FILED BY DAVITA INC.
PURSUANT TO RULE 425 UNDER THE SECURITIES ACT OF 1933
SUBJECT COMPANY: HealthCare Partners Holdings, LLC
DAVITA EXCHANGE ACT FILE NO.: 001-14106
The following is an investor presentation made by DaVita Inc. on June 7, 2012.
Capital Markets Day June 7, 2012
©2012 DaVita Inc. All rights reserved.
1
Certain statements in today’s presentation contain forward-looking statements within the meaning of the federal securities laws. All statements that do not concern historical facts are forward-looking statements and include, among other things, statements about our expectations, beliefs, intentions and/or strategies for the future. These forward-looking statements include statements regarding our future operations, financial condition and prospects, expectations for treatment growth rates, revenue per treatment, expense growth, levels of the provision for uncollectible accounts receivable, operating income, cash flow, operating cash flow, estimated tax rates, capital expenditures, the development of new centers and center acquisitions, government and commercial payment rates, revenue estimating risk, the impact of our related level of indebtedness on our financial performance, including earnings per share, HealthCare Partners current and future operations including the duals revenue opportunity, and EBITDA and operating income projections for HealthCare Partners.
These statements involve substantial known and unknown risks and uncertainties that could cause our actual results to differ materially from those described in the forward-looking statements, including, but not limited to, risks resulting from uncertainties associated with governmental regulations, general economic and other market conditions, competition, accounting estimates, the variability of our cash flows, the concentration of profits generated from commercial payor plans, continued downward pressure on average realized payment rates from commercial payors, which may result in the loss of revenue or patients, a reduction in the number of patients under higher-paying commercial plans, a reduction in government payment rates under the Medicare ESRD program or other government-based programs, the impact of health care reform legislation that was enacted in the United States in March 2010, changes in pharmaceutical or anemia management practice patterns, payment policies, or pharmaceutical pricing, our ability to maintain contracts with physician medical directors, legal compliance risks, including our continued compliance with complex government regulations, current or potential investigations by various governmental entities and related government or private-party proceedings, continued increased competition from large and medium-sized dialysis providers that compete directly with us, our ability to complete any acquisitions, mergers or dispositions that we might be considering or announce, or integrate and successfully operate any business we may acquire, expansion of our operations and services to markets outside the United States, or to businesses outside
of dialysis and the other risk factors discussed in the Company’s most recent quarterly filings on Form 10-Q and our Annual Report on Form 10-K.
We base our forward-looking statements on information currently available to us, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of changes in underlying factors, new information, future events or otherwise. All references to “DaVita” and “DaVita Inc.” as used throughout this presentation refer to DaVita Inc. and its subsidiaries. All references to “HealthCare Partners” and “HCP” as used throughout this presentation refer to HealthCare Partners Holdings, LLC and its related entities.
For a reconciliation of non-GAAP financial information included in this presentation to the most comparable measure calculated in accordance with GAAP, see the attached reconciliation schedule.
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Deal Summary
About HealthCare Partners
Integrated Care Model
HealthCare Partners Outlook
Dialysis Outlook
Summary
©2012 DaVita Inc. All rights reserved.
3
Deal Summary
About HealthCare Partners
Integrated Care Model
HealthCare Partners Outlook
Dialysis Outlook
Summary
©2012 DaVita Inc. All rights reserved.
4
Strategic Rationale
• $100B+ fragmented market
• Good space • “Where the puck is headed”
• 20 year track record
• Good asset • Clinical leadership
• Scale
• Attractive multiple
• Good deal • Attractive risk/reward profile
• Earnings/cash flow foundation
• Good combination • Growth leg on top of dialysis
business
5
©2012 DaVita Inc. All rights reserved.
Fundamental Forces of Change
Strain of FFS healthcare
Increased incentives for transparent quality & cost
Healthcare becoming more “consumer-likelike”
Physician consolidation
Increased comfort with managed care
6
©2012 DaVita Inc. All rights reserved.
Why Now?
First of all…
…but importantly
• Not an optimal time • Unique opportunity
to buy ? Hot for a legitimate,
? Segment is hot long-term reason
? Peak margin phase ? HCP one of the best
? MA rate pressure positioned
©2012 DaVita Inc. All rights reserved.
7
A Clear Leader
©2012 DaVita Inc. All rights reserved.
