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DaVita (NYSE:DVA)
Q2 2019 Earnings Call
Aug 01, 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'll be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita second-quarter 2019 earnings call. [Operator instructions] Thank you. Mr.

Gustafson, you may begin the conference.

Jim Gustafson -- Vice President and Associate General Counsel

Thank you, Darren, and welcome, everyone, to our second-quarter conference call. We appreciate your continued interest in the company. I'm Jim Gustafson, vice president of investor relations. And with me today are Javier Rodriguez, our CEO; Joel Ackerman, our CFO; LeAnne Zumwalt, group vice president; and Jim Hilger, our chief accounting officer. Please note that during this call, we may make forward-looking statements within the meaning of the federal security laws.

All these statements are subject to known and unknown risks and uncertainties that could cause the 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 second-quarter earnings press release, our most recent quarterly report on Form 10-Q and any subsequent filings with the SEC. 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 our CEO, Javier Rodriguez.

Javier Rodriguez -- Chief Executive Officer

Thank you, Jim, and good afternoon, and thank you for joining the call today. It's nice to be with you as I host my first earnings call as the CEO of the enterprise. As I reflect on my first 60 days, it's been a dynamic time. In that short period of time, the President of United States issued an executive order on kidney health.

We closed the DMG transaction, we bought back $350 million of stock. We commenced the tender process to purchase up to another $1.2 billion of stock. We launched a new bank financing and most importantly, our team of dedicated caregivers performed over $5 million life-sustaining dialysis treatments. Hard to believe that it's only been 60 days. Before providing financial details on the quarter, let me start with a clinical highlight.

DaVita has had a long commitment to helping as many patients as possible receive kidney transplant. We have created award-winning educational programs to support our patients to increase their chances of receiving a transplant. These programs include peer testimonials and animated videos on how to prepare for a transplant evaluation, how to stay active on the wait list, how to find the living donor and what to expect after transplant. We're encouraged by the interest of our current administration to try to improve on the biggest challenge, which is actually organ supply. We will continue to support the efforts to help patients on the wait list receive a transplant, so they can join the estimated 50,000 DaVita patients who are living with a transplant today. Now let's move onto the quarterly performance, which we previewed with you in a press release last week.

We saw strong financial performance in the second quarter. On the positive side, we had a sequential increase in revenue per treatment and a sequential decrease in our cost. On the negative side, non-acquired growth was disappointing. Joel will walk through the numbers, but I thought it'd be helpful to provide you with qualitative views of the drivers. Our year-to-year -- sorry, our year-to-date revenue per treatment continues to been in line with revenue guidance we provided at the beginning of the year.

Commercial rates are slightly up year over year, and the Medicare rates are growing in line with our expectation. The team performed well on cost management with solid improvement in the quarter, primarily due to productivity improvements. Transitioning the growth, we're disappointed with our performance in non-acquired growth, which continues to fall below our expectations. While some of the decrease is related to the slowdown in industry patient growth, there is no getting around the fact that we're under-performing the industry.

The question we've been working through are: what is the potential for improvement and when will we see the results? Unfortunately, our response is dissatisfying. We're not ready to commit to specific numbers or timing. On a local-market basis, it's proven challenge to differentiate between true under-performance and just good decision-making. We're evaluating opportunities market by market and trying to balance the sometimes conflicting goals of growth, productivity and capital efficiency. Let me drill down through an example to bring the point to life.

A common decision in any given clinic is whether to open a new shift. Most new shifts are temporarily cost inefficient due to the low capacity utilization. If the market has scale, capacity constraint, robust growth, the decision is pretty easy. You open the shift.

If the market is small or the growth rate is inconsistent, it might make sense to trade the growth for productivity efficiency. Another example of this playing out in real time is in California. We have only signed two new leases in California this year, which compares to a typical full year of closer to 25 to 30. This will have a negative growth consequence in the future, but will reduce capital deployment in the market where we feel it is not prudent to invest at this time, given the threats of disruption from SEIU. These examples illustrate the trade-offs between growth, productivity and capital, which highlight why we're not looking at any metric in isolation. Now let me comment on President Trump executive order. My high-level takeaway on the executive order is we are aligned, we are well positioned, it's early and the economic impact is uncertain. Now let me expand on each.

First, we're well aligned with the administration overarching goal to provide better education to patients, to increase home dialysis and to increase the number of transplants. We agree that early education of patients is critical to slowing progression of kidney disease and to increase the chances that more patients will be able to choose the best treatment option for their lifestyle. Second, in partnership with nephrologists, we believe we're well positioned across the continuum of patient care. We're the largest provider of home dialysis in the country, and have a full integrated technology platform to make it easier for patients to treat at home. We have a robust education resource offering of 12,000 education classes to CKD patients this year alone to empower more patients to choose home as their preferred modality.

