WOLFE RESEARCH HEALTHCARE CONFERENCE 2026 - DAVITA INC

Financial Performance:

• Q3 volume missed expectations by ~20 basis points due primarily to a 20 bps higher mistreatment rate (hospitalizations and no-shows); patient census actually exceeded expectations.
• Mistreatment rates were elevated in Q3 2026 due to broader U.S. hospitalization trends, with a seasonal normalization expected in Q4 (higher absolute Q4 volume than Q3, but flat or negative sequential vs. Q4 2025).
• Q4 operating income is projected to be flat or slightly down sequentially due to a ~100 bps calendar headwind (fewer treatment days/holiday impact), offset by an uptick in Revenue Per Treatment (RPT).
• International segment benefited in Q3 from divestiture reversals; IKC (In-Home Care) typically sees sequential growth in Q4, while International may see a slight dip.
• QHP enrollment on exchanges is impacted by new patient starts at a lower commercial mix rather than coverage losses; a $70 million headwind is anticipated for next year driven by these dynamics.
• RPT dynamics in Q4 will be influenced by a commercial mix headwind and ACA declines, partially offset by lower Cost Per Treatment (CPT) and historical claim resolutions.

Guidance and Future Outlook:

• Management advises focusing on Year-Over-Year metrics rather than sequential quarterly volatility due to seasonality and calendar complexities.
• Medicare Fee-For-Service (FFS) rate increases are estimated at 1.5% to 2%, with significant variability driven by the Tdap add-on payment roll-out rather than the base rate structure.
• For 2027, guidance is not yet issued, but the company expects to maintain ~75 basis points of adjusted volume growth, driven by ~50 bps internal growth and ~25 bps calendar tailwinds.
• The company anticipates maintaining its long-term goal of ~1% enterprise Operating Income (OI) growth from the IKC and International segments, acknowledging potential "choppiness" in IKC due to shared savings volatility and loss-making year-one contracts.
• International margins are expected to remain around the mid-8% range, with future growth dependent on capital deployment and market mix rather than a fixed margin cap.

Business Segments and Product Lines:

• Dialysis Core: Introducing new dialyzers and machines capable of clearing "middle molecules" (toxins historically not removed by standard filters); pilot results were successful, with full rollout expected for eligible patients by November to improve mortality and drive future volume.
• IKC (In-Home Care): Outperformed expectations, delivering ~2% OI growth annually versus the prior 1% target; expected to continue contributing to growth, though new contracts are loss-making in Year 1 until shared savings visibility is achieved.
• Medicare Advantage (MA): Rates are negotiated independently of CMS FFS inflation and can include escalators for new technologies (e.g., binders); exposure to FFS rate cuts is lower for the company compared to competitors.
• International: A portfolio of 50+ countries with varying growth profiles; seen as having significant runway for capital deployment and growth, particularly in Latin America.

Market and Competitive Landscape:

• Q3 mistreatment rate increases (hospitalizations) were industry-wide, affecting all major dialysis providers, not specific to the company.
• The company notes a structural shift where the growth of Medicare Advantage reduces the dominance of the FFS rate as a primary economic driver; a 50 bps swing in FFS now represents ~$30 million in OI, down from previous years.
• Competition in the exchange market remains a factor, with the company aligning its membership decline assumptions with Congressional Budget Office (CBO) forecasts.
• The company maintains a disciplined capital deployment strategy internationally, acknowledging lower market share compared to the U.S. presents further expansion opportunities.

Risks and Challenges:

• Volume Sensitivity: High sensitivity to seasonal mistreatment rates and calendar effects (e.g., New Year's Day timing, weekday treatment distribution) creates sequential volatility.
• Regulatory Complexity: The Medicare FFS rate calculation is highly complex with opaque CMS data regarding LDO (Large Dialysis Organization) adjustments, making reverse-engineering difficult.
• Pharma Costs: Management cites drug costs (specifically the Tdap add-on and binder dynamics) as a key variable affecting RPT and CPT, requiring ongoing monitoring.
• Exchange Volatility: New patient starts at lower commercial mix on exchanges present a ~$70 million headwind for the upcoming year.
• IKC Profitability: New contracts are loss-making in the first year, creating a lag between cost incurrence and revenue recognition that can impact short-term financials.

Management Commentary and Tone:

• Tone is confident and focused on long-term clinical and operational improvements rather than short-term quarterly fluctuations.
• Management emphasized that mortality improvement via the new "middle molecule" technology is the next major volume driver, reinforcing their clinical leadership.
• CFO Joel Ackerman highlighted the complexity of Medicare reimbursement, urging investors to trust the bottom-line rate rather than attempting to deconstruct CMS tables.
• The tone regarding IKC and International is positive, acknowledging the faster-than-expected path to profitability and the continued ability to drive share.

Analyst Questions and Answers:

• Volume Sequencing: Analysts asked about the Q4 sequential volume drop; confirmed it is "meaningful" due to calendar headwinds, with RPT growth expected to offset this partially.
• Medicare Rates: Analysts questioned the breakdown of the 1.5-2% rate increase; confirmed that Tdap add-on payments are the primary swing factor, not the base rate.
• Exchange Membership: Confirmed that coverage retention is strong; the headwind stems from new patients entering at lower commercial mix, consistent with historical trends.
• IKC Margins: Clarified that the ~1% profit margin on medical cost under management (vs. the 5-year-old target of 2%) is not a cap; opportunity exists to improve via shared savings and fixed cost leverage.
• International Strategy: Confirmed continued opportunity for capital deployment in international markets, with a focus on Return on Capital rather than specific margin targets.

Other Key Points:

• The company disclosed that treatments per normalized day is the preferred metric for investors to smooth out calendar impacts.
• Management reiterated that the "wash and dry" analogy for dialysis (fluid removal vs. toxin clearance) explains the clinical logic behind the new technology adoption.
• The "mistreatment rate" is split equally between patients hospitalized elsewhere (census shift) and no-shows (patient health/transportation issues).
• The company noted that while Q4 last year had an exaggerated RPT uptick, this year's Q4 increase is expected to be "muted" but still positive sequentially.