DaVita Q3 2026 Earnings Call Transcript

DaVita (NYSE:DVA) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

DaVita Inc. reported a third quarter adjusted operating income of $561 million and adjusted earnings per share of $3.82, with full-year guidance narrowed to an adjusted operating income range of $2.175 billion to $2.25 billion.

The company highlighted the successful pilot and upcoming national rollout of Expanded HD dialyzers, which promise significant improvements in patient care and mortality rates, though financial benefits are expected to materialize in the back half of 2028.

Integrated Kidney Care (IKC) performed ahead of expectations, with an increase in guidance for adjusted operating income to at least $65 million for 2026, aided by a new partnership with Humana and improved savings rates.

Investment in technology continues, though growth in tech spending is expected to decelerate; current investments are impacting full-year financial performance due to higher than forecasted costs.

The company is actively engaged with CMS and government agencies on policy updates, with a focus on fostering innovation and addressing economic dynamics in the dialysis sector.

Operational metrics showed improvement with a 1.2% year-over-year growth in treatment volume, although missed treatments were higher than expected in the third quarter.

Management remains committed to exploring growth opportunities in the IKC business, focusing on healthy contracts and aligned partnerships to enhance patient outcomes and economic performance.

Full Transcript

Michelle (Operator)

Good evening. My name is Michelle and I will be your conference facilitator today. At this time I would like to welcome everyone to the DaVita third quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer period. If you would like to ask a question during that time, please press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star then the number two.

Mr. Eliason, you may begin your conference.

Nick Eliason (Group Vice President of Investor Relations)

Thank you, and welcome to our third quarter conference call. We appreciate your continued interest in our company. I’m Nick Eliason, Group Vice President of Investor Relations and joining me today are Javier Rodriguez, our CEO, and Joel Ackerman, our CFO. Please note that during this call we may make forward-looking statements within the meaning of the federal securities laws. All of these statements are subject to known and unknown risks and uncertainties that could cause the actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to our third quarter earnings press release and our SEC filings, including our most recent annual report on Form 10-K, all subsequent quarterly reports on Form 10-Q and other subsequent filings that we make with the SEC.

Our forward-looking statements are based on information currently available to us and we do not intend to and undertake no duty to update these statements except as may be required by law. Additionally, we’d like to remind you that during this call we will discuss some non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release furnished to the SEC and available on our website. I will now turn the call over to Javier Rodriguez.

Javier Rodriguez (Chief Executive Officer)

Thank you, Nick. Good afternoon everyone and thank you for joining the call today. Once again, our teammates have delivered excellent care for our patients and solid results for our shareholders. We’re seeing meaningful progress across our clinical strategy with investments in innovation translating into better patient outcomes and stronger business performance. Our maturing Integrated Kidney Care business is a prime example as it continues to deliver clinical performance for our patients while starting to demonstrate its economic potential.

In the same spirit, our rollout of Expanded HD dialyzers marks an exciting new chapter in how we’re advancing kidney care today. I’ll share more on these priorities, review our third quarter financial performance, provide our outlook for the remainder of the year and briefly discuss policy. But first, as always, let’s begin with our clinical highlight. Today I will highlight our advancements in fluid management. We’re often asked about the clinical drivers behind our recent mortality improvements, and fluid overload is one of those critical areas we target. Because kidney failure impairs the body’s ability to shed fluid, managing fluid intake between treatment and safely moving excess fluid during dialysis requires constant vigilance for both patients and care teams.

Left unmanaged, excess fluid places strain on the cardiovascular and pulmonary systems, contributing to high blood pressure, heart failure and respiratory difficulties. By developing specialized clinical protocols combined with dedicated teammate education and proprietary digital tools, we’ve uniquely empowered our care teams to manage fluid more precisely. Through these integrated efforts, we’ve seen a 10% improvement in treatments achieving optimal fluid removal, a 5% improvement in how patients manage weight gain between treatments, and nearly five pound reduction in the average patient’s weight. These advancements are critical drivers supporting our continued mortality improvements and enhancing our patients’ daily quality of life.

