Earnings Call Transcript - FMS Q4 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome and thank you for joining the Fresenius Medical Care Earnings Call on the Fourth Quarter and Full Year 2020 Results. Throughout today’s recorded presentation, all participants are in a listen-only mode. The presentation will be followed by a question-and-answer session.

Dominik Heger, Host

Thank you, Emma. As mentioned by Emma, we would like to welcome you to the Fresenius Medical Care earnings call for the fourth quarter and full year 2020. We appreciate you joining today to discuss more details following our early indications call at the beginning of the month. Now, it is my pleasure, as always to start out the call by mentioning our cautionary language that is in our Safe Harbor statement, as well as in our presentation and in all the marketing material that we have distributed earlier today. For further details concerning risks and uncertainties, please refer to these documents as well as to our SEC filings. I do assume that there are numerous questions this time. Therefore, we have reserved 90 minutes for that call, but would like to limit the number of questions to two in order to give everyone the chance to ask questions. Should there be further questions and time left, we can go a second round. It would be great if we could make this work again. With us today is, of course, Rice Powell, our CEO and Chairman of the Management Board. Rice will give you some more color around the strategy and business development. He will be joined by Frank Maddux, our Global Chief Medical Officer, who will provide a medical update with a focus on COVID-19. And of course, also with us is Helen Giza, our Chief Financial Officer, who will give you a detailed update on the financials, as well as our targets for 2021 and 2025. I will now hand over to Rice. The floor is yours.

Rice Powell, CEO

Thank you, Dominik. Hello, everyone. Thank you for joining our presentation and for your continued interest in Fresenius Medical Care. I'll begin my remarks on slide 4. At Fresenius Medical Care, we have a common purpose, which is creating a future worth living for patients worldwide every day, and this purpose that unites our team was never more evident than throughout 2020. In the face of the unprecedented COVID-19 pandemic, we delivered life-sustaining dialysis treatments to nearly 347,000 patients and over 4,000 clinics worldwide. The number of treatments we provided increased by 3% to slightly over 53 million treatments, and we did all of this with an uncompromising focus on our quality of care. Before we go any further, it's important for me to take a moment to once again say thank you to our employees around the world for their tireless efforts and relentless focus on patient care during these extraordinary times. This is a remarkable achievement. I would also like to acknowledge our patients that sadly passed away and acknowledge everyone that's grieving from the loss of a loved one during this terrible pandemic. Our thoughts are with you during this very painful time.

Frank Maddux, Chief Medical Officer

Thank you, Rice, and I appreciate the chance to speak today in somewhat more detail than I was able to at the early indications call we had on February 3. I wish to provide you with some perspective on the clinical burden we have experienced from COVID, as well as the impact and outlook. I will comment on mitigating factors we are analyzing in the patients we treat both directly and indirectly around the world. As a reminder, the pandemic is the result of a highly contagious virus that causes severe respiratory distress syndrome and a substantive inflammatory response that can lead to multi-organ failure and long-term sequelae. This virus has changed over the course of 2020, and now in 2021, we see variations in the genetic makeup of the virus. It is these mutations of the virus that make the outlook for our patients one which will continue to be dynamic until our general population has developed immunity, and we learn if immunity is conferred to these variants. Infectious disease experts note that 70% to 85% of the general population need significant immunity to achieve notable reductions in the pandemic risk that cause disruptions to our health care systems and economies. Moving to slide nine, we see the global accumulation of COVID infections over the course of 2020 and into 2021. These surges were at first isolated to specific countries and regions around the globe, but as the pandemic progressed through the year, we observed a remarkably broad-based infection profile emerge. In late 2020, the surge in cases was multinational and broad-based throughout affected geographies with peak infections occurring in December in Europe and in mid-January in the United States. The experience of the general population is mirrored in the exposure in cases documented in our own end-stage kidney disease patients. We have seen the case rates for COVID at Fresenius Medical Care grow through the early weeks of 2021. COVID was correlated with local clinical realities that we had to adapt to. Each country managed the pandemic slightly differently. For example, throughout much of Europe, when a dialysis patient became COVID positive, they were referred to a government health care location for isolation treatment, while patients free of disease were transferred into our facilities. This provided support for our prevalent patient count until the large late-year European wave began, and fewer patients were available to reenter the system.

