Hello, ladies and gentlemen, I'm Jim Gustafson, DaVita's Vice President of Investor Relations. And I'd like to welcome you to our Q1 2011 earnings call and our 2011 Capital Markets Day. For those of you in the room and for those listening online, thank you very much for joining us. First, I'd like to go through our forward-looking statements. We will make some forward-looking statements today. I'm putting up slide here that is also available on the WebEx and will be available as PDF afterwards. And I suggest that people take the time to read this. Also, we'll be making some non-GAAP statements and the reconciliation to those non-GAAP statements will be available online as well. So today our agenda will be first to go through the overview of our Q1 results and then to discuss an overview of the company, some investment highlights, business fundamentals, go through the financial review and then finally, summarize it all. So with that, to go over our Q1 results, I'd like to introduce, Luis Borgen, our Chief Financial Officer.

Thanks, Jim. Good morning. Welcome to our capital markets day. Okay. Treatment growth was 7.2% compared to Q1 of the prior year. Our non-acquired growth was 4% when normalized for the calendar it was 4.2% this is to the greater proportion of treatments that occurs on Mondays, Wednesdays, Fridays. The non-acquired growth in Q1 was consistent with the most recent quarters. Our Q1 revenue per treatment declined by $44.72 sequentially, the primary drivers were reduced Medicare reimbursement rates due to bundling, declining utilization of physician-prescribed pharmaceuticals and the commercial mix, which continue to decline. The rate of decline did moderate in the quarter. Remember, this mix decline is a combination of decreased mix of new private patients due to the economy and improved mortality. This is partially offset by improved commercial rates. Our patient care cost treatment decreased $1.59 sequentially. This sequential decline was primarily due to the reduced unit cost and utilization of physician-prescribed pharmaceuticals. Our Q1 patient care cost represents a good baseline for 2011 at this time. Moving on to our bottom line results. Operating income was $236 million. It was down 3% due to implementation of lower Medicare reimbursement, prior to the transition adjustment fix. EPS for the quarter was $0.96, down about 8% year-over-year. Along with a lower operating income, EPS was also impacted by higher debt costs as a result of refinancing last fall. Q1 was a very strong cash flow quarter, operating cash flow was $330 million. This was favorably impacted by a couple of items. Number one, we had certain favorable working capital items going our way. And number two, the timing of our semiannual interest payments on a bond, which typically occurred in Q1 and Q3 are now in Q2 and Q4. Moving on to operating income guidance. Now that we…

Okay. Good morning, and welcome to those of you who are new to DaVita, and particularly welcome to those of you who've been with us for a while. The categories are pretty much normal ones. We'll try to move crisply as we always do so that we can spend much intense time as you would like on as many questions as you would like. It's important that we always start with a mission. We are first and foremost a caregiver company. In the end, if we're to choose between serving you, the shareholder or you the potential patient or your mother or father is the potential patient or your brothers or sister, we choose the latter as our first priority. And it's important for people who know that going in. This is what the house looks like. If anyone has been in for a while, I would have dropped by sooner, please do what we can help set that up. I would like you to know that in addition to kind of generate returns we're doing really good things for fellow human beings. This is a typical center except for the fact it's really clean. We have about 1,650 of those right now. And here is a typical matured center, just so you get a feel for the operating reality across those 1,642 places. Here is the totals. Once we close DSI, we'll be a tad over 30% in national market share. So now under the investment highlights. So what we've tried to do here is if we were you and had to come to this meeting or listen to this WebEx then go back to your partners and describe why would you invest or would not invest. We try to get to the right point so that we essentially…

Okay thanks. On to the bottom line update. As you know, over the last year or so, we've been preparing for the new payment system. And the initiatives that we undertook in preparation for this are largely complete and that was early in the quarter. With the takeaway for you, it means that the Q1 cost -- pharma cost structure is really going to be a pretty good representation of what you can expect for the balance of this year based on where we took today. With respect to billing and collection, no major issues there. We were able to get the bills out on time and there's solid Medicare cash flow. One or two problems that are working, the onset patient adjuster, that's an adjuster where we're paid higher in the first 120 days where we care for our patients is really not working from a systems perspective with CMS. We hope that will get collected, and we're certain to recapture that money, but not able to currently get some of the funding that we should. And I'll talk a little bit more about where we stand on the case mix, or the new case mix adjuster. So we've got some challenges ahead of us that we need to continue to put CMS on in both the short term and the more medium term. So a good example of what Kent said was when we work together with the community, we're able to effectively impact Medicare policy. The transition adjuster is a good example of that. We have our policy arguments, we have our data arguments. We appeal to CMS to fix this. And in fact, they moved the clock forward. They gave us the fix early in this year where they really fully intended to not fix it…

Thank you. Let's go to the three building blocks, the holy trilogy of dialysis economics, number of treatments times the revenue minus the expense, we'll go through each in turn. Once again just to sort of refresh your analytical memory to provoke questions about the go-forward world. First on the non-acquired growth side, this is the normalized number. And that's the case, the one above is about the non-normalized, but that's less useful from a business point of view. From a de novo point of view, no different than the past. The track record is clear on solid returns. This is our way of adding capacity for growth in existing markets, as well as finding ourselves a new market, thereby strengthening our geographic network and allowing us to help our affiliated physician practices grow. Here is the actual numbers. And we're thinking that '11 will look a lot like '10, with all the right qualifiers about opportunities and time certification. From an industry capacity point of view one of the things people might wonder about is excessive capacity being added, meaning are we having more and more dialysis centers per patient and does that suggest any sort of vulnerability from a cost structure point of view in terms of inadequate utilization or a revenue point of view in terms of people being too hungry for incremental patients and doing foolish things with unsustainable economics. And here's the actual data, so you can see that centers are growing in line. What you've seen driving growth is the investor-owned centers getting share over the non-investor-owned and that is different from the overall trend in terms of capacity versus demand. About acquisitions. The first on DSI, we're going to have some divestitures. It will be a higher percentage of centers than we had…

