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DaVita HealthCare Partners Inc  (NYSE:DVA)
Q3 2018 Earnings Conference Call
Nov. 07, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good evening. My name is Iris, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to DaVita Third Quarter 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions)

Thank you. Mr. Gustafson, you may begin your conference.

Jim Gustafson -- Vice President of Investor Relations

Thank you, Iris, and welcome everyone to our third quarter conference call. We appreciate your continued interest in our company. I'm Jim Gustafson, Vice President of Investor Relations. And with me in the room today are Joel Ackerman; our CFO; Javier Rodriguez, CEO of DaVita Kidney Care; and Jim Hilger, our Chief Accounting Officer. And also joining us via teleconference are Kent Thiry, CEO; and LeAnne Zumwalt, Group Vice President.

Please note that during this call, we may make forward-looking statements within the meaning of the federal securities laws. All of these statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in our third quarter -- third quarter release of earlier today and our SEC filings. Sorry. Please refer to our third quarter earnings release of earlier today or in SEC filings including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. Our forward-looking statements are based upon information currently available to us, and we do not intend and undertake no duty to update these statements.

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

I'll now turn the call over to Kent Thiry, our Chief Executive Officer.

Kent Thiry -- Chairman & Chief Executive Officer

Okay. Thank you, Jim, and thanks to all of you for your interest in DaVita. I've got four headlines before we let J.R. and Joel take over. Headline number one, of course is the probate victory, but I'm going to let Javier talk about that primarily, certainly, excellent news for all of our stakeholders.

Number two, regarding the sale of DMG, we continue to work together with Optum to close the transaction in 2018. However, as most of you will recall, we did execute an amendment earlier this year to extend the termination date in case we do not meet their timeline in light of the ongoing regulatory approval process.

Number three -- four, the quarter did have some unusual expenses which Joel and J.R. will go through in some depth, so they do not get in the way of your ability to evaluate the ongoing strength of the business.

And finally, fourth headline, as you netted all out, it's a solid operating quarter and what has been so far a solid operating year.

And then, finally before we go into all of the different detail and synthesis, we are first and foremost a clinical caregiving company. That is what comes first, and so consistent with our tradition, we'll always about a clinical accomplishment at the top of the call. We're going to broaden that slightly going forward to include either a clinical accomplishment or an improved patient experience. And what I'm going to talk about right now is more in the latter category, because so far this year-to-date, we have added on a net basis 1,300 more PD patients or Peritoneal Dialysis that is people that can take care of their dialysis without coming into our centers.

Now this does not always lead to improved clinical outcomes, in many cases those clinical outcomes will stay the same. But for many of these patients, it's a tremendous improvement in their quality of life, because of the scheduling and physical mobility that they pick up, and so that's our patient experience story of the day.

Javier, please take it over.

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

Thank you, Kent, and good afternoon. Let me jump right in. I will discuss four topics today. Prop 8, calcimimetic team in an update on guidance for 2018. First, on Prop 8, let me start with the obvious. We are pleased that Prop 8 was defeated. This was the right outcome for our patients, California and the entire system. We thank not only the California voters, but also the entire coalition of over a 160 members that worked hard to defeat this union backed valid initiative. The broad coalition included the California Medical Association, the California Hospital Association, the American Nurses Association of California, the American College of Emergency Room Physicians and California Chamber of Commerce to mention a few.

In pursuing Proposition A, we believe that the SEIU-UHW had viewed the ballot initiative process and displayed disregard for patients by putting the Union's organizing objective above access to life-sustaining care. Unfortunately, we do not anticipate them stopping their efforts. We expect this to cause us to spend considerable resource opposing these types of initiatives over the next years. While it's difficult to forecast, we are assuming an increase in our baseline spent of $30 million per year on general advocacy, plus whatever incremental spend is necessary to counter this specific initiative.

Now on to calcimimetic. In the third quarter, both revenue per treatment and cost per treatment declined slightly, so it's essentially neutral to operating income. We continue to expect the net impact of calcimimetic to be a mid-single-digit margin before our indirect cost to administer the drug. This excludes any short-lived benefit that may come to generics and to the market.

Third, I want to pause and take an opportunity to recognize the professionalism and the dedication of our team, whether it's the California campaign or the recent hurricane, our caregivers have stayed committed delivering life-sustaining therapy. We're proud of and inspired by them.

Lastly, let me provide guidance for 2018. For annual adjusted operating income guidance, we're narrowing the range to $1.5 billion to $1.525 (ph) billion. This guidance is at the low end of the range we specified last quarter. There are two reasons for this. First is, we spent $20 million more for advocacy but we feel great about the result. Second is, $23 million for a change in our executive retirement policy which Joel will discuss.

We also would like to -- the context of the guidance we provided at the beginning of the year, that guidance was $1.5 billion to $1.6 billion, excluding advocacy, because that was such an unprecedented variable and quite distinct from ongoing operations. So if you want to put the updated guidance in the context, you would add $95 million to the updated range, yielding a $1.595 billion to $1.62 billion. In other words, we would be at the high end or above the original guidance we provided last year. So no matter how you cut it, it was operationally a solid quarter and a solid year-to-date.

