Good morning. My name is Elan, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita Investor Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star and the number one on your telephone keypad. If you would like to withdraw your question, press star then number two. Thank you, Mr. Ackerman. You may begin your conference. Thank you, and welcome everyone to this investor conference call. We appreciate your continued interest in our company. I am Joel Ackerman, CFO and Treasurer. Joining me today is Javier Rodriguez, our CEO, and Kathleen Waters, our Chief Legal and Public Policy Officer. Today's call is focused on answering some questions we know you have about the Supreme Court ruling on Tuesday, and we're going to limit our remarks to issues related to that decision. Please note that during this call, we will make forward-looking statements within the meaning of the federal securities laws, including, for example, statements about the potential impact of the recent U.S. Supreme Court decision on us and statements about potential responses to the decision by third parties such as plans, regulators, and legislators. 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. These risks and uncertainties could include, among other things, actions that may be taken by plans in response to this court decision, including any redesign of benefit plans, how and whether regulators and legislators will respond to this decision, including whether they will issue regulatory guidance or adopt new legislation. Other potential negative impacts of this court decision and resultant plan behavior on our commercial mix or the number of our patients covered by commercial insurance plans and the timing of these items. For further details concerning these risks and uncertainties, please refer to our SEC filings, including our most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and other information we may subsequently furnish or file with the SEC. Our forward-looking statements are based on the information currently available to us, and we do not intend and undertake no duty to update these statements except as may be required by law. We plan to conclude the call before the market opens, but hopefully we can answer everyone's questions by that time. Now let me turn it over to Javier. Thank you, Joel. Good morning, and thank you for joining today's call. Let me begin by stating our purpose and passion is to serve and care. As part of that responsibility, we are a fierce advocate for our patients and will work hard to protect their rights. When we see activity that negatively impacts kidney care patients, it does not sit well with us and serves as an impetus for action. In the case of Marietta, we built a strong coalition and advocated all the way to the Supreme Court. While we're deeply disappointed with the outcome, it has not depleted our resolve to continue advocating for what's right for our patients. We believe that the ruling ignores the long history of protection offered under the Medicare Secondary Payer Act to dialysis patient population. I'm assuming that all of you have read the opinion and understand that the majority opinion was based on a narrow interpretation of the language in the MSPA. The majority determined that because this plan design applied equally to all beneficiaries who need dialysis and not just to those diagnosed with ESRD, it did not violate the MSPA. Importantly, the majority opinion specifically acknowledges that the purpose and the intent of the MSPA was to prevent plans from pushing beneficiaries onto Medicare prematurely by cutting off or offering lesser benefits to those people entitled to Medicare. This decision does not undercut or disagree with that purpose, but rather the majority felt that the specific language of the MSPA required this decision. The majority also suggests, if not requests, that Congress intervenes if it intended to more broadly protect ESRD patients. In the dissent, Justice Kagan explained that discriminating against people who need outpatient dialysis is the same, or in her words, "A perfect proxy discriminating against ESRD patients, which the statute specifically prohibits." The dissent is less reserved on the call for Congress to act and says specifically, and I quote, "Now Congress will have to fix the statute that this court has broken." As you can see, both the majority and dissenting opinions agree there's a need to clarify the language of the MSPA. With that background, there's a few questions we wanna address today. Question number one. Plans react to this ruling, and if so, what economic impact might that have on DaVita? Question number two, around timing. When could we start to see shifts in plan designs? Question number three. What will the industry do to prevent discriminatory plan design? Let me take those in that order. Regarding whether and how we think plans might react to the ruling, as we stated in the past, we are not in a position to predict if plans might try to take advantage of this ruling to limit outpatient dialysis benefits to their members. We believe the MSPA was just one of several barriers to prevent the majority of health insurance plans and self-insured employers from pursuing discriminatory plan design. The Supreme Court ruling Tuesday weakened that protection. However, we believe there remains a number of other reasons why plan would not attempt to change their benefit designs to push ESRD patients to Medicare or severely limit the scope of outpatient dialysis services covered. Let me provide additional support. First, there's a brand and reputation risk if a plan starts to