德維特 (DVA) 2011 Q1 法說會逐字稿

Hello, ladies and gentlemen. I'm Jim Gustafson, DaVita's Vice President of Investor Relations. I would like to welcome you to our Q1 2011 earnings call and our 2011 Capital Markets day. For those of you in the room and for those listening online, thank you very much for joining us.

First, I would like to go through our forward-looking statements. We will make some forward-looking statements today. I'm putting up a slide here that is also available on the webcast and will be available in PDF afterwards. I suggest that people take the time to read this. Also, we'll be making some non-GAAP statements and the reconciliations to those non-GAAP statements will be available online as well.

So today, our agenda will be first to go through the overview of our Q1 results, and then to discuss an overview of the Company, some investment highlights, business fundamentals, go through the financial review, and then, finally, summarize it all. So with that, to go over our Q1 results, I would like to introduce Luis Borgen, our Chief Financial Officer.

Thanks, Jim. Good morning. Welcome to our Capital Markets day. Okay. Treatment growth was 7.2% compared to Q1 in the prior year. Our non-acquired growth was 4%, when normalized for the calendar it was 4.2%. This is due to the greater proportion of treatments that occurs on Mondays, Wednesdays, and Fridays. The non-acquired growth in Q1 was consistent with the most recent quarters.

Our Q1 revenue per treatment declined by $44.72 sequentially. The primary drivers were reduced Medicare reimbursement rates due to bundling, declining utilization of physician-prescribed pharmaceuticals, and the commercial mix, which continued to decline. The rate of decline did moderate in the quarter. Remember, this mix decline is a combination of decreased mix of new private patients due to the economy, and improved mortality. This is partially offset by improved commercial rates.

Our patient care cost treatment decreased $1.59 sequentially. This sequential decline was primarily due to the reduced unit cost and utilization of physician-prescribed pharmaceuticals. Our Q1 patient care costs represents a good baseline for 2011 at this time. Moving on to our bottom line results, operating income was $236 million. It was down 3% due to the implementation of lower Medicare reimbursement prior to the transition adjustment fix. EPS for the quarter was $0.96, down about 8% year-over-year.

Along with a lower operating income, EPS was also impacted by higher debt costs as the result of refinancing last fall. Q1 was a very strong cash flow quarter. Operating cash flow was $330 million. This was variably impacted by a couple of items. Number one, we had certain favorable working capital items swing our way, and number two, the timing of our semi-annual interest payments on the bonds, which typically occurred in Q1 and Q3, are now in Q2 and Q4.

Moving on to operating income guidance, now that we have one quarter under our belt and have some clarity around the transition adjuster fix for 2011, we are providing OI guidance for 2011 of $1.04 billion to $1.1 billion. This incorporates the recent transistor adjustment fix and DSI, which we expect to be approximately zero OI contribution in 2011, net of transaction and integration costs. Our initial 2012 guidance is from $1.1 billion to $1.2 billion. This includes the net expected OI contribution from DSI.

Some of you may be surprised by the low end of our guidance. We do not usually give guidance this far out, but the recent changes that we've seen in reimbursement and our cost structure, we thought it was appropriate to give you a sense of how we intend to grow off this new baseline. There are four variables that could negatively impact operating income and put us at the lower end of guidance.

Number one, commercial mix has and continues to decline, and may continue to do so in the future. Additionally, we face rate pressures from the DA and state Medicaid programs. And finally, we may accelerate our investments in our international business to identify the right opportunities. We may update guidance as we have more clarity over the next six months.

Moving on to our 2011 cash flow outlook, I want to take a few minutes to walk you through our thinking with respect to our cash flows for this year. First, we expect maintenance CapEx to be approximately $240 million. Our distributions to joint venture partners should be approximately $100 million. Let me step back a minute. Our operating cash flow guidance for 2011 is $840 million to $940 million.

Once you take into account the maintenance CapEx and the NCI distribution, this would imply free cash flow guidance of $500 million to $600 million. We anticipate spending at least $150 million on development CapEx. In addition, we will spend about $690 million to acquire DSI. And finally, we expect to have about $70 million in mandatory debt repayments related to our term loans. In this scenario, we would see approximately a $310 million to $410 million reduction in our cash balance this year.

So what does this all mean for available cash? We started the year with $860 million. I just walked through our change in cash, so we expect a reduction of $310 million to $410 million. And year-to-date, we have acquired about $80 million through acquisition and about $100 million of share repurchases. So on a net basis, our remaining cash should be approximately $270 million to $370 million before any further acquisitions or share repurchases this year. Thank you. With that, I'll introduce our Chief Executive Officer, Kent Thiry.

Okay. Good morning. Welcome to those of you who are new to DaVita and in particular, welcome to those of you who have been with us for a while. The categories are pretty much the normal ones. We'll try to move briskly, as we always do, so that we can spend as much intense time as you would like on as many questions as you would like. It's important that I always start with our mission. We are first and foremost a caregiver Company. In the end, we have to choose between serving you, the shareholder, or you, the potential patient or your mother or father as the potential patient or your brother or sister. We choose the latter as our first priority. And it's important for people to know that going in.

This is kind of what dialysis looks like. If anyone has been an owner for awhile and hasn't stopped by a center, please do, and we can help set that up. To let you know that in addition to trying to generate returns, we're doing really good things for fellow human beings. This is the typical center, except for the fact it's really clean. We have about 1,650 of those right now, and here's a typical mature center, just so you get a feel for the operating reality across those 1,642 places.

Here's the total. Once we close DSI, we'll be a tad over 30% in national market share. So now on the investment highlights. What we try to do here is, if we were you and had to come to this meeting or listen to this Webcast and then go back to your partners and describe why you either would invest or would not invest, we try to get to the right point so that we essentially afford you that summary, hopefully with the right backup behind the assertions.

From an industry point of view, so forgetting DaVita, except for the fact that hopefully over the last 12 years, we've played a significant role in shaping the industry. As we have said for a long time, if you're a leader in the industry, job one is to protect the profit pool, job two is to fight over it and in many industries, when leaders forget job one, they end up fighting over a prize that's not worth very much in the end.

So we spend a lot of time over the last 12 years trying to make sure there was sufficient capital attractiveness in this segment so we can continue to innovate care and grow and provide more access, simultaneously providing return to you. The government gets the return. The patient gets the return, as do you. So in that context, what are the industry highlights? This is a summary and we'll briefly step through each of these assertions.

They are quite different in total from most healthcare service segments in America, or the world for that matter. On the demand side, there are a few areas with as regular and as predictable demand. There's no clinical controversy, minus a little bit of discretion over exactly when you start a dialysis patient, there's no clinical ambiguity about who needs it. There's nothing dramatic going on within the foreseeable timeframe around transplants, although we always hope that will change from a clinical point of view.

It's not cyclical, it's not seasonal. Physicians have a lot of loyalty to a center and to a company, in many cases, not all. Patients have a lot of loyalty to centers and physicians, as there are very limited therapeutic alternatives. And then if you look at the demographic trends, the elderly and Hispanic and African American populations are those which are disproportionately prone to kidney failure. And they, of course, are also the highest growth segments in America. So as we've said for years, we are in the demographic jet stream of American medical care. So demand is stable within most of your investment time horizons.

Looking backwards instead of forwards, you can see that those words that we're saying are true now, have been true for sometime. From a cash flow point of view, in part because of that demand, in part because we're a low fixed cost business, want to remind you what it takes to build a center, from scratch it's several hundred thousand dollars in leasehold improvements, several hundred thousand dollars in equipment which can be pulled out and used elsewhere. Several hundred thousand dollars of working capital losses until you reach break-even. That can also be pulled out.

If you were working down your receivables (inaudible) put the center in, so your only naked capital is the leasehold improvements and whatever lease you sign. So relative to revenue flows and cash flows, it's very low fixed cost based, and most of our capital investments are pretty opportunistic exceptions, like when we bought Gambro five years ago, and DSI right now. And most of our capital investments are quite small and incremental.

This is just incredibly important that most of this community is investor owned, because in this bizarre world of American healthcare, it's an unfortunate reality that for 87% of our patients, which are government pay, we actually lose money, about 82% Medicare, 5% Medicaid, and so that remaining 13%, actually 11% to 13%, depending exactly how you want to cut it, must subsidize the other 87%.

None of us would design a healthcare system this way. It's not appropriate for the government to brag about cost control in our segment, because it's just a massive cost shift. But from an investor point of view, when you first look at that, it could create concern, because you can say, oh my gosh, the private payers won't to continue to subsidize the government, why would they want to do that, pay so much more? The short answer is, they have to. Because all the providers are facing the same reality.

So no one can afford to get by if they don't charge private payers significantly more than Medicare. Not a happy fact, but it's a well known fact. And particularly now that about three-quarters of all centers in America are owned by investors, they are very sensitive to that reality, so no one's going to do something foolish assumedly and put patient care at risk in the sort of Don Quixote-like quest for incremental volume.

The government also has a different relationship for us, because most other segments, the government can't be held very accountable. Hospitals are complicated institutions, surgery centers do lots of surgery, nursing homes have lots of different types of patients. The list goes on and on and on. We are a single DRG provider. Our economics are very transparent, about 85% of the centers in America are discrete. They only do dialysis.

Their economics are discrete, and so the government has more insight into what dialysis costs than any other segment that they manage, and they also know that they are almost all of the patients. And so they know that if they make a mistake, centers start to close. If centers start to close, it's really bad for those patients in that area, and unless there's a very good reason for it, that feedback goes immediately to CMS and then Congress then creates tension.

In some cases, centers do close for good reasons and there's alternatives nearby, so any sort of significant trend of centers closing for economic reasons, because of more extremely inadequate Medicare reimbursement would lead to immediate and appropriate political pressure because you would have lots of patients that need dialysis three times a week in immediate jeopardy. So it's a natural a safety net.

