德維特 (DVA) 2016 Q4 法說會逐字稿

Welcome and thank you for standing by. (Operator Instructions) I would like to turn the call over to your host. Mr. Jim Gustafson, you may begin.

Thank you, Daisy, and welcome everyone to our fourth-quarter conference call. I appreciate your continued interest in our Company. I am Jim Gustafson, Vice President of Investor Relations. With me today are Kent Thiry, our CEO; Javier Rodriguez, the CEO of DaVita Kidney Care; Vijay Kotte, Chief Financial Officer of DaVita Medical Group; Jim Hilger, our Chief Accounting Officer and Interim CFO; and LeAnne Zumwalt, Group Vice President.

I would like to start with our forward-looking disclosure statements. During this call, we will 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 included in our most recent annual report on Form 10-K and quarterly report on Form 10-Q. Our forward-looking statements are based on 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 this call, we will discuss some non-GAAP financial measures. Reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our Form 8-K submitted to the SEC and available on our website.

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

Thank you, Jim, and thanks, everyone, for joining our call. We will start as we always do with our clinical performance. We are first and foremost a clinical enterprise. Within the DaVita Medical Group, we had great news on our star ratings. Most of you are familiar with that. If you think about it, we have six main markets, and there are nine key star measures, so a total of 54 cells in that grid. In 31 of those 54 cells, we have a five-star rating. That's 57%, and 47 of the 54 categories are either a four or a five, 87%. Those are our best results ever, and we doubt that any other multi-market set of medical groups can match them. So very proud of that.

Within Kidney Care, CMS recently released the results of the ESRD Quality Incentive Program, which is called QIP. We significantly outperformed the industry for the fourth year in a row. Our penalty percentage was about 50% less than the rest of the industry's, so, a very large difference. And we, as always, remain big supporters of the transparency in both the quality incentive program and the five star programs in both DaVita Kidney Care and DaVita Medical Group.

Now I will turn it over to Javier Rodriguez to discuss Kidney Care.

Thank you, Kent, and good afternoon. I'm going to jump right in because I have a lot to cover. Our adjusted operating income was $423 million for the quarter on relatively flat US dialysis revenue and patient care cost per treatment, resulting in an adjusted operating income of $1.715 billion for 2016, which is near the midpoint of the adjusted guidance we provided last quarter of $1.695 billion to $1.725 billion.

Now I'm going to shift to provide some details on our 2017 Kidney Care adjusted operating income guidance of $1.525 billion to $1.625 billion, which we first provided in January. I'm going to cover four headwinds and two tailwinds in depth. Let's start with the headwinds.

First, the early results from open enrollment indicate that the number of dialysis patients covered in ACA plans for 2017 will be down significantly year over year consistent with what we have previously disclosed. The decline appears to be driven by changes in plan designs, loss of plan choices in certain markets, and disruption generally in the market, including the impact of the interim final rule.

As you know, the federal court issued an injunction which prevented the rule from being enacted, concluding that the rule was arbitrary and capricious. In fact, the judge found material fault with both the process and content with the IFR, indicating that significant harm would be done to thousands of patients if the rule had been implemented. While this was a big victory for dialysis patients, in general, we still estimate that the earning impact from the overall loss of enrollment will be consistent with what we had previously disclosed at approximately $230 million.

On to the second headwind. Like other healthcare providers, we've been experiencing wage inflation and turnover that is higher than our historical rates. Clinical teammates costs represent our largest expense. So even a small change in these costs are impactful.

Third, as Kent mentioned earlier this year, our guidance range incorporates known and forecasted rate decreases. To try and be helpful, I will ask and answer questions that I would have if I was in your roles.

First, has something structurally changed in our core business? The answer is no.

Are there more contracts than usual up for renewal this year? The answer is no.

Has leverage with payers changed? The answer is no. They have always been formidable negotiators.