Now I will hand it over to Joel for financial details on our results.

Joel Ackerman -- Chief Financial Officer

Thanks, Javier. Adjusted operating income from continuing operations for the third quarter was $314 million. Let me walk you through the components.

First growth, our treatment per day growth of 4% and normalized non-acquired growth of 3.3% continue to be at the low end of our long-term guidance range. On revenue, RPT was down $3.75 compared to Q2, approximately half of the decline is due to the non-recurring Medicare bad debt recoveries from prior periods in the second quarter of 2018. Approximately 20% was due to a decrease in calcimimetics revenue which as a reminder had a similar decrease in cost, the remainder is due to other normal puts and takes with revenue.

G&A cost increased significantly in the quarter due to two items. First, $45 million in advocacy spend, a $32 million quarter-over-quarter increase. This is in the dialysis and lab segment Q&A. Second, approximately $23 million non-cash charge for modifying and accelerating existing equity awards due to the adoption of a retirement policy on the treatment of equity awards held by executive officers. This is in the corporate G&A segment.

For international, our adjusted operating loss in the quarter was $4 million. We continue to expect to achieve breakeven adjusted operating income in Q4 2018, excluding any foreign exchange gains or losses. Now our cash flow which is remaining strong and enduring. Operating cash flow from continuing operations was $362 million for the quarter and nearly $1.2 billion year-to-date. We continue to expect operating cash flow from continuing operations for the year to be $1.4 billion to $1.6 billion. We also expect CapEx for continuing operations for the year to be consistent with approximately $925 million we mentioned previously.

On to share repurchases. Through September 30, 2018, year-to-date, we repurchased approximately 16.8 million shares for approximately $1.15 billion, representing more than 9% of our shares outstanding at the beginning of the year. This includes approximately $71 million of stock repurchased since our last earnings call. We made no repurchases after the end of the quarter.

For the third quarter, our effective tax rate on income attributable to DaVita from continuing operations was 41.4%. For the full year, we now expect our effective tax rate on income attributable to DaVita from continuing operations to be between 30.5% and 31.5%. This is as a result of the increased advocacy spend and the adoption of the executive retirement policy.

Now I'll turn it over to Kent for closing remarks.

Kent Thiry -- Chairman & Chief Executive Officer

Okay. I'd just like to make a few statements before I move to Q&A. Number one, as we try to avoid redundancy in these calls, but at this stage, I can't resist being a little bit redundant to J.R. With respect to the SEIU-UHW, it is one thing to try to organize an union and there is very well developed and heavily supervised processes for that. It's quite another to demonstrate a stunning disregard for patient care by trying to put an entire industry unsustainably underwater. It's really strikingly irresponsible for the patients and also ironically for the teammates that they purport to care about. So we will do our best to represent our teammates and patients well going forward as we did this year.

Number two, we continue to be very well-positioned for the general movement toward integrated Kidney Care, and in particular, for implementing the PATIENTS Act, if we're able to get it through the legislature. You might well ask with the democrats taking over the house, how does that affect us? The good news here is that, for 15 years, DaVita has never strayed too far from the middle, one always spends somewhat more time with the majority party, but we have never that very far, because we know these things change over time and the Senate even despite whoever is in the majority, you really need both sides to get something like this done.

And so, we've all the way along invested in both the republican and the democratic side of the house and have a strong position there. And in fact, Democratic constituencies represent a highly disproportionate percentages of the patients who would massively benefit from the PATIENTS Act. And so in some ways, it's an even better philosophical and constituent fit.

The third and fourth comments I would like to make before Q&A is just once again point to the resiliency of our cash flow and our respect in carrying for that. We take it quite seriously. Fourth and finally, we will continue to work very hard to get the DMG deal closed and put those proceeds to work for you.

Operator, could we please move to questions?

Questions and Answers:

Kent Thiry -- Chairman & Chief Executive Officer

Jim, do you have a way of getting them.

Operator

I'm sorry. We will now begin the question-and-answer session. (Operator Instructions) We have our first question coming from Justin Lake from Wolfe Research. Your line is now open.

Justin Lake -- Wolfe Research -- Analyst

Thanks. Let's start off with the third quarter and kind of the results, obviously a lot of moving parts here. So if I wanted to simplify it a little bit, the guidance is down about $37 million at the midpoint. You had what sounds like two cost that weren't contemplated, that total $43 million. So ex those cost, it sounds like you took the guidance up at the midpoint. Is that the right math to think about, number one. And if that's the case, is it fair to say that the underlying run rate of the core business is running ahead of the previous plan for third quarter and into fourth quarter?

Joel Ackerman -- Chief Financial Officer

So Justin, your math is right in terms of where we're running, you know pretty much consistent with what we had expected, bounces around a little bit, but no real changes there.

