DaVita (DVA) 10-K risk factor changes: FY2017 vs FY2016

These statements involve known and unknown risks and uncertainties including [removed: the risks] [added: those] discussed below.

The risks [added: and uncertainties] discussed below are not the only ones facing our business.

[removed: Please] [added: In addition, please] read the cautionary notice regarding forward-looking statements in Item 7 of this Part 1 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

If we fail to adhere to all of the complex government [added: laws and] regulations that apply to our business, we could suffer severe consequences that could have a material adverse effect on our [removed: revenues, earnings, cash flows] [added: business, results of operations, financial condition] and stock price.

Our operations are subject to extensive federal, state and local government [added: laws and] regulations, [removed: including] [added: such as] Medicare and Medicaid payment rules and regulations, federal and state anti-kickback laws, the Stark Law and analogous state self-referral prohibition statutes, [added: the 21st Century Cures Act,] Federal Acquisition Regulations, the False Claims Act (FCA), the Civil Monetary Penalty statute, the Foreign Corrupt Practices Act (FCPA) and federal and state laws regarding the collection, use and disclosure of patient health information (e.g., Health Insurance Portability and Accountability Act of 1996 (HIPAA)) and the storage, [removed: handling and administration] [added: handling, shipment, disposal and/or dispensing] of [removed: pharmaceuticals.][added: pharmaceuticals and blood products and other biological materials.]

The Medicare and Medicaid reimbursement rules [removed: related to claims submission, enrollment and licensing requirements, cost reporting, and payment processes] impose complex and extensive requirements upon [removed: dialysis] [added: healthcare] providers as well.

Moreover, additional laws and regulations potentially affecting providers continue to be [removed: promulgated.][added: promulgated that may impact us.]

We further endeavor to structure all of our relationships with physicians [added: and providers] to comply with state and federal anti-kickback and physician self-referral laws.

We utilize considerable resources to monitor [removed: the] laws and [added: regulations and] implement necessary changes.

However, the laws and regulations in these areas are [removed: complex] [added: complex, changing] and often subject to varying interpretations.

For example, if an enforcement agency were to challenge the level of compensation that we pay our medical directors or the number of medical directors whom we engage, we could be required to change our practices, face criminal or civil penalties, pay substantial fines or otherwise experience a material adverse effect [added: on our business, results of operations and financial condition] as a result of a challenge to these arrangements.

In addition, failure to report and return overpayments within 60 days of when the overpayment [removed: was] [added: is] identified can lead to a violation of the FCA and associated penalties, as described in further detail below, and exclusion and penalties under the federal Civil Monetary Penalty statute, including civil monetary penalties of up to [removed: $10,000] [added: $20,000] (adjusted for inflation) for each item or service for which a person received an identified overpayment and failed to report and return such overpayment.

We have made [removed: significant] investments in resources to decrease the time it takes to [removed: identify] [added: identify, quantify] and process overpayments, and we may be required to make additional investments in the future.

Additionally, the federal government has used the FCA to prosecute a wide variety of alleged false claims and fraud allegedly perpetrated against Medicare and state health care [removed: programs, including coding errors, billing for services not rendered, submitting false cost reports, billing for services at a higher payment rate than appropriate, billing under a comprehensive code as well as under one or more component codes included in the comprehensive code, and billing for care that is not considered medically necessary.][added: programs.]

Moreover, amendments to the federal Anti-Kickback Statute in the [removed: health reform law] [added: 2010 Affordable Care Act (ACA)] make claims tainted by anti-kickback violations potentially subject to liability under the FCA, including qui tam or whistleblower suits.

On February 3, 2017, the Department of Justice (DOJ) issued a final rule announcing adjustments to FCA penalties, under which the per claim penalty range increases to [added: a range from] $10,957 to $21,916 for penalties assessed after February 3, 2017, so long as the underlying conduct occurred after November 2, 2015.

Legal [removed: Proceedings”] [added: Proceedings" in Part I of this report] and Note [removed: 17] [added: 16] to the consolidated financial statements included in this report for further details.

See [removed: “If] [added: "If] we fail to comply with our Corporate Integrity Agreement, we could be subject to substantial penalties and exclusion from participation in federal healthcare programs that [removed: may adversely impact] [added: could have a material adverse effect on] our [removed: revenues, earnings] [added: business, results of operations] and [removed: cash flows”.][added: financial condition."]

If any of our operations are found to violate these or other government [added: laws or] regulations, we could suffer severe consequences that would have a material adverse effect on our [removed: revenues, earnings, cash flows] [added: business, results of operations, financial condition] and stock price, including:

| [removed: |] • | Suspension or termination of our participation in government payment programs; |

| [removed: |] • | Refunds of amounts received in violation of law or applicable payment program requirements; |

| [removed: |] • | Loss of required government certifications or exclusion from government payment programs; |

| [removed: |] • | Loss of licenses required to operate healthcare facilities or administer pharmaceuticals in some of the states in which we operate; |

| [removed: |] • | Reductions in payment rates or coverage for dialysis and ancillary services and related pharmaceuticals; |

| [removed: |] • | Criminal or civil liability, fines, damages or monetary penalties for violations of healthcare fraud and abuse laws, including the federal Anti-Kickback Statute, Stark Law violations, FCA or other failures to meet regulatory requirements; |

| [removed: |] • | Enforcement actions by governmental agencies and/or state claims for monetary damages by patients who believe their protected health information (PHI) has been used, disclosed or not properly safeguarded in violation of federal or state patient privacy laws, including HIPAA [removed: or] [added: and] the Privacy Act of 1974; |

| [removed: |] • | Mandated changes to our practices or procedures that significantly increase operating expenses; |

| [removed: |] • | Imposition of and compliance with corporate integrity agreements that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our billing and business practices which could lead to potential fines; |

| [removed: |] • | Termination of relationships with medical directors; and |

| [removed: |] • | Harm to our reputation which could impact our business relationships, affect our ability to obtain financing and decrease access to new business opportunities, among other things. |

We are, and may in the future be, a party to various lawsuits, [added: demands,] claims, [added: qui tam suits,] governmental investigations and audits (including investigations resulting from our obligation to self-report suspected violations of law) and other legal proceedings, any of which could result in, among other things, substantial financial penalties or awards against us, substantial payments made by us, [removed: harm to our reputation,] required changes to our business practices, exclusion from future participation in the Medicare, Medicaid and other federal healthcare programs and possible criminal penalties, any of which could have a material adverse effect on [removed: us.][added: our business, results of operations and financial condition and materially harm our reputation.]

We are the subject of a number of investigations and audits by the federal [removed: government.][added: government, as further described in Note 16 to the consolidated financial statements included in this report.]

[removed: In addition to the foregoing inquiries and proceedings, we are frequently] [added: We may be] subject to other investigations and audits by state or federal government agencies and/or private civil qui tam complaints filed by relators and other lawsuits, [added: demands,] claims and legal proceedings.

It is possible that criminal proceedings may be initiated against us [added: and/or individuals] in [added: our business in] connection with investigations by the federal government.

Legal [removed: Proceedings”] [added: Proceedings" in Part I of this report] and Note [removed: 17] [added: 16] to the consolidated financial statements included in this report, we cannot predict the ultimate outcomes of the various legal proceedings and regulatory matters to which we are or may be subject from time to time, including those described in the aforementioned sections of this report, or the timing of their resolution or the ultimate losses or impact of developments in those matters, which could have a material adverse effect on our [removed: revenues, earnings,] [added: business results of operations] and [removed: cash flows.][added: financial condition.]

Legal [removed: Proceedings”] [added: Proceedings" in Part I of this report] and Note [removed: 17] [added: 16] to the consolidated financial statements included in this report for further details regarding these and other matters.

Disruptions in federal government operations and funding create uncertainty in our industry and could have a material adverse effect on our [removed: revenues, earnings and cash flows] [added: business, results of operations] and [removed: otherwise adversely affect our] financial condition.

A substantial portion of our revenues is dependent on federal healthcare program reimbursement, and any disruptions in federal government operations could have a material adverse effect on our [removed: revenues, earnings] [added: business, results of operations] and [removed: cash flows.][added: financial condition.]

Any future federal government shutdown, U.S. government default on its debt and/or failure of the U.S. government to enact annual appropriations could have a material adverse effect on our [removed: revenues, earnings] [added: business, results of operations] and [removed: cash flows.][added: financial condition.]

We cannot predict how employers, private payors or persons buying insurance might react to the changes brought on by federal and state healthcare reform [removed: legislation] [added: legislation, including the ACA and any subsequent legislation,] or what form many of these regulations will take before implementation.

A violation or departure from any of these legal requirements may result in government audits, lower reimbursements, significant fines and penalties, the potential loss of certification, recoupment efforts or voluntary repayments, among other things.

Overpayments subject us to refunds and related damages and potential liabilities.

Certain civil investigative demands received by us or our subsidiaries specifically reference that they are in connection with FCA investigations alleging, among other things, that we or our subsidiaries presented or caused to be presented false claims for payment to the government.

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Initiative, CEC Model (which includes the development of ESRD Seamless Care Organizations), the Duals Demonstration, and other models.

These delays could adversely affect our business, results of operations and financial condition.

The BBA revised the manner in which beneficiaries are assigned to an ACO, specifically giving ACOs the choice to have beneficiaries assigned prospectively at the beginning of a performance year and giving beneficiaries the option to voluntarily align to the ACO in which the beneficiary’s main primary care provider participates.

While prospective assignment may allow ACOs to identify beneficiaries for whom they will be held accountable and proactively take steps to ensure appropriate care, the ultimate impact of such changes on our business, results of operations and financial condition is not yet known.

For example, in October 2017, the federal government announced that cost-sharing reduction payments to insurers would end, effective immediately, unless Congress appropriated the funds, and, in December 2017, Congress passed the Tax Cuts and Jobs Act, which includes a provision that eliminates the penalty under the ACA’s individual mandate and could impact the future state of the exchanges.

Further, in February 2018, Congress passed the BBA which, among other things, repealed the Independent Payment Advisory Board that was established by the ACA and intended to reduce the rate of growth in Medicare spending.

While certain provisions of the BBA may increase the scope of benefits available for certain chronically ill Federal health care program beneficiaries beginning in 2020, the ultimate impact of such changes cannot be predicted.

In addition, in December 2016, CMS published an interim final rule that questioned the use of charitable premium assistance for ESRD patients and would have established new conditions for coverage standards for dialysis facilities.

In November 2017, when CMS published the 2018 final rule that updates payment policies and rates under the ESRD PPS, and the 2019 proposed Notice of Benefit and Payment Parameters, it did not pursue further discussion or rule making related to charitable premium assistance or propose changes to historical charitable premium assistance guidelines.

This does not preclude CMS or another regulatory agency or legislative authority from issuing a new rule or guidance that challenges charitable premium assistance.

We are also required to report known breaches of PHI consistent with applicable breach reporting requirements set forth in applicable laws and regulations.

From time to time, we may be subject to both federal and state inquiries or audits related to HIPAA, HITECH and related state laws associated with complaints, desk audits, and self-reported breaches.

Internal or external parties may attempt to circumvent our security systems, and we have in the past, and expect that we will in the future, experience external attacks on our network including reconnaissance probes, denial of service attempts, malicious software attacks including attacks intended to render our internal operating systems unavailable, and phishing attacks.

As with any security program, there always exists the risk that employees will violate our policies despite our compliance efforts or that certain attacks may be beyond the ability of our security and other systems to detect.

There can be no assurance that investments and diligence will be sufficient to prevent or timely discover an attack.

While we

For example, on December 13, 2016, the 21st Century Cures Act was signed into law and, among other provisions, authorizes the Office of Inspector General (OIG) to impose penalties on providers that engage in information blocking where there is knowledge that such practice is unreasonable and likely to interfere with, prevent, or materially discourage access, exchange, or use of electronic health information.

