DaVita Inc
NYSE:DVA
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
99.26
165.51
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
DaVita Inc
You don't have any saved screeners yet
Ladies and gentlemen, good evening. My name is Cath and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita First Quarter 2020 Earnings Call. [Operator Instructions] Thank you. Mr. Gustafson, you may now begin your conference.
Thank you, and welcome, everyone, to our first quarter conference call. We appreciate your continued interest in our company.
I'm Jim Gustafson, Vice President of Investor Relations. And joining me remotely today are Javier Rodriguez, our CEO; Joel Ackerman, our CFO and LeAnne Zumwalt, Group Vice President.
Please note that during this call, we will 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 first quarter earnings press release and our SEC filings, including our most recent annual report on Form 10-K and subsequent quarterly report for the first quarter of 2020 on Form 10-Q, which will be filed today.
Our forward-looking statements are based upon information currently available to us, and we do not intend and undertake no duty to update these statements. Additionally, we'd like to remind you that during this call, we will discuss some non-GAAP financial measures. A reconciliation of these non-GAAP measures to the comparable GAAP financial measures is included in our earnings press release submitted to the SEC and available on our website.
I will now turn the call over to Javier Rodriguez.
Thank you, Jim and good afternoon everyone. I hope that you and your families are healthy. Let me begin by expressing my sincere appreciation for the 65,000 nurses, patient care technicians, social workers, dieticians and other caregivers worldwide, including many nonclinical workers who are on the frontlines of care with our physician partners. These people are living up to the meaning of DaVita, which is to give life during this global crisis. Their courage and dedication to helping others is a source of energy and inspiration. I want to extend that gratitude to all healthcare organizations and caregivers around the world.
For today's call, I'll discuss three topics, our response to the crisis, the impact of COVID on our business and our decisions relating to the CARES Act. At Capital Market, I talked about the strength of our platform and our ability to provide continued care to dialysis patients across all sites of care from the hospitals, the patients home and in our clinic. Our response to COVID highlights the resilience and the strength of our teammates and demonstrates the power of connecting the multisite platform. Let me give you a few examples to bring it to light.
First, we're leveraging our national scale with the resources team and our geographic footprint to open and operate dedicated clinics and treat dialysis patients who are suspected to be COVID positive, which has helped to free up precious hospital resources. The dialysis industry in partnership with the government has joined together to help maintain continued care for dialysis patients by creating isolated COVID capacity that can be accessed by other providers.
Next, our position as a national leader in home dialysis to serve our patients well by supporting continued growth of home dialysis during this crisis and helping to provide continued care for all of our patients as they may have moved between dialyzing in home, in hospital or in center due to the virus. In addition, we've been able to utilize our leading telehealth capabilities to allow us to expand the treatment of our patients in the safety of their home, while maintaining access to their care provider team. With the support of the government, we're now using that telehealth platform to provide further support for in-center patient care.
Finally, in our over 900 hospitals where we deliver services, we've been able to allocate resources and shift caregivers to areas that most needs to help support patients and our hospital partners.
Next, let me address some of the trends we're seeing while covering the expectations for the short and long term business impact of COVID. On the spread of the virus, we're experiencing similar geographic waves of COVID impact, if you've read about in the news. Initially the CDC wanted all COVID positive patients treated in the hospital as its pandemic spread however the CDC quickly recognized this is not possible in terms of providers like DaVita, who’ve been able to focus on infection control well before COVID to alleviate the burden from the hospitals and to treat stable patients in an outpatient setting.
Today nearly 70% of the DaVita the patients are either COVID positive or suspected to be COVID positive are treated in one of our outpatient settings. The operational tasks of maintaining treatment three times a week to these COVID positive or suspected to be patient on cohortships[ph] tips and clinic has been nothing short of extraordinary, all while maintaining continued care over 230,000 patients who’ve show no symptoms of the virus, but are at risk with multiple other comorbidities.
The near term impact on our business is still dynamic and somewhat uncertain. However, we're able to affirm our guidance for 2020 at this time. This may be in contrast that what you've heard from other providers who are maybe facing volume or liquidity issues due to the significant drop-off on elective procedures. As you know, dialysis is not optional it is life sustaining treatment that our patients need multiple times each week. The long-term is we have less visibility. We believe the economic impact of COVID on our business will lag the impact of the broader economy. The scope of the impact of COVID on our business will be based primarily on the duration of this devastating virus and its impact on unemployment generally.
We expect that these factors would have a greatest impact on volume and mix. Volume as the growth of dialysis population is more uncertain due to the potential impact from the virus on the late stage CKD population and on the health status of our existing ESRD patients and our commercial mix, because the insurance mix of our patients could be negatively impacted by weakening of the broader economy.