Well then, if all this is true, why are you experiencing rate reductions? The answer is that the political dynamics and the intensity of the conversation surrounding charitable premium assistance increased the scrutiny on ESRD rates, and in a subset of our situations, we felt it was appropriate to respond when the rates were unusually high in exchange for long-term sustainable agreements.

The last question I will ask myself on this topic is: how should we think about the future? Unfortunately I can't provide much help here. It is hard to speculate in the timeframes beyond 2017, and as has been the case for the past decade, we remain focused on negotiating agreements at long-term sustainable rates and attractive terms.

The last headwind I will discuss is that we expect significant decreases in operational income in our pharmacy business in 2017 as a result of several factors impacting rates, volume, and costs.

Now let's shift onto the tailwinds. The first, as we disclosed in January, we signed a new supply agreement with Amgen. We entered into a six-year deal that provides for substantial savings starting in 2017. However, the specific terms including pricing are confidential.

Secondly, historically we have had a profit share program in lieu of a traditional 401(k) match, and we are now switching to a 401(k) match effective in 2018. The net effect of this change is a one-time expense pickup in 2017 of approximately $100 million just due to the timing of the accruals. Please keep in mind this will create an additional expense when comparing 2018 to 2017 because we will begin to accrue for a 401(k) match in 2018.

The aggregation of this is unfortunately the net results of all these factors is that year over year we will have a decline of adjusted operating income of approximately $140 million at the midpoint of our guidance. This guidance includes the majority of probabilistic outcomes, but there are scenarios where we could be higher and lower.

Please note that we do not expect the operational income to be distributed evenly throughout the year due to several reasons, two of which are normal season factors. So, for example, there are two fewer treatment days in the first quarter compared to Q4 and one fewer treatment day compared to Q1 of 2016, and secondly, there are seasonally higher payroll taxes in Q1.

As for the outlook, Kent will discuss this in his closing comments. So now I'll hand it over to Vijay Kotte to discuss DMG.

Thanks, Javier. DaVita Medical Group had solid operating performance in Q4 2016 with operating income of $22 million. This includes approximately $7 million of non-cash accelerated amortization expense for our transition to the DMG brand as noted on our previous earnings call. As a reminder, this accelerated amortization began in September 2016 and will run for 30 months at a rate of approximately $2.2 million per month.

In terms of the full year, we ended 2016 with an adjusted operating income of $135 million, which places us slightly above the midpoint of our most recent guidance range. This includes approximately $9 million of incremental amortization expense related to rebranding for the year.

Turning next to our expectations for 2017, we mentioned on our prior earnings call that we were anticipating 2017 to be roughly flat year over year. Based on the completion of our annual budget process and our review of open enrollment results thus far, we believe this continues to be the case and are giving 2017 guidance of $110 million to $150 million.

A natural question might be why we are only expecting relatively flat year-over-year performance. To answer that, I would say that we expect continued operating improvement, but anticipate operating income to be relatively flat due to a few formidable headwinds.

First, $40 million in rate cuts, $30 million of which are related to Medicare Advantage and $10 million in Medicaid. Second, $26 million of brand amortization expense, which is $17 million more than what we had in 2016. And third, incremental investments in the business that we expect will improve our performance downstream focused in three main areas.

Number one, core infrastructure such as a new enterprise data warehouse. Number two, innovative new capabilities as we continue to build a differentiated medical group, including the development of telemedicine capabilities, which will allow us to engage patients face to face outside the walls of our clinics for check-ins between office visits, as well as mobile chart technology that will provide our clinicians safe, remote, critical patient data regardless of where they are. And then number three, expansion of existing population of paid health capabilities into new markets as we shift from fee-for-service to value.

As you can see, staying flat in operating income masks some pretty strong operating performance improvements as we overcome these headwinds.

Finally, as we look towards our long-term operating income, our 2019 target remains $250 million.

Now to Jim Hilger for some financial details on the quarter.