As of December 31, 2016, we recorded an estimated accrual of $38 million for potential damages and liabilities associated with write-offs and discounts of patient co-payment obligations, and credits to payors for returns of prescriptions drugs related to our pharmacy business that were identified during the course of an internally-initiated compliance review.

We have disclosed the results of this ongoing review to the government.

We may accrue additional reserves for refunds and related damages and potential liabilities arising out of this review.

The civil investigative demand received by our wholly-owned pharmacy services subsidiary, DaVita Rx, LLC, specifically references that it is in connection with an FCA investigation concerning allegations that this subsidiary presented or caused to be presented false claims for payment to the government for prescription medications, as well as into our relationship with pharmaceutical manufacturers.

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We have received subpoenas or other requests for documents from the federal government in connection with the Swoben private civil suit, the 2015 U.S. Attorney Transportation Investigation, the investigations underlying the two subpoenas regarding patient diagnosis coding received by DMG and its JSA subsidiary, the 2015 DOJ Vascular Access Investigation, the 2016 U.S. Attorney Prescription Drug Investigation and the 2017 U.S. Attorney American Kidney Fund Investigation.

To our knowledge, no such proceedings have been initiated by the federal government against us at this time.

Healthcare reform could substantially reduce our revenues, earnings and cash flows.

Our U.S. dialysis business may

These delays may negatively impact our revenues, earnings and cash flows.

In addition, CMS published an interim final rule that establishes new Conditions for Coverage standards for dialysis facilities that require any facility making payments of premiums for individual market health plans to notify patients of potential coverage options and educate them about the benefits of each option.

The interim final rule requires facilities to ensure that insurers are informed of and have agreed to accept the payments.

At this time CMS has not appealed the court’s ruling and we await the final decision from the court.

Because of the ease of entry into the

Occasionally, we have experienced competition from former medical directors or referring physicians who have opened their own dialysis centers.

Our substantial indebtedness could have important consequences to you, for example, it could:

| | • | limit our ability to borrow additional funds. |

Deterioration in economic conditions could adversely affect our business and our profitability.

As a result, we would expect these costs to be dilutive to our earnings over the next several years as we start-up or acquire new operations.

If the number of patients with higher-paying commercial insurance declines, then our revenues, earnings and cash flows would be substantially reduced.

Currently, for a patient covered by an employer group health plan, Medicare generally becomes the primary payor after 33 months, or earlier, if the patient’s employer group health plan coverage terminates.

Although CMS’ interim final rule is currently subject to a preliminary injunction issued by a federal court judge, CMS or a regulatory agency may issue a new rule to challenge charitable premium assistance.

reimbursement for ESAs.

close centers or our centers’ operating performance deteriorates, and it could have an adverse effect on our revenues, earnings and cash flows.

Our ancillary services and strategic initiatives currently include pharmacy services, disease management services, vascular access services, ESRD clinical research programs, physician services, physician practice management services, direct primary care and our international dialysis operations.

If any of our ancillary services or strategic initiatives, including our pharmacy services and our international dialysis operations, do not perform as planned, our revenues, earnings and cash flows may be negatively impacted, we may incur a material write-off or an impairment of our investment, including goodwill, in one or more of these activities, or we could incur significant termination costs if we were to exit a certain line of business.

If we are unable to hire skilled clinical personnel when needed, or if we experience a higher than normal turnover rate for our skilled clinical personnel, our operations and treatment growth will be negatively impacted, which would result in reduced revenues, earnings and cash flows.

Complications associated with our billing and collections system could have a material adverse effect on our revenues, cash flows and operating results.

or coupled with the management services agreements with such associated physician groups, are in violation of the corporate practice of medicine doctrine.

A goodwill impairment occurs when the carrying amount of a reporting unit’s goodwill is in excess of its implied fair value, and the amount of such non-cash charge, if any, could be significant.

In estimating the fair value of our DMG reporting units, we update our forecasts for our at-risk DMG reporting units to reflect the expected future cash flows that we believe market participants would use in determining fair values of our DMG reporting units if they were to acquire these businesses.

However, the 2016 Presidential and Congressional elections have caused the future state of the Health Reform Acts to be unclear.

In 2017, in 439 counties in 26 states, only one company will offer Medicare Advantage plans– an indicator that those markets may lack competition.

recourse or alternative options in light of its dependence on these health plans.

Further, the inability to estimate

These forward-looking statements [added: may] include statements regarding our future operations, financial condition and prospects, [removed: including the expected impact of the policy change for Medicaid patients seeking Affordable Care Act (ACA) plans, including on our future operating income and other impacts of this policy change,] [added: such as] expectations for treatment growth rates, revenue per treatment, expense growth, levels of the provision for uncollectible accounts receivable, operating income, cash flow, operating cash flow, estimated tax rates, estimated charges and accruals, capital expenditures, the development of new dialysis centers and dialysis center acquisitions, government and commercial payment rates, revenue estimating risk and the impact of our level of indebtedness on our financial performance, and including earnings per share.

[removed: These statements involve substantial known and unknown risks and uncertainties that could cause our actual results to differ materially from those described in the forward-looking statements, including risks resulting from the concentration of profits generated by higher-paying commercial payor plans for which there is continued downward pressure on average realized payment rates, and a reduction in the number of patients under such plans, which may result in the loss of revenues or patients, and the extent to which the ongoing implementation of healthcare exchanges or changes in regulations or enforcement of regulations regarding the exchanges results in a reduction in reimbursement rates for our services from and/or the number of patients enrolled in higher-paying commercial plans, a reduction in government payment rates under the Medicare ESRD program or other government-based programs, the impact of the CMS Medicare Advantage benchmark structure, risks arising from potential federal and/or state legislation that could have an adverse effect on our operations and profitability, the impact of the 2016 Congressional and Presidential elections on the current health care marketplace and on our business, including with respect to the future of the ACA, the exchanges, and many other core aspects of the current health care marketplace, changes in pharmaceutical or anemia management practice patterns, payment policies, or pharmaceutical pricing, legal compliance risks, including our continued compliance with complex government regulations and the provisions of our current Corporate Integrity Agreement (CIA), and current or potential investigations by various government entities and related government or private-party proceedings, the restrictions on our business and operations required by the CIA and other settlement terms, and the financial impact thereof, continued increased competition from large- and medium-sized dialysis providers that compete directly with us, our ability to maintain contracts with physician medical directors, changing affiliation models for physicians, and the emergence of new models of care introduced by the government or private sector that may erode our patient base and reimbursement rates such as Accountable Care Organizations (ACOs), independent practice associations (IPAs) and integrated delivery networks, our ability to complete acquisitions, mergers or dispositions that we might be considering or announce, or to integrate and successfully operate any business we may acquire or have acquired, including DaVita Medical Group (DMG), or to expand our operations and services to markets outside the U.S., or to businesses outside of dialysis and DMG’s business, the variability of our cash flows, the risk that we might invest material amounts of capital and incur significant costs in connection with the growth and development of our international operations, yet we might not be able to operate them profitably anytime soon, if at all, risks arising from the use of accounting estimates, judgments and interpretations in our financial statements, the risk that laws regulating the corporate practice of medicine could restrict the manner in which DMG conducts its business, the risk that the cost of providing services under DMG’s agreements may exceed our compensation, the risk that reductions in reimbursement rates, including Medicare Advantage rates, and future regulations may negatively impact DMG’s business, revenue and profitability, the risk that DMG may not be able to successfully establish a presence in new geographic regions or successfully address competitive threats that could reduce its profitability, the risk that a disruption in DMG’s healthcare provider networks could have an adverse effect on DMG’s business operations and profitability, the risk that reductions in the quality ratings of health maintenance organization plan customers of DMG could have an adverse effect on DMG’s business, or the risk that health plans that acquire health maintenance organizations may not be willing to contract with DMG or may be willing to contract only on less favorable terms, and the other risk factors set forth in Part II, Item 1A.][added: These statements involve substantial known and unknown risks and uncertainties that could cause our actual results to differ materially from those described in the forward-looking statements, including risks resulting from the concentration of profits generated by higher-paying commercial payor plans for which there is continued downward pressure on average realized payment rates, and a reduction in the number of patients under such plans, including as a result of restrictions or prohibitions on the use and/or availability of charitable premium assistance, which may result in the loss of revenues or patients, or our making incorrect assumptions about how our patients will respond to any change in financial assistance from charitable organizations; the extent to which the ongoing implementation of healthcare exchanges or changes in or new legislation, regulations or guidance, or enforcement thereof, including among other things those regarding the exchanges, results in a reduction in reimbursement rates for our services from and/or the number of patients enrolled in higher-paying commercial plans; a reduction in government payment rates under the Medicare End Stage Renal Disease program or other government-based programs; the impact of the Medicare Advantage benchmark structure; risks arising from potential and proposed federal and/or state legislation or regulation, including healthcare-related and labor-related legislation or regulation, that could have a material adverse effect on our operations and profitability; the impact of the changing political environment and related developments on the current health care marketplace and on our business, including with respect to the future of the Affordable Care Act, the exchanges and many other core aspects of the current health care marketplace; uncertainties related to the impact of federal tax reform legislation; changes in pharmaceutical or anemia management practice patterns, payment policies, or pharmaceutical pricing; legal compliance risks, including our continued compliance with complex government regulations and the provisions of our current Corporate Integrity Agreement (CIA) and current or potential investigations by various government entities and related government or private-party proceedings, and restrictions on our business and operations required by our corporate integrity agreement and other current or potential settlement terms, and the financial impact thereof and our ability to recover any losses related to such legal matters from third parties; continued increased competition from large- and medium-sized dialysis providers that compete directly with us; our ability to reduce administrative expenses while maintaining targeted levels of service and operating performance, including our ability to achieve anticipated savings from our recent restructurings; our ability to maintain contracts with physician medical directors, changing affiliation models for physicians, and the emergence of new models of care introduced by the government or private sector, that may erode our patient base and reimbursement rates, such as accountable care organizations (ACOs), independent practice associations (IPAs) and integrated delivery systems; our ability to complete acquisitions, mergers or dispositions that we might announce or be considering, on terms favorable to us or at all, or to integrate and successfully operate any business we may acquire or have acquired, or to successfully expand our operations and services to markets outside the United States, or to businesses outside of dialysis; noncompliance by us or our business associates with any privacy laws or any security breach involving the misappropriation, loss or other unauthorized use or disclosure of confidential information; the variability of our cash flows; factors that may impact our ability to repurchase stock under our stock repurchase program and the timing of any such stock repurchases, including market conditions, the price of our common stock, our cash flow position and leverage ratios, and legal, regulatory and contractual requirements; the risk that we might invest material amounts of capital and incur significant costs in connection with the growth and development of our international operations, yet we might not be able to operate them profitably anytime soon, if at all; risks arising from the use of accounting estimates, judgments and interpretations in our financial statements; impairment of our goodwill, investments or other assets; the risks and uncertainties associated with the timing, conditions and receipt of regulatory approvals and satisfaction of other closing conditions of the DMG sale transaction, potential disruption in connection with the DMG sale transaction making it more difficult to maintain business and operational relationships, and uncertainties related to our use of proceeds from the DMG sale transaction, including our ability to repurchase stock; the risk that laws regulating the corporate practice of medicine could restrict the manner in which DMG conducts its business; the risk that the cost of providing services under DMG’s agreements may exceed our compensation; the risk that reductions in reimbursement rates, including Medicare Advantage rates, and future regulations may negatively impact DMG’s business, revenue and profitability; the risk that DMG may not be able to successfully establish a presence in new geographic regions or successfully address competitive threats that could reduce its profitability; the risk that a disruption in DMG’s healthcare provider networks could have an adverse effect on DMG’s business operations and profitability; the risk that]

We base our forward-looking statements on information currently available to [removed: us at the time of this Annual Report on Form 10-K,] [added: us,] and [removed: except as required by law] we undertake no obligation to update or revise any forward-looking statements, whether as a result of changes in underlying factors, new information, future events or otherwise.

