德維特 (DVA) 2012 Q4 法說會逐字稿

Good afternoon, my name is Laportia, and I will be your conference operator today. At this time, I would like to welcome everyone to the DaVita Healthcare Partners fourth-quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you Mr. Gustafson, you may begin your conference.

Thank you, Laportia, and welcome everyone to our fourth-quarter call.

We appreciate your continued interest in our Company. I'm Jim Gustafson, Vice President of Investor Relations, and with me today are Kent Thiry, our CEO, Bob Margolis, the CEO of HealthCare Partners, Matthew Mazdyasni, HealthCare Partners' Executive Vice President and CFO, Jim Hilger our interim CFO of DaVita Healthcare Partners, and LeAnne Zumwalt, Group Vice President.

I'd like to start with our forward-looking disclosure statements. During this call, we may make forward-looking statements within the meaning of the Federal Securities laws. All of these statements are subject to known and unknown risks and uncertainties that could cause the actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to our SEC filings, including our most recent quarterly form on Form 10-Q and annual form on Form 10-K.

Our forward-looking standards are based upon information currently available to us, and we do not intend and undertake no duty to update these statements for any reason. Additionally, we would like to remind you that during the call we will discuss some non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our Form 8-K submitted to the SEC, and available on our website.

I'll now turn the call over to Kent Thiry, our Chief Executive Officer.

Okay. Thank you, Jim, and thanks to all of you out there for your interest in DaVita Healthcare Partners.

Fourth quarter was a momentous one, in one important respect, in that we completed the acquisition of Healthcare Partners to become our new company that's transformational for us, and hopefully over time transformational for many markets in American healthcare. I'll talk about Kidney Care a bit and then make a couple quick comments on Healthcare Partners, and then talk about our near-term outlook, followed by a summary of things to feel good about, things to worry about.

So Kidney Care first was another solid quarter. We performed well both clinically and operationally. Let me elaborate on the clinical side. We will present these outcomes first, because that is what comes first. We are first and foremost a care-giving company, which on the Kidney Care side alone serves approximately 153,000 dialysis patients in the United States.

With respect to adequacy, which is essentially how well were doing in removing toxins from our patient's blood, once again we hit the 98% level in terms of a Kt/V of greater than 1.2. With respect to vascular access, we set yet other personal best with 71% of our patients having fistulas, which is the preferred form of access, not only better clinically but saving taxpayers' money.

Third, vaccinations this year over 91% of our patients were vaccinated for influenza and pneumonia, once again improving healthcare and reducing taxpayer cost. And number four, just a moment's reflection, since 2009, we've reduced the use of catheters by 43% among our substantial population, one-third out of all the dialysis patients in America. Once again, that constitutes wonderful clinical improvement, wonderful taxpayer savings. For these and virtually all other clinical measures, our patient outcomes compare very favorably to national averages, and this quality not only results in healthier patients, but drives reductions in hospitalization surgical procedures, and costs.

So, good news on the clinical front. We think that's not only good news for our patients and the taxpayers, but it's good news for you. Onto public policy, on the Kidney Care side, as part of the fiscal cliff negotiations, as most of you know, Congress mandated a rebasement of part of the bundle for 2014, that's sort of a bogus way to do it, but that is what they did. This could create a headwind for providers in 2014, so let's just revisit the core facts surrounding this issue.

Number one, we and the rest of the community still lose money on Medicare. Number two, many of the dialysis centers in America are in a fragile financial state already, including a bunch of ours. Number three, the legislation did not mandate a savings level, therefore A, while CMS is directed to rebase a portion of the bundle, they have both the authority and the obligation to ensure overall payments are adequate to take care of these human beings, and so we'll have to wait and see what they do.

But in order for you to think about some of the facts that they will be thinking about, while it is true that Pharma utilization, particularly ESAs has gone down in the past two years, it's good to remember the following. We took a 2% cut going into the bundle because of the changing clinical science and physicians' points of view on ESAs, we took a 2% cut going in because people knew physicians were going to start prescribing fewer of them. And since Pharma was about 25% of our cost, that meant you would need an 8% cost reduction in Pharma to offset that 2% cut on the overall bundle.

Fact number two, industry pricing for EPO is up about 15% since the bundle went into effect. If you put those two things together, 15% higher pricing more or less on average, and the 2% cut on the total bundle going into it, you need Pharma utilization reductions of around 23% which is right about what has happened. So there's been no pick up on an aggregate basis in the industry.

These are facts that CMS must take into account. In addition, there were other unexpected cuts, at least by us, included in the bundle because of what happened with the case mix adjusters, outlier payments, et cetera and so the net economics were actually worse than what I just summarized. And, of course, if on top of this is any additional sequestration, that will further strain a lot a lot of the centers across the country, and if they get it wrong, the centers will close, and patient access will be hurt. So, we'll have to wait and see what happens.

Second significant bit of policy news on the Kidney Care side, is that we were excited that CMMI released an RSA for a renal specific integrated care program. We have waited for years for the opportunity to give the gift of integrated care to every Kidney Care patient in America. Unfortunately, based on our current understanding of the terms, we would not participate in this program. The proposal is incomplete, first of all. But second, some of the stuff that is there and is definitive is sufficiently negative to make the program unattractive, and we'll have to hope that there are some changes.

We are, as I said, absolutely eager to take our proven capability. We have proven that we can reduce total costs while simultaneously improving quality, in an incredibly transparent fashion. It is and will be so frustrating if we're not allowed to bring the gift of integrated care to our patients, and to our taxpayers on a broader basis, when we've done so much and proven so much for so many years in so many ways, in so many places. So we remain hopeful and it will be stunningly frustrating if we are prevented from spreading that good work.

A couple comments on HealthCare Partners, I think the short summary is that the performance economically and clinically continues to be solid in their core markets, in line with our and assumedly your expectations. On the growth front our pipeline continues to be robust, and we closed some tuck-in acquisitions in existing markets in the fourth quarter.

Now onto our near-term outlook. We are going to maintain a 2013 OI guidance of $1.75 billion to $1.9 billion. And this includes on the Kidney Care side, $1.35 billion to $1.45 billion and on HealthCare Partners side, $400 million to $450 million. This guidance captures the majority of probabilistic outcomes, taking into account all swing factors, but as we all know, these are very dynamic times on multiple dimensions. And we all must acknowledge the risk that we could fall outside that range.