redesign their benefits to push this vulnerable patient population who needs dialysis onto Medicare. Like the current administration, many plans are focused on health equity and benefit plan design that discriminate against dialysis patients would fly in the face of any health equity efforts. Second, we believe that market forces in a highly competitive environment will incentivize plans to maintain comprehensive and competitive benefits. Plans generally want to provide the services beneficiaries need and would not want to be seen as discriminating against this patient population. Finally, we believe other potential legal challenges, for example, under the anti-discrimination provisions of the ACA, may be utilized to seek to prevent mainstream health insurers and large employer groups from taking such actions. We think that these barriers may be less likely to deter Marietta-like discriminatory plan design in certain plan segments. Segments we think present the most risk is comprised of small self-insured plans, some of which are administered by TPAs or small regional payers. We are not in a position to predict if and when these plans may change their behavior in light of the Marietta decision. That said, to help you get a feel for the dollars at stake, every shift of 10% of this segment to Medicare fee-for-service is approximately $20 million in operating income. Again, we cannot predict how any of these plans may choose to implement discriminatory plan designs, and there is a possibility that the plans outside this small self-insured segment could try to create benefit designs that push the envelope. Although we believe those segments are at a lower risk given some of the barriers we referred earlier. This leads to the next question of how quickly could plans start to take action relying on the Supreme Court case. Positive news is that for the vast majority of plans, we believe the answer is not very quickly, and here's why. Each year, employers review the way their plans are designed prior to open enrollment. This process is already well underway, so any changes to incorporate the Supreme Court's decision most likely would take effect in 2024 and beyond, unless a plan attempted to be very aggressive. It is, of course, possible that we could see exceptions to this, but still, overall, we believe that the 2023 impact to be limited. Now, moving on to mitigation efforts. The Kidney Care Community, including dialysis providers, nephrologists, and patient advocates, is actively pursuing two paths simultaneously to potentially close the gap created by this ruling, a regulatory path and a legislative path. This dispute resulted from a conflict in regulatory guidance. CMS could issue a new regulatory guidance to clarify the intent and meaning of the language and how it should be interpreted. We do not think that CMS will want the ecosystem disrupted because of the potential for patient harm as well as the negative financial impact to Medicare if commercial patients were prematurely forced onto Medicare. We believe CMS is interested in protecting this patient population's choice of insurance and preventing disruption in the dialysis ecosystem. Another path, a legislative fix, could be accomplished with small changes to the MSPA that addresses the statutory language relied upon by the Supreme Court. We have already started to work with some of the kidney care champions to introduce such legislation. While finding the vehicle for this is always challenging, we think there are a few things working in our favor. First, we believe that Congress will want to fix the loophole that SCOTUS decision created in the MSPA, and that could be accomplished with addition of just a few words. Second, achieving the fix is now a top priority for the kidney care industry policy initiative list. Third, we expect to have bipartisan support for a legislative fix and believe that the fiscal score would be a saver. Putting all of this together, we believe that there is a reasonable chance of getting this fixed in Washington. The timing on mitigation is harder to comment on as it depends on many dynamics of the administration and the Hill. While we cannot predict the outcome or the timing, we will continue our approach of transparency with all of you. With that, Elan, if you could please open up the line for questions. Certainly. At this time, if you would like to ask a question, please press star one. Our first question today is from Pito Chickering from Deutsche Bank. Hey, good morning, guys. Thanks for taking my questions here. I guess the first one is that 10% shift to be $20 million of operating income. Just curious, is it the 10% of the small employer self-insured plans or the 10% of the total commercial mix? It is. Yeah, Pito. Go ahead, Joel. Sorry, we're not together, but go ahead, Joel. Yeah. Pito, it's 10% of that small segment that Javier referenced. There's a bit of judgment required in how you define the segment in terms of plan size and self-insured versus fully insured, et cetera, but it's 10% of that, not 10% of the total commercial. Got it. Just to sort of shift it back into what percent of the sort of total commercial mix the 10.5% you talked about last quarter is this small segment of self-insured plans? Yes. I get back to this comment about the judgment. We had to triangulate on this, and there's different ways to size the segment and think about it. I think we're gonna avoid putting a patient count on it and really focus on the OI impact, I think is an easier way to really understand what the financial parameters are associated with the risk of the movement of this