Next, I want to knock the administration swift response in this time of crisis. The administration collaborated with the dialysis industry by modifying certain policies and regulations to facilitate our ability to treat COVID positive patients in cohortships[ph] or clinics, where necessary. The administration also acted quickly by distributing funds to healthcare providers in an effort to ensure that patients uninsured and insured have access to the care they need during this time of crisis.
We believe that the spirit and the intent of the government action with the relief fund was to prevent healthcare providers from closing their doors, not to help a company make their earnings targets. DaVita has been and will be able to continue to provide care for our patients, including the uninsured without the need for this federal funding. As a result, although we have incurred costs that fall within the parameters of the relief fund under the CARES Act, DaVita has decided not to accept this government financial support at this time.
We believe that it's in the best interest of our company, shareholders and our country to allow these dollars to be redistributed to other individuals, organizations, or healthcare providers that's truly needed.
ESG has been an increased focus over the last year and doing the right thing matters. In our opinion, the current healthcare crisis is an opportunity for companies to lead and contribute for the greater good of society and we are happy to do our part. Let me conclude with a comment on the DaVita’s culture. In this crisis, the fact that our frontline caregivers know that they're part is something bigger, the ability has been a key part of our resilience. They are true heroes and they know that our entire company or as we say, our ability is doing what we can to support them. We know we still have an unpredictable future with this virus. We're thankful that we're village strong.
Now, on to Joel to provide an update on our Q1 results and to discuss our financial outlook.
Thanks, Javier. I want to start by thanking all of our teammates who selflessly provide life sustaining dialysis care to our vulnerable patients. I am proud to be a part of this DaVita Village.
Q1 was a strong quarter with relatively little impact from COVID. The details are in the press release and I can answer any questions during Q&A. I'll focus my remarks on financial details related to COVID. To start, the level of uncertainty that we face going forward is significantly higher than usual. The factors driving this include the severity and duration of the COVID pandemic, the impact on our patient population resulting in a potential decrease in treatment volumes and the impact on unemployment and commercial health insurance coverage.
As a result of this uncertainty, financial outcomes are harder to forecast than usual and the range of possibilities is wider than usual. Our treatment volumes have remained fairly steady so far. For the rest of 2020 we expect volumes will be impacted by any changes in mortality, transplants and/or new patient admits resulting from COVID.
On expenses, we're incurring elevated costs as a result of additional compensation and reimbursement for certain of our teammates to help offset some of the personal financial impacts of the crisis, enhancements to our overtime PTO and benefits policies. The creation of dedicated shifts to care for patients with confirmed or suspected COVID. Redistribution of teammates, machines and supplies across the country, labor hours needed to clean patients and teammates who enter our clinics, increased purchases and pricing of personal protective equipment for patients and teammates, higher investment and utilization of telehealth and development of educational materials for patients.
Offsets to these expenses could include the suspension of sequestration beginning May 1, which we expect to add about $50 million for our revenue of 2020, as well as other cost reductions in our business. At this time, we're maintaining our 2020 guidance ranges for adjusted earnings per share, revenue, operating income, margin and free cash flow, but recognize the increased uncertainty given the rapidly changing dynamics related to COVID.
The longer-term impact of COVID is uncertain and difficult to quantify. We believe that the two main factors considered are growth and mix. First on growth, our long-term growth could be impacted by changes in mortality in both the late stage CKD and ESRD populations due to COVID. This will depend primarily on the infection rates, base fatality rate and age and health status of the patients infected.
Second, increased unemployment levels will likely lead to fewer patients having commercial insurance which creates earnings headwinds because of the higher reimbursement rates you receive from commercial insurance plans. We can't predict the net impact at this time, but I will highlight four important dynamics. First, when you consider the sensitivity of our business to a recession, we believe that the peak level of unemployment matters more than the shape of the recovery as many of our patients have a preference to retain coverage in the near-term, but maybe slower return to work in a recovery.
Second, when estimating the peak unemployment it's important to recognize that a large number of individuals currently included in unemployment numbers are actually furloughed and are still receiving health benefits from employers. Those furloughed patients who eventually return to work may not face any disruptions in coverage.
Third, a significant number of our commercially insured patients have coverage that is not tied to their current employment. This includes patients with individual insurance as well as patients on COBRA. This should help mitigate the potential change in our mix relative to the increase in unemployment.
Finally, if our patients lose their employer based coverage, they have several coverage options including exchange plan where many patients can access tax credits and cost sharing reductions which is now available that came out of the 2008 recession, COBRA and Medicare and/or Medicaid.