Justin Lake -- Wolfe Research -- Analyst

Okay. And then, as we think about the underlying run rate of OI coming out of 2018 again with all these moving parts, how should we think about the right jump off point for 2018 OI going into 2019 once we remove all kind of the charges that aren't going to continue into next year?

Joel Ackerman -- Chief Financial Officer

Yeah. So I guess, I would start with kind of the 2018 guidance we've given you and then you'd really want to normalize for a bunch of things. So there's advocacy which we have talked about. This retirement policy change, there's the Medicare bad debt which showed up in the first half of the year. And then, two other things that I call out, one is DaVita Rx, which we called out as a headwind in the back half of the year, $20 million to $35 million. And the third was a one-time good guy from DHS of $17 million at the beginning of the year which we also called out.

Justin Lake -- Wolfe Research -- Analyst

Okay. So if I do that math, I still think I'm coming out to about $1.6 billion in run rate of OI. Do you agree with that?

Joel Ackerman -- Chief Financial Officer

The short answer is yes.

Justin Lake -- Wolfe Research -- Analyst

Okay. So as we think --

Joel Ackerman -- Chief Financial Officer

We're limited on what we can kind of say from an FD standpoint -- not from an FD, from an accounting standpoint about adjusted OI, but yes, I agree with your math.

Justin Lake -- Wolfe Research -- Analyst

Okay. And then, given, I brought up OI for 2019, is there anything you could tell us about how we should think about that $1.6 billion going forward into next year? How we should think about growth relative to maybe the normal growth that you talk about in the business?

Joel Ackerman -- Chief Financial Officer

We're not in a position to give guidance on '19 right now. We're not going to go there.

Justin Lake -- Wolfe Research -- Analyst

May be puts and takes headwinds, tailwinds you want us to think about versus that $1.6 billion?

Joel Ackerman -- Chief Financial Officer

Not really.

Justin Lake -- Wolfe Research -- Analyst

Okay. I'll jump back in the queue. Thank you.

Joel Ackerman -- Chief Financial Officer

Thanks.

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

And Justin, I've got you on the guidance question. I was given a piece of paper that said that I did not say the right guidance range you probably picked up on it. The guidance range would be $1.5 billion to $1.525 billion. So my apologies for that.

Operator

We have our next question coming from Kevin Fischbeck from Bank of America Merrill Lynch. Your line is now open.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Great. Thanks. I wanted to follow-up on that guidance. Just probably the right way to think about it, looking at the midpoint of the two, but it does look like a bigger decline on the top end of that range of $75 million, again you can kind of say that $45 million of its advocacy and the stock comp. I understand most of the decline, but if the core business kind of coming in line, it might be slightly better, then why is the top line coming down even more than kind of those two one-time charges?

Kent Thiry -- Chairman & Chief Executive Officer

Joel won't you continue?

Joel Ackerman -- Chief Financial Officer

Kevin I'm not sure I understood the question. Could you say that again?

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Yes, so you took the guidance from $1.5 billion to $1.6 billion -- the high end of the range from $1.6 billion down to $1.525 billion. So you took it down by about $75 million. And there's two discrete items you called out, advocacy was $20 million more than you had last quarter and then the stock comp was $23 million more, that's $43 million right there. But in answer to the last, to Justin's question earlier, you kind of said the core business was coming in line if not slightly better than you thought? So why is the high-end coming down even more than in the range, within that $43 million?

Joel Ackerman -- Chief Financial Officer

Yeah. so look we guide to a range for a reason there. There are fluctuations as you would expect, and as we look at those, we're comfortable with coming in at this $1.5 billion to $1.525 billion (ph) in a quarter, I don't think there's anything specific that I would point out.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Okay. And then with the treatment numbers. It has been really dancing around the bottom end of that long term 3.5 to 4.5 range that you guys talk about. Is there anything driving that? Are you seeing any issues around demand or there is just an issue around opening new de novo sites?

Kent Thiry -- Chairman & Chief Executive Officer

J.R., you want to answer?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

Yeah, thanks Kent. There's obviously a lot of noise in the volume. We are seeing it in the lower end of the range or below the range. And so there's nothing that we can talk from what we have. The data has several years of lag and there's several dynamics going on with upstream diseases like hypertension diabetes, what's going on with mortality and transplant. So unfortunately, I don't have anything that could be useful on that. We're seeing the same things that you are.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

But you're not expecting to -- you still think 3.5 to 4.5 is the right range, there's no reason to think that it's now 3 to 4?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

We're looking at all the variables and we'll get back to you if we need to change that guidance.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Okay. And then last question just on the DMG sale. I was a little -- I wasn't exactly what was we were meant to infer from the impairment charge on that business. Is there something along the lines of having no change to the deal itself? You still expected same proceeds, I wasn't quite sure if there was something that we should be reading into. I guess, a, the commentary that you might crop into 2019. And then, b, just that you have to do a real evaluation of that business?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

Yeah, so the valuation adjustment is the result of our need to evaluate fair value every quarter. And based on our updates of the various inputs including the transaction itself, risks, timing, the performance of the business, et cetera, we booked this valuation reserve. As far as timing is concerned, look, this is a complicated regulatory process, but we continue to work hard with Optum to close the transaction in 2018.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

But nothing has changed about what you think the net proceed will be?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

In terms of changes to the deal, the only changes that have been made have been the termination date.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

All right. Great. Thanks.

