Ladies and gentlemen, thank you for standing by. I’m Stuart, your Chorus Call operator. Welcome and thank you for joining the Fresenius Medical Care Earnings Release for the Second Quarter 2019 Results. Throughout today’s recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions]I would now like to turn the conference over to Dominik, Head of Investor Relations. Please go ahead, sir.

Thank you, Stuart. We would like to welcome all of you to the Fresenius Medical earnings call for the second quarter 2019. We appreciate you joining today.Now it is my pleasure as always to start out the call by mentioning our cautionary language that is in our Safe Harbor statement, as well as in our presentation and in all the materials that we have distributed earlier today. For further details concerning risks and uncertainties, please refer to these documents, as well as our SEC filings.Given that there has been so much news flow with the CMS rates coming out with the proposed rule for next year with President Trump’s executive order and the special effects in the quarter, I assume that there might be a good number of questions. Therefore, it would be great if we could limit the number of questions again to two in order to give everyone the chance to ask questions. If there are further questions, we are more than happy to go a second round, and I hope this works for everyone.With us today is, of course, Rice Powell, our CEO and Chairman of the Management Board. Rice will give you some more color around how the quarter has developed. We’ll go through some of the major topics of the quarter. And, of course, also with us is Mike Brosnan, our Chief Financial Officer, who will give you an update on the financials and the outlook.I will now hand over to Rice. The floor is yours.

Thank you, Dominik. Hello, everyone. It’s great to have you with us today. I’ll start my prepared remarks on Slide 4, and I’ll give you a second to get over to that slide.Our growth trend continued in the second quarter. We provided just shy of 13 million treatments. And as you can see, we have approximately 340,000 patients that FMC cares for at the end of the second quarter.Now turning to Slide 5, we’ll take a moment and look at our clinical outcomes. Our quality outcomes are the most important commitment that we make to our patients. I’m pleased that as you look across these four regions in the year-over-year comparison, I see stability and good performance in those metrics that we measure from quarter-to-quarter relative to our clinical outcomes.Turning to Slide 6. My commentary on the quarter in and of itself. Our underlying business performance developed in line with our expectations. We’ve seen healthy organic revenue growth globally. And additionally, we’ve seen very healthy growth in our U.S. dialysis business. With this growth prospect in mind, I believe we will achieve adjusted revenue growth in the mid to upper-end of our guided range for the year.As the reconciliation for the ESCO savings has been ongoing for such a long time, it is prudent to address – to adjust the resulting savings. Therefore, we have an adjustment in Q2 based on recent reports for prior year plans. This does not mean that we have not delivered savings, but the savings rate is lower than we had anticipated and hoped for.This ESCO adjustment was not part of our planning when we issued our guidance for the year back in February. Therefore, we believe we will now be closer to the lower-end of our adjusted net income growth guidance for 2019.As you…

Thanks, Rice, and hello, everybody. So I’m on Chart 13, revenue and net income growth, and we have a high-level reference slide to guide you through the developments in the second quarter.So if we start on the top with revenues, you can see in the base period, we reflected a €258 million revenue adjustment associated with the fact that we divested Sound in the second quarter of 2018. This would get you to measurement base of €3.9 billion and change. And you can see the 5% business growth that we had, or €188 million on a constant currency basis. The revenue development is clearly within the targeted range of 3% to 5% for the full fiscal year.Currency translation was favorable with €140 million additional on the top line. There was €18 million for transactions that under the old leasing standard. Prior to IFRS 16, would have been classified as revenue and the €79 million generated from the newly acquired NxStage, which Rice mentioned a few moments ago, get us to a reported figure of just over €4.3 billion in revenues.So now if we look at the development of net income, the adjustments for the gain from the divestiture of Care Coordination activities was €686 million to get you to a base of €308 million for the measurement period.You can see that the business development was a loss of €33 million to get to growth on a constant currency basis of minus 14%. This growth is affected by the ESCO adjustment, as Rice indicated, which accounts for about 8% of that – 8% of the 14%.Following on, there was favorable currency translation effects of €15 million, the unfavorable front-loading effect from the implementation of IFRS 16 of €10 million, unfavorable effects from the NxStage operations of €19 million and transaction integration…

So thank you, Mike. Thank you, Rice, for the presentation. I’m happy to turn it over to Q&A. Stuart, could you please open the lines?