There's still about 1,000 centers across the country, despite our growth, this number has stayed virtually identical for several years, despite our growth because of the low barriers to entry, lot of new providers continue to enter. So what you take away from this is what we've said for years, that the bad news is the government is unlikely to do what it does every now and then in the segment, and make a mistake by reimbursing too much, and suddenly creating a short-term windfall and some sort of opportunistic shareholder return situation. That's not going to happen in our segment.

The good news is you're not going to get the opposite mistake, where suddenly a reimbursement is passed that's going to put a lot of centers at serious immediate jeopardy. That's not going to happen either, or highly unlikely. Within Washington, D.C. hopefully over the last six months you've seen that we're different from most other segments in American healthcare service in another way. Which is that we have created a literally unique coalition that has got all the providers, for profit, not for profit, big and small, the leading physician organizations, the leading nursing organizations, pharma and device, leading patient advocacy groups, all into one coalition.

We meet quarterly. We've done it for years. There's staff leadership. There's committee work. People work very hard to create a United Nations-like -- actually better than United Nations-like consensus on significant positions. So we, more so than most segments, are able on particular issues, like we were able to with the transition adjuster, go and actually say, we're speaking for the entire community. That doesn't happen too often. When that doesn't happen, it's very easy for members of Congress to say, well, we're hearing different things, so we're going to do what we think is right, which is often wrong.

This is a good thing, and you can see in issues like transparency, like clinical outcomes, like pay for performance, we've taken stances as a community radically different from most of the provider community in America. That doesn't mean it's always happened, but Congress knew that if it actually wanted to move forward on some of the coherent structural elements of healthcare reform, that we were one segment that was willing to dance.

Even know that song never started playing in the past, it meant they were more thoughtful with us than they otherwise would have been if we had been like most provider segments, fighting, fighting, fighting these same important things. Recently, we've been very, very active, more active than we would ever want to be in Washington, DC. I won't bother to step through these. They will probably come up in Q&A.

But from an historical perspective, the last three or four years have been the busiest policy times or periods of the last 11, 12 years. And it's good that the stuff we started -- it is good that we started things like the Kidney Care Partners coalition, and the Kidney Care Council didn't started that but sort of rejuvenated it seven and eight years ago. Because otherwise we would have never been able to present the sort of coherent front and the coherent argument, and so that for the most part, policies have been reasonable.

There are still some real significant gaps in what they have done. They just don't make sense and do put a bunch of centers at risk. But by and large, the net has been a whole lot of collaboration and interaction back and forth. At the same time, your partner's are going to can ask you, what are the low lights, what are the arguments against. And those are pretty straightforward, or straightforward to think of at least, not necessarily straightforward to assess. That's what we're here today to do, however.

One is that, there just is reimbursement risk with the fiscal government situation and all the things that are shaking in private pay. While one can be comfortable with certain things in the medium term, in any given short-term situation, you don't know what kind of mistakes someone might make and how long it would take to course correct. And then investigations, we are always going to get investigated.

When we were under in fee-for-service, we were necessarily going to investigated for using too much of stuff. Now that we're in a bundle, somebody's going to accuse us of using too little of stuff. That's not going to change. That is in general, in America, a clarity in healthcare regulations achieved through litigation, not actually more specific regulation. And so that's an unfortunate reality. We'll talk about our track record in this regard. But those are certainly two things you wish didn't cause the investment horizon, but they do.

What about DaVita separate from the industry? Our clinical outcomes are outstanding and getting better every year. We have a solid operating track record, at this point reasonably long. From a compliance point of view, we get to say words nobody else gets to say. And then in terms of future upside, this notion that America might finally be ready to allow integrated care is exciting.

Clinically, I won't step through all these, but if you look through all the public measures, or if you wanted to sit with us and step through all the private measures, the relevance is this, separate from the fact if you ever need dialysis, this might help inform your decision of where to go. But separate from that, from the shareholder point of view, the beauty of this slide and its equivalent over the last 11 years, is that you are not going to wake up in the morning and find out that, my gosh, the Company you invested in is providing lousy care, that's been discovered in some traumatic way, and is going to dramatically impair your investment.

That's not the reason we do it, but that is a capitalistic byproduct of our clinical care. We are also real serious about this continuous improvement, for some of you that are new. We could take area after area and point to graphs that are like this, and this just happens to be adequacy and just shows we've very, very steadily improved with a significant blip when we bought Gambro about six years ago.

And we've also got a whole lot of other programs, which we would love to talk about, but typically don't come up much in Q&A, that are hopefully going to continue to trend that you saw reflected in the prior slide, as well as others. And then from an operating point of view, this has been our operating income guidance going back to 2003. We could also show '02 and '01 and '00, but that's probably less useful at this point, but up to this point, we've been able to do what we said we would do.

And then compliance, this is important because, particularly if you are new and you see that you get a subpoena and it's a comprehensive subpoena and they make some public statements that are aggressive, and you know that the government insists that we hire medical directors in every single center, et cetera, et cetera, that it is appropriate to be nervous, worried, have anxiety around investigations.

One can derive some comfort from the fact that we don't know of any major healthcare service provider, and at this point, perhaps no major pharmaceutical or device manufacturer either with this track record. You can see we do get our fair share, or unfair share, of subpoenas, but time after time after time, after two to four years of investigation, there is no settlement that we -- they literally close the doors without us having to pay any money because we didn't do anything wrong.

It's not to say at some point, it might not be prudent for you, for us to do a settlement, even if we didn't do something wrong. But up to this point, we have decided in every instance instead to fight until the very end, and we think that's worked out well for us. The two more recent ones, are very significant 2010 victories where the government declined to participate in essentially a whistle blower lawsuit. So the whistle blower may still continue, but the government, after substantial investigation, declined to continue, and so we've paid them zero in those cases. Don't know if there's private stuff going on around it. We have a never ending queue of private suits as well.

The integrated care, we won't spend a lot of time on it because it's not relevant for most of your investment time horizons. But it's significant, I guess, A, because we think some day America will be ready for wanting to organize integrated care of dialysis patients and kidney care patients, because society will save a lot of money and there will be better clinical outcomes. In addition, it is relevant for you in the sense that we are out there doing demonstrations for the federal government, proving that this works and thereby continuing to demonstrate that we're trying to be a good citizen within the healthcare community.

So when they are making some of these discretionary decisions, and given there are some people in CMS who are ideologically opposed to for-profit healthcare, the fact that in addition to providing ever-continuing clinical outcomes in the conventional sense, we are continuing to invest millions of your dollars to try to innovate for a better system, which is higher quality, lower cost, and higher service, does continue to persuade some incremental people every year that we actually care about that, and that we're good at it. Now, maybe someday it will also be economically relevant. We can only hope.

So this is a summary of the investment highlights. The summary of points one might make to a partner if you were thinking about whether or not to maintain an investment, or launch one. And then we did talk about those two lowlights and are happy to talk more about those, too. This is you?

This is me.

Okay. And now the person who needs no introduction, LeAnne.

Hi, thanks. On to the bundling update, as you know, over the last year or so, we've been preparing for the new payment system. And the initiatives that we undertook in preparation for this are largely complete. And that was early in the quarter. What is the takeaway for you? It means that the Q1 pharma cost structure, is really going to be a pretty good representation of what you can expect for the balance of the year, based on where we sit today.

With respect to billing and collection, no major issues there. We were able to get the bills out on time and there's solid Medicare cash flow. One or two problems that are worth noting, the onset patient adjuster, that's an adjuster where we're paid higher in the first 120 days, where we care for our patients, it's really not working from a systems perspective with CMS. We hope that will get corrected, and we're certain to recapture that money, but not able to currently get some of the funding that we should. And I'll talk a little bit more about where we stand on the case mix, or the new case mix adjuster.

We've got some challenges ahead of us that we need to continue to press CMS on, in both the short term and the more medium term. So, good example of what Kent said, was when we work together with the community, we're able to effectively impact Medicare policy. The transition adjuster is a good example of that. We had our policy arguments, we had our data arguments, we appealed to CMS to fix this, and in fact, they moved the clock forward. They gave us the fix early in this year where they really fully intended to not fix it until 2012.

The result is $73 million of revenue for us this year that we might not otherwise have received, and then on the follow-on years, we would expect about $8 million to $10 million of incremental revenue until the transition adjustment is eliminated in 2014. So what do we have ahead? The big issues are our case mix adjusters, 2012 quality improvement programs. We stand to lose about $1 dollar there based on the construct of that program, and then I'll touch on orals in 2014.

The issues with the case mix adjustment can be kind of categorized in three or four things. First, the documentation requirements by CMS really don't follow current clinical practice. There's an inconsistency there. The issue for us is that most of the diagnoses are being done by physicians other than the nephrologists we work with. That leads to tremendous data capture problems, where we've had to build some new systems and processes to try to get at that data, and if we do get the data now, it's not very timely. It's well after the incident for the patient, and that's causing to us have to do some rebilling.

Let me give you a couple of examples. So with respect to documentation requirements, when you look at the original rule for pneumonia, which is one of the conditions, CMS searched the data set and came up with, say, 10,000 cases. Well, then, between that data search and the time they have implemented, they put in criteria around the capture of the culture, and this criteria is put out by the society of thoracic -- excuse me, the American Thoracic Society.

No physician is really documenting the return of the culture in the way that they are now asking for. So in the original rule, we saw an incident rate, I think, of about 2.4% of that, based on the documentation requirements alone, there's no way we're going to see that same incident rate, and the practical reality is physicians are not documenting according to that standard. So we're not able to bill it, although those same cases exist today, the incremental requirements are just too rigorous.

