Welcome everyone to the DaVita fourth quarter earnings conference call. We appreciate your continued interest in our company. I’m LeAnne Zumwalt, and with me today are Kent Thiry, our Chairman and CEO, and Rich Whitney, our CFO. We will start out with a really interesting part of the presentation, and I would ask that each of you take a look at the forward-looking statements. I am not going to read that today. We are going to get started with Rich Whitney and an overview of the quarter.

The roadmap for this morning is first our comments on the fourth quarter performance, then DaVita overview, a discussion of the opportunities and risks that one should consider while investing with us, a deep dive into our business fundamentals, financial review, and then we will wrap up by taking your questions. Before we get into the fourth quarter results, the question that a lot of you probably have is what drove the sequential decline in revenue per treatment. The answer is primarily, 80% of it, pharma utilization. I will come back to the details of that in just a moment. Also, before we dive into the numbers, throughout the presentation, we will be referring to certain adjusted and non-GAAP numbers, and a reconciliation of these numbers to the most related GAAP number is included in the back of the presentation. Q4 revenue was $1.5 billion, up about 8% versus last year, and we ended the year at about a $6 billion revenue run rate. Operating income of $212 million for the fourth quarter was in line with our guidance. Full year operating income of $822 million was in line with our guidance as well. Q4 operating income margin was stable, and our EPS was $0.94 in Q4, and you should note that we benefited by about $0.02 from favorable tax rates driven by FIN-48 fluctuations, certain tax credits, and some state tax true-ups that we normally have at the end of the year. In 2009, we would expect our tax rate to return to a more normal level of 39.5 to 40.5. Our treatments, $16.2 million, our non-acquired growth was 4%, our non-acquired growth for the full year averaged 4.3% which was right in the middle of our stated guidance range of 4% to 4.5%, and we are now treating…

Good morning, and I will reiterate Rich’s and LeAnne’s welcome, especially to those of you who have been with us at these sessions for many years. It is actually really nice to be here now more than 12 months past the period where we self-inflicted some contracting wounds over a 4-month period. It’s nice to start putting that behind us. The mission is important. We do consider ourselves to be a caregiver first. It is in fact more important that you feel good if your wife or child needs dialysis than it is how you feel about us as a capitalistic entity. Having said that, we work incredibly hard to meet whatever expectations we set in sessions like this, but we are a mission-driven organization. For those of you who have not been in a center, this is what it looks like when you are taking care of a human being, and we take care of 112,000, as Rich said, and I’d like to say this is what a center looks like, but that is what a really clean center looks like, not a normal one, but we have about 1500 of these across America, and this will give you some sense of what the operating unit feels like, how many people are in it, how many chairs, etc., just to give you a feel for the operating entity itself. Most of these numbers you have seen. We have done what we said we would do in dramatically reducing the leverage that we took on in order to buy Gambro a few years ago, and we have done it slightly ahead of the schedule that we talked about back 3 years ago or so. It is very nice, over the last 9 years to have moved from about 12% of…

Just a few more minutes on some financial information, and then we will move on to take your questions. Revenue has grown from a little bit more than $2 billion in 2004 to a run rate at the end of 2008 of around $6 billion. Of course, a big part of this was the Gambro acquisition, a revenue CAGR of 25%. It’s important to note that we’ve done without using any additional equity capital. Revenue per treatment 5-year CAGR 1% per treatment. Current year, flat for the reasons that we mentioned, the payer hits in late 2007, the pharma intensities. If you adjust for those things, revenue per treatment grew in line with the historical trends in spite of having no Medicare increase affecting us in 2008. On the private side, we continue to get modest increases overall, consistent with the levels of prior years. Patient care cost trends, 5-year CAGR of 1%, very consistent trend. Operating income, last couple of years, from around $700 million to $822 million. Current year, as we mentioned 3% growth in spite of some pretty significant headwinds, so the payer hits, once again, fourfold increase in heparin prices, de novo certification delays, no Medicare increase. Margins decreased in 2008 back to around the 2006 levels for those very same reasons. You’ve seen this, earnings per share growth, 14% over the five years, 11% in the current year. Our cash flow is strong and growing, and if you step back and say what about your earnings growth over that time period and how does that compare to your cash flow, 2004 cash flow to 2008 cash flow up about $150 million. If you say, well, what about the earnings, look at the incremental operating income growth, look at the incremental interest expense, tax affected, and…

I’d just like to emphasize that if bad stuff happens in private revenue or bundling, then those numbers can’t happen. Summarizing the whole package before Q&A, what is the bad news as you talk with your partners back at the office. Short-term EPO noise, the private risk, despite the track record you can’t like the fact that we get investigated, the bundling risk which is nontrivial given how many things the government has to get right, and then the economy stuff if it stays bad for a long time. That would be relevant for us. On the other hand, we’ve got this wonderfully stable demand, we’ve got a cost structure and operating approach yields a nice cash flow where we get to make a lot of decisions along the way about debt versus repurchases versus de novos, versus acquisitions, versus holding it, as opposed to other places that have to place big bets at one given time for most of our stuff. We really get to make a lot of discretionary cash flow decisions quarter by quarter. We have a wonderful market position, and we’re poised to be buyer at a time when it’s nice to buy things if you’re disciplined. Bundling, we might be able to do some good stuff in reducing pharma expense to benefit the taxpayer and ourselves, and this whole notion of the high-value provider being relevant both from a branding point of view, a responsible citizen. It’s really fun to show these slides to someone in Congress that there’s a return in that alone, and it’s not been trivial over the last couple of years, as well as the fact that we may be able to start monetizing more and more of that value-added capability which nobody has and in particularly the smaller players don’t have. Onto questions, I think there are some people that have mikes, so fire away.