We have strong partnerships with over 900 hospitals across the country and we believe that we have a head start in building necessary capabilities to manage full risk in an integrated care environment. Third, with respect with the economic model, the administration announced the intention to pilot five new programs for kidney patients, one mandatory and four voluntary. Few details have been provided on the voluntary models, so we're not in a position to provide much insight into our strategic approach to drive growth or probability from these models. What we know about the mandatory model is that there will be an increased payment tied to home penetration and transplant rate. This will consist of two major components: First, is a rate increase of 3% in year 1 for home dialysis. We expect this to result in approximately $5 million to $10 million revenue pickup for us in 2020, which will decline in subsequent years, as the rate increase goes away; the second component, which is the probably the most important is a potential for higher or lower revenues based on chain of clinics, driven by performance on home and transplant. CMS expects this to have a negative impact on Medicare reimbursement to the dialysis industry.

Given that the dialysis industry already loses money on Medicare reimbursement, we will have to work with CMMI to ensure sustainability long-term economics. However, if it remains as announced and if 50% of our clinics nationwide are part of the demonstration, we should expect to also have some negative impact on our Medicare reimbursement. The community is working hard to better understand the rule and its implications. We intend to provide input in the 60-day comment period to highlight where the regulation may be improved. Now on to Joel to provide some additional details on the quarter.

Joel Ackerman -- Chief Financial Officer

Thanks, Javier. Operating income for the quarter was strong. Let me walk you through some of the detail starting with the components of the U.S. dialysis and lab segment. Non-acquired growth for the quarter was 2.1%.

Given the first half of the year performance, we now expect non-acquired growth to be between 1.75% and 2.25% in the second half of the year, which would put the full year between 2% and 2.25%, falling short of the guidance we provided earlier this year. Revenue per treatment was up sequentially by $1.60, driven by some positive fluctuations in rate, partially offset by a decline in calcimimetics reimbursement and a slight decline in commercial mix. Excluding the impact of calcimimetics and incremental Medicare bad debt revenue recognized in 2018 on the adoption of the new revenue standard, year-to-date revenue per treatment is in line with our full-year guidance. Patient care costs were down approximately $9 per treatment quarter over quarter, driven primarily by improved productivity, seasonal declines in payroll taxes, lower benefit expenses and lower cost for calcimimetics. We do expect some of this favorability to reverse in the second half of the year. Dialysis and lab segment G&A was up quarter over quarter at $1.68 per treatment, due increases in professional fees, the timing of our annual national meeting and increased compensation expense.

This increase in compensation expense in the quarter is mostly formulaic as it is driven by the improved operating income expectations for 2019. We expect G&A per treatment for the second half of 2019 to be relatively flat with this quarter. Moving on to calcimimetics. We benefited year-to-date from multiple launches of generic oral drugs, which have led to declining acquisition prices. Because the reimbursement methodology lags these cost decreases by approximately six months, we have temporarily benefited until reimbursement declines. In Q2 2019, we generated operating income of approximately $40 million from calcimimetics.

This is approximately $14 per treatment of revenue and costs of about $9 per treatment. For 2019, we think the most likely range for the net operating income benefit from calcimimetics will be $125 million to $150 million. We do not expect this to recur in future years. Our current estimate is that the future operating income contribution from calcimimetics will be roughly breakeven. In international for the quarter, we generated approximately $1 million of operating income and we continue to expect to generate positive adjusted operating income for the year. Our effective tax rate on adjusted income attributable to DaVita from continuing operations for the quarter was 27.9%.

We continue to expect our effective tax rate on adjusted tax -- we continue to expect our effective adjusted tax rate attributable to DaVita for the full year to be between 28.5% to 29.5%. Now on to cash flow. Operating cash flow from continuing operations for the second quarter was $574 million. DSOs for the U.S. dialysis and lab business decline sequentially by one day to 63 days in Q2 2019.

Reported capex for continuing operations for the quarter was $156 million. For 2019, we expect to report approximately 120 de novos. This represents the number of new centers that are certified in the year and is primarily the result of decisions that were made approximately two years ago. The actual number of centers that we are building in 2019 is significantly lower. Our current forecast for new center construction for 2019 is approximately 80 centers.

This will result in fewer certified centers reported next year. As noted in our release last week, we increased our adjusted operating income guidance for the year to $1.64 billion to $1.7 billion. We're also increasing operating cash flow to $1.45 billion to $1.625 billion consistent with the tax effected change to our adjusted operating income. 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 Javier for some closing remarks.

Javier Rodriguez -- Chief Executive Officer

Thanks, Joel. While it's too early to provide guidance for 2020. There are three specific call-outs regarding next year above and beyond the normal puts and takes. No.

1, we expect the operating income from calcimimetics to go away, as Joel mentioned earlier. No. 2, we expect the potential headwind from union-driven ballot initiatives, and No. 3, CMS preliminary proposed net market basket update for 2020 is approximately 1.7.

I am looking forward to providing more color on our strategy, on our upcoming capital markets day, which is now, September 10 in New York. So that is it. Darren, if you could open the line for Q&A?

Questions & Answers:


Operator

Certainly. [Operator instructions] We have one question in queue from Kevin Fischbeck. Your line is now open.

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

All right. Great. So I can guess I can ask all the questions that I want. So I guess, you mentioned, I guess, kind of in the pronouncements that the substantial majority of the increase in guidance was due to calcimimetics. Were there other dynamics that came in favorably that you're now expecting to come in favorably for the rest of the year that are contributing to the guidance range?