Jim Gustafson -- Vice President of Investor Relations

Okay, operator.

Operator

Sorry. Our next question comes from Steve Tanal from Goldman Sachs. Your line is open.

Stephen Tanal -- Goldman Sachs -- Analyst

Good afternoon guys. Thanks for the question. First, I wanted to dig into RPTs for a minute, a couple of specific questions. It didn't sound like your size calcimimetics on RPTs this quarter. But then it did step down from 2Q, I think it was about $19. Can you share the number for 3Q?

Kent Thiry -- Chairman & Chief Executive Officer

J.R., you want to grab that?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

The decline for the quarter is $0.81, that's the RPT impact from calcimimetics.

Stephen Tanal -- Goldman Sachs -- Analyst

Got it. Sequentially, it's about $18 in the quarter?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

Roughly yes.

Stephen Tanal -- Goldman Sachs -- Analyst

Okay. And then, just commercial mix and rate, any update there? Does that have any impact on RPTs or is there anything changing inside of that bucket?

Kent Thiry -- Chairman & Chief Executive Officer

Go ahead J.R.

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

Yeah. On RPT, a couple of things. Let me start off by saying, we're not seeing anything unusual in our negotiations. Number two, we have seen a slight decline in commercial mix and a small shift toward lower paying plan. And so, but one would ask the question what can one take into the future, what are the trends. And unfortunately on that, there is no clear trend. So there's nothing that you can take forward at this juncture.

Stephen Tanal -- Goldman Sachs -- Analyst

Got it. And any color on kind of the shift in the lower paying plan. Is that exchanges or I don't know how best to think about that? Any additional context there?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

We don't have any insight into it, but yes they're shifting toward exchanges and lower paying plans.

Stephen Tanal -- Goldman Sachs -- Analyst

Got it. Okay. And just lastly kind of related to this line, but may be a little bit bigger picture. We had been expecting about $7 million of loss revenue kind of recaptured from the 3Q '17 hurricanes. And obviously it had some exposure -- it looks like you probably had some exposure to Florence and maybe a little bit to Michael as well. So any context on whether that $7 million materialize or what the impact of the hurricanes this year may have been in either volumes or expenses or both and how that's affecting the guidance?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

Yeah, the impact on OI is not significant. I think the net impact on NAG is maybe 10 basis points, which is an uptick from Q3 2017, offset by some hurricane impact in this quarter. But nothing significant.

Stephen Tanal -- Goldman Sachs -- Analyst

Got it. Understood. And maybe just the last one before I jump back. Prop 8 kind of at this point is behind you, it sounds like you're looking at $95 million of advocacy costs for the year and color today suggest there's about $25 million in 2Q, $45 million obviously in 3Q was stated. So is it safe to assume, you're looking at something around $25 million in Q4?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

Yeah, it's in the right range.

Stephen Tanal -- Goldman Sachs -- Analyst

Perfect. Thank you.

Operator

We have our next question coming from Gary Taylor from JP Morgan. Your line is now open.

Gary Taylor -- JP Morgan -- Analyst

Hi, good morning. Good morning, guys. Good evening actually. Just a few quick ones. Just on the the charge related to DMG and part of it was tax related, the $118 million. Will that impact your net cash proceeds from the transaction or this is all just accounting?

Joel Ackerman -- Chief Financial Officer

It won't have an impact on the proceeds.

Gary Taylor -- JP Morgan -- Analyst

And I just want to make sure given all the adjustments, I'm correct, it looks like -- I think it's $1,143 million of adjusted OI through nine months which would be comparable to your new guidance. So it implies 4Q of $357 million to $382 million. Do I have that correct?

Joel Ackerman -- Chief Financial Officer

I'm sorry Gary, you were running a little quick there.

Gary Taylor -- JP Morgan -- Analyst

Yeah, I was taking your new guidance of $1.5 billion to $1.525 billion on OI. And I believe the nine-month adjusted OI number in the press release was $1,143 million, if I have that correct and comparable. So I think it implies $357 million to $382 million of OI for 4Q.

Joel Ackerman -- Chief Financial Officer

Yeah, that's right.

Gary Taylor -- JP Morgan -- Analyst

Which looks like -- it looks like it implies a larger year-over-year decline. The advocacy costs are easing sequentially, but maybe the formal offers are increasing sequentially. Is there an obvious answer to what 4Q could be down more than 3Q?

Joel Ackerman -- Chief Financial Officer

I don't -- I'm just stumbling on the math a little, Gary, and I apologize for that. My recollection was after you adjusted Q3 and Q4 OI are about flat.

Gary Taylor -- JP Morgan -- Analyst

Okay. Maybe I'm not doing it right. My last question --

Joel Ackerman -- Chief Financial Officer

Gary, we're going to do a little math here while it keeps going and I'll just clarify that for you.