Thank you, ladies and gentlemen. At this time, we will begin the question-and-answer session. [Operator Instructions] One moment for the first question. The first question is from the line of Veronika Dubajova from Goldman Sachs. Please go ahead.

Good afternoon, gentlemen, and thank you for taking my questions. I will keep it to two, please. My first question is on the ESCOs and the adjustment that you’ve had to make today. I appreciate the mechanics of it. I’m just wondering, in light of what you are seeing and hearing from CMS around this baseline conversation, is your assessment of the growth and earnings potential of the U.S. Care Coordination business changing in, in any shape or form.I think, historically, you’ve talked about this mid to high single-digit top line growth and margin somewhere in the low teens. Is that something we should be reassessing as a result of that? And I will ask my second question after you answer this one.

Sure. Hey, Mike.

Yes. Hi, Veronika. Let’s see, I think, when you look at – just to give a little bit more detail to everybody on the phone, when you look at the Care Coordination margins in Q2, absolutely right adjusted, it was negative 2.2%. The ESCO has accounted for 11% – 11.1 percentage points of that negative margin. So without considering the ESCO adjustment, we’d be at around 9% for the quarter. And on a year-to-date basis, we’re at 5.2%, including the ESCOs and 10.4% excluding.So for the full-year, we’d expect with the ESCO adjustment to most likely be in the mid single-digit margins for North America. If you excluded the ESCOs for the full-year, we’d be just shy of double digits, just to give some perspective.When we think about 2020, because I know your – I’m anticipating your question in that regard. With the ESCO adjustment behind us and with what we see underlying the development of the remaining parts of our Care Coordination business, we’d expect to see, again, double-digit margins in the Care Coordination business, if that’s helpful.

So even though, there’s potentially questions around your choice to participate in some of the ESCO programs going forward, do you still think you can achieve a low double-digit margin in the overall Care Coordination business in the medium-term? Is that a fair way to interpret your comments like?

I think that’s fair. Yes.

Okay. And then my second question is just on the full-year guidance. Obviously, with this ESCO headwind, it’s roughly 2% to growth for the year. What is going on better in the business that gives you the confidence that you can compensate for it within the guidance range that you’ve given?

Yes. I think you’ve come up with two great questions to start the call. And maybe, because, obviously, we’ve spent sometime with the notes that all of you published earlier this morning. So maybe I’ll answer this in a fairly comprehensive way with regard to the second-half versus the first-half for 2019.The – we expect an improvement to come largely from North America in order to achieve the guidance range that we indicated, which when you look at that on a pre-tax basis would be about €300 million. Approximately one-third of that would come from top line improvements, mostly the positive trends you see in treatment growth and commercial mix in the U.S., which is further supported by the de novos coming online this year, and supported by developments in product sales and Care Coordination, excluding the ESCOs.We are seeing some positive results in the vascular business as a consequence of the ASC conversions that we’ve undertaken and that we’ve talked about a number of times previously. About one-third of that improvement will come from the cost optimization program, the GEP program, from purchasing activities in the back-half of 2019, and other reference.And the last third, would be from timing effects. And in that category, Rice mentioned, in particular, sales in EMEA, as it relates to the Middle East, we do see product sales improving in the back-half, largely associated with those customers that are dependent on letters of credit. So that’s a timing. We think we have the sale, it’s just when it closes.Some costs incurred in the first-half of the year that will not repeat, and then our normal truing up up of our self-insurance reserves and other improvements in the back-half of the year. So roughly a third in terms of top line, the third in terms of cost management programs and a third in terms of timing effects, if that’s helpful.

That’s very helpful. Thank you very much.

Next question is from Patrick Wood of Bank of America. Please go ahead.

Perfect. Thank you very much. Two for me, please as well. And on the ESCO charge, not a timing thing, I mean, CMS at the same time and CMMI has been putting out so many of these bundles and trial programs in CJR to rat onto BPCI, like there’s been millions of them.Do you get a feeling that they’re kind of run a little bit ahead of where they have the capacity to manage? And in relation to that, if that was the case, do you think that that creates a problem for that managing the shift home making that shift, or is that just a much simpler program to execute than the shared savings gains? So that’s the first question.And then the second question, on the commercial rate environment of the U.S., is it just some of the regional contracts we are seeing a little bit of the pressure there? How should we think about commercial rates going forward? Should we expect to get back to a slight inflationary environment, could be helpful? Thanks.

