DaVita (DVA) Q1 2019 Earnings Call Transcript

DaVita (DVA 1.92%)
Q1 2019 Earnings Call
May. 07, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good evening. My name is Darren, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita first-quarter 2019 earnings call. [Operator instructions] Mr.

Gustafson, you may begin your conference. Participants, please stand by. The main speaker got disconnected. [Technical difficulty] Mr.

Gustafson, you may begin.

Jim Gustafson -- Vice President, Investor Relations

Thank you, Darren, and welcome, everyone, to our first quarter conference call. We appreciate your continued interest in our company. I'm Jim Gustafson, vice president of investor relations. And with me today are Kent Thiry, our CEO; Joel Ackerman, our CFO; Javier Rodriguez, CEO of DaVita Kidney Care; and Jim Hilger, our chief accounting officer.

Please note that during this call, we may make forward-looking statements within the meaning of federal security laws. All these statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to our first quarter earnings press release and our 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 -- Chief Executive Officer

Thank you, and greetings to all of you, and thank you for your interest in DaVita. The first quarter results, as many of you have already seen, were slightly ahead of our expectations. Javier and Joel will elaborate on that. But as we are first and foremost, a caregiving company, I will start, as we always have, with a clinical highlight.

In this case, readmissions, hospital readmissions, of course, remains the top priority. The normal 30-day hospitalization readmit rate for year 30 patients is about 35%. That's more than double for the normal patient population in Medicare. Our Q1 readmit rate was 31.8%, significantly lower, also continuing to improve versus the prior quarter and prior year.

And our readmit rate has steadily trended down since we launched a number of transition of care initiatives, really -- pretty much starting in 2017, which focus on delivering the right care to patients when they are discharged. If you do the math, just to get a sense of the impact on the overall system and the savings and quality of improvements associated therewith, that improvement over the last two years equates alone to about 45,000 fewer patient days in the hospital. Good for patients. Good for taxpayers.

Good for their families. And we're only going to get better. Moving on, this is just shy of my 20-year anniversary here at DaVita. I think it's my 102nd earnings call when I combine that with my time at Vivra, where some of you were with me, us there as well.

It's nice to finish in a call where we're going to reaffirm our annual guidance. And I was told the other day by one of the capital markets players that we have, in fact, hit our annual guidance in every one of the 20 years, Javier and I together. It is also a good thing about this call that I'm turning about the ranks to Javier whom some of you know and all of you will soon know. We worked together as friends and partners for over 20 years.

He's been my apparent for several years, but this was a board-directed process, really according to all contemporary best administrated practices, but it's nice that most of board and I feel like we're leaving you in very, very good hands. A quick DMG update. There's really three positive things to say about DMG before I turn things over to JR figuratively, as well as substantively, but the three positive points on DMG. No.

1, we do have a clear path to obtaining FTC approval, which is the exact same perspective that was shared by United quite recently. Good fact. No. 2 is that since those statements they've been a number of recent developments that have moved us along that path and have a -- feeling even more positive.

And then third, DMG itself has had a solid strong operating performance in the first quarter. The rest of the year looks even stronger, making the close all the more attractive to United. Now over to J.R.

J.R. Rodriguez -- Chief Executive Officer, DaVita Kidney Care

Thank you, Kent, and good afternoon, everyone. I am humbled and I am excited about the opportunity to serve as CEO of DaVita, where I have been for 22 years. I look forward to giving you all a detailed view on my plans for the company at our capital markets day, which we're in the process of finalizing and scheduling for August or September. That said, let me reassure you that I do not expect any major changes in our strategic direction.

So let me reaffirm six elements of that. First, we're a caring company and our focus on clinical excellence will remain at the core of everything we do. Second, we will use our strong platform of over 2,900 clinic, including 1,400 home program and 900 hospital relationships and a network of over 5,000 nephrologists to help provide continuity of care for the patient as they transition between the sites of care. Third, we will continue to pursue integrated care with the intensity that it deserves.

Fourth, we are planning a robust set of patient data and innovative analytic tools that will help improve patient care while lowering overall costs. Fifth, we will continue to build our unique DaVita culture. And finally, we will continue to be disciplined with our capital. Now let me transition to first quarter results.

First, our adjusted operated income for the kidney care business is off to a good start for the year, generating 382 million for the first quarter. As you've seen our results, we are experiencing slower churns in unit growth than we expected a few months ago. There are many variables that contribute to the non-acquired growth and they're difficult to individually quantify. That said, let me call out a couple of those factors.

One, the growth of transplant volumes continued in the first quarter. We've talked about in the past about the opioid crisis driving much of this, is that what will happen in the future it is hard to say. It is tragic there is an increase in the deaths due to the opioid crisis. Yes, it is a gift for our patients with kidney disease who benefit from the organ donors.

Two, it has been an increasing competitive activity. For example, in the back half of 2018, there was a pickup in number of competitive de novos. Despite the slowdown in volume, we are reaffirming our guidance for both adjusted operating income and cash flow from the year. Regarding calcimimetics, you may recall that we mentioned that this would be one of the biggest swing factors in our adjusted operating income for the year.