Joel Ackerman -- Chief Financial Officer

As I look at the rest of the year, obviously, there are ranges in there, but I'd say the core business, the general dynamics are revenues coming in as expected, labor is favorable, growth is unfavorable. You put that altogether, the core is relatively in line with what we were expecting.

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

OK. And then, you know, the volume growth numbers, obviously, you can kind of now feel like there's a market share loss that's going on there. And I appreciate that you can't at this point yet say when it will improve. But I guess, kind of most definitionally, if you're talking about fewer de novos, doesn't that mean that it's not going to get better next year and it's going to get worse? Or is there some offsetting dynamic to that that you should be thinking about volume being similar or better next year?

Joel Ackerman -- Chief Financial Officer

So on the de novo issue specifically, it depends a lot on what the rest of the industry builds. Our expectation is that as the industry growth slows and there's a shift to home, we'll be building fewer centers. What the rest of the industry chooses to do it's hard to predict. So that's the dynamic there.

In terms of industry growth looking forward, again, hard to predict. You look at the USRDS data, which has a few quarter lag. You can -- you certainly see a slowdown there. You layer onto that, the more real-time numbers we're seeing in terms of transplants and that growth seems, I mean, it's still early, but it seems to be accelerating for 2019.

So you put that all together and it's, again, hard to predict what will happen to the industry, but it's not hard to see that continuing to slow as well.

Javier Rodriguez -- Chief Executive Officer

To say it in another way on the first point, Kevin, the question is will the industry operate at a higher utilization and therefore, the de novo count doesn't equal non-acquired growth.

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

I guess like when you decided to slow down your de novo growth, my impression was it was in large part due to a view that the industry growth was slowing, now you don't think that if you got this slowing as much. So I guess, that might mean that you are, in fact, going to be opening fewer de novos than your competitors next year?

Joel Ackerman -- Chief Financial Officer

We do think the industry growth is slowing, that's what we've seen over the last few years. You see it in the USRDS data. So I might have created some confusion, but we do expect it -- we do expect the growth to slow down.

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

OK. But it was -- but that was not the only reason why you slowed it down, it was also a few that there'll be a shift to home as well?

Joel Ackerman -- Chief Financial Officer

Definitely.

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

All right. And then I guess you talked about how the new payment model is going to have incentives around shift to home. The -- then you mentioned that you thought that you would be negatively impacted because the industry overall was going to be negatively impacted. What is your thought process at least as far as your initial review of the criteria for that bonus payment? And is it that you're such a big part of the industry that is hard for you to be anything, but average? Or do you feel like based on what you know right now you're probably going to be better than average, but still not enough to overcome the rate cuts? How would you assume that shape up?

Javier Rodriguez -- Chief Executive Officer

Yes. We have very little information on it other than directionally what they want to do or what they mentioned is to move the curve to the left, if you will. And when you're as big as we are, 37%. You assume that at some point, you're going to look a bit like the curve.

And so they have not given us much color. There's a point system, etc., but we don't know how it'll work and that's one of the things that we're trying to shape in the 60-day comment period because, of course, we would like that to have some upside for those that outperform.

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

All right. And then maybe my last question. I think you've talked about that shift to home over the next five years. I guess, what exactly is your expectation for total industry growth during that time period? Because I think that initially with the shift to home chemo, there's been some -- or home dialysis.

There's been some concern that if there's a big shift to home that it will create negative leverage on your sites. Does that shift to home chemo -- or home dialysis that you're assuming over the next five years, does that still assume core growth on the in-center business and therefore, no negative leverage or is there a potential lapse scenario where you are successful in shifting the home and there are some positive profitability from doing that, but then there's a negative offset and the in-site performance?

Joel Ackerman -- Chief Financial Officer

Yes. So Kevin, you'd have to look at this market-by-market and there could be some markets where our in-center capacity becomes less utilized as a result of this. But if you look at it in general across the country, we don't expect to create any sort of trapped G&A or under-leveraging of the centers through the growth of home. We think there'll be enough industry growth to satisfy the increase shift to home without emptying out centers.

Javier Rodriguez -- Chief Executive Officer

And it's important to remember, Kevin, that roughly 80% of patients that are home end up in center. And so the continuum of care is necessary throughout a patient's journey.

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

Thanks.

Operator

Thank you. Next, we have Justin Lake from Wolfe Research. Your line is now open.

Javier Rodriguez -- Chief Executive Officer

Justin, you might be on mute.

Operator

Hello, Justin, your line is now open.

Justin Lake -- Wolfe Research -- Analyst

Is it better guys?

Javier Rodriguez -- Chief Executive Officer

Now we can hear you.

Justin Lake -- Wolfe Research -- Analyst

Sorry about that. So first off, obviously, a much better quarter in 2Q. I don't think I've ever seen cost decline sequentially like that without some bigger picture kind of item changing. So I was hoping you can give us some color on the cost per treatment in the second quarter -- what -- little more color on what drove it and how sustainable is it and to the back of the half of the year?