Hey, Patrick. So I’ll take one. Mike, you want to take two. Yes, here’s what my personal opinion is when you look at this, you’re right. There are lots of pilots out there. There are lots of demo projects that are out there. I think here’s what I would say to you. As we look at our ESCO situation and we talked to other people that are doing pilots of one nature the other, benchmarks that move around, timing and transparency of data and reconciliation is a general issue.Now in fairness and to the folks at CMMI, particularly at the very senior levels, they will tell you these were programs that were developed under different administration. They’ve inherited them and they’re trying hard to make them work as best they can. And they will say that we’re learning lessons about how we want to go forward, in my particular case, as we talk about the executive order in kidneys. And we do see that they’re trying to simplify and make it easier.I will offer this to you. When we look at our Medicare Advantage programs that we are running for some of the payers, we know very well in a broad sense, where we need to manage expenses, how we need to intervene, what we need to do, we see profitability, we see savings, it is a much simpler – a simpler architecture, if you will, to what we have tried to understand and work with within the ESCO program.So I’m convinced that this works. Value-based care is here to stay. But yes, I think you’re asking a very good question around just how busy are these folks? Can they really get all of this? Is it just too overly burdensome? I think we’ve been awfully ambitious is the way I would say it. And I’ll turn it over to Mike for the commercial rate.

Sure. Yes. Patrick, I think on just kind of overall on the revenue for treatment for this year, typically a guide to revenue for treatment, excluding the calcimimetics. We are essentially flat at the half-year mark year-over-year in terms of revenue per treatment.I would confirm that my expectation is, we’ll be flat to slightly down for the full-year. We are seeing our commercial mix improve as we expected, and we are continuing to manage the renewals this year with the net rates being down just a bit.When you think in terms of mid-term and you move out beyond this year, I think that the U.S. folks have done a really good job managing a very complicated environment over many, many years. And I would generally characterize what we see in commercial races as relatively stable.

Helpful. Thanks, guys.

Thank you.

Next question is from Tom Jones of Berenberg. Please go ahead.

Okay. Good afternoon, and thanks for taking my questions. For Rice, I’ve got so many questions. I’m just trying to bundle them all into one really, to be honest. If you had to kind of assess the reform, particularly to the U.S. here, the political tailwinds versus political headwinds situation, I mean, if you’ve got so many different things going on, the ESCOs, the CKCC model, ETC model, the KCS model, is in this tech add-on proposal coming last night, there’s changes around the way that has been going handled. I mean, we can talk about it all day.But just for this week, if the sort of headwind diameter would say minus 10 on the day that the Medicaid decides to try and cut you rates 9% back in 2013, 2014, that was kind of as bad as it’s ever been, and maybe plus 10 is the opposite end of that spectrum. If you look at everything, as you sit in your office today, and all these different programs going on, executive order, et cetera, et cetera, where are on that kind of minus 10 to plus 10 scale would you put the political environment in the U.S. at the moment?

So, Tom, before I would begin to think about that, I’d probably have to have a drink if I were sitting in my study at home. But let me say this, yes, it kind of seem to be very schizophrenic and I understand that. Here’s the way I look at it. We’re winning more than we’re losing. I’m frustrated about the ESCOs and those of you that normally well understand that, because we’re doing good work and I don’t think it’s getting recognized from a financial standpoint.But here’s what I would say to you. You look at the prospect, the PPS comes out, it’s roughly 1.6, little bit better than last year. I think that’s a good thing. If people really read into the detail, there’s no more ESA measurement. So for everybody that was worried about the call back, which I still say never came, because they tried it and it didn’t work.I think we’ve moved past that boogeyman, if you will, and we see in the proposal, we are very happy with what we see for vascular access at a 2.7% increase in the renal side of the vascular business and in the cardio side where we do some work. We’ve seen some procedures be included at good reimbursement levels. All of those things we take as positives. We believe in home, or we shouldn’t have spent the €2 billion that we did.So I think in the big picture, I think the climate is, it sits today with this President, this administration, this Congress. I’m bullish, I think, we have lots of work to do. We got lots of things to explain, questions to ask. The chaotic part of this is just trying to get it right and have it the more simple when I think about this…

That doesn’t hold your breath too much, but I think [indiscernible]. My follow-up question, I guess, underlying the one I just asked is really the bit that we’re all kind of salivating over is the global kidney care contracting model and what that might do for your business? I know, it’s very early days and discussion is still relatively preliminary. But what are the key things that are giving you concern around that model? And what might you like to see improved with it before you would commit more wholeheartedly to participating in a program of that nature?