8
Clinical strength
20 year track record, steady growth
Significant scale in 3 markets
Reputation with physicians, payors, and government
Employer/Partner of choice
Deal Terms(1)
Purchase Price • $4.42 billion
• $3.66 billion cash
Components • 9.38 million DaVita shares
• Earn out up to $275M
• 8.4x 2011 EBITDA
Deal Multiple • 7.2x net of tax
• $3.8 billion new debt
Capital Structure
• 3.7x pro forma
(1) Stock price Friday, May 18, 2012: $80.81 9
©2012 DaVita Inc. All rights reserved.
9
Good Deal
Attractive price
Consistent cash flow
Low capital intensity
Substantial long-term shareholder upside
Distinctively attractive risk-reward profile
©2012 DaVita Inc. All rights reserved.
10
Great Combination: Shared Core Competencies
• Payor negotiations
• Physician partnering
• Leading clinical quality
• Multi-site management
• Disciplined growth
• Continuous innovation
• Mission & values
©2012 DaVita Inc. All rights reserved.
11
Deal Summary About HealthCare Integrated Care
Partners Model
HealthCare
Partners Outlook Dialysis Outlook Summary
12
HealthCare Partners At a Glance
Operates in 3 states: California, Florida, Nevada
Senior patients: 180,000
Commercial patients: 461,000
Medicaid patients: 26,000
Group primary care physicians: 395
Affiliated primary care physicians: 1,190
Group specialists: 320
Affiliated specialists: 6,180
Affiliated hospitals: 111
13
©2012 DaVita Inc. All rights reserved.
Revenue and Managed Dollars
$ in Billions
Total care dollars under management
Managed dollars
Reported
$3.3
$2.8
$2.4
$2.2
$2.1 $2.4
$1.6 $1.8
2008 2009 2010 2011
©2012 DaVita Inc. All rights reserved.
14
Adjusted EBITDA(1)
$ in Millions
$527
$414
$278 $293
2008 2009 2010 2011
(1) EBITDA excluding stock-based compensation expense; see Non-GAAP reconciliation
©2012 DaVita Inc. All rights reserved.
15
Physician-led integrated care teams helping and empowering patients!
©2012 DaVita Inc. All rights reserved.
16
What Does HealthCare Partners Do?
Improves care, outcomes, and eliminates waste
Manages a global payment
Clinically/financially accountable for all healthcare needs of a population
Manages risk through clinical pathways and analytics
©2012 DaVita Inc. All rights reserved.
17
Physician Descriptions of HealthCare Partners
©2012 DaVita Inc. All rights reserved.
18
Management Overview
Name Role
Robert Margolis, Chairman of the Board,
MD CEO, Managing Partner
Sherif Abdou, MD NV Market President
Sherri Allen NV Chief Operating Officer
Amir Bacchus, MD NV Medical Director
Zan Calhoun Chief Operating Officer
William Chin, MD Executive Medical Director
Lorie Glisson FL Market President
Matthew Mazdyasni EVP, CAO, CFO
Lance Lieberman, MD FL Market Medical Director
Tom Paulsen, MD CA Market Medical Director
(1) Includes years with predecessor organizations
©2012 DaVita Inc. All rights reserved.
Years w/
Age(1) Staying
HCP
66 37 ?
51 15 ?
53 3 ?
48 15 ?
65 7 ?
71 32 ?
48 16 ?
55 30 ?
57 9 ?
56 26 ?
19
19
HCP Management Team
Committed to success of DaVita HealthCare Partners
Employment contracts for top management
Up to 33% equity consideration with lock-ups for up to 4 years
Robert Margolis, MD
Remains CEO of HealthCare Partners
Joins DaVita HealthCare Partners BOD as Co-Chairman
©2012 DaVita Inc. All rights reserved.
20
Deal Summary About HealthCare Integrated Care
Partners Model
HealthCare
Partners Outlook Dialysis Outlook Summary
©2012 DaVita Inc. All rights reserved.
21
Clinical Utilization – CA Example
• Inpatient Acute Bed Days/1000 pts (2010)
2,000
1,706
1,600
50%
1,200 Improvement
864
800
400
0
HCP Seniors Medicare FFS
©2012 DaVita Inc. All rights reserved.
22
Clinical Utilization – CA Example
30 day all cause re-admit rate
25%
21%
20%
15% 14%
10%
5%
0%
HCP Seniors Medicare FFS
©2012 DaVita Inc. All rights reserved.
