DaVita Q2 2023 Earnings Call Transcript

Presentation

[Operator]

Good evening, my name is Michelle and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita's Second Quarter 2023 Earnings Call. Today's conference is being recorded. If you have any objections you may disconnect at this time. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]

Mr. Eliason, you may begin your conference.

[Nic Eliason, Group Vice President of Investor Relations at DaVita]

Thank you and welcome to our second quarter conference call. We appreciate your continued interest in our company. I am Nic Eliason, Group Vice-President of Investor Relations, and joining me today are Javier Rodriguez, our CEO; and Joel Ackerman, our CFO.

Please note that during this call we may make forward-looking statements within the meaning of the federal securities laws. 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. For further details concerning these risks and uncertainties, please refer to our second quarter earnings press release and our SEC filings, including our most recent Annual Report on Form 10-K, all subsequent quarterly reports on Form 10-Q, and other subsequent filings that we may make with the SEC. Our forward-looking statements are based on 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.

Additionally, we'd like to remind you that during this call we will discuss some non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release furnished to the SEC and available on our website.

I will now turn the call over to Javier Rodriguez.

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Thank you, Nic, and thank you for joining our call today. I hope that everyone is having a safe and joyful summer. At DaVita, we've been focused on innovation and continuous improvement to provide the highest quality of care for our patients. And in-hand with these efforts, we've been driving operational improvements across our organization. Our second quarter performance reflects strong traction across those initiatives putting us on a path to deliver strong clinical outcomes and financial results for the year.

Today, I will cover the second-quarter results, offer some perspective on the industry landscape and drivers of long-term performance and update our full-year guidance.

Before we get into the second quarter details, I would like to take a moment to celebrate a clinical and technological milestone. On our February call, we mentioned the rollout of our next-generation clinical IT system, which we refer to as a Center Without Walls or CWOW. I'm happy to report that after five years of development, CWOW is now live in each of our approximately 2,700 clinics across the United States. This patient-centric cloud-based system combined and replaces four legacy systems and is designed to provide a seamless flow of information across each of our centers in all modalities. This includes real-time clinical dashboards, data sharing with our physicians and integrated kidney care platforms and notifications such as critical lab alerts. For ease of use features, it response wristband or quick teammate login, improved ability to track and rescheduled missed treatments, enhanced real-time documentation, and consolidated reporting for streamline analysis. And while we're enthused about these immediate benefit, the most significant enhancement is the state-of-the-art data structure and platform upon which we can build further capabilities including artificial intelligence to advance the care delivery in the years ahead. With this groundbreaking platform, our clinicians are able to access the right information at the right time in the right place.

Transitioning to our financial performance. In the second quarter, we delivered adjusted operating income of $432 million and adjusted earnings per share of $2.08. These results were driven by improvements across our financial trilogy of treatment volume, revenue per treatment, and patient-care costs. I'll touch on each of these in a bit more detail. On volume, we saw our second consecutive quarter of improvement in census and treatments per day. This is encouraging as it is a result of better macro-environment and progress in our operating initiatives. We're trending near the top of our original volume range of down 3% to flat year-over-year and if these trends continue, we would anticipate delivering volume growth in 2024.

Shifting the revenue and revenue per treatment. Revenue per treatment was particularly strong in the quarter. This was primarily driven by typical seasonal factors from patients meeting their co-pays and deductibles, along with normal expected rate increases and improvement in mix, including Medicare Advantage. Adding to the RPT increase, we have seen progress from investments we've been making in our revenue cycle capabilities. These investments resulted in higher cash collections and a decline in our DSO. I'm excited about the investments we've been making in this area, which represent a good example of how we are constantly improving operations.

And finally, patient-care costs improved as expected in the quarter. Although base wage increases remain well-above historic pre-pandemic levels. Other expenses, including contract labor and pharmaceuticals continued to decline. This benefit was partially offset by elevated training costs while staffing level in our clinic are in a much better position compared to last year, we continue to experience above-average turnover among facility teammates. As a result, we no longer expect an improvement in our training productivity during the back half of this year.

Taking a step back from the most recent results, I would like to offer some reflections on the broader industry landscape and our effort to drive performance going forward. Beginning with the reimbursement rates, we're disappointed by CMS's proposed rule to update the ESRD Prospective Payment System for 2024, specifically, the proposed rate increase falls short of expected cost inflation in 2024 and it fails to adjust for the acknowledged inflation forecast met with relative to actual wage and inflation increases over the past two years. The kidney care community will continue to advocate for an adjustment mechanism to reconcile these forecasts similar to what exists today for skilled nursing facilities.

