Good morning. My name is Amanda, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita Third Quarter 2022 Earnings Call. Thank you. Mr. Ackerman, you may begin your conference.

Thank you. And welcome, everyone, to our third quarter conference call. We appreciate your continued interest in our company. I am Joel Ackerman, CFO and Treasurer, and joining me today is Javier Rodriguez, our CEO. Please note that during this call, we may make forward-looking statements within the meaning of the federal securities laws. All of these statements are subject to known and unknown risks and uncertainties that could cause 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 third quarter earnings press release and our SEC filings including our most recent annual report on Form 10-K and all subsequent quarterly reports on Form 10-Q and other subsequent filings that we make with the SEC. Our forward-looking statements are based on information currently available to us, and we do not intend and undertake no duty to update these statements except as may be required by law. 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 furnished to the SEC and available on our website. I will now turn the call over to Javier Rodriguez.

Thank you, Joel. Good morning, everyone, and thank you for joining our call today. Q3 was a challenging quarter for us. While natural COVID statistics have been declining, the cumulative impact of COVID on the ESKD patient community continues to grow. Despite the economic challenges, we continue to deliver high-quality clinical care for our patients. We remain incredibly grateful for the amazing work of our frontline teammates who are unrelenting in their focus on caring for our patients. While our commitment to patients is a constant, it is particularly highlighted when a community is in need. As you know, on September 28, Hurricane Ian made landfall in Southwest Florida, subjecting the community to sustain 100-plus mile per hour winds and significant flooding. This led to many health and safety issues for the people in the area, especially people who require life-sustaining dialysis treatment. DaVita operates 230 dialysis centers in Florida with approximately 14,000 patients and 3,250 teammates. Through our comprehensive preparedness planning, I'm grateful that 100% of our patients were accounted for and all had received dialysis within days of landfall of the hurricane. We deployed water tankers, generators, and fuel tankers to quickly restore operations in affected areas, as well as to provide dialysis to patients from across the kidney care community. Now turning to our financial results. As I mentioned, it was a challenging quarter. For Q3, our adjusted operating income was $351 million, and adjusted earnings per share was $1.45. Adjusted operating income was down sequentially by $88 million from Q2 and was below our expectations for the quarter. The headwinds in volumes have persisted longer than we assumed, and contract labor costs and productivity did not begin to improve in the quarter as we had expected. We are now assuming these pressures will continue longer than previously anticipated. As a result, and given the continued uncertainty from COVID and the labor market, we are lowering our guidance for the year and our outlook for 2023 as well. We are reducing our 2022 adjusted operating income guidance to a range of $1.375 billion to $1.45 billion and our 2022 adjusted EPS guidance to $6.20 to $6.70 per share. For 2023, we're updating our outlook for year-over-year adjusted operating income growth to negative $50 million to positive $150 million as outlined in our press release for this quarter. As we have said in the past, volume and labor continue to be the biggest drivers of uncertainty in our results. Let me walk you through the details on what we have seen on each of these and what we're assuming going forward. Let's start with the three main drivers of volume: census growth before excess mortality, net treatment rates, and excess mortality. I will cover each of these individually. First, on census growth, excluding excess mortality, we have seen a decline in patient admissions during each COVID surge, followed by a rebound after each surge. The decline we saw earlier in the year was attributed to the Omicron surge, which we anticipated would rebound in the second half of the year as it has in prior surges. We did not see the expected rebound in Q3 and are assuming continued pressure on admissions in Q4 and through 2023. Next, net treatment rates. As we discussed during our Q1 earnings call, as a result of the Omicron surge, mid-treatment rates had increased and were having a meaningful impact on the change in our treatment volume. We anticipated these increases would return to seasonal norms after the winter surge, and they have not. As a result, we are now assuming these will remain elevated through the end of this year and into 2023. Finally, on excess mortality. While COVID mortality rates in 2022 are down from prior years, excess mortality remains a challenge for us. We expect this to persist in Q4 and into 2023. The magnitude of the impact will depend on the size and the severity of COVID surges this winter and through the rest of 2023. Taking these three metrics together, volume remains the biggest source of uncertainty in our forecast for Q4 2022 and 2023. Moving on to labor. I will cover three drivers: wage rate, contract labor, and training costs. As we've talked about in the past, we've been assuming significant wage pressure in 2022 with some offsets from lower benefit costs. Overall, we expected a headwind in 2022 of approximately $100 million to $125 million. Year-to-date, our results are consistent with this forecast. We had also seen significant pressure from contract labor costs in the first half of the year. We expect these to remain elevated in Q3, although at levels below Q2. In fact, the contract labor cost in Q3 increased relative to Q2, and we're now forecasting that that decline will be later and slower than originally anticipated. On training, we went into Q3 with elevated costs as a result of more hires, which is consistent with increases we have seen in the past during hiring peaks. Training costs accelerated in Q3, which resulted in approximately $20 million higher costs in the quarter than expected. Because of the elevated turnover, this has not yet resulted in the magnitude of positive impact we would normally expect on contract labor or staffing levels. As a result, we expect training costs to remain elevated in Q4 and early 2023. In response to these challenges, we continue to work on a number of cost-saving initiatives for 2023. First, we expect to deliver meaningful savings from our new contract for anemia management. We will begin to transition to our new contract for Mircera in 2023. Second, we are optimizing our clinic footprint for the current operational environment, which we expect to result in higher capacity utilization and better leveraging of our clinic fixed costs, including labor costs. Finally, we have initiatives underway to reduce our G&A in several areas of the business while investing in our future. As discussed, the cumulative and continued effects of COVID and labor are the key drivers of the shift in our outlook for the balance of 2022 and through 2023. We had anticipated that volume declines from COVID and labor market pressures would impact our revenue growth and margins in 2022, so we had expected relief from both dimensions in 2023. We are now assuming these challenges will persist longer than expected, which accounts for the change in our guidance. As we step back, we remain confident in our strategy and we are focused on responding to the current industry challenges. We're dedicated to delivering high-quality care for our patients, creating a great place to work for our teammates, and sustaining our investment in the future to drive growth in integrated kidney care, have more patients treated at home, and increase access to transplant. I will now turn it over to Joel to discuss our financial performance and outlook in greater detail.