Yes. So, when I think about – when you look at the way they’ve laid it out, the fact that, you’ve got nephrologist in there. You’ve got not a requirement for dialysis clinics to be there. That gives me concern that one of the first things we have to do is sit down with our physician partners and make sure we’re all locked and loaded about how we want to go forward and what we want to do.But I will tell you the thing that is concerning to me is, when you look at attribution being based on the physicians rather than the clinic, that’s the problem. I just think we’ve got to push back on that, is not because I don’t love our physicians. But I think that attribution has been hard enough for us in the ESCO program, Mike, I would say, that to go into something this significant with this kind of potential and our clinic base is not part of the attribution, that’s pulse for concern.So we’re going to push on that. We’ll have to do more with it. Tom, I don’t think I can drop into more detail than that, but that is the one thing that sort of drops out it. It jumps out at me in that is we will now, I guess, start to call it forever the CKCC model.

Perfect. That’s very helpful. It gives at least an idea to – on what bits of it to focus on. So that’s very useful. Thanks.

Next question is from Michael Jungling from Morgan Stanley. Please go ahead.

Thank you so much and two questions, please. Firstly, on the ESCO savings. So of the profits that you’ve reversed of €41 million, what is the amount of cost savings which you have booked in the past, but have not yet impaired or adjusted? I’m just trying to work out the potential at risk at sometime in the future, if things don’t improve in the ESCO projects?And question number two is on Medicare Advantage. Can you comment on the progress you’re making in negotiating with the commercial payers for 2020? And do you get a sense that you will get a rate above the Medicare rate? And in that, how do you feel about the disruption whereby an insurance company actually become a dialysis service provider in their own right? Thank you.

I’m just thinking about your question, Michael, because we’re constrained a little bit in the following way. I think that when we finished the plan year one with the government, which was the tail end of 2015 into 2016. The agreement we have is that, we don’t talk specifics until the years are closed and fully reconciled. And when that happened for year one, we reported out in a fair amount of detail what the results were.Unfortunately, we would have loved to have been in a position to do that on year two sometime last year. And as it happened, that just hasn’t worked out that way. There’s additional work that’s being done. But we do have an agreement that we don’t talk about the specifics of any of the plan years until they’re fully closed and reconciles.So what that leaves us with is essentially about 2.5 years of activity. We’ve got plan year two, which the latest communication we received from the government is that they would expect that that will be closed out sometime this fall. I’d say, best case, September, worst case, Q4, hopefully, plan year three, which we just got the preliminary full-year reports, lots of questions are going back and forth in terms of patient attribution, benchmarks and the cost savings estimates. I expect those discussions will continue.And then what we typically do in the current period is, we take a very hard look at the most recent year, which would be plan year three 2018. And we considered that when we booked the adjustment in the second quarter. It’s not really answering your question, but I’m explaining why I’m somewhat reluctant to talk about hard numbers in terms of what we’ve recognized cumulatively in the program until we get to some closed plan years.We did it for plan year one. We’ll do it again for plan year two if we get through this year. And then as soon as we’re fully reconciled with the government, we’ll do it for 2018 or plan year three. We are still saving money in these programs.As Rice indicated, we think it’s very important that we participate in these programs to get the right base of knowledge to be successful under value-based care, whether you’re talking about the new executive orders, or frankly, even if you’re talking about the PATIENTS Act, and what may have happened in Congress relative to getting to a capitated rate program for dialysis patients. So we see the investment we’ve made in the ESCOs as very important in that regard. And we are still generating savings that we’re sharing with the government.

Yes. Michael, it’s Rice. The only thing I’d add to that is, it is a reconciliation. It can go up or it can go down and we have to be dealing with gravity right now and what we’ve done. But I’m not totally convinced it will never see any positive on this either. So I think we hold that out to see where it goes.On your question – second question on the Medicare Advantage negotiation. Those are underfoot. I don’t think there’s a lot I can tell you about that at the very moment other than, obviously, we’re six months away from a New Year. So we’re into discussions on that.I think your other question about how do we feel about an insurer becoming a provider, that’s certainly something that could happen. I think part of why we, as a long-term focused provider, have always been comfortable that we have quality parameters and we have quality metrics that we have to meet in these programs, because it’s not as easy as one might assume that they can flip from being on the insurer side of the business to the provider side, and they’re going to necessarily be able to make that happen with whatever kind of form they take, if you will, to become a provider.But it’s a little theoretical, I don’t think I can say much more than that. But we stand by our ability to manage our patients and do what we need to do. And we’ll see how that evolves over time.