The Company [removed: consists] [added: has consisted] of two major divisions, DaVita Kidney Care (Kidney Care) and DaVita Medical Group (DMG).

Our U.S. dialysis and related lab services business is our largest line of [removed: business, which] [added: business and] is a leading provider of kidney dialysis services in the U.S. for patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD).

[removed: Our] [added: The] overall financial performance [removed: for 2016 in] [added: of our] U.S. dialysis and related lab services [added: in 2017] benefited from increased treatment [removed: volume, primarily] [added: volume] from [added: acquired and] non-acquired growth [removed: at existing] and [removed: new dialysis centers,] cost control [removed: initiatives, and payor mix improvements] [added: initiatives] in our dialysis business.

Some of our major accomplishments and financial operating performance indicators in [removed: 2016] [added: 2017] and year over year were as follows:

| [removed: |] • | improved clinical outcomes in our U.S. dialysis operations, including [removed: third] [added: the fifth] consecutive year as a leader in CMS’ [removed: Five –Star] Quality [removed: Rating system;] [added: Incentive Program;] |

| [removed: |] • | [removed: 5.7%] [added: consolidated net revenue growth of 1.6%, which included 2.4%] total net revenue growth in our U.S. dialysis segment, [removed: including an increase] [added: despite a decrease] of [removed: $4] [added: $5 in average dialysis net patient service revenue] per treatment; |

| [removed: |] • | [removed: improved] [added: solid] performance in our normalized non-acquired U.S. dialysis treatment growth of [removed: 4.2%,] [added: 3.5%,] which contributed to an increase of approximately [removed: 4.5%] [added: 4.1%] in the overall number of U.S. dialysis treatments; |

| [removed: |] • | [added: a] net increase of [removed: 99] [added: 160] U.S. dialysis [added: centers, including dialysis] centers [added: from the Renal Ventures acquisition,] and [removed: 36] [added: a net increase of 83] international dialysis centers; |

| [removed: | • | an increase in other ancillary] [added: Total net other-ancillary] services and strategic initiatives [removed: net revenue of 17.3%; and] [added: revenues] | [added: 1,596 | | | | 1,621 | | | | 1,382 | | |]

We [removed: also] remain committed to our [added: plans for] international expansion [removed: plans that] [added: in certain regions, which] will continue to require investment.

| | [removed: |] Year ended December 31, | | | | | | | | | | | | | | | | | | | | [removed: | | |]

| | [removed: | 2016 | | |] [added: 2017] | | | | | [removed: 2015] | | [added: 2016] | | | | | | [removed: 2014] | [added: 2015] | | | | | |

| Net revenues: | | | | | | | | | | | | | | | | | | | | | [removed: | | | |]

| [removed: Less:] Provision for uncollectible accounts | [removed: |] [added: (7] | [removed: (451] | ) | | [removed: | | |] [added: —] | [added: %] | [removed: (428] | [removed: )] [added: 12] | | | | [added: —] | [added: %] | | [removed: (367] [added: 9] | [removed: )] | | | [added: —] | [added: %] |

| Other revenues | [removed: | | 1,323 | | | | | | | | 1,220 | | |] [added: 20] | | | | [added: 17] | [removed: 1,032] | | | [added: 14] | | |

| Total net consolidated revenues | [removed: | $ | 14,745] [added: 10,877] | | | | 100 | % | | [removed: $ | 13,782] [added: 10,707] | | | | 100 | % | | [removed: $ | 12,795] [added: 9,982] | | | | 100 | % |

| Operating expenses and charges: | | | | | | | | | | | | | | | | | | | | | [removed: | | | |]

| [added: Less:] Provision for uncollectible accounts | [removed: | | 12 | |] [added: (485] | | [removed: —] [added: )] | | | | [removed: 9] | [added: (431] | | [added: )] | [removed: —] | | | | [removed: 14] [added: (413] | | [added: )] | | [removed: —] | |

| Equity investment income | [removed: |] [added: (25] | [removed: (13] | ) | | [removed: | — | | | |] (18 | [removed: )] | [removed: | | — | | | | (23 |] ) | | [added: (15] | [removed: —] | [added: )] |

| Gain on changes in ownership [removed: interests, net |] [added: interests] | [added: (6] | [removed: (404] | ) | | [removed: | (3 | %) |] [added: —] | [added: %] | [removed: —] | [added: (374] | | [added: )] | [removed: —] | [added: (3] | [added: )%] | | — | | | | [added: —] | [added: %] |

| Settlement charge | [removed: | |] — | | | | — | [removed: |] [added: %] | | [removed: 495] [added: —] | | | | [removed: 4] [added: —] | % | | [removed: | —] [added: 495] | | | | [removed: —] [added: 5] | [added: %] |

| [removed: Loss] [added: Settlement charge and loss] contingency accruals | [removed: | |] — | | | | — | | | | [removed: — | | | | — | | | | 17 | | |] [added: 495] | [removed: —] | |

| [removed: Total operating] [added: Operating] expenses and [removed: charges | | | 12,850 | | | | 87 | % | | | 12,611 | |] [added: charges:] | | [removed: 92] | [removed: %] | | | [removed: 10,980] | | | | [removed: 86] | [removed: %] |

The following table summarizes our consolidated net [removed: revenues:][added: revenues among our reportable segments:]

| | [removed: |] Year ended December 31, | | | | | | | | | | |

| | [removed: | 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Net revenues: | | | | | | | | | | | | [removed: |]

| [removed: Dialysis] [added: U.S. dialysis] and related lab [removed: services] patient service revenues | [removed: |] $ | [removed: 9,551] [added: 9,822] | | | $ | [removed: 9,034] [added: 9,551] | | | $ | [removed: 8,551] [added: 9,034] | |

| Less: Provision for uncollectible accounts | [removed: |] [added: (482] | [removed: (430] | ) | | [added: (430] | [removed: (406] | ) | | [added: (406] | [removed: (353] | ) |

| [removed: Dialysis] [added: U.S. dialysis] and related lab [removed: services] net patient service revenues | [removed: |] [added: 9,340] | [removed: 9,121] | | | [added: 9,121] | [removed: 8,628] | | | [added: 8,628] | [removed: 8,198] | |

| Other revenues | [removed: |] [added: 20] | [removed: 17] | | | [added: 17] | [removed: 14] | | | [added: 14] | [removed: 13] | |

| Total net [added: U.S.] dialysis and related lab services revenues | [removed: |] [added: 9,360] | [removed: 9,138] | | | [added: 9,138] | [removed: 8,642] | | | [added: 8,642] | [removed: 8,211] | |

| Other-ancillary services and strategic initiatives [added: other] revenues | [removed: |] [added: 1,273] | [removed: 1,305] | | | [added: 1,420] | [removed: 1,150] | | | [added: 1,248] | [removed: 947] | |

| [removed: Other-capitated] [added: Other] revenues | [removed: |] [added: 5] | [removed: 88] | | | [added: 6] | [removed: 72] | | | [added: 6] | [removed: 70] | |

| Other-ancillary services and strategic initiatives net patient service revenues (less provision for uncollectible accounts) | [removed: |] [added: 323] | [removed: 228] | | | [added: 202] | [removed: 160] | | | [added: 134] | [removed: 122] | |

| [removed: Total net other-ancillary] [added: Other — ancillary] services and strategic initiatives [removed: revenues] | [removed: |] [added: (439] | [removed: 1,621] | [added: )] | | [added: 267] | [removed: 1,382] | | | [added: (104] | [removed: 1,139] | [added: )] |

| Total net segment revenues | [removed: |] [added: 10,956] | [removed: 14,873] | | | [added: 10,759] | [removed: 13,861] | | | [added: 10,024] | [removed: 12,852] | |

reductions in the quality ratings of health maintenance organization plan customers of DMG could have an adverse effect on DMG’s business; the risk that health plans that acquire health maintenance organizations may not be willing to contract with DMG or may be willing to contract only on less favorable terms; and the other risk factors set forth in Part I, Item 1A.

On December 5, 2017, we entered into an equity purchase agreement to sell our DMG division to Collaborative Care Holdings, LLC (Optum), a subsidiary of UnitedHealth Group Inc. The transaction is expected to close in 2018 and is subject to regulatory approval and other customary closing conditions.

As a result of this pending transaction, the DMG business is classified as held for sale and its results of operations are reported as discontinued operations.

In addition, prior periods' presentation has been revised to conform to current year presentation and DMG is not included in our Management's Discussion and Analysis below.

| | |

| | |

| | |

| | |

| | |

| --- | --- |

| • | an increase in our overall number of patients we serve in the U.S. of approximately 5.4% in 2017; |

| | |

| --- | --- |

| • | a decrease in U.S. dialysis and lab related services patient care costs of approximately $2 per treatment and a decrease in general and administrative expenses of approximately $1 per treatment; and |

| | |

| --- | --- |

| • | consolidated operating cash flows of $1.9 billion, or $1.6 billion from continuing operations, which included the net VA settlement of $332 million. |

We believe 2018 will be challenging.

We continue to expect clinical costs to increase due to inflation and a tight labor market and we do not foresee an opportunity to offset these pressures with productivity improvements.

With labor cost inflation continuing to outpace Medicare reimbursement, we anticipate that margins on our Medicare business will continue to experience pressure.

In addition, we will experience an increase in benefit costs as we transition to a 401(k) plan match program as our 2017 benefit costs did not include a comparable expense.

In 2018 we also anticipate additional reimbursement pressure on our pharmacy business.

We anticipate that these challenges will be partially offset in 2018 by the expected reduction in income taxes as a result of recent U.S. tax reform legislation.

In addition, in connection with our previously announced capital allocation strategy, in 2018 we plan to continue our evaluation of strategic alternatives for various assets in our portfolio.

| | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | |

| Dialysis and related lab patient service revenues | $ | 10,094 | | | | | | $ | 9,727 | | | | | | $ | 9,155 | | | | |

| Net dialysis and related lab patient service revenues | 9,608 | | | | | | | 9,296 | | | | | | | 8,743 | | | | | |

| Depreciation and amortization | 560 | | | | 5 | % | | 509 | | | | 5 | % | | 464 | | | | 5 | % |

| Investment and other asset impairments | 295 | | | | 3 | % | | 15 | | | | — | % | | — | | | | — | % |

| Goodwill impairment charges | 36 | | | | — | % | | 28 | | | | — | % | | 4 | | | | — | % |

| Gain on settlement, net | (527 | | ) | | (5 | )% | | — | | | | — | % | | — | | | | — | % |

| Total operating expenses and charges | 9,064 | | | | 83 | % | | 8,678 | | | | 81 | % | | 8,845 | | | | 89 | % |

| Operating income | $ | 1,813 | | | 17 | % | | $ | 2,030 | | | 19 | % | | $ | 1,137 | | | 11 | % |

Certain columns, rows or percentages may not sum or recalculate due to the use of rounded numbers.

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | |

| | (dollars in millions) | | | | | | | | | | |

| Consolidated net revenues | $ | 10,877 | | | $ | 10,707 | | | $ | 9,982 | |

DMG experienced a decrease in adjusted operating income primarily due to a reduction in Medicare Advantage reimbursement rates and an increase in medical costs.

| --- | --- | --- |

| | • | consolidated net revenue growth of 7.0%; |

| | • | an increase in DMG’s net revenue of 7.2% related to an increase in its fee-for-service (FFS) business from the acquisition of The Everett Clinic Medical Group (TEC); |

| | • | formation of a strategic joint venture in our Asia-Pacific market; |

| | • | strong operating cash flows of $1.963 billion. |

We believe that 2017 will be challenging due to the uncertainty around the ACA and the ability of our patients to utilize charitable premium assistance, average commercial rate pressure, increases in clinical costs due to inflation, employee turnover and other factors affecting U.S. dialysis and related lab services.