Thanks, Javier. Let me first give a few more details on Q3 results before I turn to the rest of 2022 and 2023. As Javier mentioned, we continue to experience treatment volume pressure and higher labor costs in Q3. These challenges were partially offset by lower spending on the ballot initiative than expected and lower losses than expected on ITC in the quarter. Spend on the ballot initiative this quarter was $28 million compared to $23 million last quarter. We recognized the benefit in IKC of approximately $8 million related to shared savings revenue that was anticipated in Q4 and we anticipate could be offset with higher ITC losses in Q4 than expected. U.S. dialysis treatments per day were down 0.4% compared to the second quarter. Approximately half the decline was the result of elevated miss-treatment and half from lower census. Revenue per treatment grew quarter-over-quarter by $2.13, primarily due to favorable adjustments, increased acute treatment as well as the continued shift to MA plans, partially offset by the reinstatement of Medicare sequestration. Patient care cost per treatment was higher by $8.72 quarter-over-quarter, primarily due to higher wage rates, training expenses for new teammates due to increased hiring and timing of teammate health benefit expenses. G&A expense was up approximately $56 million versus Q2; $46 of the $56 million is the result of three items. First, in Q2, we had a one-time gain related to some self-developed properties of $22 million. Second, in Q3, there was $11 million of expense recognized related to closure charges. This $11 million is excluded from the adjusted OI. Third, there was our $28 million contribution to the industry campaign against the ballot initiative in California, an increase of $5 million over Q2. The balance of the quarter-over-quarter change is related to higher compensation expense and typical fluctuations in G&A spend. As I've discussed on previous calls, we've identified a number of initiatives to lower our fixed cost structure and our G&A. As part of these efforts, in Q3, we recorded $40 million of expense including accelerated depreciation and the write-off of the net book value of assets related to certain centers we closed as we seek to optimize our clinic footprint. These expenses are excluded from our adjusted operating income. We anticipate additional expenses will be excluded from our adjusted operating income in our guidance for both 2022 and 2023. I also want to add some details about 2023. As Javier mentioned, we've updated our year-over-year adjusted operating income growth estimate to negative $50 million to positive $150 million. The change comes primarily in our assumptions around the continued headwind on treatment volume. We've also made small adjustments to two other drivers. First, we've changed the outlook on labor costs, primarily associated with training costs of new hires now pushed into 2023 as a result of 2022 performance and inflation. We've also lowered the range for year-over-year improvement in IKC operating income by $25 million. This is due to outperformance in 2022 rather than a change in the outlook for 2023. Finally, during the quarter, we repurchased approximately 2.1 million shares which brought the total for 2022, thus far to approximately 8.1 million shares. Looking forward, we expect the pace of our share repurchases to slow significantly. We currently plan to focus more of our capital deployment on lowering our debt levels to get back to our target leverage ratio of 3 to 3.5 times EBITDA.

