when we suggest that means they should do something to incrementally make up for that.

Last question.

The problem is [inaudible]

Commercial bundling, can you give us an idea of where you are right now as far as the percentage of your contracts that are bundling and where you expect to go into bundling up at the end of the year?

We never reveal the exact number but it's substantial and continues to grow and it's going to continue to grow probably this year more than the normal year and 2011 more than the normal year.

Great. Thanks.

He's back.

You mentioned more frequent dialysis a few times and so I'm just wondering if you could comment a little bit more about, what clinical data do you think is important and may be important over time and I guess how you view this as a public policy item for your industry and how you lobby it? Just kind of where do we stand as far as more frequent dialysis goes, how should we think about that?

I will make a couple of statements and then you can come back to fill the gaps. The policy makers are horrified at the prospect of doing anything that would lead to lots of people getting lots more treatments and, therefore, will set a high bar for data and or physician fervency. That's the policy side of it. On the data side of it, the people who are critical say that the data is or I guess technically are not clear about sustained comparable adequacy and reduction in total healthcare cost. The supporters argue vehemently that the data are clear although there's no massive controlled study that in fact outcomes are better. We are neutral because the fact is there are not the kind of controlled studies that you might have for a new drug. We do more home human dialysis than anybody in the world so there isn't anybody with as much data as we have. We are continuing to learn very objectively every month or more about it and look forward to helping shape policy in whatever direction it should go. What is clear to me as a relatively ignorant lay person in the conversation but as an observer for some percentage of persons it is better. I am quite persuaded of that. But as to what percentage that is, it's just too wide a possible range right now. So that's our answer. Did I cover all of it?

I think so. The I guess my other part of the question relates to a recent announcement. You made regarding a hire who is I guess in your of your home therapies. My understanding is that person came from an organization with a much hire home human dialysis and home based penetration therapy. So maybe just talk about that hire in the context around your strategy?

We just successfully recruited a gentlemen named Dr. John Moran. He is one of the best known physicians in the world when it comes to home therapies and particularly P.D. with both PD and frequent dialysis. He came to us from a competitor who has placed lots and lots and lots of emphasis on the home. And so we are very excited that he wanted to come and join us. With what that reflects the fact that it is our stated intent to be, and we have not only more home hemopatients than anyone in the world we have more home patients than anyone in America. I don't know FMCs global numbers. And so our agreement to get together with him is our reflection of our stated intent to be the most thoughtful, the most informed, the best equipped organization in terms of data on clinical outcomes and operational realities in home therapies in the world. That's what that hiring reflects. And exactly where would that's going to go in terms of policy advocacy we don't know yet. But it further positions us to be where we said we wanted to be for a few years is when Congress or CMS is looking to change things they want us in the room because all along we've been ruthlessly objective players in this debate.

I guess my other question here just relates to some of the strategic initiatives that you talked about in these forum in the past. You highlighted three in your slide presentation. I'm wondering if you could talk a little bit more about some of the other that is make up that 5% of your revenue and in the last year which comprise about $15 million or $20 million of investment for your shareholders?

We are developing a fourth one that's consuming dollars is we are developing an electronic health record, electronic medical record for physician practices and nephrology practices. It's called falcon. It an exciting piece of work one of the once that are sort of material. I hit the big once in terms of the math.

Fusion,.

Just focused on kidney care, the home infusion company we but a few years ago, a very strong year in 2009 after we almost killed it in 2008 after we bought it and smothered it with value-added , had a very strong year and just hired a new Chief Operating Officer and are hoping to ramp up the growth significantly relative to 2009 in 2010 primarily on denovo basis in order to continue to test whether or not this is an area where we can throw substantial chunks, of your capital to grow. It's a highly fragmented industry. It's a very good felt with our core competencies. It could be that significant portions of it are susceptible to dialysis being dialysized in terms of a more clinical focus with more standard outcomes and a more coherent deal with payors. We are still learning and trying to decide, and as we explained when we bought it, this could be another big growth pillar. We are going to take sometime and see if it's a place where we want to place some significant bets and the best way to do that is place a small bet rather than consultants do PowerPoints in your conference room or with all due respect just reading your reports. We felt by owning it and rung it for a couple of years we are learning a lot and hoping that it ends up being something that we want to place some