It’ll be good if you introduce. Maybe we know each other, but go ahead and introduce.

I guess I just wanted to ask a few question relative to the economy. You talked about the downside, and I did want you to talk a little bit more about the downside of mix shift relative to unemployment, whether you’re in fact seeing any of that in markets that have high unemployment and what your sense is for that, and then on the upside, which you didn’t talk about, but I would think there are some possible upsides relative to the cost structure, and if you could just share with us your thoughts around labor turnover, labor cost in this economy, rent, and perhaps the supply cost side if there is anything that you see in the business that could be of help. Exec

On the first one, the downside, the answer to the question are we seeing any dropoff in our number of privately insured, the answer to that precise question is no, but we’re watching it with even more intensity than we have watched it in the past, which was pretty intense, so we will see. When people are no longer employed, many of them COBRA, and the government of course is contemplating all bunch of ways of supporting that, and in addition, about a half of our patients qualify for an additional 11 months of COBRA beyond the normal 18 because of the way the laws work around disability, and so we have sort of a double safety net, if you will, runway period for that person to become re-employed or for any other government program to kick in. So, we are scared, but the answer to the question is what I said. On the upside in the cost structure, we do think that wage increases will be less in ’09 than they were in ’08, and we had one of our lowest nursing vacancy rates in a long time in the fourth quarter. That actually was we think too soon to be an effect of the meltdown. It was a product of a whole bunch of other stuff that we had been doing, but maybe was given a little nudge, and we think it is directionally representative of what’s going to happen, that in general with the unemployment situation the market is going to say that you don’t have to increase and can’t in fact increase wages as much as in the past. As to other parts of the cost structure, on the supply side, we’re doing all the normal battles. I have no systemic comments to make there, and on rents, they are going down, but because we already have this installed base of 1500 places for long-term leases and we only add 80 to 100 a year, it’s a small part of the cost structure that it’s not material. Mark Arnold – Piper Jaffray: Can you give, Kent, in some general terms how far the gap is between the expectations of some of these medium-sized dialysis organizations that have approached you guys versus the levels that you guys would find it accretive enough to make a deal? That’s the first question, and the second question is you brought up HomeChoice and you talked about the adjacencies, is that a business that you intend to grow and would you make further acquisitions in the home infusion space?

On the first one, can we usefully quantify the gap between our bid and their ask, the MDOs, possibly. We’re in conversations, and who knows. To try to put in terms of gap of multiple, it’s too deal specific. I don’t think I can give you a useful number. In the end, we’ll see if we get something done or not. We’re very glad we said no. We didn’t agree. We didn’t meet the gap last year, and everybody has reduced expectations this year. Virtually all of them have initiated conversations in the last year and a number of them recently, and then on the second one, HomeChoice, it’s unlikely we’ll do any acquisitions in the near term. We’re going to first see if we can demonstrate the right kind of de novo and same-store growth, and if we demonstrate that capability, then we would look at acquisitions, but not until we’ve got a track record of nice profit growth without it. Kevin Ellich – RBC Capital Markets: I was wondering if you could talk about how much the certification delays could weigh on your non-acquired growth, and also the pharma utilization how much impact you expect going forward?

It’s difficult to say on the certifications because it’s difficult to predict how this will change throughout the course of 2009. We are literally with 54 centers sitting waiting to be certified and without a plan in most of those cases as to exactly when they’ll be certified. It’s tough to say. We did 80 something de novos this year, so you can imagine that’s a pretty big chunk de novo sitting there relative to a year’s worth of de novos, so difficult I think to quantify, but certainly half a point somewhere in there would be my guess, but I wouldn’t even want you to lock and load on that because it really is so difficult to predict. So I’d just say sort of a negative headwind is the way to think about it.

On pharma utilization, I don’t know that we can go any further in quantifying. We think Q1 will be lower than Q4. We think we are approaching the world of stability, that all doctors will have made their decisions based on all new information, and so whatever it will be, it will be that for a while, but it’s very difficult to predict what these thousands of folks are going to decide, and as I mentioned earlier we do know a lot of them are very uncomfortable with the growth in sub 10’s, but when that’s going to manifest itself in any change back to the way things were in Q4 or Q3, I don’t know. Kevin Ellich – RBC Capital Markets: What type of visibility do you have on how long you’ll see that headwind?

Absent any new studies, I’d be surprised if we didn’t reach EPO stability in the next five months, because again people process new information, they process new government policies, they process through the new protocol that a whole bunch of them developed, and make widely varied decisions, so if there’re a couple of thousand doctors, each makes different decisions, not that everybody does the same thing. Just like with all drugs, you have some people who go to one doctor, he’ll say take four Advil every 4 hours and others would say, no, only every eight, and someone else will say take two. You get that same natural variability in what a doctor thinks is right on the margin, but I’d be very surprised if we didn’t achieve stability in the next five months, and I’d be surprised if there was anything that would qualify as dramatic, which is not to say it’ll be trivial, but I don’t think it’ll move into the dramatic category in either direction. Arthur Henderson – Jefferies & Co.: Kent, could you remind us are there any structural impediments to rolling out home dialysis from a reimbursement perspective, and the second question for Rich, and you may have discussed this, but uses the free cash flow, I know you’ve got a range of leverage ratio there, but could you discuss what your priorities are for that?