23
Proactive Population Management
Continuously improve:
Care
Quality
Efficiency
Patient Experience
©2012 DaVita Inc. All rights reserved.
24
Medical Risk Management
Integrated and data-driven management tools:
Disease management
Comprehensive data analysis
Same day access and urgent care centers reduce ER visits and admissions
Hospital risk management
©2012 DaVita Inc. All rights reserved.
25
Programs Overlap
Health Support Care Support
Outcome No or Low Claims Intense & Frequent Claims
Risk Low High
Healthy Lifestyle Issues Chronic Catastrophic Terminal
Palliative
Catastrophic Care
Complex Care Management
Disease Management
Screening and Secondary Prevention
Education and Information Sharing
Health Promotion, Wellness, Primary Prevention
Decision Support
26
©2012 DaVita Inc. All rights reserved.
The HCP Care Team Approach
©2012 DaVita Inc. All rights reserved.
27
Clinical Data, Clinical Tools
Disease registries for every physician to understand patient panel composition
Web-based, self-serve, disease registries:
Diabetes
COPD
CHF
CKD
Dementia
CAD
Asthma
Depression
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Custom Registries Based on Specific Interventions
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Screenshot of list of patients needing interventions
Point of Care Reminders
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31
Integrated Care Team
Nurse case managers
Care coordinators
Social workers
265
255
42
Nurses
Hospitalists
Extenders
270
130
100
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Alignment
Physician compensation
Panel size Clinical outcomes Patient satisfaction
Group/regional resource management
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Example: COPD Program
PCP visits
Drug cost est.
Total admits
Total bed days
Total ED visits
Cost of care
(all paid-pmpm)
% Change
3%
30%
39%
23%
34%
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34
Not the Only One
Kaiser Permanente Mayo Clinic Geisinger Health System Sharp Rees-Stealy Group Health Others . . .
©2012 DaVita Inc. All rights reserved.
35
Results
Payors
physicians
HealthCare Partners
Patients
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36
Results
Payors
physicians
HealthCare Partners
Patients
©2012 DaVita Inc. All rights reserved.
37
Through the Eyes of a Patient
Same-day appointments
Unhurried doctor visits
24 hour access to patient phone support
I know my physician and care team
I don’t have to repeatedly provide the same information in different settings
Differentiated
Healthcare Partners physician in the hospital
Coordination with my family on transportation and other lifestyle matters
Health classes and coaching and education
Manage my health with the on-line portal
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~90% would recommend their HCP physician
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Sample Clinical Results
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40
Clinical Focus
Percentage of Patients
Colorectal Cancer Screening
100 80 60 40 20 0
CA 2010 Percentiles
HCP 2010 Group
50.78
65.78
72.14
74.12
50th Pctl 75th Pctl 90th Pctl
©2012 DaVita Inc. All rights reserved.
41
Clinical Focus
Percentage of Patients
Diabetic Blood Pressure Control <14
CA 2010 Percentiles
HCP 2010 Group
100 80 60 40 20 0
9.79
50.99
65.70
68.11
50th Pctl 75th Pctl 90th Pctl
©2012 DaVita Inc. All rights reserved.
42
Clinical Focus
Percentage of Patients
Diabetes LDL Control <100
CA 2010 Percentiles
HCP 2010 Group
100 80 60 40 20 0
42.75
51.82
56.23
56.08
50th Pctl 75th Pctl 90th Pctl
©2012 DaVita Inc. All rights reserved.
43
Results
Payors
physicians
HealthCare Partners
Patients
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44
6 Largest Payors
Payor
State
Length of Relationship (Years)(1)
A B C D E F
CA CA CA FL CA NV
20 20 20 19 15 5
(1) Excludes years with predecessor organizations
©2012 DaVita Inc. All rights reserved.
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HCP’s Strength
CALIFORNIA FLORIDA NEVADA
Share of key
30-40% 50%+ ~100% payors’ MA lives
Physicians A leading physician group
Payor relations
Strong, long-term relationships
& hospitals
©2012 DaVita Inc. All rights reserved.
46
Why Payors Stay with HCP
Performance
Structural
Care
Patient satisfaction/ retention
Administrative costs
Star rating
Network
Patient/physician bond
©2012 DaVita Inc. All rights reserved.