Great. And maybe for Mike on this ESCO. Thank you for the explanation, maybe I can ask in a different way. Is there a material risk or so that you would come back to us in the next 12 months of a further correction to the downside? Is there enough left over that there could be a material amount to the downside?

Yes. I think that we do make – we do every quarter and we did make a judgment with regard to this €41 million that we took in the second quarter. So I would say, these are still risk-based programs. We’re still potentially plus, minus in any given period based on the most recent information we have from the government. But this €41 million was substantial. So I’d like to think that the worst is behind us.

And the nice thing, Michael, is just the fact that we’ve got these other programs as part of the executive order we’re talking about. We’re pushing for improvements from what we’ve seen in ESCO. I hope some of that bleeds over into the ESCO conversation as well, because those years are still out, as Michael said. So we can’t say no. But at the same time, I think, we’re trying to be as clear with you as we can be anything Mike just was.

Thank you.

Next question is from Sebastian Walker of UBS. Please go ahead.

Hi, there. Thanks for taking my questions. I had two, if I could. So could you maybe comment on the ESRD PPS that we got last night in terms of how that compared relative to expectations when you’re thinking about 2020 guidance? And then, in particular, how large of a tailwind calcimimetics has been on the North American dialysis camp products margin for 2019? That’s the first one, and I’ll ask the second one after you got a chance to answer. Thanks.

So we’ll split that one up. Just on the PPS that came out last night, the expectation that we had going into 2020 was pretty close to where they ended up. We kind of felt like the 1.5, 1.4 we’re seeing this year was going to be probably rational for 2020. And I think at this point, it seems to be now we all have to remember this is draft proposal till it gets to the final rule. But as I said, we’re looking – we think this translates to 1.6. I think everybody’s got a little different number depending on how you back things out. But you know, Mike, I’ll let you hand on the tailwind on calcimimetics.

Yes. I mean, over – overall, we haven’t differentiated between what reimbursement is going through the services versus the products business? I’d say, generally, the calcimimetics has been – when you look at our margin reports last year and this year has been a positive for the business. And we would expect that to continue and make a contribution to the third, a third, a third that I mentioned at the beginning of the call when – to Veronika’s question. But I probably stopped there, rather than try to tease out products versus services.

So – sorry, just to follow-up, when calcimimetics go from being reimbursed at ASP plus six to ASP plus zero, I guess, I’m trying to understand how that translates into a 2020 impact?

No, I appreciate that. That level of granularity, we’re probably going to wait until we see how we perform this year and talk more about that when we give 2020 guidance.

Okay.

Yes. I mean, the only thing we could add is, we, I think, told you guys early in the year, we thought there’d be a couple of generics out there and we sit here today with five. That will also play into how we look at next year and where we’re going, how they launch and get utilized in the ASP calculation.

Okay, great. Thank you. And then one was just on home dialysis. And I think there’s an appreciation for some of the potential financial implications here. But just trying to understand the transition period, if you could talk about how investments are going to be phased, I think, you talked about investments falling off in the second-half of 2020. But then if you could also talk about the potential impact of a lower utilization rate within your traditional clinic base, that would be really helpful?

I mean, I think very broadly speaking and this goes back always. This goes back to kind of the discussions we had when we announced the NxStage deal in 2017 and some of the additional discussions we’ve had. There was a home call. I didn’t participate in that, but the recent Dr. Maddux did.Broadly speaking, we – and I’ll repeat this a bit that we’re supporting home. We think that to the extent to which pesticide [ph] of surface patients choose home over in center, that this is something that will be somewhat gradual over time. We indicated we thought we’d be at 15-plus percent by 2022. And we’ve told you recently that with the improvement we saw in 2018, that we’re focusing on the plus. But we think that’s very manageable in terms of our infrastructure.So, over the mid-term, I’d expect that and we’ve already said that we expect fewer de novos as a consequence of the move to home. And as some of the facilities come up for lease in the U.S., we think we can manage those lease renewals in such a way that we’ll have the right level of clinical infrastructure to support the home patients, because every home patient needs a center they can go to, to meet with the nurse to take care of the evaluation of their clinical indicators, their blood work, et cetera, potentially get injections. So we think that we’ll be able to manage the clinical network very smoothly over this period, where patients start using home as a site of service more and more in the mid-term.