What’s your first question on home dialysis again? Arthur Henderson – Jefferies & Co.: Are there any impediments to rolling that out quickly just from a reimbursement perspective or a structural perspective that needs to change before that really becomes embraced?

The short answer is yes and that many payers resist paying. We think that’s sort of logically indefensible. Home dialysis and dialysis more than three times a week has been done for 30 years. It’s not an experiment, and it is intuitively natural to assume that doing something less acute more often is easier and in many ways healthier for your body. Having said that, my answer to the question is it’s still what it is, that you get lot of payers who resist because they just don’t want to have to pay more.

Art, on the uses of free cash flow, really nothing has changed in terms of the way we think about it. First priority is spending cash on growth investments where we can get good returns. After that, any excess cash, we constantly evaluate between our two basic choices which are debt reduction and returning capital to all of you here in the room, and those decisions are really just very situation dependent. I’d say given the current situation, we decide between holding cash and returning cash to shareholders because paying down debt is really not a particularly attractive alternative right now because we can’t re-borrow it under the same terms as we have borrowed it, and so we just make those decisions year by year, quarter by quarter, and this year we felt comfortable enough to return a little over $153 million of cash to shareholders, but we make those decisions with that excess cash quarter by quarter.

I want to go back on the home dialysis for just a moment. We are so far winning the overwhelming majority of cases because in those cases where doctors are prescribing more frequent dialysis, it is good for the patient. We do a great job of it. We do more of it than anybody in America, so it’s a tussle, but we are winning, and at this point the primary thing getting in the way of growth is while we haven’t been able to develop the right relationship with NextStage as opposed to not having the right relationship with payers because when we do more frequent dialysis right, we think we can reduce pharma use and hospitalizations, and so the aggregate mass for the payer could be quite attractive, so we are winning most of the time. The primary obstacle is much more. We just can’t seem to get as good a working relationship with NextStage as we have with people like FMC and Baxter. You know that FMC is a competitor. (Mitch Campa – Mountain Lake): When over the next several years, people goes off patents, do you think of your margins as staying similar in gross margin dollars or in gross margin percentage terms? How will the government look at the dramatic fall in the cost of your key items?

The way it will work is some companies are going to have other drugs and biologicals to treat anemia. That’s going to happen, and they will offer them to us at an attractive price, but you don’t just flip a switch because there are loyalties, there are data differences, so in healthcare and in the kidney care space, you don’t typically see a massive immediate conversion; however, you do sometimes see a pretty rapid shift. You can go back to the days of when Venofer came out, and in a very short period of time, a substantial percentage of our doctors switched to Venofer from the predecessor drug, and so there is always some mess, and different providers decide different things. Different providers have varying levels of ability to communicate with the physician community to actually implement a protocol. When you have a new drug, doctors are appropriately tentative because with any given patient you’re making a dosing decision every month, maybe twice a month, and you’re doing it for 80 patients, and so you actually want to get familiar with how exactly your patients interact, and this is where we can be so helpful to the doctor by providing easily digestible mass data about what’s going on every month with a new agent as well as patient population specific data, what’s going on with his or her patient. Therefore, our ability to implement something that’s new and better or the same and cheaper radically exceeds that of many other organizations. Ergo, what you have happen when new things come out is even if they reduce the cost dramatically, if we do our job right, they’ll reduce our cost more and faster, and therefore, there will be a period of time when others are trailing us, but we get the benefit of that new spread. Clearly, the government over time is going to be adjusting our reimbursement up and down as a community, but within that we think the odds are very healthy that we’ll have a dramatically superior capability in implementing something that’s better or cheaper. (Mitch Campa – Mountain Lake): Although ultimately what you are saying is that if a big chunk of cost comes out of the system, the government will pick that up?

Correct. (Mitch Campa – Mountain Lake): It seems like in theory eventually we are going to get to the point where there’s one person left on private insurance. He’s going to be paying $100 million, and the government will still be paying at a negative 10% margin, and when that person dies or loses his job, at some point we are going to have a new system, and your profit structure will be determined by something other than the happenstance mix of private pay and Medicare patients. How do you think about what your margin opportunity will be at that moment and why will it be greater or lesser than where it is today?

I actually think in the next 5 or 6 years, the odds are higher that there will be more private patients than fewer because the private payer timetable will be extended, and what we always have said is that when that happens, it’s a very good chance our rates will be lower, but our aggregate economics will be better and more secure, and so everybody can win in the sense that we’ll actually be able to or be forced to bring private rates down, we’ll actually have healthier mix between private and public, and it’ll go on that way forever. The only way the number of private insurance patients goes down is if the new administration actually changes the structure of insurance or there is a dramatic change in care that way disproportionately benefits people on private insurance versus people in government programs, so if diabetic care is going to get a lot better for people who are in general better off on private insurance, then that part of the new patient pipeline would be reduced relative to the government population which maybe isn’t getting that high quality of preventive care or doesn’t have the same ability in their lives to implement some of the new insights about taking care of their condition. Those are the two scenarios in which you would have fewer and one can attach a probability to insurance reform. There is X amount of probability to improve care on the private side disproportionate to the public. That probability is lower than the probability that private pay will be extended, and unfortunately in all cases it is a probability thing, none of those three is definite. (Mitch Campa – Mountain Lake): In the scenario where we went to some kind of new structure for national health insurance, the nature of your profit structure would be the difference between your cost and the 1000 centers that today are barely breaking even. Is that the right way to think of it?