Okay. All right. Thank you, Ken. So I'm going to walk through our financial review here to wrap things up before our summary. Our consolidated revenues since 2006, our first full year with Gambro, we've grown revenue for approximately 7% CAGR. The revenue per treatment declined in 2010 primarily due to utilization as we prepared for entering the bundle. This decline continued into Q1 of 2011. Our operating income has consistently grown over time. We have an 8% CAGR over the last several years and the margins have remained relatively steady during this period. In terms of earnings per share, over time, we've been having very steady earnings per share. And you'll see a little bit later on how we build up the earnings per share model from revenue through expenses getting through our earnings per share growth over time. One very cool aspect of the business, it generates a lot of cash. We generate more than 100% of cash relative to net income. So very strong cash flow business. It's consistent and it's steady. Of note here would be our operating cash flow guidance of $840 million to $940 million. And you'll also see that the free cash flow is going to be flat to down, primarily due to 2 items: number one is our continued investment in IT and our new headquarters building. Our leverage ratio, our long-stated expectation is that we would be between 3% to 3.5% net EBITDA -- net debt-to-EBITDA. Pro forma for the DSI acquisition, our Q1 will be about 3x leverage, which is in line with our historical range. Our debt structure, as you all know, we completed a comprehensive refinancing in the fall of 2010. Right now, we're effectively all fixed. The main pieces of our debt structure senior notes, about $1.6…

Thank you. So this is the last slide. I think that these 2 biggest negatives for you to debate with your partners just what is the government going to do given the pickle they've put themselves in and what's going to happen in the commercial side. It's just an awful lot of dynamism there. The silver lining in that cloud is that the government gets really intense about meeting savings, one of the easy ways to get them is to allow people to keep their private insurance longer or allow us to guarantee them savings and go after integrated care in a big way. So 2 of their solutions, we would actually be very positively excited about, but that suggests a level of coherence and the decision-making, which is not practical, given how many big things they're going to be thinking about outside of dialysis. So it's there. But you've got to be careful to calibrate its probability. So those are the scary things from an investor perspective. The good news is within that broader environment, we're well positioned. The strong clinical outcomes are not only wonderful spiritually but they're very useful to you from a business point of view. The way this industry works leads to very stable demand in cash flow. It's a rational community, overall, that understands the need for private to subsidize the public. And then, we've got this window of upside over the long term, not in the next 12, 24 months but the nice sort of structural upside for the period beyond that. And do we now move to Q&A? We now move to Q&A. [Operator Instructions]

Yes, this is Kevin Fischbeck from BofA Merrill. I think a couple of questions. The first is the most suppliers, [indiscernible] me was that you feel like Q1 run rate across is kind of the way you think about it, and I think that people had thought that it might take some time to actually roll out how you're going to be responding to bundling and certainly would take some time for it to get doctor buy-in with everything that is you're doing, and why is it you'd expect that you've gotten everything and there's not real....

The reason we're able to get so much spend in Q1 is that we've spent 2010 getting ready. And so it did take a long time, but we did it ahead of time rather than waiting.

But it's not something that you look at from a -- I think you might have rolled out your initiative, do you feel like everyone is compliant with those initiatives? And there's no kind of room for additional doctors buying into whatever the right protocol is?

No. We actually -- we worked so -- it was surprising to us. It's not what we projected, but we worked so hard on iterating around on protocols, alternatives throughout 2010. That's sort of -- separate from getting to an answer. We inadvertently built far more breadth and depth of ownership than we ever had before. Although we used to think this is a strength. And so the take up was -- exceeded anything we had done in prior implementations of stuff like that. So it is what it is.

Okay. Then one last question before I hand it over to the next person. You mentioned that the -- part of the reason you might be at the low end of guidance next year would be an acceleration into International investments. Just wanted to get your thought process about what it is that you're looking for that might say, yes, now is the time to accelerate that versus continue with what you were thinking before?

It's not that we're predicting that our rate of expenditure will accelerate in 2012 in International, we're just saying it could. We're still so early in that game and there's some stuff that looks promising. But it would lead to more P&L dollars because it would be subscaled upfront. So it's not a prediction but it could happen, and it's too early for us to make a prediction. So it's more sensitizing, it is a fact that it could happen. We usually wait till the end.

Well, let me get a couple in now and then maybe a couple at the end. But a question on some of your quality -- specifically the hemoglobin levels, that 10 to 12 range, I think with 79% of your patients within that range. Can you give us an idea of that 21% that's outside of the range, are most of those above or below the range?

The answer to that question is there will be more above most of the time. But beyond that, I don't know if we're doing.

It's quite split pretty evenly. A little bit more on the high end. And that is important because some patients are naturally above the top end.

And that sort of leads then to the follow-on, which is sort of a follow-on to Kevin's question. I think obviously, you've done a great job in sort of getting your preparations ready for the bundle. I'm more curious about the fact that you say that pharma costs are a good run rate for the rest for the year. Does that mean you don't expect any of that above 12 population to continue to migrate down? In other words, you're static from this point out in terms of any further improvement?

From an economic point of view, yes.

Okay. And can you tie that in at all to the upcoming Amgen contract and what your expectations are in terms of pricing?

LeAnne, you want to do that?

All we can say right now is that we have a contract through the end of the year with Amgen, and we're working with them and a reasonable dialogue towards a longer-term agreement. That's what we can provide.

Okay. And then just quick one, Luis, on guidance, specifically in 2011, the inclusion of DSI. There are obviously some assumptions that you've made with that and I was wondering if you could just run through some of them. For example, when you say to close in 3Q, will DSI have an impact starting in 3Q or starting in 4Q?

So our guidance for DSI is to have a net 0 OI contribution. Our current expectations is that we will close some time in Q3 and whatever OI contribution we may have from DSI would be offset by transactions and integration costs.

And that was actually my question, which is, will you be breaking out those one-time costs when you report?

That's to be determined. We'll see what those are and to the extent they're material and make sense to disclose, we will.

Okay, then finally Kent, in terms of DSI and the integration, is this date sort of an integration date in name only? In other words, do you already have people on the ground with DSI and you're already looking at clinical protocols? Are you already looking at IT systems? How close are you already working with them in advance of the actual closing date of transaction?