I'd also like to take a minute now and wrap up by just stepping back and staring at what one should be worried about in investing in our shares, and what one should feel good about. The most abbreviated summary would just say, we think there is big upside, and we know there are serious risks. Things to worry about, on the Kidney Care side, of course, the long-standing concern of our reliance on commercial rate and mix. And second, the often-discussed government investigations and private lawsuit risks, which are substantial. And then to those two, we need to add government reimbursement risk being incrementally higher these days, because of everything going on, and then on top of that, the uncertainty of exchanges. So these are serious things to be concerned about on the Kidney Care side.

Things to feel good about, on the Kidney Care side, first and foremost, excellent quality, a transparent attitude about it and quality that reduces costs. But beyond that, stable demand growth. We are well-positioned with scale that matters, when you're talking about managing a large patient population, transparent economics with significant share, government accountability because most of our centers do only one thing. So these are really good things to feel good about.

On the HealthCare Partners side, what should you worry about? Well, you should worry about how quickly we can develop a stronger new market capability, that by strategic design was not well-developed up to this point. In addition, Medicare Advantage has its own reimbursement pressures and because it is a hot space, there's a lot of competition. So these are significant things to worry about, as we do.

On the other hand, things to feel good about from a HealthCare Partners point of view is that they are very good at what America needs to have happen in a lot more markets in terms of health-oriented population management pragmatically delivered in a physician caregiver-centric model. In addition, as you all know better than we, the market opportunity is stunning. And that's not even counting potential new markets and things like duals and ACOs.

If you look at the combined enterprise, what you can feel good about is, A, what has already been mentioned twice, a high-quality clinical focus and a philosophy of transparency around it. Second, very attractive place to work. A lot of good people because of the substantial potential, and because of the goodness of what we do, are interested in coming to work for our new combined enterprise. And third, our strong and consistent cash flows and hopefully you feel good about our historical empirical decision-making with respect to deploying those cash flows.

So that's it for me until Q&A. I'll turn it over to Jim Hilger now.

Thanks, Kent.

First a few more dialysis operating metrics. Non-acquired growth was 4.4% when normalized for days of the week, and our commercial mix remained flat in the quarter. US dialysis revenue per treatment was down $1.77 from the prior quarter, driven by one, a decline in revenues related to immunizations, which are seasonally highest in the third quarter, when most annual vaccines are given. Two, small declines in Pharma utilization, and three, a decline in lab revenues. Dialysis patient care cost per treatment was down $1.52 from the prior quarter, driven primarily by the items I just mentioned.

Dialysis G&A per treatment was up $0.70 from the prior quarter. As we indicated last quarter, we anticipated higher G&A in the fourth quarter due to increased IT spend and the timing of legal costs. We experienced $12 million in international losses in the fourth quarter, reflecting higher transaction-related costs associated with our acquisitions in Poland and Portugal.

International losses for the full year 2012 were $38 million, in line with our prior guidance. We are continuing to make operating progress internationally, and right now, we expect operating losses from 2013 will be less than $30 million, with the caveat that these could be greater in 2013 if we receive some government tender contracts, on which we are bidding. Please note that if we successfully obtain these contracts, we will have to make some upfront infrastructure investments in 2013, but we expect this will lead to solid contributions in 2014 and beyond.

Next, a few details on HCP, performance was solid in the quarter with operating income of $67 million for the two months following the completion of the DaVita HealthCare Partners merger. We know that this was slightly above our previous guidance for the fourth quarter, although $3 million of this is due to amortization expense related to the acquisition being lower than previously expected.

The fourth quarter is typically the weakest quarter of the year, with seasonally higher utilization and lower PMPM revenue. And as we discussed before, while HCP is a fairly steady business, you should expect greater quarter-to-quarter operating income volatility than you are used to in a dialysis business.

Now, on to the overall enterprise, our debt expense was $98 million in the fourth quarter, reflecting the completion of the HCP acquisition on November 1, and simultaneous funding of our term loans. We benefited from an effective tax rate attributable to DaVita Healthcare Partners of 38.5% in the quarter, which is below the 40.1% effective tax rate for the full year. In our earnings release we did call out some one-time items in the quarter including transaction-related expenses, refinancing charges, and expenses related to legal settlements that had been announced in the second quarter. The details of these are included in our non-GAAP reconciliations in the back of our press release.

Turning to cash flow, operating cash flow was $200 million in the fourth quarter, bringing our operating cash flow for the fiscal year 2012 to $1.101 billion, modestly above our prior guidance range. 2013 operating cash flow guidance remains at $1.35 billion to $1.5 billion. And a few more details, as you model the impact of the HCP transaction this year. We continue to expect our total debt and costs in 2013 to be about $425 million, but this could vary depending on any hedging we might do and the LIBOR impact of unhedged debt. At this time, we anticipate HCP amortization expense to be approximately $134 million in 2013, and the combined Company tax rate after be able to DaVita HealthCare Partners for 2013 should be in the range of 39.5% to 40.5%.

With that, operator, let's go ahead and open it up for Q&A.

(Operator Instructions)

Your first question is from the line of Matt Weight.

Kent, you've spent years working on an integrated care model, so I wonder if you could provide a little more specifics, where the actual shortcomings are that would cause you not to participate?

I'd be happy to, and you're right, I've been waiting for it and hoping for this for a long time. Let me list off a couple of the issues. Number one, and these are not in order of importance -- again, in some instances their language is ambiguous so we need to clarify on the other hand, so it is not so ambiguous. The methodology penalizes those people who had better outcomes and therefore lower costs in the past. And of course for us, that's a big problem, given how differentiated our quality is in some of the areas. Number two, the actual benchmark methodology they used and how they treat the baseline groups, and how they think about mortality appears to be flawed, in a way that doesn't work in a population like kidney care. Third, they talk about rebasing in the very near term. And given the investment required particularly on a sub-scale set of pilots like they appear to be contemplating you don't have time to make the investment and get a return before they're talking about rebasing. And fourth, they also have some explicit economic discrimination against the larger organizations, which we think makes no philosophical or pragmatic sense, and penalizes the physicians that we're associated with, penalizes the patients we take care of, and just doesn't make philosophical sense either, so there's four examples.

Now, given the thoughtfulness that they've brought to so much of this for so long, we hope that through constructive conversation with them, they'll realize that what they have here could get in the way of thousands of human beings getting better care in a totally transparent fashion, that would save the taxpayers in a very quantifiable and demonstrable way, a lot of money. So I want to emphasize we're not giving up hope at all after 10 years working on it. We're not going to give up that quickly. But we were a little bummed out -- a little -- we were very bummed out by some of the provisions.

Okay. It didn't sound like there was going to be a comment period, how can I square that with conversations you guys are having with CMS?