47
Results
Payors
physicians
HealthCare Partners
Patients
©2012 DaVita Inc. All rights reserved.
48
Attractive Alternative for Physicians
Good practice environment
Compensation/work/life balance Professional development Culture of physician leadership
> 95% physician retention
©2012 DaVita Inc. All rights reserved.
49
Awards and Accolades
Best Places to Work in Florida (2011)
-Florida Trend’s Magazine
Sole “Pioneer” in CA, FL, NV -CMS Innovation Center’
Top Places to Work (2010)
-St. Petersburg Times
Best Places to Work (2011) -Modern Healthcare
Best Places to Work in Tampa (2011)
-Tampa Bay Business Journal
Finalist in “2010 Innovations in Healthcare”
-ABL Organization
First Place—Best Places to Work (2012)
-Vegas, Inc.
©2012 DaVita Inc. All rights reserved.
50
Deal Summary
About HealthCare Partners
Integrated Care Model
HealthCare Partners Outlook
Dialysis Outlook
Summary
©2012 DaVita Inc. All rights reserved.
51
Business Model
Commercial
Medicare
Medicaid
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52
Business Model
Commercial
Medicare
Medicaid
Multi-year capitated contracts and shared savings pool contracts
©2012 DaVita Inc. All rights reserved.
53
Business Model
Commercial
Medicare
Medicaid
Multi-year capitated contracts and shared savings pool contracts
Superior quality
Eliminate waste
Downstream rates
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54
Business Model
Commercial Medicare Medicaid
Multi-year capitated contracts and shared savings pool contracts
Superior Eliminate Downstream quality waste rates
Patients: Great access and service yield loyalty and attraction
Physicians: Great working environment yields great 55 recruiting and retention
©2012 DaVita Inc. All rights reserved.
55
How HCP Contracts with Health Plans
Illustrative
Medicare Advantage
10,000 lives $1,000 PMPM
Health Plan
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How HCP Contracts with Health Plans
Illustrative
Medicare Advantage
10,000 lives $1,000 PMPM
Health Plan
$150 PMPM
Marketing & Overhead
Profit
10,000 lives $850 PMPM
HealthCare Partners (Globally Managed Risk)
©2012 DaVita Inc. All rights reserved.
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How HCP Contracts with Health Plans
Illustrative
Medicare Advantage
10,000 lives $1,000 PMPM
Health Plan
$150 PMPM
Marketing & Overhead
Profit
10,000 lives $850 PMPM
HealthCare Partners (Globally Managed Risk)
Overhead
Profit
All Patient Care Needs
©2012 DaVita Inc. All rights reserved.
58
Enrollment
X
Rate
Cost
©2012 DaVita Inc. All rights reserved.
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Enrollment
X
Rate
Cost
Organic growth Tuck-in acquisitions
New geographies Emerging products
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60
Medicare Advantage Market
Large
Highly Fragmented
Growing
©2012 DaVita Inc. All rights reserved.
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Large
Total Medicare Spend $550B
$425B
$125B
Total Medicare Enrollment 48M
36M
12M
2011
FFS
Medicare Advantage
©2012 DaVita Inc. All rights reserved.
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Growing
In Millions
CAGR (‘85-’11): 9%
Medicare Advantage Enrollment
Balanced Budget Act 1997
Medicare Modernization Act 2003
Affordable Care Act 2010
14 12 10 8 6 4 2 0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
©2012 DaVita Inc. All rights reserved.
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Why Seniors Choose MA
Medicare Advantage
Basic Coverage
One plan covers Part A, B & D components Reduced cost sharing Enhanced benefits
Annual Cost (LA county)
$2,000-$3,000 less out of pocket
©2012 DaVita Inc. All rights reserved.
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Organic Growth
Aging and growth of population
Medicare Advantage penetration
Performance of HCP MA payors in markets
Strength of HCP within payors
©2012 DaVita Inc. All rights reserved.
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Growth Through IPA
Physicians
Contract access/ conversions
IT & integrated care resources
Maintain practice independence
HealthCare Partners
Broader provider network
No capital commitment
©2012 DaVita Inc. All rights reserved.
66
Acquisition Opportunities
Post-close improvements Accretive in-market tuck-ins Disciplined new market entry
©2012 DaVita Inc. All rights reserved.