Then going on to another example, if you look at the acute conditions, 6% of the conditions that they pick are diagnosed by a nephrologist, only 6%. 94% are diagnosed by someone else, and we have to try to figure out the puzzle of who that is. On the chronic side, pretty similar story, 20% of those conditions are diagnosed by a nephrologist, where 80% are diagnosed by some other physician. This is a case where in the preliminary role we talked a lot to CMS about it and how bad this policy would be.

They did make some changes. Those changes weren't enough, and we continue the dialogue with them and we're hopeful that we can get them to move and improve this policy. So I think the intention of it was good, that we should know more about our patients and be treating our patients holistically, but the practical reality is the documentation requirements don't work.

So orals in 2014. The good news here is that the policy was delayed, so if you look back, again, at our comment rules, they were going to implement incremental orals in this year and we were able to get that delayed. The data that's available for them to implement this policy effectively is actually pretty robust, and they can get at it. The unfortunate part of that is it's not CMS data. It's going to be data that's in the public domain, and we're going to need to convince them to use that data.

And then if you look at the improvements in the Part D program that are going on today. Some of the issues with patient adherence to medication and choice of medication, are being eliminated through that doughnut hole closing. And we, obviously, need to make sure that those things are considered as CMS implements this policy. On the bad news side, this is a, could be, a massive shortfall for us.

If you look at the original rules, the preliminary rules, CMS estimated that the cost to deliver the medications was about $14 a treatment. The industry thought that that was about $45 a treatment. So in the preliminary rule, pretty big gap. The good news is, though, they postponed the policy because they believe the data we put in front of them.

Why is CMS data inadequate? It's pretty obvious. They tend to use data that's a couple years old. In this case, in 2010 when they were looking at oral medications they, in fact, were looking at 2007 data, which was one of the early years of the Part D and program, not many of the patients had enrolled. The doughnut hole was having an impact on a number of the key variables, which is adherence and medication choice.

So where do we come out on this? If it's done correctly, we can achieve the goals that CMS wants, which is really to improve patient care. That said, if they don't take into consideration contemporary data, that objective won't be hit. Back to Kent.

Thank you. Let's go through the three building blocks, the holy trilogy of dialysis economics. Number of treatments, times the revenue, minus the expense. We'll go through each in turn. Once again, just to sort of refresh your analytical memory to provoke questions about the go-forward world. First, on the non-acquired growth side, this is the normalized number. And that's just in case anyone wonders about the non-normalized, but that's less useful from a business point of view.

From a de novo point of view, no different than the past. The track record is clear on solid returns. This is our way of adding capacity for growth in existing markets, as well as planting ourselves in new markets, thereby strengthening our geographic network and allowing us to help our affiliated physician practices grow. Here's the actual numbers, and we're thinking that '11 will look a lot like '10, with all the right qualifiers about opportunities and time to certification.

From an industry capacity point of view, one of the things people might wonder about is excessive capacity being added. Meaning are we having more and more dialysis centers per patient, and does that suggest any sort of vulnerability either from a cost structure point of view, in terms of inadequate utilization, or a revenue point of view, in terms of people being too hungry for incremental patients and doing foolish things with unsustainable economics.

Here's the actual data so you can see that centers are growing in line. What you've seen driving growth is the investor-owned centers gaining share over the non-investor owned, and that is different from the overall trend in terms of capacity versus demand. What about acquisitions? The first, on DSI, we're going to have some divestitures, it will be a higher percentage of centers than we had in the Gambro case.

So it will be higher than that 10% to 15% level. We think it will close in the third quarter. The net effect on OI is zero, with the one-time costs exceeding the partial year benefit, and then in 2012 it will be accretive. More generally, we'll continue to have small acquisitions in that 1% to 2% range for the foreseeable future, and so if you look at a normalized neg of 3.5% to 4.5%, and then you goose it with 1% to 2% on the acquisition side, you end up staring at a medium-term outlook of that 4.5% to 6.5%.

Moving on to revenue per treatment, starting with private. We remain, as I mentioned earlier, totally dependent private pay to subsidize a government that doesn't pay its way. I think this has already all been referred to. Other than for those of you that are new, it's important for you to know that private patients can retain their private insurance for up to 30 months, then they flip to Medicare.

And then from a contracting point of view, you put a lot of the different things together we've already talked about. If you own a center, you know you've got low fixed costs, you know you've got high variable costs, most of the cost is created, incurred, at the point that a patient actually comes in and you take care of them. There's also a lot of stickiness because of loyalty and so this isn't a case where it's suddenly patients are shifting from one center to the other in any kind of significant volumes.

And part of that's also influenced by the fact that there's limits to how hard you want to work to move patients when they are only going to be on private insurance for another 12 months, 15 months, whatever. In general, strategically, it is not prudent to lower price per volume, in general meetings, hard to imagine a different scenario. In addition, in a segment like this with long-term relationships with physicians and payers, if you ever did that and succeeded once, you would probably just create an incredible backlash at renewal time.

And so either in that same geography or a different geography. So it's very hard to see coming out ahead in that game. In a world where while there are some cost advantages for some people, they are not material enough to ever justify an aggressive, we can lower price and somehow get beneath somebody else's costs, and, therefore, that's a prudent business strategy that's sustainable. That reality doesn't exist in our space and it appears to be generally recognized.

What has not changed, if you think about the ongoing tension or struggles or battles or discussions or nudging back and forth that goes on between the payer and provider, it's still the case and it's ever-more evident to people that better dialysis saves on total cost. The last thing you want to do is move someone to get a couple percent savings on the dialysis side because all it takes is one-half more of a day in the hospital and you've lost the entire savings from anything in the dialysis range. You also are very delicate around the notion of moving these patients because it is a life-saving therapy. Many referrals are network independent.

If you're a dialysis patient, you're going to go through your co-pays and deductibles, so a lot of the out-of-network pressures don't apply. A lot that were different from all. I talked about the bonding before. In addition, payers do have a responsibility, and there will probably be increasing sensitivity to this as the next five years go by, to have adequate networks so people are not having to drive too far for something they have to get three times a week for the rest of their life. And in the end, payers don't have a lot of these patients, although the ones they have are expensive. These are the same things that have been true for the last 11 years.

We have been continuing to bundle commercial payers at a regular clip, starting at the time that we told you we were. In some cases also, we're going beyond the 90-day out type of contracts, and going beyond the one-year type of contracts, and in many cases when we do that, what both sides get is an element of rate stability. Which is to say that we know we'll get a rate escalator and they know they are not going to get a higher increase than that. And that steady equation is perhaps a lot easier for both sides to deal with than the trauma of hoping for something better, but being at risk to having something worse and having to deal with it every year.

The -- continuing on the revenue per treatment on the mix side, the bad news is unemployment in America. You know about this from your other investments. And from an economic point of view, the beautiful, beautiful clinical fact that we're keeping people alive longer, given virtually everyone we can keep longer is a Medicare patient, that actually hurts your mix. So it's a wonderful clinical fact. But analytically it does mean that your mix of private patients will continue to go down.

What are factors that are going to push the other way, hopefully, with great vigor? Well, one invest would be an economic recovery with more people being insured. Another would be giving our dialysis people equal rights to retain their insurance. Our patients are the only -- if one of you goes on to dialysis, you will be in the only group of Americans in the country who can't keep your private insurance, even if you want to, and even if it's clearly better for your family. You have to go onto Medicare.

Totally inappropriate policy, which has a lot of negative effects on the incentives for disease management in the private sector, et cetera. It's a ridiculous sort of historical artifact, but it's true. In addition, the fact that Medicare needs savings, that makes it more attractive in some instances to have more patients on private pay. For those of you that don't know, it used to be you went on Medicare day one, then it was moved out to six months, 12 months, then 18 months, then 30 over the last 20 years or so.

As to exchanges, we wish we could shed some serious light on this beyond saying it could be a really big deal. But we can't, because there's so many, as you know, unanswered questions around it. But the right way to think about it for us is that there's upside and there's downside, and it's impossible to predict the net right now, because if you take number one, patients who move from being government patients, because they are on Medicaid or whatever, to an exchange or they are just going into an ER.

So patients can move from non-private to an exchange, that multiplied by whatever the rate is, the exchange rate minus the government rate, that could be a positive, because you have people who are in Medicaid or something, they move to an exchange. And if the exchange rate is higher than the government rate, that would be a net pickup. If those two things are true. There certainly will be some that move to exchanges, but the exact rate is unclear. Obviously, in that first point, if exchange rates were the same as government rates it wouldn't make any difference if someone shifted.

So you have patients that go from non-private to an exchange, times whatever the net rate is, and then have you on the other hand, patients who might move from private to an exchange, and if that private rate was higher than the exchange, that would be a loss. So it's those from non-private to an exchange, times the rate differential and then you add or subtract those going from private to the exchange, times the rate differential, and that's going to give you the net number, good or bad.

No one can plug in these four numbers right now. No one knows what the exchange rate is relative to the other existing rates, and no one knows what the movement will be, either from the government to exchange or private to exchange. But this is the formula. You can play with different scenarios, although it's hard to go very far given the numbers are totally unknown. And the political controversy that's going to exist as the exchange implementations get closer, is going to be stunning to watch, as they try to figure out what the rates are going to be, or what the mechanism is going to be for setting those rates.

It's going to be a real political firefight, because if you set the rates too low, you could create some serious chaos on the provider side, not just in dialysis. If you set them too high, you could run into a massive expense problem. And so they put themselves in a situation where they have a hellacious set of alternatives politically, and they are exactly the kind of choices they hate to make, so it's going to be fascinating political theater.

So what are the big private revenue take aways? The bad news is this mix thing, and the mix deterioration is moderating, but still there. This dialysis equal patient rights is a very big deal, hopefully it will resolve in the next several years. And then you have the big unknown, the big unknown elephant in the room, or the known elephant in the room, exchanges.