Gary Taylor -- JP Morgan -- Analyst

My last question would be for Kent. Given you've talked about the necessity of advocacy ongoing. I guess, particularly I'm thinking about the charitable premium assistance where it's not just the SEIU that's been involved but the insurance lobby to some degree, at least they have some skin in the gain. Is there -- do you think there is a need to sort of readdress this issue with the insurance industry in anyway or do you think the right approach is just to advocate in the state of legislatures?

Kent Thiry -- Chairman & Chief Executive Officer

Yeah, very fair question. First, with respect to the CTA Legislation that the SEIU was involved with, there was only one plan that worked with them. Now that's not to say that there aren't a lot of other plans that don't lack charitable premium assistance period for dialysis or anything else, but since our patients are so much more identifiable and so much more expensive, it's an easy poster child. So while it is true that the insurance industry as a group doesn't like it with respect to that one piece of, sort of, podiatry legislation, there was only one plan that really worked on that pretty much at all which was actually rather interesting.

Now moving on to the question beyond the establishing the context. I think it's a fair idea to take another run at trying to sort things out. Historically each time, we have and said, let's try to work out our own compromised in our own code of conduct that both providers and payers will agree to. We just haven't gotten much take up and so I think it's a fair idea but the most likely outcome is that everybody is going to wait for the regulatory -- regulators decide. And as you know, it's been quite a long period of time now and there's a reason for that. It's pretty complicated and you can hurt a lot of patients pretty quickly. And so folks are appropriately hesitant as they try to sort out the truth.

So we're still in that state where they could make a decision of some sort in the next month. They might not make a decision for the next year and we'll take into consideration this notion of once again trying to see if there can be a industry compromise.

Gary Taylor -- JP Morgan -- Analyst

Thank you. I appreciate it.

Joel Ackerman -- Chief Financial Officer

Hey Gary, let me just clarify on your question before on Q4 over Q3. So if you take Q3, add back the advocacy and the retirement in the quarter, you come up with an adjusted number. And then, if you compare that to Q4 and add back advocacy in Q4 as well, you'd show Q4 being about $30 million ahead of Q3.

Gary Taylor -- JP Morgan -- Analyst

Got you. Is -- I guess, so. Okay. I'll rework that. Appreciate it.

Operator

We have our next question coming from John Ransom from Raymond James. Your line is now open.

John Ransom -- Raymond James -- Analyst

Hi. Just a couple for me. If we look at 2019 in your commercial contracts, what percentage of your commercial revenue is currently contracted?

Kent Thiry -- Chairman & Chief Executive Officer

J.R.?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

Yeah, thanks Ken. We haven't disclosed the number, but it has been great majority.

John Ransom -- Raymond James -- Analyst

I'd like to point out that I'm also J.R., just for the record.

Kent Thiry -- Chairman & Chief Executive Officer

So then you answer the question.

John Ransom -- Raymond James -- Analyst

One of the great majority in cell C3 is, it doesn't spell anything, but that's right. The second question is, I know I've been a little pissed about this, but capital efficiency, how should we think about, is run rate CapEx still at that $700 million, $800 million range. And if we've done any more work to trying to break the link between misspending and growth, it just seems like -- you know I have an opinion on this, but it seems like an awfully high number, high-level extending and I wonder if there's any more efforts to become a bit more capital efficient down the road?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

Yeah. So no changes to what we've said in the past about capital which is $925 million for the quarter coming down next year and we anticipate that continuing to happen. And looking forward, we are looking for ways, both short-term as well as long-term ways to make the business more capital efficient. That said nothing specific. Oh I'm sorry $925 million for the year, I told I said for the quarter, I apologize. But, yeah, we are looking for ways to make the business more capital efficient over the long term, but no specifics to update you on with that.

John Ransom -- Raymond James -- Analyst

Okay. And then just some -- I might be the only guy to notice, but if you think about next year, how much will be pulled out in total for the year for pharmacy in terms of volume losses with your new structure?

Kent Thiry -- Chairman & Chief Executive Officer

J.R. or Joel?

Joel Ackerman -- Chief Financial Officer

Yeah, so what we've said is in the second half of this year, we would lose 20 to 35 for pharmacy. We still are looking at that range. So you'd have to back that out as a tailwind for next year.

John Ransom -- Raymond James -- Analyst

Got you. Okay. Thank you.

Operator

Our next question comes from Lisa Clive from Bernstein. Your line is now open.

Lisa Clive -- Bernstein -- Analyst

Okay. Thanks. First, just wanted to drill down on your comments on the slight decline in commercial mix in the quarter. Your large competitor mentioned that there was a big July enrollment that -- or a bigger enrollment period than historically and it sounds like they didn't do a particular good job attracting new private patients and plus lost some share. Could you maybe just comment on normal quarterly fluctuations that you see with private patient mix and whether your trends seem sort of out of whack with those fluctuations?

And a related question, have you seen more competition from ARA? Now that they have a national contract in place with United health. You obviously don't run into them in that many markets, but I'm just curious about the dynamics where you may have clinics near theirs?