In response to the persistent cost inflation. We are continuing our track record of innovation across all areas of our cost structure. Most recently, we consolidated portions of our facility footprint and reduce pharmaceutical costs through our conversion to Mircera for anemia management. These programs are proceeding in line with our expectations.

Going forward, we will continue to drive cost efficiencies across the P&L. Through these efforts and continued improvement in our volume trends, we continue to target 3% to 7% long-term growth of our enterprise-adjusted operating income. Looking forward to the remainder of the year, given our progress during the second quarter, we are revising our adjusted operating income range of $1.475 billion to 1.625 billion to a new range of $1.565 billion to $1.675 billion. We're also updating our adjusted earnings per share range of $6.20 to $7.30 to a new range of $7 to $7.80.

Our performance relative to this guidance will continue to depend heavily on momentum in patient census strength, our ability to manage patient-care costs within the broader labor environment, and sustained improvement in revenue cycle management.

I'll now turn the call to Joel to discuss financial performance and outlook in more detail.

[Joel Ackerman, Chief Financial Officer, DaVita Inc. at DaVita]

Thanks, Javier. I'll walk through a few factors driving our strong performance in the second quarter starting with treatment volume. In the second quarter, US dialysis treatments per day were up by approximately 0.3% sequentially. This is the result of continued census gains in the second quarter, driven by an increase in new to dialysis admits, mortality remains higher than pre-COVID levels but came in lower than Q1 and in line with our expectations for the quarter. Our missed treatment rate continues to be elevated relative to historic levels.

Revenue per treatment was up $10.59 versus Q1. Approximately half of this increase was the result of seasonality, primarily due to higher patient responsibility amounts in the first quarter. Approximately $2 came from normal expected rate increases and continued increases in patient mix. An additional roughly $2 was the result of strong cash collections in Q2. As Javier said, we have been investing in improvements in our revenue cycle management systems and processes and are beginning to see the benefits of these efforts in both RPT and DSOs. We were anticipating these improvements but they came earlier than forecasted. We expect these benefits to persist in the back half of the year and going forward. As a result, we now anticipate year-over-year RPT growth to be 2.5% to 3%.

On a non-GAAP basis, patient-care cost per treatment decreased 1.5% sequentially. While base wage increases remain high. We have successfully reduced, most of the temporary compensation measures we relied on during 2022. At the end of Q2, contract labor has returned back to pre-pandemic levels. Operating income from our integrated kidney care business was approximately flat with Q1. The quarter benefited from positive prior-period development in our special needs plans and the timing of expenses that were delayed into later this year. For the full year, we now expect IKC-adjusted operating income to be approximately flat to 2022 operating income-loss of $125 million.

Regarding our clinic footprint in Q2, we closed or consolidated 16 centers in the US bringing our year-to-date US closures to 36. We continue to assess further facility consolidation and closures during the back half of the year.

Regarding capital structure, we ended the quarter with a leverage ratio of approximately 3.7 times EBITDA and did not repurchase any shares during the second quarter. Our capital allocation strategy remains focused on capital-efficient growth, a target leverage ratio of three to 3.5 times EBITDA, and the return of excess cash flow to investors through share buybacks. Given our increased guidance for the balance of the year, we have increased visibility towards bringing our leverage level back within our target range.

That concludes my prepared remarks for today. Operator, please open the call for Q&A.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] Our first caller is Kevin Fischbeck with Bank of America. You may go ahead, sir.

[Joanna Gajuk, Analyst at Bank of America]

Good afternoon. Actually, this is Joanna Gajuk filling in for Kevin. Thanks for taking the question here. So thanks for the color around revenue per treatment breakdown in terms of the drivers there and clearly you had a strong performance. And I appreciate the commentary, I expect, I guess faster growth for the year. So just looking into the pieces because you saw the better payer mix as one of the drivers. Could you talk about the specifics of commercial pricing and what you -- or the kind of rate increases are you getting this year and also any indications for how things are tracking into next year because I guess that's where maybe one area it because you also mentioned the Medicare rate out there being lower than cost inflation. So is the commercial pricing, I guess trucking better?

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Yeah, thank you for the question. Joanna, I'll start off and Joel, you can supplement if I miss anything of importance. The private-pay mix is holding up, it picked up. 20 bps and we continue to see that our private-pay patients really value their insurance. As it relates to rate increases, just a reminder, most of our contracts are multi-year. So in any given year, we don't negotiate that many contracts, there's nothing really to call out on that, our rate per treatment increases are in-line with expectations. So is there -- there's another part to your question that I didn't answer, Joanna?

