Javier J. Rodriguez
Chief Executive Officer at DaVita
Thank you, Joel, and thank you all for joining the call today. It is an interesting time right now as our country and our world are facing a unique portfolio of onetime events, all happening at the same time. On the positive side, we're gathering and interacting more as communities and society as COVID infection rates have declined. On the more challenging side, we're dealing with new economic pressures of inflation, supply channel constraints and the sad consequences from the war between Russia and Ukraine. As our organization works through these challenges, I think it is critical to keep in mind why DaVita exists. We are a patient-focused organization that provides life-sustaining care to over 240,000 people in 12 countries, which is why I want to start the call by sharing clinical highlights. As you know, one of our key focus areas has been improving a patient's experience in dealing with their kidney disease, and one way to do this is through focused efforts to reduce the amount of time that our patients spend in the hospital. With our new integrated care partnerships, we have been scaling our models of care and are seeing early results of double-digit percentage reduction in time spent in the hospital, which is absolutely great for our patients and for the health care system. These results are in line with our expectations. The improvement is primarily driven by our care management, our clinical interventions and our focus on the quality of care of our patients.
Pure hospitalization translates into better quality of life for our patients and more healthy days at home doing the things that they like with the people they love. We are optimistic about these early results, and we'll continue to find ways to improve our patients' quality of life. Now let me transition to our first quarter performance. In Q1, we delivered operating income of $338 million and earnings per share of $1.61. Operating income was down sequentially, primarily due to typical seasonal factors, continued volume pressures from COVID and higher wage expenses. The mortality rate of Omicron variant of COVID has been significantly lower than prior variants, but the sheer magnitude of cases resulted in estimated excess patient mortality of approximately 2,100 in the first quarter. Therefore, our treatment volumes declined compared to the prior quarter. The good news is that patient infections and mortality rates have declined over the last couple of months, consistent with national trends, and we have not yet seen significant impact from new subvariants. Therefore, we're beginning to see positive trends in treatment volumes in both March and April. On staffing, as we've discussed previously, we continue to experience a challenging labor market. Year-over-year, our first quarter field labor expense increased over 6%. The increase is due to a mix of higher-than-normal merit increases, higher incentive pay, increased utilization of contract labor and lower productivity due primarily due to higher training costs and inefficient staffing associated with cohorting COVID patients. While we're seeing some positive trends in our ability to fill open roles in our clinics, we expect to experience higher-than-normal, year-over-year labor cost increases for all of 2022.
With all of these challenges, we believe it's more likely that our performance will fall within the bottom half of our guidance range for 2022. However, there are scenarios in which our results could be above or below this due to the uncertainty of the environmental impact of labor, costs and COVID. Looking forward to 2023 and beyond, we're preparing for wage rate growth to continue above average historical levels. To offset this impact, we will need to demonstrate continuous cost innovation. We have already identified a number of cost savings opportunities to help mitigate these inflationary pressures. These include savings from a new ESA contract, G&A efficiencies, capacity utilization improvement, clinical operation optimization and procurement improvements. We expect to start realizing these savings in 2023 with a full run rate benefit in 2025. We believe that these anticipated savings, combined with an expectation of higher rate increases from government and private payers in the future, can keep us on a path to deliver on our long-term adjusted operating income growth of 3% to 7% and an adjusted earnings per share growth of 8% to 14%. I will wrap up my prepared remarks with some thoughts on our Integrated Kidney Care or IKC business. As we shared in our Capital Markets Day, we continue to see significant potential for our IKC business. First, delegated patient volumes are strong and consistent with our initial modeling with some potential upside over the next 12 months. We are on track with our expected ESKD member growth via new payer partnerships, and we are trending ahead of plan on new CKD payer partnerships as payers recognize our ability to effectively collaborate with physicians on managing this patient population.
Second, available cost savings may be higher than initially forecasted given strong nephrologist engagement and from the recent release 2023 MA rate increase of approximately 10%. Third, we have expanded the number of nephrologists with whom we are working with in value-based care. We are now engaged in a new value-based partnership with over 1,800 nephrologists around the country with more than 600 nephrologists using an integrated CKD electronic health record. Last, we continue to have confidence in our clinical model, which is now beginning to operate at scale.
With that, I will turn it over to Joel to discuss our financial performance and outlook in greater detail.
