DaVita Inc. 2021 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2021, compared primarily with 2020. DaVita provides kidney dialysis and related services. Its U.S. dialysis business generated about 91% of consolidated revenue; at year-end it served approximately 203,100 U.S. patients through 2,815 centers and about 39,900 international patients through 339 centers in ten countries. The former DaVita Medical Group is reported as discontinued operations.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $11.619 billion | $11.551 billion | +0.6% |
| Operating income | $1.797 billion | $1.695 billion | +6.0% |
| Net income attributable to DaVita | $978 million | $774 million | +26.5% |
| Diluted EPS from continuing operations | $8.90 | $6.39 | +39.3% |
| Cash from operating activities | $1.931 billion | $1.979 billion | -2.4% |
| Free cash flow, company-defined | $1.133 billion | $1.188 billion | -4.6% |
Operating margin was approximately 15.5%, versus 14.7% in 2020. U.S. dialysis operating income rose 3.0% to $1.975 billion; international operating income rose 82.6% to $42 million. U.S. ancillary services posted a $108 million operating loss, while total ancillary services lost $66 million. Debt expense declined to $285 million from $304 million; the weighted-average effective interest rate on debt was 3.28% for 2021.
At year-end, cash and cash equivalents were $462 million, short-term investments $22 million, and the $1.0 billion revolving credit facility was undrawn. Debt principal outstanding was $8.965 billion, including financing leases; the balance-sheet carrying amount of debt was $8.908 billion. Current assets were $3.168 billion and current liabilities $2.399 billion. Accounts receivable was $1.958 billion, or approximately 62 days of revenue, compared with 59 days a year earlier.
Material changes versus 2020
- U.S. dialysis treatments fell 2.3% to 29.6 million; normalized non-acquired treatment growth was -1.9%, compared with +1.0% in 2020. Management attributed volume pressure principally to COVID-related patient mortality and missed treatments.
- Average U.S. dialysis revenue per treatment increased 2.5% to $359.24, partly reflecting Medicare rate changes, the temporary sequestration suspension, and payer-mix changes. U.S. dialysis revenue was nearly flat (+0.1%).
- U.S. dialysis patient-care cost per treatment increased 1.4% to $241.47. Total segment operating income nevertheless improved, supported by higher revenue per treatment and lower pharmaceutical costs, COVID-related compensation expense, advocacy costs, and certain other expenses.
- International revenue increased 19.9%, principally from acquired growth; the international business added a net 18 centers. U.S. ancillary revenue declined 24.1%, including effects from fewer special-needs-plan members and the completion of ESCO programs.
- DaVita repurchased 13.9 million shares for $1.546 billion; management reported an 11.5% year-over-year reduction in share count. It issued an additional $1.0 billion of 4.625% senior notes due 2030.
Outlook, risks, contingencies, and unusual items
The filing provides no formal numerical earnings or revenue guidance. Management expected COVID-19, mortality-related volume pressure, competition, and labor-market challenges to continue affecting 2022 results. It anticipated higher-than-usual wage increases, inflationary pressure on labor and other costs, additional depreciation from the planned general release of a new clinical IT platform, and elevated advocacy spending. These pressures were expected to be partly offset by continued pharmaceutical cost savings. Management expected aggregate reimbursement-rate growth, including a 1.9% productivity-adjusted Medicare market-basket increase for 2022 and continued Medicare Advantage enrollment gains, partly offset by the scheduled return of Medicare sequestration: 1% from April through June 2022 and 2% beginning July 2022.
Commercial insurance is a key earnings exposure: commercial payors represented 32% of U.S. dialysis patient-service revenue, and the filing states that commercial payments generate nearly all of the business’s profits. Government-program reimbursement changes, payor negotiations, reduced commercial coverage, labor shortages and wage inflation, supply-chain disruptions, COVID-19, and extensive healthcare regulation are prominent risks. DaVita also cited execution and investment risks in home dialysis and integrated/value-based care initiatives.
Legal and regulatory matters include a 2021 federal criminal antitrust indictment against DaVita and its former CEO alleging unlawful agreements not to solicit senior employees; the company disputed the allegations. The filing also describes ongoing government investigations and other proceedings, including matters involving physician relationships, billing, charitable premium assistance, and the former medical group. Recorded accruals for legal and regulatory matters were described as immaterial at year-end, but the company said potential outcomes and losses could not generally be predicted. A Supreme Court case concerning Medicare Secondary Payer protections was also pending. Other notable items include $35 million of 2020 legal accruals, an $89 million 2020 debt-refinancing charge, and the addition of calcimimetics to the Medicare bundled payment beginning in 2021.
Management stated that operating cash flow, available credit, and capital-market access were expected to fund scheduled debt service and other obligations for the foreseeable future, including the next 12 months. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Most important facts for investors to verify
- Whether treatment volumes and patient census recover from pandemic-related mortality and whether commercial payer mix and reimbursement rates hold up.
- Actual 2022 labor, supply, COVID-response, advocacy, and IT-platform costs relative to reimbursement increases and pharmaceutical savings.
- Progress and economics of home dialysis and integrated/value-based care programs, including investment returns and exposure to downside risk.
- Debt repayment capacity, maturities, interest-rate exposure, put obligations on partnership interests, and the scale and pace of further share repurchases.
- Developments in the antitrust case, government investigations, and Supreme Court review of Medicare Secondary Payer protections, including any financial or operational consequences.
- Accounts-receivable collection trends and revenue/refund estimates, which management identifies as significant estimates and audit focus areas.