We’ll kind of have to see how that plays. All of that said, I mean our story is still the same. We still see it balanced overall. With regard to FLOW trial, obviously, there’s no new data. We do expect it to be read out in half one. We expect that to be maybe more toward the back end of half one, but we’re obviously waiting for that data like everybody else is, and in real time, we will unpack it and kind of compare it against the assumptions we’ve all made. But we continue to analyze it and push the boundaries on all those different assumptions.
Martin Fischer: Okay. So, on the margin improvement, the biggest contributors that we see is labor efficiencies, as we outlined and Helen mentioned before, that was predominantly driven by CD. In addition, we have also price, as you know, supporting our development in CD, and we have the supporting FME25 savings that are predominantly contributing to the margin expansion. When we look at CE, it is price and volume growth that is supporting the margin. And similarly, we have also therein supporting the savings, especially that we drive in our, let’s say, G&A area that also contribute. The depreciation topic is mainly a CD topic. On the details of the depreciation and amortization topics, I would have to come back to you and [I’ll answer that] (ph).
Unidentified Analyst: Thank you.
Dominik Heger: So, the next question comes from Hassan from Barclays. Hassan, please.
Hassan Al-Wakeel: Hi, thank you for taking my questions. I have a couple, please. So firstly, could you quantify the headwind in Q4 from the CKCC model retrospective changes? And to what extent is this still an attractive business? Will you consider some entity exits over the next couple of months? And secondly, Helen, when you set out your CE targets at your Capital Markets Day in April last year, contract repricing was a key lever that you laid out. Where are you on this plan? And how much of a tailwind will this represent to margins in 2024? Thank you.
Helen Giza: Thanks, Hassan. Why don’t we take the CKCC piece into two parts? Let me have Martin speak to the headwind itself, and I’ll pick up on the back end of that to speak about the attractiveness of the market and how we’re looking at that. And I’ll take the CE pricing question as well.
Martin Fischer: Super. So, on the CKCC topic for the quarter, we incurred about a €60 million loss of negative operating income in the quarter. And this is predominantly driven by changes in timing in actuarial assumptions that we took. And as with any of those topics and the maturity of the business, when you talk about insurance entities, those assumptions do change within quarters and we look normally at the business on an annual or on a contractual and lifetime cycle. So, those €60 million is something that also when you consider the full year turns our full year CKCC into a €10 million negative that you can like assume after quarter four.
Helen Giza: Thanks. So, in terms of the attractiveness, obviously, this isn’t our first rodeo on being surprised with retroactive adjustments on the government programs. We feel that we had better line of sight into these, and of course, we were positive through Q3, and then when the retroactive adjustments came in, they had a big swing. For us, this is an important market for VBC, and we get to get insight into both ESRD and CKD populations, but clearly, we have to get under these KCEs or kidney care entities’ performance in more detail. There is a path coming up in the first part of this year where we can exit those underperforming KCEs, and we will obviously take a hard look at those. Overall, we do see the value-based care book of business and that strategic driver as important for us and particularly in MA, and we are making significant progress there which we like, and we have picked up some pretty significant new contracts.
But obviously, at the end of the day, we want to make sure that we get the positive contribution that we expect. So, I think we’ll continue to put more color on this, Hassan, as we go through the year, particularly as we evaluate the KCE entities. Obviously, on CE, we know that we were starting from a low — sorry, switching to your second question, we know, on CE, we were starting from a low base, and I think we made some really nice progress in ’23 on pricing and overall efficiencies. As we know, the inflationary impact and the transaction impact muted that. But we are sharpening our pencils and tightening what we’re doing on pricing. And within ’23, even though you only get to see the net effect, there was about €100 million of pricing favorability actually, which equated to around 3% on average.
And that will continue into 2024, where we’re projecting a low- to mid-single digit price increase for CE. Now, the challenge there is we can’t just go out and take 5% on every contract immediately. We have to wait for some of these, whatever percentage it would be, we have to wait for these contracts to open up and obviously evaluating every contract on its own merits and understanding what kind of price we can take on it. So, this will roll up — kind of ramp up over time as the contracts and tenders come up. But we are committed and confident with the plan for the CE margins. And of course, we are working even harder to create tailwinds to offset the headwinds, which I think we did a nice job of in 2023. But obviously, as we’ve outlined, we do expect a step up in margins for CE for 2024 and a committed to the margin band for 2025.
Hassan Al-Wakeel: Perfect. Thank you.
Dominik Heger: Thank you, Hassan. The next question comes from Lisa from Bernstein.
Lisa Clive: Hi. Just a few questions. One, can you comment on where your private mix sits today and how that’s changed recently? And also, if you could comment about MA uptake as a percent of your total Medicare patients? And then last question is, what would your US growth been in Care Delivery excluding the exit from the acute care contracts in the quarter? Thanks.
Helen Giza: Thanks, Lisa. I’ll take three questions. The commercial mix is sitting at around 11%. We’ve seen that to be quite sticky. Tiny little bits of improvement, but really sitting around there. MA, we don’t do it as a percentage of total Medicare, we do it as a total book of business, and that’s sitting around 40%. So again, we’ve seen some nice tick-ups there kind of along the way and improvement. I think US treatment growth adjusted would have been flat. We had around 50 basis points, 60 basis points of impact for the acute contact. So that would have taken us to flat on the organic treatment growth.
Lisa Clive: Okay. Thanks for that.
Dominik Heger: Thank you, Lisa. Next question comes from Veronika from Citi.