[Joanna Gajuk, Analyst at Bank of America]

No, this was it, but I guess also related if I can follow up to that topic in terms of the Marietta case and I guess we spoke before, there's still bipartisan support for FX. So can you give us any update on that and I guess on that topic, as it relates to pricing, commercial pricing? Are you seeing employers using this court decision to restrict networks or are they using it to maybe bring it up into price negotiations when it comes to pricing?

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Sure. Let me take a missed earlier. Let me lenses up a little since some people are not tracking all of the Marietta. So it's probably best for me to divide it into what we know and what we don't know. So let me start with what we do know. As we look at our claims year-to-date, we have not seen much change compared to prior years. So there's not a lot of volume, but we have learned more about how employers change benefits and mislead members on how it's done and so we don't want to accommodate this poor behavior. So what we have done is we've implemented a verification process at admissions and as an employer eliminates the network dialysis benefit for its member then we have the right to prevent that plan from having access to our centers.

In addition, we continue to have very high interest by partisan interest and making sure that policymakers protect our patients. So those are the things that we do know. What we don't know is how many employer groups are considering carving out dialysis from their network in the future and we also don't know if or when members of Congress will introduce the bill and how the CBO will score it.

The last part of your question was are payers using this in one way or another and it has not come up in one negotiation because this is really more of a dynamic between the employer trying to decide what to do with the plan, not what's the payer does with the provider. The provider and the payor both value network. Is that help you, Joanne?

[Joanna Gajuk, Analyst at Bank of America]

Yeah, it makes sense. No-no that totally makes sense and I appreciate it. So in terms of what's going on in Congress and the score. Is there any indication, what we might hear about this or that's not really something that we can predict from the outside?

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Yeah, there's nothing we can predict from the outside, that's left to the policymakers, champions, and the dynamics of Washington DC.

[Joanna Gajuk, Analyst at Bank of America]

Great, thank you. And if I may, just on the guidance raise rates, it sounds like some improvement in the pricing rate and then I guess, contract labor sounds like that's better, is that the way to frame the guidance raise of $70 million of the operating income, adjusted operating income guidance?

[Joel Ackerman, Chief Financial Officer, DaVita Inc. at DaVita]

Yeah, Joanna, if I were to kind of give you the pieces of what drove $70 million of increased guidance that's middle of the range, the middle of the range on the ROI, I'd say about half is the RPT as you called it out. The other half is volume. We saw stronger admissions this quarter and the nature of volume is it's cumulative, it will never really kick-in in any one quarter in that big away, but as it accumulates stronger in Q1, stronger in Q2, and we see it better in the back half of the year. For the full year, we think that'll contribute about half of the $70 million. Contract labor, it continues to improve, but it's now pretty much in line with what we were expecting. As we said in the prepared remarks, it's really back down to pre-COVID levels and hopefully, it won't be much of a topic going forward.

[Joanna Gajuk, Analyst at Bank of America]

Thank you. I appreciate it. Thanks for the color.

[Operator]

Thank you. [Operator Instructions] Our next caller is Andrew Mok with UBS. Sir, you may go ahead.

[Andrew Mok, Analyst at UBS Group]

Hi, good afternoon. I appreciate all the color on the sequential RPT improvement, but just a couple of follow-ups there. First, is the seasonality component in line with historical seasonality or is there something about the patient benefit design that's creating more acute seasonality this year, and can you go into a bit more detail on what's driving the better cash collections? Thanks.

[Joel Ackerman, Chief Financial Officer, DaVita Inc. at DaVita]

Yeah, Andrew. Thanks. So on the seasonality, no, it was a little bit more than $5 million, which is per treatment, which is right in line with what we've seen historically. In terms of collections, look, we have invested in our processes and in our technology to get better information and to give better information to the health plans on everything from prior authorizations to other data required to claim submissions and that's both, the quality of the data and the timeliness of the data and what we're seeing is we're getting paid quicker and that's why you saw DSOs come down last quarter and again this quarter and we're also seeing we're collecting more and that's what's driving the RPT increase and I think the most important thing from our standpoint, this is not a one-time thing, these are fundamental changes that we've made that we think will persist.