We expected things will remain quite dynamic as the number of generic entrants and pricing remains fluid, making it hard to predict the full-year financial impact. Before I turn it over to Joe, let me make a few comments on policy. Over the last few months HHS secretary, Azar has articulated four priorities to focus the department's work. One of which is transform the healthcare system from one that pays for procedures and sickness to one that pays for outcome and health.

He's starting with some bold proposals in primary care and given the comments he's made about the dialysis industry, we are optimistic about the opportunities to transform the kidney care sector. Overall, we support the vision to slow the incidence and progression of kidney disease, broaden the availability and uptake of home dialysis and transplantation and support the continuity evolution and adoption of value-based care delivery model. We have advocated for these policies and have implemented innovative programs toward each of the objectives over the years. We are philosophically aligned and our eager to learn more about the specifics.

Now on to Joel to provide some additional details on the quarter.

Joel Ackerman -- Chief Financial Officer

Thank you, Javier. First, I will walk you through some components of our U.S. dialysis and lab segment. Non-acquired growth for the quarter was 2.4%, absent a turnaround in future quarters in the underlying metrics Javier referenced.

We expect to come in below our non-acquired guidance range of two and a half to three and a half percent. Revenue per treatment for the quarter was in line with our guidance and was up sequentially by $0.40. Before I move on to cost per treatment, I did want to address a question that came up last quarter about our Medicare Advantage mix. For context, the MA mix for all dialysis patients with Medicare, as disclosed in the most recent USRDS data was 21% in 2016.

In 2016, our percent of MA in Medicare was in line with the rest of the dialysis industry. As you would expect, that number has grown for us, and we assume for the industry as well given the secular shift to MA in the broader marketplace. In Q1 of 2019, our MA mix stood at 24% of Medicare patients. We expect this number to continue to grow roughly in proportion to the MA market growth before the 21st Century Cures Act in 2021.

Patient costs were down $1.52 per treatment quarter-over-quarter, driven by lower drug costs, partially offset by higher employee benefit costs and seasonally higher payroll taxes. Dialysis and lab segment G&A was down quarter-over-quarter, $0.86 per treatment, as a roughly $3 per treatment decrease in advocacy spend was largely offset by higher compensation and benefit expense. Now some details on calcimimetics. In Q1 2019, we generated revenue of about $17 per treatment with costs of about $11 per treatment from calcimimetics, creating a temporary quarter-over-quarter tailwind of just over $20 million.

For the rest of 2019, we continue to expect calcimimetics to be one of the biggest swing factors in our OI forecast. Longer term, we continue to expect that calcimimetics will be margin neutral to slightly negative depending on how reimbursement is set. As a reminder, the first quarter tends to be the seasonally weakest quarter of the year due to fewer treatment days, higher payroll taxes and the impact of the flu season. Moving to international.

We generated a $2 million adjusted operating loss in the quarter, which included a currency loss of approximately $1 million, but excluded the $41 million noncash goodwill impairment charge in our German dialysis business. The small decline in adjusted operating income from last quarter was a result of approximately three fewer treatment days. For the full year, we continue to expect to achieve profitable adjusted operating income internationally before any currency gains or losses from our APAC joint venture. For the quarter, our effective tax rate on adjusted income attributable to DaVita from continuing operations, excluding the goodwill impairment charge, was 30.1%.

We continue to expect our adjusted tax rate attributable to DaVita for the full year to be 28 and a half to 29 and a half percent. Our adjusted earnings per share for continuing operations was $0.91. Now onto cash flow. Operating cash flow from continuing operations for the first quarter was $73 million.

This cash flow was adversely impacted by the timing of working capital. There was an increase in accounts receivable as DSOs for the U.S. dialysis and lab business increased sequentially by four days to 64 days in Q1 2019 due to some temporary factors that we expect to normalize over the next couple of quarters. We also saw a reduction of accrued compensation due to timing of 401-k contribution, bonus payments and a reduction in accounts payable.

Capex for continuing operations for the quarter was $179 million, excluding the impact of $12 million of proceeds from sale-leaseback transactions. In light of the changes in our growth rate, we continue to scrutinize our capital deployment. Keep in mind that the time line from inception of the project to signing a lease and eventually providing a dialysis treatment is nearly two years. So much of this impact will be felt in 2020 and beyond.

We are reaffirming our adjusted operating income guidance for the year of 1.54 billion to 1.64 billion, and our guidance on cash flow from continuing operations of 1.375 billion to 1.575 billion. As always, our guidance is built to incorporate the impact of expected swing factors, although there are scenarios in which we could end up above or below this range. Now I'll turn it over to Kent for closing comments.

Kent Thiry -- Chief Executive Officer

Before we go to Q&A, I just like to share a few of my perspectives on the industry, on the community looking back over the 20 years and I hope that that might be useful, particularly to a number of the people who are much newer shareholders to this space. Please allow me eight points. No. 1, we never want to forget that we're providing an essential therapy.