Rice Powell, CEO

Thank you, Frank. I'll continue my remarks beginning on Slide 15. Despite COVID-19, we achieved our revenue target for 2020 and overachieved on net income for the year, thus setting ourselves a higher performance bar for 2021 than we had originally planned. As we indicated earlier this month, there are two significant developments impacting our results in the fourth quarter of 2020. First is the €195 million goodwill impairment in our Latin American segment. The impairment was driven by macroeconomic downturn and increasing risk adjustment rates for certain countries in the Latin American region. Second, the impact in the fourth quarter relates to the excess mortality of dialysis patients that accelerated in the US and in EMEA in November and December in particular and accumulated to approximately 10,000 patients over the pre-pandemic baseline. This is an effect that will continue to impact our business in 2021. 2020 was a positive year for growth in home dialysis. We reached 14% of treatments in the United States in a home setting. This implies a 13% increase in the number of home treatments compared to 2019, with home hemodialysis growing around 37% and peritoneal dialysis contributing a solid 7% growth in the US. We are well on track to achieving our 2022 target of having 15% or more of dialysis treatments in the United States in a home setting. On the basis of our strong business performance during 2020, we plan to propose a dividend increase at our Annual General Meeting in May.

Helen Giza, CFO

Thank you, Rice. Hello, everyone. I will begin on slide 21, which illustrates our target achievements during 2020. After Rice's earlier comments, I am very proud of the results we delivered in 2020, achieving revenue growth in line with our guidance and overachieving on our net income target, all while facing an unprecedented pandemic. On a constant currency basis, we achieved €18.4 billion in revenue, a 5% increase from 2019. This includes over €1 billion in business growth tempered by a negative net COVID effect of €174 million. You will remember that for the first nine months of 2020, we reported a net neutral impact from COVID-19, so it wasn't until the end of the fourth quarter that we really took a hit. Our reported revenue for the year includes a negative €536 million impact from foreign exchange rates. Our net income again on a constant currency basis, we achieved €1.4 billion, representing a 12% increase from 2019. This includes a negative net COVID effect of €50 million, again largely linked to developments in the fourth quarter. Reported net income for 2020 also reflects a negative translational exchange rate impact of €20 million as well as €195 million impairment in our Latin America business as a result of macroeconomic driven developments impacting goodwill and trade names in the region.

Dominik Heger, Host

Thank you, Helen, Frank, and Rice for the presentation. I'm happy to turn it over straight to Q&A. Emma, could you please open the lines?

Veronika Dubajova, Analyst

Thank you, guys, and good morning, Helen, Rice. Good afternoon, Dominik. Lots of questions, I'm going to try to stick to two, but there might be a third that sneaks in, I apologize. The first one, I want to start with sort of the FME25 program and that up to €500 million investment. Just kind of curious FME has been restructuring for a long time. This is a pretty significant number. So I'd love to understand your degree of confidence in that €500 million or up to €500 million of cost savings and where precisely those might be coming from, if you can give us some examples? And I guess there is the up to €500 million, so maybe at this point in time, what do you see as the most likely investment amount? Obviously, I appreciate this will change. But if you can share some of that that would be very helpful. And then my second question is on excess mortality. And we've spent a lot of time talking about it in the context of your existing patient population. There is, of course, excess mortality also in the broader CKD patient population. And I'm curious how you're thinking that impact that might have on the growth rate in your business as we transition into 2022 and beyond? And if you've done some quantifications around that that would be helpful? Thank you.

Rice Powell, CEO

Thank you, Veronika. I think Helen and I'll tag team number one and then Frank will talk about mortality both ESKD and CKD. So yes, we have been on cost optimization programs several times in my tenure. And I would say what's different today or going forward with FME25. Those programs were always very targeted. They were not large amounts of money. If you go back to the old GEP days, we were looking at purchasing synergy. We were looking at shared services and things of that nature that were very targeted. When we had the €100 million cost optimization in 2019, it was very focused on clinics and FKC the clinic business, if you will, in some of the complementary assets in North America. Where we look at this up to €500 million opportunity is really from an enterprise-wide view of the world. We've grown tremendously. We operate in 150 countries product, 50 service and we've built and we are managing people in all those areas. I think we are as a result of COVID asking ourselves, let's look globally, regionally and locally, what does it take to run our business effectively and efficiently having come off a year where we didn't travel hardly at all. We closed the books remotely, if you will, and we've had the opportunity to see these new normals of the way we can do business. So from my perspective, the difference is this is soup to nuts and it's not a targeted entrée, if you will, if we're going to stick with the meal analogy. But Helen, let me give you an opportunity to respond as well.

