DaVita reports earnings, reaches settlement on patient lawsuit

DaVita Inc. reported its third quarter earnings on Nov. 7, the same day it announced it had reached a settlement with the families of three patients who died while undergoing treatment at company dialysis clinics using the acid concentrate GranuFlo.

In a Securities and Exchange Commission Form 10-Q filing, DaVita said it had reached a consolidated settlement with the families of Irma Menchaca, Gary Saldana and Deborah Hardin for $25.5 million after the families won a $383.5 million jury verdict in June. They claimed their relatives experienced cardiac arrests because of problems with the use of the concentrate GranuFlo, a product made by Fresenius Medical Care.

In the case, heard before the U.S. District Court for the District of Colorado, jurors originally awarded the families compensatory damages of $2 million, $1.5 million and $5 million, respectively, and $125 million to each family in punitive damages.

DaVita said in the filing that “it is probable that it will be able to recover the settlement amount from insurers, indemnitors, and the like; however, the company can make no assurances that it will recover the full amount.”

Adjust ed guidance for 2018

For third-quarter earnings, DaVita reported operating cash flow of $362 million and nearly $1.2 billion year-to-date. It was a “solid operating quarter in what has been so far a solid operating year,” noted company CEO Kent Thiry in opening remarks during the earnings call. One of the company’s clinical accomplishments since January, said Thiry, was including an additional 1,300 patients who chose PD.

The company has issued an adjusted guidance slightly downward for the remainder of 2018.

“For our annual adjusted operating income guidance, we’re narrowing the range to $1.5 billion to $1.25 billion,” said DaVita Kidney Care CEO Javier Rodriguez. He said that was primarily due to an increase in advocacy costs for the year – an additional $20 million to battle a failed ballot initiative organized by a California health care workers union to restrict dialysis provider profits in that state – and a $23 million charge for a change in the company’s executive retirement policy.

DaVita spent $45 million in advocacy efforts this year. That will likely mean annual increases in advocacy costs moving forward, said Rodriquez.

“We are pleased that Prop 8 was defeated,” he told analysts. “This was the right outcome for our patients, California and the entire system ... We expect this to cause us to spend considerable resource opposing these types of initiatives over the next years. While it’s difficult to forecast, we’re assuming an increase in our baseline spend of $30 million per year on general advocacies plus whatever incremental spend is necessary to counter the specific initiative.”

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The provider also absorbed $11 million in the third quarter for expenses related to a planned transition of DaVita RX’s pharmacy business’ customer service and fulfillment functions to third parties and the winding down of distribution operations. Another $6 million in reduced equity earnings was recognized by the company’s Asia Pacific joint venture.

Impact of payment change for calcimametics

Rodriguez said the company saw a 20% drop in revenue from calcimametics with the bundling of that drug into the dialysis clinics composite rate, but the revenue loss was countered by lower costs for drug acquisition. In its international dialysis business, the company lost $4 million; chief financial officer Joel Ackerman said the company hopes to see a break-even position with dialysis operations overseas by the fourth quarter of 2018. While Rodriguez said there was “nothing unusual” in the company’s commercial payer mix, there was a “small shift to lower paying plans,” he said.

Total U.S. dialysis treatments delivered by DaVita for the third quarter were 7,377,277, or 94,580 treatments per day, representing a per day increase of 4% over the third quarter of 2017. Normalized non-acquired treatment growth in the third quarter of 2018 as compared to the third quarter of 2017 was 3.3%. As of Sept. 30, the company provided dialysis services to 226,000 patients at 2,876 outpatient dialysis centers, of which 2,625 centers were in the United States and 251 centers were in 10 countries outside of the United States. During the third quarter, the company opened 47 new dialysis centers, acquired three dialysis centers and closed five centers in the United States. Two dialysis centers were closed outside of the United States. – by Mark E. Neumann

References:

https://seekingalpha.com/article/4219636-davita-dva-q3-2018-results-earnings-call-transcript?page=2

https://seekingalpha.com/filing/4229599