May 08, 2020
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Despite COVID-19 costs, DaVita to return $240 million from federal relief fund

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Javier Rodriquez 
Javier J. Rodriguez
 
Joel Ackerman

DaVita Inc. absorbed higher dialysis-related expenses due to COVID-19 in March and April but has decided it will return approximately $240 million it secured from a federal government relief fund aimed at helping businesses recover costs resulting from the virus.

“DaVita has been and will be able to continue to provide care for our patients, including the uninsured, without the need for this federal funding,” DaVita Inc. CEO Javier J. Rodriguez said during a May 5 earnings call. “As a result, although we have incurred costs that fall within the parameters of the relief fund under the Cares Act, DaVita has decided not to accept this government financial support at this time. We believe that it's in the best interest of our company, shareholders and our country to allow these dollars to be redistributed to other individuals, organizations or health care providers that truly need it,” Rodriguez said.

The CEO said the decision to return the money was made by DaVita’s Board of Directors and management.

“And again, you could make a very good case to say, the spirit of that was to reimburse high expenses related to COVID, which we have many, including [personal protective equipment] PPE, additional labor, overtime, and all the things that we've described on the call,” Rodriguez said.

The chief financial officer of DaVita Joel Ackerman said the company absorbed $30 million to $40 million in costs per month related to COVID-19 during March and April. He said he expects the additional costs will be seen in May as well.

The company will benefit from $50 million in additional revenue because of a pause of the 2% sequestration – federal funds that are cut to health care providers and other Medicare contractors.

“[T]he level of uncertainty that we face going forward is significantly higher than usual,” Ackerman said. “The factors driving this include the severity and duration of the COVID pandemic, the impact on our patient population resulting in a potential decrease in treatment volume, and the impact on unemployment and commercial health insurance coverage.”

“As a result of this uncertainty, financial outcomes are harder to forecast than usual, and the range of possibilities is wider than usual,” he said.

Rodriguez said DaVita staff members have been doing an exemplary job in facing the dangers presented by the spread of the virus. “I am proud and humbled by the amazing efforts of our 65,000 teammates around the world,” he said. “I offer my deepest gratitude to them all, especially to our caregiving teammates and physician partners working heroically to provide life-sustaining therapy to approximately 238,000 dialysis patients globally.”

In the first quarter of 2020, the company earned consolidated revenues of $2.841 billion with operating income of $465 million, or a 16.4% operating margin. The company repurchased 4,052,298 shares of common stock at an average cost of $74.81 per share, although it has not made any stock repurchases since mid-March. Total U.S. dialysis treatments for the first quarter of 2020 were 7,513,321, an average of 96,821 treatments per day which represent a per day increase of 1.6% during the first quarter of 2019. Normalized non-acquired treatment growth in the first quarter of 2020 as compared to the first quarter of 2019 was 2.3%.

In an April 13 press release, the Denver-based company said it had not experienced “any significant issues in billing or cash collections as of the end of the first quarter. This transition combined with a strong balance sheet has allowed the company to avoid any meaningful deterioration of its liquidity position resulting from the COVID-19 crisis at this time.” The company drew down $500 million from its available revolving credit facility in March to cover unexpected expenses from the COVID-19 pandemic.

“At this time, we’re maintaining our 2020 guidance ranges for adjusted earnings per share, revenue, operating income margins and free cash flow, but recognize the increased uncertainty given the rapidly changing dynamics related to COVID,” Ackerman said.

Rodriguez said the likelihood of a reduced share of DaVita’s patients being covered by commercial insurance plans, with more patients being covered by lower-paying government insurance programs or being uninsured if the United States experiences longer-term, increased unemployment levels, could materially negatively impact future revenue of the company.

Higher mortality in both the late-stage CKD and ESKD population due to COVID-19 could also impact the future patient census, Rodriguez said.

As of March 31, 2020, the company provided dialysis services to approximately 238,000 patients at 3,054 outpatient dialysis centers, of which 2,772 centers were located in the United States and 282 centers were located in 10 countries outside of the United States. During the first quarter of 2020, the company opened 22 new dialysis centers, acquired two centers and closed five dialysis centers in the United States. DaVita also opened three new dialysis centers, acquired 22 dialysis centers and closed two dialysis centers outside of the United States during the first quarter of 2020.– by Mark E. Neumann

References:

https://pressreleases.davita.com/2020-05-05-davita-inc-covid-19-response-efforts-and-1st-quarter-2020-results

https://www.prnewswire.com/news-releases/davita-inc-provides-commentary-on-the-covid-19-pandemic-301039224.html