Yes. Sebastian, it’s Rice. On the – the one point on the clinical utilization is, we have run out our models and we look at what we think we’re capable of doing x executive order set that aside for a moment. We’re out in the 2030 timeframe before we start to see real utilization. I’m not going to say issues. Utilization activities, we have to think about and take care of, so it’s – it is a ways out.Now, I think it’s fair, you look at the executive order and you hear them say, we want 80% of the patients either on transplant or home by 2030. That’s a great goal. I don’t know exactly how you make that happen. But I guess, we could theorize that clinical utilization discussions could come earlier, if we were up at 30% or 40% instead of where we think it’s rational.So I’m not going to let the order, the executive order cloud the thinking in the work we’ve done right now. We’ll kind of get into that as we go through time and see where we are and we see how it’s working. But I would caution anybody that just presumes that our acquisition of NxStage.And President Trump’s executive order are going to all of a sudden, we’re going to wake up one day, Mike and I are going to tell you, oh, my god, we got 100 clinics that are going away or thousand clinics. It just isn’t going to work that way. And again, you have to kind of get into that detail. But Mike makes a really good point. Every home patient has to have a clinic.So we’ve got time to work through that utilization. And that’s probably one of the things that we’re better at than most, because we’ve been in this business for so long. Will there never be a utilization impact? I wouldn’t say that. I’d say, we’ve got time to plan and think about it. Independent of what the administration may like to see the rates be for home and transplant.

Great, thank you. And sorry, just to confirm in terms of thinking about the investments, I think you said on that home call, expect to see them taper off in the second-half of 2020. Is that you’re still your current thinking?

Yes. Yes, invest – yes, you’re correct, Sebas.

Fantastic. Thanks, both.

Next question is from Ed Ridley-Day from Redburn. Please go ahead.

Hi, good afternoon. Thanks. Firstly, on the GEP program. Can you remind me my – where you’ve got to in terms of that, in terms of savings achieved so far and the savings you hope to achieve by the end of this year? And also on the Asia Pacific margin and clearly, you well flagged investments diluting the profitability in that region. Can you give us a bit of color on the phasing of those investments, what you have completed and what is still to come? Thanks.

Well, on the GEP, I would say, as we talked, as recently I talked about this leading up to the call, I think between the GEP and the cost optimization program, we probably want to talk more specifically next quarter in terms of how it’s playing out year-to-date this year and maybe some indication as to what it might mean for 2020 at that time. So, it’s – the program is running. It’s very effective. I wouldn’t change our overall expectations from what was indicated in terms of guidance. But I think when we get into the detail on that, we’ll probably do both next quarter.

Ed, one number we’ll remind you that we gave you was, we were looking at savings around, I think, it was €150 million by the end of 2020. And I think what Mike saying is, we’re still kind of hanging with that number at the moment, but we need to do some more work. But as you guys got jammed with PPS and all that stuff, we’ve kind of gotten jammed with some of that, too. So we will come back and do a little more in-depth for you on cost optimization and GEP, too.On China in the investments, if you recall, predominantly, we’re looking at sort of two buckets of activity. One is production, plant expansion, construction; and secondly, it’s clinic development. I think what Mike and I would say to you is the clinic development will come quicker, it’s a lot easier to build clinics and begin to approach that. And then it is a huge construction project for adding on a factory or building a de novo factory.So think of it in terms of the investment in the clinic side. As it relates to 2019 and 2020 should come sooner, then you’re going to see an impact from the production side, because it’s just a bigger construction and longer construction window. Mike, I don’t know if you want to add anything on that.

No, I think that’s complete, Rice. Yes.

Okay. Thanks.

Next question is from Hans Bostrom from Credit Suisse. Please go ahead.

Hi. I just have one question remaining and that relates to your performance on the products business in EMEA. It seems like you’ve had comments in the last few quarters relating to tender businesses not necessarily going your way. And I’m just wondering whether this weak growth you saw in Q3 had anything to do with increased competitive nature of the products business in the region or indeed, it is just purely a timing issue?