Even if there's not an official comment period, they have the right to make adjustments if they decide to. And we hope they do.

Okay. Switching over a little bit to HCP, can you give us an update on the ABQ acquisition and maybe shed some of the what you may have learned with some of the difficulties you had over there?

It's a fair question, Matt. We don't want to go into a lot of detail, despite the legitimacy of the question, because it isn't that big a deal. And we've already acknowledged that it exposed the fact that we, as we had already indicated before it happened, we knew we had to work on our new market capability. And so you've got the macro point, and there's been a lot of learnings on a micro point basis, but it's not really in our shareholders' best interest that we go into all sorts of detail to talk about an ongoing market spat.

Okay. With that said, would that slow, would that impact how you think about future new market acquisitions?

Well, I guess yes and no. Yes in the sense that we are now having to spend more time there than we thought. And that chews up some of the people that would otherwise be working on other new markets, because we've had so many people contact us and want to talk to us. So yes, in that sense. It changes our deployment of scarce resources. No, in the longer-term sense, not one bit.

Okay. Last question here, and I'll jump off, with the orals being delayed until 2016, I've heard some talk about trying to get some momentum to bring that in potentially a little earlier than 2016. Anything possible with that, and how disappointed were you with that getting pushed out to 2016?

The answer to the second question is, we were very disappointed. Not because of reimbursement, because we didn't even know what reimbursement was going to be. Rather, because that we know that we've proven that we can improve the care of our patients and save taxpayers' money, even if you held reimbursement equal to cost. So we were disappointed. And then as to whether or not some of the stuff going on in DC about changing it will get any traction, I think that's anyone's guess. We don't have any particular insight, and we're actually much more focused on all these other things.

Thank you.

Sorry it doesn't make sense to go into more detail on the Albuquerque situation.

Understood.

Your next question is from the line of Kevin Ellich.

First, starting off with HCP, I was wondering in the other revenue segment, which was $24 million, what does that consist of? And on top of that, do you still own The Camden Group?

Yes. This is Matthew Mazdyasni. Yes. The answer to your second question is yes, we do own Camden Group. And that revenue, some of that is in that line. Plus we have other management fees with the joint venture we have. So that's all reflected in that line item.

Okay. Is Camden the majority of that $24 million? Or do we want to get to that level of specificity?

No.

Okay. Thanks. And then what percent of clinics, Kent, do you think would shut down or close if rebasing goes through as is in 2014?

Fair question but impossible to answer without knowing the actual number of rebasing. It's just literally impossible to answer.

Understood. Okay. Jim Hilger made a comment on the international discussion, saying that you are bidding on some more contracts. Just wondering if you could provide any more color behind that?

What's happening across the globe, and part of why we decided to do this, and I'll hasten to add if I was a better CEO we would have started doing this six or seven years ago, but one of the reasons we decided to do it now is because there's a lot of governments deciding that they need to guarantee funding for dialysis, because the global transparency around healthcare is leading a lot of people to find out it exists. And with it you live, and without it you die, and when it's low quality, it's not nearly as good as when its high quality, so that creates a lot of pressure. As soon as governments realize that there's going to be a fair amount of it and they have got to figure out a way to fund it, they want to get out of the business of actually providing it, for all sorts of reasons including the fact that they're not that good at it and they don't like being accountable for things like that.

And so across the globe, you have more governments focused on creating supply of quality dialysis as a real policy objective, in the same way that in America, 20 and 30 years ago, you had similar thoughts and similar actions. And so in those cases, sometimes when government hospitals have been providing a lot of this care, they issue outsourcing contract proposals, where they will make a decision to transfer a whole bunch of patients from their organization to someone else's. Those are the kind of things that we're competing on.

Understood. Thank you. And then two last questions on HCP. First off, the ratio of patient care costs as a percent of total segment net revenues, which was 71.1%, should we think about that as a medical loss ratio? Is that the right way to think about it?

Kevin, no, because that does not reflect all the institutional revenue and costs, because we are showing, in some of our markets, the net number. So I wouldn't want that to be confused with the medical loss ratio.

Okay. I appreciate that. Trying to get a better understanding. Then I think tonight ends the Medicare Advantage disenrollment period. Are you expecting any changes or many changes?

We don't. We usually -- there is that 45 day period that the patients can disenroll, but we have not seen since the open enrollment was instituted a few years ago a significant drop. As a matter of fact, in some of our markets, it's close to none.

Okay. That's all I have for now. Thanks.

Let me just add, while we are in conversations with several governments across the globe, I wouldn't want anyone getting overly optimistic about the timing of -- often governments separate from our own miss their deadlines, so we needed to highlight to you the fact that there might be one in particular that has some significant investment, but if history's any guide, it's more likely that it won't happen. But onto the next question please, operator.

Next question is from the line of Justin Lake.

First, Kent, you have mentioned the competition in the M&A space for new physician groups is intense. We've seen [NIM] get taken out recently. Can you give us some more color around what you're seeing out there, and any kind of guidance in terms of what you would think is the most likely outcome from an M&A perspective for yourselves, on the HCP side?

Okay, Justin. It's a very, very important and fair question. And our answer's going to be relatively worthless, that it is so difficult to predict who in fact is going to cross the line and decide to sell, as opposed to think about it, and then whether or not we're going to win versus some of the other people that are bidding, so on the one hand, if we went the next 15, 18 months, without closing another noteworthy transaction, I would be sad. Unfortunately, I could end up being sad. And then the other hand, there's no way we're going to close four or five big deals in 2013, so I can bracket it in that way, but to go further is just impossible, given the dynamic of the deal process itself.

Maybe I can ask the question this way, then -- in terms of the larger deals that have taken place, there have been a few. In your mind, are the larger deals being done at multiples that are just you can't get to from a reasonable return perspective? And so, should we think about maybe the size of the deals being on the smaller side in terms of groups that might be pre-risk or pre-capitation, and therefore being smaller deals, but with significant upside in terms of the ROI longer-term like, let's say, in Nevada?

That's very thoughtful. Yes, it is true that we may do some deals where groups do not currently have a lot of what we're very good at. And therefore they will be less expensive, but also take longer to develop, and so that is one category. And I'd be surprised if we don't do something in that category in the next 18 months. And then as to whether or not multiples on some of the other stuff that's taken place, some of the big stuff, we're out of line, I guess maybe the evidence says in our mind it was, since we were a part of some of those processes and we stopped bidding before someone else. And if we had thought going higher was a good idea we would have. Now, that's a little bit not fair, because at some point a process just ends, and maybe you would have gone further, so I'm not trying to be cute.