In addition, the 2016 Presidential and Congressional elections have caused the future state of the exchanges and other ACA reforms and the healthcare landscape in general to be very unclear.

DMG continues to face challenges due to announced decreases in Medicare Advantage and Medicaid reimbursement rates as the government continues to modify the rate structure.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | (dollar amounts rounded to nearest million) | | | | | | | | | | | | | | | | | | | | | | |

| Patient service revenues | | | 10,354 | | | | | | | | 9,481 | | | | | | | | 8,869 | | | | | |

| Net patient service revenues | | | 9,903 | | | | | | | | 9,053 | | | | | | | | 8,502 | | | | | |

| Capitated revenues | | | 3,519 | | | | | | | | 3,509 | | | | | | | | 3,261 | | | | | |

| Patient care costs | | $ | 10,647 | | | | 72 | % | | $ | 9,825 | | | | 71 | % | | $ | 9,119 | | | | 71 | % |

| General and administrative | | | 1,592 | | | | 11 | % | | | 1,452 | | | | 11 | % | | | 1,262 | | | | 10 | % |

| Depreciation and amortization | | | 720 | | | | 5 | % | | | 638 | | | | 5 | % | | | 591 | | | | 5 | % |

| Goodwill and other asset impairment charges | | | 296 | | | | 2 | % | | | 210 | | | | 2 | % | | | — | | | | — | |

| Operating income | | $ | 1,895 | | | | 13 | % | | $ | 1,171 | | | | 8 | % | | $ | 1,815 | | | | 14 | % |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | (dollar amounts rounded to nearest million) | | | | | | | | | | |

| DMG capitated revenues | | | 3,431 | | | | 3,437 | | | | 3,191 | |

| DMG net patient service revenues (less provision for uncollectible accounts of $20, $15 and $13, respectively) | | | 622 | | | | 318 | | | | 219 | |

| Other revenue | | | 61 | | | | 82 | | | | 92 | |

| Total net DMG revenues | | | 4,114 | | | | 3,837 | | | | 3,502 | |

| Consolidated net revenues | | $ | 14,745 | | | $ | 13,782 | | | $ | 12,795 | |

| DMG services | | | (104 | ) | | | 34 | | | | 215 | |

| Reduction in a receivable associated with the DMG acquisition escrow provision | | | (31 | ) | | | — | | | | — | |

| Consolidated operating income | | | 1,895 | | | | 1,171 | | | | 1,815 | |

| Add: | | | | | | | | | | | | |

| Goodwill and other asset impairment charges | | | 281 | | | | 210 | | | | — | |

| Loss on sale of DMG Arizona | | | 10 | | | | — | | | | — | |

| Hospice accrual | | | 16 | | | | — | | | | — | |

| Pharmacy accrual | | | 16 | | | | 22 | | | | — | |

| Loss contingency accruals | | | — | | | | — | | | | 17 | |

| Reduction in a receivable associated with the DMG acquisition escrow provision | | | 31 | | | | — | | | | — | |

| Less: | | | | | | | | | | | | |

| Gain on sale of Tandigm ownership interest | | | (40 | ) | | | — | | | | — | |

| (1) | For the year ended December 31, 2016, we have excluded goodwill impairment charges of $253 million related to our DMG reporting units and $28 million related to our vascular access reporting unit, an impairment of $15 million related to a minority equity investment, the loss on sale of our DMG Arizona business of $10 million, estimated accruals for damages and liabilities associated with our DMG Nevada hospice business of $16 million and our pharmacy business of $16 million, an adjustment to reduce receivables associated with the DMG acquisition escrow provision relating to income tax items of $31 million, the gain on changes in ownership interest upon the formation of the Asia Pacific joint venture (APAC JV) of $374 million and the gain related to the sale of a portion of our Tandigm ownership interest of $40 million. For the year ended December 31, 2015, we have excluded estimated goodwill and other intangible asset impairment charges of $210 million primarily related to certain DMG reporting units, an estimated accrual of $22 million for damages and liabilities associated with our pharmacy business, which is included in general and administrative expenses, and $495 million related to a settlement charge in connection with a private civil suit. In addition, for the year ended December 31, 2014, we have excluded $17 million, related to a loss contingency accrual for the settlement of the 2010 and 2011 U.S. Attorney physician relationship investigations. These are non-GAAP measures and are not intended as substitutes for the equivalent GAAP measures. We have presented these adjusted amounts because management believes that these presentations enhance a user’s understanding of our normal consolidated operating income by excluding certain items which we do not believe are indicative of our ordinary results of operations. As a result, adjusting for these amounts allows for comparison to our normal prior period results. |

Consolidated net revenues also increased due to an increase in DMG’s net revenues of $277 million, primarily due to an increase in FFS revenues from acquisitions and an increase in senior capitated revenues, as described below.

The table below presents principal repayments and current weighted average interest rates on our debt obligations as of December 31, [removed: 2016.][added: 2017.]

The variable rates presented reflect the weighted average LIBOR rates in effect for all debt tranches plus interest rate margins in effect as of December 31, [removed: 2016.][added: 2017.]

The Term Loan A margin in effect at December 31, [removed: 2016] [added: 2017] is [removed: 1.75%,] [added: 2.00%,] and along with the revolving line of credit, is subject to adjustment depending upon changes in certain of our financial ratios, including a leverage ratio.

| | [removed: |] Expected maturity date | | | | | | | | | | | | | | | | | | | | Thereafter | | | | Total | | | | Average interest rate | | | [removed: |] Fair value | | |

| | [removed: | 2017 | | | |] 2018 | | | | 2019 | | | | 2020 | | | | 2021 | | | | [added: 2022] | | | | | | | | | | | | | | | [added: | | |]

| | [removed: |] (dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | [removed: |]

| Long term debt: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | [removed: | |]

| | [removed: |] Notional [added: amount] | | | | Contract maturity date | | | | | | | | | | | | | | | | | | | | [removed: | |] [added: Receive variable] | | [added: Fair value] | | |

| | | | | | [removed: |] (dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | [removed: | |]

| Cap agreements | [removed: |] $ | 7,000 | | | $ | [removed: — | | | $ |] 3,500 | | | $ | — | | | $ | 3,500 | | | $ | — | | | [added: $] | [added: —] | [added: | |] LIBOR above 3.5% | | $ | [removed: 9.9] [added: 1.0] | |

As of December 31, [removed: 2016,] [added: 2017,] our Term Loan A bears interest at LIBOR plus an interest rate margin of [removed: 1.75%] [added: 2.00%] and our Term Loan B debt bears interest at LIBOR plus an interest rate margin of 2.75%.

LIBOR was greater than the 0.75% embedded LIBOR floor on Term Loan B, resulting in Term Loan B being subject to LIBOR-based interest rate volatility on the LIBOR variable component of our interest rate as of December 31, [removed: 2016.][added: 2017.]

The [removed: LIBOR based] [added: LIBOR-based] interest component is [added: effectively] limited to a maximum LIBOR rate of 3.50% on the outstanding principal debt on Term Loan B and [removed: $87.5 million] on [added: $122.5 million of] Term Loan A as a result of the interest rate cap agreements, as described below.

As of December 31, [removed: 2016,] [added: 2017,] we maintain several [added: currently effective] interest rate cap agreements that were entered into in November 2014 with notional amounts totaling $3.5 billion.

These [removed: previously forward] cap agreements became effective September 30, 2016 and have the economic effect of capping the LIBOR variable component of our interest rate at a maximum of 3.50% on an equivalent amount of our debt.

As of December 31, [removed: 2016,] [added: 2017,] the total fair value of these cap agreements was an [added: asset of approximately $1.0 million.]

During the year ended December 31, [removed: 2016,] [added: 2017,] we recognized debt expense of [removed: $2.0] [added: $8.3] million from these caps.

During the year ended December 31, [removed: 2016,] [added: 2017,] we recorded a loss of [removed: $1.2] [added: $0.1] million in other comprehensive income due to a decrease in the unrealized fair value of these cap agreements.

As of December 31, [removed: 2016,] [added: 2017,] we [added: also] maintain several forward interest rate cap agreements that were entered into in October 2015 with notional amounts totaling $3.5 billion.

These forward cap agreements will become effective June 29, 2018 and will have the economic effect of capping the LIBOR variable component of our interest rate at a maximum of 3.50% on an equivalent amount of [removed: our] [added: its] debt.

During the year ended December 31, [removed: 2016,] [added: 2017,] we recorded a loss of [removed: $4.0] [added: $8.8] million in other comprehensive income due to a decrease in the unrealized fair value of these [removed: forward] cap agreements.

Our overall weighted average effective interest rate on the senior secured credit facilities was [removed: 3.68%,] [added: 4.45%,] based on the current margins in effect of [removed: 1.75%] [added: 2.00%] for Term Loan A and [added: the Revolver and] 2.75% for Term Loan B, as of December 31, [removed: 2016.][added: 2017.]

In addition, the uncapped portion of Term Loan A, which is subject to the variability of LIBOR, is [removed: $775] [added: $652.5] million.

Our overall weighted average effective interest rate during the year ended December 31, [removed: 2016] [added: 2017] was [removed: 4.43%] [added: 4.70%] and as of December 31, [removed: 2016] [added: 2017] was [removed: 4.52%.][added: 4.88%.]

As of December 31, [removed: 2016,] [added: 2017,] we had [removed: undrawn revolving credit facilities totaling] [added: $300 million drawn on our] $1.0 billion [added: revolving line] of [removed: which] [added: credit under our senior secured credit facilities, in addition to] approximately [removed: $95.2] [added: $14.4] million [removed: was] committed for outstanding letters of credit.

One [removed: mean] [added: means] of assessing exposure to debt-related interest rate changes is a duration-based analysis that measures the potential loss in net income resulting from a hypothetical increase in interest rates of 100 basis points across all variable rate maturities (referred to as a parallel shift in the yield curve).

Under this model, with all else constant, it is estimated that such an increase would have reduced net income by approximately [removed: $11.6] [added: $27.6] million, [removed: $9.3] [added: $11.6] million, and [removed: $5.7] [added: $9.3] million, net of tax, for the years ended December 31, [added: 2017,] 2016, [removed: 2015,] and [removed: 2014,] [added: 2015,] respectively.

We have consolidated the balance sheets of our non-U.S. dollar denominated operations into U.S. dollars at the exchange rates prevailing at the balance sheet date and have translated their revenues and expense at [removed: the] average exchange rates [removed: for] [added: during] the period.

Through [removed: 2016,] [added: 2017,] our international operations remained [added: fairly] small relative to the size of our consolidated financial statements, constituting less than [removed: 4%] [added: 6%] of our consolidated assets as of December 31, [removed: 2016] [added: 2017] and approximately [removed: 1%] [added: 3%] of our consolidated net revenues for the year ended December 31, [removed: 2016.][added: 2017.]

In addition, our foreign currency translation [removed: losses have remained] [added: gains (losses) were] less than approximately [removed: 2%] [added: 6%, (2)%, and (3)%] of our consolidated operating income for the [removed: year] [added: years] ended December 31, [removed: 2016.][added: 2017, 2016 and 2015.]

As such, through December 31, [removed: 2016] [added: 2017] we have not engaged in transactions to hedge the exposure of our international transactions or net investments to foreign currency risk.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Fixed rate | $ | 36 | | | $ | 28 | | | $ | 27 | | | $ | 26 | | | $ | 1,276 | | | $ | 3,501 | | | $ | 4,894 | | | 5.28 | % | | $ | 4,961 | |

| Variable rate | $ | 142 | | | $ | 1,021 | | | $ | 46 | | | $ | 3,282 | | | $ | 8 | | | $ | 7 | | | $ | 4,506 | | | 4.45 | % | | $ | 4,549 | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | 2018 | | | | 2019 | | | | 2020 | | | | 2021 | | | | 2022 | | | | | | | | | | | |

As of December 31, 2017, these cap agreements had an immaterial fair value.