It's not disputable, it's not debatable, it's not controversial who needs dialysis or why -- the value it provides. That is a good thing for people. It's a good thing for shareholders. No.

2, the presence of an uncomfortable cost subsidy perhaps one of the most extreme in American healthcare, where the private sector has to subsidize roughly 90% of our patients that are government pay. This is bad. It's a bad way to organize a healthcare system, but it's been this way now for 30 years. And the good news about it is it's same for every single player in this space.

No. 3. We've never been without intense productivity pressure. The derivative benefit of that is we are perhaps the most productive healthcare service segment in all of America, in all of the Medicare program.

No. 4. There's been a continuous stream over the 20 years of existential threats toward the business model. By that I mean, existential threats that people said would either dramatically impair or destroy the economic viability of the business model.

Things like everybody's going to be able to do a wearable kidney. Things like diabetes incidence is going to plummet with a new drug or stop advancing. I could list example after example through the course of the last 20 years. Of course, none of those existential threats have ever materialized.

But not to say there haven't been activities in all those realms, but never have they done anything like what some people feared, and always we've been able to adjust and ride those new waves successfully and sustained our leadership. No. 5 of eight. DaVita, in particular, excellent clinical performance and a fervent belief in transparency around clinical outcomes, and in addition, our entire industry has improved care and the productivity care in ways that most of the rest of chronic healthcare America would envy.

No.6. Periodic policy opportunities and threats. We are, and we work in very close concert with the federal government and to some extent the states. It will always be the case where sometimes they will do things that temporarily impair us, but there will also be opportunities where we can improve our value alignment with the government.

And I'll just give one example of how significant the math can be. We recently had to endure five years of essentially flat Medicare rate reimbursement. Cumulatively, that made it $386 million per year difference in incremental revenue versus not. The resiliency of the business model to endure that over the prior five years, the recent five years and now entering back into a period of rate normalcy is quite noteworthy.

No. 7. The inexorable march toward integrated care. And this is relevant on the couple of different levels.

First, the degree, the depth and breadth and fervency of policy support from both these and ours for integrated care, not only for our patients but for all chronic care patients, is really at an all-time high and shows no signs of reversing. So from a policy point of view that March is picking up speed. But also not forget, however, that we are in a unique pole position to take care of these very expensive and needy patients who just happened to have dialysis as a common denominator. Because what they also have are diabetes, hypertension, cardiovascular disease, anxiety and depression, etc., etc..

And therefore, our pole position, our unique position of relationship, combined with other capabilities that we've invested in, put us in a great spot for what is an emerging tidal wave we hope for America and for its patients. And finally, No. 8. The ability of this business model to convert operating income into free cash flow and free cash flow into sustainable earnings per share accomplishments.

In the context of all of that, those eight points, we have moved equity value from about 150 million, 20 years ago, to over $9 billion today, and hopefully significantly more value for you soon, for our patient soon and for our taxpayers soon. And if I were to just step back for a second and stare at the current platform, three things are quite striking, the resiliency of us and our community is noteworthy. Second, our relative performance within that world consistently over the last 20 years. And third and finally, our opportunity for increased differentiation moves up with every rise of integrated care.

And so we're looking forward to being ever more differentiated in ways that are ever more driven by our historic capabilities, our historic investments and our current market position. With that operator, if we could please turn it over to Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Kevin Fischbeck from Bank of America Merrill Lynch. Your line is now open.

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

Great. Thanks. Just wanted to see, I guess, Kent, I think you said that the quarter came in slightly ahead of your expectations. But then when I guess Javier was talking about the revenue numbers, he talked about volumes coming in later.

Can you just go into what was it that came in better than your expectations to get the operating income number, I guess, a little bit better?

Joel Ackerman -- Chief Financial Officer

Sure. Kevin, it's Joel. I'll take that. Our internal number was a bit lower than the streets, largely driven I think by timing related to seasonality.

So that's I think the genesis of that comment. I would say the single biggest thing that drove the number stronger was calcimimetics. And I mentioned in my script about a $20 million tailwind in calcimimetics in Q1 versus Q4.

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

And then could you kind of remind us what you think the pace of that? You talked about ultimately that becoming a neutral or maybe even slightly negative thing. Is that slowly by year-end or is that a two-year, how do you think about that process?

Joel Ackerman -- Chief Financial Officer

Yes. So I think you have to think about the margin in calcimimetics in two buckets. So start with what we had last year, which we've called out as mid- to high single-digit margin, which is kind of where we were as 2018. Think of that as the baseline.

That will go away over time, probably measured in years, but not many years as the whole dynamic of generic entrants plays through. And that gives the temporary tailwind, which is the 20 million. That's the second piece. But then ultimately, it plays through to ASP.