Joel Ackerman -- Chief Financial Officer

Yes. So Justin, the two biggest drivers were labor productivity and calcimimetics. The calcimimetics, I think, we've called out that number should continue to decline over the rest of the year. In terms of labor productivity, it was a big jump.

It was a great performance by the team as we think about how that plays out for the rest of the year. We think there is certainly the possibility that some of that reverses itself. We're looking carefully at seasonality in the current environment. There is some seasonality to turnover, which generates seasonal patterns of training that can be higher in the back half of the year.

And as training goes up, labor productivity comes down.

Justin Lake -- Wolfe Research -- Analyst

OK. And then in terms of your updated guidance, when I try to put pen and paper on the back -- runs a back-of-the-envelope math, when I think about the increase in calcimimetics year over year, the contribution there is obviously enormous. If you look at some other moving parts and I wanted to kind of get your viewpoint here, but I think you guys kind of agreed in the first quarter, your core growth was down about 3% to 4% ex moving parts and it looks like it's about plus 4% in the second, so maybe flat for the year-to-date. And then the guidance seems to imply about flat, maybe even down slightly ex moving parts in the back half of the year, so I just wanted to get an idea, is that kind of ballpark in how you're seeing the business in terms of what you saw in the first half and the implied guide for the back half in terms of core growth?

Joel Ackerman -- Chief Financial Officer

Yes. So if you stick with the middle of the range, for the full year, you adjust, for calcimimetics both '18 and '19 and then adjust for the four things we called out in 2018, you'd get OI that's flattish year over year. So I agree with your math. In terms of what's driving it, I call out two things: The biggest one is wage rates versus RPT growth.

That is a headwind. We have some offsets to it, but with our biggest cost item growing in the ballpark of 3% and RPT 1% or below, that's a headwind. The other is largely the result of calcimimetics and this gets a little technical, so let me try and explain this. Our -- some of our very variable comp is a long-term incentive program.

Those targets for next year get set in 2017 and we're accruing against that LTIP payout this year, as well as last year. Because of the OI generated by calcimimetics, it's led to a much larger accrual this year than last year and that creates a headwind in '19 over '18. So that's a second component of what's holding back the OI growth year over year.

Justin Lake -- Wolfe Research -- Analyst

OK. That's interesting. I mean, the -- as we think about the back half of the year, the implied guide of flat continuing. Does that assume that the labor productivity kind of goes away or remains at existing levels, can you give us some color there?

Joel Ackerman -- Chief Financial Officer

Yes. It -- I'd say there are two things driving that: One is there is some reversal on the labor productivity; and second, there is some G&A timing that we think will hit in the second half of the year that leads to basically, again, the middle of the range of flat second half of the year versus the first half of the year. That, again, backs out calcimimetics.

Justin Lake -- Wolfe Research -- Analyst

OK. And then if I can just ask one last question on calcimimetics. You gave us the $125 million to $150 million, that is going to go away at some point. So one, can you give us the slope of the line that you think that's going to kind of go to back to breakeven over the next year or two? I know it didn't go -- it doesn't look like it's going into the bundle for next year.

So I assume it goes to zero. Am I right in thinking that it goes to zero when it goes into the bundle and that will -- there'll just be some smaller spread next year and how should I think about that? And then if you want to give us that number on the accrual that should maybe reverse itself in 2020 that may be offset some of this $125 million to $150 million headwind that you've highlighted us?

Joel Ackerman -- Chief Financial Officer

No. I wouldn't call that out as a major tailwind last -- next year over this year. I'd call it out as a headwind last year. There's a little bit niche, but it's not something -- it's not of a magnitude that's worth that I'd want to call out.

On the calcimimetics slope, first I'd say, there's still uncertainty about how calcimimetics plays out. So we've given you a range there and it could be above or below that range. The expectation is Q3 will be higher than Q4, and going into 2020, we're expecting it to be pretty close to zero.

Justin Lake -- Wolfe Research -- Analyst

Got it. Thanks for the call. I'll jump back in the queue.

Operator

Thank you. Next is Pito Chickering from Deutsche Bank. Your line is open.

Pito Chickering -- Deutsche Bank -- Analyst

Good afternoon, guys. Thanks for taking my questions. On the organic treatment growth of 2.1%, as you look at your data, a few questions on this one. No.

1, have churn rate from losing life patients changed? No. 2, has the acquisition of new patients changed? Or No. 3, has the mortality of your current patients changed?

Javier Rodriguez -- Chief Executive Officer

OK. Let me grab and push it in right the first one down. On mortality...

Pito Chickering -- Deutsche Bank -- Analyst

The churn rate from losing life patients?

Javier Rodriguez -- Chief Executive Officer

Losing life patients. I don't know what that means. What -- are you saying our patients transferring out of our centers?

Pito Chickering -- Deutsche Bank -- Analyst

Correct. Has that changed in the last year or two?

Javier Rodriguez -- Chief Executive Officer

Yes. The short answer is, not that we know off. We were not hearing from patients transferring from one center to another. On mortality, the mortality rates had plateaued.

And so what happened was for an extended period of time in the past, mortality got better year over year. So in essence, that helped the growth. But that line has plateaued. It hasn't gotten any better or worse.

