DaVita is a leading provider of dialysis services in the United States for
patients suffering from chronic kidney failure, also known as end stage renal
disease, or ESRD. We also provide acute inpatient dialysis services in approximately
700 hospitals and related laboratory services. Dialysis and dialysis related
services account for approximately 97% of total net revenues. All other ancillary
services and strategic initiatives, which currently account for approximately
3% of our consolidated revenues, relate primarily to our core business of providing
renal care services.
Services we provide
Dialysis Services
Outpatient dialysis services
Throughout our network of outpatient dialysis centers, we also provide training,
supplies and on-call support services to our peritoneal dialysis patients. With
the introduction of smaller, easier to use and portable technologies, we are
also providing certain patients the option of home-based hemodialysis, as described
above.
As required by law, we contract with a nephrologist or a group of affiliated
nephrologists to provide medical director services at each of our centers. In
addition, other nephrologists may apply for practice privileges to treat their
patients at our centers. Each center has an administrator, typically a registered
nurse, who supervises the day-to-day operations of the center and its staff.
The staff of each center typically consists of registered nurses, licensed practical
or vocational nurses, patient care technicians, a social worker, a registered
dietician, biomedical technician support and other administrative and support
personnel.
Many of our outpatient dialysis centers offer services for home dialysis patients,
primarily CAPD and CCPD. Home dialysis services consist of providing equipment
and supplies, training, patient monitoring and follow-up assistance to patients
who prefer and are able to receive peritoneal dialysis or home-based hemodialysis
treatments in their homes. Registered nurses train patients and their families
or other caregivers to perform either peritoneal dialysis or hemodialysis at
home.
Under Medicare regulations, we cannot promote, develop or maintain any kind
of contractual relationship with our patients which would directly or indirectly
obligate a patient to use or continue to use our services, or which would give
us any preferential rights other than those related to collecting payments for
our services.
Hospital inpatient dialysis services
We provide hospital inpatient dialysis services, excluding physician services,
to patients in approximately 700 hospitals. We render these services for a contracted
per-treatment fee that is individually negotiated with each hospital. When a
hospital requests our services, we typically administer the dialysis treatment
at the patient’s bedside or in a dedicated treatment room in the hospital.
Hospital inpatient dialysis services are required for patients with acute kidney
failure resulting from trauma, patients in the early stages of ESRD and ESRD
patients who require hospitalization for other reasons. In 2007, hospital inpatient
dialysis services accounted for approximately 5% of our total dialysis treatments.
ESRD laboratory services
We own two separately incorporated, licensed, clinical laboratories, both located
in Florida, specializing in ESRD patient testing. These specialized laboratories
provide routine laboratory tests covered by the Medicare composite payment rate
for dialysis and other physician-prescribed laboratory tests for ESRD patients.
Our laboratories provide these tests predominantly for our own ESRD patients
throughout the United States. These tests are performed to monitor a patient’s
ESRD condition, including the adequacy of dialysis, as well as other diseases
a patient may have. Our laboratories utilize information systems which provide
information to our dialysis centers regarding critical outcome indicators.
Ancillary services and strategic initiatives
Ancillary services and strategic initiatives, consist of the following:
• Infusion Therapy Services. HomeChoice Partners provides personalized
infusion therapy services to patients in their own homes as a cost-effective
alternative to inpatient hospitalization. Intravenous and nutritional support
therapies are typically managed by registered and/or board-certified professionals
including pharmacist, nurses and dieticians in collaboration with the patient’s
physician in support of the patient’s ongoing healthcare needs. Revenues
are recognized in the period when infusion therapy services are provided.
• Pharmacy. DaVita Rx is a pharmacy that provides oral medications to
DaVita’s patients with chronic kidney disease, or CKD, and patients with
ESRD. The main objectives of the pharmacy are to improve clinical outcomes,
patient compliance and to provide our patients a convenient way to fill their
prescription needs. Revenues are recognized as prescriptions are filled and
shipped to patients.