So the 20 million, the extra tailwind that we saw in Q1, we don't know how that will play out over the rest of the year. There is certainly a possibility that we will be able to continue to buy at generic rates in Q2 before ASP falls, and they'll be a continued tailwind in Q2. We don't know what will happen in the second half of the year. There is a scenario where that completely reverses, where generic availability in the market disappears, while ASP is falling, and what was a tailwind in Q1 will turn into a headwind in the back of this half of the year.

So I think to try and sum this up, I think the mid- to high single-digit number that we called out in 2018, we think that will persist through 2019. How long it last after that is a question mark. This added $20 million tailwind could persist for a little bit while longer, although it could flatten out and it could potentially turn into a headwind in the back half of the year, all depending on what happens with generics supply, and ultimately, what happens with ASP.

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

OK. That's helpful. And then I guess, pretty sure I'm not sure if you said it and I didn't catch it. But commercial mix in the quarter, any comment on how that trended?

J.R. Rodriguez -- Chief Executive Officer, DaVita Kidney Care

Yes. The mix was slightly higher quarter-over-quarter. And now just that since you asked, as we step back and look over what we said at JPMorgan, I wish the range was a little wider because that number sort of popped up and down. But in general, we were slightly up and there's nothing in the mix that would change or impact our guidance.

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

Can you just talk again a little bit about some of the things that you mentioned as far as volume headwinds? Is there anything within the volume headwinds that would have a directional impact on mix? Or the things that are -- some of the things you mentioned as far as transplant, so I think that might actually be more of a headwind to commercial mix than to Medicare mix for example. I don't know how you think about that, but would love to hear your comments on those pressures and how they apply to mix?

J.R. Rodriguez -- Chief Executive Officer, DaVita Kidney Care

Sure. Let me take a stab and see if I'm answering your question. First, I just wanted to say, bear us, we got it wrong at JP Morgan when we gave it, and we met the number so quickly after that. Two, is that we have a track record of outperforming on non-acquired growth, and we had some episodic quarters where our competitors have outperformed us.

And three, is that there's a lot going into this number. There's incidence, there's mortality, there's transplants, there's competitors, there's payer dynamic. And they're all moving in opposite direction sometimes, so it's very hard to pinpoint the number. But at the end, what we're trying to do is work really hard to make sure that we get the right trade-off between growth, rate and capital deployment.

And that's really what it's all about.

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

All right. Then maybe just my last question. Clearly, you're seeing a slowdown in volume. I guess your competitors are ramping up de novos.

Is there any way to kind of quantify in your view market share, I guess, losses maybe that are happening which you have said that real number should have been two and a half to three and a half. It was just the market share that pushed you down below that? Or how do you think about market share?

J.R. Rodriguez -- Chief Executive Officer, DaVita Kidney Care

Yes. It's a good question. I mean if you look at our market share and you look at what that 1% difference is over a year. This is only a quarter, but over a year, it will be about 2,000 patients.

So you got to look at in the base that we have roughly 200,000 and so does FMC, but we don't take it lightly, of course, compounding it very powerful. But, again, our track record is that we'll outperform over time. But when you look at it sometimes you would rather have a lower growth if it's got an impact on your deployment of capital. And so you can't isolate each one of these in micro, but you've got to look at the sort of overall portfolio because we could give you a higher NAG number, but it might be with low return on certain de novos.

And so we're being quite disciplined in scrutinizing that number.

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

Thanks.

Operator

Our next question comes from Justin Lake from Wolfe Research. Your line is now open.

Justin Lake -- Wolfe Research -- Analyst

Thanks. Good late afternoon I guess. First off, congrats Kent on 20 years and retirement. And Javier, no surprise, but congrats on you taking the reins.

Very exciting stuff. The first question I had is, Javier, as you kind step in here, I feel like a big part of Kent's role as you take -- as you've kind of been running the dialysis business for a while. Kent's role has been very much kind of strategy and capital deployment and the move to international, for instance. The DMG.

So I'd love to hear your kind of thoughts on how you see the next kind of three to five years from a capital deployment perspective that might have been different than Kent's? And specifically, given this deal, it looks like it's moving toward close. Your thoughts on how to deploy that capital, especially given where the stock is?

J.R. Rodriguez -- Chief Executive Officer, DaVita Kidney Care

Well, as Kent articulated, Justin, we worked together in partnership for 20 years. So I've gotten that question asked a fair amount. And what I've said it's not like I've been my shutting ideas waiting for the time where I got to hum and now I get to execute on them. We've been partners, and we think a lot alike as it relates to discipline on capital.

And as I said in my opening remarks, there is more that's going to look the same than anything that's going to look different. Things that will likely look different will be more around the evolution of time, technology and the needs of the business, integrated care policy and those things that we will be driving. As it relates to capital, we have and we'll continue to have a very strong discipline around capital. And we are going to be sharing our three-year plan at capital market in August or September.

I don't want to provide any more detail at this point.

Justin Lake -- Wolfe Research -- Analyst

Got it. And then you talked about the calcimimetics and the $20 million of benefit versus the fourth quarter. Can you give me the total benefit in the quarter here?