I think it's the classic situation that the more you pay the more risk you expose your shareholders to. And we think we are going to have a lot of quality growth opportunities with lower-risk profiles than some of the other stuff that's happened. And maybe we also just got outperformed. So you've got to take that into account, too. So I can't give you a clear answer on whether or not we think those multiples were out of line other than saying that we stopped bidding before other people did. And that certainly implies that to some extent, that's what we think.

Great. If I take that question to its endpoint, which is capital deployment, then, it sounds like maybe investors should expect that the deals that are being done, obviously you can't put as much capital to work, the returns will be great on Nevada type of deals, but the dollars that are spent there are less significant. If that ends up being the case, where do you see capital deployment opportunities? Dialysis feels like it's mature. If it's not in HCP, is it share repurchase, and how should we think about your thoughts there?

Okay. Justin, you could answer the question that you have asked, and so I'll go through it. We, every quarter of every year, look at our alternatives for cash deployment, and our overall capital structure. And at different times in our history, we've bought back a lot of shares, we've paid down debt, and we've done acquisitions. And sometimes, we have also just held a fair amount of cash.

On the capital structure side, as you know, our long-term stated goal is to be between 3 and 3.5 times in terms of a leverage ratio, and there are times that we've gone much higher when we thought that we weren't exposing our shareholders to inappropriate risk in the near term, because the probabilities that we're going to quickly move it back in line were exceptionally high. And there's times that we've gone under, and in some cases, that was because we wanted to prepare for doing a large deal. And so we haven't changed one bit in terms of our analytical discipline, around thinking about what to do with cash.

If we don't spend -- and this would be sad -- but if we don't have enough opportunities to spend our cash in growth, then we will stare at share repurchase versus debt repayment, and so much of that will be driven by what we've hedged and what we haven't, what's going on with interest rates, and what's going on with our share price, and market's expectations for the future vis-a-vis ours. So I know that's a pretty comprehensive yet generic answer. And if you want to push back on some part of it, feel free. Otherwise it's sort of the same practice we've always had.

That was very helpful. I appreciate all the color. Thanks.

Your next question is from the line of Kevin Fischbeck.

Maybe I will push back on that last answer, then. When I think about the cash on the balance sheet right now, historically DaVita operated somewhere between $300 million and $500 million of cash on the balance sheet, and when you got above $500 million it felt like you were closer to doing something with that cash in that realm of moving towards share repurchase or debt pay down, what have you. Is that the same way to think about it after HealthCare Partners, or as a bigger company, do you need more cash on the balance sheet to run the business, or does that not really change your view about --

Yes. I think you wouldn't want to use the same number going forward as you used in the past just because the number is more a question of proportion. And our larger size and some of the dynamics around being a new enterprise with a new line of business would also affect that answer, but directionally, we might very well carry more cash in the future than we have in the past, just because we're a lot bigger, and because on the HealthCare Partners side of the business, there might be some very serious deals on the table in the years to come.

Okay. That's helpful. The counterargument could be you're more diversified, and therefore the risk of having a situation where you had a cash flow situation, in any given quarter or year would be less as well, you might not need to change that, but it sounds like it's partly just being a bigger company but partly also flexibility and the opportunity set that you see. Is that correct?

Your point is very well taken, and then you've got to factor that, in addition to what you just said, you need to factor in the capital structure at the time, because if our leverage ratio is unusually low, then we might be even more comfortable with having less cash. If our leverage ratio is relatively high, then it goes the other way. I already referred to the outlook on near-term scale acquisitions. And then of course also our expectation of what's going on in the debt markets. So that's why we revisit it so holistically every three to six months, because there's so many variables to take into account, in order that we get you the right risk-reward relationship on that cash.

Okay. And then thinking about the quarter and the guidance, obviously it's early in the year so that could explain the rationale for keeping the guidance where it is, but given how good the quarter was versus your early expectations on it, why isn't there more flow-through into the 2013 numbers?

Okay. Say that question one more time?

You exceeded both the dialysis operating income and the physician operating income. But you kept the outlook for 2013 intact, so why wasn't the better Q4 run rate annualized into the following year?

I think it's a little bit like if your quarterback has a really good game and completes a very high percentage of their passes and doesn't have any interceptions, you applaud them, because the game was the game and you won, but you don't necessarily predict that for the next game or for the rest of the season. The fact is both enterprises operated really well in 2012. And part of that was good scale and hard work and there's always an element of luck and tailwinds and headwinds. And so I think we had a really good game. We're proud of it and it goes in the books and the cash goes in the bank and the clinical outcomes go to our patients and the savings go to the taxpayer, and 2013 is a new game, and we're playing against some formidable opponents, and we've got to wait and see how we do.

Okay. But there's nothing unusual in that Q4 number that would argue against you completing 70% of your passes next year, per se?

I don't have a good answer to that. I'll give other people a moment to think. What I would say to you is that even if the answer is no, there was nothing unusual, nonetheless, extrapolation from a strong year is a dangerous thing to do.

I guess there are two things that you mentioned in your comments -- I don't know if they have any effect on this -- I guess you are selling your home infusion I don't think that deal has closed yet. Does that have any impact on operating income versus your original guidance?

We closed it. That is a good thing for shareholders. Basically got our money back, mas o menos a little. And it doesn't have any impact on our income.

Okay. And I think you mentioned that D&A came in $3 million lower than what you were thinking. I guess you gave the guidance for D&A but does that -- wouldn't that flow-through to 2013 as another $20 million tailwind to the number? Annualized?

Let me amend my HomeChoice comment, it would have no material impact on our operating income, very, very tiny. On your other question, I'll turn over to Jim.

The D&A impact in -- against what we had previously guided to is more in the range of $12 million to $15 million, not $20 million, and that adjustment was in the range of our guidance. Although, of course, it moves us -- our point estimate then would move within that range, because of that. But other factors could play against it.

Okay. And last question or maybe two questions on this. I think, Kent, you talked about CMS demo as being sub-scale. And I guess, wanted to understand what that comment was referring to. It looked like there was a minimum of 500 patients and I guess in a geographic region the way CMS is defining it here, what is a reasonable population to think of, if you were to participate in a region? And what number do you think that needs to be, to be a quote-unquote scale demonstration?