[Andrew Mok, Analyst at UBS Group]

Great. Appreciate the color. And then as a follow-up, the guidance, the OI guidance is up about 5%, I think your free cash flow was up about 10%, can you help bridge the difference there? Help us understand why the free cash conversion is better on the new guide and I think I missed your comments on share repurchase, but we'd love to get your latest thoughts around there and the potential resumption of share repurchase. Thanks.

[Joel Ackerman, Chief Financial Officer, DaVita Inc. at DaVita]

Sure, so the big difference between OI and free cash flow is the DSOs, as we see those DSOs come down that will add to the free cash flow for the year. In terms of share repurchases, we're on track with what we set out to do. Our leverage levels were above our target range. I think we were -- we were quite clear with everyone, we wanted to get back down to 3.5% or below. We're making good progress on that. We're at 3.7% for the quarter and we didn't buy back any shares. We don't expect to buy back any shares in Q3, but we feel like we've got better visibility now to get back to the 3.5% or below.

[Andrew Mok, Analyst at UBS Group]

Great. Thank you. I'll hop back in the queue. Thank you.

[Joel Ackerman, Chief Financial Officer, DaVita Inc. at DaVita]

Thank you.

[Operator]

Our next caller is Pito Chickering with Deutsche Bank. Sir, you may go ahead. Your line is open.

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Hi, Peter.

[Operator]

Peter your line is open. We'll go to the next caller, Lisa Clive with Bernstein. You may go ahead.

[Lisa Clive, Analyst at Sanford C. Bernstein & Co.]

Hi, there. Apologies, Javier, if you touched on this in the opening remarks, I was a few minutes late, but just could you comment on the CMS rate increase? And the fact that they committed a mistake in the calculations and what the chances are getting an improvement there and also, just as we think about going into 2025, what would a fair rate increase look like, and perhaps what lower number should our expectation around that actually be?

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Yeah, thanks for the question, Lisa, it's kind of funny, I've been here for a very long-time, and not many questions used to come up about the rate increase with Medicare and so we started to ask ourselves, why is this a new dynamic and the reality is, is that the system is quite complicated, but it works relatively well in times when there is economic stability and yet when it -- when we're experiencing times of inflation or lack of stability, it's really showing that it doesn't work in many ways, but -- so let me step back, if you -- if you were to spend time on trying to understand the methodology you would really come to the conclusion that it is practically not possible to forecast because there's just too many things that are either proprietary or use lag data or a benchmark that is not related to dialysis, it's a benchmark related to all healthcare costs, and it's all weighted and then discounted with some kind of productivity factor.

And so the short answer is it's a big complicated equation with some variables that we will not have visibility to. So that's the short answer, we can't forecast it and I can't believe anyone from the outside world, can. Secondly, what is the appropriate one and what we are advocating for is, let's not have let's call it winners or losers, we understand the forecasting is difficult, but let's have a reconciliation that is actually linked to actual cost and that cost if you get an increase and it's -- and exceeds what inflation that there could be a decrease or vice-versa. So that's what we're advocating for, as you know, it is very difficult, Washington DC right now on trying to get funding, but we are trying to make our case.

[Lisa Clive, Analyst at Sanford C. Bernstein & Co.]

And maybe just touching on MedPAC's role here, I mean there is sort of -- well the economic advisor to Medicare, but they don't have any enforcement power and I think there -- there's sometimes some years there a big disconnect between the MedPAC recommendation and the rate and then this year it was actually quite in line, I mean, from your perspective, do you guys even look at the MedPAC numbers? I think it's -- it seems like it should be a useful data point, but it often isn't.

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Yeah, the process from MedPAC, it's a bit opaque to us, we try to educate and highlight what is really happening with our cost structure. And again, in periods of stability, it happened to be give or take within reason acceptable and now the gap is widening and it's widening compounded year after year. So it's really starting to be significant.

[Lisa Clive, Analyst at Sanford C. Bernstein & Co.]

Okay. And then last follow-up is, does this have just given how the rate increase was, does this change your decision on some clinic closures in any way because obviously, that's always the worry that if the Medicare rates get too low, you just have clinics here and there, where you're on all Medicare and it just doesn't financially make sense anymore.

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Yeah, there's lots to go into the decision to close our clinic in particular, we got to really focus on patient care and making sure that our patients were being taken care of, but it is absolutely a consideration when you look at the economics, but sort of the first filter is continuity of care. The second is, is there a convenient place for that patient can be taken care of, and then after that, you get into economic factors such as reimbursement, leases, and other things, but we are aggressively looking at our footprint and we continue to rightsize to make sure that we're thoughtful about our resource allocation and capital allocation.