Joel Ackerman -- Chief Financial Officer

I'm sorry, I'm not sure I understand the question, Justin. Oh, the total calcimimetics profit in the quarter. So it's roughly double the 20 million. So it's a 20 million headwind combined with the number we had called out in the past, which is call it 18 million.

So 38 million would be the total Q1 profit from calcimimetics.

Justin Lake -- Wolfe Research -- Analyst

Got it. And is your view that calcimimetics potentially will not be a benefit next year, so we should think about that as a headwind year over year, the numbers?

Joel Ackerman -- Chief Financial Officer

I think it's hard to call out the timing. We think ultimately, most, if not all of this, will go away. Don't know whether it's a 2020 event or 2021.

Justin Lake -- Wolfe Research -- Analyst

Got it. Is there anything you could share with us in terms of how the -- so if you're at a $40 million run rate, it sounded like the answer to Kevin's question was that you thought that that could continue in the quarter, in the second quarter and then it could moderate in the back half of the year. But what you have baked in the guidance for the full year in terms of the calcimimetics benefits, even if it's a range, it would be helpful to kind of understand?

Joel Ackerman -- Chief Financial Officer

Yes. There are a lot of scenarios that play through the ranges in the forecast. So I don't think I'd be comfortable. It's articulating just a single number that flows through.

But I think, it is safe to say what we've said in the past, which is some of this variability in the near term around calcimimetics is the single biggest swing factor in the $100 million of OI range that we gave in our guidance.

Justin Lake -- Wolfe Research -- Analyst

OK. And as I think, I had -- obviously totally for 2020, but is there anything that if it does start to moderate? Is there anything that you can think of that could kind of be an offsetting benefit in 2020, some kind of tailwind, like maybe the -- your EPO contract could potentially help offset that. Anything that you want to point us to before we think about -- as we think about 2020 headwinds and tailwinds?

Joel Ackerman -- Chief Financial Officer

Yes. So I think there's a lot going in pharma, in general, and that applies to unit price, it applies to unit volume, it applies across a number of the drugs we use. So I wouldn't point out a specific headwind or tailwind, but I don't think you can look at this as one isolated factor in the P&L and just handle it as its own issue.

Justin Lake -- Wolfe Research -- Analyst

Got it. If I could sneak in one more, the -- I know last year and I apologize for not having run these numbers myself, but just kind of thinking it through. Last year, I remember your first quarter had a benefit from a Medicare receivable true-up of some sort and this year obviously has a calcimimetics benefit. If I remember correctly, last year did not have much of a benefit from calcimimetics.

I think it started ramping slowly. Is that correct?

Kent Thiry -- Chief Executive Officer

That is correct, I believe. Yes.

Justin Lake -- Wolfe Research -- Analyst

Got it. So if I net it too, right, and if I kind of think about growth year over year in the first quarter, excluding calcimimetics and the Medicare true-up, can you do that math of the top of your head and give us an idea of what the year over year first quarter looked like?

Joel Ackerman -- Chief Financial Officer

So if you went back to Q1 last year, you'd have to take out the Medicare bad debt. You'd also had to take out the DHS 17 million onetime pickup that we called out back then. If you look at that number relative to where we came out this quarter, I believe it would be up a bit. But that would not be adjusting for calcimimetics.

J.R. Rodriguez -- Chief Executive Officer, DaVita Kidney Care

I think that math will be somewhere the 371 to 382, and we have one less treatment day year over year.

Justin Lake -- Wolfe Research -- Analyst

So 371 to 382 and that I would back out 38 million for calcimimetics, is that what you're saying?

Joel Ackerman -- Chief Financial Officer

I think that 38 would be high. I don't remember what we had in there, what exactly we called out. But the 38 would be high. We can take it off-line Justin and get you a better number.

We just got to look back at what we disclosed.

Kent Thiry -- Chief Executive Officer

Yes. I'll just offer a cautionary note on two levels there. One, always start this around too many variables. On a live call, there's a lot of room for potential confusion on exactly how people are defining different numbers.

And then second, it's sort of stating the obvious, but worthwhile that in any given year, we've got lots of variables that move 15, 20 million, recurring, nonrecurring, up, down, and so it gets pretty tricky to start paying too much attention to one or two of them because there's a lot of them all the time.

Justin Lake -- Wolfe Research -- Analyst

Got it. Thanks for the call.

Kent Thiry -- Chief Executive Officer

Thanks, Justin.

Operator

Next in queue we have Stephen Tanal from Goldman Sachs. Your line is now open.

Stephen Tanal -- Goldman Sachs -- Analyst

Good afternoon, guys. Congrats, again, to Javier as well. While I guess just the first question, just in light of the updates on DMG and the commentary around the industry growth and more de novos from competitors. Could you kind of give us your latest thoughts on the potential deployment of DMG proceeds? And what are your thought processes around that at this point?

Joel Ackerman -- Chief Financial Officer

Yes. So our thinking on that hasn't changed. The DMG proceeds will go to pay down debt. After the deal closes we're going to do a subsequent financing and we'll use those proceeds to bring us back to our historical leverage range, three to three and a half times, and use that to buy back stock.