Looking at our balance sheet and cash generation, at this time we did not see material near-term negative impact from COVID. Out of an abundance of caution, in March, we drew down $500 million from our revolving credit line, which is reflected on our first quarter ending balance sheet. Given our current cash balance and near-term outlook, we expect to repay the revolver shortly. We also suspended share repurchases in March and have not repurchased any stocks subsequently.
In the near-term, we expect to use caution with regards to capital deployment and we'll look to preserve financial flexibility and liquidity in the face of uncertainty. We believe that our cash flow generation and our balance sheet put us in a solid position to weather financial and operational challenges brought on by the current pandemic. This will allow us to continue to focus on what is most important, the health and safety of our teammates and delivering high quality care to our patients.
With that operator, please open the line for Q&A.
Thank you. [Operator Instructions] All right, speakers, our first question is from Justin Lake of Wolfe Research, sir?
Good afternoon. I appreciate all the detail, a few things here. One, obviously a really good first quarter, I was hoping that you can kind of walk us through what you saw relative to your own kind of internal expectations there and maybe delineate, what you think core growth was versus kind of any items we should think about?
Sure. So let me take that. Hello, Justin. It's Joel here. I'd call out three things, although I would say it was broadly a strong quarter across many dimensions in terms of what stood out. One RPT was a bit higher than expected, although not in a way that would lead me to change any of my views about the full year.
Second costs were well-managed very broadly, I'd highlight productivity, pharma, G&A is three things, although there it was a broad strength. And finally international was a strong contributor, part of that was strong fundamental growth, international just had a good quarter, but I would highlight there was about $10 million of foreign exchange gain in our – from our Asia joint venture that is non-recurring.
That's helpful. So you talked about RPT being a bit higher than expected, but not in a way that change the views on the full year. Was there something that we should think about that benefited the quarter that doesn't reoccur, anything particular?
Nothing in particular, the RPT number will bounce around a little bit from quarter-to-quarter, so nothing worth highlighting.
And the cost side, I mean, again, like I'm getting – you guys have a core growth number that you kind of think about X moving parts because I'm getting something into teens.
Well, I think it's a tricky quarter, are you thinking Q1-over-Q1?
Yes, year-over-year.
Yes. Well, Q1 last year was not a particularly strong quarter and then Q2 came on well, so there was – I'd say there was some variability there. This year, the typical quarterly seasonality is going to be a little turned on its head usually Q1 is a weak quarter. This year you've got the positive calcimimetics and then in the back half of the year you'll see some negatives from ballot initiatives and as the COVID impact grows. So I think as you think about a full year number that the margin you're calculating there is or where the growth rate you're calculating there is something that I would be hesitant to just focus on.
Okay. And then before I jumped back in the queue, can you can give us that calcimimetics benefit and the – the impact in the first quarter, maybe both the RPT and to operating income. And then it looks like the number's been caught in the second quarter by CMS. So how should we think about that for the rest of the year? Thanks.
Sure. So I'd say for the full year, I wouldn't change anything we've said about calcimimetics, which is 40 million to 70 million of OI for the full year. The Q1 number was 35 million of OI benefit. The RPT numbers, I'm looking for those – the RPT number was $9.5 in Q1 and the cost per treatment $4.90 and change, so $9.56 of RPT, $4.94 of cost per treatment.
Thanks for the detail.
Thank you as well, Mr. Lake. Our next question is from Andrew Mok of Barclays, sir
Hi, good afternoon. Just wanted to follow up on the commercial rates, looking back at the last recession, it looks like you commercial revenue mix held up better than your commercial treatment mix. If that's something that could play out again through potentially higher negotiated rates on a lower base of commercial patients, should we see more permanent job losses?
Let me grab that way, Andrew. I think it's difficult to compare, at the end of the last recession of course we had a different dynamic going on. This one is very, very unique. And so we have –number one, as Joel said, we now have the exchanges and so we don't know what's going to happen there and how many people will pick the exchanges. We still have COBRA and then we still have all of these people that have been furloughed. And so when you look at this as opposed to the last recession where we didn't have a whole bunch of people on what appears to be paused or furloughed for a bit, we don't know how that dynamic will play out.
Last time there was not a lot of change in the rate dynamic, meaning the rate dynamic stayed similar to what it had been in the past. And I have no information to inform that would change. Did that answer your question?
Okay, great. And then just a follow-up question – yes, that's good. Just a follow up question on home dialysis, are you seeing any uptick in interest within your patients to pursue home therapy? And second, longer-term do you think this crisis will potentially accelerate the shift to home dialysis? Thanks.
Yes. It's an interesting dynamic, many people are asking that same question. For now and again, it is so early in this that we don't know what the long-term implications are, but for now we saw a slight downtick, so little weakness, but then when you look at it, it's the placement of catheters that really impacted it. And then once the administration deemed it essential, that started to pick up. In addition, as we talked about, our platform really matters. Meaning that there's a lot of patients that start in center and then through education go home.