[Lisa Clive, Analyst at Sanford C. Bernstein & Co.]

Great. Thanks for that.

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Thank you.

[Operator]

Thank you. [Operator Instructions] Our next caller is Pito Chickering with Deutsche Bank. Sir, you may go ahead.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Hey, can you guys hear me now?

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Yes, yes Pito.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Alright, start with that, I'm not sure what happened there. Back to treatment growth here. Pre-COVID like you're getting about 4,000 new patients a year, about two-thirds of those in the first half of the year from nephrology scrapping on and obviously the rest coming from hospitalizations for you guys. I guess, how is that tracking this year at this point relative to sort of that 4,000 times two-thirds, is that what you guys are seeing for new patients at this point?

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Yeah. So Pito the -- the short answer is, if you're looking at admits, we are tracking pretty much to pre-COVID levels. The challenge is excess mortality, and that remains elevated, and that's the reason that we're not yet ready to say we're going to return to pre-COVID growth levels. That said, mortality has been coming down year-after year since COVID started, it's down Q2 versus Q1. So if mortality continued to decline and returned to pre-COVID levels then -- then the math you laid out of 40,000 new patients a year, we'd be back there.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Which is a perfect segway for the next question about mortality, you used to talk about that. So, coming down, I guess is there any way you can give us or what is the rate of that decline and if it follows that path you've seen the last three quarters? Is this sort of what glide path would that indicate?

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Yeah, that's a -- it's a tough piece of analysis to do because it hasn't necessarily been smooth quarter-to-quarter or year-to-year, so look, we're watching it carefully. We all know, there is a minor surge going on, but I think minor is the operative word from what we've seen so far. So we're keeping a careful eye on it, but I don't think we can -- we can draw a trend line based on the history to say when we think mortality gets back to zero -- where excess mortality gets back to zero.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Okay. Like is this only didn't quantify for us what excess mortality was this quarter and when is where it was last quarter.

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Yeah, last quarter, it was roughly 900 lives, this quarter it was between 500 lives and 600 lives, remember we will sometimes update those over time. We get --we get better views of excess mortality as time goes on, but somewhere between 500 lives and 600 lives is our best estimate for Q2.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Okay. And I definitely understand sort of the complexity of coming up with those for a variety of different reasons. For Medicare Advantage, what percent of your MA patients are currently taking risks for one-way or another?

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

I'd have to do the math quickly in my head. Pito, I don't want to give you a bad number. So I'm going to, I mean let's -- let's take that offline.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Okay. Next one here is on the managed-care rate increase question that was asked earlier. I guess, are you seeing managed care do anything different in terms, not just from the rate increases, but potentially try to steer patients like, have you seen any behavior changes for managed care in the last 90 days or so, just obviously as you're seeing increased realizations elsewhere? Just curious if they are trying to control costs within other parts of the business.

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

No, we haven't seen, no changes at all.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Okay, got it. And then just last one here. On the pace of consolidation for facilities, obviously you guys the lowest-hanging fruit, first, but as you see the success of capturing those patients with another other centers do you get more aggressive about consolidation and then maybe you had originally planned for about a year from now? And when these patients are consolidated, do you see an increase in treatments at that point?

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Yeah, I think we want to be really careful about being "aggressive", but we want to be really thoughtful and balanced in all the trade-offs that go into closing a center, we have to remember our patients are incredibly vulnerable and one of the most important things is to be close to their home and so 90 some-odd percent of our patients are within 10 miles of their home and that is one of the best things we can offer convenient and we talk a lot about health equity issues and not being in the communities, we are in the communities. And so we take that pretty seriously, but as the economics constraints happen, we are able to accommodate our patients, we are being very thoughtful on that and we have other obligations like leases and other things. So there is a natural time to review our clinic to see if it's appropriate for closure.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Okay.

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Then the second part to your question, I think, Pito.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Yes, so to ask some questions in different ways. I guess as a patient is consolidated, do you see increased utilization of home treatments? And then the same for the question is, what percent of treatments today are being done in the home?

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

You know the answer. We're not seeing any changes in whether a patient goes home or not. We continue to be a very much an advocate of home. There's a lot of dynamics and education that go into that and we want the right modality for the right patient, but we are huge home champions and the mix on a home is roughly around 15%, a little above that, like 15.2% or so, but it's been hanging around that 15%, COVID had a big impact on home that many patients felt more comfortable in that time of insecurity to go and be taken care of by professionals but we're starting to see a slight pickup in patient choice to go home.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Okay. And then I think the last question for me here. Can we get an update on Medtronic JV, I guess how much of a drag is that on OI? And just as you look at it today, kind of what's the pathway to that becoming operating income neutral? And just can you just kind of refresh us on sort of why is that a good opportunity for you guys? Thanks so much.