67
Duals Opportunity
Dual Eligible Population
9 million nationally
1.2 million in CA
440K in LA and Orange counties
$11B Market
80% higher cost than Medicare
4x diabetes
45% > 10 clinical conditions
States moving to managed care
CA launching in > 4 counties in 2013
©2012 DaVita Inc. All rights reserved.
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California Duals Opportunity
440k in LA and OC
HCP works w/ all 3 expected payors
Even at 5% market, w/ $2,000 PMPM, $500M+ revenue opportunity
Upside:
Higher Share Other States
Challenges:
Program undefined Harder population Incremental services Incremental geography
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69
Upside
Future
Emerging
Current
Commercial Medicare Advantage
New geographies Duals
Exchanges ACOs
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70
Enrollment
X
Rate
-
Cost
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Medicare Advantage Headwinds
Scheduled decreases to MA payments
ACA eliminates MA premium to FFS Medicare by 2016
Sequestration cut in 2013
Coding intensity adjustment increases in 2014
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Offsetting MA Rate Cuts
Shared impact partially offset:
Benefit changes
Pass through to providers Star ratings Payor
©2012 DaVita Inc. All rights reserved.
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Enrollment
X
Rate
-
Cost
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74
HCP Costs Composition
100% 80% 60% 40% 20% 0%
Hospital Expense
Physician and Clinical Cost
Support
Mid- to high-single digits Low single digits Highly leveraged investments
©2012 DaVita Inc. All rights reserved.
75
Enrollment
X
Rate
-
Cost
Margin compression balanced by volume growth & new opportunities
©2012 DaVita Inc. All rights reserved.
76
3 Year Business Outlook
Enrollment
X
Rate
-
Cost
Organic growth
MA: 3-5%
Commercial: Flat
+ 5% tuck-in acquisitions
+ New geographies
+ Emerging products
2.5 to 4.5% growth
3.5 to 5.5% growth
0-3% organic OI growth 3-6% with tuck-in acquisitions
+ opportunities
©2012 DaVita Inc. All rights reserved.
77
2012-2013 EBITDA Outlook
2012: $525—$560 million
2013: $550—$600 million
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78
Adjusted EBITDA(1)
$ in Millions
A Great Run
$278
$293
$414
$527
$525-$560
$550-$600
2008 2009 2010 2011 2012P 2013P
(1) EBITDA excluding stock-based compensation expense; see Non-GAAP reconciliation
©2012 DaVita Inc. All rights reserved.
79
What Changes Are Coming?
Headwinds start to fade after 2014
Emerging products?
Intend to do significant acquisitions
OI expected to accelerate post 2014
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80
2013 EPS Impact
Dependent on:
Earnings trajectory Interest rates
Annual amortization expense
Neutral to modestly accretive on a GAAP basis
Includes $0.70—$0.90 of amortization expense
©2012 DaVita Inc. All rights reserved.
81
Near Term Swing Factors
Organic growth Acquisition pipeline Duals opportunity MA rates
Hospital and other provider rates Cost efficiency
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82
Indicative 2013 Net Cash
Generation
$ in Millions
Midpoint EBITDA Guidance $575
Implied Taxes on OI($210)
After Tax Interest($132)
Tax Step-Up Benefit $60
$243
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83
HCP Downside Scenario
MA rate & commercial enrollment pressure
+ Increasing expenses
= Flat EBITDA
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HCP Downside Scenario
MA rate & commercial enrollment pressure
+ Increasing expenses
= Flat EBITDA
We can
Pay interest
~$200M FCF/yr De-lever After-tax cash-on-cash return of 8%
Still
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85
HCP Downside Scenario
MA rate & commercial enrollment pressure
+ Increasing expenses
= Flat EBITDA
Still
We can
Pay interest
~$200M FCF/yr De-lever After-tax cash-on-cash return of 8%
AND
EPS remains neutral to slightly dilutive on a GAAP basis 10% accretive excluding
amortization
©2012 DaVita Inc. All rights reserved.
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HCP Summary
Cash flows Strong, stable
Capital requirements Very low
OI growth scenario 3-6%; accelerating post 2014
Industry Low
consolidation
Growth opportunity Huge
Growth options Duals, ACOs, exchanges
©2012 DaVita Inc. All rights reserved.
87
Deal Summary
About HealthCare Partners
Integrated Care Model
HealthCare Partners Outlook
Dialysis Outlook
Summary
©2012 DaVita Inc. All rights reserved.