Helen Giza, CFO

Yes. I think I would just echo that this is different. This is a global review of our operating model. As we said, looking at where and how we do the work. I think also looking to see where we can leverage digitalization. As we think about this program, Veronika, we are thinking kind of a little bit longer in time. So not just a one- or two-year program I think because of the holistic nature of this. But the investment phasing and the saving phasing, we have work to do and we would look to come back with more detail as the year goes on. I think it wouldn't be unreasonable to expect that we could start to see net savings by 2023 and accumulating past then. But we obviously will come back with more granularity on the specific areas. And obviously, there's kind of the usual suspects I guess I would say in terms of as you think about an operating model and locations and things like that, but more to come as we go through the course of the year.

Frank Maddux, Chief Medical Officer

Veronika, this is Frank. Thanks for your question about the mortality in CKD. So there are a number of things at play. We know that the CKD population in general is expanding with what Rice mentioned around diabetes, hypertension and other things. But we also know that the pandemic has had a distinct effect, as it has in the general population on patients with CKD. In the midst of that what we have seen are during the surges referral patterns change and also patterns in which patients are getting their routine and usual care that they would get. So it's been very difficult to quantify what these numbers are, but we know that there is an impact in this part of the population that we anticipate will recover as the pandemic begins to recede. And so we have found as the year progressed and people became more comfortable with treating the pandemic or treating patients in the pandemic. We saw more of our referral patterns recover and nephrologists seeing patients both virtually and at times of need. And so I think that this will begin to normalize as the pandemic falls back. But the actual number of CKD patients that are lost strictly to excess mortality, I would look towards the general population rates and create an analogy from that. There is no hard number yet published on this particular area.

Veronika Dubajova, Analyst

That's very helpful. And if I can get a very quick follow-up on the kind of COVID impact and the cost savings. Helen, any thoughts you have right now on the durability of some of the kind of PPE nursing wage costs? Is that something that you anticipate will continue beyond 2021?

Helen Giza, CFO

We hope not. We believe that our PPE costs will be similar in 2021 to what they were in 2020. Regarding the additional labor costs for isolation clinics, which were also significant, we anticipate a notable decrease in 2021 compared to 2020 due to the changing nature and fluctuations of the outbreak. Specifically, we are increasing our use of PPE and facing significantly inflated prices. However, as we progress through the latter half of 2021, we expect to use less PPE and for prices to return to more normal levels. Therefore, we do not expect these additional PPE costs to persist into 2022, and if they do, they should not be as substantial as in 2021.

Patrick Wood, Analyst

Thank you for taking my two questions. First, could you provide some insight into the Medicare Advantage sign-ups and how that process has been? Also, regarding the contribution anticipated from value-based care through capitated agreements in 2021, it seems larger than I expected. Could you share some thoughts on that? For my second question, could you elaborate on the impact of missed treatments? I'm assuming there are many patients choosing to skip treatments or opting for alternative options instead of visiting the clinic. Additionally, some are likely receiving care in acute settings for various reasons. How should we approach understanding that impact, especially since it differs from mortality rates? Will this trend continue to affect us throughout 2021? Thank you.

Rice Powell, CEO

Sure. You want to take one, I'll take two?

Helen Giza, CFO

Sure. Happy to. Hey Patrick, I'll take the Medicare Advantage. As we mentioned at the end of last year, our Medicare Advantage business was in the high teens at the end of 2020. We were pleased with the smooth enrollment process, and the results met our expectations. Currently, we're seeing enrollment in the mid-20s. As the year progresses, there will be more opportunities for enrollment, and we remain optimistic about this segment, believing it could reach the mid-30s, aligned with the overall Medicare Advantage market. Our expectations were met, and we are very satisfied with the results. Rice, do you want to discuss value-based care?

Rice Powell, CEO

Yes. So Patrick when we look at value-based care a couple of things that will probably point in the right direction. We are operating today in the U.S. with roughly 25% of our patients in value-based care arrangements. We've got around 43,000 that are in the ESCO program that will move into the new models as we get through Q1. And then in our Medicare Advantage value-based care operations, we're looking at around 10,000 patients. So this is significant for us. It's a quarter of our population. I think it's the strength of what we've been able to deliver in terms of better outcomes and good savings that are helping us drive this. We are quite active. And as we've always said, this train has left the station for us. It is going to be the way we continue to see, I think, large growth opportunities as more people come into value-based care. And then your second question on missed treatments. We don't see an increase there. We see missed treatments at kind of a level that we've always seen them. No doubt when we got into the first wave back in 2020 and there weren't any opportunities for people initially to get into treatment, they were worried about it. We found a way to make sure we could work with people. If you remember, we got a number of waivers. We could help people get transportation to get into their treatment. So I think from a missed treatment standpoint of people alive and well, but just deciding I'm not going in, I don't think we're expecting to see that become a thing, particularly in the U.S. And keep in mind, in some of the emerging markets two treatments per week is the norm. So in our very developed markets we're still looking at the three times per week. So we don't really see that as something that would be a headwind for us in the course of this year 2021.