Moving on to the government side of revenue per treatments, the Medicare, as most of you know, it's about half of our revenue. There's a bunch of stuff going on with the market basket that was part of that legislation that we worked eight years to get passed. QIP, which is the quality program, which essentially is penalties if you don't hit certain quality standards. And then, by whatever process, they are going to do an annual review of saying whether or not the bundle is leading to the right number.

So there's a lot of non-trivial action going on, but from a broader perspective, there's a period of relative stability. I think I'll just leave it at that for now. Outside of Medicare specifically, in the other parts of government type programs, which is about 15% of our dialysis revenue, we've already referred to the fact that there's VA pressure and there's Medicaid pressure, and so on that chunk of the business, there's some significant intensity.

On to the expense side of the ledger, this is roughly speaking a proportion of our expenses. No significant difference than the past, although certainly some incremental reductions on the pharma side. On the people side, the facts of the past remain true. Every year there are wage increases, they are partially offset by productivity gains and you see the net here. If the economy starts to recover, these costs will go up. The good news is that typically the movements in private mix are more significant than movements in labor, in either direction, up or down.

On the pharma side, you all know this, what's going on in ESAs, with pricing utilization, as we look at the next few years, very much in flux. Vitamin D and iron, there's now price competition where there wasn't, and the same with a number of other supplies. On ESAs, all we can say is that which you already know, in 2014, important patents expire, as there is a competitive pipeline. Then with respect to biosimilars, once again, we'll have to defer to some of you who would be better at predicting what kind of decisions Congress and regulators are going to make. Certainly, there's a lot of pressure building to allow more activity in this sphere.

And then the other center expenses, it's a whole bunch of miscellaneous stuff and you can see the historical trend. Right now we're not expecting anything different from the historical trend as we look out the next couple of years. Finally, G&A, this year was very uncharacteristic surge, driven by the items that are listed there. A very significant expansion of our IT activities, both in the human resources area and the basic clinical management system, as well as developing an EHR. Our expansion internationally, and then the one-time costs associated with DSI.

On to integrated care services, here we'll be brief, and if you want to go somewhere in Q&A you can, but the core objective here is really simple. It is to improve outcomes, documentably, demonstrably and unambiguously, and simultaneously reduce hospitalizations materially. This is very doable. We've got three different primary ventures within this general category. Two of them are profitable. One is not.

But they all achieve better objectives on the bottom. And the important thing, of course, is to try to figure out how to try to monetize that in a more powerful way. We have put together, over the last decade, a portfolio of capabilities so that if and when we persuade the government to scale some of these solutions, we have a wonderful arsenal of really nice patient-centric capabilities to take advantage of that.

As to ACOs, we really like the concept, which has been reflected in our activities and integrated care for years. The preliminary rule was a huge wet blanket on top of the country's enthusiasm for this, really as a taxpaying citizen, literally depressing. And that's as a citizen for getting dialysis and then particularly for our segment, it precludes specialist ACOs which, in a selfish sense, is depressing, and also really unfortunate for our patients. Because it would have been a path for us to break through and do a really striking things in terms of cost and quality.

On to international, why go international? These are the same bullet points we've talked about for a few quarters now. It's big, it's fragmented, it's going faster than the US, and lot of governments are realizing they have to fund it, and doing it all through a public provider network is exceptionally unattractive economically, clinically and politically. These are macro trends. It doesn't mean you're going to go hop on to some easy and fast-moving train, but the long-term upside is really quite impressive.

Issue is that it costs money and takes time. And it's going to be some mistakes along the way. And so this is, this is not something that's going to enhance our stock price in the short or medium term, but could be very powerful if you look out for the long term. And we're calibrating our investment accordingly. On to financial view, I think, Luis, it's back to you.

Thank you, Kent. Okay. I want to walk through our financial review here to wrap things up before a summary. Our consolidated revenue, since 2006, our first full year with Gambro, we've grown revenues at approximately 7% CAGR. The revenue per treatment declined in 2010, primarily due to utilization as we prepared for entering the bundle. This decline continued into Q1 of 2011.

Our operating income has consistently grown over time. We have an 8% CAGR over the last several years, and the margins have remained relatively steady during this period. In terms of earnings per share, over time we've been having very steady earnings per share. You'll see a little bit later on how we build up the earnings per share model from revenue through expenses, getting to our earnings per share growth over time.

One very cool aspect of the business, it generates a lot of cash. We generate more than 100% of cash relative to net income, so very strong cash flow business. It's consistent and it's steady. Of note here would be our operating cash flow guidance of $840 million to $940 million, and you'll also see that the free cash flow is going to be flat to down, primarily due to two items. Number one is our continued investment in IT, and our new headquarters building.

Our leverage ratio, our long-standing expectation is that we would be between 3% to 3.5% net EBITDA, net debt to EBITDA. Pro forma for the DSI acquisition, our Q1 would be about three times leverage, which is in line with our historical range. Our debt structure, as you all know, we completed comprehensive refinancing in fall of 2010. Right now we're effectively all fixed. The main pieces of our debt structure, senior notes, about $1.6 billion, fixed at 6.5%.

Term Loan B, about $1.75 billion. That has a floor of 150 and that's capped at 4%, for about $1.25 billion of that. And finally, our Term Loan A, we select all of that to 1.6 LIBOR. All of these are through December 2014. The all-in rate's about 5.3%. We effectively pushed out our maturities beyond 2014, locked in very attractive rates, and have a sound capital structure to fund our growth for the next several years.

In terms of priority for cash, we've been very consistent over time. Our preference is to grow the business and to the extent we have excess cash flow, we'll look at share repurchases or debt repayments. And finally, to provide some perspective on how we've deployed our cash, here's a chart from 2006 through 2010, indicating that we've deployed about $600 million to acquisitions, another $800 million towards development, and finally, about $1 billion of cash towards share repurchases over the last several years.

Here's our financial formula. As we stated earlier, our revenue growth is a function of NAG, our non-acquired growth plus acquisitions. That's about 5% to 6%. Our business has some degree of fixed costs, and, therefore, you would expect operating income growth of 5% to 7%. We'll take on financial leverage, as we said, to 3% to 3.5% to EBITDA to get you to net income growth of 7% to 9%. Given the amount of free cash flow that we generate, we're able to redeploy that against acquisitions or share repurchases, leading to EPS growth of 9% to 11%. With that, I'll turn it over to Kent to wrap up.

I think the two biggest negatives for you to debate with your partners, are just, what is the government going to do given the pickle they have put themselves in, and what's going to happen in the commercial side? There's an awful lot of dynamism there. The silver lining in that cloud is that, if the government gets really intense about needing savings, one of the easy ways to get to them is to allow people to keep their private insurance longer, or allow us to guarantee them savings and go after integrated care in a big way.

So two of their solutions, we would actually be very positively excited about. But that suggests a level of coherence in their decision making which is not practical, given how many big things they are going to be thinking about outside of dialysis. So it's there, but you got to be careful to calibrate its probability. So those are the scary things from an investor perspective. The good news is within that broader environment we're well positioned. The strong clinical outcomes are not only wonderful spiritually, but they are very useful to you from a business point of view.

The way this industry works leads to very stable demand in cash flow. It's a rational community overall that understands the need for private to subsidized to public and then we've got this window of upside over the long term, not in the next 12 to 24 months, but it's a nice bit of structural upside for the period beyond that. Do we now move to Q&A? We now move to Q&A. Ian, could you go ahead, and also, when you -- introduce yourself to the group?

Is this working? Hello?

Why don't you go ahead and I'll repeat it.

Hi. This is Kevin Fischbeck from BofA-Merrill. I have a couple of questions. The first is, (inaudible) to me was that you feel like the Q1 run rate of cost is kind of the way to think about it and I think that people had thought that it might take some time to actually roll out how you were going to be responding to bundling and certainly would take some time for it to get doctor buy-in with everything that it is you're doing and why is it (inaudible)--

Can everyone hear the question? The reason we're able to get so much done in Q1 is that we spent 2010 getting ready. So it did take a long time, but we did it ahead of time rather than waiting.

But it's not something you look at -- you might have rolled out your initiatives, you feel like everyone is compliant with those initiatives and there's no room for additional doctors buying into whatever the right protocol --

No, we actually -- we worked -- it's surprising to us. It's not what we predicted, but we worked so hard on iterating around protocols, alternatives throughout 2010. Separate from getting to an answer, we inadvertently built far more breadth and depth of ownership than we ever had before, although we used to think this was a strength. So the take-up exceeded anything we had done in prior implementations of stuff like that. So it is what it is.

Okay, one last question before I hand it over to the next person. You mentioned that the, part of the reason you might be at the low end of guidance next year would be an acceleration into international investments. Just want to get your thought process about what it is you're looking for that might say, yes, now is the time to accelerate that versus continuing with what you were thinking before?

Yes, Chris (inaudible). It's not that we're predicting that our rate of expenditure will accelerate in 2012 in international. We're just thinking it could. We're still so early in that game, and there's some stuff that looks promising, but it would lead to more P&L dollars because it would be sub-scale up front. So it's not a prediction, but it could happen and it's too early for us to make a prediction. So it's more sensitizing you to the fact that it could happen. [Grace], you usually wait till the end.

Well, let me get a couple in now and then maybe a couple at the end. The question on the -- specifically the hemoglobin levels, that 10 g/dl to 12 g/dl range, I think it was 79% of your patients are within that range. Could you give us an idea of that 21% that's outside of the range, are most of those above or below the range?

The answer to that question is there would be more above most of the time, but beyond that, I don't know if we're doing--

It's split pretty evenly. A little bit more on the high end, and that is important because some patients are naturally above the top end.