We also have approximately $90.1 million of additional outstanding letters of credit related to Kidney Care and $0.2 million of committed outstanding letters of credit related to DMG, which is backed by a certificate of deposit.

| --- | --- |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Fixed rate | | $ | 37 | | | $ | 25 | | | $ | 28 | | | $ | 26 | | | $ | 21 | | | $ | 4,735 | | | $ | 4,872 | | | | 5.27 | % | | $ | 4,902 | |

| Variable rate | | $ | 128 | | | $ | 143 | | | $ | 720 | | | $ | 44 | | | $ | 3,279 | | | $ | 7 | | | $ | 4,321 | | | | 3.68 | % | | $ | 4,383 | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | amount | | | | 2017 | | | | 2018 | | | | 2019 | | | | 2020 | | | | 2021 | | | | Pay fixed | | Receive variable | | Fair value | | |

asset of approximately $0.1 million.

As of December 31, 2016, the total fair value of these cap agreements was an asset of approximately $9.8 million.

Previously, we maintained several interest rate cap agreements with notional amounts totaling $2.7 billion on our Term Loan B debt.

These agreements had the economic effect of capping the LIBOR variable component of our interest rate at a maximum of 2.50% on an equivalent amount of our Term Loan B.

These interest rate cap agreements expired September 30, 2016.

During the year ended December 31, 2016, we recognized debt expense of $1.8 million from these caps.

We also previously maintained several interest rate swap agreements.

These agreements had the economic effect of modifying the LIBOR variable component of our interest rate on an equivalent amount of our Term Loan A to fixed rates ranging from 0.49% to 0.52%.

These interest rate swap agreements required monthly interest payments and expired September 30, 2016.

During the year ended December 31, 2016, we recognized debt expense of $0.3 million from these swaps and recorded a loss of $0.8 million in other comprehensive income due to a decrease in the unrealized fair value of these swap agreements.

As of December 31, 2016, our Term Loan B debt bears interest at LIBOR plus an interest rate margin of 2.75%.

Term Loan B is also subject to interest rate caps if LIBOR should rise above 3.50%.

Term Loan A bears interest at LIBOR plus an interest rate margin of 1.75%.

The capped portion of Term Loan A is $87.5 million.

The remaining amount is unencumbered.

In addition, DMG has an outstanding letter of credit of approximately $1.3 million which is secured by a certificate of deposit.

The Company [removed: consists] [added: has consisted] of two major divisions, DaVita Kidney Care (Kidney Care) and DaVita Medical Group [removed: (DMG, formerly known as HealthCare Partners or HCP).][added: (DMG).]

Kidney Care is comprised of our U.S. dialysis and related lab services, our ancillary services and strategic initiatives, including our international [removed: operations] [added: operations,] and our corporate administrative support.

Our U.S. dialysis and related lab services business is our largest line of [removed: business, which] [added: business and] is a leading provider of kidney dialysis services in the U.S. for patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD).

[removed: Our] DMG [removed: division] is a patient- and physician-focused integrated healthcare delivery and management company with over two decades of providing coordinated, outcomes-based medical care in a cost-effective manner.

For financial information about our [removed: reportable segments] [added: DMG business] see Note [removed: 25] [added: 21] to the consolidated financial statements included in this report.

As of December 31, [removed: 2016,] [added: 2017,] we provided dialysis and administrative services in the U.S. through a network of [removed: 2,350] [added: 2,510] outpatient dialysis centers in 46 states and the District of Columbia, serving a total of approximately [removed: 187,700] [added: 197,800] patients.

We also provide acute inpatient dialysis services in approximately 900 hospitals and related laboratory services throughout the U.S. [removed: All references in this document to dialysis and related lab services refer only to our U.S. dialysis and related lab services business.]

According to the United States Renal Data System, there were [removed: approximately 477,000] [added: over 495,000] ESRD dialysis patients in the U.S. in [removed: 2014.][added: 2015.]

The underlying ESRD dialysis patient population has grown at an approximate compound rate of 3.8% from 2000 to [removed: 2014,] [added: 2015,] the latest period for which such data is available.

See page [removed: 5] [added: 6] for further details.

For the year ended December 31, [removed: 2016,] [added: 2017,] approximately [removed: 88%] [added: 89.5%] of our total dialysis patients were covered under some form of [removed: government-based programs, with approximately 75% of our dialysis patients covered under Medicare and Medicare-assigned plans.]

| [removed: |] • | Hemodialysis |

| [removed: |] • | Peritoneal dialysis |

[added: U.S.] Dialysis and related lab services we provide

As of December 31, [removed: 2016,] [added: 2017,] we operated or provided administrative services through a network of [removed: 2,350] [added: 2,510] outpatient dialysis centers in the U.S. that are designed specifically for outpatient hemodialysis.

In [removed: 2016,] [added: 2017,] our overall network of U.S. outpatient dialysis centers increased by [removed: 99] [added: 160] primarily as a result of the opening of new dialysis centers, net of center [removed: closures and] [added: closures,] divestitures, and acquisitions, representing a total increase of approximately [removed: 4.4%] [added: 6.8%] from [removed: 2015.][added: 2016.]

[removed: In addition, other] nephrologists may apply for practice privileges to treat their patients at our centers.

Our total patient turnover, which is based upon all causes, averaged approximately [removed: 25%] [added: 26%] in [removed: both 2016] [added: 2017] and [removed: 2015.][added: 25% in 2016.]

However, in [removed: 2016,] [added: 2017,] the overall number of patients to whom we provided services in the U.S. increased by approximately [removed: 4.5%] [added: 5.4%] from [removed: 2015,] [added: 2016,] primarily from the opening of new dialysis centers and acquisitions, and continued growth within the industry.

As of December 31, [removed: 2016,] [added: 2017,] we provided hospital inpatient hemodialysis services, excluding physician services, to patients in approximately 900 hospitals throughout the U.S. We render these services based on a contracted per-treatment fee that is individually negotiated with each hospital.

In [removed: 2016,] [added: 2017,] hospital inpatient hemodialysis services accounted for approximately [removed: 4.7%] [added: 5.0%] of our U.S. dialysis revenues and 4.0% of our total U.S. dialysis treatments.

We currently operate or provide management and administrative services pursuant to management and administrative services agreements to [removed: 34] [added: 39] outpatient dialysis centers located in the U.S. in which we either own a noncontrolling interest or are wholly-owned by third parties.

[removed: Centers for Medicare and Medicaid Services’ (CMS)] [added: In addition, CMS'] Five-Star Quality Rating system, is a rating system that assigns one to five stars to rate the quality of outcomes for dialysis facilities.

For the [removed: third consecutive year,] [added: last three years in which data is available,] we [removed: are] [added: have been] a leader in the industry under the CMS Five-Star Quality Rating system.

[removed: In addition, CMS] [added: Centers for Medicare and Medicaid Services (CMS)] promotes high quality services in outpatient dialysis facilities treating patients with ESRD through its Quality Incentive Program (QIP).

For the [removed: fourth] [added: fifth] year in a row, we are an industry leader in QIP standards.

Our facilities employ registered nurses, licensed practical or vocational nurses, patient care technicians, social workers, registered dieticians, biomedical technicians and other administrative and support teammates [removed: whom] [added: who] aim to achieve superior clinical outcomes at our centers.

Our physician leadership in the Office of the Chief Medical Officer (OCMO) for our [added: U.S.] dialysis and related lab services business includes [removed: 13] [added: 16] senior nephrologists, led by our Chief Medical Officer, with a variety of academic, clinical practice, and clinical research backgrounds.

Our Physician Council is an advisory body to senior management composed of [removed: nine] [added: eight] physicians with extensive experience in clinical practice.

Our U.S. dialysis and related lab services business net revenues represent approximately [removed: 62%] [added: 86%] of our consolidated net revenues for the year ended December 31, [removed: 2016.][added: 2017.]

The sources of our [added: U.S.] dialysis and related lab services revenues are principally from government-based programs, including Medicare and Medicare-assigned plans, Medicaid and [removed: Medicaid-assigned] [added: Managed Medicaid] plans and commercial insurance plans.

The following graph summarizes our U.S. dialysis services revenues by source for the year ended December 31, [removed: 2016:][added: 2017:]

[removed: ][added: ]

The following graph summarizes our U.S. dialysis services revenues by modality for the year ended December 31, [removed: 2016:][added: 2017:]

[removed: ][added: ]

An important provision in the law is an annual adjustment, or market basket update, to the [added: ESRD] PPS base rate.

Absent action by Congress, the [added: ESRD] PPS base rate is automatically updated annually by a formulaic inflation adjustment.

In December 2013, CMS issued the 2014 final rule for the ESRD PPS, which phases in the payment reductions mandated by the American Taxpayer Relief Act of 2012 (ATRA), as modified by the Protecting Access to Medicare Act of 2014, which reduced our market basket inflation adjustment by [added: 1.25% in both 2016 and 2017, and by 1% in 2018.]

In November [removed: 2016,] [added: 2017,] CMS published the [removed: 2017] [added: 2018] final rule for the ESRD PPS, which increased dialysis facilities’ bundled payment rate for [removed: 2017] [added: 2018] relative to prior years.

In particular, CMS projects that the [removed: 2017] [added: 2018] final rule for the ESRD PPS will (i) increase the total payments to all ESRD facilities by [removed: 0.73%] [added: 0.5%] in [removed: 2017] [added: 2018] compared to [removed: 2016;] [added: 2017;] (ii) increase total payments to hospital-based ESRD facilities by [removed: 0.9%] [added: 0.7%] in [removed: 2017] [added: 2018] compared to [removed: 2016;] [added: 2017;] and (iii) increase total payments for freestanding facilities by [removed: 0.7%] [added: 0.5%] in [removed: 2017] [added: 2018] compared to [removed: 2016.][added: 2017.]

On December 5, 2017, we entered into an equity purchase agreement to sell our DMG division to Collaborative Care Holdings, LLC (Optum), a subsidiary of UnitedHealth Group Inc. The transaction is expected to close in 2018 and is subject to regulatory approval and other customary closing conditions.

As a result of this pending transaction, the DMG business has been reclassified as held for sale and its results of operations are reported as discontinued operations for all periods presented in our consolidated financial statements included in this report.

government-based programs, with approximately 74.9% of our dialysis patients covered under Medicare and Medicare-assigned plans.

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In addition, other

We are industry leaders for catheter rates and also lead the industry for the total number of patients in our peritoneal dialysis program.

Uncertainty about future payment rates remains a material risk to our business, as well as the potential implementation of or changes in coverage determinations or other rules or regulations by CMS or Medicare Administrative Contractors (MACs) that may impact reimbursement.

The 2018 final rule for the ESRD PPS also implements changes to the ESRD PPS outlier policy, broadening the pricing methodologies used to determine the cost of certain service drugs and biologicals in computing outlier payments when average sales price data is not available.

Although the Bipartisan Budget Act (BBA) of 2018 passed in February 2018 enacts a two-year federal spending agreement and raises the federal spending cap on non-defense spending for fiscal years 2018 and 2019, the Medicare program is frequently mentioned as a target for spending cuts.

In addition, we expect to continue experiencing increases in operating costs that are subject to inflation, such as labor and supply costs, including increases in maintenance costs and capital expenditures to improve, renovate and maintain our facilities, equipment and

If these patients are unable to obtain or continue to receive or receive for a limited duration such financial assistance, or if our assumptions about how patients will respond to any change in such financial assistance are incorrect, it could have a material adverse effect on our business, results of operations and financial condition.

In addition, in December 2016, CMS published an interim final rule that questioned the use of charitable premium assistance for ESRD patients and would have established new conditions for coverage standards for dialysis facilities.

In November 2017, when CMS published the 2018 final rule that updates payment policies and rates under the ESRD PPS, and the 2019 proposed Notice of Benefit and Payment Parameters, it did not pursue further discussion or rule making related to charitable premium assistance or propose changes to historical charitable premium assistance guidelines.