Lisa Clive, Analyst

Hello. First question, DaVita had indicated that they saw an increase in mortality of about 7,000 patients in their U.S. business and this is about a $200 million headwind, so around $28,000 per patient. Given that you said you had 10,000 patients and your U.S. business is very similar to theirs, is it safe to assume that your split maybe something like 7,000 in the U.S. and 3,000 in Europe? And on the cost front, you did mention on the call, thank you that the labor costs are more fixed in that region. So is it safe to assume that the EMEA headwind per patient is greater than the numbers that DaVita had implied? And then second of all, just looking at your international business, obviously kind of, ignoring last year because of the pandemic. But the services business does seem to just be getting less profitable over time. Can you tell us what is built into your normal contracts around inflation adjusters? You often do mention that you sort of have labor costs running up. I'm just trying to understand if this is just a sort of perpetual squeeze that you may see, or whether you do end up getting compensated for that eventually?

Rice Powell, CEO

Okay, Lisa. Frank, why don't you jump in on the mortality and what she's asking about there relative to the split?

Frank Maddux, Chief Medical Officer

Lisa, this is Frank. Our total figure for excess deaths worldwide is around 10,000. In the US, the number is slightly lower than what was mentioned in the previous earnings call, coming in at approximately 6,000. We observed a clear difference in the early waves, where there were significantly fewer excess deaths in the EMEA region, but the most recent wave has been quite substantial. In EMEA, we have certainly noted that this winter wave has resulted in a notable increase in COVID cases in those areas. Our overall results are aggregated from all four regions, reflecting how the numbers are divided.

Rice Powell, CEO

So Lisa, regarding the challenges in EMEA, managing labor costs in this situation is quite difficult for them. It's a lot more complex compared to how we operate in the US. There are limitations based on the specific market. In terms of international services margin, especially in Europe, it's important to consider the percentage of our business that comes from products versus services. As the service aspect increases, we face margin pressure due to labor costs. This is a typical trend we experience, so we need to explore other strategies within the service sector to address this issue.

Frank Maddux, Chief Medical Officer

I would also say, one of the things that we have observed in the latter part of 2020 is that there are some markets, Hungary, Poland, the Czech Republic that as they have kind of taken a more nationalistic view politically, we have been sort of dictated to in terms of what pay is going to be, what the rates are going to be for nursing pay, etc. They're trying to help uplift their economy and hang on to their nursing staff and not have them leave that country and go someplace else. So all of those things have worked against us to some degree and have created a little bit less flexibility than perhaps we're used to in other markets.

Rice Powell, CEO

Yes. No, we don't really have that. It's not something that we are able to do which is put in place adjusters in our negotiations with countries relative to what they are viewing healthcare pay to be. That's not something that we really have an opportunity to do.

Lisa Clive, Analyst

Okay. Sorry. And then last question on MA. You said you had about 10,000 patients capitated or rather in value-based care. I was under the impression that the standard contract alone would be bigger than that, given how big they are in MA. So are those numbers from 2020? And will the expanded Humana contract significantly change that number?

Rice Powell, CEO

Yes. So you're smart to peg it to a date. So that's kind of what I would say where we're exiting and stepping off into the New Year. So give us time as we work quarter-to-quarter and ask me again and I'll give you an update. But obviously, the Humana contract's just getting kicked off. So we've got some things that will have to happen there as well.

Tom Jones, Analyst

Good morning. Thank you for allowing me to ask my two questions. I apologize to Rice and Helen, but both questions are for Frank. Frank, I appreciate the information you shared about the uniform mortality trends based on age. However, could you provide some insights on mortality when analyzing your patient base from a comorbidity perspective? Additionally, this may be a question for Rice and Helen as well. Are you observing any notable differences in mortality when categorizing patients by payer type?

Frank Maddux, Chief Medical Officer

Thank you, Tom. Let me begin by addressing the first question regarding age and comorbidities. When we analyze how we capture comorbidities related to pulmonary disease, cardiac disease, and others, we observe a consistent stability over the years. Looking back at the past three years, we see very little change in the year-end rates of the comorbidity profiles of our patients. We haven't specifically examined payer types in our medical office, so I can't provide a direct answer to that. However, we have conducted in-depth analyses of individual patients, and we find that the likelihood of infection is most closely associated with the ZIP code they reside in. This indicates a geographical correlation to the community infection rates in those areas. For instance, individuals living in densely populated regions are at a higher risk compared to those in rural communities with fewer people around. While this might suggest some inference related to payer type, we have not explored that aspect.