It's just been very stable, so that impacts growth. Did I get all of your questions or I missed one?

Pito Chickering -- Deutsche Bank -- Analyst

Yes. So basically, the under-performance is not from losing patients. It's effectively you are gaining new patients slower than you have in the past?

Javier Rodriguez -- Chief Executive Officer

That is -- that is correct.

Pito Chickering -- Deutsche Bank -- Analyst

OK. On the cost per treatment, besides labor and calcimimetics that you've highlighted, how much did EPO pricing have an impact on costs? And as big as Amgen, reported a large decline about, like, 11% due to lower selling prices and they referenced prices continuing to decline through 2019.

Javier Rodriguez -- Chief Executive Officer

Yes. So we're restricted for talking about pricing on our Amgen contract, but we are a very large customer. So I think you can do some back-of-the-envelope math on pricing.

Pito Chickering -- Deutsche Bank -- Analyst

OK. And then a follow-up on that one for commercial pricing. You guys guided to a January commercial pricing of down 1% to up 50 basis points, the commentary on today's call was more positive. Can you provide an updated view of where commercial pricing is now that we're halfway through the year?

Joel Ackerman -- Chief Financial Officer

We're not updating that. We currently expect roughly to continue to be in the range, but you can certainly imply from the comments that we're likely to be at the higher end of it.

Pito Chickering -- Deutsche Bank -- Analyst

Great. And then last question from me, actually on capex. You guys are not changing your capex guidance of $800 million to $840 million, churning about 45% at this point of the year. I guess why are you guys maintaining the capex guidance? And are you -- were you telling us you're going to step up capex growth in the back half of the year?

Joel Ackerman -- Chief Financial Officer

There's a lot of timing swings that can go into capex from one quarter to the next, so I wouldn't read too much into the fact that the first half of the year was a bit less than half of our guidance.

Pito Chickering -- Deutsche Bank -- Analyst

Great. Thanks so much.

Operator

Thank you. Next, we have Steve Tanal from Goldman Sachs. Your line is open.

Steve Tanal -- Goldman Sachs -- Analyst

Good afternoon, guys. Can you hear me?

Javier Rodriguez -- Chief Executive Officer

Yes.

Joel Ackerman -- Chief Financial Officer

Yes.

Steve Tanal -- Goldman Sachs -- Analyst

Great. Thank you. So I guess, the one thing I'm just trying to put the $14 RPT from calcimimetics came down from $16 last quarter, so call it sort of 12%-or-so down sequentially. I think the TDAPA reimbursement was down about 4%.

So just trying to understand how to bridge those numbers, is there any change in sort of the utilization rate or the percent of patients you said so far, utilization being from DaVita versus sort of the percentage of patients using it, is that all pretty stable or how -- what explains that difference?

Joel Ackerman -- Chief Financial Officer

The patient utilization is relatively stable. There are changes in the move from oral to IV, that can the impact the number as well. But overall, the OI from calcimimetics Q1 to Q2 is pretty consistent.

Steve Tanal -- Goldman Sachs -- Analyst

Got it. So maybe more oral this quarter moving from an intravenous potentially? Is that reasonable or...

Joel Ackerman -- Chief Financial Officer

No. The -- I believe the IV number is up a bit. So I think we should take this off-line, maybe we can help you with your math after the call.

Steve Tanal -- Goldman Sachs -- Analyst

Got it. OK. That would be helpful. And then I just wanted to clarify, did you actually say that the calcimimetics cost per treatment should be down in the third quarter?

Javier Rodriguez -- Chief Executive Officer

Yes.

Steve Tanal -- Goldman Sachs -- Analyst

Got it. OK. That's good to hear. And so then, I guess, with the guide being $125 million to $150 million for the year, think about $80 million have happened in the first half.

So I guess that would imply, I guess, TDAPA rates, I guess, from 3Q would be down more to bridge that gap. OK. All right. I think that makes sense.

And then, I guess, just with TDAPA going to extend in 2020 at least as proposed from CMS, does that sort of suggest that the earnings benefit could potentially continue or do you guys just think reimbursement is going to come down enough to offset it, is that sort of what you're implying?

Joel Ackerman -- Chief Financial Officer

Yes. The ASP has this lag relative to the cost coming down and we expect by 2020, it'll effectively have caught up.

Javier Rodriguez -- Chief Executive Officer

The reason why they expanded the TDAPA is because they're trying to calculate what, if anything, they do to the bundle. And the fact that not all patients get this drug, and the fact that the pricing continues to change, and the fact that oral is so much cheaper than IV makes that math complicated. So they just said, let's extend a year and do it a plus zero.

Steve Tanal -- Goldman Sachs -- Analyst

Yes. Helpful. OK, great. And Javier, I think you mentioned that you expected ballot initiatives, again, next year, can you elaborate on that?

Javier Rodriguez -- Chief Executive Officer

Yes. The short answer is we don't have any visibility, but we know that the union is trying to just throw sand in the gears and make it difficult for us. And so just being that 2020 is a ballot year, we're just calling it out, so that we're not surprising anyone.

Steve Tanal -- Goldman Sachs -- Analyst

Got it. OK. Perfect. So nothing specific.