Around the topic of medical, I will transition now to an update on our efforts to deliver better care for our patients through clearance of middle molecules. Last quarter we highlighted recent clinical evidence for Expanded HD dialyzers, including the potential for greater than 20% mortality improvement, along with our plans to deploy this technology broadly across our network. We have completed pilots in 150 centers for more than 10,000 patients to ensure a smooth in-center deployment at scale.

Based on this experience we learned, first, the feedback from patients and physicians was overwhelmingly positive. As background, approximately 75% of total patient census is clinically eligible for Expanded HD. This eligible pool excludes patients receiving dialysis at home or in an acute care setting, pediatric patients and patients with acute kidney injury. Adoption amongst those clinically eligible patients in the pilot was greater than 90%. Within that cohort, patients tell us they feel better after treatment and have more energy compared to prior therapy. One goal with Expanded HD is to enhance patients’ quality of life and it is exciting to hear early feedback to support this effort. Similarly, our physician partners have been overwhelmingly supportive. The buy-in from the medical community is critical to successful innovation and nephrologists have responded to the clinical evidence and are actively engaged to transform the standard of care.

We deeply appreciate the collaboration of our physician partners in our continued efforts to innovate. Second, we are operationally ready. Our teammates, systems, and supply chain are well prepared to successfully manage this transition. Over 95% of clinical teammates nationally are now trained on Expanded HD to ensure seamless care for our patients. As a reminder, the new Expanded HD dialyzers are compatible with our existing dialysis machines. As a result, we will begin our national rollout next week and expect network transition, bringing Expanded HD to the vast majority of eligible patients in November.

Finally, from a financial perspective we do not expect any material net impact on adjusted operating income for 2026 or 2027. We anticipate the positive impact of lower mortality and higher volume growth to begin in the back half of 2028 and grow over time. Most importantly, this innovation means more patients living longer, representing a key milestone in our path back to 2% or greater volume growth by 2029. Transitioning to financial performance, third quarter adjusted operating income was $561 million and adjusted earnings per share was $3.82. Joel will provide details on the moving pieces underlying those Q3 results. Taking a step back from the quarterly numbers to look at the full year, I want to highlight two trends shaping 2026 and our future performance, starting with technology. Over the past few years we’ve invested more than a billion dollars to modernize our technology platform and strengthen our capabilities across our business.

These investments are delivering tangible clinical and financial benefits, contributing to improvements in mortality, revenue operations, labor productivity, IKC care management, and pharmacy costs. I’m calling this out to highlight that our IT investments in U.S. Dialysis are higher than we forecasted heading into the year, so it represents a drag on our full year financial performance. Going forward, we expect that growth in technology investment will decelerate.

The second highlight is our results on Integrated Kidney Care, or IKC. We were above plan in the third quarter and we’re on track to outperform our original IKC guidance for the year. We made meaningful progress delivering on the patient impact we began talking about in 2021, both upstream in chronic kidney disease and for existing ESKD dialysis patients. Let me provide some color on the two operating levers which contribute to IKC’s financial performance.

First is the medical spend under management. As we have noted in the past quarters, we have been disciplined as we seek opportunities to grow this business. We’re making progress heading into next year, including our recent announcement of a Humana partnership, which will expand upstream care to approximately 10,000 chronic kidney disease patients. Second is our savings rate, which reflects our ability to lower the total cost of care and has steadily improved year over year.

This is particularly encouraging because it reflects continued gains in clinical performance as our care model matures. Our investment in technology is improving the ability of our care team to identify where and when to intervene to help our patients be healthier. Our clinical interventions are driving reductions in avoidable hospital admissions and readmissions while achieving higher rates of planned optimal dialysis transitions. These results improve patient outcomes while generating substantial shared savings for CMS and our Medicare Advantage health plan partners.