And then final question just on home dialysis. Could you remind us what proportion of your patients are on PD today and what proportion are on HHD? FMC appears to be making quite bit of a push in the HHD, they've increased their HHD patients from 2% to 4% in the past few quarters. And I'm just wondering how much of a priority it is for you at this point to build out a bigger HHD platform?

Kent Thiry -- Chairman & Chief Executive Officer

Okay. Well thank you for the question and let me try and take them one at a time. I'll take them in the reverse order, since that's the way I remember them. On home, we have 11% of our patients on PD and about 2.5% on HHD, so about 13.5% over both mortality.

On the second question on ARA, have we seen any change in the competitive landscape? The answer is no to that.

And on the third one, is there anything in particular that we should call out on the commercial trend? We don't see anything that's worth calling out.

Lisa Clive -- Bernstein -- Analyst

Okay. Thank you very much.

Kent Thiry -- Chairman & Chief Executive Officer

Thank you.

Operator

We have our next question coming from Justin Lake from Wolfe Research. Your line is now open.

Justin Lake -- Wolfe Research -- Analyst

Thanks for taking my question again. The -- so just to follow back up on the commercial mix year. Given it seems, I think it's been pretty stable for the last four, six, eight quarters. You're talking about a decline here. Can you give us any more color in terms of the magnitude what you saw in the quarter? Did it get worse through the quarter? Any of that?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

Yeah, Justin, on that, we're trying to be helpful, and obviously I know these words are not comforting. It's slight decline and again, our negotiations looked the same. Seasonally adjusted Q3 always has a little change because Medicare enrollment opens up. And so that's going on. But other than that, we had the small shift that I already outlined to lower paying plans. There's nothing else to call out.

Justin Lake -- Wolfe Research -- Analyst

Okay. The run rate -- tax rate we should think about going forward as we go into '19. What is the right number to be put in our models here?

Joel Ackerman -- Chief Financial Officer

Yes, so obviously we're not going to give specific guidance here. But I think you can kind of step back to our guidance at the beginning of the year, think about the increased advocacy spend which will not all be not tax-deductible, but most of it will not be tax-deductible and that should help you get to a reasonable estimate.

Justin Lake -- Wolfe Research -- Analyst

Can you tell me if the tax rate is higher than what you expected in the year at core? Has it gone up or -- and if so why?

Joel Ackerman -- Chief Financial Officer

It's at the high-end of the range. The tax code was pretty new when we put out that range, a lot of things got clarified over the course of the year. And that's really what drove where we wound up in the range.

Justin Lake -- Wolfe Research -- Analyst

Okay. So core, ex the advocacy stuff, we should think about the high end of the range as a reasonable kind of starting point?

Joel Ackerman -- Chief Financial Officer

Yes.

Justin Lake -- Wolfe Research -- Analyst

Okay. And then the buy down, you bought a bunch of stock in July, and then it looks like the buy down slow down meaningfully versus the first seven months of the year in August and September. And then you didn't buy anything in October. So just anything we should think about in terms of the pacing the share repo given that's pretty different than what you did in the first seven months?

Joel Ackerman -- Chief Financial Officer

Yes, our leverage wound up at 4.29 which is way above the range we've historically talked about. We've always been comfortable going above or below the range for various reasons. But we are further above then typically feels comfortable and I think we tried to communicate that was kind of a pre-buy in anticipation of the DMG deal getting done and we are -- I think it's safe to say we're slowing down as we get to the higher end of the -- are comfort around leverage.

Justin Lake -- Wolfe Research -- Analyst

Okay. So maybe it's fair to say that you kind of take a pause and wait until the DMG deal closes before this meaningful share repurchase going on here. Is that the right read?

Joel Ackerman -- Chief Financial Officer

Look there's always think that could impact that but I think you are in the right general ballpark.

Justin Lake -- Wolfe Research -- Analyst

Okay. And then just circling back to the DMG deal. Is there anything in particular that you would point to that's lengthening this or complicating it versus a typical deal? I mean, I think we're five plus months post the second request?

Joel Ackerman -- Chief Financial Officer

Yeah, look, as we said, look, the regulatory process is ongoing, it's extensive, it's live, and unfortunately, we just can't discuss the details of the process.

Justin Lake -- Wolfe Research -- Analyst

Okay. So maybe I'll ask a different question on this. Just -- go ahead. Sorry.

Kent Thiry -- Chairman & Chief Executive Officer

Justin, I'd just add to it. It has proven to be a more difficult process then we contemplated and perhaps that's obvious given the length of time it's taken, but just to eliminate any ambiguity and that has been the case.

Justin Lake -- Wolfe Research -- Analyst

And is the -- can you tell us whether the -- more difficult -- the difficulty in the process is coming from the DOJ or is it coming from maybe Optum's, not wanting to divest what's a lot of people would've expected they would need a duress to close the deal? They're resistants of divestitures or --

Kent Thiry -- Chairman & Chief Executive Officer

I don't -- we're not comfortable I think sharing any of the details. I'm so sorry about that, but I just hard to see that thing constructive to the process. I think everybody is working hard, everybody, the government, Optum, we are all working hard and it's just taking every bit of that work and more.