And that sort of leads then to the follow-on, which is sort of a follow-on to Kevin's question, I think, obviously, you've done a great job of getting your preparations ready for the bundle. I'm more curious about the fact that you say that pharma costs are a good run rate for the rest of the year. Does that mean you don't expect any of that above 12 g/dl population to continue to migrate down, in other words, you're static from this point out in terms of any further improvement?

In terms -- from an economic point of view, yes.

Okay. And can you tie that in at all to the upcoming Amgen contract and what your expectations are in terms of pricing?

LeAnne, do you want to do that?

All we can say right now is that we have a contract through the end of the year with Amgen and we're working with them and a reasonable dialogue towards a longer-term agreement. That's what we can provide.

Okay, and then just quick one, Luis, on guidance, specifically in 2011, the inclusion of DSI, there are obviously some assumptions that you've made with that and I was wondering if you would run through some of them. For example, when you say to close in 3Q, will DSI have an impact starting in 3Q or is it starting in 4Q?

Our guidance for DSI is to have a net zero OI contribution. Our current expectation is that we close sometime in Q3. And whatever OI contribution we may have from DSI would be offset by transaction and integrations costs.

And that was actually my question, which is, will you be breaking out those one-time costs when you report?

That's to be determined. We'll see what those are, and to the extent they are material and make sense to disclose, we will.

Okay, and finally, Kent, in terms of DSI and the integration, is this date sort of an integration date in name only? In other words, do you already have people on the ground with DSI and are you already looking at clinical protocols, are you already looking at IT systems? How closely are you already working with them in advance of the actual closing date of the transaction?

I think the answer is sort of a [tweener.] There are certain things we can't do because of the rules, but we are coordinating with them on a lot of stuff, getting to know each other, getting to know each other's systems, et cetera. Without doing anything to get in the way of running their business, we're, we're doing a lot of talking. Josh? And then we'll go to the gentleman here.

Thanks. First, just a quick clarification, LeAnne, did you say Amgen contracts to the end of the year?

Yes, we've extended our contracts to the end of the year.

So you've done another six-month contract?

Yes, we have.

Okay, and similar terms as far as, we should expect kind of low-single-digit rate increase in the back half of the year as well?

You know, Justin, we're just going to say at this time we've extended the contract and leave the commentary at that.

Okay. I think the [explication] might have been that the six-month contract typically, not been the typical, it has been more of a two- to three-year agreement. Is there anything in your mind that's keeping that type of length of contract from getting signed right now?

You know, there's a lot of things going on in the industry, including what you heard Amgen talking about with potential changes in the label and those things. Those may be entering into their thought process about timing.

And I would say, Justin, the reason there's not a longer-term one is we can't agree.

From a de novo standpoint, it looked like there were a few more de novos in the first quarter than we had typically seen. Any kind of update on what you've been -- what you would be able to accomplish there as far as getting the government to sign off on those a little bit more timely?

Our current expectation is 65 de novos for the year. There's always puts and takes through the quarters. We do our best to get them open on time. But I would say 65 is our best thinking for the year.

But you were asking about timing certifications?

Yes, the backlog seemed like it was pretty significant last year and was keeping you from--

Yes, so is it going up or down? Isn't it stable?

It is stable.

Yes, I think it was about a year and a half or two years ago, it was much higher. We've brought it down since, it's been stable for several quarters in a normal range, it's been in the high 30s, low 40s of uncertified centers, and that's been pretty consistent. There are a couple of pockets, Texas, most notably, that take longer to certify.

But the year-over-year comparison--

Pretty stable over the past year.

And just last question on mix deterioration, can we get -- so it's been two straight quarters where you've seen at least the pace, the rate of change moderate somewhat? Is that correct?

Last quarter did moderate, as did this previous quarter, id est, Q1.

From last quarter, okay. So you are seeing moderation. Can you give us any breakdown? You had mentioned there's two factors here, one, people are living longer on Medicare, which is deteriorating your mix, and then the economy, which I assume is less, would be growth in new patients, is coming at a lower percentage of those coming from commercial. Is there any breakdown you could give us as far as the, how those two contribute? Is it more -- are you seeing improvement in, for instance, the rate of growth in commercial patients --

We've seen, it's roughly split between those two factors. That could vary quarter to quarter.

Is the improvement coming in either one?

Can't break that out for Q1.

Thanks.

Over there, please.

First question is on Epogen. Have you looked at hyporesponders versus hyperresponders, the thinking is that for the hyporesponders, their HB doesn't increase, given you give a lot of Epogen, in fact, giving a lot of Epogen is harmful to those patients. Have you looked at that type of situation, whether you can modify your protocol accordingly to reduce Epogen spend on --

Yes, our physicians have looked at that with great intensity for the last couple of years and different people have different points of view. And in general in America, you have people giving less Epogen to hyporesponders now than before. That's a clear directional trend. Where each individual physician lands on that issue varies by their own perspective and their group's perspective, and to some degree geographic points of view. So all we can say is we know that docs are going to be continuing to stare at that with a whole lot of intensity and whether or not the general directional trend of the last two years continues, we don't know.

Okay, and then second--

LeAnne, is there anything to add to that?

Well, and in our new protocol that we rolled out, certainly, we did address that patient population and I think that Kent's right, there continues to be a lot of study on that population and I would probably recommend that over the next few years, we'll see some improvements or changes in protocols for those patients, because it is a topic of significant study.

Okay. The second question is, Kent, you mentioned the 30-month MSP. You've been talking about that for quite a while now. Are you still working on that or you think maybe waiting for the implementation of the insurance exchange, which would render the 30-month irrelevant?

Yes, depending on how they define the exchanges, it could -- it will never make the 30 months irrelevant, I don't think. But it may make it far less relevant, that is true. As to whether or not we're working on it, there are periods where you don't work on the 30-month, an extension of 30 months, because it's not politically viable, and there are periods when you do.

So there's hunting season, there's non-hunting season, and so I'm sure there will be in the next couple of years opportunities where we try to extend it. Whether or not we'll succeed is very much, it's very unpredictable. But is that responsive? Can you hand him the mic again, please?

I guess whether you see any opportunities in the near future, legislatively, you can introduce the proposal -- given there's a lot of pressure, budget pressure on the Medicare side, it clearly would be a savings for the government.

Right. So we may, we may take another swing at it in the near term is the answer, because there are groups that don't want it to happen. Health insurance companies are not in love with the provision. Employers are not in love with the provision. And so I don't know if we'll be putting it out there or not in 2011. We always want it, but it's -- you can't keep on going into the same thing all of the time, or you -- or people don't pay attention. Let's go right there and--

Thanks. Gary Lieberman from Wells Fargo. Can you just clarify, LeAnne, did you say that the impact of the co-morbidities on revenue per treatment was $2?

Yes, the opportunity is about $2, yes.

Okay, and that's for -- that's not just for Medicare revenue treatments, that's average overall treatments?

Yes.

Okay. And then did you say what the impact or what you had included from DSI in 2012?

We did not.

Okay. But it's consistent with sort of the 10% to 15%, or greater than the 10% to 15% divestitures you talked about?

That's still an unknown of how many, but it is consistent with minimum expectation of 10% to 15%, as Kent mentioned earlier.

Okay, and then on the Amgen contract, you just mentioned that you hadn't been able to come to terms. Is there any advantage to you in waiting to the end of the year, or is this something that you would like -- you would have preferred to get done either at the beginning of this year or the middle of this year, but you just can't --

I want to go first just back to the prior question. It is going to be more divestitures than the 10% to 15% range. So that's just -- that's -- that is by far the most likely outcome. Just want to be very clear on that. The good news is there's a very good market right now for selling to dialysis centers, and so for that whole divestiture thing from a shareholder point of view is not as daunting as it could be in a different environment, not daunting at all in fact at this point.

Then we would love to have a long-term ESA contract that we liked and we would love to have that today. We would love to have it a month from now. We would take it any time. It's just tricky to work out. And so both sides are working on it and we'll see what happens.

And then just the last question, could you just update us on your home dialysis initiatives on both PD and home (inaudible)?

Sure. The home is growing. How much it will grow is difficult to calibrate at this point because a whole lot of physicians are reflecting on exactly what they want to do here, and there's a tendency in so many situations with the new bundle sometimes for people to get excited about something new, but then they try it and it drives some short-term growth, and then sub-scale and you close it down. So it's important to sort of think, take one more step downstream. PD is much, much bigger than HHD.

The HHD, my counsel to people is you should ignore the people with really strong points of view on either side. Those who say oh, my God, HHD, MFD is the greatest gift and it's going to explode in growth, those people should be ignored, because it's not all clear that that's true. Those people who say it's not worth the extra expense, it should go away, equally should be ignored. The real question is for what percent of the population is this of superior attractiveness or efficacy, and no one knows the answer to that question right now.

We have more of these patients than anyone else in the world, and it is not clear and will be a significant part of deciding when it's clear, because we have the most data. So our counsel to people is ignore those who are inappropriately optimistic or pessimistic, and we're studying the data and working in the real world with more patients than anybody else. Is that responsive? Feel free to come back at it more if it's useful.

Kevin Ellich of Piper Jaffray. Maybe we could talk about international a little bit. Could you remind us how much you've spent and how much you plan to spend? And then what factors went into your decisions to go into Singapore?

International, what factors influence how much we're going to spend, and then what factors --?

Drove the decision to go into Singapore?

Yes, let me do the second one first. Singapore is a very attractive city, relative the alternatives for attracting executive talent, it's very attractive in terms of being able to travel to a lot of places. It's got a lot of the right symbolism if you're going to deal with a lot of the countries in that part of the world. So those are all the reasons that we chose Singapore to be a regional headquarters there.

Then as to the factors that determine how much we're going to invest there, it's very much what the quality and quantity of interest we get in different pockets. And so on the one hand -- well, I guess I'll just stop there. Sort of a self-evident statement, but it's really true.