This gives us growing confidence in 2026 and the long-term economics of the IKC business. We now expect IKC to deliver at least $65 million of adjusted operating income in 2026, an increase of at least $25 million over the prior guidance. This all leads to an update on our financial outlook for the remainder of the year. With one quarter remaining in the year, we are now narrowing our full year 2026 guidance ranges. We now expect adjusted operating income within a range of $2.175 billion to $2.25 billion and adjusted earnings per share within a range of $14.30 to $15.20.

This reflects the increased guidance for IKC offset by higher U.S. Dialysis costs, particularly higher technology investments, as I previously noted. Before I turn it over to Joel, I want to briefly comment on two recent policy updates. First, yesterday CMS released the ESRD final rule. This confirms the permanent incorporation of phosphate binders into the dialysis bundle, which is a great outcome for patients and has been a successful cost saver for the government. Within the overall rate adjustment, there are more moving pieces than in prior years. The headline rate increase for large dialysis organizations is 3.5%, which is up 1.5% from the proposed rule.

Unlike prior years, this will be subject to downward quarterly adjustments after Q1. And second, a few thoughts on the Kidney Care National Plan released by HHS last week. We share the administration’s goals around earlier intervention, slowing disease progression, improving the transplant process, expanding patient choice and improving outcomes. We also appreciate the opportunity of the government to create a framework to urge further competition in this complex ecosystem.

Many of the plan will require policy development and potentially congressional action before translating into specific actions, and we look forward to working with HHS and the relevant agencies as that work progresses. I will now turn the call over to Joel to discuss our financial performance in more detail.

Joel Ackerman (Chief Financial Officer)

Thank you, Javier. For the third quarter, adjusted operating income was $561 million, adjusted earnings per share was $3.82 and free cash flow was $276 million. Today I’ll provide further details on the quarter’s results and some thoughts on Q4 and full year guidance. Starting with US dialysis adjusted operating income was in line with our expectations. I’ll walk you through the trilogy. Starting with volume, overall treatment volume grew 1.2% over the third quarter of 2025 and treatments per normalized day increased approximately 65 basis points year over year. Patient census increases drove the year over year growth primarily as a result of improving mortality. The census gain was offset in the quarter by an uptick in missed treatments.

As a reminder, the fourth quarter will have an approximately 1% headwind to treatment volume due to year over year day mix. Revenue per treatment was up approximately 1.1% versus the third quarter of last year and roughly flat sequentially. The year on year growth is the result of normal rate increases offset by lower commercial mix and lower phosphate binder reimbursement as expected through three quarters of the year. The impact on our exchange census from the expiration of enhanced premium tax credits continues to play out as expected.

Patient care costs per treatment were up 2.4% in Q3 compared to last year. Phosphate binder costs declined year over year as expected and partially offset the typical growth in labor expenses. Medical supply costs and professional liability expenses were higher than anticipated in the quarter. We expect these costs to revert to typical levels over time. US dialysis G&A costs were up less than 2% versus Q3 last year, excluding non-GAAP adjusted cyber expenses in 2025.

Technology spend continued to grow at more than 20% year over year in the quarter, but the non-tech component of G&A was lower in the quarter compared to last year as a result of our ongoing cost control efforts and expense timing. Turning now to IKC, as Javier noted, the business is performing ahead of our expectations. The outperformance this year is largely driven by a higher shared savings rate in our CKCC business, which is the Medicare Fee for Service demonstration project, as well as the value-based care contracts we have with Medicare Advantage insurers. This is partially offset by higher operating expenses due to higher physician payouts from our shared savings and the launch of a new CKD program with Humana.