This does not preclude CMS or another regulatory agency or legislative authority from issuing a new rule or guidance that challenges charitable premium assistance.

In addition to EPO, other drugs are included in and, in the future, other drugs will be added to the ESRD PPS.

On January 1, 2018, calcimimetics, a drug class taken by many ESRD patients to treat mineral bone disease, became part of the ESRD PPS.

The drug has both an oral form (Sensipar) and IV form (Parsabiv).

Because the IV form is a new injectable for which there is no current functional category, neither Parsabiv nor Sensipar are considered accounted for in the ESRD PPS base rate and are reimbursed through a Transitional Drug Add-on Payment Adjustment (TDAPA).

The TDAPA period is expected to continue for a period of two years.

Currently, the oral and IV forms of the drug are produced and sold by a single manufacturer, Amgen.

In December 2017, we entered into a Sourcing and Supply Agreement with Amgen for both the oral and IV versions of calcimimetics.

Our operating results could be materially impacted by certain factors, including physician prescribing patterns, vendor contracts with Amgen and other suppliers, the timing of the entry into the market of a generic oral equivalent, whether

the drug enters into the ESRD PPS and becomes part of its bundled payment following TDAPA and, if so, at what rate, and how commercial payors will treat reimbursement of the drug.

If any of our operations are found to violate applicable laws or regulations, we could suffer severe consequences that could have a material adverse effect on our business, results of operations, financial condition and stock price, including:

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| • | Refund amounts received in violation of law or applicable payment program requirements; |

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| • | Loss of licenses required to operate healthcare facilities or administer pharmaceuticals in some of the states in which we operate or elsewhere; |

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However, peritoneal dialysis is not a suitable method of treatment for many patients, including patients who are unable to perform the necessary procedures and those at greater risk of peritoneal infection.

Medicare and Medicare-assigned plans 55%, Medicaid and Medicaid-assigned plans 5%, Other government-based programs 4%, Commercial (including hospital inpatient dialysis services) 36%

Outpatient hemodialysis 79%, Peritoneal dialysis and home-based hemodialysis 16%, Hospital inpatient hemodialysis 5%

1.25% in 2016 and will reduce our market basket inflation adjustment by 1.25% in 2017 and by 1% in 2018.

The 2017 final rule for the ESRD PPS also implements the Trade Preferences Extension Act of 2015 provisions regarding the coverage and payment of renal dialysis services furnished by ESRD facilities to individuals with acute kidney injury.

If these patients are unable to obtain or continue to receive such financial assistance, our revenues, earnings, and cash flow could be substantially reduced.

In addition, CMS published an interim final rule that establishes new Conditions for Coverage standards for dialysis facilities that require any facility making payments of premiums for individual market health plans to notify patients of potential coverage options and educate them about the benefits of each option.

The interim final rule requires facilities to ensure that insurers are informed of and have agreed to accept the payments.

At this time CMS has not appealed the court’s ruling and we await the final decision from the court.

commercial contracts that pay us a single bundled payment rate.

Evaluations on the utilization and reimbursement for erythropoiesis stimulating agents (ESAs), like EPO, which have occurred in the past and may occur in the future, and related actions by the U.S. Congress and federal agencies, could result in further restrictions on the utilization and reimbursement for ESAs.

Additionally, commercial payors have also increasingly examined their administration policies for EPO and, in some cases, have modified those policies.

Changes in labeling of EPO and other pharmaceuticals in a manner that alters physician practice patterns or accepted clinical practices, changes in private and governmental payment criteria, including the introduction of EPO administration policies or the conversion to alternate types of administration of EPO or other pharmaceuticals that result in further decreases in utilization of EPO for patients covered by commercial payors, which pay for pharmaceuticals separately, could have a material impact on our operating results.

Further increased utilization of EPO for patients for whom the cost of EPO is included in a bundled reimbursement rate could also have a material impact on our operating results.

Because we are subject to a number of governmental regulations, our business could be adversely impacted by any of the following:

| | • | Loss or suspension of licenses under the laws of any state or governmental authority from which we generate substantial revenues; |

| | • | Exclusion from government healthcare programs, including Medicare and Medicaid; |

| | • | Refunds of payments received from government payors and government healthcare program beneficiaries in violation of law or because of any failures to meet applicable requirements; |

To date, we have not experienced significant difficulty in maintaining our licenses or enrolling in state Medicaid programs.

resolve the then pending 2010 and 2011 U.S. Attorney physician relationship investigations.

DHS includes enumerated items and services, including home health services, outpatient prescription drugs, inpatient and outpatient hospital services and clinical laboratory services.

All non-permitted uses or disclosures of

In December 2011, the CMS Center for Consumer Information and Insurance Oversight published an Essential Health Benefits Bulletin (EHB Bulletin) describing the approach it was taking regarding the implementation of the EHB Bulletin requirement.

For the two year transition period (from 2014 through 2015) the law required states to define an EHB benchmark plan that would set the general standards for the EHB that must be covered by plans in the state, subject to certain overarching federal requirements.

States that did not define an EHB benchmark plan must use the small group plan with the largest enrollment in the state.

up, waste disposal techniques and procedures and work practice controls.

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| (4) | Includes dialysis centers in which we deconsolidated and transferred to management services agreements. |

California 269, Texas 217, Florida 175, Georgia 127, Ohio 123, Pennsylvania 104, Illinois 89, Michigan 83, North Carolina 72, Virginia 71, Maryland 61, Indiana 60, New Jersey 57, Missouri 56, Tennessee 56, Alabama 55, New York 54, Minnesota 51, Wisconsin 43, Washington 40, Oklahoma 38, Colorado 37, Louisiana 36, Kentucky 35, South Carolina 35, Arkansas 33, Arizona 27, Kansas 27, Iowa 26 Connecticut 25, Oregon 24, Nevada 19, Nebraska 15, Massachusetts 12, Mississippi 11, District of Columbia 10, Idaho 9 West Virginia 9, New Mexico 6, New Hampshire 4, Utah 4, South Dakota 4, Maine 3, North Dakota 2, Montana 1 and Rhode Island 1

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information technology system, sophisticated risk management techniques and clinical protocols to provide high-quality, cost-effective care to DMG’s members.

Brand name

In 2016, we started the transition of the medical group brand name from HealthCare Partners (HCP) and several other names to DaVita Medical Group (DMG).

The marketing plan as it relates to the transition will be a phased approach and will occur over the course of one to two years with the exception of the Washington market which is still in the planning stages.

Coming together under one name is part of DMG’s vision to strive to be the leading independent medical group in the U.S.

To date, DMG has not received a shared savings payment associated with this program, with one final measurement period still remaining.

As part of our commitment to the Medicare ACO space, DMG applied for and was selected to participate in the CMS Innovation Center’s Next Generation ACO in our California market, which begins in 2017.

diagnosis data from ambulatory treatment settings, hospital outpatient department and physician visits, gender, age and Medicaid eligibility.

We operate in a highly regulated industry and are a party to various lawsuits, claims, [added: qui tam suits,] governmental investigations and audits (including investigations resulting from our obligation to self-report suspected violations of law) and other legal proceedings.

While these accruals reflect our best estimate of the probable loss for those matters as [added: of] the dates of those accruals, the recorded amounts may differ materially from the actual amount of the losses for those [removed: matters.][added: matters, and any anticipated third party recoveries for any such losses may not ultimately be recoverable.]

Additionally, in some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal proceedings and regulatory matters, which [added: also] may be [removed: exacerbated] [added: impacted] by various factors, including that they may involve indeterminate claims for monetary damages or may involve fines, penalties or non-monetary remedies; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; are in the early stages of the proceedings; or result in a change of business practices.

[removed: Swoben Private Civil Suit:] In April 2013, HealthCare Partners (HCP), now known as our [removed: DaVita Medical Group (DMG)] [added: DMG] subsidiary, was one of several defendants served with a civil complaint filed by a former employee of SCAN Health Plan (SCAN), an HMO.

[added: Swoben Private Civil Suit:] On July 13, 2009, pursuant to the qui tam provisions of the federal [removed: False Claims Act (FCA)] [added: FCA] and the California False Claims Act, James M.

We [removed: are investigating] [added: dispute] these allegations and intend to defend [added: this action] accordingly.

2015 U.S. Office of Inspector General (OIG) Medicare Advantage Civil Investigation: In March 2015, JSA HealthCare Corporation (JSA), a subsidiary of DMG, received a subpoena from the [removed: OIG.][added: Office of Inspector General (OIG) for the U.S. Department of Health and Human Services (HHS) requesting documents and information for the period from January 1, 2008]

[removed: The subpoena requests documents and information for the period from January 1, 2008] through December 31, 2013, for certain Medicare Advantage [added: (MA)] plans for which JSA provided services.

It also requests information regarding JSA’s communications about patient diagnoses as they relate to certain [removed: Medicare Advantage] [added: MA] plans generally, and more specifically as related to two Florida physicians with whom JSA previously contracted.

[removed: This] [added: In addition to the subpoena described above, in June 2015, we received a] civil subpoena [removed: covers] [added: from] the [added: OIG covering the] period from January 1, 2008 through the present and [removed: seeks] [added: seeking] production of a wide range of documents relating to our and our subsidiaries’ (including DMG’s and its subsidiary JSA’s) provision of services to [removed: Medicare Advantage] [added: MA] plans and related patient diagnosis coding and risk adjustment submissions and payments.

We believe that the request is part of a broader industry investigation into [removed: Medicare Advantage] [added: MA] patient diagnosis coding and risk adjustment practices and potential overpayments by the government.

With respect to that condition, the guidance related to that coding issue was discontinued following our November 1, 2012 acquisition of [removed: DMG,] [added: HealthCare Partners (now known as our DMG business),] and we notified CMS in April 2015 of the coding practice and potential overpayments.

In that regard, we have identified certain additional coding practices which may have been [removed: problematic] [added: problematic, some of which were the subject of the Swoben Private Civil Suit,] and are in discussions with the DOJ [removed: about the scope and nature of a review of claims] relating to those practices.

We are cooperating with the [removed: government and are producing the requested information.][added: government.]

In connection with [removed: the] [added: our acquisition of] DMG [removed: merger,] [added: in 2012,] we have certain indemnification rights against the sellers and an escrow was established as security for the indemnification.

2016 U.S. Attorney Prescription Drug Investigation: In early February 2016, we announced that our pharmacy services’ wholly-owned subsidiary, DaVita Rx, received a [removed: CID] [added: Civil Investigative Demand (CID)] from the U.S. Attorney’s Office for the Northern District of Texas.

[removed: It appears the] [added: The] government is conducting an FCA investigation concerning allegations that DaVita Rx presented or caused to be presented false claims for payment to the government for prescription medications, as well as into our relationship with pharmaceutical manufacturers.

In the spring of 2015, we initiated an internal compliance review of DaVita Rx during which we identified potential billing and operational [removed: issues.][added: issues, including potential write-offs and discounts of patient co-payment obligations, and credits to payors for returns of prescription drugs related to DaVita Rx.]

Upon completion of our review, we filed a self-disclosure with the OIG in [removed: early] February 2016 and we have been working to address and update the practices we identified in the self-disclosure, some of which overlap with information requested by the U.S. Attorney’s Office.

[added: The OIG] informed us in February 2016 that our submission was not accepted.

[added: 2017 U.S. Attorney American Kidney Fund Investigation:] On January 4, 2017, we were served with an administrative subpoena for records by the United States Attorney’s Office, District of Massachusetts, relating to an investigation into possible federal health care offenses.

Negative findings or terms and conditions that we might agree to accept as part of a negotiated resolution of pending or future government inquiries or relator proceedings could result in, among other things, substantial financial penalties or awards against us, substantial payments made by us, harm to our reputation, required changes to our business practices, exclusion from future participation in the Medicare, Medicaid and [removed: other federal health care programs and, if criminal proceedings were initiated against us, possible criminal penalties, any of which could have a material adverse effect on us.]