Well, there's two different issues there. One is what's the minimum scale? The second is, what is the scale that we think we could handle and dramatically improve clinical care a lot of people get, and the economic performance that the taxpayer gets? So there's two very different answers. They're talking about 10 to 15 markets and the way they've defined market is such that if you assume, if we decided to do this, which again right now we wouldn't, and if we were granted four of them out of the 15, so this is all just setting up a scenario, that we probably couldn't do more than 6,000 or 7,000 patients, which is a lot better than 600, but frustrating given we could do so much more.

Okay. And is that's still -- when you say scale you talked about the scale necessary to recoup the investment you'd be making, after the three-year rebasing of things. Is there a size that you have in mind where it has to be X or Y, before you get to that tipping point?

Given their current provision, it would take infinite scale. It's like the model doesn't really work. Until there's some clarification and unless there's some changes, there may not be enough patients in America to reach the scale required to get a return.

Okay. Last question I think you just answered it, but what I was reading that 10 to 15 participants, I wasn't sure whether they meant markets or what they meant actual participants, whether DaVita would be one participant or five markets in that analysis. Your understanding is it would be markets and that DaVita could be multiple participants in that 10 to 15?

Exactly.

Okay. All right. Thanks.

Your next question is from the line of Matt Borsch.

This is Brian Zimmerman in for Matt. Now that 2014 is drawing near, can you give us a refresher on how coverage expansion under healthcare reform will affect your top and bottom lines from a directional standpoint?

I'll comment on it for kidney care and then I'll ask Bob or Matthew to comment on it for HealthCare Partners. On the kidney care side, it's impossible to know right now, and there's probably more downside than upside, the variables are how many patients we currently take care of or would otherwise take care of at private rates, that are higher than what the exchange will reimburse, will move into exchanges, because each one of those who does is of course an incremental negative, versus how many people are currently uninsured and/or in some form of reimbursement like Medicaid or other special program, who move into being covered by private insurance, and are at higher rates, and so it's a question of volume moving each direction and the average differential rate. And of course, our point of view is, we don't want to be doing dialysis for lower rates in the exchanges than we do for our current private payers. Some of them will want us to do that at a lower rate, and from our point of view, there would be no reason to. So it's going to be quite the tussle for everyone.

And so on the kidney care side, those are the elements of the equation, and you'll have to plug in your own assumptions. Our current range of estimates is way too wide to be useful to you. You will just get frustrated if we shared it. I'll now turn it to Bob.

Thanks. I think on the HealthCare Partners side, I can reflect a lot of the same uncertainty you just heard from Kent. Some of the variables are that, we believe that as an organization that wants to serve all of the members of our communities, that it's a big opportunity to learn how to, in a high-quality manner and with some margin be able to serve folks that don't have insurance, there will be millions more under Medicaid. As you well know, under health reform, this is outside the exchange, but we are honing our capabilities and by acquiring affiliate networks as we've announced, that have some experience in successfully managing the Medicaid population, so we think that's a bit of an upside opportunity, though it's yet to be determined whether that will have any margin.

On the exchange piece, it's very much the same unknowns. The rates have not been defined as to how the exchange will contract with organizations, and at what rates be they Medicare, or more towards Medicaid. If there are newly-insured patients at reasonable reimbursement it could be a nice upside. On the other hand, if a lot of employers choose to move their employees from fully-insured products into the exchange and drop the employer-based benefits, that could be a negative drag, if the rates don't support good care. So I think for modeling, it's still way too early to make a firm determination.

Okay. That's helpful. I know you mentioned that the exchange rates are pretty wide, but we're trying to make some assumptions around that. Would you say that they're going to be closer towards commercial rates, or more towards Medicare type rates on the dialysis side?

If the government steps into the world of mandating them, then they're going to be closer to Medicare. It doesn't appear likely that's going to happen, but if the government mandates premiums, it creates some real derivative pressure on anybody who's subject to that. And then you move to predicting what other providers will do, and I don't think a lot of providers in the kidney care area are going to want to offer lower private rates to the exchanges, except to the extent that they can, because you've got some people at low rates now that are moving in. And therefore you could offer a lower private rate, because the net keeps you whole, but in a world where 10% of our patients that are private subsidize the 90% that are in the government, there's very little room for providers to move, any provider.

So I always have to add that you can never predict for sure what the government will do, and what other kidney care providers will do, but everybody operates within the same economic reality. And so you're going to have payers trying to push for lower rates and providers pushing back, and it's pretty hard to say who's going to win. Bob, on HCP?

Very much the same as we just said, rates you've seen one exchange you've seen one exchange. Unfortunately, as you well know, the government, the federal government punted the essential benefit package back to the states, so every state and every exchange is going to is defining whether they are going to have a rich benefit package, and how they balance that against the affordability requirement of the Affordable Care Act. And as we all know, about half the states are waiting for the federal government to set up the exchange so we don't have any idea how that will get -- the timing of that, and the effectiveness of it, and the membership within the exchange. So I think you can take to the bank at the moment that there's so much uncertainty that you can't take much to the bank.

Okay. That's helpful. Thanks.

Your next question is from the line of Darren Lehrich.

I did have some questions on HCP and given that this is our first opportunity to see how you're going to be reporting some of the business metrics there, I want to understand exactly what we'll be seeing here and so the disclosure around capitated membership first. I guess the question would be, can you maybe clarify for us what is there? It seems like some of the acquisitions that had tens of thousands of patients in the fourth quarter aren't included in that number, so should we be thinking about those patients on a path to risk basis? And maybe can you help us think about the scope and scale of HCP in relation to the patient numbers we're getting now?

Darren, this is KT. Could you please repeat the question so we don't ramble all over?

Sure. Okay. So I think you've given us, in some of the S-4 filings, enrollment numbers for HCP. And what we have here in the December period was 723,999 capitated members. But there were, I don't know -- I think 180,000 patients in ABQ and ARDA. There were there was another number so I'm just trying to flip to the membership numbers, just to understand what we're going to get on a quarterly basis, and then how some of these other patients fit in.

I hate to say it but it's a little bit complicated for us to report because each member is different, for example in some of our commercial revenues or membership, we have point of services members that we're not capitated for. What we tried to do here, we tried to only report the members that we are either receiving global cap or we're managing global capitation for it. So it does not include, as far as that number is concerned, any of our fee-for-service members or patients, and any members that we have that we are either not receiving global capitation for it, or managing global capitation. Just to give you an example in Nevada, we have some commercial members that they are based on professional capitation, so that's what we reported here at this time. And then we separated our revenue by sources, because the Medicaid member capitation is very different from Medicare Advantage, very different from commercial.

Okay. That's exactly what I thought. I just wanted to be perfectly clear about this, because it will obviously be in your press releases going forward. So if we think about the patients that fall outside of this disenrollment metric, can you maybe size that for us, and give us a sense for the numbers, maybe broadly speaking that might be on a path to some global cap?