As we're visiting different countries how many people want to talk to us, how high quality are they as partners, what are the relative economics in that country versus another, how many countries can we realistically advance the ball in at any one time, so those are the variables. It is the case where, assuming we're being prudent, more expense means there are more opportunities. That is a positive, but it's in the early years, it manifests itself as larger losses.

What about the competitive landscape there? Is there a lot of dialysis providers, or are you guys going to be the only game in town?

The dialysis market overall in the world is very fragmented. FMC, Fresenius, has a significant international business, built in close conjunction with their long-standing products business. And then for most of the rest of the world, it's very fragmented. There's still a lot of places where the government provides dialysis, and this gets to one of those fundamental trends going on, is governments realizing that they need to provide dialysis to their population because with a smaller world, more and more people know it exists, know what the difference is between quality and non-quality. It's much more binary and transparent and discrete and obvious than the quality of diabetic care or pneumonia care or vaccinations.

First of all, the insight populations have into the fact that it exists is much greater. And then what happens after that is governments realize, oh, my gosh, there's going to be a lot of people. We're really inefficient and low quality in providing it. My gosh, somehow we've got to harness market forces to deal with this social problem. It is striking that we have more receptive meetings with governments in other countries than here, in the sense that other countries really believe that unless we harness market forces, we cannot solve our healthcare challenge, and here to some extent we've been cursed by the fact that we have enough money to believe that maybe you can.

Got it, okay. And then going on to the guidance, maybe Luis could take this one. The 2012 guidance, just wondering what the underlying assumptions are for top line growth, treatment growth, capital deployment, what goes into the operating income guidance you provided?

Yes, they are in line with our historical. So for the capital piece of it, we went through the capital assumptions, are there any specific questions I can walk you through? I think we said maintenance CapEx was $240 million. Excuse me? Oh, for 2012.

We haven't determined CapEx for 2012 for operating income guidance. It's pretty far out there. We thought we would give you a flavor for what type of growth we could see. And if you look at the midpoint to midpoint, it's about 7.5% operating income growth with a range that reflects the possible outcome against swing factors we've mentioned, mix, VA pressure, state Medicaid pressure, international investments -- accelerate that.

Do you think the growth in 2012 is a good run rate to use long term for the business?

Our long-term growth rate is probably reflective of the slide we showed at the end, which is 5% to 6% unit growth. Some fixed cost leverage, getting us to 9% to 11% EPS growth. Year to year, that could vary, but I would use that framework for more longer-term projections.

Got it.

I want to break in. That's a scenario. The -- we live in a space where to ignore the non-trivial probability of discontinuities in the revenue or expense side, positive or negative, to ignore that would be inappropriate. So thinking about longer term, that's a scenario. It is not a prediction. That would be foolish.

Okay. Then last question, on the commercial contracting side, could you remind us what percent of your commercial contract is bundled and what type of price escalators you typically get on an annual basis?

Yes, we -- other than saying that the percent of our private in bundled is going up every year, I don't know we've had any instance of anyone going from bundling back to fee for service, JR, have we? So far it's a total one-way street. The percentage of bundling goes up all the time. And as to escalators, they vary by quite a bit. They would be in the range of you'd probably guess -- but I think we should leave it at that, particularly since a bunch of the people that we talk to that negotiate with, are listening to the phone call.

Hi. Brian Zimmerman with Deutsche Bank. Next year, part of your annual update will be subject to risk, by your results in the QIP with a score of 26 and above, required to keep your rate. Based on what your current 2011 quality scores are what would your QIP score be?

Yes, so the way this works, and let me just maybe pull you back a little. In 2012, we're going to be paid for performance that we achieved in 2010 compared to 2007. So the answer to the question is if they would use current data, we would perform quite well on the QIP, but unfortunately, that's not the construct. What we are advocating now with CMS, for example, is that the 2010 performance should be compared to 2009, the most current year that it could be compared to for a payment in 2012. That's one option for them to do.

Really the statute required them to pick the measures in advance, to set targets in advance. So our overarching goal for 2013 is to implement this in the right way, where they do pick the benchmarks and the goals, we work with them, get a public campaign, so the community is really improving the level of care for all of our patients, but that's not how it's working today.

Okay. So if you, if you were using current data, the reimbursement would be close to 100%?

Yes, if you were using current data, and the two measures that they have identified, which would be the hemoglobin and [adequacy.]

Can you talk about -- nobody asked about VillageHealth -- can you talk a little bit about that in light of the healthcare reform, how does that fit into the integrated care, coordinated care, and ACO. You briefly mentioned ACO actually excludes specialists, probably like you guys. You were saying you are doing some demonstration projects. So how do you see that demonstration will be expanded and maybe just a little bit of comments on that?

The, so the question's about the demonstration projects in the context of ACOs and all that stuff. Whether or not our demonstration project, our core demonstration project, will be expanded, I don't know. JR? Is that likely? So we're looking at some growth there. It's nothing, nothing dramatic, nothing that's going to sort of be a blip on your radar screen.

For us, it's the mechanism for which to demonstrate to CMS that it really can work and it could work on a significant body of patients. So we're going to see some growth there. But without something new from the government, we're not able to -- we can't scale that demonstration project without some new authorization from CMS.

So it's not in the healthcare reform?

No, no.

What's the economics of that type of project?

The demonstration project that we're doing is not something that was embedded in the healthcare reform. The answer to that is no, it was not. And what's the --

Economics of that type of arrangement versus the current dialysis treatments?

Well, in that question, what are the economics of that, I don't -- some of it we're limited as to what we can say publicly because it's a CMS demonstration project. But suffice it to say, I think we had in the first three or four years, there were 58 quality targets that CMS set. We hit 55 of the 58. The MLR is attractive and going down. The patients adore it. The physicians like it because there's always coordinating work don't and so that's some of the factoids that I can share. Andreas?

Kent, I want to go back to Kevin's questions on the international. You talked about international being a great opportunity. You talked about in 2011 spending roughly $15 million. You've now said today you may accelerate some of that, you may go into 2012. I have to say that's quite out of character for you in terms of, hey, we're going to spend a lot of money on what looks like it could be an opportunity. I'm wondering, from the CEO perspective how you're thinking about it in terms of this is how much I would invest and if I don't start getting a return in this timeframe, I'm going to cut the cord on this or we're going to have to reassess that?

I think I'm talking about the way I do, Andreas, because it is going to take a significant period of time before you get a return on this. And to announce you're going to go off and do international healthcare service and create any other expectation is really a bad idea. So if that's right, why do anything that is going to take a long time, cost a non-trivial amount of money and has risk, and in terms of management resources. The only answer is because if it works, it's a very, very big pie, very, very big. It's a multiple of the US market size.

And so this is one of those where we're going to spend an amount that's not trivial, but also does it put at risk the base business, that also doesn't lead to some precipitous drop in the stock price. The stock price is not going to go down $30 because we spend $15 million internationally. We're not betting the farm. This is sort of the equivalent of doing R&D on a new drug or something. You say, yes, it might not work.

If it works, it's $1.5 billion drug, so I'm going to do that. But I'm going to make sure I don't have it consume too high a percentage of my R&D, too high a percentage of my management time. So one of the things that's wrong in American healthcare services is there's inadequate R&D. From an investment point of view and from an intellectual rigor point of view. This is very controlled R&D on something that has spectacular long-term upside, but that emphasis on the word "long-term" and bumps along the road is really important. So that's why I'm talking about it differently than if we were adding a vascular access center. When we added vascular access centers eight years ago, thought we're going to try it, try to get the regs right, we'll invest, if it doesn't work, you get out of it. That's what's different.

Okay, great. And then can we, obviously, take then something from your decision to date that probably developing economies in Southeast Asia is sort of the preliminary focus? Are there going to be other regional centers that you're thinking about doing, or is it sort of this focus for now and once we get our feet wet here, then we'll move on to other --

I would be surprised and disappointed if we weren't active in more areas than just Southeast Asia. And that wasn't a conviction we went into it with. But just there are a couple other parts of the world where quality people are responding with enthusiasm to the notion of working with us and they want to work with us now. And the notion of saying we'll come back in a couple of years when it's more convenient for us is very unattractive.

Okay, and then two quick ones on a different subject, if I could. One, just to review either, Luis or Kent, in terms of your guidance and the ranges you're giving, the risk that you then talk about in terms of what could affect that guidance, they are incorporated into that guidance and are what could lead it to be at the lower end as opposed to the higher end of the range. In other words, something would have to happen outside of your [probabilistic] assessment in order to go below your guided ranges right now. You've incorporated what you think the reasonable risks are in that range, is that correct?

Yes, but as with any forecast, there's always something that could fall outside that. We think it's a reasonable assessment and we thought it would be prudent to highlight those risks that we face, or could face to varying degrees next year.

Okay, and then final one, I don't know, maybe for LeAnne, can you just help me and review how the transition of patients goes, if they come on board with Medicaid? Because I believe if they come on board with Medicaid it is accelerated that they go into Medicare, is that correct?

Two scenarios. If you come in through Medicaid and you're a home patient on (inaudible) dialysis, you're instantly moved into the Medicare program if you're eligible. Now, if you are a regular hemodialysis patient, you would be eligible to enter Medicare after three months.

Guys, I'm just wondering, as you've highlighted today and over the course of the last several years, there is great stability in the business, has been for a long time. When I think about reimbursement issues today versus any time over the course of the past couple of years, seems like we're getting a little bit more clarity around, directionally how that's going to shake out. The -- from a debt capital markets perspective, capital appears to be plentiful today, relatively attractively priced. So what I'm really wondering is from a longer-term capital planning perspective, while we're today in this three times leverage context, any thoughts about as you look out over the near term altering what has traditionally been that comfort zone in terms of leverage and taking that up to some degree from the current context and getting a little bit more aggressive in terms of share repurchase? I'm not talking about the days of Gambro, [Canterbury] where you were at five-plus times leverage, but going from a three times comfort zone to maybe a [four-ish] times comfort zone, and just getting a bit more aggressive in terms of share repurchase, any thoughts around that?