Yes, I think the answer is sort of a tweener. There are certain things we can't do because of the rules. But we are coordinating with them on a lot of stuff. Getting to know each other and getting to know each other's systems, et cetera. So without doing anything to get in the way with their running their business, we're doing a lot of talking.

Justin And then, we'll go to a gentleman here.

So first just a quick clarification. LeAnne, did you say Amgen contracts till the end of the year?

Yes, we've extended our contracts till the end of the year.

So you've got another 6 month-contract?

Yes, we have.

Okay. And similar terms as far as we should expect kind of low single-digit rate increase in the back of the year as well?

Justin, we're just going to say at this time, we've extended the contract and leave the commentary at that.

Okay. And just -- I think the expectation might have been that the 6-month contract is typically not been the typical -- it's been more of a 2- to 3-year agreement. Is there anything in your mind that's keeping that type of lengthy contract from getting signed right now?

There's a lot of things going on in the industry, including what you heard Amgen talking about with potential changes in the label and those things. Those may be entering into their thought process about timing.

I would say, Justin, the reason there's not a longer-term one is we can't agree.

From a de novo standpoint, the -- it looked like there were a few more de novos in the first quarter than we have typical seen. Any kind of update on what you've been -- what you'd be able to accomplish there as far as getting the government to sign up on those a little bit more timely?

Our current expectation is 65 de novos for the year. There's always puts and takes between quarters. We do our best to get them open on time. But I would say 65 is our best thinking for the year. Are you asking about timing certifications?

Yes, the backlog seemed like it was pretty significant last year and that was keeping you from...

Yes, so is it going up the business stable.

Yes, I think it was about 1.5 year or 2 years ago it was much higher. We've brought it down since stable for several quarters in a normal range. It's been high 30s, low 40s of uncertified centers and that's been pretty consistent. There are a couple of pockets, Texas, most notably that take longer to certify.

But the year-over-year comparison is...

Pretty stable over the past year.

And just last question on mix deterioration. Can we get -- so it's been 2 straight quarters where you've seen at least that the pace, the rate of change moderate somewhat? Is that correct?

Last quarter didn't moderate as did this previous quarter -- i.e. Q1.

From last quarter, okay. So you're seeing moderation. And can you give us any breakdown, I mean, what -- you had mentioned that there's 2 factors here. One, people are living longer on Medicare, which is deteriorating your mix and then the economy, which I assume is less -- the growth in new patients is coming at a lower percentage of those coming from commercial. Is there any breakdown you can give us as far as the -- how those 2 contribute? Is it more -- are you seeing improvement in terms of the rate of growth in commercial patients?

Where we've seen -- it's roughly split between those 2 factors. And that could vary quarter-to-quarter. But I would say...

Is the improvement coming in either one?

Can't break that up for Q1.

First question is on EPOGEN. Have you looked at hypo-responders versus hyper-responders? The thinking is that for the hypo-responders, their hp doesn't increase even if you give a lot of EPOGEN. In fact, giving a lot of EPOGEN is harmful to those patients. Have you looked at that type of situation whether you can modify a protocol accordingly to reduce EPO spend on?

Our physicians have looked at that with great intensity for the last couple of years. And different people have different points of view. And in general, in America, you have people giving less EPO to hypo-responders now than before. That's a clear directional trend. Where each individual physician lands on that issue is varied by their own perspective and their group's perspective and to some degree geographic points of view. So all we can say is we know that docs are going to be continuing to stare at that with a whole lot of intensity. And whether or not the general directional trend over the last 2 years continues, we don't know. LeAnne, you have anything to add to that?

Well, and in our new protocol that we will adopt, certainly, we did address that patient population. And I think that Kent's right, there continues to be a lot of study on that population. And I would probably recommend that over the next few years, we'll see some improvement or changes in protocols for those patients because these are a topic of significant study.

Okay. The second question is, Kent, you mentioned the 30-month MSP. You've been talking about that for quite a while now. Are you still working on that? Or do you think maybe waiting for the implementation of the insurance exchange, which will render the 30-month irrelevant?

Yes, depending on how they define the exchanges it could, it will never make 30-month development. I don't think the -- but it may make it far less relevant, that is true. And as to whether or not we're working on it, previously, we don't work on the 30-month -- an extension of 30 months because it's not politically viable, and there are periods when you do. So there's hunting season, there is non-hunting season. And so I'm sure there will be in the next couple of years opportunities where we try to extend it. Whether or not, we'll succeed is -- that's very much -- it's very unpredictable. Is that responsive?

I guess whether you'd see any opportunities in the near future legislatively, you can introduce the proposal of the extending -- given there is a lot of pressure, budget pressure on the Medicare side. It clearly would be a saving for the government.

That's right. So we may take another swing at it in the near term is the answer because there are groups that don't want it to happen. Health insurance companies are not in love with the provision, employers are not in love with the provision. And so I don't know if we'll be putting it out there or not in 2011. We always want it, but it's not always -- you can't keep on going in, in the same thing all the time or you -- or people don't pay attention.

Gary Lieberman from Wells Fargo. Could you just clarify, LeAnne, did you say that the impact of the comorbidities on revenue per treatment was $2?

Yes, the opportunity is about $2. Yes.

Okay. And that's for -- that's not just for Medicare revenue treatments, that's average overall treatment?

Yes.

Okay. And then did you say what the impact or what you had included from DSI in 2012?

We did not.

Okay. But it's consistent with sort of the 10%, 15% -- or even in the 10% to 15% divestitures that you talked about?

That's still an unknown of how many, but it is consistent with minimum expectations of 10% to 15% as Kent mentioned earlier.

Okay. And then on the Amgen contract, you just mentioned that you had been able to come to terms, is there any advantage to you in waiting to the end of the year or is there something that you'd like to -- you would have preferred to get done either beginning of this year or the middle of this year but just can't kind of...

