Slide 1: DaVita HealthCare Partners
DaVita HealthCare Partners May 21, 2012
Slide 2: Forward-looking statements
Certain statements in today’s presentation contain forward-looking statements within the meaning of the federal securities laws. All statements that do not concern historical facts are forward-looking statements and include, among other things, statements about our and/or strategies expectations, be
Slide 3: About HealthCare Partners / Integrated Care Model / Deal Summary / Outlook
About HealthCare Partners Integrated Care Model Deal Summary Outlook
Slide 4: Strategy Rationale
Strategy Rationale Combination of two unambiguous clinical leaders Dialysis business solid Strategically well-positioned Team stronger than ever Unique opportunity in exciting new platform Market leader Where the puck is headed ©2012 DaVita Inc. All rights reserved. 3 Additional growth avenue
Slide 5: Deal Rationale
Deal Rationale Recurring revenue stream Consistent cash flow 20 year track record Strong position in 3 markets Substantial dramatic long-term shareholder upside Distinctively attractive risk-reward profile
Slide 6: Deal Terms
Deal Terms(1) Purchase Price $4.42 billion Components $3.66 billion cash 9.38 million DaVita shares Earn out opportunity in 2012 and 2013 8.4x 2011 EBITDA Deal Multiple 7.2x net of tax Capital Structure $3.8 billion new debt 3.7x pro forma (1)Stock price as of Friday, May 18, 2012
Slide 7: Why Now?
Why Now? First of all . . . . . . but importantly Not an optimal time to buy Unique opportunity Hot for a legitimate, Segment is hot Peak margin phase rate long-term reason One of the best- MA pressure positioned entities in the space ©2012 DaVita Inc. All rights reserved. 6
Slide 8: Fundamental Forces of Change
Fundamental Forces of Change Physicians moving to larger entities Government and private payors creating increased incentives for quality & cost and are desperate for savings Healthcare consumers becoming more “consumer-like”
Slide 9: Revenue and Managed Dollars
Revenue and Managed Dollars $ in Billions $3 3 $4 Total care dollars under management $ 2.4 $2.8 3.3 $3 Managed dollars $2.2 $2 $1.6 $1.8 $2.1 $2.4 $1 Reported $0 2008 2009 2010 2011 ©2012 DaVita Inc. All rights reserved.
Slide 10: Adjusted EBITDA
Adjusted EBITDA(1) $ in Millions $527 $525-560 $600 A Great Run $414 525 $450 $300 $278 $293 $150 $0 2008 2009 2010 2011 2012P ©2012 DaVita Inc. All rights reserved. (1)EBITDA excluding stock-based compensation expense; see Non-GAAP reconciliation
Slide 11: Operating Cash Flow
Operating Cash Flow $ in Millions $600 $509 $450 $233 $286 $343 $300 $150 $0 2008 2009 2010 2011 ©2012 DaVita Inc. All rights reserved. 10
Slide 12: Economics of Growth
Economics of Growth Favorable working capital Receives payments before incurring expenses Low fixed assets (last 4 years’ average) $20M maintenance capex
Slide 13: 2013 EPS Impact
2013 EPS Impact Dependent on: Earnings trajectory Interest rates Annual amortization expense Neutral to modestly accretive on a GAAP basis Includes $0.70—$0.90 of amortization expense
Slide 14: About HealthCare Partners
About HealthCare Partners Integrated Care Model Deal Summary Outlook About HealthCare Partners Integrated Care Model Deal Summary Outlook
Slide 15: What is HealthCare Partners?