Hi, good morning. I appreciate all the color on the headwinds. When I look at the guide, it implies a Q4 range of about $240 million to $320 million of OI, which is a pretty material step down from recent quarters. Can you maybe help rank order the headwinds you laid out for us in terms of what's driving the sequential decline? And what are you assuming with respect to COVID and its impact on treatment and labor in Q4? Thanks.

Sure. Thanks, Andrew, for the question. So if I were to bridge Q3 to the middle of the range for Q4, first, we have the benefit of the ballot. So that's in the high $28 million benefit. In terms of the headwinds, rank ordering them: 1 and 2 are salary, wage, and benefit would be number one. And that's higher training costs, wage rate increases, and some benefit seasonality. Number two would be volume, which is an accumulation of the census miss. So the kind of the full quarter's worth of the lower census we experienced in Q3, plus some additional census headwind as well as a spike in the mistreatment rate. Historically, mistreatment rates are lowest in Q2 and Q3, and they go up in Q4 and then again in Q1, partly due to weather and flu season and also partly due to holidays. And then third would be RPT. We had some favorable variability in Q3, that will come down, and we typically see a bit of a decline in commercial mix from the middle of the year through the end of the year. So those would be the big ones. I think there's a little bit of stuff in depreciation and amortization. I think IKC will come down a bit again as well, and there is some seasonality in G&A. So that would be the bridge in terms of what we're assuming here for Q4; we're assuming continued excess mortality, we're assuming the mistreatment rate that we've seen being above historical norms persists. And we're assuming some of the admissions or the organic growth challenges that we saw in Q3, we're assuming those persist as well.

Andrew, let me just add a little color because of what you speak of as magnitude. I think it's important to note that underlying all the assumptions that Joel just went through, we had a philosophical change in how we look at the future. So in the past, we were building in a rebound; we were assessing the uncertainties; but we thought that they would taper out by around Q3 and well into Q4. So now we're assuming that COVID remains and the uncertainty on labor and volume stays longer. And so that really shifts the models in the dramatic way that you're trying to bridge.

Got it. Okay. That's helpful. Any color on how much higher the mistreatment rate is in 2022 versus historical levels?

Yeah, it's about 100 basis points higher - so you can think of that as just a 1% headwind on our treatment volume. And just to give you a number, 1% of treatment volume is worth about $50 million of operating income.

Got it. And then you mentioned contract labor costs increased sequentially, which is a somewhat surprising trend. Was that driven by higher utilization or higher rates? And were there specific markets driving that sequential increase?

Yes. Let me grab that one. The reality is there is no one market. It is spread across the country. And the reason why that variable, i.e., contract labor is behaving a little less predictable than usual, is because normally you would look at your training as a leading indicator of the decrease of contract labor in the future, i.e., you're training a teammate, and that person is going to hit the floor in whatever, 3, 4 months. And then you would, in essence, model your contract labor decreasing because of persistence in turnover; unfortunately, our leading indicator of training is translating to lower contract labor, and therefore, we're having higher contract labor and higher training which, of course, is the double whammy that we're speaking of.

Got it. It's helpful. And then you mentioned...

Just to add on to Javier, it's more about the number of contract laborers and less about rates.

Okay. That's helpful. Last question for me, and I'll hop back in the queue. You mentioned that you plan switching your ESA regimen from Epogen to Mircera in 2023. Can you help us understand the pace of that transition?

Yes. We've gotten a lot of questions on that. And as you can imagine, safety is utmost importance and we want to do it at the right pace. We will be done by 2023, but of course, the doctors have to review all the protocols and make sure that it's proper for their patient population. And so we don't have a particular goal. We're just saying, please review the documents and get the proper prescription for your patients.

Okay. Thank you.

Thank you.

Great, thanks. I wanted to ask a little bit about the miss treatment dynamic. Is this something that you have seen happen in the past before? What would cause people to miss treatments on a consistent basis? It seems like something that really can't happen for any extended period of time. So has this ever happened, and how long does it typically take to come back? And what are the causes in your view of why it's happening now and persisting longer?