We now expect this year’s IKC adjusted operating income to be at least $65 million, representing a $45 million improvement over last year and a $25 million improvement over our prior guidance. Turning to international, third quarter adjusted operating income was $46 million, a $20 million increase year over year. This performance is largely the result of growth and improved performance in our Latin America businesses. These results exclude a charge related to our operations in China which is not included in our adjusted operating income. The full year continues to track in line with our expectations for approximately $135 million of international adjusted operating income.

Transitioning to capital allocation, we repurchased approximately 600,000 shares in Q3 and we repurchased an additional 500,000 shares since the end of the quarter, including shares from Berkshire Hathaway. As a reminder, we repurchase shares from Berkshire each quarter as needed to bring their ownership back to 45% pursuant to our repurchase agreement. We finished September with a leverage ratio of 3.38 times consolidated EBITDA, about flat to last quarter.

Debt expense in the quarter was $150 million. In light of rising interest rates, I will remind you that we maintain three-year interest rate caps on approximately 80% of our floating rate debt for full year 2026. As Javier noted, we are narrowing our guidance ranges for adjusted operating income and adjusted earnings per share. Our new range for adjusted OI is $2.175 billion to $2.25 billion and our new range for EPS is $14.3 to $15.2. We anticipate free cash flow between $1 billion and $1.25 billion. That concludes my prepared remarks for today. Operator, please open the call for Q&A.

Michelle (Operator)

Thank you, Joel. If you would like to ask a question during this time, simply press STAR and then the number one on your telephone keypad. If you would like to withdraw your question, please press STAR then the number two. Our first caller is AJ Rice with UBS. Your line is open, sir.

AJ Rice (Analyst)

Thanks. Hi everybody. I appreciate the comments on the ESRD rule finalized over the last 24 hours. I know the industry had sort of felt like the rate in the original proposal for phosphate binders seemed adequate, but the underlying rate for the treatments ex-TDAPA was challenging. With the adjustments made, is there an ability to comment? One of the tricky things is how I know you guys had said the phosphate binder reimbursement would drop because ASPs were dropping in the relevant drugs.

Can you just comment on whether the drop in what they’ve included was consistent with what you’re thinking and how adequate is the move up in the rest of the rate?

Joel Ackerman (Chief Financial Officer)

Yeah, AJ, thanks for the question. So as you noted, it’s been 24 hours and we’re still unpacking the calculations. I’ll start with the picture which is our estimate right now, and I’ll emphasize that it’s an estimate, is that the net impact for us for the full year 27 will be 1.5 to 2%. As a reminder, a 1% change in Medicare for US is worth about $30 million a year. This is an improvement over the prior rule by somewhere north of 50 bps. And the important thing to realize is the rule works differently now than it has in the past.

Because of the change in the way that the TDAPA add-on payments are handled, they’re now recalculated every quarter rather than recalculated once a year. So the published number is really only the number for Q1. And you really have to break it into two components. There’s everything other than the TDAPA component, which is fixed for the year. And if you look at what that is for the LDOs, it’s 40 basis points and that’ll be constant for the year. And then the TDAPA component, which for the LDOs is 3.1%, that only stands for the first quarter.

And we expect that number to come down significantly in Q2 and stay down and potentially further decline over the course of the year. So we’ve got that 40 basis points locked in. That 3.5% will come down significantly and the net impact over the course of the year we think is 1.5 to 2%, stronger in Q1, a little bit weaker over the rest of the year.

AJ Rice (Analyst)

Okay. Okay, thanks for that and maybe my follow up. Interested about your comments on the IKC? It sounds like, it sounds like you feel it’s solidly profitable now you can start to grow it. Obviously you’ve got the Humana transaction. It seems like to me there’s probably a fair amount of business up for grabs. If you wanted to lean into growth in that area. Can you maybe talk about now that you feel like you’re at a consistent level of profitability, how much you might think about adding to that business?