I'm going to go first just back to the prior question. It is going to be more divestitures than the 10% to 15% range. So that is just -- that is by far the most likely outcome. We just want to be very clear on that. The good news is there's a very good market right now for selling dialysis centers. And so that the whole divestiture from a shareholder point of view is not as daunting as it could be in a different environment, not daunting at all, in fact, at this point. And then on -- we would love to have a long-term ESA contract that we like. And we're going to love to have that today. We'd love to have it a month from now. Seemed like we'll take it any time. It's just tricky to work out. And so both sides are working on it, and we'll see what happens.

And then just the last question. Could you just update us on your home dialysis initiatives on both PD and HHD?

Sure. The home is growing. How much it will grow is difficult to calibrate at this point, because a lot of physicians are reflecting on exactly what they want to do here. And the tendency of some of the situations with the new bundle sometimes where people get excited about something new, but then they try it and good things -- and it drives some short-term growth and then subscale and you close it down. So it's important to sort of think one more step downstream. PD is much, much bigger than HHD. And HHD, my counsel to people is you should ignore the people with really strong points of view on either side. Those who say, "Oh my God, HHD, MFD is the greatest gift, and it's going to explode in growth." Those people should be ignored, because it's not all clear that, that's true. Those people who say it's not worth the extra expense and should go away, equally should be ignored. So the real question is for what percent of the population is it of superior attractiveness or efficacy. And no one knows the answer to that question right now. We have more of these patients than anyone else in the world, and it is not clear. And will be a significant part of deciding when it's clear because we have the most data. So our counsel to people is ignore those who are inappropriately optimistic or pessimistic. And we're studying the data and working in the real world with more patients than anybody else. Is that responsive? Feel free to come back at it more if it's useful.

Kevin Ellich from Piper Jaffray. Maybe we can talk about international a little bit. Could you remind us how much you've spent and how much you've planned to spend and then what factors went into your decision to go into Singapore?

So International, what factors and how much we're going to spend and then what factors...

Drove the decision to go into Singapore?

Yes, let me do the second one, first. Singapore is a very attractive city relative to the alternatives for attracting executive talent. It's very attractive in terms of being able to travel to a lot of places. It's got a lot of the right symbolism, which are going to deal with a lot of the countries in that part of the world. So those were all the reasons that we chose Singapore to be our regional headquarters there. Then as the factors that determine how much we're going to invest there, it's very much what the quality and quantity of interest we get in different pockets. And so on the one hand, well, I guess , I'll just stop there. Sort of a self-evident statement, but it's really true. As we're visiting different countries, how many people want to talk to us, how high-quality are they as partners, what are the relative economics in that country versus another? How many countries can we realistically advance the ball in at any one time? So those are the variables. So it is the case where assuming we're being prudent, more expense means there are more opportunities. So that is a positive, but in the early years, it manifests itself as larger losses.

What about the competitive landscape there? Is there a lot of dialysis providers or you guys are going to be the only game in town?

The dialysis market overall in the world is very fragmented. FMC, Virginia has a significant international service business, built in close conjunction with our long-standing product business. And then for most of the rest of the world, it's very fragmented and there's still a lot of places where the government provides dialysis. And this gets to one of those -- one of those fundamental trends going on is governments realizing that they need to provide dialysis to their population because with a smaller world, more and more people know it exists, know what the differences between quality and non-quality. It's much more binary and transparent and discreet and obvious than the quality of diabetic or pneumonia care or vaccinations. So first of all, the inside population have and to the fact that it exists is much greater. And then what happens after that is governments realize, "oh, my gosh, there's going to be a lot of people. We're really inefficient and low quality in providing it. My gosh, somehow we've got to harness market forces to deal with the social problem." It is striking that we have more receptive meetings with governments in other countries than here in the sense that other countries really believe that unless we harness market forces, we cannot solve our healthcare challenge and here, we've been, to some extent been cursed by the fact we have enough money to believe that maybe you can.

Got it. Okay. And then going on to the guidance, maybe Luis could take this one. The 2012 guidance, just wondering what the underlying assumptions are for top line growth, treatment growth, capital deployment. What goes into the operating income guidance you provided?

Yes. They're in line with our historical. So for the capital piece of it, we went through the capital assumptions, are there any specific questions I can walk you through? I think we set cap -- maintenance CapEx was 240 -- 212. We haven't determined CapEx for '12 for our operating income guidance. It's pretty far out there. We could give you a flavor for what type of growth we could see. And if we look at the midpoint-to-midpoint, we're about 7.5% operating income growth with a range that reflects the possible outcomes against some of the swing factors we mentioned. Mix, VA pressure, state Medicaid pressure, international investments to the extent we want to accelerate that.

. Do you think growth in '12 is a good run rate to use long term for the business?

A long-term growth rate is quite reflective of the slide we showed at the end, which is 5% to 6% unit growth. Some fixed cost leverage getting us to 9% -- 11% EPS growth. Year-to-year that could vary, but I would use that framework for more longer-term projections.

But wait a minute, I want to break in. That's a scenario. That we live in a space where to ignore the nontrivial probability of these continuities and the revenue or expense side positive or negative, to ignore that would be inappropriate. So when you think about longer term, that's a scenario. It is not a prediction. That would be foolish.

Okay. Then last question. On the commercial contracting side, can you remind us what percent of your commercial contract is bundled and what type of price escalators you typically get on annual basis?

Yes. Other than saying that the percent of our private in bundle is going up every year. I don't know if we got any instance of anyone going from bundling back to fee-for-service. JR, have we? No, so far it's a total one-way street. So the percentage that's bundled goes up all the time. And as to escalators, they vary by quite a bit. There will be the range of probably, gas. But I think we should leave it at that, particularly, a bunch of the people that we talked to and negotiate with our -- listening to the phone call.

Brian Zimmerman with Deutsche Bank. Next year, part of your annual update will be subject to risks by your results in the QIP with a score of 26 and above. We're glad that you keep your rate. Based on what your current 2011 quality scores are, what would your QIP score be?