Yes, thank you for the question. Missed treatments can be common due to various factors like transportation problems, vacations, and other life events that result in missing a session. You are correct in noting that there isn't a chronic scenario where someone can go too long without dialysis. Our data analysis revealed that approximately 15% of patients are responsible for about 70% of missed treatments. Upon further investigation, we found that around half of these missed treatments are due to hospitalizations, while the other half stems from patients dealing with illness, transportation difficulties, or scheduling conflicts with either the patient or our center. There are numerous factors contributing to missed treatments. We're currently focused on enhancing our processes to reschedule patients, but in a tight labor market with staffing challenges, this can complicate rescheduling efforts. Previously, we hadn’t emphasized this issue since it had been relatively stable year-over-year. However, due to the COVID situation, those numbers have changed and, instead of reverting to normal, they have remained elevated.

Okay. That makes sense. And then, I guess, what drove the commercial mix in the quarter? I think that was a headwind this quarter, but a tailwind year-to-date. So anything going on there? Any update or thoughts on how the market is impacting pricing at all?

Yeah. No. Commercial mix was flattish, and it was down. It was down in what I'd call a normal material way on the commercial side. And you've got to remember that mix is a numerator and a denominator, and because of excess mortality and particularly in our older population, which is Medicare, that number is moving a little unusually as well. But there's nothing to report on that.

About pricing. Is the market having any impact there?

No. Regarding pricing, our contracts are established for a long duration, which means that while they don't reflect the current inflation, a positive aspect is that we maintain very predictable and stable relationships with our payers. This allows us to avoid the fluctuations of day-to-day changes and enables us to plan for a 3- to 4-year timeframe.

Yeah. Good morning, guys. Thanks for taking my questions. Going back to sort of Q2 when you reported in sort of our results at the beginning of August, I'm just sort of curious what changed in August and September versus what you saw through July that relates to the dramatic miss in kind of guidance?

Let me summarize the key point, and I may repeat myself a bit. The main aspect, Peter, is the shift in our guidance philosophy. Initially, we anticipated that many of the high numbers would return to normal after a rebound. We've already discussed a couple of areas, particularly training and missed treatments. When we consider these figures, we expected them to revert to normal, but instead, they reached an all-time high, which created a significant gap. Rather than predicting that a rebound might occur in the following quarter, we realized we had no data to help us predict when this situation would change. We had internal discussions and considered a few options. The first option was to refrain from providing guidance at all due to the unpredictability for 2023. The second was to try to forecast the uncertain and make an educated guess regarding the regulation of COVID and labor markets. The last option was to assume the current situation remains unchanged until we receive clear data. Previously, we leaned toward the second option, believing that COVID impacts would improve by the end of 2022 and into 2023. Now, we are more aligned with the third option, assuming that the unusual dynamics of COVID volumes and labor markets persist until we obtain more information.

So Peter, let me fill in Javier's high-level view with just a little bit of quantification on the details. So if you look at our 2022 guidance today versus where we were three months ago, it's down about $150 million at the center of the range. The biggest component of that is volume, which is, I'd say, roughly split 50% from lower census and 50% from a higher missed treatment rate. And on the mistreatment rate, it's not that it's going up further; it's just that it's not coming down the way we had anticipated, so that's 2022. Looking forward to the change in 2023, it's really much more about volume. Again, census being the biggest driver of that and missed treatment rates also not coming down with our new philosophy. And then the other big component would be labor. Two-thirds training and one contract. And that's really about pushing out from the second half of this year to the first half of next year when we start seeing the benefits of some of the new hires that we're putting in place and the reduction in training costs and then ultimately, lower contract volume. So those are the numbers.

Okay. On the treatment assumptions or actually on the treatment, I guess, during Q3, sort of ignoring the mistreatments for a second. If I should break out the three key drivers here, it's incidence rate of new ESRD patients, patient mortality, and excess patient mortality from COVID. I guess can you just break down what you saw this quarter in these three buckets? And is there a slower incidence rate which could be leading to lower promotional mix in the quarter, back half of the year?