segment. I'd use the $20 million of OI rather than focus on a patient number. I mean, you know, is it, you know, as I sort of do the math on sort of what is the treatment growth versus revenue per treatment, commercial versus revenue per treatment on government, sort of does that imply that the small groups is around 10% or 15% of the total mix? Is that a fair ballpark? Again, I'd rather not get into specifics, but I think you're in the right general range, yes. I'd say on the lower end of that range. Okay. Okay. The next question is just, you know, as we are sort of talking about renegotiating, you know, rates right now, I guess what prevents the payers from using this sort of big bat that the Supreme Court gave them in order to get more aggressive on rates for the 2023 time periods? Let me grab that one, Joel. I think it's a reasonable question. A couple things that I would say is, right now we're focused on one thing, which is MSPA, but there's a lot of things that surround anti-discriminatory behavior. We got a ruling on one narrow thing. There's still protections under ACA and ERISA. Number two, as we discussed, there's just market forces. Right now is one of the most competitive times in the marketplace, and so employer groups have to have competitive benefits. Three is society is acutely aware and very passionate to work on health equity, and this would be obviously going against that. Three is contracts. Our contracts, as you know, we're comprehensively contracted, and most of them are multi-year, and so we have protections against anti-discriminatory in most of our contracts. What the hope is, of course, and we put all the proper disclosures on it, is that the fix can come before any of these renewals. Let me ask two more quick questions here. Sort of both of them on the same camp. Is there possibly, besides the legislative fix, a regulatory fix that CMS can do to offset this or is this gonna be legislative only? Yes. As discussed in my opening remarks, we are pursuing both paths. CMS could clear up the language. Great. All right. I'll stop there and let it open to everyone. Thanks so much. Thank you. Thank you. Our next question is from Sarah James from Barclays. Hi. Thank you. Could you give us a little insight onto the cadence of your commercial payer contract renewals? Is it ratable through the year, or are they weighted towards any particular time of year? There is no pattern, Sarah. In general, what we've said is we're comprehensively contracted. Our contracts tend to be multi-year, so think of an average contract in the, you know, I guess I shouldn't say average, but the range goes from probably two to four years. You can start to get a sense of, on any given year, roughly, a fourth or so of our contracts would be renewed. Again, it's not perfect, but that gives you a sense for it. Does the ruling impact your strategy on capital deployment at all, either for share repurchase or standing up new facilities? No. It does not. Great. Thank you. Thank you. Thank you. Our next question is from Kevin Fischbeck from Bank of America. Good morning. Actually, this is Joanna Gajuk filling in for Kevin today, so thanks for taking the question. Two questions. First one, I guess on this portion of the commercial business that you expected to be the highly likely impact that he potentially, right? If these plans decide to make these changes, I understand it's hard to predict, but if they do, just stepping back and thinking about those health plans, I would think that the small group ASO rates are probably above average of commercial rates because they're, you know, given the size of these entities or the membership they bring in. Could you help us understand if that's true and then, you know, kind of the magnitude of things in terms of how much higher these commercial rates on average could be versus, you know, the rest of the business? Yeah, thanks for the question, Joanna. Just to clarify, because I think you said highly likely, I'm not sure we can speculate whether it's highly likely or not. We're just saying that this is probably the segment that's most likely to try things as opposed to highly likely. Point number two, we're not gonna get into details of breaking down the rates per segment. I think if you just grab the average rate of contracted patients, commercial patients, I think you're gonna be in the right zip code. Okay. My second question, so you mentioned that obviously, even in the Supreme Court, there was understanding that Congress should step in and fix this language essentially. I guess, I mean, like there's already work being done. Can you give us a sense of what response you're getting from people in Congress in terms of just the magnitude of the interest or the number of people that kind of said, "Hey, are we onboard, you know, we're gonna help." Also with that, are you also pulling in or is the pharma industry also trying to kind of help here because obviously not directly, but indirectly, I guess it flows through if there's any issues around utilization or just rates for the dialysis, then could have some implications. Just broadly speaking, kind of any other support that might come your way. Thank you. Thank you, Joanna. We have been very encouraged by the reception that we have had. Again, the Supreme Court was very clear that they agreed with the intent. They just said that the language needed clarification. So that was very helpful for both the legislative and the regulatory fix in that there was a, let's call it a footprint or a framework or direction that says, we agree with the intent. We just need it to be more