Rice Powell, CEO

Tom, the only thing I would add is that each of the regions where possible is trying to engage with the local governments to allow us to be a focal because we do the flu vaccines every year, we do the Hep B, etc. And specifically in the US, we started back in mid-December at a very senior level here in North America and with our government affairs people talking to CDC and the government about allowing us to be a licensed vaccinator, if you will, giving us the emphasis to be able to do this. We've also had some state-to-state discussions. It is slow. It's somewhat bureaucratic. But I think at the end of the day, we'll keep pestering people until they allow us to do this because we just think it makes the absolute most sense to not take somebody out of a dialysis clinic and ship them over to a gymnasium across town to get them vaccinated. And I just think we have to keep working with it. The change of administration creates some uncertainty as well. But all of those things we're just going to deal with them and keep pushing ahead because we think we can play a vital role in this and do it in a way that's better for patients and staff.

Tom Jones, Analyst

Why do you think there has been such resistance? I assume the availability of vaccines is the only factor truly limiting your capacity to vaccinate patients. If you look at your patient base, they are generally older, mostly diabetics, and many are obese. They all have high comorbidities, and a significant number are African-American. You have doctors and nurses ready to perform the vaccinations and manage any adverse events that might arise. It's astounding that any government worldwide is not providing you with the vaccine immediately so you can proceed.

Frank Maddux, Chief Medical Officer

Tom, this is Frank. I agree with your statement. In areas where we’ve had effective vaccination programs, like in Israel, the healthcare system brought vaccinations directly to patients rather than requiring them to come in. In Portugal, the distribution was done directly to our clinics. In Puerto Rico, the National Guard played a role in ensuring a broad distribution to the population. The efforts by Bill Valle and the team, along with Cam Lynch in D.C., to deliver vaccines directly to our clinics—and to the wider renal community—have been central to our strategy, and we remain hopeful about achieving this despite facing many logistical and political challenges.

Oliver Metzger, Analyst

Hi. Thanks for taking my questions. First one is on excess mortality. So, you specified about 10,300 patients who passed away incrementally. Also, you provided some data points for mortality among the quarters. Could you give us an indication about the distribution in the fourth quarter? So, with 3,007 excess deaths potentially starting from the mid of November or potentially from beginning of December until the end of the year, so a period when infection rates have started to peak. The second question is also in a similar direction. So, for patients who unfortunately passed away appear to be more severe dialysis patients, Frank you made already some comments on this. I believe you collect a lot of data and do a lot of analytics. Could you share with us your view on the average life expectancy of the patients who passed away? My question targets towards the time frame when you would reach a normalized patient structure again.

Frank Maddux, Chief Medical Officer

Oliver, thanks. Do you want me to take that one?

Rice Powell, CEO

Yes. No, please go ahead.

Frank Maddux, Chief Medical Officer

Yes. So on the phasing of sort of what we're seeing the graph that I showed you in the fourth quarter is recognizing that there are seasonal trends that show increased deaths in a typical normal year due to influenza-like illnesses that occur. So when we looked at the excess death rate, you have to look at when we saw the peak exposure in the two main regions. So EMEA had the largest peak in December. And so we began to see impact on the mortality rate from EMEA in these final weeks of the year that began to accumulate towards that 3,000 or so that you saw in the fourth quarter. In the US, that peak, if you look at it on a week-by-week basis, did not occur until around the second week of January. And at that time, we are now capturing the data from that particular peak. And so although there were excess deaths obviously from the ongoing evolution of this third wave in the US and this effectively second wave in EMEA, I think the proportion of those patients that were EMEA patients was probably higher in the fourth quarter than it had been in the prior quarters, and the impact that we are seeing from the third wave in the US is part of the early 2021 impact that we expect to see.

Rice Powell, CEO

I think it's important to consider that none of the patients in our clinic passed away; they are dying in the ICU or perhaps in a nursing home. The nephrologist is not the one completing the death certificate; that's handled by another physician. Often, we find out about these deaths four or five weeks later, so we may not be aware of them until about a month has passed.