Justin Lake -- Wolfe Research -- Analyst

Okay. Let me come back on it one other way and I will jump back in the queue. If we get to a point where the DOJ says this is what you need to close the deal and let's just say that's a packet of divestitures and United doesn't think that's reasonable. Is there a possibility here this goes to -- the FEC sues and we go to court, and if that's the case, what happens if Optum loses, that the deal just break and we go back and run an auction?

Kent Thiry -- Chairman & Chief Executive Officer

Yeah, Justin look, we're working hard to get this deal closed in 2018. It is a complex process, and with that, I just don't think we want to speculate about the hypotheticals. We're trying to get this done in 2018.

Justin Lake -- Wolfe Research -- Analyst

All right. Thanks guys.

Kent Thiry -- Chairman & Chief Executive Officer

Thanks, Justin.

Operator

We have our next question coming from John Ransom from Raymond James. Your line is now open.

John Ransom -- Raymond James -- Analyst

Hi. Just one more for me and I think this is for Kent. I mean, just kind of stepping back from the -- thinking in sort of near-term stuff. The Company appears to be a little bit at odds with unions and also with the payers. Strategically, what do we think about over time to kind of bring you back in line where everybody around you kind of feels good about the value proposition, because it just seems like you guys are fighting, fighting, fighting. And is there something that you could think about doing differently to make everybody think that we're all on the same page? I know that's a squishy question. But you guys seem to be a little bit more at odds than some of the other companies that I'm familiar with.

Kent Thiry -- Chairman & Chief Executive Officer

Yeah, I think that's a very fair question. And let me take a good shot at it and feel free to continue probing. With the payers, I think the visibility of charitable premium assistance which is not that big a chunk of our profit, the visibility has overshadowed the fact that we are doing lots of great highly aligned work with a lot of payer, including some who have very strong feelings on charitable premium assistance from a policy point of view, but it's not preventing we and they from making big strides on implementing aligned value-based care proposition. And so, I think there the visible activity is pretty inconsistent with a lot of the invisible activity in ways that would make you feel much better.

And then I would also point out that, in Congress, we probably never been as well situated and aligned and positive part. And with CMS, I would say we are pretty much as good as a sport as we have been for much of the last 15 years. And so, the sense which I think I would, perhaps, have too if I just looked at the newspaper headlines that a bunch of things have trended negative is misleading once you're more on the inside. With respect to the unions, which is the one group where I can't point to any sort of silver lining. It's pretty difficult to have constructive relationship with the group that starts out day one doing the things that they have done. It's pretty difficult and we talk to an awful lot of people who have had dealings with them and emerged quite negative on a whole bunch of levels and for reasons were consistent with what we experience.

And so that one unfortunately got kicked off in a very zero-sum way by them. So I think it's a very reasonable concern. I think the non-visible data would make you feel a lot better. And with respect to CPA, I would repeat that the person who spoke earlier, I think they were right. It's us taking another run at some sort of reasonable compromise is a good idea.

John Ransom -- Raymond James -- Analyst

I guess from my perspective, it's surprising that 2018-2019 were not further along with you guys having executed some, let's take care of your $10,000, these patients needs these four states for X dollars a patient, we'll be on the hook for the quality and the outcomes, you pay us one number. Why is that proven such a -- I know you're the payers. But why hasn't there been a more vertical traction with some of these risk sharing things? It's just not clear to me also looking and why we're still in kind of in a fee-for-service world, we're fighting over 2%, 3%, 4% revenue per treatment increases. And not any further it doesn't look to me any further where we were 10 years ago.

Kent Thiry -- Chairman & Chief Executive Officer

Yeah, I'll would go first and then J.R. may want to add. Number one, we are getting new deals done that have more aligned economics every year. We don't announce each of them because none of them in isolation are significant enough to warrant it. And so the progress has been steady in the quality and quantity of conversations has grown. Why is it -- moves so slowly, however, it's largely because it's -- for a lot payers, they don't have a lot of payers -- they don't have -- while they have a lot of patients nationally, they're spread all over the country and a lot of plants have grown by acquisition in other ways.

So their ability to be a good dancing partner to isolate and discreetly track all of those patients has been limited. Now that's changing a lot right now, but historically, a lot of them administratively simply couldn't really get there without having to allocate an amount of administrative resources that they were legitimately uncomfortable with. So that's really the primary reason it's moved so slowly.

On the government side, you saw that they really wanted to try to get ESCOs to work, because they believed in it, and while they were testing ESCOs, they just didn't have much of an appetite for other stuff, now we're three, four years into that. What's happened is exactly what we said would happen is that the program has not scaled and has plateaued, but we lost four years when the PATIENTS Act was sort of put aside by them for a while, because they hoped their idea would work. And so that's just a way it goes sometimes with the government that you get a binary fork in the road and this one cost us a few years.