The financial part of it I want to ask is the 30 or 40 basis points of margin that you've been absorbing on a consolidated basis, how does that look in 2010? Do you think you can get to break even in all these businesses that you suggest record now separately or do you think you still have start up losses that you will be investing in in 2010.

I will take it, Rich. What I said in the presentation is that we would expect the investment, the operating losses to be comparable in 2010 to 2009, not significantly higher or lower. And that number is 0.3% of revenue. Andreas?

Just a couple more, Kent, we don't talk about it a lot for obvious reasons because there's really not a lot to talk about, but did you put up a list of the investigations you successfully completed. There are some outstanding two to five years old at this point. Is there any color you can give, would you consider any of those active investigations still, are you still getting requests, et cetera?

One of them has been dormant for some time. And there's been activity in the other two. In one case positive activity in our mind, in another case, negative activity. It probably doesn't make sense to go further but that gives you some sense of how that portfolio is evolving.

And, Rich, maybe just a question on the slide that you put up in terms of growth going forward, bottom line was 9% to 11%. That's clearly below what you've been doing on a [kagger] basis the last couple of years by a good 300 to 400 basis points.. And I was wondering maybe one or two quick ones. You put in further share repurchases as one of the drivers for the leverage down there. Any assumptions that's in thereof how much or that you are going to do them or it could possibly add to that?

The someone that's built into that that basic financial model is that weary invest our free cash flow in either acquisitions or share repurchases.

And you've done a good job in the past, sort of talking about the levels and the probabilistic outcomes, what sort of lever do you think particularly in 2010, 2011 that you can sort of push and pull against that's going to cause that number to potentially be the 9% to 11% of your sort of historic range of 14% to 15%?

The things that could cause us to be above that range or below that range I would say are outcomes on private rates, are we able to get consistent increases overall on the portfolio, similar to what we have done historically or not. And bundling transition I think would be part of that answer as well that could pus us out on either end. Those are the two that I would say. They are both the same answer for the high-end and the low end. Would you add anything to those.

What happens in that portfolio of the quieter government perhaps, VA Medicare and Medicaid advantage is up there in the pantheon of factors and whether or not we get a pride pay extension or private insurance subsidy would be a fourth one in the pantheon.

Of the three other programs that you mentioned and I think you said in general that they have higher than Medicare rates, do all three of them have higher than Medicare rates or is it them as a bundle.

Definitely as a bundle and I know two of three do. I can't state definitively on the third.

I'm assuming it's Medicaid.

I think it's in your best interests that I not respond.

One final question on just denovos or two on denovos, I'm assuming are we past sort of the big certification issue now, has the log jam cleared or are there still some waiting and finally are we still in a situation where you said in the past that clearly your development people bring you many more projects than you actual dollar on a denovo basis? Kent, you mention that you kind of brought down your IRR hurdles? Are we still in a situation though where you probably have more capacity to do denovos than you are actually doing?

The actual number of centers delayed right now is 62, I believe. So it's down a little bit from its peak, not, what's that? Still quite a few. Although just to make sure that everybody notice what we are talking about, it's not that we have a bunch of centers out there that are getting older and older and older where you have to say, oh my gosh, are they ever going to open those centers. Instead it's taking longer to get from completion to certification. So you kind of build up a little backlog there. So that is predominantly the nature of that pipeline. So a little better, we've also done a little bit better in controlling our costs for those denovos while they situating and so that's helped a little bit but it's still, there is it is a drag on our costs right now. Now that number will never go to zero and it's never been at OEM it's just about what two times what it would typically be if you look back in history.

