Javier Rodriguez
Chief Executive Officer at DaVita
Thank you, Joel. Good morning, everyone and thank you for joining our call today. Q3 was a challenging quarter for us. While natural COVID statistics have been declining, the cumulative impact of COVID on the ESKD patient community continues to grow. Despite the economic challenges, we continue to deliver high-quality clinical care for our patients. We remain incredibly grateful for the amazing work of our frontline teammates who are unrelenting in their focus on caring for our patients.
While our commitment to patients is a constant, it is particularly highlighted when a community is in need. As you know, on September 28, Hurricane Ian made landfall in Southwest Florida, subjecting the community to sustain 100-plus mile per hour wind and significant flooding. This led to many health and safety issues for the people in the area, especially people who require life-sustaining dialysis treatment. DaVita operates 230 dialysis centers in Florida with approximately 14,000 patients and 3,250 teammates. Through our comprehensive preparedness planning, I'm grateful that 100% of our patients were accounted for and all had received dialysis within days of landfall of the hurricane. We deployed water tankers, generators, fuel tankers to quickly restore operations in affected areas as well as to provide dialysis to patients from across the kidney care community.
Now turning to our financial results. As I mentioned, it was a challenging quarter. For Q3, our adjusted operating income was $351 million and adjusted earnings per share was $1.45. Adjusted operating income was down sequentially by $88 million from Q2 and was below our expectations for the quarter. The headwinds in volumes have persisted longer than we assumed and contract labor costs and productivity did not begin to improve in the quarter as we had expected. We are now assuming these pressures will continue longer than previously anticipated. As a result and given the continued uncertainty from COVID and the labor market, we are lowering our guidance for the year and our outlook for 2023 as well.
We are reducing our 2022 adjusted operating income guidance to a range of $1.375 billion to $1.45 billion and our 2022 adjusted EPS guidance to $6.20 to $6.70 per share. For 2023, we're updating our outlook for year-over-year adjusted operating income growth to negative $50 million to positive $150 million as outlined in our press release for this quarter. As we have said in the past, volume and labor continue to be the biggest drivers of uncertainty in our results. Let me walk you through the details on what we have seen on each of these and what we're assuming going forward.
Let's start with the three main drivers of volume. Census growth before excess mortality, net treatment rates and excess mortality. I will cover each of these individually. First, on census growth, excluding excess mortality, we have seen a decline in patient admissions during each COVID surge, followed by a rebound after each surge. The decline we saw earlier in the year was attributed to Omicron search which we anticipated would rebound in the second half of the year as it has in prior surges. We did not see the expected rebound in Q3 and are assuming continued pressure on admissions in Q4 and through 2023. Next, net treatment rates. As we discussed during our Q1 earnings call, as a result of Omicron search, mid-treatment rates had increased and we're having a meaningful impact on the change in our treatment volume. We anticipated these increases would return to seasonal norms after the win in search and they have not. As a result, we are now assuming these will remain elevated through the end of this year and through 2023.
Finally, on excess mortality. While COVID mortality rates in 2022 are down from prior years, access mortality remains a challenge for us. We expect this to persist in Q4 and into 2023. The magnitude of the impact will depend on the size and the severity of COVID surges this winter and through the rest of 2023. Taking these three metrics together, volume remains the biggest source of uncertainty in our forecast for Q4 2022 and 2023.
Moving on to labor. I will cover three drivers: wage rate, contract labor and training costs. As we've talked about in the past, we've been assuming significant wage pressure in 2022 with some offsets from lower benefit costs. Overall, we expected a headwind in 2022 of approximately $100 million to $125 million. Year-to-date, our results are consistent with this forecast. We had also seen significant pressure from contract labor costs in the first half of the year. We expect these to remain elevated in Q3, although at levels below Q2. In fact, the contract labor cost in Q3 increased relative to Q2 and we're now forecasting that, that decline will be later and slower than originally anticipated.
On training, we went into Q3 with elevated costs as a result of more hires which is consistent with increases we have seen in past during hiring peaks. Training costs accelerated in Q3 and which resulted in approximately $20 million higher costs in the quarter than expected. Because of the elevated turnover, this has not yet resulted in the magnitude of positive impact we would normally expect on contract labor or staffing level. As a result, we expect training costs to remain elevated in Q4 and early 2023. In response to these challenges, we continue to work on a number of cost-saving initiatives for 2023. First, we expect to deliver meaningful savings from our new contract from anemia management. WE will begin to transition to our new contract for Mircera in 2023. Second, we are optimizing our clinic footprint for the current operational environment which we expect to result in higher capacity utilization and better leveraging of our clinic fixed costs, including labor costs.
Finally, we have initiatives underway to reduce our G&A in several areas of the business while investing in our future. As discussed, the cumulative and continued effects of COVID and labor are the key drivers of the shift in our outlook for the balance of 2022 and through 2023. We have anticipated that volume declines from COVID and labor market pressures would impact our revenue growth and margins in 2022, so we had expected release from both dimensions in 2023. We are now assuming these challenges will persist longer than expected which is what accounts for the change in our guidance. As we step back, we remain confident in our strategy and we are focused on responding to the current industry challenges.
We're dedicated to delivering high-quality care of our patients, creating a great place to work for our teammates and sustaining our investment in the future to drive growth in integrated kidney care, have more patients treated home and increase access to transplant.
I will now turn it over to Joel to discuss our financial performance and outlook in greater detail.