• Vascular access services. RMS Lifeline provides management and administrative
services to physician-owned vascular access clinics that provide surgical and
interventional radiology services for dialysis patients. Management fees generated
from these services are included in management fee income and are recognized
as earned typically based on a percentage of revenues or cash collections generated
by the clinics.
• Disease management services and Special Needs Plans. Village Health
provides advanced care management services to health plans and government agencies
for employees/members diagnosed with CKD or ESRD. Through a combination of clinical
coordination, medical claims analysis and information technology, we endeavor
to assist our customers and patients in obtaining superior renal health care
and improved clinical outcomes, as well as helping to reduce overall medical
costs. Revenues are typically based upon an established contract fee and are
recognized as earned over the contract period and can include additional fees
for cost savings recognized by certain customers. Village Health also offers
full service health care plans for ESRD and CKD patients. The health care business
is part of a Medicare Advantage Special Needs Plan that works with the Centers
for Medicare and Medicaid Services, or CMS, to provide ESRD patients full service
health care. Revenues are recognized as earned and are based on capitated rates
as determined by CMS for each patient enrolled in the plan.
• ESRD clinical research programs. DaVita Clinical Research conducts
research trials with dialysis patients and provides administrative support for
research conducted by DaVita-affiliated nephrology practices. Revenues are based
upon an established fee per study, as determined by contract with drug companies
and other sponsors and are recognized as earned according to the contract terms.
• Management fee income. We currently operate or provide management
and administrative services to 23 outpatient dialysis centers, in which we either
own a noncontrolling interest, or are wholly-owned by third parties, under management
services agreements. Management fees are established by contract and are recognized
as earned typically based on a percentage of revenues or cash collections generated
by the centers.
Medicare revenue
Under the Medicare ESRD program, payment rates for dialysis are established
by Congress. The Medicare composite rate set by CMS, pays freestanding dialysis
facilities for services provided to Medicare beneficiaries under two methods:
(1) the composite payment which includes a base payment, adjusted for case-mix
and geography, which has no statutory inflation adjustment mechanism, and a
drug add-on payment, which is updated annually to account for changes in drug
prices and utilization and (2) separately billable drug reimbursement. Thus,
facilities receive a composite payment rate per treatment to cover routine dialysis
services, certain pharmaceuticals, routine lab work, and other supplies, as
well as a separate payment for pharmaceuticals that are not included in the
composite payment rate. The Medicare composite rate is subject to regional differences
based upon several factors, including differences in wage levels and is subject
to a case mix adjustment methodology designed to link payments more closely
with illness severity. We are paid separately for other services and pharmaceuticals,
including Epogen®, or EPO, vitamin D analogs and iron supplements. Pharmaceuticals
are generally paid at average sale price, or ASP, plus 6% based upon prices
set by Medicare. The Medicare payment rates, including separately billable drugs,
are not sufficient to cover the average cost of providing a dialysis treatment.
Medicaid revenue
Medicaid programs are state-administered programs partially funded by the federal
government. These programs are intended to provide health coverage for patients
whose income and assets fall below state-defined levels and who are otherwise
uninsured. These programs also serve as supplemental insurance programs for
co-insurance payments due from Medicaid-eligible patients with primary coverage
under Medicare. Some Medicaid programs also pay for additional services, including
some oral medications that are not covered by Medicare. We are an authorized
Medicaid provider in the states in which we conduct our business.
Competition
The dialysis industry is highly competitive, particularly in terms of acquiring
existing dialysis centers. We are facing increased competition in the dialysis
industry from large and medium-sized providers which compete directly with us
for acquisition targets as well as for individual patients. Acquisitions and
patient retention are an important part of our growth strategy and our business
could be adversely affected if we are not able to continue to make acquisitions
on reasonable terms or if we face significant patient attrition to our competitors.
Competition for qualified physicians to act as medical directors and for inpatient
dialysis services agreements with hospitals is intense. Occasionally we have
also experienced competition from former medical directors or referring physicians
who have opened their own dialysis centers. In addition, we experience competitive
pressures in connection with negotiating contracts with commercial healthcare
payors.
7.63% 