So nothing really has changed around our thinking there.

Stephen Tanal -- Goldman Sachs -- Analyst

Perfect. A couple of more sort of granular ones. I guess, just on the calcimimetics discussion, just around that, the $11 cost per treatment, would you be able to give us that figure sort of for last quarter just as you think about the -- how this is developing?

Joel Ackerman -- Chief Financial Officer

Yes. It was -- hold on, bear with me one second. It was about $13.

Stephen Tanal -- Goldman Sachs -- Analyst

Got it. OK. So really it does sort of see like I guess the generic availability is maybe what changed here. Just thinking broader about patient care cost per treatment, it was considerably lower.

Is there any other drivers that you could talk about in that line that we should think about as potentially more sustainable?

Joel Ackerman -- Chief Financial Officer

Are you talking about the calcimimetics question? I'm sorry.

Stephen Tanal -- Goldman Sachs -- Analyst

No, I'm sorry. Just inside of patient care cost sort of -- on like a per treatment basis gaining quite a bit better. Just trying to understand some of the other moving pieces as well?

Joel Ackerman -- Chief Financial Officer

Oh, yes. So the other piece is EPO.

Stephen Tanal -- Goldman Sachs -- Analyst

EPO is better?

Joel Ackerman -- Chief Financial Officer

Yes.

Stephen Tanal -- Goldman Sachs -- Analyst

Got it. OK. That's helpful. And then just one more maybe on the commercial side.

Sounds like mix is up a little bit. Maybe if you can just comment on rate, as well as you think about RPTs in the quarter?

Joel Ackerman -- Chief Financial Officer

I think there is no headline on the rate side, basically in line with where we expected it.

Stephen Tanal -- Goldman Sachs -- Analyst

Got it. OK. And a continuation I suppose like what was laid out at the JPM day. Just I think there's a decline in that, our network rates and sort of the outlier stuff got an increase and the rest of the book, like that's also pretty much was playing out?

Joel Ackerman -- Chief Financial Officer

Yes. Nothing to call out.

Stephen Tanal -- Goldman Sachs -- Analyst

Great. OK. All right. Actually, just one last one.

Just on the advocacy side, is anything to note there just that 80 to 90 or anything else on your mind? Are you still really comfortable with the 60 million step down in the guidance, sort of sounds like it, but just want to check in there?

Joel Ackerman -- Chief Financial Officer

Yes. The short answer is, we continue to work with 80 to 90, and we are comfortable with our advocacy spend and our progress and our relationships with Sacramento and another state capital.

Stephen Tanal -- Goldman Sachs -- Analyst

Thank you.

Operator

Our next question comes from Whit Mayo from UBS. Your line is open.

Whit Mayo -- UBS -- Analyst

Hey, thanks. Congrats Kent and Javier, both well deserved. Maybe just wanted to follow-up on the competitive dynamics one more time. Just might be helpful to define competition a little bit more.

Is this new competitors that you're seeing? Or is this de novo activity from existing competition within your markets? And do you have any view on last year's AKI regulatory changes with SNF reimbursement and whether or not you're seeing any activity on that side?

J.R. Rodriguez -- Chief Executive Officer, DaVita Kidney Care

Yes. On the first part, it is not the new entrants. We are not seeing any significant activity there. So it is what the existing competitors.

On the AKI, for those people that are not familiar, it's stands for acute kidney injury and basically that's before a doctor concludes that your kidneys are end stage, meaning they could come back. And so there was a change in philosophy there because they wanted to get the patient out of the hospital and then to the most efficient site of care, which is our centers. And so there are more diagnosis now of AKI because the system adjusted to that. I think that that volume has gone through the system, and I don't think it's relevant for NAG factors.

Whit Mayo -- UBS -- Analyst

OK. And maybe one more on the calcimimetics. Is there any way to maybe frame up what percent in the quarter was generic versus branded Sensipar, just in terms of dosing? And did anything really surprise you positively or negatively since your last call on this one topic?

J.R. Rodriguez -- Chief Executive Officer, DaVita Kidney Care

On the mix, the majority of the mix ended up being on the generic side. And as it relates to surprise, I would never call it surprise. We just knew it was going to be a fluid and dynamic time, and so we're going through a bit of the wave, if you will, in this particular quarter, it was helpful. And that we were able to purchase some at discount.

And then, of course, as Joel already explained that could be reversed at any time depending on how it plays out, who enters and how big the pricing curve drops.

Whit Mayo -- UBS -- Analyst

Got it. And any way to maybe frame up what the inventory looks like going forward, just to get a sense that how much visibility you have into additional generic opportunities?

J.R. Rodriguez -- Chief Executive Officer, DaVita Kidney Care

No. It's been very hard to tell because of dynamics in the legal system as to what inventory is available and who's going to enter. And then, of course, that will drive the price to how many entrants and how much inventory. So we are just as interested as you are in those numbers, but they're very hard to find.