Yes. It’s a reasonable way, and also for FMC that’s a more complicated role since FMC does pharma now. They have a different calculation for making decisions just like for buying new products. They would have a calculation because they have their home brand, and so sometimes that means they might adopt something new more slowly. They also have a global relationship with Amgen, so that changes it a bit. They have a different calculation, so there might be differences in our penetration rate versus also. Who knows?

Mitch, the other development that is relevant to this issue of Medicare losses, which is what you were referring to, is the implementation of automatic market basket increase in 2011 as part of the bundling reform, and so while it is still market basket minus, it is much better situation than where we have been historically, where we’ve had to fight every year for a rate increase. Some years we get them and some years don’t. The years we don’t get them, we’re clearly taking a big step back in terms of our Medicare losses, so I think that’s a structural change that will not solve the problem but will help. Gary Lieberman – Stanford Group Company: Kent, just going back to the COBRA issue, can you talk about to what extent the industry does or can help patients subsidize COBRA if they can’t afford it?

Yes. The question is to what extent can the community help patients pay for COBRA, take advantage of COBRA, and I’ll answer and then other people correct me if don’t get the words exactly right. There is a group called the American Kidney Fund which exists to provide premium assistance for dialysis patients, kidney care patients. It’s been around for a long time. It’s blessed by the OIG because if there weren’t that assistance, there’d be a lot of patients in serious trouble, and so that safety net does exist. Gary Lieberman – Stanford Group Company: Is there any idea what percent of commercial patients actually get some sort of subsidy?

I do not know. People will check to see if we can give you that answer. Gary Lieberman – Stanford Group Company: You mentioned being a little bit more aggressive on the acquisition front. Can you talk about what you are seeing on the competitive front? You mentioned private equity. Are you seeing more new entrants into the market, fewer, or the same as you have seen over the past couple of years?

We were seeing more and more until five months ago. We’ve seen none since then. Now more people are heading for the exits than the entrances. Gary Lieberman – Stanford Group Company: Rich, on your patient care cost per treatment, it looks like you took about $10 out of that number if you look at the last number. Last quarter, you reported at 242, and then you are reporting it at 232 this quarter, so is there is some change that you guys made to how you are actually reporting that?

Yes, there is. Let me just do a fact check for you. Gary, what we did actually in response to feedback from a number of you is that we’ve put in the financial metrics, the segment information, and then when we show our patient care costs, we’re only showing in these metrics the dialysis and lab segment patient care cost. Of course, the other segment has a number of costs that don’t relate to dialysis treatment, and so the segments were beginning to get large enough that they were creating distortions in the quarter by quarter trends in the cost per treatment, so we pulled those out, so the actual if you look in the supplemental information, the sequential trend was still improved from Q3 to Q4, but it was 232.50, down to 228.29, so the improvement was about 1.8% sequentially. Gary Lieberman – Stanford Group Company: That $10, is that in G&A or where are you putting that?

On the face of the P&L, it’ll show up in the same spot that it always has because the P&L has consolidated both segments, but in the supplemental information, what we have done is showing the dialysis segment separately the numbers and metrics, and then the non-dialysis segment separate, just the numbers. We haven’t started putting metrics in there really because we got kind of a hodgepodge and it’s hard to come up with any metrics that you’ll find meaningful, and again it’s still 5% of our revenue, so it’s relatively small. Gary, we don’t have the answer to your question about what percent gets subsidy, but I think what we can say is relatively a few number of patients who are eligible for COBRA are not able to elect COBRA because of financial reasons, so they can either afford it on their own or they get assistance. Valerie Brown – AllianceBernstein : Do you see any evidence that better management of chronic kidney disease is actually slowing the rate of growth in terms of demand for kidney dialysis services, and secondly, could you talk a bit more specifically about the ways in which you are preparing for bundling? Are there technological advances that you plan to implement that would allow you to optimize care while also minimizing the amount of EPO that you use or other significant elements of expense?

The short answer is no. It appears right now that any improvements in the way diabetics and hypertensives and people with other types of kidney disease issues, any improvements to how they are being treated is being offset by the fact that there is just more of them because of the growth in the diabetic and hypertensive population period because of the growth of the Hispanic, African-American, and elderly populations. The qualifier to that and maybe may answer is actually directionally false. If you look at the historical data and say it’s been running at 2.6 to 3.8 and over the 5 to 6 years, it’s pegged at 3.1 as a consensus estimate, then the answer I guess is the opposite, and maybe there is a net slight change, so maybe that’s the best quantification of it, but it is those two titanic forces sort of pushing against each other. On the second one, right now, we don’t have any insight sitting on the shelf that we’re going off on January 1, 2011, and change our cost, but we’re be working on it, but right now we don’t have any powerful implementable idea on the shelf ready to be unleashed. The good news is we have some time to work on that, and we will, but so far, no luck.