Yes, I think we would start by rejecting the historical comments -- that the last few years have been stable, that what's happened is the last few years have been incredibly dynamic and it's netted out to something that looks stable on a graph. And it's two very different things and as we look forward, there are some elements of revenue cost and unit growth structure which are more stable than the last four years, which in our mind have been anything but stable.

And there are other parts, primarily the government reimbursement and exchanges and the overall economy that are not stable, and so, and so trying to give a weighted average stability score across the whole sort of universe of things that affect our stock price, I don't know. We haven't had that, we haven't had that debate. But it wouldn't be a no-brainer. I think, I think directionally, there would be some sense that on a net basis, the next couple of years look more stable than the last four.

But that's, that says more about how unstable the last four were with the original bundling legislation, the step around orals, the list goes -- healthcare reform, the list goes on and on. Therefore, the first, first that comment on the context on the premise. Therefore, at this point we have no change -- we have no intention to amend the leverage guidance we've had for 11 years now, that 3 to 3.5 seems about right. However, we probably haven't had a great debate on that subject for a couple of years because it wasn't relevant. So maybe that's something we should do over the next year or so.

Wanted to go back to one of your earlier comments that you feel like the Medicare reimbursement, given the way that CMS pays for it and -- major payer for it results in a situation where CMS and everybody overpays for a certain period of time like you might see in some other sectors. Should we read that comment to mean that you feel the bundled payment rate as it's constructed today is more or less in aggregate spending kind of where it should be and you don't expect CMS to come back next year in the 2012 rate and make some sort of negative adjustment down because spending is higher than you thought, or anything like that?

Yes. Could you repeat the first part -- overpaying -- it's a foreign concept to me. If I had said that, I should be shot.

In your comments earlier, you said that because the government pays for most of dialysis, you're never going to see huge over payments, you're never going to see hugh underpayments --

We won't see. There you go.

You have seen over payments for a certain period of time, but you don't see that happening in dialysis.

Yes, okay. Whew. Thank you. The -- what will Medicare do as they stare at the bundle in the first couple years? Impossible to know. We still lose money on Medicare. That's a very powerful fact.

They clearly made mistakes, the case mix adjuster, to make a case mix adjuster dependent on data we do not have and cannot get is totally unfair, and then to have projected incidence levels of some of the case mix adjusters that are ten times off what all the other data says is patently unfair. So they have got some serious things to fix which should lead to them closing the gap between our expense per treatment and Medicare revenue per treatment. So that's the big should. Will they do that? Don't know.

Could they, in fact, do the opposite and say, well, looks like the private sector's willing to keep subsidizing. Let's go ahead and see if we can get away with cutting it even though we made those mistakes and we know it, or let's not correct those mistakes and rely on the private sector, that could happen. I mean, they relied on the private sector to subsidize it for 30 years so far, and while the amount goes up a little bit or down a little bit each year, that reality has been true for a long time. Does that answer--

I guess we'll be seeing a proposed rule in the next three or four months, I guess, so I didn't know if there is any dialogue that you've had with CMS that kind of makes you feel like at least for right now, they feel like things are still in flux, and you expect 2012 to be stable, or whether there is --

They play it pretty close to the vest. If they are going to be -- it gets back to no huge surprise either way, I think -- I guess -- I think it's highly unlikely there will be a big surprise either way. Would you -- how would you amend that?

No, I would say the same thing and I would add one comment. In all the other PTS systems, they have looked at that system holistically when they are making changes. We would expect that same treatment. So identifying a single item and cutting for that, we would not expect that. We shouldn't have to expect that. They should be looking at the payment system holistically as Kent mentioned.

Okay. Switching subjects, the cash flow bridge that you provided was very helpful. But to the extent you're going to be selling 15% to 20% more DSI, should you think there should be $100 million or more of proceeds from asset sales? I don't remember seeing that in that bridge. Is that the right way to be thinking about it, maybe (inaudible) in the numbers.

You're correct. That was not on the bridge. And to the degree that we have excess cash or cash proceeds for the divestitures, which we expect we will, then that would be a source of cash that we would have to decide what to do with it.

Okay, and then last topic here, we didn't spend a whole lot of time talking about the other businesses, the vascular access, the Rx and the wellness. How do you think about those businesses and their growth profile going forward, the profitability, I mean, some of them have been struggling, we've got two to three profitable. Where do you think this can go over the next couple of years?

With respect to those three, VillageHealth, which is our integrated care, Lifelines, which is our vascular access, and DaVita Rx, which is our specialty pharmacy. On VillageHealth, whether or not that becomes something which is materially, which is economically material to you, we won't know for a couple years, and maybe not ever. So that one's pretty impossible to predict. We'll always continue to do VillageHealth type stuff because it's essentially clinical innovation in R&D that informs our base business anyway because some of those practices we can incorporate, add more value to the system and do better with Medicare Advantage and private payers, some segments that actually do look at this stuff.

So it would never go away, sort of getting back to Andreas' question, do you ever shut it down, no, because you would have that function as a cost center no matter what, even if you weren't trying to develop a revenue stream associated with it. The amount you invest in it is, of course, in part driven by what do you think are the shots that you can actually get revenue greater than expenses, but you would always have it there as a cost center expense, no matter what.

On Lifeline, our vascular access centers, we hope they continue to grow, but that's not going to be anything that is going to be economically material just because it's too small. It's very important to a number of our physician relationships because the nephrologists love it and what it does, and it's very significant because (inaudible) in America in their conversations with some of the payers, because it saves them stunning amounts of money. So it is a good thing and we like it a lot, but it's not going to become economically material like quadrupling in size or something like that.

And then on DaVita Rx, if they reasonably fund orals in the bundle in 2014, which is in their best interest to do, both clinically and economically, then DaVita Rx can become economically material to you guys.

Thanks. Just a follow-up, question on the new centers. You mentioned closures in the slide show, maybe you could just discuss what your success rate is right now versus where it was three to five years ago?

I'm going to guess there are -- and then someone can correct me, but I know I'm not far off. Their success rate in de novos, if you look at all of them over the last nine years, probably still at 99%, plus or minus a percent. Does anybody know -- still don't know, have we had any failures from de novos? Does anybody know of any?

I'm going to assume we've had some, but it's -- some of the closures weren't de novos. If you acquire four centers, you might close one down. But it's still very high. If you recall strategically, when you had that big year with the 85, our decision was we had too high a batting average, that we needed to have more failures. It would be better to have 90% hit rate with 1,000 at-bats than a 100% hit rate with 500 at-bats, because your shareholders are much better off because 90% still leads to a weighted average of great returns, so you might as well double the amount of capital you're deploying into that area.

So that was when we spiked things up for a bit and so that's why I guess we went up from the zero we used to be at to having some failures, or ones that are probably going to fail over the next year or two. But that was conscious. It was -- we had an inappropriately high success rate.

Okay. And then just on capital deployments, the share repurchases seem to be moving a little bit in fits and starts. You were very aggressive in the back half of the year. They did nothing in the first quarter. Then it looks like you bought close to a million shares in April. Any kind of rhyme or reason there that we should be looking for as we get into the back half of the year, and 2012, as far as how you'll be deploying free cash flow to share repurchases?

Fits and starts and no rhyme or reason. I'm trying to reflect on whether or not that appropriately captures how we think about it or not. Maybe I don't have to amend your question at all. The -- you know the answer, Justin.

We look at this every quarter. We have for 11 years. We evaluate all the same factors that you would. First quarter alternatives in terms of growth and do we have any need to do anything on the debt side. And then we look at what's going on in the market itself and both in the debt markets in terms of terms and our own market in terms of what's going on with the stock. And so we would think, what is it "foolish consistency is the hobgoblin of little minds?" So some people have that philosophy. We prefer no rhyme or reason and fits and starts. (laughter)

Thank you. Lastly, on ACOs, obviously that, I think the world would agree that the initial take on the regulation was disappointing to say the least. I was wondering if you might have some opportunities through the centers of innovation, any other ways to work with managed care, for instance, with Medicare or maybe through Medicare Advantage or through the commercial business to take advantage of some of the investments you've made there to put yourself in a position to kind of, I don't know, if you want to call it capitation or to more holistically manage these patients?

We will take a swing with CMI.

Okay, and any thoughts on magnitude or timing there? How many patients do you think you can get through?

We're willing to go big. The notion that the government will be a willing partner in going big is a bit farfetched.

Timing there? When do you expect you might hear something or be able to --

They want to go fast, and they have wanted to go fast for the year and a half it's taken them to get eight people working in a room. So where do you go with that? But they do sincerely want to move, but it's not in their organizational DNA. So we'll see.

And they have some really talented people there who have every intention of getting some stuff done, whether or not they can overcome all the organization obstacles that life puts in your way once you're a part of that organization, which again, is not a function of there being bad people, but just the cumulative set of procedural rules that they have to follow, even in that group is pretty formidable. And so, hopefully, this group of wonderful folks will be able to do stuff that others couldn't and actually be able to go fast, but we would never predict that to you.

Any investment there that -- I know you've made a lot of investments, whether it's VillageHealth or the drugs, the pharma distribution business. It would seem like you've got a lot in place to get started there, but any investments we should keep in mind that you would need to put in place for that?

Good point. In the unlikely scenario that they would go big and they would go fast, we would have to announce to you the investment, that P&L investment.

Any definition of what big would mean, as far as percentage of your patients?