Yes. Let me grab those because you've got the components right. So let's just start from the top. You start with new admits. The new admits are down roughly a couple of thousand patients. Then you subtract transplants, which have been flattish, and then you subtract mortality, which as we've discussed has been higher. And then you subtract the missed treatments, which we've already discussed, has been higher, roughly 100 basis points depending on the starting point. And so that's the entire equation. The next question, which we've been really studying is why are new admits down? What is happening with the population upstream, which is sort of the natural question. Unfortunately, that leads to a dissatisfying answer, and that's because of what we've talked about all along which is there is very low visibility to the CKD population, and roughly half of the patients actually crash into dialysis. So you start getting into a lot of different data sources and data sets, and what we've looked at isn't conclusive. So right now, the hypothesis, one could have a good hypothesis that says there’s perhaps more depth in that patient population. There are others that think that, that might be offset over time because the volume and the pace at which someone will progress from CKD into ESKD will be bigger post time as COVID progresses. And so right now, unfortunately, again, the upstream is the one that we have the least visibility in; the other variables we've already discussed.

Okay. Got it. I know you don't give revenue guidance for 2023, but after this pretty large decrease in OI guidance, can you help guide us to what revenue growth you assume in 2023 over 2022 with all these changes that we're making?

I believe the main factors to consider are RPT and volume. At a high level, they will likely balance each other out next year. While I don’t want to provide too much detail, if we assume RPT improves to a slightly better range and volume declines—based on our previous discussions, this could be about a 2% decline in volume—these elements would counteract one another, resulting in largely flat revenue.

Thanks, good morning. Just a quick follow-up first on the volume question. So volumes down 2% for next year is what you're assuming, guys, just to be clear?

Yes.

That mix treatments?

Year-over-year, there's no mistreatment impact because what we're basically saying is it's running 100 basis points higher than normal in 2022, and we're assuming that it will continue to run at that 100 basis point higher than normal level. So it's 100 basis points relative to pre-COVID, but year-over-year, it's no change.

Got it. So this is 100% coming from new admits below mortality?

Yes. It's a combination of new admissions being lower than historical levels and ongoing excess mortality. Also, it's important to note that the excess mortality throughout 2022 negatively affects the year-over-year comparison, as the impact of that mortality compounds over time.

Okay. And then you talked about the clinic closures in the third quarter. Can you tell us how many clinics are closed in the third quarter? And then how many do you expect to close for the full year this year? And any insight into how many you closed in 2023?

Sure, Justin. For the year, there's a little timing in there, so let's give a range between 130 and 150 for the year or so. And for next year, we're forecasting between 50 and 60. And again, those could bounce around depending on timing. And so just to remind you because I think we spoke of this last time, we put through several lenses. The first is to make sure we have the right patient access. Secondly, we look for the availability of home care - and then lastly, we look at sort of the local market dynamics, the lens of the leases and those types of things. But it's a complicated process that we have to be really thoughtful to make sure that we're being responsible.

Justin, the number was 44.

Okay. Good. And then does this have any impact on patient growth as well? Or do you feel like you retain pretty close to 100% of these patients when you close the center?

We don't retain 100%, but we retain the vast majority. So it shouldn't have much of an impact on volume.

Okay. And then last question before I jump back: the leverage. So would you agree EBITDA next year is somewhere in the $2 billion range?

I don't want to get into the specifics. But I think if you're asking about leverage, where we round up to 3.9% this quarter, it is above our target range of 3 to 3.5x. We would like to get the leverage down over the course of next year. Obviously, what happens to EBITDA year-over-year will be an important driver of that. But to further that effort, we are certainly going to rethink how much of our free cash flow we're deploying to share buybacks and lean more heavily toward debt pay down.

Yes, Joe, what I was trying to convey is that the figure mentioned in the press release appears to be somewhat oriented towards the past. If the EBITDA decreases next year to 1.4, I assume you're estimating around $2.2 billion in total EBITDA, correct? Considering depreciation and amortization, that would bring you closer. In the release, you mentioned having 8.8% net debt, which would translate to approximately 4.4% looking forward, compared to the past data in the release. Is that the correct number? Additionally, I would appreciate more clarity on the decision to prioritize debt reduction over share repurchase. If you expect $1 of free cash flow next year, can you clarify if it will still be fully allocated to share buybacks as in the past, or is it now split 75-25? Furthermore, at 4.4 times leverage, are you planning to conduct any share repurchase to aim for closer to 3.5%? Thank you.