specific. So the reception has been positive. The momentum is good, and of course, we're early into this process. As it relates to your second part of your question as to who will be supportive, there's been a lot of people that will join the coalition, and there's a lot of energy. We are at this juncture quite positive. Of course, there's a journey here that we gotta go through. Great. Thank you. I guess we will just be on the lookout. We'll see what's coming out from Congress. Thank you. Thank you, Joanna. Thank you. Our next question is from Justin Lake from Wolfe Research. Justin- Thanks. Good morning. Hey. Morning. The first thing is, Javier, you talked about these contracts as protection. You know, most contracts I've heard of between a provider and an MCO have kind of mutual 90-day outs where either can kind of, you know, step away from the contract if they give that 90-day notice. Does that not exist here? Do you have, you know, do these things kinda have that, don't have that protection? Most of our contracts are longer term with. There's reasons for exiting the contract, but it's not usually just, you know, an opinion-based one. This has to be a violation of a clause or something like that, which wouldn't happen in this case, Justin. Okay. Just to be clear, you know, you talked about the small employers, and I'd agree that that's probably where the most risk is, but the, Yeah. Small plans. Just to make sure I understand, like I've heard of cases where like a regional health plan has gone and actually tried to, you know, send letters to ESRD patients and ask them to, you know, move to Medicare and even offered to pay the Medicare Part B premium for them. Is that right? Has that been happening out there? I mean, I don't think they've been too successful, but has that been happening? Do you think that, you know, that adds to the risks that, you know, some larger regionals might try to get out, take advantage of? Yeah. If that's happened, it has not come to my attention, so it's not been sizable. I can't comment on the detail. It would be obviously something that we would fight and again, introduce it into some of this framework because there are other vehicles, anti-discriminatory vehicles that we could use. Again, there are market forces that they would be going against. I just would think that that would not be something that would get a lot of traction. Lastly, to the point where you started out in your other question, it's just important to remember that the bulk of our OI is protected contractually. We're just trying to share as much as we can here, so that we all have the same information. Got it. Two other questions, Javier. One, you know, I think a lot of people found that the fact that the Solicitor General was arguing for Marietta in the case kind of disturbing. Did you ever talk to anybody in D.C. or get an idea of why that was the case, given it does seem logically like, you know, the government should have been on your side for a lot of reasons? Yeah, Justin, you know, I felt the same sentiment, and we did reach out to some folks. As you know, during the oral arguments, justices asked the same question. I'll paraphrase, but I think the answer was in the direction of a narrow or strict reading as well. Again, this was interpretation of law, and all are seeking understanding of the spirit needs to be clarified, but it was the same thinking that the justices used that the Solicitor General applied. Okay. Just lastly, you know, I know commercial contracting and commentary on commercial contracting has almost been like a third rail for you guys in terms of talking on the earnings calls. For a lot of reasons, you know, you've kept the commentary pretty opaque. You know, how do we think about you sharing the, you know, what's going on between you and health plans and what health plans are doing, as we go forward? You know, I'm sure you're gonna get this question on every conference call going forward. Is this something that you will share kind of what's going on incrementally, you know, and put some. You know, it's been really helpful. That 10% number, for instance, is helpful that you gave us. You know, will you give us some color on that going forward in terms of what you're seeing out there? Or is this just something that, you know, you'll put, you know, earnings numbers around and just say, you know, revenue per treatment's getting pushed because of commercial and it'll just be kind of bulked up within pricing and everything else? Yeah. A couple things. Number one, I hate to hear the word opaque. We wanna be as transparent as possible. In the context of contracts, there are a couple reasons why it doesn't make sense to go into it. Number one is, just truly every contract is different. Number two, it can impact, of course, negatively, the actual situation as it's playing out from a leverage or- Right. Other matters. We will give you as much information as we can so you can understand the situation as well as we can. Up until if we think it's gonna have an impact on the outcome, and that's when we stop short of that. Got it. Thanks, guys. Appreciate the call. Thank you, Justin. Thank you. Our next question is from Gary Taylor from Cowen. Hey, good morning, guys. A couple questions. One, I think I understand and agree with kind of how you're sizing the self-funded small group market, but just wanna make sure I understand why you think, you know, fully funded small group wouldn't also perhaps be some risk here. And is that just back to your points on tight labor market, health equity kind of commentary? Yeah. Again, we're not saying it's just