Yes, Hans, it’s Reese. So I don’t know if I’ve commented on this previously or not. So let me do it now. When you look at the regions around the world, I would tell you, I think, the Europe, Middle East and Africa region is probably the most competitive product region we have. But I would tell you that the guys in Asia Pacific would tell you it’s their region. But I think they’re pretty neck and neck, but it is very competitive.So I think there’s a couple of things going on here. Particularly as we call out Middle East and parts of Africa, this is tender business. We’ve won tenders, but two things go on. One, we have product, we’re ready to ship. We can’t ship without them telling us to fulfill the tender. Here’s what we need. So we’ve had some fits and starts there. We’ve talked about that before, it is frustrating.Secondly, we’re also in situations where we’re dealing in markets that we are looking for letters of credit. We want to make sure that we’re not just going to ship something down a black hole and that’s a change. Honestly, 10 years ago, we probably were less worried about that. Now we’re a lot more focused on making sure that we’re managing that very beautifully. And I think Katarzyna and her team are doing a good job there.So it’s a little bit of both. I know people get tired of hearing about that. But that’s kind of the nature of where those particular markets are going on. You look at Eastern Europe and you look at the equipment business, you look at some of what’s going on with solutions to beings and things like that, it’s a little bit better business, it’s happening a little more, how shall I say that probably a little more effective and just what we see going on.I think sometimes we lose sight of the fact it wasn’t that long ago, Libya was incomplete up or part of what we’re missing or letters of credit from Libya. Egypt was a great business and it went poof with their uprising, and so that’s just now coming back. So some of this is that we’re in markets, where there fits and stats. And that makes this a little lumpy, if you will. Some people tell us, we’re crazy. We just out of those markets. We should just stay in the places where we don’t have those issues and it’s a fair comment. But I think at this point, we believe we can try to manage our way through it.

Because I think in quarter or two ago, you talked about the UK being a market where you’ve seen some weakness due to, well, failure to win tenders, I’m positive there. I imagine it’s not the same reasons relating to financing in that type of market?

Yes. With the National Health System in the UK, it’s not so much about disruption and things like that. It’s lack of money and the price points they wanted on tenders. We do walk away from something, because I think everybody’s got to kind of remember, there’s business that we’re not going to go take and just completely destroy our pricing structure. I’m not going to say that exactly is what happened in the UK, but I think you get the message and I’m trying to deliver. Part of that is we control as well as to how bad we want to tender and what we’re going to do.

Okay, thank you.

Next question is from Oliver Metzger from Commerzbank. Please go ahead.

Hi, thanks for taking my question. My first one is about the ESCO interpretation and some general dynamics in the evaluation of savings. How does it came to the different route used on the chief savings? Would you say that the chief savings were at the end higher than initially anticipated and therefore, adjustments to rates were made to limit payments? That’s the first question.The second one is about the HSS proposals on home dialysis. Given now more a public support for home dialysis, so you were bullish on this topic before? How have these proposals changed your underlying assumptions for development, in particular, of PD and HHD for over next years?

Oliver, on the first question, the – and I think you know this, but just my understanding of the way you asked the question. The ESCOs are retrospective shared savings progress. So there’s no change in the reimbursement rate we’re getting upfront just for the treatment. Everything else we do falls into the periodic reporting that the government gives us after the fact.So and essentially, the three major elements you’re dealing with is attribution what patients is the government crediting to your program. And that is based principally on the – of the available treatments that that patient should be experiencing in a given period, what percentage of those patients were done in your facility, the benchmark that’s being used and changes to the benchmark and then the actual measurement for the current treatment and dialysis.And we have – in our discussions with the government, both for PY 2 and PY 3, those discussions have covered all three of those elements. But it’s not a case where any adjustments were raised to reimbursement rates upfront and then there was a disappointment. It’s essentially just making sure that there’s good transparency, good understanding as to how those three elements are aggregated and reported.And I would add to that, as we’ve gone from plan year to plan year, a good understanding as to what if any policy changes were made under the program from each of those years. That’s where we spend – that’s what gets our time and attention when we’re looking at these reports that are issued after the fact.