There's another part to your question about capacity for growth and I might ask you to ask that again to make sure we hit that part, too. We had a significant public policy victory on the survey and certification front every year there's an appropriations bill that allocates money to the agencies for doing that sort of stuff and related stuff. And this year we worked very hard again to be in the lead by far and the provision, the funding for dialysis survey certification went up by 65% or so. An increase, a dedicated allocation changed the likes of which had never been seen. And so that will over time begin to help us, holding all other things constant reduce that number further. You asked another question about sort of capacity to grow?

(Inaudible).

Right. Yes, the answer is, yes, we probably have 200 projects being evaluated right now and you saw the prediction for this year was comparable to the last two. And then many of the decisions we will make in the next few months actually affect what happens in 2011 but if I had to guess I would say 2011 will be comparable to 2010 absent again any discontinuity there. Our objective is always if we can stay here until no one has another question.

You talk about --

Can you introduce yourself?

Andrea Bici, Schroeder.You talk about transitioning to other ES A products, can you give us the time time line I know you run your protocols carefully, how you run your pilot programs and if you were to be considered a new therapy how long a decision process is and how long it would be to role it out to all the centers?

Specific to ES A.?

Yes.

There isn't another ES A on the market yet. The once that appears to be closest is [inaudible] hematied which they are saying late 2011. If you are betting you would probably bet that it flips from there. So we think about 2012 as possibly being the year that there could be a real alternative and then two years later is when the patents fall away and we anticipate several other alternatives which are already in the pipeline. So we don't actually have an alternative right now. However, the spector of competition hopefully will be relevant today even before products are on the market.

She's asking about the timing of penetration. LeAnne and Jim, are we doing clinical trials? Are we involved in the trials with AFFE? I was 99% sure but, so as is often the case, if you want to bring a new drug to the kidney care market you want to come to work with the DaVita Clinical Research to do it because that way we are developing mutual familiarity organizationally with the drug with all the subtleties of the results. Our leading physicians are getting familiar with it because they are going to be using it in a highly controlled manner. That's all done on a advanced basis, with us unlike virtually anyone else in our space, it gives us a tremendous leg up for the stage that you are asking, what's it like to make a final to go decision and then make a to go decision. I can't answer using a number of months but because of our involvement with them all along the way and between now and then, any more expansive testing or pilot phase can be relatively short and then if our physician leaders communicate to the rest of the community that this is equivalent or differentiated in some way, the take up can be quite quick, very quick as we've demonstrated. LeAnne, how many years ago was it when we made the conversion to, it was a fair number of years ago now, but in the last ten years there have been a couple of instances where a drug, a new drug has either been clinically equivalent or economically superior or clinically superior or operationally superior for example by changing vile size or between ampul and vile. If you look at our track record even back then and its even better now at our ability to marshall communication across physicians and drive rapid implementation of something that is superior along those mentioned is fast. It's fast. And I wouldn't expect this to be any different.

Are you in any clinical trials for generic EPO? I know there's a few on the market in Europe.

(Inaudible).

Okay. Thanks.

Do you have any interest in licensing is something like [mycera] or generic EPOs when EPO goes fully generic to FAS 1486?

We have a huge interest in any and all alternatives. And we, be very clear we would love to keep using EPO also if it's clinically equivalent to everything else and we can strike a good business deal. We worked exceptionally well with Amgen all the for a long time along with the normal tessel on rates.

So you have a slight change in strategy so you would start to distribute and license them.

I'm sorry, I didn't catch-all of the question. That is unlikely but it's not off the table. We would be up for anybody's advice on that score. Certainly people have come to us with offers on that regard.

We typically conclude in those situations that it's better to have complete flexibility and freedom to pursue all different alternatives than to be tied to one house drug.

We are better at choosing and using than we are at licensing and distributing. Well, thank you all very, very much for your endurance and interest and we will work hard for you until this time next year. Thanks.