Well, we saw that that number went down a bit because we didn't have a lot of educators and nonessential personnel in the centers, so we would not spread the virus. So therefore we had less of our patients in center moved home. And so when you add it all together, there's still a lot of energy, we restart 25,000 patients mark at home and we think that over time we will go back to the patterns that we saw pre-COVID which is roughly 10% or so growth.
Okay, great. Thanks.
Thank you, Andrew.
Thank you, Andrew. Speakers, our next question is from Kevin from Bank of America. Kevin?
Great. Thanks. I guess, wanted to ask about the, you guys announced kind of a big hiring push earlier in the year and you guys obviously highlighted a bunch of potential pressures and uncertainty as year goes on, including the impact of the economy. So just trying to understand, what the purpose of that the large increase in hiring was and how you thought about taking on additional costs essentially heading into recession.
Yes, thanks, Kevin. I think when you think of hiring people, you got to put it into two categories. One is the G&A that gets spread out through all the clinics and then you have the frontline caregivers. And so what we announced, which was a big hiring was for frontline caregivers. And so what you're seeing is that sometimes in times like this where you've had a nursing shortage and you've had a robust economy, that it's a great opportunity to have a stable workforce. And so that's what you really saw. We had openings across the country and so we want to fill them now while there's lot of people looking for jobs
Okay. This is more about kind of backfilling open positions than it was about trying to add to fuel growth in some segment or anything like that?
Correct.
Okay. And then I guess there's been a lot of press about patients with COVID in the hospital needing more dialysis. Has that impacted your business in any way either by managing the hospital outpatient dialysis clinics themselves or hospitals trying to clear out their dialysis clinics, pushing volume maybe in your direction, has there been any dynamic there?
In general, the short answer is that it is lumpy from geography-to-geography. And so in some geographies where the hospitals because of all the elective procedures have seen big decrease in census or acute have seen that as well if COVID hasn't hit that area. Of course there are other areas where COVID is quite active where we have seen an increase. But when you net it all out, it is nothing that you would notice in the economic model if that's what you're asking.
Yes, that's perfect. And then you mentioned a number of the headwinds around the recession, any offsets that you can think of? I guess you kind of mentioned labor might be easier to come by in a recession. How do you think about the cost save opportunity versus the potential revenue pressures on recession?
Yeah. Joel, you want to grab it?
Sure. So yes, I think there are really two ways to think about the cost mitigation and it really comes in two buckets. One is what you would expect to naturally occur in the context of a recession, which could be higher productivity because of lower turnover, lower training costs, other things related to salary, wage and benefit, so that would be one bucket. And then second is the levers we could pull proactively to take costs out of the business, recognizing that if there is mixed pressure, volume pressure that we have things we can do, we've got a resilient business model so there are actions we could take and mitigate some of those pressures as well. So there's a natural component to it and a proactive component as well.
I mean to reread anything it's the fact that you're going to mention the headwinds without kind of these offsets. Would you expect that during a recession you would grow maybe below the normal range of allied growth or you still relative in that range during the recession?
I would say it is too early to tell. There's just so much, we don't know yet about how this recession is likely to play out in terms of what the peak job loss will look like. How much of that is true job loss versus just furloughs, how this will roll forward and how much of we could mitigate when we think about mix. So I would say it's too early to tell how much of that we'd be able to mitigate from a cost standpoint.
Right. Great. Thanks.
And thank you as well, Kevin. Speakers, our next question is from Whit Mayo of UBS.
Hey, thanks. Hey, good afternoon. I just wanted to follow up on Kevin's hospital question. I mean, that's a business that you guys have had some remarkable growth in recent years. I don't think the number of hospitals that you provide coverage has changed, but the revenue associated with those has been double-digits for many years. Can you maybe just talk a little bit about some of the factors driving that and how you contract with hospitals?
Sure. I'll try to give you a little color and see. In general that business is a very tough business, because of the cyclicality, meaning up and down and the demands of the hospitals 24/7. So it is a very hard business to enter. And so this is a place where our platform really shines and the hospital see the value of having the network and having the float pools where you can actually have the team to take care of the patient. So what we've seen is that a lot of hospitals value our value proposition and of course that would be included in the price and the service. And so we've seen that platform grow in a significant way.
Okay. So I mean, as I look at the number of hospitals and that there's 900 and you're growing revenue, 13%, I mean, is that the way to think about the organic growth of that business?
Joe, can you break down the revenue and the price or is that not something we want to disclose?
Sure. Yes. That it's not something we disclose, but Whit, it has been a faster growing business than the core business, although very small and I would add it, it tends to be a lower margin business as well.