Yes, so the way this works -- and let me -- this may be pulling it back a little is that in 2012, we're going to be paid for performance that we achieved in 2010 compared to 2007. So the answer to the question is. If they would use current data, we would perform quite well on the QIP. But unfortunately, that's not the construct. What we are advocating now with CMS, for example, is that the 2010 performance should be compared to '09, the most current year that it could be compared to for our payment in '12. That's one option for them to do. Really the statute required them to pick some measures in advance, to set targets in advance. So our overarching goal for 2013 is to implement this in the right way where they do pick the benchmarks and the goals we work with them, get a public campaign. So the community is really improving the level of care for all of our patients. But that's not how it's working today.

Okay. So if you're using the current data, the reimbursement would be close to 100%?

Yes, if you are using current data and the 2 majors that they've identified, which would be the hemoglobin and apathy.[ph]

Can you talk about -- nobody answered the additionals. Can you talk a little bit about that in light of the healthcare reform? How does that sit into the integrated care, coordinated care and if you -- you briefly mentioned, if you actually exclude specialists probably like you guys, you are saying you are doing some demonstrating -- demonstration project. So how do you see that demonstration will be expanded, and maybe just a little bit of comment on that.

Yes, so the question is about the demonstration projects in the context of ACOs and all that stuff? The -- whether or not our demonstration project our core demonstration project will be expanded, I don't know. JR, is that likely?

Right now, no.

So we're looking at some growth there. It's nothing dramatic, nothing that's going to sort of be a blip on your radar screen. For us, it's the mechanism for which to demonstrate the CMS that it really can work, and it can work on a significant body of patients. So we're going to see some growth there. But without something new from the government, we're not able to -- we can't scale that demonstration project without some new authorization from CMS.

It's not any healthcare reform.

No.

What's the economics of that type of project?

I think -- that's not -- this demonstration project, what we're doing is not something able to be embedded in the healthcare reform. The answer to that is no. It was not and what's the...

Economics of that type of arrangement versus the current dialysis treatment?

Well, the next question, what are the economics of that I don't -- some of it we're limited as to what we can say publicly because it's just seems as the [ph] demonstration project. But suffice it to say, I think we had, in the first 3, 4 years, were 58 quality targets that CMS set. We hit 55 of the 58. The MLR is attractive and going down. The patients adore it. The physicians like it because there's always coordinating work done. And so that's some of the factors that I can share. Andreas?

Kent, I want to go back to Kevin's questions on the International. You've talked about international potentially having great -- or being a great opportunity. You talked about in 2011 spending roughly $50 million. You've now said today you may accelerate some of that, may go into 2012. I have to say that's quite out of character for you in terms of, "Hey, we're going to spend a lot of money on what looks like it could be an opportunity." And I'm wondering from the CEO perspective, how you're thinking about it in terms of this is how much I would invest and if I don't start getting a return in this timeframe, I'm going to cut the cord on this or we're going to have to reassess it.

I think -- talking about the way I do, Andreas, because it is going to take a significant period of time before you get a return on this. And to announce you're going to go out and do international healthcare service, and create any other expectations, really a bad idea. So is that right, why do anything that is going to take a long time, cost a non-trivial amount of money, and has risks and consumes management resources, but the only answer is because if it works, it's a very, very big pie. Very, very big. It's a multiple of the U.S. market size. And so this is one of those we're going to spend an amount that's not trivial but also doesn't put at risk as the base business that also doesn't lead us to some precipitous drop in stock prices. Stock prices are not going to go down $30 because we spent $50 million internationally. So we're not betting the farm. This is sort of the equivalent doing R&D on a new drug or something. And so yes, it might not work. If it works, it's $1.5 billion drug. So I'm going to do that, but I want to make sure I don't have it consume too high a percentage of my R&D, too high a percentage of my management time. So one of the things that's wrong in the American healthcare service is there's inadequate R&D from an investment point of view and from an intellectual rigor point of view. Well this is very controlled R&D on something that has spectacular long-term upside, but that emphasis on the word long term and bumps along the road is really important. So that's why I'm talking about it differently than if we were adding a vascular access center. When we added vascular access centers 8 years ago, we're going to try it, try to get regs right, we'll invest. If doesn't work, you get out of it. That's what's different.

Okay, great. And then can we obviously take then something from your decision to date that probably developing economies in Southeast Asia is sort of the preliminary focus? Or are there going to be other regional centers that you're thinking about doing? Or is it sort of just focus for now and once we get our feet wet here, then we'll move on to other.

I would be surprised and disappointed if we weren't active in more areas than just Southeast Asia. And that wasn't a conviction we went into it with but just a couple of other parts of the world where quality people are responding with enthusiasm to the notion of working with us and they want to work with us now. And the notion of saying, "We'll come back in a couple of years when it's more convenient for us" is very unattractive.

Okay. And then 2 quick ones on a different subject, if I could. One just to review either Luis or Kent, in terms of your guidance and the ranges you are giving, the risks that you then talked about in terms of what could affect that guidance, they are incorporated into that guidance and then what could lead it to be at the lower end as opposed to the higher end of the range? In other words, something would have to happen outside of your probabilistic assessment in order to go below your guided ranges right now? You've incorporated what you think the reasonable risks are in that range. Is that correct?

Yes, but with any forecasts, there's always something that could fall outside that. We think is a reasonable assessment, and we'd have to be prudent to highlight those risks that we face or could face to varying degrees next year.

Okay. And then final one, I don't know, maybe it's for LeAnne. Can you just help me and review how the transition of patients goes if they come on board with Medicaid? Because I believe if they come on board Medicaid, it is accelerated that they go into Medicare? Is that correct?

Two scenarios. If you come in through Medicaid and you’re a home patient unperfect in hemodialysis, you're instantly moved into the Medicare program if you're eligible. Now if you are a regular hemodialysis patient, you would be eligible to enter Medicare after 3 months.