And then maybe two more quick ones. So one is, you acquired, I guess, five international clinics in the quarter. So I guess, the question would be, what's your level of interest in doing maybe larger deals or more clinics outside the U.S. at this point?

Joel Ackerman -- Chief Financial Officer

Yes. I don't think we're going to comment on any large M&A that may or may not be happening in internationally. We continue to look at growing international. We want to do it in a capital efficient way, but we're not going to comment on any specific transactions.

Steve Tanal -- Goldman Sachs -- Analyst

OK. That's fair. And just like lastly, I guess, bigger picture, how are you guys thinking about organic growth NOI going forward? Or how would you frame it, sort of like from an algorithm perspective if you do think about it that way, what kind of growth rates do you think are reasonable or sustainable over time? And how do you get there working RPT versus expenses and such?

Joel Ackerman -- Chief Financial Officer

Yes. Steve, look, it's a great question. We're not going to give any long-term guidance on the earnings call today to more appropriate topic for capital markets day. So hold on a few weeks and we'll address that.

Steve Tanal -- Goldman Sachs -- Analyst

OK. That's fair. And actually, maybe if I could slip one more in, just thinking about the 2021, the ESRD change for Medicare Advantage. It sounds like that the MA rates in the market are materially higher than fee-for-service right now.

I guess could you help us sort of understand, is it sort of closer to commercial rates than fee-for-service or how does that generally look on average?

Javier Rodriguez -- Chief Executive Officer

Yes, I would say that we don't like to talk about rates, but just to give you an orientation, they do have a premium to Medicare, but it is way closer to Medicare than it is to commercial rates.

Steve Tanal -- Goldman Sachs -- Analyst

Got it. OK.That's helpful. Thank you.

Javier Rodriguez -- Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Whit Mayo, UBS. Your line is now open.

Whit Mayo -- UBS -- Analyst

Hey, thanks. Just maybe a couple of quick ones here. I think Joel, you referenced higher professional fees as one of the drivers pushing your G&A up this quarter. Can you maybe elaborate a little bit more on that?

Joel Ackerman -- Chief Financial Officer

There's nothing too interesting there, that we've got some higher legal fees in there and couple of other things, but nothing worth calling out.

Whit Mayo -- UBS -- Analyst

OK. And then maybe just California for a second, the union initiatives you're flagging that as a headwind, and just -- can you maybe elaborate a little bit more on like why this is sort of crystallizing your mind more as like a definitive headwind?

Javier Rodriguez -- Chief Executive Officer

Yes. I don't know if it's crystallizing, but rather it's not going away. And so we just know that the unions are very present and they want to be disruptive. And obviously, they were disruptive last year.

So we think that it's in their playbook.

Whit Mayo -- UBS -- Analyst

All right. My last question back to MA in 2021, not so much do reimbursement side, but we're hearing the HMOs talk more about 2020 and they seem to suggest on one hand they're not exactly excited about this since they lose money on these patients or their members. But the other hand, I have to think presumably there is a very large premium in these special needs programs and if they can find the right clinical partners and have alignment that you could really put something interesting together. So I just wanted to hear maybe from your side of the table what you see in terms of the conversations and the collaborations and the potential partnerships over the next year or so with some of the MA plans?

Javier Rodriguez -- Chief Executive Officer

Yes. Well, you've got your finger right on the pulse, which is people start off a bit nervous and then when we start talking and seeing what we can do with that patient population together, some very constructive and productive conversations usually flow thereafter. So right now, the regular MA population in the country is in the mid-30s. In dialysis patients, it's somewhere in the mid-20s.

And so the first thing they think about is like, oh, my gosh, volume expansion. But of course, what MA is so good about doing is adding value to patients that actually consume a lot of services and our patients are that very sick and they consume a lot of services. So once we sit down and we explore different methodologies, we're coming up with someone win-wins. And so that's the conversations we're having around the country.

Whit Mayo -- UBS -- Analyst

OK. So do you think we'll be talking about any partnerships? I mean, it seems unlikely, from my point of view, that if someone really wanted to build out, call it, a special needs plan, how can you ignore a DaVita that has such a significant presence in the market and the ability to really help control and manage the cost? I guess, I'm -- do you think this translates into some partnerships going before we get to 2021?

Javier Rodriguez -- Chief Executive Officer

Yes. It's an interesting way to look at it. I think in general, the big structural advantage that you should think of is that the patients are with us 12 hours a week. And we could do a lot in-center.

We could do a lot of coordination. And so we have a strategic structural advantage, if you will, and so that's one of the things that puts us in the center of it. And that doesn't mean that we have to do everything so that might open up to some of the things you're talking about and some partnerships with others, but the big -- the big sort of game changer is actually having the patient 12 hours.

Whit Mayo -- UBS -- Analyst

Thank you.

Javier Rodriguez -- Chief Executive Officer

Thank you.

Operator

Thank you. Next, we have Gary Taylor from JP Morgan. Your line is now open.

Javier Rodriguez -- Chief Executive Officer

Hi, Gary.