Javier Rodriguez (Chief Executive Officer)

Sure. Let me take that one. AJ, this is Javier. We are in agreement with you. Our confidence and our capabilities both in the clinical and actuarial has now reached a point that we want to pursue more business. But as we emphasize, what you want is healthy contracts. You want your physician partners to be heavily involved. Our model of care is now scalable and you need integrated tech, which we now have. So we’ve got a lot of the pieces to the tool.

And now it’s about getting contracts and physicians that are aligned to make sure that we deliver on the care that both avoids hospitalizations and readmissions and brings down the cost.

AJ Rice (Analyst)

Okay. Okay, thanks.

Michelle (Operator)

Thank you. Our next caller is Andrew Mock with Barclays. Your line is open, sir.

Andrew Mock (Analyst)

Hi, good afternoon. Leaving the full year treatment guide alone implies treatments per normalized day would be up more than 1% in Q4 and an acceleration from the first three quarters. Is that the right way to think about the progression? And are you comfortable with that given the uptick in missed treatments you called out? Thanks.

Joel Ackerman (Chief Financial Officer)

Yeah. So Andrew, first your math is about right. It would involve an uptick in treatments per normalized day in Q4. I would expect that to come from two things. One is missed treatment rate reverting to a normal year over year pattern. What we saw in Q3 was missed treatment rates about 20 basis points higher than expected and higher than last year. And what we’re assuming for Q4 is that it reverts to a normal pattern. We’re assuming it’ll be consistent with Q4 of last year.

So that’s one thing. The second component driving it would be census. Census growth grew in Q3 anticipated and that census growth over the course of the quarter drives higher treatment growth per normalized day in Q4 rather than Q3. So those two things together would drive the uptick in Q4.

Andrew Mock (Analyst)

Great. And can you update us on the ACA exchange headwind in the quarter and comment on where commercial mix is tracking relative to the about 10.7 I think you were expecting in the back half? Thanks.

Joel Ackerman (Chief Financial Officer)

Yes, mix is down a little bit relative to the first half of the year. Very much in line with our expectations and we think we’re on track for that $40 million year over year headwind for 26.

Andrew Mock (Analyst)

Great. And finally, if I could squeeze one more in, wanted to follow up on your comments around HHS’s Kidney Care Plan released last week. What were your initial impressions and which elements of the plan do you think translate into policy? Thanks.

Javier Rodriguez (Chief Executive Officer)

Yeah, thanks Andrew. As we said in our opening comment, we have a lot of things that we like about the plan and we are aligned totally and we share the goals of the administration of fostering innovation, investing in early detection and prevention and increasing access to transplant. When the plan came out, I immediately reached out to the administration and told them we want to be right there at the table and want to be part of the solution. And on each one of those, of course you can go into the sub component.

As for the part that was a bit frustrating, it’s how dialysis was portrayed in the rule. The fact is we offer world-class service and we are great economic value and this is confirmed as I travel the world and other countries really want our expertise to enter. That said, there were some positive things around what they said within dialysis, which is they want to solve for innovation in the bundle which we of course want as well. And they want to reduce regulatory burden, which we would welcome.

The part that’s a little, let’s say not fleshed out enough and we need to solve for is the economic ecosystem. 90% of patients are covered by the government insurance with roughly 1% Medicare increase for the past decade. And so there’s an assumption in there that the cross subsidy by the private insurance and the 1 in 10 is accepted by the model. And so one of the main things that they want to do is attract new capital. And in order to attract new capital we have to solve for this dynamic.

And one of the things is the government will have to pay more. If I was going to continue a little while, I got a little momentum because you hopefully can feel my passion on it is that there’s an under appreciation for the benefit of scale and expertise that as I look at our body of work over the last couple of decades we have developed and adhered to world-class protocols and best demonstrated practices. We have a dramatic reduction in mortality of roughly 25% if you measure it from the year 2000. When there’s an emergency or a disaster response, we are there.