Veronika Dubajova: Hello. Hi, guys, good afternoon. I hope you can hear me okay. Two questions for me. First, please, on same market treatment growth? And obviously, thank you for all the color you’ve given us in terms of the performance excluding acute care contracts. If I look at Q3 and Q4, you are still undergrowing [EBITDA] (ph) by sort of 50 basis points to 70 basis points. Just curious, Helen, why you think that’s the case? And is the ambition to narrow that gap, or are you happy with the type of growth that you’re seeing at the moment on a kind of [margin-related] (ph) basis? And then, my second question, and I appreciate you might not enjoy answering this one, I’m going to ask it anyhow. Obviously, if I compare your Baxter — if I compare your product business to the Baxter product business, Baxter have made a substantial amount of progress on margin improvement in the back half of 2023.
You guys haven’t done that. I know it’s slightly unfair, but what do you think are the key differences? Is it really just the FX that’s hindering you from showing as much progress in margin as they have, or is there something else we need to be aware of? Thank you, guys.
Helen Giza: Thanks, Veronika. It’s hard to hear you, but I think I got your questions kind of crackling on the line. Same market treatment growth compared to DaVita, obviously, we’ve seen those results. Clearly, we had an underperformance in the Q4 compared to that. And I think I’d break it down into two things. The market dynamic is strong. We are seeing strong new patient starts. I think we ended up being impacted in the quarter with the mistreatment, as I mentioned. And I think we got a bigger impact on that. Additionally, obviously, through 2023, we are still focused on a turnaround of our Care Delivery operations in the US. And while we have made significant progress, we do still have some constrained clinics and some labor challenges that we are working through.
Craig and the team are 1,000% focused on this growth number. We’re tearing apart our processes and approaching it in a different way. So, I’m confident that we will get under this and fix the remaining operational challenges that we have to there. But I think where I’m encouraged is the overall market is there. We are working through unconstraining clinics in real time. We’ve already seen progress in January and February in markets that had been constrained for quite some time, we are fixing and fixed. So that’s why I feel very confident about our volume outlook and closing that gap. As you rightly say, we have some adjustments for the acute contracts. There will be a small annualization for that in 2024. We also, I think, like-for-like have closed.
When you look at the cumulative effect of closing clinics, we’re sitting in about the same spot. So, we’re optimistic about what — we know what the work is that needs to be done and we’re optimistic about the results that we need to deliver here. Yeah, the Baxter question, in the same way we compare ourselves all the time, of course, to the two different peers that you’ve mentioned. When we reviewed ourselves there, I think we had a — we felt that we had a stronger beat in share and positioning and margin. So, I don’t know if we’re comparing it like-for-like, as you mentioned there, Veronika, but we had good volume growth, and it could just be a transaction effect there. But our comparison was that we had a really strong quarter.
Veronika Dubajova: Understood. Thanks so much, guys.
Helen Giza: Yeah.
Dominik Heger: Thank you, Veronika. Next question comes from Hugo from BNP.
Hugo Solvet: Hi, guys. Thanks for taking my question. I have two. First on Care Delivery International. We’ve seen a price impact dropping from mid-teens to mid-single digit in Q4. Just wondering what the impact. What’s the driver behind that? Is there any tender kicking in? Anything we should have in mind? And maybe quick follow up on that, if you can update us on the China VBPs? And second question is on the growing contribution of value-based care, can you give a bit more quantitative details on the positive operating income contribution that you expect for 2024? I mean, the direction of travel is not really easy to model here given the 20% increase in costs under management, 10% increase in patient, but over 40% revenue growth. So, if you can give us some details, yeah, that would be much appreciated. Thank you.
Martin Fischer: Hugo, could you please repeat your first question? We have some technical issues here.
Helen Giza: We’ve got your China VBP question. We couldn’t hear the first part of your question Hugo.
Hugo Solvet: The first one was on the price impact for Care Delivery International, which is about 5.5% in Q3 — in Q4, sorry, while you were running at low-double digit to mid-teens for the first nine months. So, just wondering what’s driving that decline.
Helen Giza: Okay. Let me see if we can snag that CDI price explanation while I’m filling in here. The China VBP, we did preempt that and we also have moved to local manufacturing in China. While we expect to be some impact from that, quite small. So, we’re thinking that the China VBP impact is about €10 million to €15 million and included in our outlook here. On the CDI, the price, I think that has to be an Argentina hyperinflation effect, where we exited in Q4. So, I think that comes out of organics. So, I think that’s the technical adjustment there. It’s just really Argentina. On VBC, clearly, we’ve given you a few more metrics than we have, but we’re not disclosing the operating income contribution specifically for VBC for ’24, other than we expect it to be positive. It’s not an operating segment, so we wouldn’t get into that level of detail there of disclosure.
Hugo Solvet: Okay. Thank you.
Dominik Heger: Thank you, Hugo. Next question is from Oliver from Oddo.
Oliver Metzger: Yeah. Good afternoon. Thanks a lot for taking my question. The first one is also on VBC and the phasing of earnings. So historically, you commented on having an EBIT margin of around 1% for the medical cost under management. We now see or basically you plan to show a step up in the medical cost under management from the €6 billion to €8 billion in 2024. So, can you explain us about the phasing? How long does it take to realize some of the respective profits? Do you expect the bulk of the delta to come in — up from ’25, or do you see also pro rata increase in the profits in ’24? The second question is on the high-volume hemodiafiltration. Do you — very conceptually, do you expect to be rewarded for this innovation by a higher price, or do you really think that you use better technology to gain market share? That’s from my side. Thank you.