Thanks, Vijay. I will first address our international operations. Adjusted international operating income was $2 million in the quarter, and adjusted international operating losses were $27 million for the full year. Q4 international equity earnings from our APAC JV benefited from a $7 million currency gain within the JV, however, this gain was largely offset by a $6 million currency loss reported in other income, which is reported below operating income.

These results are better than our guidance of approximately $40 million in adjusted international losses in 2016. We expect international operating losses to be approximately $20 million in 2017. Now on to cash flow.

In 2016, we generated strong operating cash flow of $1.96 billion, positively impacted by the timing of certain working capital items that will likely reverse in 2017. Our operating cash flow guidance for 2017 is $1.75 billion to $1.95 billion. 2017 cash flow should be unusually high relative to adjusted operating income, primarily due to the net cash proceeds from the government payer settlement that we expect to receive in the first quarter.

Next, during the fourth quarter, we repurchased 6.7 million shares of our stock for $416 million. And for all of 2016, we deployed $1.1 billion to repurchase more than 16.6 million shares of our stock, which represents approximately 8% of our outstanding share count over the past year.

Now, a few tax items of note. The lower effective tax rate in the quarter was due to lower realized state tax rates and related true-ups. Our expected full-year tax rate attributable to DaVita in 2017 will be in the range of 39.5% to 40.5%, excluding any non-GAAP items.

Please note that DaVita, like many other US-centric healthcare service providers, pays among the highest tax rates in corporate America.

Now over to Kent for a few closing comments.

I would like to finish with just a few words on each of our businesses. In Kidney Care, we are in a period of greater policy uncertainty than is the norm if you look back over the last 10 years or so. Not unique, but more than the norm. And so while we expect a continuation of the positive operating performances we have had for several years, given the policy uncertainty, we could in fact do better or worse than the outlook that we have discussed today and earlier this year.

The big and obvious reason are all the uncertainties surrounding what the new administration and the new Congress will do with respect to the Affordable Care Act.

In addition, we do know that despite the immensely favorable federal court ruling on the IFR, nonetheless the debate over what will happen with charitable premium assistance, not just in Kidney Care but in all spheres of American healthcare, in addition to the debates about benefit design and benefit implementation, will continue to play out over the next couple of years, as much as all of us would love clarity to emerge sooner. And it is worthwhile to note that there are also upsides embedded in this uncertainty with respect to issues like MSP, Medicare Secondary Provision; accelerating our patient's right to choose MA plans; the Patient Act enabling us to do global capitation in centers throughout the country, etc. And as we often point to, the Kidney Care platform in the United States remains very strong.

The international business segment, we continue to grow at a good clip and progress towards reasonable scale, and we continue to expect that we will breakeven in 2018 in international dialysis for our current footprint of countries, hopefully a platform emerging with a lot of downstream growth potential.

And then lastly, the DaVita Medical Group, DMG, which has proven to be a remarkably resilient platform with capabilities improving each and every quarter at this point. You probably noted that without the non-cash amortization, it would have been a nice uptick in our thoughts around the operating income trajectory. And, in addition, there is growing MA support - Medicare Advantage support in the administration and in Congress, and we hope that translates into a better rate environment the next few years than the very, very, very difficult one we've had the last few years.

And lastly, at the enterprise level, we will make the typical, obvious, but nonetheless worth noting point that our cash flows are strong and steady, and hopefully we've demonstrated reasonable thoughtfulness in how we've deployed that wonderful shareholder asset and will continue to do so.

Operator, could we please open the line for Q&A?

(Operator Instructions) Our first question comes from Kevin Fischbeck. Your line is open.

Okay great thanks. Just wanted to go back to the pricing headwind that you guys talked about. Is this an issue of out-of-network being pushed in-network?

The short answer is no.

Okay. And then we think about then repricing some of your contracts that maybe were above average. Is that something that you feel is now completely done, or is the way that contract timing works, we might see additional pressure like this heading into 2018?