Frank Maddux, Chief Medical Officer

In the early stages of the pandemic, specifically March and April of 2020, we observed that deaths were occurring concurrently with the identification of COVID-19. As health systems adapted to treat patients, we began to see a broader range of patients with varying levels of illness. Subsequently, we found that patients were surviving longer while receiving more intensive care in hospitals. This resulted in a delay in deaths compared to our initial observations, a trend that persisted through all three waves of the pandemic. Regarding your second question about the severity of illness, we have been focusing on understanding that the pandemic impacts a vulnerable population of kidney patients, not confined to a specific age group or predefined comorbidity. The effects have been seen across various patients, with some experiencing greater effects than others. However, our current data indicates that there haven't been significant changes in the profiles of the patients we treat, whether in terms of comorbidities, age, or other factors. The impact of the pandemic has broadly affected our entire patient population, although this may change as we gather more information from the third wave. Additionally, we've noticed that excess mortality often surges following an increase in cases. Each time there is a surge, we observe a move back towards normalcy, but it has yet to return completely to baseline levels. While there has been a partial return between the first and second surges and also between the second and third waves, we are still waiting to see what normalcy looks like as we move beyond the pandemic. I hope that clarifies things.

Oliver Metzger, Analyst

Yes, yes, it helps. But could you make a comment just on this topic of life expectancy? So how does life expectancy for patients who have COVID compare to your average life expectancy of your normal dialysis population?

Frank Maddux, Chief Medical Officer

So our normal dialysis population, the life expectancy of somebody that's symptomatic with COVID is quite a bit shorter, obviously, and otherwise we wouldn't have seen these excess deaths that are from COVID. And so, I would say, the degree to which that occurs is a little bit difficult to quantify, but I would tell you that it's substantially different than the baseline. The baseline has been many, many years. For a person that's COVID positive, we are now finding that there are patients that are asymptomatic dialysis patients with COVID and then there are obviously the many symptomatic patients. So I think it's a difficult question to actually answer directly. But simply to say that, if you have COVID, you develop severe symptoms, your risk of death is much, much higher than it might normally be and that may be even an order of magnitude higher.

Michael Jungling, Analyst

Thank you and good afternoon and good morning. I have two questions. Firstly on mortality. In the presentation or so you mentioned 10,000 excess deaths. Where do you think you'll be by the end of this year? Are we talking here about sadly 20,000 people or is it slightly more or slightly less? And the context of mortality. Do you have a sense, what percentage of your ESRD patients have already had COVID-19? I suspect you do some antibody testing. And then finally, question two is on the CARES 2 program, for a lack of a better word. How would you assess the lobbying of getting more government aid or support in Washington in 2021? Is there some sort of catalyst or event that you're focusing on that would make such a decision perhaps a reality? Thank you.

Frank Maddux, Chief Medical Officer

So, Michael, thanks. This is Frank. I'll start with the first two. Predicting mortality in this disease is incredibly difficult. Some may have expected a third wave, while others may not have. We can anticipate living in a world affected by the pandemic, but the impact of additional surges depends on many factors beyond our control or visibility, such as vaccination rates and the speed at which we achieve herd immunity. Genetic variations and whether vaccines will effectively prompt an immune response against those variants are crucial considerations. Additionally, how quickly economies reopen and the extent to which social distancing and masking measures are reduced will influence areas that experience surges. All of these factors will affect our ultimate rates. The level of discipline observed in different countries varies significantly. These dynamics are why I described the situation as dynamic in my prepared comments; we genuinely do not have a definitive answer. We recognize that the third wave has resulted in excess deaths that extend into 2021, and we expect this trend to continue for some time this year. Regarding the incidence rate, we have identified approximately 60,000 patients globally who have had COVID through PCR testing, which was the figure reported about a week ago. That gives us an understanding of the incidence rate we are observing.

Rice Powell, CEO

Sure. So Michael here's where we are. Had lots and lots of discussions with the incoming folks and the Biden administration and both sides of the aisle as well, Republicans and Democrats. It would appear at this point that the $1.9 trillion bill that has been put together, that has not been acted on we're hearing that they want to act on that middle of March. And what we're hearing there is, at this point in time, there is no relief included in that package for providers. So, we are engaged in having discussions and trying to understand that. But that is a very clear answer that I have personally gotten. Secondly, in the provider relief fund that was appropriated under the Trump administration, there's around $30 billion money available. And the way you access those funds during the Trump administration, as we have been told is going to be different under the Biden administration. We are asking and waiting to understand and get some guidance on what are the rules of the road going to be per se, but we've not gotten any feedback on that as of yet. So again, we believe our assumption of no relief is prudent at this point and we have to see what comes out of the mid-March activity and the larger bill that at this point, we're told there is no provider relief. And then still waiting to get some sense and idea of what the process will be for the provider relief funding that was explicitly put together for providers, be that hospitals or dialysis providers. We're waiting to see what's going to happen there.

