Pito Chickering: Okay. And then, on treatment growth, you’re looking at the normalized growth in 4Q of 70 bps, you grew 50 bps in the third quarter. Is a key driver in fourth quarter new patients? Is it lower mortality? And also, when you close a center, those patients join another center, is that organic growth at the new center as old as the one as your discontinued ops, even though the patients don’t actually change the numbers?
Joel Ackerman: Yeah. So, no on the last one. If a patient moves from one clinic to another, it doesn’t show up as any sort of growth anywhere. It’s still our patient. In terms of the volume growth. I would point to Q4 over Q3 as effectively being flat, treatments per day were flat. And that’s really a combination of a small census decline, which is not uncommon in Q4, offset by a better treatment mix day. So more Monday, Wednesday, Fridays, fewer Tuesdays, Thursdays. So, Q4 was really, I would call, a flat volume quarter-over-quarter.
Pito Chickering: Great. I’ll jump back in the queue.
Operator: Thank you. [Operator Instructions] Kevin Fischbeck with Bank of America. You may go ahead, sir.
Joanna Gajuk: Hi. Good evening. Actually, this is Joanna Gajuk filling in for Kevin today. Actually, first question is just a follow-up on the volume discussion and it sounds like flattish sequentially, but I guess year-over-year, up less than 1%. And your guidance for ’24 assumes 1% to 2% volume growth. So, kind of how do you build to that growth, especially to the higher end of 2%? What gives you confidence that, I guess, you could get to that volume growth for the year?
Joel Ackerman: Yes. Thanks, Joanna. So, I’d start with the fact that the single biggest impact on volume year-over-year is census. And remember that census builds over the course of the year. So, if you look at the ’23 growth, which was effectively flat, that was burdened by the fact that the census declined over the course of 2022 and only started building in ’23. So, a lot of the zero in 2023 is the annualization of the negative impacts of 2022. As we think about ’24, I’d really break it down into two components. First is new to dialysis admissions and we’ve watched that build over the course of 2023. And we feel comfortable that, that growth rate is back to pre-COVID levels. Where the reason we don’t get back to what you’d call a 2% number pre-COVID or that would be the high end of the range is mortality continues to run higher than it did pre-COVID.
It is way down off its COVID peak, but it’s still running a bit higher than a typical pre-COVID year, remembering that mortality moved around in pre-COVID years, primarily as a result of the severity of the flu season. So, if you take a more normal new to dialysis admit outlook and then a slightly negative mortality outlook, that’s how we get to the 1% to 2%.
Joanna Gajuk: Thank you for that. And another follow-up on the guidance, I guess. You talked about your outlook for revenue per treatment. So specifically, can you talk about the build, I guess, for that? How much, I guess, is the commercial rate increases? And I guess last quarter, you mentioned there’s some larger contracts up for renewal. So, any color in terms of these rate increases you’re seeing there? And also inside that, your mix, commercial versus government, and then, specifically MA, where you stand on the MA mix?
Javier Rodriguez: Great. Let me grab that, Joanna. A couple of things because I think underlying those questions, there’s usually — is there something unusual in the payer dynamics, and let me go ahead and start by no, we are in a normal period. And of course, we’re trying to make sure that rates reflect the inflationary pressures that we are receiving. To you direct question on what percent of that — what part made out of the rate, roughly two-thirds of the increase will be rate and one-third remaining. A good chunk of that is the annualization of the reimbursement operation improvements we saw in 2023 and the remaining is mix. As you have seen, our mix is trending on MA slightly above the market. So, our MA mix finished the quarter around 52%, and we expect that number to be a couple of points higher at the end of ’24. So, somewhere in the 54%, 55% range, depending on open enrollment.
Joanna Gajuk: And I guess on this commercial plan that you mentioned some larger plans up for renewal, any update there in terms of the rate increases you’re seeing?
Javier Rodriguez: Commercial, on the negotiations, we’re not going to go into specifics. We continue to see that our commercial patients value their private insurance, and commercial mix is flattish. So, nothing to report on that. And of course, that’s embedded in the guidance of the RPT that we gave you.