Kevin, what I would say is that we can't predict 2018. What we do know is that the climate in the landscape has changed. That with the new administration, with so many patients leaving the exchange, and therefore having less dialysis patients than the benchmark when the injunctions relieved, but right now the landscape is materially different for 2018, and so while that does not mean we will win, we're back to a very balanced situation. So is that helpful?

Yeah, I think that makes some sense. And then I guess if you could just - what really wasn't clear to me exactly what's going on in the pharmacy business, why the - what the headwinds are there, and again is, when we think about the headwinds into 2017, is that something that is now in the numbers, or is there - is that something that we should be expecting to pressure the business additionally in the future?

I will grab that one, Kevin. I'll probably be pretty redundant to what JR said. There's a whole bunch of stuff going on there, unfortunately, largely negative. And so without parsing it all out, it's a bunch of stuff that at the same time has hit rate volume and cost, leading to the substantial decline that JR talked about. And it's conceivable that through the course of the year, we might actually move into a loss situation for the first time in a long time, and we'll, of course, keep you posted on that. So it was important enough for us to point to, and we will keep you posted as we move through the year.

Is that a business that you feel you need to be in strategically, or is that something that if it heads this direction, it becomes a loss that you could potentially get out of?

From a strategic and from a clinical and from a mission perspective, we love the business. It does remarkable things for our patients' clinical outcomes and the access and convenience and support that they and their families so intensely need.

Having said that, if you said that the premise was that we were going to lose money forever, then we would have to take a good hard look, but that is not our expectation and that's not our intention.

I guess there's a lot of things going on there, so it might be hard to explain in a short period of time, but I guess just any color that you can provide around this just so that we know - have a sense of whether we think this will get better or worse going forward? It's kind of vague, and I am not sure how to think about it.

Yes, maybe we will go over it more in Capital Markets because we've never had to talk about it much, and we had a couple very nice years there. And so part of this is a drop from some really good things that happened that we didn't talk about, because of the timing of the bad period, we felt it important to cover it on this side. So why don't we share more at Capital Markets. And, in general, a material movement in profits for RX, that starts to look pretty immaterial when you think of it just as a part of our Kidney Care offering overall, and so we don't want to place an emphasis on it that is out of proportion to the actual absolute numbers.

Okay. That would be helpful. All right. Thanks.

Our next question comes from Tejus Ujjani. Your line is open.

Hi, this is Tejus that just joined. Thanks for taking the question. How should we think about US center growth going into 2017? And then also can you remind us of your JV strategy? And also kind of a modeling question, I noticed the NCI stepped down a bit sequentially. Any color there would be helpful, thanks.

Yes, let me take the first part. On a non-acquired growth in Kidney Care, we're going to be consistent to the range that we have highlighted on the 3.5% to 4.5%. And if you could repeat the second part of your question.

Sure. So, on your JV, you have joint ventures as well. So just curious in 2017, will there be any change in going after those opportunities as well?

And then kind of more of a modeling question. I noticed that the non-controlling interest expense amount stepped down sequentially in year over year. In this fourth quarter, I'm just curious what drove that.

Got it. As it relates to going after JVs, we remain consistent in our philosophy there, which is, we really like the clinical value that a joint venture partner offers. So that has not changed, and we don't expect that to change.

As it relates to the number, Jim's got an answer.

Yes, Tejus, the reason NCI dropped in the quarter was related to the goodwill impairment at one of our SIs that we took a $28 million impairment. $8 million related to that impacted NCI. If you look in our non-GAAP reconciliation in the back of our earnings release, you can see the numbers.

Great. Thanks very much. Appreciate it.

Our next question comes from Justin Lake. Your line is open.

A couple questions. Can you (technical difficulty) more about the (technical difficulty)? Particularly can you tell us how many more (technical difficulty)?

Justin, you were all garbled there the first 10 words or so, we couldn't hear them. Could you start over?

Sorry about that. Is this better? I'm in an airport.