When you look at sophisticated tech, we have it. When you look at access to rural communities, 92% of patients in rural communities are within 10 miles of our centers. And by the way, you need a counterweight to big pharma and big insurance or else costs would go up a whole bunch. So in summary, I really took a little to heart that we are part of the solution, not the problem. We welcome more competition, but I want to be clear, the limited competition is not due to how we operate but rather how hard it is to take care of this vulnerable population with high needs at 90% government mix.

And so you hopefully see the one part that got me going, but the rest of the plan I’m totally behind.

Andrew Mock (Analyst)

Appreciate all the color.

Javier Rodriguez (Chief Executive Officer)

Thank you Andrew.

Michelle (Operator)

Thank you. And once again, if you would like to ask a question, you may press Star One. Our next caller is Pito Chickering with Deutsche Bank. Your line is open, sir.

Pito Chickering (Analyst)

Hey, good afternoon guys. Thanks for taking the questions. As you think about 2027, can you give us the known puts and takes as we think about modeling next year including the treatment growth that you’re seeing with the acceleration of the census in the third quarter and thoughts about treatment next year with what you learned about HCS, then the tailwinds from lower IT investments and any additional IKC tailwinds that we should be thinking about as you guys scale up?

Joel Ackerman (Chief Financial Officer)

Sure, I’ll take that one Peto, it’s early to give full guidance on 2027. That said, there’s certainly a few things that we can help with. On the volume side, I would say we expect volume growth in 2027 to be higher than volume growth in 2026. On RPT, we expect a headwind from commercial mix with ACA being the big component of that. And then on the cost side, I’d really call out pharmaceutical costs, which we think will come down in 2027. Binders being the biggest component of that, but not the only component of it.

You mentioned it, IT spend will not come down next year. Our expectation is it will decelerate. So the 20 plus percent growth that we’ve been absorbing for the last three or four years, we think we can get down from that. But I would expect it will continue to grow. So I’d say that’s the known stuff for next year.

Pito Chickering (Analyst)

Okay, great. And then on the HD dialyzer I think you said that all the centers will be doing it by November and expected to see a signal in mortality in the back half of ’28. But I’m curious, for the 10,000 patients that you’ve been treating so far, have you seen any indication of lower missed treatments that could impact the near term treatments? And how does this impact people on home hemo? Did they sort of come back in the center if people are having better results?

Thank you.

Javier Rodriguez (Chief Executive Officer)

Thank you. And hopefully you hear the excitement in our tone in our physicians and our patients and our caregivers. This is one of the most excitement I’ve ever seen in the community. And the short answer to your question is it’s too soon to tell. This takes a while. As you can see from the studies in mortality that it takes a while to have the impact on the inflammatory side. As it relates to people switching modalities, I doubt that that will be the case.

People make modalities on a lot of other matters. And if you look at PD as a modality, it already is quite good at clearing middle molecules as an example. And so I think it will be just one other thing to consider, but I doubt that there will be shifts in modality selection.

Pito Chickering (Analyst)

Great. And the last question, because I’m getting asked this a lot, I mean again it’s back in 2027. I know that it’s way too soon for, for guidance here, but is there any commentary around just do you think that your standard growth rates that you’ve been having the last few years in business can continue next year with the headwinds and tailwinds, plus the IKC on top of that. Is that the way you’re thinking about it?

Joel Ackerman (Chief Financial Officer)

I think you’re right, Peto. It is too early to answer that question. Look, as we said, we think we get a better volume tailwind next year than we’ve had this year on U.S. Dialysis margins. I think we called out the headwinds, tailwinds. Headwind on RPT, a tailwind on cost. How those shake out, we’ll know more in February and then I don’t think we’ve really got much to say on either International or IKC yet.

Pito Chickering (Analyst)

Great. Thanks so much, guys.

Joel Ackerman (Chief Financial Officer)

Thank you.

Michelle (Operator)

Thank you. Thank you. Our next caller is Kevin Fischbeck with Bank of America.