that one segment. There's risk on all of these. What we're highlighting is that it's less likely, both because of the timing of where we are in the cycle, because of the reputation, because there are other things that we would pursue, both in court and in other ways, and that people wanna run their business and provide health coverage. Most people wanna provide their employees health coverage, and of course, they wanna keep the expenses down. There's a limit to that when you feel that you're crossing over. I think that we can all agree that the Supreme Court read this narrowly, but that in the face of just sort of common sense in the marketplace, if your kidneys fail, you expect that the premium that you have paid for years and years will kick in and that you will have the choice of health insurance. Mm-hmm. Regardless of some technical interpretation of the law. I think that most people understand that. Got it. It's been a number of years since you guys have disclosed out-of-network revenue exposure, but it occurs to me that could be a place where you'd see some changes in terms of how you're being reimbursed. Is out-of-network a material piece, or could you characterize it for us? Yeah, we're not gonna go into that level of detail. I think what we've tried to tell you is comprehensively contracted, and what that means to me is we're into, and you can correct me if I'm wrong, Joel, into the 90%+ of our patients are contracted that are commercial. It's a smaller piece and of course any commercial patient the economics are still relevant, but it's a small piece. Last one from me, Javier. I do understand for sure the statutory relief you'd be seeking from Congress. I didn't understand what you're saying about CMS and how they could clarify language, and could you just review that so I understand it maybe? Kathleen, you've been in the conversation. Do you wanna chime in here? Yes. Sure. Hi. This actual dispute started because of a conflict between regulatory guidance that CMS issued concerning the rule and so the interpretation of the rule. We would be seeking CMS to clarify that guidance and kind of explain that they intended when they used the words ESRD, that it also included just people who needed outpatient dialysis or who needed dialysis. That's what we are working on the administration to do. Okay, I'll ponder that. Obviously, it wouldn't change what SCOTUS has done, but you think a change in the CMS guidance could impact how plans might look at making any change? That's right. That's right. Okay. Just going back to one of the questions about the Solicitor General, it was the, as the Solicitor General explained at oral argument, they felt like they had to come out in that position based on the regulatory guidance. If the guidance can change and be clarified, that would change the landscape a little. Okay. Thank you. As a reminder, if you would like to ask a question, please press star one. Our next question is from Pito Chickering of AllianceBernstein. Thanks. Just to go back to the Solicitor General issue, it seems to be a very elongated process for the Solicitor General to bring an amicus. I'm just wondering if you've seen this in other healthcare reg situations where the Solicitor General brings an amicus seeking clarification, and the position where the Solicitor General is seeking clarification is really contrary to what you're indicating CMS's intent is. I'm just still kind of confused by the SG's participation. Look, I'm not sure it's a good idea for us to speculate on the Solicitor General's reason for participating. I would agree with you. I was somewhat perplexed as to why that happened and why it occurred. Again, the justices asked about it during oral argument, and the answer was that they interpreted narrowly. I think that we shouldn't speculate as to exactly what happened because the reality is we don't know. Okay. Secondarily, to the extent that you can't get the fix, what is the potential for closure of centers in certain regions? Well, I mean, you're asking me to go well into the future. The short answer is, of course, it depends on the proliferation and spread of all this, and we've given you a whole bunch of reasons why we don't think it will happen. I think it's a bit premature to think about that. Okay. Will those, in terms of some of those smaller, regional, plans, do they tend to be in geographies that are possibly more isolated where you could close centers or, is there just kind of a breadth, you know, both urban, suburban, rural, of those employers? Yeah, I haven't looked at the geographic spread of those, but if I had to speculate, I would say that they're dispersed all over the country. What you're putting your finger on is something that there was an amicus brief filed on, which is, of course, what we know is that the economics of a center are sustained because of a small number of commercial patients. Of course, that is something that we talk about as, let's call it, the economic ecosystem. CMS is acutely aware of that, and that gives us more hope that they will be energized to clarify this. Again, too premature to answer your specific question on geography and plan. I think it's too early to predict that. Thank you. Thank you. Thank you. I am showing no further questions at this time. Okay, well, let me finish where I started. We will continue our journey. This was clearly a setback, but we will continue to advocate for our patients and what we believe to be a right. Thank you so much for your interest, and we'll talk again. Be well. Thank you. This does conclude today's conference. You may disconnect at this time.