So the commercial pricing pressure, can you tell us how much more patients you have at these higher rates that could be subject to pressure going forward? I know you can't predict it, but is it a similar amount that you still have at these rates that you've already seen get repriced, or is it more or less?

Well, it is less than before given what happened, and I think it's -- I don't think it's a good idea to discuss the distribution curve. I mean there's always going to be one, of course. But it can have a different shape, and ours has been very steadily becoming a tighter distribution curve over the last eight years, consistent with this strategy that we have expressed to you. So, unfortunately, we can't sit here and say that there is no downside going forward. Having said that, we just incurred a big chunk of it.

And last question on Medicare Advantage, (technical difficulty) and your stars are improving. Can you tell us what you think your rates could be for 18 and how that might affect your DaVita Medical Group business? Thanks.

Yes, Justin, it's a little early for us at this point. As you know, there's a lot of variability between the advance and the final notice. We've got some very high-level assumptions that have been put out, but the county level specifics are very important for us. So it is way too early to tell, and when we get more information, we will let you all know.

Thanks.

Thanks Justin.

Our next question comes from Gary Lieberman. Your line is open.

Thanks for taking my question. Maybe one housekeeping item. Jim, what was the share count at the end of the year?

It's in our earnings release. Hang on.

Sorry.

Fully diluted at the end of the quarter -- average for the quarter was 196,743,187.

Okay. And what was it at the absolute end of the year?

We will get back to you.

Okay. That was the number I was looking for. Javier, you mentioned that the landscape you think was more balanced going into 2018 given some of the recent events. Is there any chance that that helps you at all in 2017, or is everything kind of locked and loaded for 2017 already?

Well, it's not locked and loaded. The probabilistic gives and takes are embedded in the number that we gave you.

Okay. So maybe it's not unreasonable to think it might be a little bit better than initially thought?

Well, it could be a little better, it could be a little worse. It's the name of the game. We try to be as constructive and productive as we can and give you as much as we can, and that's what's embedded in our guidance.

Got it. And then if we think about the total -- the $230 million hit, the two buckets you broke it out into was the Medicaid and the non-Medicaid. So in future years, given the court decision, is it possible that the non-Medicaid comes back? How should we think about the opportunity there?

On the non-Medicaid, I doubt that it would come back. I would say no to that, although you never say no to anything nowadays because everything is being questioned. And so is that the bulk part of your question, or is there something else in that?

No, I think that's the bulk of the question.

And then maybe just to wrap up, Kent, I think this is a question for you. You guys bought back a record amount of stock last year. Going into this year with EBIT expectations to be down for the first time in a while, there's a little bit of a dichotomy there. Obviously it sounds like you guys are pretty bullish on the business with the stock repurchase. So can you maybe help reconcile that for us and what makes you so optimistic about the business going forward?

Okay. Gary, if you could clarify for me, where do you see the apparent contradiction?

Well, just that you guys are obviously bullish about the business with the large stock repurchase, and the EBIT guidance for next year is down, which is not typically the case. So that is sort of what I'm pointing at as maybe a little bit of a dichotomy.

Yes. I don't know if I quite think about it the same way, so let me stumble around here for a second and see if it can be useful. As we accumulate cash, if we are not thinking that we've got the right business opportunities to invest in, there is a point at which we get somewhat uncomfortable and usually a bunch of you do also with the amount. And then we do stare at the price of the stock that we are not in the camp that some people are in where they just say buybacks are -- buyback decisions should be made totally independent of what the stock price is. We're not in that camp, nor do we think that we are excellent prognosticators of which way the stock moves as you can tell by the decisions we've made over time, whether it is stock buybacks or option exercises or whatever. So we are appropriately humble in thinking about that, and there's always upside and downside.

So clearly putting all that stuff together and the fact that it didn't feel at all appropriate to use your money to pay down debt, we thought it was right to put the cash to work by buying back stock, put it to work for you rather than having it sit for a longer and longer period of time on our balance sheet. And, of course, we didn't want to reduce our standards for making additional business investments.