What is HealthCare Partners? Patient-focused, physician-centric leader of integrated care Focused on quality outcomes Receives a capitated payment and is clinically and financially accountable for all healthcare care needs for an enrolled population of patients Successfully manages risk through inno
Slide 16: Physician-led care teams helping and empowering patients
Physician-led care teams helping and empowering patients! ©2012 DaVita Inc. All rights reserved. 15
Slide 17: Business Model
Business Model Commercial Medicare Medicaid Multi-year capitated contracts and shared savings pool contracts Superior quality Eliminate waste Preferred rates Patients: Great access and loyalty and Physicians: Great working environment great service yield attraction yields recruiting and retention
Slide 18: HealthCare Partners at a Glance
HealthCare Partners at a Glance Operates in 3 states: California, Florida, Nevada Senior patients: 180,000 Commercial patients: 461,000 Medicaid patients: 26,000 Group primary care physicians: 395 Affiliated primary care physicians: 1,190 Group specialists: 320 Affiliated specialists: 6,180 Affiliat
Slide 19: HCP's Strength
HCP’s Strength CALIFORNIA FLORIDA NEVADA Share of key payors’ MA lives 30-40% 50%+ ~100% Physicians Leading physician group Payor relations Strong and long-term relationships ©2012 DaVita Inc. All rights reserved. Hospitals Strong and long-term relationships
Slide 20: Largest Payors
Largest Payors h f Payor State Length of Relationship (Years)(1) A CA 20 B CA 20 C CA 20 D FL 19 E CA 15 F NV 5 (1)Excludes years with predecessor organizations
Slide 21: Management Overview
Management Overview Name Role Age Years w/ HCP(1) Staying Sherif Abdou, MD NV Market President 51 15 Sherri Allen NV Chief Operating Officer 53 3 Amir Bacchus, MD NV Medical Director 48 15 Zan Calhoun Chief Operating Officer 65 7 William Chin, MD Executive Medical Director 71 32 Lorie Glisson FL Mar
Slide 22: Management Team
Management Team Committed to success of DaVita HealthCare Partners Employment contracts for top management Up to 33% equity consideration with lock-ups for up to 4 years Bob Margolis, MD Remains CEO of HealthCare Partners Joins DaVita HealthCare Partners BOD as Co-Chairman
Slide 23: Integrated Care Model
About HealthCare Partners Integrated Care Model Deal Summary Outlook
Slide 24: Integrated Care
Integrated Care Data Analytics Integrated Processes Patientcentric & physicianl d S i led Supporting Alignment Infrastructure
Slide 25: Alignment
Alignment Traditional fee for service HealthCare Partners Volume not outcomes Focus on care needs of patients Accountability for cost and quality of care
Slide 26: Example: COPD Program
Example: COPD Program % 30% more frequent physician visits Change Drug cost est. 3% Care team Immediate intervention Total admits 30% Total bed days 39% Total ED visits 23% Cost of care 34% (all paid-pmpm) ©2012 DaVita Inc. All rights reserved. Patient: improved care, higher satisfaction Payor: sign
Slide 27: Clinical Utilization – CA Example
Clinical Utilization – CA Example Inpatient Acute Bed Days/1000/year (2010) 1,706 2,000 1,200 1,600 HCP Seniors Medicare FFS Investing in care in the most appropriate setting reduces spend in the most expensive setting
Slide 28: Clinical Utilization – CA Example readmit rate
Clinical Utilization – CA Example 30 day all cause re-admit rate 21% 20% 25% 15% 14% 10% 0% 5% HCP Seniors Medicare FFS ©2012 DaVita Inc. All rights reserved. HCP in-patient re-admit days 20% better
Slide 29: Works for All Stakeholders
Works for All Stakeholders CA primary care physician rating near Patients 90th percentile Physicians 95% of group physicians would recommend HCP to a colleague Payors & Taxpayers Savings and improved health outcomes
Slide 30: Deal Summary / Outlook
About HealthCare Partners Integrated Care Model Deal Summary Outlook
Slide 31: Business Model: Enrollment x Rate—Cost
Business Model Enrollment x Rate—Cost
Slide 32: Upside
Upside Future Emerging Exchanges New geographies ACOs D l Commercial Current Duals Medicare Advantage
Slide 33: Downside Scenario for HCP
Downside Scenario for HCP MA rate & commercial enrollment pressure + Increasing expenses = Declining EBITDA
Slide 34: Downside Scenario for HCP
Downside Scenario for HCP MA rate & commercial enrollment pressure + Increasing expenses = Declining EBITDA + Utilize HCP’s $80M/year of FCF for acquisitions = Flat EBITDA
Slide 35: Downside Scenario for HCP
Downside Scenario for HCP We can Pay interest $150—$200M FCF/yr MA rate & commercial enrollment pressure De-lever After-tax cash-on-cash + Increasing expenses return of 8% = Declining EBITDA Still + Utilize HCP’s $80M/year of FCF for acquisitions = Flat EBITDA
Slide 36: Downside Scenario for HCP
Downside Scenario for HCP We can Pay interest $150—$200M FCF/yr MA rate & commercial enrollment pressure De-lever After-tax cash-on-cash + Increasing expenses return of 8% AND = Declining EBITDA Still + Utilize HCP’s $80M/year of EPS remains neutral to FCF for acquisitions slightly dilutive on a GAA
Slide 37: Strategy Rationale
Strategy Rationale Combination of two unambiguous clinical leaders Dialysis business solid Strategically well-positioned Team stronger than ever Unique opportunity in exciting new platform Market leader Where the puck is headed ©2012 DaVita Inc. All rights reserved. 36 Additional growth avenue
Slide 38: Deal Rationale
Deal Rationale Recurring revenue stream Consistent cash flow 20 year track record Strong position in 3 markets Substantial dramatic long-term shareholder upside Distinctively attractive risk-reward profile
Slide 39: Reconciliations for Non-GAAP measures
Reconciliations for Non-GAAP measures Reconciliation for Non-GAAP measures (unaudited) Reconciliation of HealthCare Partners’ Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization and excluding stock-based compensation expense) We believe that adjusted EBITDA enhances a use
Slide 40: Additional Information and Where to Find It
Additional Information and Where to Find It: In connection with the merger, DaVita intends to file with the SEC a Registration Statement on Form S-4 to register the DaVita common stock issuable in the merger. Investors and security holders are urged to read the S-4 and any other relevant documents t