DaVita HealthCare Partners Inc., the parent company of dialysis provider DaVita, reported that net income for the third quarter of 2013 fell 5.6% to $136.6 million, compared to $144.7 million during the same quarter last year. The company attributed much of the loss to an additional $97 million it added to its loss contingency reserve to settle criminal and civil anti-kickback investigations.

"Discussions have advanced to a point where we believed it was appropriate to accrue an additional $97 million to our estimated loss contingency reserve in the current quarter, which brings the total estimated loss contingency reserve to $397 million as of Sept. 30, 2013, in connection with offers to settle the related civil, administrative and criminal matters," the company said in a news release.

A Denver federal grand jury has been investigating the relationship between DaVita and Denver Nephrology, and whether the dialysis company paid kickbacks to the nephrologists in exchange for customers.

During a conference call, CEO Kent Thiry reiterated that significant cuts to the ESRD payment bundle will lead to dialysis clinic closures.

"I want to remind you that if there are significant cuts, we will be forced to close a number of centers. We will do this in a responsible way, of course, to ensure continuity of care for our patients," Thiry said. "But these changes could impact our treatment growth numbers year-over-year in the way that you would expect."

Challenging year ahead
Thiry also said that the dialysis industry, as well as the health care industry in general would face significant challenges next year. "2014 will be a challenging year. HealthCare Partners operating income will be down significantly," Thiry said. "Kidney care operating income is almost certain to be down, perhaps, significantly. In our HealthCare Partners business, we face large MA rate cuts, as you know. And in general, payers are not doing a lot of adjusting down of benefit design, therefore, making it more difficult to offset the cuts. The silver lining in that particular fact is that this should lead to stable MA volume growth."

Third quarter dialysis treatment growth
Total U.S. dialysis treatments for the third quarter of 2013 were 6,034,647, or 76,388 treatments per day, representing a per day increase of 7.3% over the third quarter of 2012. Non-acquired treatment growth in the quarter was 5.5% over the third quarter of 2012. Normalized non-acquired treatment growth in the quarter was 5.4% over the third quarter of 2012. As of Sept. 30, 2013, DaVita provided dialysis services to a total of approximately 166,000 patients at 2,108 outpatient dialysis centers, of which 2,042 centers are located in the United States and 66 centers are located in ten countries outside of the United States. During the third quarter of 2013, DaVita acquired 10 dialysis centers and opened a total of 25 dialysis centers in the United States. DaVita also acquired 18 dialysis centers outside of the United States.

The company said it is narrowing its consolidated income guidance for 2013 to now be in the range of $1.88 billion to $1.92 billion. Our previous consolidated operating income guidance for 2013 was in the range of $1.83 billion to $1.93 billion.

The company is also updating its operating income guidance for dialysis services and related ancillary businesses for 2013 to now be in the range of $1.50 billion to $1.52 billion. Previous operating income guidance for 2013 was in the range of $1.45 billion to $1.50 billion.

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