It is also the case that we think that while 2017 is going to be a very tough year compared to perhaps any year in memory, that things are going to be better as we move forward out of 2017. That's not to say there isn't risk, but that's where we lean.

So is any of that helpful to you in trying to resolve what you feel is sort of a contradiction?

No, I think that is helpful. Maybe you could be more specific on some of the things that you think get better post-2017?

Well, it doesn't take much to get better. Taking a couple hundred million dollars in hits between government actions and big payer hits, we've never had that happen in, I think, 17 years. And so just by not being another 17, it already is a very nice step-up.

In addition, the fact is when we do eliminate some higher than usual rates, that is another element of downside that is gone.

In addition, we do have some policy upsides. In addition, we are hoping that DMG and international start to be incremental contributors. So I think those are some of the reasons beyond just the continued positive operating performance of our core US Kidney Care platform leads us to think we got a very good chance of doing better.

Great. That's perfect. Thank you very much.

Gary, while I've got you on the phone, both Jim and I have answers. This is Javier. I don't think I was clear in my answer, I might have even misspoken. The Medicaid is likely not to come back, and then non-Medicaid it's too early to tell. I think I might have confused my labels there, so my apologies.

Okay.

Gary, on the share count question, it's 194,554,000, and that is also disclosed on the face of the balance sheet.

Got it. Thanks very much.

Alright, thanks Gary.

Our next question comes from Gary Taylor. Your line is open.

Hi, good evening. A couple of questions. One, since you mentioned it, is there a date for the Capital Markets Day yet for 2017?

We are targeting a time in late May, Gary, and we're just finishing up that.

Okay. Thanks. Another question around the -- or the Amgen contracts. Is the contract structured in such a way that the CMS ASP calculations are going to reflect your substantial savings? And if so, what's the risk that they look at rebasing the bundle again?

Gary, the way our contract structure has little to do with how CMS sees the data and the spend. And so you remember that CMS has to look at all of the inputs of costs to the facility and should do a rebasing, is what you are referring to, on a holistic basis. So they will be looking at lots of things, including how much we are spending on Epogen and how much the industry is spending on all the total cost of care.

Then number two -- I'm sorry can you remind me the second part of the question?

I think you handled both. It was just are they going to be able to see the savings and, if so, risk of potentially rebasings? I think you hit both.

My last question would be, with the $100 million of headwind for 2018, which is about a 6% OI headwind -- I know you're not giving 2018 guidance yet, but the Street's got 6% OI growth in 2018, which means net of that headwind, about 12% OI growth. Are there some obvious tailwinds at this point comparable to that $100 million headwind to identify?

I don't think we want to go any further in talking about beyond -- talking about time beyond 2017 right now. Capital Markets hopefully will give you some more insight and analysis to help you think about it, but I don't think we want to go any further now. We have a shot at 2018 being a good year when you think about it in the context of the $100 million headwind created by the accounting change, but nothing that can be put in the bank yet.

Okay. Thank you.

Our next question comes from Whit Mayo. Your line is open.

Thanks, good afternoon. I'm just curious if the conversation around premium support on exchange lives is having any impact on the non-exchange business? Or maybe said another way, do you believe that there is any spillover effect in your commercial book from the focus of premium support on the exchanges?

There hasn't been any that I know of. The other parts of the business are very different from a regulatory and decision-making point of view, so that's the current status.

Okay. And maybe can you elaborate a little bit more on what some of the benefit design changes you are seeing, health plans implement that is impeding the ability of the ESRD patients to enroll at this point?

The real answer is that with open enrollment done, the substantial part of the equation played out. And so it's not right now about the design issues, but rather that we missed the open window.

Got it. And maybe one last one here. Just looking at my notes and I can't remember if Renal Ventures is closed or not. I know you repriced the deal. Just any color on the timing and any other relevant developments would be helpful.