Whit Mayo -- UBS -- Analyst

Yes. No, I totally got it. Maybe just one last one. And just curious, Javier, as you make the rounds and talk to your medical directors and nephrologists.

Are you hearing anything new from clinical protocols, therapies just anything aside from Sensipar. I'm just trying to think from an upstream perspective if there's any change you're seeing within the nephrology practice setting?

J.R. Rodriguez -- Chief Executive Officer, DaVita Kidney Care

No. There's nothing that calls out. The physicians are continuing to prescribe as they have in the past. Of course, they're always looking at the journals and the studies to see if there's anything in the science that indicates anything new, but there's nothing that I would call out right now.

Whit Mayo -- UBS -- Analyst

Great. Thanks a lot.

Operator

Next in queue we have Gary Taylor from JP Morgan. Your line is open.

Gary Taylor -- J.P. Morgan -- Analyst

Hi, guys. Just a few quick ones. I think Joel mentioned in terms of patient expenses that are EPO cost. Was wondering if that was price or utilization.

Joel Ackerman -- Chief Financial Officer

Price.

Gary Taylor -- J.P. Morgan -- Analyst

And wanted to ask, I've been on the call for a long time, not 20 years, but a long time. Haven't heard you talk about competitor de novo activity a lot. I understand you're saying its existing competitors. But wanted to see if you had any comment on some of the new start-ups that are focused on the CKD market like Cricket that are modest that are basically saying, not enough resources have been expended.

At CKD, we spend all our resources once the person hits ESRD, and I think ASR's comments were hinted at that or alluded to that a little bit as well. But how do you see that developing as positive, negative, hospital risk, the ESRD volumes, etc.?

J.R. Rodriguez -- Chief Executive Officer, DaVita Kidney Care

Sure. Thanks for the question. As it relates to competition, the first thing I'll say is competition makes us sharper. And we respect all competitors, and so it's with that approach that we go paranoid added because we want to make sure our patients get the best, and we believe that we are best prepared to deliver that in a platform with all the sites of care.

That said, of course, when you are small and you're getting capitalized, you need to generate a story. And so the provocative story is one that says that they're going to "disrupt and innovate," and we believe that we've been self-destructing and innovating for quite some time. And we do a lot of patient education more than anyone else. We send more patients to the proper modality than anyone else.

We have amazing transplant education. And so we know we have the entire suite but, of course, they can't compete with that platform, and so what they want to do is create a narrative that we are by definition of being big that we somehow or other not innovative, which is, of course, not the entrepreneurial spirit of DaVita. So again, we want to be sharp, and we want to take them on, and we respect it.

Kent Thiry -- Chief Executive Officer

And Gary, I would go ahead and add on a little bit here, given the thoughtful question that No.1, it's easy to say I found 1,000 CKD patients. People with kidney disease, but their kidneys haven't failed yet. It is tough to say, which ones of those are as most likely to have kidney failure and when. And it is impossible to say what would have happened otherwise.

So in order for anyone to pay you other -- anything other than a low unsatisfactory fee-for-service rate, means you need to have sufficient data to be able to take a scale population, know what they would have cost. See if you can give someone a share of their savings of what they did cost after you intervened. There is no one better positioned than we are to turn those unknowns into knowns. And none of the new entrants have that capability currently.

Which is not to say they're smart and they -- if they get enough money, that's a very -- it's a doable thing. It's not an easy thing. And it's not a cheap thing.

Gary Taylor -- J.P. Morgan -- Analyst

I appreciate the comments. One more quick one for Joel, if I could. You alluded to the fact that if non-acquired treatment growth stayed at this levels, you'll be at risk of missing the treatment growth guidance for the year. Obviously, this quarter despite the weaker volume, you made it up on the OI side.

So when you look at the year, you're contemplating the possibility could come at the low end on treatment, but you've reiterated the OI guidance. So is the messaging just from that? There's enough other puts and takes that even at the low end or slightly below the low end on volume, you'll hit the OI range.

Joel Ackerman -- Chief Financial Officer

That's exactly right Gary. We've got enough other things that we're not worried about the OI range even if we come in below on that.

Operator

Our next question from John Ransom of Raymond James. Your line is now open.

John Ransom -- Raymond James -- Analyst

Hi. I'm just wondering when you think you might get some color from CMMI on the reimbursement changes relative to home reimbursement versus clinic reimbursement.

Kent Thiry -- Chief Executive Officer

This is KT here. It's difficult to predict these things. And they have a couple of times predicted when they'll have such done, and they haven't been able to get it done, not because they're not smart and hard-working, don't have good ideas. We applaud so much of what they're looking and so much of what they're creating, but they have to go through a multiagency approval process over which they do not have total control.

So it's very difficult to know and sometimes they can't even know. Someone gets to it in the next two weeks, it's done in two weeks. If they don't get to it in 10 weeks, it's not done for 10 weeks even though the elapse time of the work might only be a week or two, things get pretty busy there. So unfortunately, we can't give you a helpful response.