We'll think about that, Darren. We're still noodling over what are the most useful set of metrics to provide to help you guys assess risk and reward and performance. So it's a good thought. We're playing with it. The math, the shareholder math, is dominated by the global population numbers, which is why we've put that out there. And how we refine that or add to it gets tricky, because some of the numbers can be quite misleading as they go up or down, in terms of any impact on your equation. So let's just keep discussing it every quarter and we will try to get to the right place.

Understood. Okay. Just on the point of membership, the prior question had asked about the 45 day period. I'm actually curious just to know what your health plan partners did experience in terms of open enrollment. Can you comment broadly on membership growth in the legacy business?

Hold on one second so we get our act together in terms what we already disclosed and we haven't. Given this is our first time, we want to make sure we don't confuse anyone.

Your next question is from the line of Gary Lieberman.

I'm here but I think you're waiting to answer Darren's last question.

Yes. Just on the last question, Darren, we haven't made any disclosures at this point on what's happened so far in January and this year, and we're not in a position to do so. So go ahead, Gary. Sorry about that.

Okay. Thanks. Maybe just to ask a couple more questions on HCP. So in the second quarter of 2012, I think the reported member number was 620,000. Is that a comparable number to the 724,000 that was reported this quarter?

That's accurate, yes.

Okay. So is most of that increase from acquisition or could you tell us the percentage of increase that was from acquisition versus organic growth?

I think most of it was from acquisition. And that's why we also are showing you member months, because for example, we had an acquisition in Southern California effective September 1, so the member months for that acquisition is only for four months during 2012, versus our legacy membership the last 12 months.

Okay. So if we're thinking about member months on a run rate basis, quarterly, is there a way you can give us a range of the number we should be thinking about? Is it $2.1 million or $2.2 million?

I think as Kent said we'll continue thinking about how we can best report all of our membership numbers that would be useful to all of you.

Gary, the member months in there represent two months, because that's the time period during which this has been a combined entity, and this reporting reflects our November-December time period, so hopefully that helps you pro forma that.

That's useful. And then going back to the guidance of the 400 to 450 for HealthCare Partners, maybe you have said this before, does that assume some number of acquisitions or does that assume no acquisitions?

We do incorporate our acquisition expectations into our forecasts. And of course it's always a prediction that has a wide range of potential outcomes below or above what we predict.

Okay. And then, you may have answered some of this with our previous question, but given that HealthCare Partners did $67 million of EBIT in the quarter, combined with the statement that fourth quarter is usually a light quarter, it's already on a run rate of over $400 million of EBIT, so is that a fair way to look at it? And so are you guys just being conservative or is there something else that we should be taking into consideration?

I'll repeat what I said and any of my partners here might want to add to it. 2012 was an outstanding operating year for both companies. Anyone want to add anything?

I would say that it's an operating income, not EBITDA range of 400 to 450, Gary.

Sorry if I misstated that. Okay. And then moving onto a couple of kidney care questions. Did you have an EPO price increase beginning of January as you typically do?

I don't know that we disclosed anything about what's going on with EPO pricing, so let us think about that, and you can ask again next quarter. But up to this point, we have not disclosed anything.

Okay. Okay. That's all I've got. Thanks a lot.

Thank you. To everyone, please do share your thoughts with Jim Gustafson about what other quarterly reporting you think we should add in order to be useful. Operator, you can go ahead to the next question now.

Your next question is from the line of Ben Andrew.

First question from me is there has there been any directional change in behavior or magnitude of change on the part of commercial payers, given some of the changing backdrops or is this more of anticipatory commentary?

I think on both sides, we're experiencing the normal intense debates and discussions with commercial payers about our rates and other terms, that it's always been intense, it will always be intense, and there's nothing dramatically different, maybe on the margin. You say exchanges create more conversations, but the intensity is the same as it always has been, and always will be.

Okay. And then maybe a question on HCP, more generally, have you noticed a difference in the behavior pattern aside from maybe what's going on in Albuquerque with the different constituents that HCP interacts with. After the execution of the transaction has there been a change in tone or behavior pattern that is noticeable or meaningful?

I'll try to answer that. We've not seen anything that's dramatic. I think that as you might expect, folks noticed that this transaction was large, and that our historical financials were now transparent. But we deal primarily, or often, with plans and with big systems that are also for-profit, so to them, that's not a giant change. And our conversations with physicians, with other constituents, have been pretty much online with what we had before. So pretty much everyone is aware that we're part of a bigger enterprise, that we have a great opportunity to transform American healthcare in a positive view, and we're pushing forward with that conversation and that mission, in all these discussions. And I think folks view us now as a larger and more credible partner in that transformation.

Okay. Kent, just briefly, in terms of the ACO project, is there a timeframe that you have in mind where perhaps you could influence and lead to a change in what that structure of the program might look like? Is that six months, three months, another three years? How do you think about that internally?

I think the timeframe -- it's a fair question -- the timeframe is quite short. They are interested in feedback from not just us but from the community very quickly, and they may change nothing, and they may change a lot. They have total freedom, but I think it's all going to happen relatively quickly, so it's not years, it's months.

At this point it appears both LDOs don't have a lot of interest in the program. Would you suggest that they would fail to the extent that doesn't change?

You'd have to ask them, of course, but even if you just get a couple of small players to do it, you're really putting at risk having this proven technology established and standardized in a way that it could benefit everyone. So I think from a policy point of view, it would be hugely disappointing, given everyone's objective is to improve the care and reduce the cost, but who knows. They may be just fine if the two LDOs don't do anything, and they get some smaller players to do smaller things in some parts of the country. Maybe they would be happy with that. I think a lot of other people would be really disappointed, but I think you just have to ask them.

Thank you.

Your next question is from the line of Gary Taylor.

Had a few quick ones. First, I think at least two of the last three quarters, you've given us a full quarter pro forma HCP EBITDA figure. Would you provide that for the fourth quarter?

Can you repeat the question?

Do you have a fourth quarter 2012 HCP EBITDA figure for the full three months?

We don't have that in front of us. I don't know if we have disclosed it before. If we have, I can give it to you later.

We haven't disclosed it but there are a number of distinct charges in the fourth quarter that make that number difficult to be comparable.

Okay. Yes. No. We've had it at least two of the last three quarters, but I'll move on. Another question, I know the LA Times last week reported that HCP was applying for limited Know-Keene licenses in California. I presume there'd be some increased capital requirements it looks like you could easily handle -- I have two questions. One, would this in a way and in a way make your California business subjects to the minimum MLR ratios? And two, why are you pursuing that limited license?