Kent, I'm just wondering as you've highlighted today and over the course of the last several years, there's great stability in the business, has been for a long time. When I think about reimbursement issues today versus any time over the course of the past couple of years, it seems like we're getting a little bit more clarity around directionally how that's going to shake out. The -- from a debt capital markets perspective, capital appears to be plentiful today, relatively attractively priced. And so I'm really wondering as from a longer-term capital planning perspective, while we're today in this 3x leverage context, any thoughts about as you look out over the near term altering what has traditionally been that comfort zone in terms of leverage and taking that up to some degree from the current context and getting a little bit more aggressive in terms of share repurchase. I'm not talking about the days of Gambro, Kent, where you were 5-plus-times the leverage but going from a 3x comfort zone to maybe a 4-ish times comfort zone and just getting a bit more aggressive in terms of share repurchase. Any thoughts around that?

Yes, I think we would start by rejecting the historical premise that the last few years have been stable. That -- what's happened is the last 2 years has been incredibly dynamic and it's netted out to something that much stable on a graph. And it's very different things. And as we look forward, there are some elements of our revenue and cost and unit growth structure, which are more stable than the last 4 years, which in our mind have been anything but stable. And there are other parts, primarily the government reimbursements and exchanges and the overall economy that are not stable. And so trying to give a weighted average stability score across the whole sort of universe of things that affect our stock price, I don't know, we haven't had that debate. But I wouldn't be a no-brainer. I think directionally, there'd be some sense that on a net basis that the next couple of years look more stable than the last 4. But that -- it says more about how unstable the last 4 were with traditional bundling legislation, the step around orals, the list goes -- the healthcare reform. List goes on and on. Therefore -- first, that comments on the context on the premise, therefore, at this point, we have no change of -- we have no intention to amend the leverage guidance we've had for 11 years now. That 3%, 3.5% seems about right. However, we probably haven't had a great debate on that subject for a couple of years because it wasn't relevant. So maybe that's something we should do over the next year or so.

I wanted to go back to one of your earlier comments that you feel like the Medicare reimbursements have given the way to CMS pays for it -- major payer for it results in also situation where CMS and everybody overpays for a certain period of time, like you might see in some other sectors. Should we read that comment to mean that you feel like bundled payment rate as it's constructed today is more or less an aggregate spending where it should be and you don't expect CMS to come back next year in the 2012 rate and making negative adjustment down because spending is higher than you thought or anything like that?

Could you repeat the first part about overpaying, because they're foreign concepts to me.

In your comments you said that because the government pays for most of the dialysis, you're never going to see huge overpayments. You're going to see huge underpayments...

Or you won't see huge -- yes. There you go.

You have seen overpayments for certain period of time, but you don't see that happening in dialysis, I guess.

Yes. Okay. What will Medicare do as they stare the bundle in the first couple of years, impossible to know. We still lose money on Medicare. So that's a very powerful fact. They clearly made mistakes, some of the case mix adjuster, to make a case mix adjuster dependent on data we do not have and cannot get is totally unfair. And then to have projected incidence levels of some case mix adjusters that are 10x off what all the other data says is patently unfair. So they've got some serious things to fix which should lead to them closing the gap between our expense per treatment and Medicare revenue per treatment. So that is the big should. Will they do that? Don't know. Could they in fact do the opposite and say, "Well, it looks like the private sector's willing to keep subsidizing, let's go ahead and see if we can get away with cutting it, even though we made those mistakes and we know it or let's not correct those mistakes and rely more heavily on the private sector." That could happen. I mean, they relied on the private sector to subsidize it for 30 years so far. And while it goes up a little bit or down a little bit each year, that reality has been true for a long time. So did that answer the question?

I guess we're going to be seeing a proposed rule in the next 3 or 4 months, I guess. And so I don't know if there's any dialogue that you've had with CMS that kind of makes you feel like, at least for right now they kind of feel like things are still in flux and you expect 2012 to be stable or whether there's...

Well, they play pretty close to the vest. And if we're going to be -- it gets back to no huge surprise either way, I think. I think it's highly unlikely there will be a big surprise either way. How do you amend that?

No, I would say the same thing. And I would add one comment. In all the other PTS systems, they have looked at that system holistically when they are making changes. We would expect that same treatment. So identifying a single item and cutting this or that, we would not expect that. We shouldn't have to expect that. They should be looking at the payment system holistically as Kent mentioned.

Okay. And then when I think about the -- just switching subjects, the cash flow bridge that you provided is very helpful, but you said you're going to be selling 15%, 20% more of DSI. Do you think that there's going to be $100 million or more of proceeds from asset sales? And I don't remember seeing that in that bridge. Is that the right way to be thinking about it just, maybe it doesn't all happen in 2011 despite inputting the numbers but...

You're correct. That was not on the bridge and to the degree that we have excess cash or cash proceeds from the divestitures, which we expect we will, and that would be a source of cash that we'd have to decide what to do with it.

Okay. And then last topic here. You didn't spend a whole lot of time talking about the other businesses, about your assets, the Rx and the wellness. How do you think about those businesses in your growth profile going forward, the profitability. I mean, some of them have been struggling back, 2 to 3 profitable. Where do you think that those can go over the next couple of years?

With respect to those 3, VillageHealth, which is integrated care, Lifeline, which is our vascular access, and DaVita Rx, which is specialty pharmacy. On VillageHealth, whether or not that becomes something which is materially -- which is economically material to you, we won't know for a couple of years. And maybe not ever. So that one is pretty impossible to predict. We'll always continue to do VillageHealth type stuff because it's essentially clinical innovation in R&D that informs our base business anyway because some of those practices we can incorporate, add more value to the system and do better with Medicare Advantage and private payers, some segments that actually do look at this stuff. So it would never go away. So we're getting back on a Andreas' question, do you ever shut it down? No because you'd have that function as a cost center no matter what, even if you weren't trying to develop a revenue stream associated with it. The amount you invested in it is, of course, a part driven by what do you think are the shots that you can actually get revenue greater than expenses but you'd always have it there as a cost center expense no matter what. And Lifeline, our vascular access centers, we hope they continue to grow but that's not going to be anything that is going to become economically material just because it's too small. This is very important, for a number of our physician relationships because the nephrologist love it and what it does. And it's very significant because we're the best at it in America and their conversations with some of the payers, because it saves them stunning amount of money. So it is a good thing, and we like it a lot but it's not going to become economically material like quadrupling in size or something like that. And then on DaVita Rx, if they reasonably fund orals in the bundle in 2014, which is in their best interest to do both clinically and economically, then, DaVita Rx can become economically material to you guys.