How long in your view could the MSP be extended before it became so significant for the private payers that it began to be negative for you instead of positive, number one? Number two, will there be any issues in 2012 if Amgen decided to inactivate all such business? Could they buy the dialysis chain? Would there be regulatory issues with that? Third, with respect to de novos, I assume you always have things that are waiting certifications, so how many could you have in the pipeline awaiting certification that were already built a year ago and what would your de novos plans be for the next two or three years?

How much of an MSP would be so long that it will turn out to be negative because of how private service would react? I think in no way would it ever be a negative for two reasons. One, I think we would fully anticipate and be very open to having lower rates on average in exchange for having the increased mix. That will probably happen, and that’ll be fine with us on that basis. It’s still a positive. It would also be much better again because then these patients would get the investment in wellness and prevention that doesn’t currently happen, but that’s sort of an editorial aside. So I see no scenario in which an extension would be negative for us. Could Amgen buy a dialysis company? The answer is yes to the best of my knowledge, but I think they will stick to the strategic decision making pattern they’ve had for 15 years which is they don’t buy the distributions systems, so to speak. That’s fraught with complexity and unintended consequences and all that kind of stuff, and in fact would create a stunning regulatory scrutiny even beyond which already exists as well as competitive dynamics because they couldn’t buy everybody, and then you get that classic thing of people that they haven’t bought would be competitors as well as customers, and that’s always delicate, although we’ve gotten to a point with FMC where we work very well together, but it took a while to get there.

On the de novo certification question, in rough numbers, it’s about double; however, what I would note is that the de novo certification issues will go back more than a year and really just have been intensifying as more and more become an issues, and states remain at issue for longer periods of time, so significant.

I want to go back to an earlier question quickly because I got the hard data I was searching for. With respect to home dialysis and payers, we have never had a situation where we couldn’t get paid for additional treatments, so we have always won in the end because the clinical evidence is what it is, but your question was is there a tussle and all that kind of stuff, and the answer is yes, there’s a tussle, but I wanted to make sure I didn’t say something that wasn’t exactly accurate. So if we’ve lost them somewhere, we don’t know about it, and we track it relatively carefully. We’ve always won in the end because the darn evidence is the darn evidence.

The percentage of treatment revenue, how much is that patient pay out of pocket? I guess that probably is very tiny. Given the economic environment, do you see any change in that in terms of ability to pay out of pocket, and the second question is regarding the MSP extension, obviously next year the Congress has to work out a way to fix the physician fee problem because 20% cut. Do you think that will give them more incentive to maybe find money from other places and MSP extension may happen in 2010? The third question is regarding the CKD demo with CMS. I’m wondering do you have any idea when that instead of demo maybe implemented. Do you have any timeline for that?

On the first one what percent of our revenue is self-pay, virtually zero. That’s because we have universal Medicare safety net, and all plans cover dialysis because it’s not a discretionary thing, so that answer is very clean. On MSP and the fact that Congress has a huge gap to fill, if there’s no change in legislation, as many of you know, the doctor’s reimbursement plummets, and so historically Congress has needed to fill that, and to fill that you have to find pay force in the normal world, which we’ll probably get back to by the time this comes around, and yet MSP some people would think about as one of the pay force for that. The other big thing lurking about is the whole thing about specialty hospitals scored savings and then you have Medicare Advantage scored savings, so there are a number of things on the short list. The demo, when could that become a broader reality, I’d say the earliest would be three years from now. Darren Lehrich – Deutsche Bank Securities: Going back to my notes, I think a year ago you said that around 15,000 patients was the breakeven point, and you’re saying you’re still losing money at this point, so at $125 million revenue rate, the question is what is the level of revenue and what is the patient count, or what is it structurally about the business that can get you to the profitability? I think a lot of your shareholders want to know why you’re still investing in losses in that business at this point.

We used to think that breakeven was going to be about 22,000, I thought, so we have to go check the transcript to see if I said something different, but it has moved around as we’ve learned more about the business. I’m just saying the number that I remember from the past, and it is lower now. I actually don’t know the answer to the question. I know it’s lower than 22 because we’re getting very close as it is which is why we’re forecasting breakeven by the end of the year, and the CBM business especially pharmacy business is a high fixed cost, scale intensive business. It just is, and the cost of selling into this many centers, building out the three pharmacies, building the software to deal with our customized population, and dealing with the classic pioneer thing, we had to get Medicaid legislation changed and Medicaid regulations changed in 4 to 5 or 6 states, so there’s been our learning curve. There’s been changing regulation. There’s been educating doctors, payers, etc. It’s quite a slog. It’s a classic pioneer thing where you get the arrows, and so we know that the cost structure will continue to get better over time, absent some discontinuity. Why are we continuing to do it? For three reasons – one, we think we are going to hit profitability and we think we can get to where the return on capital is very nice. Second, it is tremendous value added to pharma which is sort of a good spot to be in, and third, it’s part of having that aggregate control over the total patient and the economics and care around it which is where some of the big opportunity could be. Is there a chance that it will turn out to be a failure, that it will not get to being profitable, and we will shut it down? Yes, there is that chance, but something will have to change. For the first time I can say that unless something in the world changes, it is highly likely that we are going to get to the point where it is profitable. Now, something could change in the world if they dramatically change the way reimbursement works or do something to change the cost structure, but now it’s just a matter of taking our growth to the next level. Darren Lehrich – Deutsche Bank Securities: The loss estimate for ’09 was built into the guidance?