Okay. I had another question on calcimimetics and then a lot of the data's showing a progressive, I think uptick in Parsabiv use over Sensipar and the ASP is much higher versus Sensipar, can you may be refresh us just the economics between the two and what your split is today?
I don't think we've broken out that split specifically. As you look at the spike that we've seen in calcimimetics profitability starting in two years ago and then last year and this year, it's driven largely by the oral and the gap as you know between how ASP declines and how our pricing declines. I think as we think about it going-forward, obviously as the tobacco period is coming to an end, the profitability of calcimimetics is going away.
I think the important question for us is 2021 and the issue between the oral genetic and the IV is how does the bundling work and how will CMS reimburse us and what is it by drug, by patient or some other methodology. And that's really what will drive the economics.
And a quick reminder on that Whit, that the physicians pick whether it is IV or oral and so at the end of the day they might have a preference, right now there isn't much data and we know that the IV is a lot more expensive. So the physicians are feeling their fiduciary responsibility to do what's clinically equivalent or appears to be clinical equivalent at a much cheaper price.
Okay. That's helpful. And maybe just one last one back to just the comments on volumes and trying to think about what the impact of COVID will be on this patient population. And Javier you mentioned, looking at some of the CKD Stage 4 or Stage 5 patients and obviously, there's going to be an impact on your census today, I don't know, maybe if you could just elaborate a little bit more on kind of how you're thinking about what the longer-term impact can be from COVID-19 on the ESRD population.
Sure. And I'll try to be as helpful as I can Whit, but as you can imagine, there's just a lot of dynamics and it's pretty early in the game. So the first and probably the biggest disclosure is it all depends on the duration and the severity of the virus. And of course if we have another wave and all those sorts of things, but if you assume that there isn't going to be another wave just for the argument and to be an optimist here, you have to start to look at, okay did the virus actually impact CKD patients that would have been on dialysis and if so how much and what magnitude?
Two is if you were going to look at something that could increase volumes is, did the virus actually do damage to people that wouldn't have had some kidney damage? And so that is too early to tell.
On the other side, of course the preferred kidney replacement therapy would be a transplant. And if you were going to put a transplant into categories, there's the living donors and the deceased donors. And what we're seeing right now while the virus is active is that the living donors are coming down because of the risk of infection. And so there would be some potential changes in those numbers that would increase volume of dialysis patients. So those are some of the gives and takes that are going on, we don't know how it'll all net out and so we're keeping a close eye on it.
Well, that's helpful. Thanks.
Thank you.
Thank you, Whit. Speakers, our next question is from Pito Chickering of Deutsche Bank, sir.
Good afternoon guys. Thanks for taking my questions. A few ones here, productivity was strong in the quarter. Can you talk about for these drivers of productivity was it consolidation, including the centers from last year? It sounds like it wasn't a shift to PD or home therapies. So what other factors led to increased productivity?
Yes, nothing, nothing specific I would highlight other than, it's obviously labor is our largest cost item it's something we spend a lot of time focusing on and it's just something we need to manage well over the long-term, in order to deal with the fact that our RPT increases are below inflation. So it's just blocking and tackling that we just continue to excel at.
Okay. From COBRA benefits, have there been any changes to COBRA benefits in terms of the length people could stay on COBRA versus the prior recession?
My understanding is that I don't know of any COBRA expansion, but our patient population can add 11 months because of disability. So there's a disability extension. And so in essence, our patient population could have coverage for 29 months. I do not know if there's a COVID exception.
Okay. there is a lot of uncertainty, from a macro perspective at this point as we move into 2021 what's the impact that a Medicare Advantage can provide to your patients who are looking to reduce out of pocket costs and can sort of the uncertainty sort of add or fuel more people adopting Medicare Advantage, do you think at this point?
Well, there's a lot of different views on your question and at the end of the day it is just speculation because we don't know. It is a very individual and personal decision. But in general, the reason why people would pick MA is because it has a max out of pocket and it has some additional benefits. And the reason why people would stay in Medicare is because they're used to it. It has basically almost an unlimited network, if you will, which it doesn't have the restrictions.
If you have secondary coverage, it really helps you in your out of pocket expenses. And so what we've said in the past and we continue to say is that, we don't have any information that would lead us to conclude anything other than our population would likely mirror that of the general population. The only reason why we are so different is because this is the only population that wasn't allowed to enroll in Medicare Advantage. So the only people that are there are the ones that enrolled pre their kidneys failing.
And so there's going to be open enrollment. And now the question is what will be the environment in the fall? Will patients be able to sit with someone? Will they have a website? Will they be more nervous, more fatigue? Is the virus still with us or are we in a more normal situation? And the short answer is we don't know any of that. So I'm just giving you the data of how someone would pick one versus another.