Peace Officers’ Annuity and Benefit [added: Fund] of Georgia Securities [removed: Laws] Class Action Civil Suit: On February 1, 2017, the Peace Officers’ Annuity and Benefit Fund of Georgia filed a putative federal securities class action complaint in the U.S. District Court for the District of Colorado against us and certain executives.

The complaint further alleges that the process by which patients obtained commercial insurance and received charitable premium assistance was improper and [removed: “created] [added: "created] a false impression of DaVita’s business and operational status and future growth [removed: prospects.” We dispute these allegations] [added: prospects." In November 2017, the court appointed the lead plaintiff] and [removed: intend to defend this action accordingly.][added: an amended complaint was filed on January 12, 2018.]

The complaint covers the time period from 2015 to present and alleges, generally, breach of fiduciary duty, unjust [removed: enrichment] [added: enrichment, abuse of control, gross mismanagement, corporate waste,] and misrepresentations and/or failures to disclose certain information in violation of the federal securities laws in [removed: our 2016 proxy statement in] connection with an alleged practice to direct patients with government-subsidized health insurance into private health insurance plans to maximize our profits.

In addition to the foregoing, from time to time we are subject to other lawsuits, [added: demands,] claims, governmental investigations and audits and legal proceedings that arise due to the nature of our business, including contractual disputes, such as with payors, suppliers and others, employee-related matters and professional and general liability claims.

From time to time, we [added: also] initiate litigation or other legal proceedings as a plaintiff arising out of contracts or other matters.

Legal [removed: Proceedings,”] [added: Proceedings" in Part I of this report] or the timing of their resolution or the ultimate losses or impact of developments in those matters, which could have a material adverse effect on our revenues, earnings and cash flows.

Further, any legal proceedings or regulatory matters we are involved in, whether meritorious or not, are time consuming, and often require management’s attention and result in significant legal expense, and may result in the diversion of significant operational resources, or otherwise harm our [removed: business] [added: business, financial results] or reputation.

As of December 31, 2017 and December 31, 2016, our total recorded accruals, including DMG, with respect to legal proceedings and regulatory matters, net of anticipated third party recoveries, were approximately $6 million and $69 million, respectively.

Inquiries by the Federal Government and Certain Related Civil Proceedings

The allegations in the complaint relate to alleged overpayments received from government healthcare programs, including allegations of violations of the federal FCA and the California False Claims Act and allegations against HCP relating to patient diagnosis coding.

On October 18, 2017, the relator filed a Notice of Dismissal of the action as to HCP, and the government consented to the dismissal, as a result of which the suit is now dismissed, without prejudice.

In connection with our ongoing efforts working with the government we learned that a qui tam complaint had been filed covering some of the issues in the CID and our self-disclosure.

In December 2017, we finalized and executed a settlement agreement with the government and relators in the qui tam matter that included total monetary consideration of $63.7 million, as previously announced, of which $41.5 million was an incremental cash payment and $21.2 million was for amounts previously refunded, and all of which was previously accrued.

The government's investigation into our relationship with pharmaceutical manufacturers is ongoing and we are continuing to cooperate with the government in this investigation.

other federal health care programs and, if criminal proceedings were initiated against us, possible criminal penalties, any of which could have a material adverse effect on us.

Our response is due March 13, 2018.

In re DaVita Inc. Stockholder Derivative Litigation: On August 15, 2017, the U.S. District Court for the District of Delaware consolidated the three previously disclosed shareholder derivative lawsuits: the Blackburn Shareholder action filed on February 10, 2017, the Gabilondo Shareholder action filed on May 30, 2017, and the City of Warren Police and Fire Retirement System Shareholder action filed on June 9, 2017.

An amended complaint was filed in September 2017, and on December 18, 2017 we filed a motion to dismiss and a motion to stay proceedings in the alternative.

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The allegations in the complaint relate to alleged overpayments received from government healthcare programs.

In 2009 and 2010, the relator twice amended his complaint and added additional defendants, and in November 2011, he filed his Third Amended Complaint under seal alleging violations of the federal FCA and the California False Claims Act, and added additional defendants, including HCP and certain health insurance companies (the defendant HMOs).

The allegations in the complaint against HCP relate to patient diagnosis coding to determine reimbursement in the Medicare Advantage program, referred to as HCC and RAF scores.

The U.S. Department of Justice (DOJ) reviewed these allegations and in January 2013 declined to intervene in the case.

HCP and the other defendants filed motions to dismiss the Third Amended Complaint, and the court dismissed with prejudice the claims and judgment was entered in September 2013.

Upon the plaintiff’s appeal, a panel of the Ninth Circuit overturned the trial court’s ruling and vacated the dismissal of the case.

Together with certain defendants, we petitioned the Ninth Circuit for a rehearing, but in December 2016, the Ninth Circuit rejected the petition and determined the relator should be given an opportunity to amend the complaint, and remanded the case back to district court.

2015 U.S. Attorney Transportation Investigation: In February 2015, we announced that we received six administrative subpoenas from the OIG for medical records from six different dialysis centers in southern California operated by us.

Specifically, each subpoena sought the medical records of a single patient of each respective dialysis center.

In February 2016, we received four additional subpoenas for four additional dialysis centers in southern California.

The subpoenas were similarly limited in scope to the subpoenas received in 2015.

On February 8, 2017, we were served with a qui tam complaint in the U.S. District Court for the Central District of California.

We have been advised by an attorney with the United States Attorney’s Office for the Central District of California that the qui tam is related to the investigation concerning the medical necessity of patient transportation, which was the basis for the subpoenas.

The relator alleges that an ambulance company submitted false claims for patient transportation.

Although we do not provide transportation ourselves nor do we bill for the transport of our dialysis patients, the relator alleges that two of our purported clinical staff caused the submission of a small number of those claims through improper certifications of medical necessity.

The DOJ has declined to intervene.

We have been advised by an attorney with the Civil Division of the DOJ in Washington, D.C. that the subpoena relates to an ongoing civil investigation concerning Medicare Advantage service providers’ risk adjustment practices and data, including identification and verification of patient diagnoses and factors used in making the diagnoses.

In addition to the subpoena described above, in June 2015, we received a subpoena from the OIG.

2015 U.S. Department of Justice Vascular Access Investigation and Related Qui Tam Litigation: In November 2015, we announced that RMS Lifeline, Inc., a wholly-owned subsidiary of ours that operates under the name Lifeline Vascular Access (Lifeline), received a Civil Investigative Demand (CID) from the DOJ.

The CID relates to two vascular access centers in Florida that are part of Lifeline’s vascular access business.

The CID covers the period from January 1, 2008 through the present.

We acquired these two centers in December 2012.

Based on the language of the CID, the DOJ appeared to be looking at whether angiograms performed at the two centers were medically unnecessary and therefore whether related claims filed with federal healthcare programs possibly violated the FCA.

Lifeline does not perform dialysis services but instead provides vascular access management services for dialysis patients.

We cooperated with the government and produced the requested information.

The DOJ investigation was initiated pursuant to a complaint brought under the qui tam provisions of the FCA (the Complaint).

The Complaint was originally filed under seal in August 2014 in the U.S. District Court, Middle District of Florida, United States ex.

rel James Spafford v.

DaVita HealthCare Partners, Inc., et al., Case Number 6:14-cv-1251-Orl-41DAB, naming several doctors with us as defendants.

In December 2015, a First Amended Complaint was filed under seal.

In May 2016, the First Amended Complaint was unsealed.

The First Amended Complaint alleges violations of the FCA due to the submission of claims to the government for allegedly medically unnecessary angiograms and angiography procedures at the two vascular access centers as well as employment-related claims.

The Complaint covers alleged conduct dating from July 2008, prior to our acquisition of the centers, to the present.

The DOJ declined to intervene.

In the third quarter of 2016 we recorded an accrual of a non-material amount for potential damages and liabilities.

In January 2017, we finalized and executed a settlement agreement with the relator and the government for an immaterial amount.

Through the fourth quarter of 2016, we recorded estimated accruals totaling $38 million for potential damages and liabilities associated with write-offs and discounts of patient co-payment obligations, and credits to payors for returns of prescriptions drugs, related to DaVita Rx that were identified during the course of this internal compliance review.

We may accrue additional reserves for refunds and related damages and potential liabilities arising out of this review.

We do not know if the U.S. Attorney’s Office, which is part of the DOJ, knew when it served the CID on us that we were already in the process of developing a self-disclosure to the OIG.

For the Fiscal Year Ended December 31, [removed: 2016][added: 2017]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE [added: SECURITIES EXCHANGE ACT OF 1934]

Denver, [removed: Colorado] [added: CO] 80202

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K [added: (§229.405 of this chapter)] is not contained [removed: herein] [added: herein,] and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, [removed: or] a smaller reporting [added: company, or an emerging growth] company.

See the definitions of “large accelerated filer,” “accelerated [removed: filer” and] [added: filer,”] “smaller reporting company” [added: and “emerging growth company”] in Rule 12b-2 of the Exchange Act.

| Large accelerated filer | [removed: |] ☒ | | [added: |] Accelerated filer | [removed: |] ☐ |

| Non-accelerated filer | [removed: |] ☐ [added: |] (Do not check if a smaller reporting company) | | Smaller reporting company | [removed: |] ☐ |

As of June 30, [removed: 2016, the number of shares of the Registrant’s common stock outstanding was approximately 206.9 million shares and] [added: 2017,] the aggregate market value of the [added: Registrant's] common stock outstanding held by non-affiliates based upon the closing price [removed: of these shares] on the New York Stock Exchange was approximately [removed: $16.0] [added: $12.4] billion.

As of January 31, [removed: 2017,] [added: 2018,] the number of shares of the Registrant’s common stock outstanding [removed: held by non-affiliates] was approximately [removed: 194.6] [added: 182.0] million shares.

Portions of the Registrant’s proxy statement for its [removed: 2017] [added: 2018] annual meeting of stockholders are incorporated by reference in Part III of this Form 10-K.

10-K 1 dva-123117x10k.htm 10-K


(Exact name of registrant as specified in charter)

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| Title of each class: | | Name of each exchange on which registered: |

Securities registered pursuant to Section 12(g) of the Act:

None

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| | | | | Emerging growth company | ☐ |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

10-K 1 dva-10k_20161231.htm DVA-20161231-10K

SECURITIES EXCHANGE ACT OF 1934

| Class of Security: | | Registered on: |

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Our corporate headquarters are located in Denver, Colorado, consisting of one owned 240,000 square foot building and [removed: one] [added: two] leased [removed: 116,000] [added: locations consisting of 164,800] square [removed: foot building.][added: feet.]

DaVita Rx leases [removed: four] [added: three] buildings located in [removed: Arizona,] California, Florida and Texas.

Our leases on the properties listed above expire at various dates through the year [removed: 2031.][added: 2036 for Kidney Care and through the year 2037 for DMG.]

For our U.S. dialysis and related lab services business we own the land and buildings for [removed: 16] [added: 14] of our outpatient dialysis centers.

We also own [removed: eight] [added: 14] separate land and buildings and [removed: nine] [added: seven] land parcels for development.

We lease a total of [removed: three] [added: four] owned properties to third-party tenants.

For DMG, we own the land and buildings for [removed: 18] [added: 23] of our clinics.

We also own [removed: the building for] one [removed: other clinic and we own one] separate land parcel.

Our leases are generally subject to periodic [added: consumer price index increases, or contain fixed escalation clauses.]

Our outpatient dialysis centers range in size from approximately [removed: 600] [added: 700] to 33,000 square feet, with an average size of approximately [removed: 7,500] [added: 7,600] square feet.

DMG’s clinics range in size from approximately [removed: 800] [added: 1,000] to [removed: 86,000] [added: 136,000] square feet, with an average size of approximately [removed: 10,500] [added: 10,200] square feet.