Yes. So I'd start with a higher EBITDA number for next year. If you take, I think, in the middle of our range, you get somewhere a little north of $1.45 billion. I think it's 1.46% on OI, add back $700 million of depreciation and amortization, you'd get to an EBITDA number that's more in the 21% to 22% range. And then in terms of how much of the free cash flow we deploy, I would think it would be a higher percentage to debt pay down than the kind of 75%, 25%. I don't want to give a specific number, but I think we're going to cut way back on share buyback.

Just a follow-up here. Looking at the fourth quarter, the implied operating income, if I annualize that, is significantly lower than what we expect for 2023. I'm curious about what costs in the fourth quarter are more one-time in nature that we won't consider as a run rate for 2023.

Sure. Let me explain how we transition from Q4 annualized figures to the 2023 guidance. There is approximately a $350 million gap that we need to address. Firstly, volume is expected to create a headwind from Q4 to the full year, which accounts for about $100 million. However, we anticipate that RPT will contribute a tailwind exceeding $200 million. It's important to note that we expect RPT to perform stronger year-over-year than historically. A significant factor driving this will be Medicare fee-for-service, for which the final rule is forthcoming, and we expect it to be more favorable than the preliminary rule. This improvement will positively impact RPT along with the usual RPT increases, contributing to that $200 million plus. Additionally, we are factoring in $150 million in cost savings highlighted in our press release, and there is some seasonal negativity in Q4 that could range from $50 million to $75 million. Adding everything together gives us roughly $350 million. One point not previously mentioned is that labor costs in 2023 are likely to remain flat compared to Q4. The increase in wage rates will be counterbalanced by reduced training costs, which we foresee decreasing in the latter half of the year, along with a decline in contract labor costs over time.

Okay. Got it. And then I know versus the other moving parts of the small one, but on the ITC guidance for 2023. I guess what's changing your assumptions? Is it higher utilization that you're assuming? Is it lower reimbursement you're assuming? Is it increased investments? Kind of what's driving that change for ITC for 2023?

I'm sorry, Pito, I missed that. Could you repeat the question? I apologize.

Apologies. Looking at your 2023 guidance, previously you indicated a positive outlook for the ITC, but now it's reflecting a $25 million headwind or no change. There seems to be a significant shift in ITC guidance for next year. I'm curious about what factors are contributing to this. Is it primarily due to utilization, or is there another key reason for the change?

Yes. Sorry about that. So if I look at 2023 for IKC, I think there are really two factors at play here on the bridging it from 2022 to 2023. One is 2022 is coming in a lot better than we expected. So you're comping to a much smaller loss. The second thing is we now expect growth in 2023 again. And as we've called out in the past, IC growth is a headwind in year one to OI. So your overall result hasn't changed much. It's that 2022 has gotten better and to some extent, some of the benefit we're seeing in 2022 is going to get offset by the impact of growth in 2023.

Is that growth coming from more MA contracts converting into...

There's a little mix of that, but the bulk of it is we are opening a lot more of the CKCC program. So we had 11 this year, and we are doing 11% more next year. There will be a little more MA, but the predictable large volume will be government.

Okay. Fair enough. And then, I guess, with all the moving parts, do you view the breakeven point for ICE getting better or worse from previous guidance?

I would say the business is performing better than we expected. But in the short term, growth has a negative impact on NOI.

I have a couple of questions. Do you have the excess mortality number in the quarter that you can give to us? And then you noted that the annualization of excess mortality is a negative for next year. When you look at the patient population, are you seeing any evidence of reduced mortality rates for the current population such that when you finish annualizing this excess impact, treatment should start to accelerate?

Yes. So excess mortality in the quarter was a little bit north of 1,000, call it $1,100. In terms of are we seeing what we call the pull-forward effect, it is very hard for us to tease out the difference between higher COVID mortality and lower mortality from pull-forward. So the excess mortality number we give is effectively a blend or is a net of those two numbers. We still believe in the concept of the pull-forward that some patients that our census is being positively impacted by lower mortality from the earlier excess mortality, but we're just not in a position to quantify it. So I think it is fair to think of our excess mortality as a net number of the number of patients in the quarter who died as a result of COVID, offset by a lower mortality from the prior mortality that isn't occurring this quarter. I hope that's clear.

Okay. I think I understand. And then on the hurricane, you noted that you're able to get all the patients down in Florida access to dialysis throughout the hurricane's impact. Can you quantify what impact that had on your P&L this quarter? And is there any lingering impact of the hurricane into the fourth quarter?