Just a follow-up, one quick question on new centers, you mentioned closures in the slide show. Maybe you can just discuss what your success rate is right now versus where it was 3 to 5 years ago?

Well, I'm going to guess there are -- and then if someone could correct me, but I know I'm not going to be far off, the success in de novo if you look at all of them over the last 9 years, probably still at 99%, plus or minus 1%. Does anybody know? I still don't know of any -- if we had any failures from the de novos. Do you know of any? So I'm going to assume we've had some, but it's -- so some of the closures weren't de novos. If you acquire 4 centers, you might close one down, but it's still very high. If you recall strategically, we decided, when we had that big year with 85, our decision was we had too high batting average that we needed to have more failures -- it would be better to have a 90% hit rate with 1,000 at-bats than 100% a hit rate with 500 at-bats. So your shareholders are much better off because 90% still leads to a weighted average of great returns, so you might as well double the amount of capital you're deploying into that area. So that was when we spiked things up for a bit. And so that -- that's where my guess -- we went up from the 0 we used to be at to having some failures or ones that are probably going to fail over the next year or 2. But that was conscious. It was -- we had an inappropriately high success rate.

And just on capital deployment, the share repurchases seem to be moving a little bit in fits and starts. You're very aggressive in the back half of the year. They did nothing in the first quarter. Then it looked like you bought closer to 1 million shares in April. Any kind of rhyme or reason there that we should be looking for as we get to the back half of the year in '12 as far as how you'll be deploying free cash flow to share repurchases?

It fits and starts and no rhyme or reason, okay. I'm trying to reflect in whether or not that appropriately captures how we think about it or not. And we don't have to amend your question at all. The -- you know the answer, Justin, we look at this every quarter, we have for 11 years. We evaluate all the same factors that you would. First quarter alternatives in terms of growth and do we have any need to do anything on the debt side. And then we look at what's going on in the market itself and both in the debt markets in terms of terms and our own market in terms of what's going on with the stock. And so we would think, what is it "foolish consistency is the hobgoblin of little minds." So some people have that philosophy. We prefer no rhyme or reason and fits and starts.

Lastly on ECOs obviously, I think the world would agree that there was -- the initial take on the regulation was disappointing to say the least. I was wondering if you might have some opportunities through the centers of innovation. Any other ways to work with managed care for instance, with Medicare or maybe Medicare Advantage or any commercial business to take advantage of some of the investments you've made there? To put yourself in a position to kind of, I don't know, if you want to call it capitation or to more holistically manage these patients.

We will take a swing with CMI.

And any thoughts on magnitude or timing there to how many patients do you think you can get through?

We're willing to go big. The notion that the government [ph] will be a willing partner in growing big, it's a bit farfetched.

Timing there? Whether you expect you might hear something or be able to...

I mean, they want to go fast. And they want to go fast for the 1.5 year it's taken them to get people working in the room. So where do you go with that, but they do sincerely want to move. But they're just -- it's not in their organizational DNA. So we'll see. And they have some really talented people there who have every intention of getting some stuff done. Whether or not they can overcome all the organizational obstacles that life puts in your way once you're a part of that organization, which again is not a function of their being bad people but just the cumulative set of procedural rules that they have to follow, even in that group, is pretty formidable. And so hopefully, this group of wonderful folks will be able to do stuff that others couldn't and actually be able to go fast. But we would never predict that view.

Any investment there that -- yes, I know you've made a lot of investments whether it's VillageHealth or the drug, the pharma distribution business. It would seem like you've got a lot in place to get started there, but any investments we should keep in mind that you would need to put in place for that?

Good point. In the unlikely scenario that they wouldn't go big and they wouldn't go fast, we would have to announce Q1 investment of that P&L investment.

Any definition of what big would mean as far as percentage of your patients?

I think I just rather wait until we have -- I'd just be picking a number, Justin, so I just don't -- I just don't think there would be any value in my giving you a number.

Maybe just to get a quick update on kind of a competitive landscape, seems like there have been maybe some fits and starts, some new entrants into the market and how, if any impact, it is having on your ongoing contracting with medical directors?

I would say that the level of competitiveness today versus a year ago versus 2 years ago versus 3 years ago has been quite constant. There's a couple 2, 3 bigger players and then there's 3 or 4 medium players and then there's small players and new entrants and there's independent physicians. So I think that's been pretty constant for the last few years, always intense and no sign of that abating. Also no particular sign of it getting more intense, but there's already quite intense, full-fledged, full-contact support. If you want to do a follow-up question of it.

And then I guess maybe just along with that or maybe separately, just any changes, is it more difficult, easier in terms of renewing contracts with medical directors or just a new supply in nephrologist and their availability?

Yes, I would say that's also the same, which is -- both for renewing medical directors and signing up new medical directors, the competition is very intense, and that's no different from the last 3 or 4 years. I don't know if any of you are sensing anything different. Feel free to bring it up. Javier? Javier's gone. Would you say that's the case? He runs a big chunk of the country so he would have a more granular sense.

And then I guess, maybe just separately to follow up on -- under a scenario where Medicare decides whenever that might be to try to a take whack at the bundled reimbursement rate. What do you view maybe other than the leverage you have with commercial payers is some of the bigger levers that you would think would be kind of your first line to try to minimize the impact to earnings?

And so this is if Medicare significantly reduced the bundled reimbursement?

Exactly.

Yikes. Do you guys want to answer that? Well, certainly, we go -- the way we work, you go right to the private payers and push for higher rate increases, because overall, you see our average profitability, we have an awful lot of centers that are hovering $0.01 above, breakeven or x dollars below. And we carry a non-trivial number of centers that lose money. And so those become really untenable quickly and a whole bunch of others that are profitable, but inadequate return on -- if you knew it's going to be that low, you wouldn't have done it unless there were broader reasons. So those become negative. So you would -- the industry's response would be to immediately go to the private payers and take more, as well as going to pharma and device companies and ask them for bigger -- for price reductions. But it would also probably have implications for annual merit increases for our teammates, as well as for -- all our teammates, including the ones that are sitting in this room. So that was a pretty generic answer but I don't think there's any other way. I don't think there's any sort of silver bullet or fire.