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

Hey, good afternoon. I just want to go back to the quarter a little bit. Just struggling to understand what was a really good OI number. As Justin talked about, I mean, we haven't seen, I think, in 20 years expense down $9 sequentially it was bigger than even the first year at 2011 under the bundled payment.

And it sounds like the calcimimetics OI contribution was $40 million this quarter, it was $38 million last quarter. So pretty much unchanged, but U.S. dialysis is up $82 million sequentially and it seems to be so much driven by this expense number in the productivity. So I mean can you maybe frame that in the historic context a little bit? And when you talk about productivity, did DaVita have markets where you had layoffs or is this just as you -- as teammates turned over, you just -- you didn't fill those positions against some operating leverage and that's why some of that will normalize in the back half, but it just looks like a huge sequential increase in OI of that expense per treatment number?

Javier Rodriguez -- Chief Executive Officer

Gary, I think I might have heard a compliment in there. I'm not sure.

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

It was great. It was great.

Javier Rodriguez -- Chief Executive Officer

Now, look, to answer the question, there was no big layoff or anything like that. It was literally amazing operational discipline across the country and this is one of those things 2,600 centers with operations. Just doing great work. And you see the calcimimetics price decreased.

We can't take credit for that. They're just new entrants in generic. And as someone mentioned on the call, there's other pharmaceuticals that are moving downward as well on some pricing, sometimes utilization. And so it was just a good quarter on that front and we're very proud of it.

Joel Ackerman -- Chief Financial Officer

Gary, the only thing I'd add is Q1 was a bit light. And if you think about what's -- how to think about run rate of where we are, our guidance for the back half of the year, as I said before, would imply that Q2 isn't the run rate, but the average of Q1 and Q2 is the run rate. So I think part of the improvement was Q1 was a bit light and Q2 was particularly strong.

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

I mean, it's helpful. I guess is there any -- I mean, anything you learned and repeatable about this or some of it was just sort of the stars aligned on this productivity and it even surprised your expectations?

Javier Rodriguez -- Chief Executive Officer

Yes. I wouldn't say that there is anything you learned other than the reminder of how diligent you have to be when you go across such a wide system. In addition, the dynamic that we talked about, the interlink between productivity and growth is one of the things that we're continuing to debate, which is if you run very, very lean and efficient sometimes you might not have the staffing if that new patients coming to open up a shift, or you're not -- might not be as agile as you want. And so sometimes, you might actually go too productive, and so what we're evaluating is should you build a little slack in the system and build more labor.

And what are the economic trade-off between that and NAG and how does that all net out. And as you can imagine, that depends that type of insurance of the patient, it depends on whether there's more patients coming to that shift, etc., etc. And all that assumes that we're in full control of labor sometimes, of course, someone goes on leave or someone quits, and it's a tight labor market. So all those dynamics are interplay, and so we had good productivity and bad NAG and we're trying to figure out how we feel about the whole thing, but OI was good that quarter.

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

Yes. That was great. Two more quick ones. Joel, last quarter, you told us are you -- on the calcimimetics benefit you gave us what it was in the comparable quarter.

So for 2Q of '18 do you have a number, was it still up roughly $20 million year over year?

Joel Ackerman -- Chief Financial Officer

I'm trying to do the quick math in my head. It would be up a little bit more than that. I'm thinking about $25 million, although someone is going flash me the exact number year over year.

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

OK. And then my last one, Javier. Before this Trump Executive Order, was the industry engaged with the administration or did the administration seek much industry input? I know this very complex one mandatory four voluntary sort of setup does not look like the sort of simplistic capitated rate that the industry has advocated for Medicare fee-for-service patients, that leads me to think maybe you didn't have a lot of input ahead of time, but is there any comment you can make on that?

Javier Rodriguez -- Chief Executive Officer

Sure, Gary. We've had a lot of input. We have had many discussions, many meetings. Of course, when you give your opinion, it is just that an opinion and they take it into account and they listen to all the different constituents.

And so you never know exactly how your opinion is landing or your inputs landing, but we did a lot of education for an extended period of time.

Joel Ackerman -- Chief Financial Officer

Gary, I was just a few million light on my year over year. So calcimimetics was up roughly $28 million year over year in Q2.

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

Thank you.

Operator

Thank you. Next, we have Matthew Gillmor from Baird. Your line is now open.

Matthew Gillmor -- Baird -- Analyst

Hey, thanks. I just had a couple of follow-ups. So for the potential for advocacy cost in 2020, if the unions do move forward with the ballot initiative, would it be fair for us to assume that it would drive about $60 million in higher costs, which I think would put you back to 2018 levels or would that number be sort of bigger or smaller?

Javier Rodriguez -- Chief Executive Officer

Yes. Thanks for the question, Matthew. The short answer is, it is literally impossible to estimate. But a couple of things to help you think through the variables is what state it's in, because media and other things to educate the voters vary substantially in price, No.

1. No. 2, the ballot initiative last year was very off balance and weighted in its language, so therefore we had to spend more money educating people. So if the language can be at least more neutral, that would really offset a lot of the cost.

And then, of course, well, those are the variables. I'll stop there and then, of course, the number of states would be the last variable, how many fights are you taking on.