Great. And then, so last question here just from a modeling perspective you'd walk through a bunch of costs, which we'll roll through for 2Q. Is there any way that there's some dollar value they can add to how much we should be thinking about these new cost being layered in during 2Q. Thanks so much.
Yes. So Pito, it is really tough to predict if there are a lot of moving pieces and again, the uncertainty around length and severity of the pandemic, et cetera, et cetera. I would also note that as we think about how we've modeled things in the various scenarios we played with, we've generally assumed that we're past the peak. We're kind of at or past the peak. We've got a whole bunch of – a whole range around at what pace the pandemic begins to taper. But we haven't modeled DNA a second wave. So, just as you think about our guidance and what we're comfortable with, I just wanted to point that out.
In terms of specific numbers, we are thinking the number for April will be somewhere in the $30 million to $40 million range. I think it's reasonable to expect May will be in the same range. And then again, depending on how the pandemic plays out, we'd expect it to start tapering down.
Okay. And actually the last one, I apologize on, share repurchases. Like you're not taking any of the government granted at this point and because your point, you're viewing this as sort of past the peak at this point, when do you think that, that you will consider doing share repurchases again, it's just more of a third quarter event or if you guys walk into June and things are better, we guys began buying shares back at that point. Thanks so much.
Yes. So I can't give you a date, because we don't have one. We are certainly going to be cautious with capital deployment. Given all the uncertainty. I think we're likely to keep a higher level of liquidity than we have in the past. So hard to say when – how we're going to think about share repurchases going forward and when some of that caution might relax.
Great. Alright. Thanks so much guys. Great quarter.
Thank you.
And thank you as well, Pito. Our next question is from Gary Taylor with JPMorgan. Gary?
Hi. Good afternoon. Just a few. Just to clarify on your last response, Joel, when you said $30 million to $40 million and – was that for April and May was that additional expense that you were additional operating expense you were just saying is it's plausible?
Yes, that would be the incremental operating expense that we would expect related to COVID.
Thank you. And the decision to return the CARES Act funding, is that decision limit to the first 50 billion that's been distributed. Have you made a determination about the full 175 billion between the two provider funds? Or is that sort of TBD depending on how things would develop?
I might be getting lost in the details of, correct me if I’m wrong here Joel, because I might be aggregating pools that I’m not, but the CARES Act relief fund is how I have it in my head. And those are the funds that we decided were the intention of the government, which everybody can interpret in different ways. But from our perspective, they were a safety net. And they were to be used for people that needed that money, because the economic damage was so severe that they can keep their doors open.
And so while it’s you can tell from the numbers that that Joel gave you, we have big expense increases. And by the way, the numbers that you cited there the $30 million, $40 million is monthly. So we have had big expenses. We don’t think that that was the intention of money, so we’re going to get that back.
Okay. And then I saw just a couple numbers flip in the income statement. Joel, I wonder if you would comment on, I know the equity investment income was almost $18 million this quarter, higher than usual than the other income down by interest expense flipped to a negative $4 million in change, both those looked a little unusual, anything to pull out on those?
Yes. On the equity income, the biggest component of that is the $10 million of FX on the Asia joint venture that I called out. There is another component to this that relates to the deconsolidation of a few of our clinics, starting 1/1/2020, that the details of this will be in the 10-Q. It’s got no impact on EPS, but it does take what was OI and turns it into – it turns it, it moves it into equity income. It used to flow through revenue and costs and it moves it into equity income and then there’s an offset down at the NCI level. So those are the big things I call out there. On the other income, there was a different FX loss associated with the international business that was about $9 million. So those are the big things I call out.
Thank you.
And thank you as well, Gary. Our next question is from Matt of William Blair. Sir?
Hi, good afternoon. Thanks for taking the questions. Actually have you, I just want to ask one more time on the CARES dollars. Obviously you’ve announced the receipt of the grant dollars, I think it was April 13, had said you were contemplating keeping it. Just curious, was there additional guidance or regulation from the government that influenced your decision or was this a proactive decision by the Board and management, just trying to understand from April 13 to today.
Yes. It was the ladder, which is a proactive decision by the Board and management. And again you could make a very good case to say the spirit of that was to reimburse high expenses related to COVID, which we have many including PT, additional labor overtime and all of the things that we’ve described on the call. We came on the other side, which is the government, which needs to be totally commended. Just said, we’ve never had anything like this. And so we’re going to distribute money to make sure that the wellbeing of Americans has taken care of.