[Joel Ackerman, Chief Financial Officer, DaVita Inc. at DaVita]

Sure. So, just as a reminder, it doesn't hit our operating income, it's below the OI line, so it hits EPS, it's worth about $15 million pre-tax per quarter. That's on a non-GAAP basis. This quarter we actually had some positive gains as a result of the transaction and we think that number will decline over the next couple of years and we anticipate that getting to break even in two to three years.

In terms of why we like this, look as Javier mentioned, we are really interested in figuring out ways to help our patients get home and new technology can be part of that answer. We're looking for other ways to innovate beyond just the service and information capabilities that we can do and we recognized Medtronic as a world-class leader in innovation on the medical device side and we just thought their history here combined with our knowledge would make for a great partnership, which is why we invested in Mozarc.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Perfect. All right. Then the last quickie for me. Maybe I missed it, did you guys quantify what the turnover was versus nurses and technicians, for this quarter and how that compares versus 2019? Thanks so much.

[Joel Ackerman, Chief Financial Officer, DaVita Inc. at DaVita]

Thank you for that last question. We did not go into that level of detail. I think what we can say on labor because we've gone into so much detail on labor is in the overall category it is playing out as expected, some of the underlying components have shifted a bit and so just to give a little more detail on that base wages are above are normal averages, our contract labor is back-in line to normal and we continue to have elevated training. And so that's how the leverage are moving, but overall the category is as expected.

[Pito Chickering, Analyst at Deutsche Bank Aktiengesellschaft]

Great. I'll stop there. I thank you guys very much.

[Joel Ackerman, Chief Financial Officer, DaVita Inc. at DaVita]

Thank you.

[Operator]

And at this time, I am showing no further questions, sir. We do have one more question. Andrew Mok from UBS. You may go ahead, sir.

[Andrew Mok, Analyst at UBS Group]

Hi. Just have a couple of follow-ups on the clinic closures. You closed down 16 clinics but opened 10 new dialysis clinics, I'm just trying to better understand what's driving the new clinics at this point, given, I thought a lot of the clinic closures was a result of excess mortality. So what are you seeing in the market that's causing you to open new clinics? Are there any characteristics that you would call out about them, whether they're home dialysis programs or anything like that? Thanks.

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

In general, you can imagine healthcare is local, and so there are areas where there are literally four clinics there's sometimes relocations, sometimes as you called out there might be just a home center that was needed. So there is a little of all but as you can see the number is materially smaller as we are very focused on making sure that capacity utilization is where it needs to be and that we're capital-efficient.

[Andrew Mok, Analyst at UBS Group]

Got it. And on the mortality, I think you gave us the absolute number in the quarter. Can you give us a sense for how the mortality rate in general is tracking and how far off are you against pre-pandemic levels? Thanks.

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

The mortality level looks roughly a percentage or so higher than pre-pandemic. And as Joe talked about it, it's a bit cyclical, and depending on the surge there is one or sort of the front-end tends to have higher mortality, the front-end of the year or the back-end in the year versus the middle of the year, but I think a good number is roughly 1% or give or take 2,000 patients.

[Andrew Mok, Analyst at UBS Group]

Great. Thanks for all the color.

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Thank you.

[Operator]

And at this time, I'm showing no further questions.

[Javier J. Rodriguez, Chief Executive Officer, DaVita Inc. at DaVita]

Okay, well thank you, Michelle, and thank you all for your questions. As you heard to our comments today, we've continued to drive operational efficiencies and make investments to fuel our performance now into the future years as well. Some of those seeds that we planted are beginning to sprout and some will take additional time and continued effort. We look forward to keeping you updated on our continued progress in the back half of the year. Thank you for joining the call and be well.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Nic Eliason, Group Vice President of Investor Relations
• Javier J. Rodriguez, Chief Executive Officer, DaVita Inc.
• Joel Ackerman, Chief Financial Officer, DaVita Inc.

Analysts

• Joanna Gajuk, Bank of America Co.
• Andrew Mok, UBS Group AG
• Lisa Clive, Sanford C. Bernstein & Co.
• Pito Chickering, Deutsche Bank Aktiengesellschaft