Yes, Andrew, there was no significant impact on the P&L and again, nothing in Q4 for that.

Okay. And then on the Medicare rate, I think you said you're already assuming better Medicare rates. Is that 100 basis points better? Can you give us some color on what you're assuming there?

Yes, that's a reasonable estimate. We've examined what other sectors have experienced in the difference between their prior and final figures, and we're considering 3.4% as a reasonable number.

Can you hear me okay?

We can hear you fine, Justin.

I wanted to ask about costs as we move through 2023. Andrew mentioned Mircera earlier, and I know you're planning to implement that throughout the year. I’m curious if there’s any positive outlook regarding costs as the year progresses. Specifically, what can you share about Freyser costs for the year? Although the benefits may not be immediately visible, will we see a higher run rate on savings by the end of 2023 compared to earlier in the year? Additionally, you've mentioned that contract labor costs have been higher than anticipated, but we hope that will stabilize during 2023. Could you provide some figures on that? For example, how much of the cost reductions can be attributed to Mircera, and what total savings do you anticipate achieving? Also, could you share what your contract labor costs are projected to be for the third and fourth quarters, and how you foresee those costs evolving through 2023? This would help us understand the expected exit rate.

Yes. First, I believe you're correctly assessing that the first half of the year will be more challenging than the second half. I see this in three parts. First, Q1 tends to be seasonally difficult due to revenue per treatment, which relates to how we account for nonpayment or bad debts tied to deductibles and copays. Second, the savings from Mircera and other initiatives are expected to accumulate throughout the year, alongside the pressures from contract labor and training that will decrease over time. Lastly, we generally expect IKC to perform better in Q4 compared to other quarters due to revenue recognition practices. However, in 2022, we've noticed a shift with more revenue coming in earlier than anticipated. Still, we expect a stronger Q4 for ITC, although that shouldn't be viewed as indicative for the entire year. Currently, contract labor expenses for Q3 are running at about $30 million, slightly above that amount for the quarter. We anticipate a decrease in Q4 and Q1, with a more significant decline starting in Q2 of next year, although we expect it to remain higher than our historical levels. Regarding the cost savings, we've identified $150 million for next year, with Mircera being the main component, followed by the realignment of our footprint, and then G&A. While we won’t provide specific figures for each item, this should give you a clearer picture of those numbers.

Got it. Maybe on my Mircera, would the fourth quarter run rate kind of be double what the benefit covers the annualized, but is it going to be something that's kind of ratable for the year, so second, fourth quarter exit is going to be a lot higher? It's hard to tell, Justin. This - remember, this is an operationally intensive effort. Ultimately, physicians do the prescribing not us, and it will be a question of how they're thinking about it, how long it takes them to integrate the information, how many will make the change and when. So I don't think we're ready to make a prediction on that.

Okay. And then last question for me is on revenue per treatment. So you talked about there were some moving parts there that benefited revenue for treatment. First, can you put a number around that in terms of how many dollars in revenue per treatment you saw a benefit? Just trying to understand, one, how much that benefit is the quarter and two, was a reasonable run rate to think about going into the fourth quarter? And then lastly, maybe you could give us a number on that commercial treatment that commercial mix decline.

So I think you can think of the quarter as having benefited by $2 to $3 of normal fluctuation. We see that all the time. If you want a good exit run rate, I think $365 RPT is a reasonable exit run rate for Q4 and for the full year of 2022 off of which to build your '23 number. In terms of commercial mix, it was a few basis points down for the quarter, so really not significant. I think it was 10.4% last quarter, and it rounds to 10.3% this quarter, but it was pretty small.

I apologize. At this time, we have no further questions. Mr. Rodriguez, I'll hand the call back to you.

Thank you, Aman. As you can see from all the conversation we have, guidance is harder with the COVID uncertainty on volume and the labor dynamics that we have spoken of. We, of course, are working very hard to give you our best estimate and now are assuming that they will stay elevated for a period of time. Let me just close with a couple of comments. One is these are very challenging times for DaVita, and they are challenging times for the broader kidney care community and all health care providers. But as I separate myself from this moment in time and I look further out, I can't help but to say we are incredibly well positioned to differentiate and outperform given the experience of our team, the clarity of our strategy, and the strength of our balance sheet. I appreciate your time today. Have a good day. Take care.

Thank you. That concludes today's conference. Thank you for participating. You may disconnect at this time.