And then we’ll reconcile. Well, we don’t need time to reconcile. We know that we are not in that spot where we’re the safety net. And so we want to be proactive. So the government gets visibility. Those people that can give them money back and that money can be redeployed as soon as possible to the people that really need it. So it’s really about the spirit, than we made the decision.
Yes, fair enough. Thanks, Javier. And then actually just you’re not enough this morning about DaVita Venture and just curious what if any targets you might have for that group and just sort of giving you an answer this morning, wanting to give you an opportunity to comment on it.
Yes. Thank you, Matt. We’re really excited about DaVita Venture, and basically we have a lot of entrepreneurs that are coming out with all kinds of great things. And they’re saying, can we partner with you? And so this Venture Group is out there and now really generating demand. And so we want to be the partner of choice. And as we talked about capital markets we’re expanding from being a dialysis company to being a full kidney care company and that means that we’re going to need certain technologies and partners from diagnostic to pharmaceuticals to other areas in transplant. And so we want to be out there and we’re really excited about it.
The only thing I’d add in there is, as you think about the magnitude of these investments, we’re thinking these are likely to be single digit millions. And if you think about it in the context of our free cash flow, it’s not going to change the number at all, so relatively small.
Okay. Thank you.
Thank you.
Thank you, Matt. Our next question is from Lisa Clive of Bernstein. Ma’am?
Hi. Just a question on legislation in Washington, clearly, D.C. is busy with COVID-19 and that’s main focus. But do you think the COVID-19 pandemic makes it more likely that the patient’s act could get passed? Do you have any comments in sort of how live that bill is in Washington today? And follow-up question on COBRA, my understanding is even though there isn’t 11 month disability extension, almost all patients drop out of COBRA at 18 months, because after that point they go from the paying 102% of the premium to 150%. So is it fair to assume that the only ones who stay on COBRA are the ones that have big CAF premium support?
Let me grab them. Lisa, first of all, you’ve exceeded my knowledge of COBRA. And Joel, I don’t know if you know that technical piece.
I guess the other way of asking it, because…
I do not has the answer.
Okay. I guess, the other way of asking it, because if we do given the unemployment numbers that we’ve been seeing across the country, if COBRA becomes a much bigger part of your – well, it’s a lot more patients end up on COBRA. I’m just trying to understand, how long they actually will end up on it. So if you do have any insights into that, that would be helpful.
Yes, I do not. And so – but we could get back to you, but I do not have any more insights on that. Sorry. But you had a second part of your question, Lisa.
On the patients act, given just whether the COVID-19 has any impact and also just general discussions in Washington around that.
Well, I’ll just say in general, I have not had the courage to ask anything, because obviously, all hands have been on deck for this COVID crisis. I’m hopeful that policy makers will see the value of integrated care and that they will see the power of connecting the sites of care and having this organized fashion really helped, because if you look at DaVita as an example, and how we were organized with PPE and how we were able to stand up cohorting centers. How we were able to take care of our teammates with childcare and other things. We obviously saw that in other areas, but we did not see that in a lot of the smaller players. And so we’re hopeful that the government sees the resource organization and capabilities around the country is also quite useful. And if you connect the sites of care and the technology that could benefit the system and the patients. So we will see post-COVID.
Okay, great. Thanks.
Thank you.
Thank you, Lisa. Our next question is from Justin Lake of Wolfe Research. Sir?
Thanks for letting me jump back in. I’ve got a few more here. First I just wanted to follow-up, Joel, to your answer to Peter’s question on our costs. I understand you don’t want to give a specific number. But in your prepared remarks you kind of walked through, there were costs associated with COVID and you gave us not insignificant new costs in April and May. You talked about the $50 million benefit from sequestration and then you also mentioned other cost reductions. So I’m curious as you bundle those together, it looks like it’s a headwind x potentially other cost reductions. But I’m just trying to think about relative to where you were kind of in February when you gave the original guide or updated it. How should we think about the net of those impacts? Is that an additional headwind in your mind or can you kind of offset the incremental costs from COVID?
So the way I’m thinking about it is, if you start with a strong performance in the core in Q1 and you offset that with the COVID costs and then add back sequestration, we kind of feel like – and then there are some natural costs that come down. T&E is a simple example of that. We feel like net-net, we wind up with a potential headwind that we’re comfortable absorbing in without changing our guidance. So if you want to think about how do we get to maintaining our guidance, strong Q1 the negative of COVID offset by the $50-ish million from the sequestration suspension and some other cost offsets.
And can I pin you down in terms of how much better Q1 was versus your internal expectations when you set the guide for the year?
No, you cannot pin me down on that.
Okay. Then in your 10-Q that you just filed, there were a couple of new investigation subpoenas that were out there. I know this is the cost of doing business in dialysis and historically for 20 years of income in the company, they really amounted to much. But just wanted to ask you if there was anything new or different that we should add – that we should consider in what those – and what got reported there, I guess in New Jersey and California?