Just a couple of more, Kent, quick, pre-DSI, you had been talking about having an appetite for an MDO acquisitions. I was wondering, did DSI sate that appetite? Or is there something -- are you still, as the opportunity arise, be willing to buy something bigger as opposed to just sort of the regular tuck-in acquisitions?

We would always be willing to and then of course it's a minus divestiture leakage. So it gets more difficult. But intellectually, it's just a numbers thing. If the numbers are right, you can do it.

And then just in terms of -- we've talked about it a couple of times and then a couple of different ways sort of equal rights for dialysis patients sort of an interim step is MSP extension. Would you characterize that concept as something that is in active discussions and do you see as a cost saving? Or is it something that you guys in the industry have been pushing and haven't been able to get traction on?

I'd say right now it's not active. Some people -- a lot of people in Congress keep a list, scored-savings ideas. And so it's on the shelf in a lot of people's offices. And so we'll see if it gets pulled out.

What's the rough score, LeAnne, for a half -- for say, a 6-month extension or 12-month extension?

I think and I recall, I would say the government, it was $1.5 billion over a time, I think, 6-month extension, something like that. If you're really want to know, I'll look it up and send it to you.

And my memory is $1.2 billion for this 12 months over 10 years, so we'll find out and see.

Okay, great. And then finally, Kent, you often don't get a lot of questions about sort of the quality side, but now that you're through or the clinical side, I should say. But now that you're through your preps for the bundle, can you just talk about the process that you went through in terms of the medical board and the decisions they made? How that was disseminated to your physicians and whether there was any major pushback or any issues that you faced along the way?

Yes, I love the question because it's actually a great process. What the bundled precipitated was a more intense and reflective analysis of a whole bunch of clinical practices, and it happened in a while because while we look at it very intensely and analytically over the year, a lot of other doctors who are busy running their lives, running their practices and there will be opportunities to really step back and say, "Wow, well let's reflect on the interaction between DSOs and iron. Let's reflect on oral drugs. Let's reflect on this." And so there was a lot -- during this process when we started sending out proposed protocol changes and ideas and created a form for them to share ideas independent of us, the participation dramatically exceeded what we normally have. And so it's very, intellectually robust, and so we went through. I mean, we started on this, well, ahead of time of course. We went through a series of really cool research studies, all sort of micro-compressed in a period of time in order to experiment with some of the ideas that different physicians were throwing out. And so if you went to this through the outcomes, what would this do to outcomes. And so it was -- we've run those cases when necessity was the mother of invention. We had to do a lot of experimenting quickly, but still have very rigorous data. And so it was broad, and it was deep and it was quite nimble. It was unsustainable as a way to run yourself. But it was good. And it got a lot of dollar. A lot of doctors enjoyed it because they haven't done it in some time. They had instead rely on the experts and the rest. So it was very, very…

Kent, you alluded briefly to PD and Home HD, and you also alluded, I think, briefly to transplants. You're going through the slides at a ferocious space. I didn't actually see the mix between PD and conventional HD and Home HD. I thought I missed it because of the pace that you guys were going at. And also I didn't quite understand the economic impact on you across those modalities. And last, I know it's a wonderful thing when people get a kidney transplant, and they don't have to be on dialysis any more. But I don't understand the frequency of that, the probability of somebody reaching that end as opposed to the other, death. And I wonder if you can just kind of talk through those aspects as well.

Sure. Either of you want to do any of those.

Go ahead.

Go ahead.

Okay. We didn't show the mix. PD has probably moved from 8% or so to a little over 9%. HHD is still 1/8 of that or so and not changing. And then as to economics, if you look at it on a theoretical basis, in many instances, PD is less expensive for treatment in the bundle than normal HD. And HHD is more expensive in every case, whether theoretical or the applied. The reason was PD emphasized that if you look at it sort of theoretical basis, is that -- with PD, you have to achieve a certain scale and stability in order to achieve those theoretical economics. And a significant percentage of PD in America is done subscale and without the right consistency. And so, the theoretical relative to PD economics are often not reflected in the aggregate reality. So with PD, you can see differences. With HHD, it's more expensive all the time.

Okay, that's more expensive to you. So it's in the bundle, you're paid the same whether it's PD or conventional or HHD when you talked about more expensive or less expensive more specifically...

Yes, that's what it [ph] costs to us.

So the economics are advantageous to you if the patient is actually able to have a PD modality, but in most cases, they're not?

Well, in most cases not, but again as I make the point, theoretically, you can say what advantage if it's PD, again, assuming it's clinically equivalent for the patient as the absolute black-and-white first filter. But second, in the real world, a lot of PD ends up having hidden costs because of subscale programs, accepted churn in the patient base because of poor patient selection, et cetera. So the pro forma that someone creates about PD and the bundle is not supported by the operating reality and so the delta is not nearly as large and, in many cases, unachievable.

And what about transplants and other things that may disrupt the historic patterns through the substitution risks and technological change? How many people get transplanted, is it a pretty small number?

About 17,000 a year. So 17,000 and that has been, thus far, as a percentage of the total ESRD patients, is that right? So far -- and absolutely going down, because I know long, long ago, it's 11,000 to 12,000 showing my age. Right now, what the experts say and what some of you may know differently, and please speak up. What the experts say is that there is nothing happening that is likely to materially change the number of transplant donors in your investment conference. But I -- this is just me parroting what people who supposedly understand this say, we're open to any other perspectives but I don't see any.

And are there technological changes going on that might seem to disrupt?

Nothing that I can think of off-hand. I got an iPhone. All right. We got the 5-second countdown. If not, we appreciate your interest in us and appreciate your endurance here this morning. Please let us know if Boston works for you and please let us know if there are other things you wanted us to discuss more coherently or completely, so we can do a better job for you next year. Thank you very much.