88
DaVita at a Glance
As of Q1’12
LTM Revenue $7.1B
LTM OI $1.2B
U.S. Facilities 1,841 (43 states)
International Facilities 15 (3 countries)
Patients ~145,000
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Key Investment Highlights
Industry
Stable demand growth Steady cash flows
Significant government accountability
Unusual transparency
Reasonable credibility/coherence in DC
DaVita
Strong clinical outcomes Scale provider Strong compliance record Operating track record Experienced management team
Integrated care capability
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Favorable Industry – Stable Demand Growth
• Steady and resilient industry demand
• No clinical controversy
U.S. Dialysis Patients (000’s)
450 400 350 300 250 200
2000 2002 2004 2006 2008
‘00-’09 CAGR:
3.9%
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Leading Provider with Scale
As of 2010*
• Serving nearly one-third of U.S. dialysis patients
As of 2010*
Other, 26%
DaVita, 33%
Investor-Owned, 5%
Fresenius, 36%
©2012 *Data DaVita as Inc. of All 2010, rights with reserved. DaVita post-DSI Acquisition and Fresenius post-Liberty Acquisition
92
Strong Clinical Outcomes
Kt/V < 1.2 97%
% Fistulas Placed 69%
Ca 10.2 98%
Phos 5.5 80%
CVC use (Day 90) 15%
As of Q1’12
A Quality Leader
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Strong Operating Track Record
OI We Said (1) We Did (2)(3)(6) In or Above Range
• 2003: $292-312M $355M ?
• 2004: $356-380M $402M ?
• 2005: $410-435M (4) $462M ?
• 2006: $575-645M (5) $701M ?
• 2007: $680-750M $800M ?
• 2008: $790-850M $822M ?
• 2009: $870-930M (6) $940M ?
• 2010: $950-1,020M $997M ?
• 2011: $1,040-1,100M $1,155M ?
(1) First guidance.
(2) Non-GAAP measure; excludes one-time charges and reported prior period recoveries.
(3) 2003 and 2004 represent the original amounts as reported and have not been adjusted for the required divestitures that the effects occurred of the in connection required divestitures with the Gambro in connection acquisition. with In the addition, DSI acquisitions. all amounts presented have not been adjusted for (4) Gambro acquisition completed October 2005.
(5) Includes stock compensation expense; Original guidance excluded stock compensation.
(6) Effective January 1, 2009, we were required to change the presentation of minority interests (noncontrolling interests) in amounts our consolidated have not been statement adjusted of income, to reflect which the application changed the of presentation this requirement. of operating income as well. All prior
©2012 DaVita Inc. All rights reserved.
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# of Treatments
Revenue / Tx
Expense / Tx
©2012 DaVita Inc. All rights reserved.
95
Non-Acquired Growth (NAG)
6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12
4.4%
4.0%
4.6%
5.0%
4.4%
5.5%
©2012 DaVita Inc. All rights reserved.
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Normalized Non-Acquired Growth (NAG)
6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12
4.2%
4.2%
4.6%
4.6%
4.8%
5.3%
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Total U.S. Tx/Day Growth (YoY)
16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
Q4’10 Q1’11 Q2’11 Q3’11 Q4’11 Q1’12
DSI closed 09.2011
5.5% 4.6% 5.0% 4.4% 4.0% 4.4%
6.8% 7.2% 7.1%
9.6%
14.2% Total Tx/Day 12.4%
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# of Treatments
Revenue / Tx
Expense / Tx
©2012 DaVita Inc. All rights reserved.