JR do you want to join in?

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

Sure. I'll just add one point John, and that is -- that we agree with you. And our DNA is very partner-orientated that we want to be leaning in to take as much responsibility to this patient as possible. We believe that our clinics are the natural place to be, because we have care -- essential care for 12 hours with a diverse set of caregivers. That said, back to Kent's dancing partner, the payers have a unique dynamic in dialysis and that they really only have about one in 10 patients. And so therefore, they failed to see that we're one of the most, if not the most, efficient caregiving model out there.

So if you look at our revenue per treatment, weighted average across all of it, 300 in change for four hours of life-sustaining therapy, it is incredibly, incredibly efficient and a gift to the system, but the constraint is because of MSP limits, the time frame on commercial that puts all kinds of restraints on doing these bundle deals and if we had normal mix 70/30 like everyone else, it would allow for a lot more of this.

And instead, the payer wonders how long they're going to have a dialysis patient and we get a little sort of the noise around the fact that our patients are chronic and therefore expensive. So those are some of the dynamics, but to your point, our DNA is all around partnering and trying to put a solution to this.

John Ransom -- Raymond James -- Analyst

Those are great answers. I really appreciate the expansive commentary. Thanks so much.

Kent Thiry -- Chairman & Chief Executive Officer

Thank you.

Operator

We have another question coming from Lisa Clive from Bernstein. Your line is now open.

Lisa Clive -- Bernstein -- Analyst

Great, thanks. Just two follow ups. One on the PATIENTS Act, how many supporters are you losing with the new Congress coming in? I'm just trying to understand how much ground may need to be covered a second time if this doesn't pass by year-end and instead becomes a 2019 initiative. And then interestingly for your comments just about the private payers and the fact that they only have patients for 33 months, what do you think the chances are for an MSP extension? Obviously, there was a small pre-month women opioid bill, but Congress decided they didn't actually need to fund it, so it got pulled out. But it was interesting that you made it back onto the table seemingly without much involvement from the dialysis industry. I'm just curious as to -- whether that could focus payers on integrated care in a more substantial way?

Kent Thiry -- Chairman & Chief Executive Officer

Leanne, do you want to take the first one or both?

Leanne M. Zumwalt -- Group Vice President, Purchasing and Public Affairs

I can do either. I'll take the first one. As it relates to the PATIENTS Act, we are still very well-positioned in the house, all four of our sponsors are returning and they are well positioned with their leadership. So although in every new Congress, you have to build and support from the broad-based. We think this policy will continue to have the merits it didn't or continue to have the leadership it has. So we feel good about building the same kind of support if we have to go into the next Congress.

Kent Thiry -- Chairman & Chief Executive Officer

And then, -- perhaps Leanne, Lisa if you want to call tomorrow or something, we can provide the exact number of sponsors that may have lost. But given we're up at about a 195 with an almost perfect half D and half R split and we did retain the leaders and we do have relationships with some of the senior house folks. You will see that the net answer is supported by the numbers that we are still in very good shape. Although the bad news is that there's always just a lot of things going on and a lot of noise in the system and there's a change in power, because they've got a pent-up agenda. So that's bad.

On the other hand, the other side of that sword, the other edge of that sword is that they typically are absolutely hyper to get some stuff done and that's good for us, because we are such bipartisan idea that sitting on the shelf. So you can counter argue that one either way. Then on MSP, the way we look at it is we were thrilled that we have kept that one in play enough so that it made it into the house version of the opioid billed. And fortunately, the Senate bill didn't need any savings, didn't need any papers, and so it last that the tailwind and the impetus that comes from that.

So the right way to interpret what happened there is that, it's good news that it still has a place on the shelf and a lot of people know about it, that it's sound policy that actually generates savings. At the same time, we never say that we are optimistic -- that we're optimistic that it's going to happen anytime soon, because we know that business and private insurance companies always oppose it. So it's never going to be a lay up.

Lisa Clive -- Bernstein -- Analyst

Okay. Thanks for that.

Kent Thiry -- Chairman & Chief Executive Officer

Thank you, Lisa.

Operator

There are no questions in queue at this time. (Operator Instructions)

Kent Thiry -- Chairman & Chief Executive Officer

Okay. Well, thank you all for your interest in DaVita and we will work hard for you for the next three months until we talk again. Thank you.

Operator

That concludes today's conference. Thank you for your participation. You may now disconnect.

Duration: 57 minutes

Call participants:

Jim Gustafson -- Vice President of Investor Relations

Kent Thiry -- Chairman & Chief Executive Officer

Javier Rodriguez -- Chief Executive Officer of DaVita Kidney Care

Joel Ackerman -- Chief Financial Officer

Justin Lake -- Wolfe Research -- Analyst

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Stephen Tanal -- Goldman Sachs -- Analyst

Gary Taylor -- JP Morgan -- Analyst

John Ransom -- Raymond James -- Analyst

Lisa Clive -- Bernstein -- Analyst

Leanne M. Zumwalt -- Group Vice President, Purchasing and Public Affairs

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