I think what we probably said is just deal with the aggregate because there are lots of shared costs across these units, so it gets kind of arbitrary. As we said, last year was 34 in aggregate. This year is about 22, and next year about 14, and so they are subset of the 14, so in the grand scheme of things, it’s not something that allows you to put a pretty small box around it. Darren Lehrich – Deutsche Bank Securities: As it relates to consolidation, you commented a lot about the MDOs in the West. I’m wondering if you can just spend a moment or two talking about international and how you view international as a priority over the next three to five years as a new element of growth for the company.

Regarding international, looking backwards, no one has ever done a good job for their shareholders by exporting healthcare service, but that’s looking backwards. The world is different, and so in the next 5 years, we may do some small joint venture with the right kind of local player in some other major country as a way of seeing if we can constructively with reasonable returns start to move down the path of becoming a significant player outside of America. We’ve had some conversations, very casual. The brand of DaVita American Kidney Care is actually very attractive to people who are significant healthcare players in some other countries, so I wouldn’t contemplate just sort of bopping into a country and setting up dialysis centers, but there are major healthcare players in countries who look at us as a very attractive partner, and that could make economic sense in a way that doing nothing is not prudent, and going in alone and thinking you’re going to learn a lot of stuff and grow a lot is not prudent. I think it’s going to be economically material in your investment timeframe, but as I said there’s a solid chance that we’ll try something with a partner that could work out very nicely. Darren Lehrich – Deutsche Bank Securities: As it relates to bundling, we heard the response that you’ve got off the shelf that you’re going to implement, but perhaps if you could just talk a little bit about the delivery of care and specifically PD and what DaVita is doing right now with that particular initiative and how important do you think PD will be with bundling.

First of all, the current trajectory of PD is flat, basically for us and for American. It’s actually been a slight decline both for us and for the country over the past couple of years, and we think in the new world of bundling and in the new world of improvements that have happened in PD in terms of clinical outcomes, there will be more PD in the future than there is now, but we’re not seeing it yet, but we think that that will happen. PD is peritoneal dialysis, and it is when as opposed to getting hooked up to a classic machine and coming to a center, you have a fluid exchange. In PD, you don’t have to come into a center and you’re far more mobile in your life. Those are the reasons for it. The reasons against is that the patient has to be more self-sufficient, and if you make mistakes, you can get an infection that’s bad for you, and about 8% of our patients are on PD now.

Can you discuss about what’s driving the delay in certification and what percentage of the 54 which are currently delayed are in Texas?

Texas is one of the worst states in this. I don’t know about percentage, but it’s disproportionate. Part of that is just because Texas is disproportionate in terms of population, and part of it is they are also disproportionately behind. What drives it is typically state budgets. Their surveyors say we’re going to certify these other types of facilities first because they’re higher priority, and it’s like being number four to the buffet when there’s only food for three. We just sit there, and while at times in the past we’ve had delays, they’ve never been like this, which is taking up our solution game to the next level both at the federal and state level because it is not a sensible position since, again, this doesn’t cost the system any more money, so that’s not part of the motivation, and in fact, sometimes the states charge some fees so they actually get money. What we’re willing to do as a community is literally user fees. We’ll pay enough to cover the cost so that they can add people, so in the end, that could be the way that this gets solved because the expense of an actual survey is miniscule, so we’ll see if that’s there we end up. We already do that in one state where we had this problem existed, and now that community pays the state enough that they can hire enough surveyors and therefore it’s better for everybody.

Any sort of estimates of when the pipeline of delay should shrink?

No, because we’re dealing with these different decision makers in different states, and we don’t know how long it will take us.

A followon question to that would be the implications of these delays on your CapEx for ’09 and ’10.

In some states, it will mean we are less likely to build de novos or we won’t. In some other case, we still may because it’s the right strategic decision because if we build in a timely basis, it could mean someone else will never build and we want to be there even if we have to wait 9 months, but in some case, it’s already changing our calculations, and in some areas, we are not building stuff that we’d otherwise have built.

What kind of capacity do you have in Texas and what’s your ability to add capacity in Texas, and what’s the regulatory environment to adding capacity to existing center?

I do not know. I know it’s not going to solve our problem. It’s not that by adding more stations to our existing centers, we make up for the fact that these other ones are not open, so it’s not a solution to our problem, I can tell you that, and I don’t know what the exact number is.

What’s taking so long for certifications and what other states you’re having getting certification, and isn’t there a standard to which these sites are to be built and work with the people as you’re building them?