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Profit Concentration
100% 80% 60% 40% 20% 0% -20%
(10%-15) Gov’t
Treatments Revenue Profit
11% Private
89% Gov’t
34% Private
66% Gov’t
110%-115% Private
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Private Revenue Takeaways
• Multi-year contracting
• Bundled contracting
• Mix
? • Dialysis patient equal rights
? • Uncertainty of exchanges
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Government Revenue
Medicare
~50% of dialysis revenue
Market basket
QIP
Periodic rebasing
2% cut in 2013
Case mix ad ustorj
Bigger bundles
M Adv, VA, Medicaid
• ~15% of dialysis revenue ??State budget issues
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# of Treatments
Revenue / Tx—Expense / Tx
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Cost per Treatment
Component
• Teammate Costs
• Pharma and supplies
• Other center-level costs
• G&A
Historical
• 1 – 2 %/yr
• Rate & productivity
• Dynamic
• 1 – 2 %/yr
• In line with Tx growth (over time)
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Orals in 2014 ??Big Swing Factor
Good News Bad News
• Adherence = improved • Uncertainty health • CMS data
• DaVita is a leader ??Limited ??Retrospective ??Out of date
A potential win/win
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Integrated Care
• Improve quality of care
• Lower total ESRD costs
• Public policy advocacy
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Dialysis EPS Growth Scenario
• Demand Growth 4%
+ DeNovos & Acquisitions
• Total Volume Growth 5%—6%
+ Fixed Cost Leverage
• Operating Income Growth 6%—7%
+ Financial Leverage
• Net Income/EPS Growth 7%—9%
+ Share Repurchase
EPS Growth 9%—11%
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Dialysis Summary
Cash flows Strong, stable
Capital requirements Low
OI growth scenario 5-7% Industry High consolidation Growth opportunity Solid
International, integrated kidney Growth options care
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About HealthCare Integrated Care
Deal Summary
Partners Model
HealthCare
Dialysis Outlook Summary Partners Outlook
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Summary
Dialysis
HealthCare Partners
Cash flows Strong, stable Strong, stable
Capital requirements Low Very low
3-6%; accelerating OI growth scenario 5-7% post 2014 Industry High Low consolidation Growth opportunity Solid Huge International, Duals, ACOs, Growth options integrated kidney care exchanges
~$500M/year in excess cash to deploy
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Capital Markets Day June 7, 2012
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Reconciliations for Non-GAAP Measures
Reconciliation for Non-GAAP measures (unaudited)
Reconciliation of HealthCare Partners’ Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization and excluding stock-based compensation expense)
We believe that adjusted EBITDA enhances a user’s understanding of HealthCare Partners’ income from operations for these periods by presenting consistent operating income items that we believe provide another means of understanding HealthCare Partners’ operating performance excluding stock-based compensation expense. Adjusted EBITDA also serves as a measure of liquidity of HealthCare Partners in that it provides information about the ability of HealthCare Partners to generate cash from operations. This measure is not a measure of financial performance under GAAP and should not be considered as an alternative to operating income, net income or operating cash flow.
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Reconciliations for Non-GAAP Measures
Reconciliations for Non-GAAP Measures (dollars in millions)
Reconciliation of operating income and operating income margin
We believe that operating income and operating income margin excluding Medicare lab recoveries related to prior years’ services, gains from insurance settlements, a non-cash goodwill impairment charge, the valuation gain on the Product Supply Agreement, and noncontrolling interests enhances a user’s understanding of our operating income and operating income margin for these periods by providing a measure that is more meaningful because it excludes Medicare lab recoveries related to prior years’ services, insurance settlement gains related to insurance proceeds from Hurricane Katrina and from a fire that destroyed one of our centers, a non-cash goodwill impairment charge that resulted from a decrease in the implied fair value of goodwill below its carrying amount associated with our infusion therapy business, a non-recurring non-cash item that resulted from the termination of our purchase obligation for dialysis machines from Gambro Renal Products Inc. under the Product Supply Agreement, and noncontrolling interests that were originally deducted from operating income, and accordingly is more comparable to prior periods as originally reported and indicative of consistent operating income and operating income margin. This measure is not a measure of financial performance under United States generally accepted accounting principles and should not be considered as an alternative to operating income and operating income margin.
*2003 operating income is as originally reported and has not adjusted for the required divestitures related to the Gambro acquisition. (2) Operating income for 2004 excluding the operating income impact of the required divestitures’ related to the Gambro acquisition of $29 million and Medicare lab recoveries related to prior years’ services, would have been $402 million.
©2012 DaVita Inc. All rights reserved.
Additional Information and Where to Find It:
In connection with the Merger, DaVita intends to file with the SEC the Registration Statement on Form S-4 (the “S-4”) to register the DaVita common stock issuable in the Merger. Investors and security holders are urged to read the S-4 and any other relevant documents to be filed with the SEC because they will contain important information about DaVita and HCP and the proposed transaction. Investors and security holders may obtain a free copy of the S-4 and other documents when filed by DaVita with the SEC at www.sec.gov or www.davita.com.
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