Great question. We, as we previously reported, are a pioneer ACO in three states including California. We're in the second year of the pioneer ACO. According to the rules of the pioneer ACO, we can, if we're successful in the first two years, and it makes economic sense, apply for full global capitation for that population that's in that ACO. According to the state, in order to take full capitation, including institutional, we have to apply and obtain limited Knox-Keene license.

Just to describe what we call limited Knox-Keene I think it is called a Knox-Keene with certain limitations. It's not officially called that. Is a requirement by the state, but it does not put us in a position where we are a fully-licensed insurer. We're not in a position, nor do we plan to a position to market and sell directly to employers. It's just a requirement of the movement to the pioneer ACO. At the same time, you have seen that we have all of this global capitation, including some that's under management as opposed to direct. And we would have an opportunity in Knox-Keene, should we choose, to take that direct global capitation in California instead of just under management. So those are two reasons that the Knox-Keene makes good sense. There are capital requirements, but those are minimal and actually no greater than the reserves that we have in place for this managed global capitation, or global risk that we manage now.

Let me try to also answer the first part of your question. Would that make it subject to MLR -- that's not the case, because we're not receiving premium from payers or employers. It's a plan-to-plan, so we, as a limited Knox-Keene, will be contracting with full Knox-Keene plans who are receiving, so those entities are subject to MLR. We are not, because we're not directly receiving from the payer, with the exception of pioneer ACO.

Got it. That's helpful. And would you anticipate pursuing any other limited license in other states you operate in as part of the pioneer ACO or for other reasons? Is that foreseeable?

Only if it makes sense because of the market requirements in order to produce a kind of global management that we think benefits patients and coordinates care. At this point we do not intend to become an insurance company, if that's the question that you're answering.

Also the other two markets that we have pioneer ACO which is Nevada and Florida do not require any special license because these are Medicare, so it is allowable without any special license to receive global capitation from CMMI, which is part of CMS.

Okay. That's very helpful. Appreciate it. Last question is for Kent. First of all I don't recall any quarterback analogies when Tebow was the quarterback there, so I assume this means you are a Peyton Manning fan, given your commentary today? But my actual question is, I'm not sure if you saw, you probably did this morning, but Affymax did put out a release today about Fresenius discontinuing the demonstration they were doing, and they cited Fresenius in the letter, those physicians had cited some potential allergic reactions that patients were having. The question I have is, if this proves to be problematic for Affy, and we have less ESA price competition in the future, does that have any implications for your existing seven-year contract with Amgen?

This is news to me, and so please take that into account as I grope for a response. If Affy is less credible, I don't know that implies less credible in the near-term. I don't know that implies anything for us, as we've said many times, the reason we did this seven-year partnership with Amgen was heavily influenced by the fact it's that the gold standard of ESAs in the world. And so I can't think of anything that would change in anything that we've said. But I know so little -- I only know what you just told me, that I have to reserve the right to change that answer in the future.

Got it. I think some analysts had speculated there was perhaps some sort of price guarantees in the Amgen contract and I thought there was some commentary from a conference earlier this year where you had stated that equivocally was not the case I didn't presume this would change anything. I don't know if you would care to comment on that or just let it go, but thanks.

To the best of my knowledge, everything I've said on this subject has been true. Whatever I said still applies. I couldn't tell exactly what you were saying, which is why am wording my sentence --

I think everything you have said is consistent, so I was giving you a chance to elaborate on that, but I get it. I appreciate it. Thanks.

All right. Thanks a lot.

Let me break in with one thing, Gary. I think we can report that normalized for non-recurring deal items for HealthCare Partners, the full-year EBITDA was $583 million for 2012. We are comfortable disclosing that.

Okay. Thank you.

Your next question is from the line of John Ransom.

It is very difficult to be clever an hour and 20 minutes into a call. I'm going to give it a shot. As I think about you going into new markets, what are the dynamics now versus maybe a couple years ago? Are hospitals in particular rounding up the big physician groups and trying to engineer these risk sharing models? Is there less oxygen in the room? And how do you think about the various players in let's say the top 100 markets, hospitals versus insurance companies? Who seems to be taking the lead, and how is the role for HealthCare Partners different, the same, versus a couple years ago when this was kind of novel?

Let me take a shot at it. It's the kind of question that provokes a lot of strategic discussion internally. As you aptly stated, hospitals are the center of the universe in a lot of communities for the physician networks. Hospitals in our view and I don't think this is in all cases, but in many cases, have chosen to employ or buy practices of a lot of physicians, especially specialists, that would provide the high reimbursement procedures. And in our view, in most cases, the hospital consolidation has caused cost increases, which as you may have read, have caused a bunch of inquiries as to whether it's appropriate. So that is going on, and reduces the number of physicians in certain communities. Certain health plans and most notably Optim, United, as well as Humana, have announced deals and so on.

So competition is a reality but the facts of the matter are that it's a vast country. Most of healthcare in America is in the atomized or fragmented fee-for-service individual and small group practice. There are a lot of practices, both large and small, that don't see linking up with a hospital and/or a health plan as in their best strategic interest. And as was previously described, our pipeline is strong. And so it's a big America and I don't think that the oxygen has been sucked out of the room, as you say. But you're right, there's competition and as Kent mentioned earlier, there may be price competition, that we think is not in our best interest, in some acquisitions.

Thanks. And again we're just still learning basic things, but let's say for example that the Medicare Advantage rates in your market next year are down 6.2% or something. Is it a straight line? I know it's not a straight line, but how should we extrapolate the MA rates to the rates that you get? Is it just a straight one-for-one and it is a straight line, and you've got to find ways to offset it?

The parity that is demanded under the Medicare Advantage changes that was passed a few years ago is baked into all of our analyses and assumptions, and varies, as you know, state-to-state. But it is specifically mitigated in some cases, and in many cases, by the fact that the benefits are extremely rich relative to fee-for-service Medicare, in all of the markets that we're currently in. So there's some shift in benefits that reduces the impact of those direct cuts. In other words, making the benefits a little bit less rich for the patient, but still significantly rich enough to encourage patients to choose Medicare Advantage.

There's the risk adjustment, which is based on accurate and good documentation that is a significant, and has been a significant offset of the Medicare cost rebasing. And last of all, there's the opportunity to significantly continue to improve clinical performance, and reduce the cost of the care that we deliver. So while we think we do it quite well, we know there's still significant variation in the results across networks and certainly across America. So those are headwinds. There's no doubt, that's been told in many of these conferences up till now, but there are offsetting factors.