No. What I would add is, of course we taken very, very seriously. And we have just been through our corporate integrity agreement. We’ve been on it for five years and we continue to want to lead and show the spirit of compliance and the law of compliance. And so we’re disappointed every time we get them. And of course, they can come through many different ways, including investigations, inquiries. And you hope that once they see what we’re doing that they’re satisfied with that. But every time we get them I can tell you personally, I am very, very frustrated because we talk and live compliance on a daily basis. So nothing else to add to that, Justin.
Understood. And then just a couple of numbers questions here. You mentioned that a significant portion of your commercial patients have coverage that’s not tied to employment. I’m just curious if you could share, even just a round number there, is it half a quarter, two-thirds, anything like that you can tell us?
Yes, so there are really two components to that. There’s COBRA and patients who are on the exchanges, the numbers in the kind of 25% to 30%, I believe.
Okay. So 25% to 30% are tied to employment?
Right.
Or tied to COBRA and exchanges, okay. And then the first quarter, what would you say the – or can you give us a number in terms of what you think the benefit was of the extra day in the quarter for the operating results?
No, hold on, I’ll get you that number before we hang up.
Okay. And then just – and then California AB 290, I know you talked about that being lower than previous, like the 25% to 40% you originally gave, it’s going to be lower. Should we think about that just be going to zero now or do you think there still could be an impact there?
As opposed to give you a number, I think what I can tell you is that due to COVID, the injunction stayed and so basically what that means in late terms is, there’s an extension of the case. And so unlikely to have much of an impact unless, because of the timing until the fourth quarter, depending how the case goes and then am I going to Q1 of 2021. So the number’s still the same. The timing has shifted and of course the outcome is unknown.
Okay. And last one, payer mix in the quarter, Javier, I think you said was down. Can you give us any specificity there or what you kind of ended the quarter with in terms of commercial mix?
I believe, we published it. So I can say it, right, Joel?
I believe that is not correct. Just it – there was nothing significant in the movement for the quarter. We'll call it out on the quarterly basis, if we think it's important, but there was nothing important there.
So still in the 10% range, give or take.
Yes.
Thanks a lot guys. I appreciate all the questions.
Thank you, Justin.
Thank you, Justin. Our next question is from Jeff Gates of Gates Capital Management. Sir?
Yes, a couple of questions. First, I noticed the volume was the best volume quarter you've had in a few quarters. And I'm just wondering if there's, you see any signs of an uptick in volume and what might be driving that number one? And number two, is this environment going to force you to do less to know those or you won't be able to do as many de novos. So will your capital budget come down at all?
You want to grab, Joel.
Yes, sure. We had a reasonable NAG quarter, no doubt. I wouldn't call out anything specific yet. I don't – I wouldn't say we're ready to declare victory on some of the efforts we've been undertaking to drive NAG back up. And there certainly was a tiny bit of noise at the end of the quarter. So nothing to call out there. In terms of de novos, I think we're going to wait and see what happens to the industry volumes and what happens on the home side. But I think there is certainly a possibility that is, if there is an overall NAG headwind that comes out of COVID and possibly in accelerated shift to home, that I think you would see a potential decline not just in our de novos, but in industry de novos and that would bring the capital budget down.
So you're not having any trouble constructing centers that you have planned?
Well, I'd say for 2020, depending on how long the various states shut down lasts, we might see our capital spend come down a bit there. Just some projects that we physically can't get done right now, but that'll depend on how long things last.
Just in well, let me finish up by saying that the impact of one day is somewhere in the $10 million to $15 million range. Jeff, any other questions?
Thank you Jeff. And yes speakers, we don't have any questions on queue as of now.
Okay. Well let me wrap up with a couple of closing remarks. Number one, thank you for all the support. Number two, I don't know if I can convey in words how proud I am of our team. The beauty and the dedication that I've seen over the last 60 days is just literally hard to put into words. The fact that our government and our competitors and us put everything aside and co-hearted and work together to take care of our patients. It's just beautiful, beautiful, beautiful. The clinical focus and the infection control expertise that we have has been critical in helping us do this virus. Point three, our platform, the importance of the platform in connecting the sites of care has been highlighted through this crisis. The resilience of our team and our business model has been beautiful, beautiful, beautiful financially, strong balance sheet and a proven track record of cost management. And lastly, I do think that philosophically it is time to come together as a country and we are happy to do our part. So thank you for your interest in our company and we'll talk again next quarter.
Thank you, speakers. Ladies and gentlemen, that concludes DaVita’s first quarter 2020 earnings call. You may now disconnect. Thank you for participating and have a great day.