Kevin Fischbeck (Analyst)

Great, thanks. Can you talk a little bit about the benefit to volumes that you saw from Fresenius closing sites? I wasn’t sure if there was supposed to be any kind of improvement in Q3 versus Q2 from that kind of normalizing. What did you see there?

Joel Ackerman (Chief Financial Officer)

Yeah, no, Kevin, that played out pretty much in Q1. So no change from Q2 to Q3 from that dynamic.

Kevin Fischbeck (Analyst)

Okay. And how do we think about the profitability? I know it’s a 2028 and beyond issue, but of the improvement in mortality from the new dialyzer, I think there’s some question about this, just, you know, kind of extending the life on dialysis. And that’s more of a Medicare, you know, as a percentage of revenue, would that be as profitable? Should we be thinking about it as if it added 1% to treatments, if it had 1% to revenue and 1% to OI, or is the growth algorithm different than that from improved mortality?

Joel Ackerman (Chief Financial Officer)

Yeah, so we’re still waiting for better data on this. The natural thing would be to think that just the older patients or patients are adding on a year or two and you go from an average of five or six years to six or seven. And those are all Medicare patients. The early results are that is not the pure dynamic, that there are younger patients earlier in their journey whose lives are being extended. So it’s not purely an addition of Medicare treatments.

How that shakes out, whether it’s the same mix of 10 or 11% commercial as we see overall or not? Too early to tell. But I don’t think we’re ready to conclude it’s 100% additional Medicare treatments as a result of this improved mortality.

Kevin Fischbeck (Analyst)

Okay, and then last question here. Going back to that release from CMS a week or so ago, I feel like one of the things that they focused on was the AKF exposure. Can you just remind us where that is for you, how you’re benefiting from that relationship?

Javier Rodriguez (Chief Executive Officer)

Sure. CareWell Premium Assistance, for those of you that have not been keeping up, was discussed very heavily if you go back maybe eight or so years. But we haven’t discussed it for a while, so it’s probably worth refreshing the topic. So it’s basically a system that’s been in place for many decades that enables patients, many who can no longer work full time due to kidney failure, to maintain continuity of health coverage. One of the things that’s not known is that the vast majority of patients receiving CPA use the grants to support government and supplemental coverage.

And so that’s probably assumed that for commercial. But the significant majority of commercial patients actually don’t use CPA. And for those that use it, most of them use it to retain coverage that they had before their kidney failure. So while there are many reasons to keep your private insurance, the most common is to retain it for family coverage and because there is a three times more likely odds of getting a transplant if you have commercial insurance. So I think we can all agree that those are worthy reasons to keep your insurance.

Again, just as a contextual thing, the grants are administered by the American Kidney Fund, otherwise referred to as AKF. And they have been under some major heavy examination through investigations, inspections, rulemaking and legislative scrutiny. And all have concluded that the grants benefit a vulnerable population and that the program follows the rules. And so now it’s been sort of pointed out in the plan as something to look at. We of course welcome and we will transparently go through the process again.

But one of the things that is interesting about the dynamic is that the irony that if that program is somehow or other diluted, it would actually make more patients be paid by the government. So that 1 in 10 commercial would go down. And the other thing that would happen is that it would attract less capital. And so ironically, this would be contra their intent to bring more competition to the marketplace. That said, I think your question was around sizing it and what I would just say is that in looking at it and we disclosed the numbers roughly eight years ago, the numbers have stayed completely flat.

So that range still applies today.

Kevin Fischbeck (Analyst)

All right, great. That’s helpful. Thank you.

Javier Rodriguez (Chief Executive Officer)

Thank you.

Michelle (Operator)

Our next caller comes from Ryan Langston with TD Cowen. Your line is open, sir.

Ryan Langston (Analyst)

Great, thank you. On clinic capacity utilization, I think that’s been kind of steady for a few years, but still kind of well below pre-COVID levels. Do some of the initiatives you’re working on like technology, RPT and rolling out HD kind of work themselves through at some point, does pressing on this lever become more of a higher priority? And what types of things can you do to maybe increase that utilization?