Joanna Gajuk: Great. Thank you so much for taking the questions.
Javier Rodriguez: Thank you, Joanna.
Operator: Thank you. A.J. Rice with UBS. You may go ahead, sir.
A.J. Rice: Thanks. Hi, everybody. I can’t let you get through the call without asking one GLP-1 question. So, in your prepared remarks, you’re saying that for the FLOW study, you anticipate efficacy on multiple endpoints, including slowing CKD [progression] (ph). I think that’s generally where the market is at. I wondered, given your analysis that you’ve offered and seems to have really gotten traction in the financial community, are there anything — is there anything that could come out of the FLOW study at least in the high probability range that would make you revisit? It seems like you’ve covered most of what you expect in your analysis, but I wonder is it something that makes you more optimistic, less optimistic about how this will all impact your business?
Javier Rodriguez: Thanks for the question, A.J. And as you know, last quarter, we had sort of a dissertation on GLP-1 that’s gotten a lot of conversation. At the end of the day, we, of course, wanted to make sure that our shareholders and others were really well versed on it. And I think that while there could be an unusual surprise because you never want to say that the chances are zero, highly, highly improbable that we didn’t capture in our range, what is likely to play out. And so that is — that at the end of the day, we expect a net neutral impact on dialysis volume over the next decade. And we did a lot of probabilistic adjustments and weighted as to how many people would participate and all the normal math that we discussed, and we don’t want to change our position a bit.
A.J. Rice: Okay. Great. Maybe if I could pivot and ask you about your assumptions around labor going into ’24. I know there’s the underlying what you’re banking on for wages and benefits for your permanent workers. I believe you still should have a tailwind from contract labor, at least annualizing where you’re ending the year. And then, there’s the whole issue of the California minimum wage for low wage healthcare workers. I know you said you wouldn’t be spending for election spending, but I wonder what you’re factoring in for that when you anticipate it to start to have an impact.
Joel Ackerman: Yeah, A.J., thanks for that. So, for labor for the year, so we called out 2.5% to 3% of patient care cost growth per treatment. I’d break that down. That’s roughly half labor and half other stuff. On the labor side, we’re thinking something around 5% for the year in that and California would be baked into that. We called out a few months ago, something around $30 million to $40 million as the net impact of that once it’s fully rolled out in a number of $20 million to $25 million for ’24. We’ve been rolling it out a little bit quicker than we anticipated. So, I would expect the number will probably be somewhere in that $25 million to $30 million range, and that’s baked into our number. The reason we’re comfortable with the patient care cost being only 2.5% to 3%, given that half of it is labor, which is growing at 5%, is we’ve got savings from the annualization of both Mircera — the ship to Mircera as well as some of the clinic footprint actions we took.
We’ve also got fixed cost leverage as we add volume without adding centers. And a lot of those other costs are fixed costs that don’t grow with volume and are under long-term contracts. So, we feel like despite a 5% wage pressure, we can get to that 2.5% to 3%.
A.J. Rice: Okay, that’s great. Thanks a lot.
Operator: Thank you. Our next caller is Gary Taylor with TD Cowen. You may go ahead, sir.
Ryan Langston: Hi. This is Ryan Langston on for Gary this evening. I think Dean touched on it earlier, but maybe just to go back, how is the higher sort of Medicare Advantage trend we saw in the back half of the year impacting the accruals, I guess, not only for ’23, but sort of your guidance for ’24? And Joel, can you remind us when you anticipate to have the final reconciliation with your plan partners? Thanks.
Joel Ackerman: Yeah. So, the final reconciliation will depend. It’s plan by plan. It can often take three or four quarters, and that will be — ultimately be baked into prior period development in the IKC business. In terms of the impact of some of the costs on the broader MA population in Q4, again, we — I think it’s too early for us to say whether we think that’s going to impact us. But again, I’d reiterate that our population is very different than the broader population. In terms of 2024, we’re keeping a careful eye on it to see how it plays out, and it’s built into our range.
Ryan Langston: Thanks.
Operator: Thank you. Our next caller is Lisa Clive with Bernstein. You may go ahead.