That would be rational. We’ve proposed that. We have had no takers. What the state says is our surveyors are busy surveying other stuff and call us when you’re done building. There is one other segment that actually gets to self-certify. The logic is if it was applied to us, so you’re built 1449 of these successfully, maybe you can do another one, and so we would attest that we’re ready, and if we are ever found to have attested incorrectly when they ultimately get there, there’d be big penalties, which we would absolutely welcome that. That’s another alternative that’s being discussed, but they’re not geared up to start coordinating with us during construction or anything. We can give them all the heads-up in the world. If they have a backlog, they don’t put you on the list until you’re done, and then you are where you on the list and if they continually put stuff that they think is higher priority above you, you sit and sit and sit. That’s how it works or doesn’t work as the case may be, and that’s why we have go in now and propose some structural solutions. The good news is in 87 cases it worked, and then unlike history, in 54 cases it hasn’t worked well enough, although some of those opened quite recently, so they’re not really late, but again if you’d give us a call, we’d be happy to take all the advice possible on this, but in many we work very well with the local governments and in some cases not so well, and we need to get better a that.

What kind of growth rate are you looking for? You said about 70 to 80 de novos a year is what you’re looking for. How many are you looking for in a year? What kind of volumes do they have to do and does it vary per state?

In 2009, we haven’t provided a particular number of de novos, but we would hope to be able to do a similar number this year, but again we have the uncertainty of the certification issues. We provided a CapEx for de novos and acquisitions, and as we usually say where we end up at the end of the year depends upon our ability to identify projects that we want to do, and so we have a pretty good sense at the beginning of the year. Obviously, a lot of things are in the pipeline, but on the margin, it really does depend on what things we end up deciding to move forward on in the first and second quarter of the year.

How do you look for locations? What do you look for in a location?

Very situation dependent. It often depends upon where the doctors’ practices are located, depends upon where the hospitals are, where our physician partners round on patients, depends where the patients that we expect to be serviced by center live. We do the normal real estate site searches with the normal help and identify sites. Justin Lake – UBS: Specifically on the gross margin, it was interesting to see that the actual gross profit dollars for treatment increased in the quarter despite revenue per treatment being down. Given that you’ve talked about that being specifically pharma related and everyone is focused on pharma volumes quarter to quarter, is the read through there that does this speak volumes to how potentially little profitability is left in the drug reimbursement? Do you see that as less of an issue going forward? Any volatility there as far as the bottomline impact? Anything you can tell us about that would be helpful.

When you say gross margin, I assume you mean operating margin? Justin Lake – UBS: The patient costs per day actually went down more than the revenue per treatment. Is there anything else that happened in the quarter that we should look at?

We did have some sequential improvement in other costs including labor costs, if you recall labor costs were high in Q3, higher than the trend line in Q3, so we did have a return back to trend line on labor costs, so that would be one of the big items, but your point is, as we’ve said the margins are a lot lower than they used to be pharma and part of the reason why you’d see a $3.80 sequential decline in revenue per treatment and not see as big of an impact on the bottomline is you would expect, if for instance it was a range of change. Justin Lake – UBS: Can you give us a breakdown? Was it 50-50 on the labor versus the pharmacological?

I don’t have the ability to do that off the top of my head, and I’d also say it wasn’t just labor. There were a number of other cost items that we improved on in the fourth quarter, and part of that is the little bit of spike we had in patient care costs in Q3, and part of it sort of this tightening down a bunch more than we normally do just given the environment. Justin Lake – UBS: Is this a good run rate for Q1?

Q1 is always a tough comp sequentially with lower treatment days and payroll costs, and other things that are specifically to the first quarter. People have co-pays and deductibles that are different in the first quarter, etc., so first quarter is always a tough comp, and you know we are not going to give particular guidance, but in many years we have a small decline sequentially in the first quarter. Andreas Dirnagl – Stephens Inc.: Can we get a more precise number as to what percentage of the delayed facilities are in Texas because clearly if its 50% of the facilities and you can solve that one Texas issue, it has a much bigger impact than if it were spread across 50 different states?

It’s 13. Andreas Dirnagl – Stephens Inc.: 13 out of the 52?

It’s 54. Andreas Dirnagl – Stephens Inc.: When you talk about the MDO, can you may be sort of give us an idea as to what patient count characterizes an MDO?

It’s never been technically defined, but I guess we would define an MDO as anybody with at least 25 to 30 centers and then they go up to 100 or so. There are a bunch of them in that pocket, and I do want to be clear in my language. I said virtually all. It’s very important that that the one who hasn’t retains the right to say that they haven’t and one of them can make that claim therefore, and that’s healthy. Andreas Dirnagl – Stephens Inc.: Given the size of what we are talking about here. Is it sort of a safe assumption that were you to start acquiring these as long as it was one or two of these groups that it’s probably something you could finance currently with existing cash/existing liquidity rather having to do a credit transaction. In another words, is the biggest hurdle right now getting there on price or is it getting there in terms of financing?

It’s the former, getting there on price. Our existing arrangements do not restrict us from doing the acquisitions we would otherwise want to do. Presumably we have the adequate liquidity to do it. We have about $400 million of cash. We have $200 million roughly available under the revolver or a little bit less, and we generate cash, so it’s more of the former. Andreas Dirnagl – Stephens Inc.: Kent, given your first comment about wanting to get the self-inflicted wounds behind you of a couple of quarters a go, can you give us a characterization as to maybe over the past couple of quarters how you’ve been working internally to make sure (a) that doesn’t happen again and (b) can you characterize the general level of the relationship between you and the private payers when it comes to these annual rate discussions you have?