Yes, unfortunately, there are no major developments to report on this. It has been a long transaction, and we are anticipating a Q2 close, and that is all unfortunately we have to say.

And the original plan was first quarter?

To be honest with you, the date has been a moving target. I can't remember the last one that we gave you because the buyer and the FTC and the process has been one that has kept going. So we've probably given you more dates, and the last one was, I believe Q1, but I can't recall.

Okay. I'm going to sneak one more in. You flagged higher labor cost trends, and I presume a lot of this is field level. But any other color you can share around what headwinds you are seeing and maybe comment on merit pay increases? Thanks.

Yes, I don't have anything insightful. The labor markets are getting tight. It's a competitive landscape, and just workers are demanding higher wages. Of course, it's our job to create a special place to work where people are more fulfilled. And, so, therefore, on average, wages becomes while, of course, everybody needs to make a competitive wage, but people are less willing to consider moving to another place just for the wages. And so that's what we're dealing with. I don't have anything else to add to that.

No, that's helpful. Thanks.

Our next question comes from Margaret Kaczor. Your line is open.

Good afternoon. First question is a broader one for me. Is there any legislation that you guys have seen that is percolating that might benefit you with the new administration and Congress? And if there was some kind of a tax reform, what could you do with the additional earnings and cash flow?

Well, if they achieve corporate tax reform, the kind of tax reform that they are talking about, we'll have a really nice party with you guys because we are one of the highest taxpayers in America and always have been. And the good news is that the new Congress is really serious about doing that. We're in DC now, and that subject has probably come up in four of the meetings that I've been in in the last 24 hours.

Having said that, that is a tall mountain to climb, and so you have got tremendous resolve with Paul Ryan and others. At the same time, you've got formidable challenges in pulling it off. So we just love the fact that it is a real possibility, and then what would we do with it? Well, I think we will wait until we are about to get it before we spend too much time on that. But I think we will put it through the same decision-making filters that we've put our current cash flow through.

And then I think your broader question about is there any other legislation. The other piece of legislation which has a good shot is our patient demonstration legislation wherein we would pick up the right to put thousands and thousands and thousands of our patients into a globally capitated environment where we can provide integrated care, which would significantly improve clinical outcomes and over time save taxpayers money. So that's a very, very big deal. We were with a number of the bill sponsors here in the last 24 hours who remain very enthused. And so that is percolating and has very attractive potential.

Okay. And then just given the changes in profitability as we look out for you guys this year, what should we expect in terms of the number of centers that you are developing or acquiring in the Kidney Care business? And more broadly, I guess again is just the smaller competitors that you have, the mom-and-pop shops, the smaller regionals, how do they handle the difficult profitability environment, and could that impact your business in some way?

Yes, Margaret, on de novo certification, we see somewhere in the range of 90 to 110 for 2017. So pretty consistent to the range we had for -- did I say 2016? So for 2017, we have that range. It is consistent to the range we had for 2016.

As it relates to the small players, we have seen a slight pickup in the marketplace, but the reality is that there is just not a lot out there. And so it's on a very low base, and so you shouldn't see a big spike or meaningful movement in the acquisition number.

So you are not seeing them necessarily shutting their doors or anything of the like yet at least?

We haven't heard any. That doesn't mean the conversations aren't happening, but we have not heard of any.

Okay and then just one more from me. In terms of Renal Ventures, is that included in guidance, and roughly, what is the impact? Thanks.

It is included in the guidance, and the number -- I will check in a sec here. It is not material is what I'm being told, but I will get the number in a sec.

Thank you.

Thank you, Margaret.

Margaret, just to wrap up, it is approximately $10 million.

Great.

Thank you.

There are no questions in queue as of this moment. (Operator Instructions)

Okay. Well, thanks, everybody, for your continued interest in our enterprise. We will do our best to serve your capital well between now and our next call. Thanks.

Thank you. That concludes today's conference. Thank you for your participation. You may now disconnect.