Michael Jungling, Analyst

Okay. Great. And briefly follow-up on those patients who have been diagnosed with COVID and have survived, are they more difficult to treat as a result of the disease? Meaning, as they get better, are they even if I can use the word iller or are they even unhealthier that the cost also of treating those recovered patients is higher, or is the mortality or life expectancy lower once they've survived COVID in the first place? Do you have some sort of data, which would suggest some sort of trend? Thank you. Sorry for the follow-up. Thank you.

Frank Maddux, Chief Medical Officer

Sure. There's no evidence that these patients are more difficult to treat. After COVID, they go through a recovery period, and there are lingering effects from the virus that take time to overcome. However, the treatment for their renal replacement therapy remains unchanged, as does the work our physicians and nurses are doing. We take extra precautions to protect these patients from reinfection, closely monitoring them during this time, but the treatment itself is not distinct. Those who have had COVID are receiving the available treatments, including antibody therapies, to aid in their recovery. From a dialysis perspective, the situation is not substantially different.

David Adlington, Analyst

Thanks, guys. Also for Frank please. So just on the patient outcome slide, I was intrigued to see that your patient hospital days have actually come down a little bit year-on-year, which seems odd given the excess deaths and I expect some of these patients to end up in hospital before. And so it would be good to get your thoughts on that first. And then just to sort of circle back on that sort of 10,000 deaths out of 60,000 patients you had. It's obviously that looks like one in six death rate. Is that fair? And I think that does sort of put you in line with that the order of magnitude higher in a general population in terms of mortality rates?

Frank Maddux, Chief Medical Officer

The decrease in hospital days in certain regions may seem surprising, but it makes sense considering the COVID surges overwhelmed hospitals. During those times, the focus on COVID care reduced the amount of routine care provided, leading patients to avoid emergency rooms filled with COVID cases and delaying hospital admissions. This disruption, particularly early in the pandemic, resulted in lower hospitalization rates in areas facing surges and severe pressure on the healthcare system. Regarding the 10,000 deaths among the 60,000 confirmed cases, it's important to note that the 60,000 figure comes from diagnosed positive PCR tests. Not all patients are diagnosed, and many excess deaths are not among confirmed COVID cases. Therefore, the actual mortality and exposure rates for COVID are likely higher than what statistics suggest. The one-in-six death rate is likely not an accurate reflection for these reasons.

James Vane-Tempest, Analyst

Hi, good afternoon. Thanks for taking my questions. It’s James Vane-Tempest from Jefferies. Rice, can you clarify the up to €500 million investments and timing for those to be cost savings? I mean, I understand these are in the preliminary stages. So for example, you spend €50 million this year, I appreciate it depends on what these are but I'm just curious about the timing of how you'd expect to see benefits over time? And then second question if roxadustat gets approval and stays on the funding, I'm just wondering how you have this opportunity for Fresenius in the U.S.? And is there any contribution from that included in your guidance? Thank you.

Rice Powell, CEO

Go ahead.

Helen Giza, CFO

Hi, James. I'm glad to address the FME25 question. You're correct that the type of project will influence the savings we can capture. For instance, real estate or facilities investments tend to offer quicker paybacks compared to people-related initiatives, which may take longer. On average, we expect payback within three years, and this will be phased over the coming years as we address various elements of our operating model. We still have detailed work ahead, and I'll provide more updates during Q1. Additionally, it's important to note that different regions have varying restrictions on the speed of implementation. Regarding the sizing, we aren't solely focusing on mitigating COVID's impact; margin expansion has always been a part of our Capital Markets Day targets. Thus, we believe that €500 million is the appropriate amount to achieve our mid-term targets and to position ourselves for sustainable profitability in the future.

Rice Powell, CEO

Yes. So, James, on roxadustat, no, at this point, we've got no assumption that that will be approved and it will be running through our P&L in the 2021 plan at this point.

Silke Stegemann, Analyst

Thank you. I would have two questions as well please. Firstly on Medicare Advantage, could you share when you think you can reach the mid-30s threshold that you mentioned earlier in your prepared remarks? And then secondly, could you provide a bit of an outlook for your dialysis products business for the year? Do you expect some weakness here as part of this excess mortality situation, or do you think the products business can still post solid growth again in 2021?