The last one, which I should mention, of course, is the quality ratings the star ratings of the health plan. While the start with star rating is at the health plan level, not at the healthcare partner level, certainly in markets where we're a significant portion of that health plan, our quality ratings are usually higher than their network average and help bring up their star rating, and therefore their reimbursement. And actually it's another reason the health plans like working with us, and potentially helping to consolidate their networks with HealthCare Partners and DaVita to improve their quality ratings.

Do still think about something in the neighborhood of a 40% apples to apples difference between what you can do and what an unmanaged population looks like? I remember that number, maybe it was hospital-based, but how do you think about them today, the apples-to-apples cost differences between identical populations?

I don't think a specific cost of care, but -- because I don't have that top of my head but you're right, in the Medicare Advantage space, our utilization of hospital days has been traditionally about 40% less than national average.

Okay. Thank you.

Your next question is from the line of Lisa Clive.

Just going back to the discussion around exchange rates, one thing that just confused me about the discussion here is, historically insurance companies have been competing against one another for big contracts from employers. And under the exchanges, they're simply going to be competing with each other, albeit on a different type of playing field, but still it's a similar head to head competition than the left. So in my view, I think the only thing that's really gives them more leverage, as you said, the government does get involved in terms of setting premiums, et cetera, but in the absence of that, do you think that just the structure of the exchanges somehow gives insurance companies more leverage with healthcare providers like hospitals, like dialysis clinics? I just figure it's really that change in negotiating power that can potentially change rates.

If you posit that a plan can offer a provider incremental volume, because there is increased market fluidity, prompted by the exchanges, then I think there is linear logic to support the notion that a payer would pick up some new leverage.

Okay. That makes sense. And then just one second question, just looking at the HealthCare business, the dollars under management that you reported of $614 million, I just want to make sure I'm comparing the figures apples-to-apples. It looks like it was down on what you reported as the 2011 full-year figure. Could you comment on that?

I don't have the 2011 but this is obviously the two months you're referring to? You're extrapolating from two months?

Yes. It was just a little bit unclear whether it was sort of just a figure for two months or whether it could be compared on a full-year basis?

I'm sorry. Lisa, that's only for two months. That number is only for two months.

Okay. That's helpful. Thanks.

Your next question is from the line of Whit Mayo.

This call has gone on for quite some time now. I'll try to keep it short. Kent, this question really relates to the comments you made earlier on exchanges. Do you have a sense of what percent of your dialysis commercial patients are actually small group? I just have to believe that it's relatively small.

We do know that number. We've never disclosed it, so why don't you let us think about whether or not we would disclose it over the next quarter.

Okay. That might just be helpful to sort of help us size up what any exposure could be if obviously employers in the small group market did dump their employees, but I think it is small. The other question that I had, I guess for Bob, looking back at 2012 and recognizing that there's a lot of moving pieces here, what do you think that the organic revenue and EBITDA growth was? I'm trying to get a sense of what the business growth profile is? I know it's kind of a complicated question, but that would be helpful.

Could you repeat the question please?

If you made a guess and said, looking back at 2012 when you take out some of the acquisitions take us some of the outlier items, what the organic revenue and EBITDA growth would have been?

Yes. Okay. No, we cannot answer that now. Should we think about answering that in the future? Is a good question. It gets to be pretty seriously definitional, however, because tuck-in acquisitions are really an important part of our HealthCare Partners model. And we almost think of that as organic growth because so much of it might be IPAs with whom we have work for five years or practices with whom we have worked for five years. Et cetera, et cetera.

So it's a little different than our kidney care model, although even in kidney care de novo, to some extent, are very much linked to our existing positions in many markets which is why we provide non-acquired growth that combines both classic same-store growth with de novo growth, as opposed to reporting same-store by itself. Because often we cannibalize our same-store growth in order to secure greater overall market positioning. So I don't know if we can come up with a metric there that's going to work for you, but let us think about it, because it's a very fair question.

Just to add to that I think this growth will become interesting, because we are not only experiencing the groups who are talking to us, we're also working with health plans who want us to go to new markets. And that's not going to be something that we are acquiring. We're just going to new markets and growing that way too. So this whole issue of organic versus growth is going to get even more complicated.

I understand. One last one here, I think if I recall, there's been some historical discrimination with Medicare Advantage that I think a lot of the dialysis patients cannot be enrolled in an MA plan if they already have ESRD. And I'm wondering if there's any movement from an advocacy perspective to try to alter some of that discrimination. I don't know if LeAnne is around. Just kind of curious where that stands.

Yes. The fact is, it a historical artifact when HMOs were invented, and people were, in some cases legitimately very concerned about caregivers and owners of HMO plans withholding care. Because of that concern, dialysis patients were excluded from signing up for a plan in order to protect them from their own selection, if they already had a kidney failure. So that's the historical logic for it. Now it is quite the ridiculous provision, that actually hurts these patients, because often in our work with Medicare Advantage plans, we're able to provide additional services consistent with the Medicare Advantage plan, offering additional services in many other areas, most prominently by working with people like our HealthCare Partners team in order to do a lot of extra stuff and save in total costs, and so it's done some from something that was to protect the patient to something that hurts thousands of patients.

Having said that, we've had so many other policy fish to fry the last several years, that we've never mounted and the patient have never mounted a serious attack on this quite ridiculous uniquely discriminatory provision. And so maybe that something that we will work on in the next year or two or three, because it really is terrible, terrible policy.

Okay. No, that's helpful. Thanks a lot.

Your next question is from the line of Kevin Ellich.

Just wanted to go back to Gary's comment or question on Affy. Sounds like Fresenius just paused the trial, they didn't discontinue it, but nonetheless, have you guys given any consideration in using other ESAs as an option, Kent?

The answer is in the question you asked is yes, we've given a lot of consideration to this. And we'll continue to, but up to this point, we're very happy with the quality of our partnership with Amgen.

Okay. Just one last thing, is there any update on the CFO position? I know Jim -- is he still interim, we like working with him but just wondered if there was any movement on that front?

Jim is still interim. And the search process is continuing. But given how he's been willing to tolerate working extra hours, we're picking up some nice P&L savings.

Sounds good. Thanks.

There are no further questions at this time.

All right. I think everybody for your endurance for all of you who are still out there, that we're going to go back and root for not only Peyton Manning but also Aaron Rodgers. And we'll work hard for you and talk to you again in three months. Thank you very much.

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