Matthew Gillmor -- Baird -- Analyst

Got it. That's helpful. And then maybe on the slowdown in NAG. Does that have any implications or influence on your commercial mix and it's the new patients that are more likely to have commercial coverage or is it not enough to move the needle from a mix perspective?

Joel Ackerman -- Chief Financial Officer

I don't think the slowdown in industry growth itself has a material impact on mix. There's the demographic headwind that we've called out in the past, but that really isn't about growth, that's just about the age at which a patient ages in or requires renal replacement therapy.

Javier Rodriguez -- Chief Executive Officer

But Matt, let me make sure, we remind you that last quarter, I said that the guidance we gave on mix at JPMorgan was too tight at that plus or minus 5 basis points, that it moves up and down more than that. And if you had me guess, we'd probably be down slightly by the end of the year, but all that is incorporated in our guidance.

Matthew Gillmor -- Baird -- Analyst

Got it. Fair enough. And then Joel, could you help us out on the interest expense and maybe where that will land with the debt repayment and the refi-ed stuff, give us some sort of indications where that would be going forward?

Joel Ackerman -- Chief Financial Officer

Sure. So obviously it'll come down as the total leverage number comes down. The financing is in process now. So it's hard to predict where ultimately what we will wind up in -- with rates, but we will be more skewed toward bank versus bond as a result of this, and that would likely bring the kind of weighted average interest rate down a bit.

So lower rate likely, combined with a lot less debt.

Matthew Gillmor -- Baird -- Analyst

Thank you.

Joel Ackerman -- Chief Financial Officer

Thank you, Matthew.

Operator

Next, we have Matt Larew from William Blair. Your line is now open.

Matt Larew -- William Blair -- Analyst

Hi, good afternoon. You know, you mentioned that you're the market leader right now in home dialysis, but just wondering if you have a sense for what percentage of new patients entering in the home today you're getting? And what percentage of CKD training programs you might be leading, whether that's commensurate with your share on in-center dialysis?

Javier Rodriguez -- Chief Executive Officer

I don't know that number off the top of my head. But what we can tell you is our aspiration and our goals right now is to have roughly 25% of our patient by 2025, which would mean that we, of course, would have to really accelerate because it's roughly double what we have now. So we would have to really accelerate the incoming going home. And there are a lot of hurdles on that because it's the way that the physicians practice.

It is a patient's choice. So there's a lot of things going on in that variable, but what we want to do is be aspirational. And right now, our rough math has that home selection is growing about four times what in-center is growing at. But again, the total mix is materially lower.

Matt Larew -- William Blair -- Analyst

OK. And then just a question on capital allocation. Obviously, you do have the tender right now, the buyback you just announced. But just in light of some of the deceleration of growth, the lower de novo activity and the rationalization of some of the OUS footprint? How do you think about the deploying capital to accelerate top-line growth?

Joel Ackerman -- Chief Financial Officer

So we're always interested in investing in the business and investing in growth. What I hope we've made clear is we need to do that in a capital efficient way. So we'll continue to invest in de novos that give good returns. We'll continue to do acquisitions that give good returns, although those are fewer and far between.

We've talked in the past about our willingness to make investments outside of the kidney care industry and we have not given up on that, but we haven't changed our view relative to what we've said over the last few quarters, which is our appetite for a multibillion dollar acquisition is very low. And you should -- if we do so something there and there's no -- it's not at all a foregone conclusion that we will, it'll be something of a much more limited scale. So that's how we're thinking about deploying capital for growth.

Matt Larew -- William Blair -- Analyst

OK. Appreciate the question. Thanks.

Joel Ackerman -- Chief Financial Officer

Thank you.

Operator

Thank you. Back in queue, we have Whit Mayo from UBS. Your line is now open.

Whit Mayo -- UBS -- Analyst

Hey, I thought somebody might ask this. I don't know if if LeAnne is on the call or not, but the CPA reg that's sitting at the OMB, any updated thoughts on the content of that regulation? Just wasn't sure, if you had a new thought on it.

Javier Rodriguez -- Chief Executive Officer

LeAnne is on the phone, but my understanding -- LeAnne, you can jump on, is that we don't have any additional information.

LeAnne Zumwalt -- Group Vice President, Purchasing and Public Affairs

That's correct. Yes, we don't have any details.

Whit Mayo -- UBS -- Analyst

Perfect. Thanks.

Operator

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

Javier Rodriguez -- Chief Executive Officer

OK. Well, we had a good quarter. We're going to continue to work very hard and we look forward to seeing you all in a couple of weeks at Capital Markets. Have a great day, everyone.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Jim Gustafson -- Vice President and Associate General Counsel

Javier Rodriguez -- Chief Executive Officer

Joel Ackerman -- Chief Financial Officer

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

Justin Lake -- Wolfe Research -- Analyst

Pito Chickering -- Deutsche Bank -- Analyst

Steve Tanal -- Goldman Sachs -- Analyst

Whit Mayo -- UBS -- Analyst

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

Matthew Gillmor -- Baird -- Analyst

Matt Larew -- William Blair -- Analyst

LeAnne Zumwalt -- Group Vice President, Purchasing and Public Affairs

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