Helen Giza, CFO

Yes, hi Silke. We've always believed that we can reach the mid-30s. However, the trajectory, enrollment, and timeline to achieve this are somewhat beyond our control. We successfully conducted this enrollment through a third-party broker, and the North America team performed exceptionally well. It's important to have discussions about patient education with physicians regarding the various benefits of the plan. We often question why a patient wouldn't choose a Medicare Advantage plan, and it ultimately comes down to consumer choice. Within the next couple of years, we could see that mid-30s target, but we will have to wait and see how the next open enrollment round progresses. By the end of 2021, we will have a clearer understanding of the uptake leading into 2022.

Rice Powell, CEO

Silke, hi, it's Rice. One of our advantages is having a complete product line for all dialysis products. We are confident in our plans for growth this year. We recognize a need in the critical care space, especially since we believe COVID will remain a factor at least through the first half of the year, which will provide us with opportunities in acute care. As you know, disposables will continue to be sold for in-center patients as well. We may experience some softness in our in-center machine business, but that has happened before. Overall, we are targeting growth in the products business, aiming for mid-single-digit growth in that range.

Christoph Gretler, Analyst

Thank you, operator. Hi, Rice. Hello, Frank. I have two questions left. The first is regarding your net income guidance. In historical terms, it's quite a broad range from high teens to mid-20s, which now translates to over €100 million in net income. If I examine your assumptions and the key elements that could drive this, some are already known, such as the funding received from the government last year for pandemic-related costs. We also have a good understanding of the current situation. Could you elaborate on what is needed to reach the low end and the high end of your guidance, and identify the most critical and variable factors contributing to this relatively wide range?

Helen Giza, CFO

Hi, Chris. This is Helen. I'll take that. Yes, you're right that the range is somewhat deliberate. As you can see from our headwinds and tailwinds, we have a lot of moving parts in 2021. I'm very confident in our operational excellence and believe we will deliver strong results. The fundamentals of our business and the operating model are solid. For me, the biggest variable is mortality. What we observe is the continued trajectory going into the first half, especially after some significant numbers in December and January. While there are many questions for Frank today on mortality and vaccination, I believe these two factors will be game-changers for us in 2021 as we start to see a shift. The rest we know how to manage, but that particular factor is harder to predict. So, I would say that's the biggest variable.

Christoph Gretler, Analyst

Okay. So there is hope that if we make progress this year, there will be a tightening. The second question is regarding care coordination. I noticed that after targeting minorities, it essentially became unprofitable. However, as you mentioned, it could still be beneficial for that business. What is the midterm outlook now? Are we considering restructuring, or how do you view this? In the past, you indicated that double-digit margin levels were attainable. Is this still a realistic expectation?

Rice Powell, CEO

Yeah. So Helen, and I, we'll double team this Chris. It's a great question. So a couple of things just to get you thinking about it. As we continue to make the migration to value-based care, we require these complementary assets. The pharmacy, the vascular access which is not only renal as well as cardiovascular and things of that nature. So I would say you, as we get through this mortality effect that Helen spoke about and we move beyond that, we would expect to see some improvement because we're going to be able to have patients coming in. They're going to need vascular work, etc. Value-based care these complementary assets are so important because that's how we manage the clinical interventions. And we keep patients out of the hospital and we drive higher clinical outcomes. So as we think about relooking at our business and what we're doing, we're not thinking that we would go in and take complementary assets and just kind of drop them out of the picture because then it makes it difficult for us to be able to manage effectively in value-based care and we've learned this obviously over a number of years.

Helen Giza, CFO

I would like to add that as we consider care coordination and the management of our patients while transitioning into a value-based care model, we plan to integrate care coordination reporting into our services report moving forward. This approach will provide a more comprehensive perspective. Additionally, the care coordination segment in the Asia Pacific is continuing to expand, which has proven successful for us, especially in Australia and our Idea Of Care clinics. We value this segment as it allows us to provide better support for our patients, and it is increasingly becoming an integral part of our service offerings.

Dominik Heger, Host

Thank you, Helen, Frank, and Rice for the presentation. I'm happy to turn it over straight to Q&A. Emma, could you please open the lines?

Operator, Operator

Yes. Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. First question comes from the line of Veronika Dubajova with Goldman Sachs. Please go ahead.

Dominik Heger, Host

Thank you, Emma. So we have more questions I know, but we did run out of time even the extended time frame. So I apologize for that. We should have planned for even more. With that, I will nevertheless close the call. I can only say that more than ever stay safe and hope to hear you soon. Take care.

Rice Powell, CEO

Thank you, everyone. Be safe, be well.

Operator, Operator

Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.