John Ransom -- Raymond James -- Analyst

So those of us who get paid to speculate with zero information, which you widely object to the notion of -- so let's say, today, we have 100 treatments and 88 are in the clinic and 12 are at the home. I guess they're going to pull some money out of the total pie, but it would it be as -- perhaps as straightforward as saying, well, maybe we'll pay 5% less at the clinic, and we'll pay 20% more for home and those dollars kind of roughly balance out? Or do you think it will be a lot more dramatic and complicated and hard to figure out?

Kent Thiry -- Chief Executive Officer

Yes. I don't think speculating is a good idea because that's literally, what the accurate verb would be. So we'll just have to wait. I'm very, very sorry, but we can't predict.

John Ransom -- Raymond James -- Analyst

OK. That's it for me. Thank you.

Operator

Next in queue we have Pito Chickering from Deutsche Bank. Your line is now open.

Justin Bowers -- Deutsche Bank -- Analyst

Good afternoon. It's Justin Bowers on for Pito. And congratulations, Kent for moving on and Javier for assuming the range. Just in terms of some of the moving pieces with the receivables, what -- can you provide us little more detail on why the jump there? And in terms of timing, how should we expect that to go back to where you ended at 4Q, toward the end of the year, in the middle of the year? A little better sense of some of the drivers there would be helpful.

Joel Ackerman -- Chief Financial Officer

Sure. So, Pito, there wasn't any individual saying. It was a bunch of things, some of which are operational, some of which are seasonal, but all of which are temporary. We would expect in the next couple of quarters that this will all play through and we'll be back to the range where we were in kind of the back half of 2018.

And to give you a flavor, I'd call out one thing. We did a system change in one of our smaller businesses, a billing system change. And that led to some operational complexity that led to some just temporary spike in the AR. But we've worked that through.

Now we're just catching up. That was the single biggest thing that was roughly 40% of the four days.

Justin Bowers -- Deutsche Bank -- Analyst

OK. That's helpful. Joel. And was any of that related to not the 40%, but let's say, the other 60% related to any of your contracts mainly on the commercial side? And then in light of kind of the improvement in the mix quarter-over-quarter, is there any way that we can narrow the range there from the guidance you gave earlier in the year in terms of the commercial RPT?

Joel Ackerman -- Chief Financial Officer

Yes. Justin, first, I apologize for getting your name wrong. I don't see any linkage there. I don't think you can connect the two.

Justin Bowers -- Deutsche Bank -- Analyst

OK. OK. And then in terms of the commercial RPT for where we are, you guys still, are you sticking your guns there in terms of the guidance that you provided or --

Joel Ackerman -- Chief Financial Officer

Yes, no change on that.

Justin Bowers -- Deutsche Bank -- Analyst

OK. OK. And then just shifting gears a bit, looking toward like 2020 and MA and the opportunity there, any kind of color you can provide on some of the discussions that you're having with the payers, maybe in terms of some of the different programs you'd set up, and maybe some of the programs that you can are run with them thinking of the comment you made on the hospital readmissions and overall, like what's the rate environment there from MA?

Kent Thiry -- Chief Executive Officer

Yes. Justin, as you can imagine, there's interest because people are trying to run their models as to what's going to happen to that population. The reality is that it's got a lot of variables and at the end, it ends up in being a patient choice, that's what product they have. And so as it relates to the actual negotiation, we're continuing to have very constructive conversations with the payers as to how we can take risk on the MA business.

And we're actually innovating quite a lot in that book of business. So it's a constructive, productive conversation.

Justin Bowers -- Deutsche Bank -- Analyst

OK. Thank you, Kent.

Operator

[Operator instructions] Next in queue we have Murali Ganti from Lord, Abbett. Your line is open.

Murali Ganti -- Lord Abbett and Company -- Analyst

Just a quick one for me. Looks like you had a 400 million revolver draw sequentially. Just wonder what the user proceed was for that?

Joel Ackerman -- Chief Financial Officer

I think you should tie that for some of the comments we'd made about DSOs and the move in AP. So it was just largely around working capital.

Murali Ganti -- Lord Abbett and Company -- Analyst

OK. So then that's expected to come down then in the interim quarters?

Joel Ackerman -- Chief Financial Officer

Yes.

Operator

Thank you. Speakers, we show no further questions in queue at this time.

Kent Thiry -- Chief Executive Officer

All right. Thank you all very much for your kind attention. We'll talk to you again soon.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Jim Gustafson -- Vice President, Investor Relations

Kent Thiry -- Chief Executive Officer

J.R. Rodriguez -- Chief Executive Officer, DaVita Kidney Care

Joel Ackerman -- Chief Financial Officer

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

Justin Lake -- Wolfe Research -- Analyst

Stephen Tanal -- Goldman Sachs -- Analyst

Whit Mayo -- UBS -- Analyst

Gary Taylor -- J.P. Morgan -- Analyst

John Ransom -- Raymond James -- Analyst

Justin Bowers -- Deutsche Bank -- Analyst

Murali Ganti -- Lord Abbett and Company -- Analyst

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