Joel Ackerman (Chief Financial Officer)

Yeah, so look, we absolutely like to get capacity utilization up. The best way to do it is to grow our census count. We are doing that. As I mentioned before, our census count is up about 1%, a little bit more than 1% year over year. And we plan on continuing that. We do not have any plans right now to close clinics. That would be the other thing to do. So we’d like to get it up with more volume.

Ryan Langston (Analyst)

Got it. And then depreciation expense has been trending down sequentially for a few quarters here. Is this sort of a good run rate for us to kind of jump off of or might we expect that to come down a little bit in the fourth quarter? Thanks.

Joel Ackerman (Chief Financial Officer)

I think it’s been coming down for many years now. I think we’re getting to the point where we’re probably not going to see a lot of continued decline. So I think we’re in a reasonable spot where we are now.

Nick Eliason (Group Vice President of Investor Relations)

Michelle, can we go to the next question?

Michelle (Operator)

Yes. Justin Lake with Wolfe Research, your line is open. Justin, we can’t hear you.

William Westerfield (Analyst)

Hello? Sorry, I couldn’t hear you. Thank you for taking the question. This is William Westerfield, asking for Justin Lake. We just want to circle back to the final ESRD rates that came out last night, and LDOs were up 3.5% with much of that coming from phosphate binders and DefenCath moving into the bundle. Could you just go through for us how you view that 3.1% increase in TDAPA payments across those two drugs? More specifically, how does the $12-plus binders number compare to your current binder revenue per treatment for Medicare patients, and then for DefenCath, can you talk about how you will think about that reimbursement development across 2027 and when you provide guidance for next year?

Joel Ackerman (Chief Financial Officer)

Yeah, Will, thanks for the question. So I treat the two very differently: binders, very much in line with our expectation. Not much growth, not much of that 3.1% growth we think is from. We don’t have full visibility on the baseline for 2026 because it incorporates us as well as others. But we don’t think that’s really the big story in the 3.1% growth. We think it’s largely about DefenCath. And the important thing to realize on that is, because it’s a TDAPA add-on payment, it will get recalculated every quarter based on updated volume and updated ASP.

And our current expectation is that number will drop significantly from Q1 to Q2 and stay low or continue to decline through the back half of 2027.

William Westerfield (Analyst)

Okay, and then on top of that, is there something that you’re tracking to understand the utilization and how it might develop across the industry here in the second half in ’27 that could help investors get ahead of the potential changes in quarterly reimbursement for ’27? For instance, can we track trends?

Joel Ackerman (Chief Financial Officer)

I think the short answer is no. We don’t have a lot of visibility into what’s happening with the industry on that through the back half of 2026.

William Westerfield (Analyst)

Okay, thank you.

Michelle (Operator)

Thank you. And at this time I’m showing no further questions. Speakers, I’ll turn the call back over to you for any closing remarks.

Javier Rodriguez (Chief Executive Officer)

Okay. Thank you, Michelle, and thank you all for joining the call. To wrap up, let me give some perspectives on our year so far. First, our business is resilient in the face of pressure both from RPT due to ACA declines and from treatment volumes growing below our historical norm. Second is investment in innovation. We have heavily invested to modernize our technology infrastructure and we’re also in a full swing on the rollout of new dialyzers that promise to deliver step change in care with longer and higher quality of life for our patients.

Putting all this together, we’re delivering on our financial commitments with adjusted OI growth in the top half of our long term guidance and we’re working hard to finish the year strongly. It’s unusual to say at this time of year, but we won’t talk until a little while. Have a great holiday season and we’ll speak soon. Be well.

Michelle (Operator)

Thank you. This concludes today’s conference call. You may go ahead and disconnect at this time and please have a good rest of your day. Thank you.

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