As to what we have done differently so that while we can’t guarantee positive results, we can guarantee more thoughtful work that we did for a stretch there back in 2007, one of the keys was just brining Mr. Whitney back, and the second was just making it a bigger part of mine and some other people’s lives again, and so we learned a painful lesson, and again it doesn’t guarantee good results, but guarantees we’re putting the A team on the field every time. The second part, they are not the same because there is more conversation going on which we said a year and a half ago, and with some, the relationships are starting to move a little bit in that collaborative direction where we say we can help you reduce total cost, we can help you deal with people who are really charging you atrocious rates, and so with some, there is the beginnings of actual collaboration, baby steps, and with others, it more still just the conventional fight over the rate, and neither side wanting to go into the capitalistic equivalent of nuclear war because everybody has sustained some casualties in that, so it’s a mix, but different from a year and a half ago or two years ago. Over the last two years, there has been a lot more thoughtful data driven quality conversations than there was in the two or three years prior to the last two years. Andreas Dirnagl – Stephens, Inc.: This is not a question as to whether it was the right thing to do at the time, but given where we are today, looking back at the Gambro transaction and the guidance you gave at the time of the transaction being dilutive in year one, neutral in year two, and accretive in year three, would you agree that that was probably overly conservative?

Well, it turned out to be incorrect. I’ll leave it at that. I use the metaphor often internally. If an NBA championship series goes to seven games, and one team wins by two points in the seventh game, if you read the paper for the next year, it’ll seem like that championship team is just way better than the number two team, and number two team has got a lot of problems and weakness, but the pros know that it was this close and could have gone the other way, and so just because something works, doesn’t mean it was a great decision, and just because something doesn’t work, it doesn’t mean it’s a bad decision. I’m not trying to be too cute. There was a lot of stuff we were scared of, but it has worked out as well as we hoped and better than we expected, but I was wrong. I’ll repeat that. Bill Wolkstein – Centurion Capital: I have a question about the lifeline vascular access centers and your attempt to vertical integrate this whole process. Are the vascular surgeons and the interventional radiologists independent contractors or are they DaVita employees? That’s my first question. The second is are you able to recoup facility fees for either the surgeries or the interventions? The last question is approximately what percent of patients in the dialysis pool have either de novo AV fistulas done at those centers or maintenance of the shunts and grafts done at the centers?

We have about 60 to 70 centers depending on how you calibrate the pipeline, and I’d say on average they take care of patients from three, four, five centers, so maybe 25, 30% of our patient base has the benefit of a focused vascular access center. I’d like you to follow up by sending an e-mail to LeAnne, Rich, or someone because I never calculated that number, so I don’t know how far off it could be. It’s just spontaneous. The second, most of the procedures are done by interventional nephrologists. We have trained more nephrologists to be interventionalists than anyone else in the history of the world, and so it’s typically a nephrologist who decides they want to be an interventionalists, and they are part of the nephrology group, sometimes still doing some regular nephrology, often focusing entirely on the procedure, so it’s a glorious thing because they have all the contextual knowledge as well as the procedure expertise. That’s part of the reason why the outcomes are so superior to what happens when someone goes into a hospital and goes to a classical vanilla vascular surgeon to do an access that’s put at the end of the afternoon shift because it’s a low margin thing for the hospital. It’s just one of the reasons it’s glorious, and then the center is actually owned by practice. It’s an extension of the practice, and we are the manager and get paid a management fee. That’s how it works.

I just want to revisit a topic that you spent some time on last year relative to payer contracting and out-of-network conversion that you mentioned as a risk factor. That was an important topic last year. I want to revisit and see where we are, how you think you are in that conversion process, and then one other element that I think is interesting is your competitors talking about as it relates to structural changes with managed care contracting and doing more bundling, and how you as an organization are thinking about that?

The percent of our private business that’s bundled has gone up every year, and we expect that will continue, and we are totally agnostic bundle versus fee-for-service in the private side. We are totally happy to do either, but the percent of the book that’s bundled has gone up every year, and we expect that will continue, and then second, on out-of-network, out of network people are at higher rates than in network. Our dream is a world where we don’t have any out of network patients. We much rather not have one patient at $10 and one patient at $25. We much rather have both of them at $17.50, and that’s where we would like to get with all payers. It’s a better system for everybody. We can’t unilaterally disarm and walk away from out-of- network rates unless we have our contracted rates that are adequate to subsidize the Medicare/Medicaid group, and so hopefully in not too many years, we will be out of the out-of-network business, and go to healthy contracts at a stable midpoint with all the major payers.

In that process, are you able to able to preserve your economics as you migrate to that over time?

Yes. As Rich said if you take out the self-inflicted wounds of 2007 and look at 2008, that was a year in which there was an increase in bundling. There was an increase in some resolutions on this out of network versus in-network issue with some payers, and we had net-net some modest rate increases, so the empirical answer to the question is that it has gone towards a more stable healthy footing, and we have come out fine. We didn’t come out with big whopping increases, but we didn’t come out with decreases. We came out with modest increases, and what we want to deliver back to the payer is quality that reduces total cost and certainty in a part of their medical loss ratio where they don’t have to worry about the variability that we can lock into some mutual stability for the long term, and we are getting more of that kind of thing done each year, but it’s still not enough or fast enough or broad or deep enough for us to get bold about predicting because you just never know when you are going to be put back into some nasty battle, but so far so good. We do want to thank you all for your perseverance and resilience, and we will do our best job between now and a year from now when we get together again. Thank you very much.