Yes. Hey, Oliver, it’s Rice. So our enthusiasm for home has not waned at all. Here’s why, I’d say, we know where we want to go, what we need to do, and we’re all about going and making that happen. I think the executive order is great. I think it is helpful to put awareness out there and to put an exclamation point on home and transplants and vascular care, or on value-based care. But those are some very lofty goals that presidential executive order lays out. We’re going to keep our heads bowed as we’re going to go as hard and fast as we can. We’re not less enthusiastic at all. We just know what we’re capable of doing and how we want to go about it.So don’t read my – anything I’d say to be less enthused or less motivated. It’s just at this point, the executive order and the goals of 80% of the new patients by 2030 being transplanted home – being at home, that’s a big task to figure out how you’re going to get that done and we don’t have details to the program.So that’s all I’m saying is, we have to stay within ourselves and we know what we’re capable of doing, interfaced with the government about how they want these pilots to be run and what they want and look at them that way. The ESCOs has informed us. It’s helped us understand now a lot better questions that’d be asking about these future demos and that’s really what I’m trying to say. We’re probably smarter today than we were a couple years ago as we think about this and that’s the way we’re approaching it.

Okay, great. Thank you.

Next question is from Hassan Al-Wakeel from Barclays. Please go ahead.

Thank you for taking my questions. A couple for me. So firstly – and I have a follow-up on the ESCOs. If you can’t answer the specific part of the question, there is a broader element to it. So in the first year of the program, you generated $8 to $9 of savings net per treatment. What was assumed for year two and three?I believe likely lower because of the introduction of quality parameters. And what are you assuming now following changes to benchmarks? Any color here around the magnitude of the change would be helpful? And more broadly, I mean, is this still an attractive business as it stands and what gives you confidence that goalposts could not be changed in the future?Secondly, on cost per treatment. Could you talk about the moving parts underlying the the plus 3% growth year-over-year in cost per treatment relative to guidance, please? Thank you.

Hassan, it’s Mike. The – for the reasons that I indicated earlier, I’m going to disappoint you on giving you a current assumption in terms of our savings rate. I think the €41 million we took in the second quarter, as I mentioned earlier on the call, was substantial. So the – I think if you measure it against your one, which we did report, the savings rate is lower. And that’s in part what led to the charge. But we still think this is very much an open discussion with the government and we’re not done yet, either for PY plan year two or three.

And we’re still in it. As Mike said, we are saving money. The quality is good. This is a bump in the road and we’re not going to run from that. We just want to get more aggressive and making sure we understand how we ultimately end up reconciling these things.

Yes. And…

But they’re keeping no change to the current benchmark. Is this still an attractive business?

Well, yes, as I said, we’re still saving money. And again, we still think this is important to optimize our participation in the ESCOs. So that as the executive order and as these things become more of the business model, the way the government wants to operate in end-stage renal disease that we’re prepared.

Yes. I think the follow-on, we all have to kind of keep in mind, this program will end in shared savings. We’ve laid out for you where we want to go to a capitated rate in the PATIENTS Act. We’ve had lots of discussions at both the House and the Senate. We haven’t gotten there yet. But this work we’re doing now informs us for how we’re going to go forward and when we’re in a capitated world. And I think we’re going to get there and we’re in that world today with certain providers in the Medicare Advantage side of the house.So even though Mike and I are disappointed about where we are today with what happened, this is still giving us experience in view in a way to think about how we’re going to go forward in the future when it’s capitated and when we’re doing other types of arrangements. ESCOs, as they exist today, are not going to be this way forever.

And on the second question, Hassan, relative to cost per treatment, I think that when you do look at cost per treatment for the half year, as reported, it’s up 3.5%. I would tell you if you exclude calcimimetics, it’s still up, but a bit less than about 2.6%. And we do expect in the back-half of 2019, not surprisingly with regard to how I described the second-half improvements.We do expect cost optimization program, GEP and some other ways that we’re optimizing costs to see some of that effect in the services business in the U.S. So the expectation is that the cost per treatment will decline in the back-half of 2019. I would say, order of magnitude, probably $10 to $12 a treatment with some decline in the calcimimetics costs, but most of the decline in the underlying core business as a consequence of those programs.

That’s very helpful. Thank you.

Okay. So it looks like we have no further questions. Therefore, we can close the call and we do say thank you for taking the time to be on the call with us today and we wish all of you a good summer break.

Thanks, folks.

Thank you very much for your interest. Take care. Bye-bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.