I think we would just rather wait -- I would just be picking a number, Justin, so I just don't think there would be any value in my giving you a number.

Great, thanks.

Thanks. Maybe just to get a quick update on kind of the competitive landscape, it seems like there have been, maybe some fits and starts of some new entrants into the market, and how if any impact it is having on your ongoing contracting with medical directors?

I would say that the level of competitiveness today versus a year ago versus two years ago versus three years ago has been quite constant. There's a couple, two or three bigger players and then there's three or four medium players, and then there's small players and new entrants and there's independent physicians. So I think that's been pretty constant the last few years, always intense and no sign of that abating. Also, no particular sign of it getting more intense, but it's already quite intense. Full-fledged, full contact sport. If you want to do a follow-up question --

And then, I guess, maybe just along with that or maybe separately, just the -- any changes, is it more difficult, easier in terms of renewing contracts with medical directors or just new supply of nephrologists and their availability?

Yes, I would say that is also the same, which is both for renewing medical directors and signing up new medical directors the competition's very intense and that's no different from the last three or four years. I don't know if any of you are sensing anything different. Feel free to bring it up. But Javier -- Javier is gone, okay. Would you say that's the case? He runs a big chunk of the country, so he would have a more granular sense.

And then, I guess, maybe just separately to follow up on, under a scenario where Medicare decides whenever that might be to try to take a whack at the bundled reimbursement rate, what do you do view, maybe other than the leverage you have with commercial payers, as some of the bigger levers that you would think would be kind of your first line to try to minimize the impact to earnings?

This is if Medicare significantly reduced the bundled reimbursement?

Exactly.

Yikes. Do you guys want to answer that? Well, certainly it would go -- the way it would work, you would go right to the private payers and push for higher rate increases, because while we're, overall you see our average profitability, we have an awful lot of centers that are hovering a penny above break-even, or X dollars below.

And we carry a non-trivial number of centers that lose money and so those become really untenable quickly and a whole bunch of others that are profitable, but inadequate return on -- if you knew it was going to be that low, you wouldn't have done it unless there were broader reasons, so those become negative. So you would -- the industry's response would be to immediately go to the private payers and seek more, as well as going to pharma and device companies and ask them for bigger, for price reductions, but it would also probably have implications for annual merit increases for our teammates, as well as for all our teammates, including the ones of us sitting in this room. So that was a pretty generic answer, but I don't think there's any other way, I don't think there's any sort of Silver Bullet to fire.

That's helpful.

One up here in front.

Just a couple of more, Kent, quick. Pre-DSI, you had been talking about having an appetite for an [NDO] acquisition. I was wondering, did DSI sate that appetite or is there something that -- are you still if the opportunity arises, be willing to buy something bigger as opposed to just sort of the regular tuck-in acquisition?

We would always be willing to, and then, of course, it's minus the divestiture leakage, so it gets more difficult. But intellectually, it's just a numbers thing. If the numbers are right, you can do it.

And then just in terms of -- we've talked about it a couple of times and in a couple of different ways, sort of equal rights for dialysis patients, sort of an interim step is MSP extension, would you characterize that concept as something that is in active discussions in D.C. as a cost savings, or is it something that you guys in the industry have been pushing and haven't been able to get traction on?

I would say right now it's not active. A lot of people in Congress keep a list, scored savings ideas, and so it's on the shelf in a lot of people's offices, and so we'll see if it gets pulled out.

What's the [rust] score, LeAnne, for, say, a six-month extension or 12-month extension?

I think -- as I recall, that would save the government, it was $1.5 billion over ten, I think, a six-month extension, something like that. If you really want to know, I'll look it up and send it to you.

In my memory, it was $1.2 billion for the 12 months over ten years. But we'll find out and see.

Okay, great. And then, finally, Kent, you often don't get a lot of questions about sort of the quality side. But now that you are -- or the clinical side. But now that you're through -- or the clinical side, I should say. Now that you're through your prep for the bundle, can you just talk about the process that you went through in terms of the Medical Board and the decisions they made, how that was disseminated to your physicians and whether there was any major pushback or any issues you faced along the way?

Yes, I love the question. It was actually a great process. The bundle precipitated was more, more intense and reflective analysis of a whole bunch of clinical factors and that happened in a while. Because while we look at it very intensely and analytically every year, lot of other doctors are busy running their lives, running their practices, and they don't have the opportunity to really step back and say, wow, let's reflect on the interaction between ESOs and iron, let's reflect on oral drugs. Let's reflect on this.

And so there was a lot -- during this process, when we started sending out proposed protocol changes and ideas and created a forum for them to share ideas independent of us, the participation dramatically exceeded what we normally have, and so it was very intellectually robust. And so we went through and we started on this well ahead of time, of course, we went through a serious, really cool research studies, all sort of microcompressed in a period of time in order to experiment with some of the ideas that different physicians were throwing out.

And so, okay, what would this do to outcomes, what would this do to outcomes. And so it was one of those cases where necessity was the mother of invention. We had to do a lot of experimenting quickly but still have very rigorous data. And so it was broad and it was deep and it was quite nimble. It was unsustainable as a way to run yourself, but it was good, and it got, a lot of doctors enjoyed it, because they hadn't done it in some time. Instead, they had relied on the experts and the rest. So it was very, very healthy.

And then, of course, in the particular area of anemia, there has been for the last five years, all sorts of just controversy, with some new studies coming out that are well regarded, some studies coming out that are not so well regarded, different points of view. You've heard now that Amgen saying the FDA is thinking of eliminating explicit hemoglobin ranges. It's just not useful, given how different, different patients are, the hyporesponders versus the hyper, ethnic differences, et cetera.

What happens when you come out of the hospital versus when you went in, and so, and so in particular, the fact that the two things coincided, the implementing of the bundle and some of the new science and new government pronouncements on ESAs led to an incredibly intense discussion, set of discussions, revisiting stuff, in really healthy ways. Is that responsive?

And one of the reasons, again, the -- it's easy for me to say that. Is that true or not and is it relevant or not? Well, the fact that there was such an immediate pickup of the final protocol that emerged after all these iterations was a direct reflection of the breadth and depth of involvement and the intellectual integrity around it, and the fact that finally there was a little bit more consensus in an area where there had been a lot of pitter-patter. And second for you again, you've got to worry about companies getting subpoenaed post-bundle because while the government said two and a half years ago we want to put in a bundle, we want to you figure out ways to do less and hold clinical outcomes constant.

That's what we want you to do. Go do that, you have three years to do it, and soon as you do it, you get subpoenaed, accusing you of having done it in the wrong way. The good news for us is we did it. It was incredible intellectual integrity and documentation rigor, but that doesn't mean we want to go through three years of someone looking for, looking for fault.

Kent, you alluded briefly to PD and home HD, and you also alluded, I think, briefly to transplants, but you were going through the slides at a ferocious pace. I didn't actually see the mix between PD and conventional HD and home HD. I thought I probably missed it because of the pace that you guys were going at.

And also, I didn't quite understand the economic impact on you across the modalities. And last, I know it's a wonderful thing when people get a kidney transplant and they don't have to be on dialysis anymore. But I don't understand, the frequency of that, the probability of somebody reaching that end as opposed to the other [steps,] and I wonder if you can kind of talk through those aspects as well?

Sure. Either of you want to do any of those?

Go ahead.

Okay. We didn't show the mix. PD has probably moved from 8% or so to a little over 9%. HAC is still one-eighth of that or so and not changing. And then as to economics, if you look at it on a theoretical basis, in many instances, PD is less expensive per treatment in the bundle than, than normal HD. And HHD is more expensive in every case, either theoretical or the applied. The reason with PD, I emphasize that if you look at it on a theoretical basis, is that there -- with PD, you have to achieve a certain scale and stability in order to achieve those theoretical economics. And a significant percentage of PD in America is done sub-scale and without the right consistency. And so the theoretical relative to PD economics are often not reflected in the aggregate reality. So with PD you get two different answers. With HHD, it's more expensive all the time.

Okay. The more expensive to you.

Right.

So it's in the bundle. You're paid the same, whether it's PD or conventional, or HHD. When you talk about more expensive or less expensive, it's -- (inaudible)

Yes, I was talking about cost to us. Yes.

Okay. So the economics are advantageous to you if the patient is actually able to have the PD modality, but in most cases they are not?

Well, in most cases not, but, again, that's how I make the point. Theoretically, you can say we're advantaged if it's PD, again, assuming its clinically equivalent for the patient as the absolute black-and-white first filter. But second, in the real world, a lot of PD ends up having hidden costs because of the sub-scale programs, excessive churn in the patient base because of poor patient selection, et cetera. So the pro forma that someone creates about PD in the bundle is not supported by the operating reality, and so the delta is not nearly as large and in many cases unachievable.

And what about transplants and other things that may disrupt the historic pattern through substitution risk and technological change? How many people get transplants?

17,000 a year?

Yes.

So 17,000, and that perhaps has been flat as a percentage of the total ESRD patients. Is that right? So flat and absolute and going down, because I know long, long ago, it's 11,000 to 12,000. Showing my age. The -- right now what the experts say, but some of you may know differently, and please speak up. What the experts say is there's nothing happening that is likely to materially change the number of transplant donors in your investment timeframe. But I -- this is just me parroting what people who supposedly understand this say, we're open to any other perspectives. But I don't see any.

And other technological changes going on that might seem to disrupt --

Nothing that I can think of offhand. I got an iPhone. (laughter)

That's not quite the technological change I meant.

Okay, all right. All right, we've got five-second countdown. If not, we appreciate your interest in us and appreciate your endurance here this morning. Please let us know if Boston worked for you, and please let us know if there are other things you wanted us to discuss more coherently or completely so we can do a better job for you next year. Thank you very much.

This concludes the conference call. You may now disconnect.