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consumer price index increases, or contain fixed escalation clauses.

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| | [removed: |] High | | | | Low | | |

| Year ended December 31, 2016: | | | | | | | | [removed: |]

| 1st quarter | [removed: |] $ | 74.18 | | | $ | 61.36 | |

| 2nd quarter | [removed: | |] 78.00 | | | | 72.31 | | [added: |]

| 3rd quarter | [removed: | |] 78.77 | | | | 62.76 | | [added: |]

| 4th quarter | [removed: | |] 67.44 | | | | 54.50 | | [added: |]

| Year ended December 31, [removed: 2015: |] [added: 2017:] | | | | | | | |

The closing price of our common stock on January 31, [removed: 2017] [added: 2018] was [removed: $63.75] [added: $78.04] per share.

According to Computershare, our registrar and transfer agent, as of January 31, [removed: 2017,] [added: 2018,] there were [removed: 9,853] [added: 9,207] holders of record of our common stock.

The following table summarizes our repurchases of our common stock during the fourth quarter of [removed: 2016:][added: 2017:]

| Period | [removed: |] Total Number of Shares Purchased | | | [removed: |] Average Price Paid per Share | | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | | [removed: |] Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | | |

| [removed: |] (1) | On [removed: July 13, 2016,] [added: October 10, 2017,] our Board of Directors approved [added: an additional] share [removed: repurchases] [added: repurchase authorization] in the amount of [removed: approximately $1.2] [added: $1.3] billion. [removed: These] [added: This] share [removed: repurchases were] [added: repurchase authorization was] in addition to the [removed: approximately $259] [added: $247] million remaining at that time under our Board of Directors’ prior share repurchase authorization announced in [removed: April 2015.] [added: July 2016.] We are authorized to make purchases from time to time in the open market or in privately negotiated transactions, [added: including without limitations, through accelerated share repurchase transactions, derivative transactions, tender offers, Rule 10b5-1 plans or any combination of the foregoing,] depending upon market conditions and other considerations. During the [removed: twelve months] [added: quarter] ended December 31, [removed: 2016,] [added: 2017,] we [removed: purchased] [added: repurchased] a total of [removed: 16,649,090] [added: 7,409,849] shares of our common stock for [removed: $1.072 billion, or] [added: approximately $462 million at] an average price of [removed: $64.41.] [added: $62.37 per share.] As of [removed: December 31, 2016, there was approximately $677 million available under our current] [added: February 22, 2018, we have a total of $1.0 billion remaining in] Board authorizations [added: available] for [removed: additional] share [removed: repurchases. We have not repurchased any shares from January 1, 2017 through February 24, 2017.] [added: repurchases under our repurchase programs.] Although these share repurchase authorizations have no expiration dates, we are subject to share repurchase limitations under the terms of [removed: the] [added: our] senior secured credit facilities and the indentures governing our senior notes. |

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| 1st quarter | $ | 70.14 | | | $ | 62.24 | |

| 2nd quarter | 70.16 | | | | 61.48 | | |

| 3rd quarter | 66.64 | | | | 55.59 | | |

| 4th quarter | 72.93 | | | | 52.51 | | |

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| October 1 - October 31, 2017 | 5,457,839 | | | $ | 59.90 | | | 5,457,839 | | | $ | 1,254.3 | |

| November 1 - November 30, 2017 | 431,645 | | | $ | 60.10 | | | 431,645 | | | $ | 1,228.4 | |

| December 1 - December 31, 2017 | 1,520,365 | | | $ | 71.87 | | | 1,520,365 | | | $ | 1,119.1 | |

| Total | 7,409,849 | | | $ | 62.37 | | | 7,409,849 | | | $ | 1,119.1 | |

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| 1st quarter | | $ | 83.04 | | | $ | 71.89 | |

| 2nd quarter | | | 85.17 | | | | 79.31 | |

| 3rd quarter | | | 81.89 | | | | 70.12 | |

| 4th quarter | | | 78.94 | | | | 67.34 | |

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| October 1 - October 31, 2016 | | | 3,367,024 | | | $ | 63.07 | | | | 3,367,024 | | | $ | 881.0 | |

| November 1 - November 30, 2016 | | | 3,351,634 | | | $ | 60.85 | | | | 3,351,634 | | | $ | 677.1 | |

| December 1 - December 31, 2016 | | — | | | | — | | | | — | | | | $ | 677.1 | |

| Total | | | 6,718,658 | | | $ | 61.96 | | | | 6,718,658 | | | $ | 677.1 | |

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| | [removed: |] Year ended December 31, | | | | | | | | | | | | | | | | | | |

| | [added: 2017] | [added: | | |] 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | | [removed: | 2012 (5) | | |]

| | [removed: |] (in thousands, except share data) | | | | | | | | | | | | | | | | | | |

| Income statement data: | | | | | | | | | | | | | | | | | | | | [removed: |]

| Debt expense | [removed: |] [added: (430,634] | [removed: (414,382] | ) | | [added: (414,116] | [removed: (408,380] | ) | | [added: (408,380] | [removed: (410,294] | ) | | [added: (410,223] | [removed: (429,943] | ) | | [added: (429,938] | [removed: (288,554] | ) |

| Debt refinancing and redemption charges | [removed: |] — | | | | [added: —] | [removed: (48,072] | [removed: )] | | [added: (48,072] | [removed: (97,548] | ) | | [removed: —] [added: (97,548] | | [added: )] | | [added: —] | [removed: (10,963] | [removed: )] |

| Gain [removed: (Loss)] on disposal of discontinued operations, net of [removed: tax(3) |] [added: tax(4)] | — | | | | — | | | | — | | | | [added: —] | [removed: 13,375] | | | [removed: —] [added: 13,375] | | |

| Net income | [added: 830,555] | [removed: $] | [added: | |] 1,033,082 | | | [removed: $] | 427,410 | | | [removed: $] | 863,330 | | | [removed: $] | [removed: 757,201 | | | $] [added: 757,200] | [removed: 641,237] | |

| Less: Net income attributable to noncontrolling interests | [removed: |] [added: (166,937] | [removed: (153,208] | ) | | [added: (153,208] | [removed: (157,678] | ) | | [added: (157,678] | [removed: (140,216] | ) | | [added: (140,216] | [removed: (123,755] | ) | | [added: (123,755] | [removed: (105,220] | ) |

| Net income attributable to DaVita Inc. | [removed: |] $ | [removed: 879,874] [added: 663,618] | | | $ | [removed: 269,732] [added: 879,874] | | | $ | [removed: 723,114] [added: 269,732] | | | $ | [removed: 633,446] [added: 723,114] | | | $ | [removed: 536,017] [added: 633,445] | |

| Basic income from continuing operations per share attributable to DaVita [removed: Inc.(3)(4) |] [added: Inc.(5)] | $ | [removed: 4.36] [added: 4.78] | | | $ | [removed: 1.27] [added: 5.12] | | | $ | [removed: 3.41] [added: 1.53] | | | $ | [removed: 2.95] [added: 2.77] | | | $ | [removed: 2.79] [added: 1.53] | |

| Diluted income from continuing operations per share attributable to DaVita [removed: Inc.(3)(4) |] [added: Inc.(5)] | $ | [removed: 4.29] [added: 4.71] | | | $ | [removed: 1.25] [added: 5.04] | | | $ | [removed: 3.33] [added: 1.49] | | | $ | [removed: 2.89] [added: 2.71] | | | $ | [removed: 2.74] [added: 1.50] | |

| Weighted average shares [removed: outstanding:(4) |] [added: outstanding:(5)] | | | | | | | | | | | | | | | | | | | |

| Basic | [added: 188,626,000] | | [added: | |] 201,641,000 | | | | 211,868,000 | | | | 212,302,000 | | | | 209,939,000 | | | [removed: | 192,036,000 | |]

| Diluted | [added: 191,349,000] | | [added: | |] 204,905,000 | | | | 216,252,000 | | | | 216,928,000 | | | | 214,764,000 | | | [removed: | 195,942,000 | |]

| Balance sheet data: | | | | | | | | | | | | | | | | | | | | [removed: |]

| Total DaVita Inc. [removed: shareholders equity(4) |] [added: shareholders' equity(5)] | [added: $] | [removed: 4,648,047] [added: 4,690,029] | | | [added: $] | [removed: 4,870,780] [added: 4,648,047] | | | [added: $] | [removed: 5,170,513] [added: 4,870,781] | | | [added: $] | [removed: 4,432,479] [added: 5,170,513] | | | [added: $] | [removed: 3,763,137] [added: 4,432,480] | |

| (1) | In 2015, we retrospectively adopted ASU 2015-03 related to simplification of debt issuance costs as well as ASU 2015-17 related to classification of deferred taxes. [removed: See “New Accounting Standards” below.] All [removed: prior] periods [added: prior to 2015] have been recast to conform to the [removed: current year] [added: revised] presentation. |

| (2) | Operating expenses and charges in [removed: 2016 include estimated] [added: 2017 includes] goodwill impairment charges of [removed: $253,000 related to our DMG reporting units and $28,415] [added: $34,696] related to our vascular access reporting unit, an [removed: impairment of a minority] equity investment [added: loss] of [removed: $14,993, a gain] [added: $6,293 for goodwill impairments at our APAC JV, an impairment] on [added: our investment in] the APAC JV [removed: ownership changes] of [removed: $374,374, a gain] [added: $280,066, an asset impairment of $15,168] related to the [removed: sale] [added: restructuring] of our [removed: Tandigm ownership interest] [added: pharmacy business, restructuring charges related to our international business] of [removed: $40,280,] [added: $2,700,] a [removed: loss] [added: net gain] on [added: settlement of $529,504 and a gain adjustment on] the [removed: sale] [added: 2016 ownership change] of our [removed: DMG Arizona business] [added: APAC JV] of [removed: $10,489, an adjustment] [added: $6,273. Operating expenses and charges in 2016 included goodwill impairment charges of $28,415 related] to [removed: reduce receivables associated with] [added: our vascular access reporting unit, an impairment of an investment of $14,993, an estimated gain on] the [removed: DMG acquisition escrow provision relating to income tax items] [added: ownership change] of [removed: $30,934,] [added: our APAC JV of $374,374,] and an estimated accrual for [removed: damages and liabilities associated with our DMG Nevada hospice business] [added: certain legal matters] of [removed: $16,000] [added: $15,770. Operating expenses] and [removed: $15,770 associated with our pharmacy business.] [added: charges for] 2015 included a settlement charge of $495,000 related to a private civil suit, [removed: estimated] goodwill [removed: and intangible asset] impairment charges of [removed: $210,234, primarily] [added: $4,066] related to [removed: certain DMG reporting units,] [added: our international business,] and an estimated accrual for [removed: damages and liabilities] [added: certain legal matters] of [removed: $22,530 associated with our pharmacy business.] [added: $22,530.] Operating expenses and charges in 2014 and 2013 [removed: include] [added: included] an additional $17,000 and [removed: $397,000,] [added: $397,000] loss contingency accrual related to the settlement of the 2010 and 2011 U.S. Attorney physician relationship investigations, respectively. [removed: Operating expenses and charges in 2013 also include a contingent earn-out obligation gain adjustment of $56,977 related to a decrease in DMG’s 2013 contingent earn-out obligation and an adjustment to reduce a tax asset associated with the DMG acquisition escrow provisions of $7,721. In addition, 2012 included $85,837 for a legal settlement and related expenses, and $30,753 of transaction expenses associated with the acquisition of DMG.] |

| [removed: (4)] [added: (5)] | In the third quarter of 2013, the Board of Directors approved a two-for-one [removed: stock] split of our common stock in the form of a stock dividend payable on September 6, 2013 to stockholders of record on August 23, 2013. Our common stock began trading on a post-split basis on September 9, 2013. [removed: All share and per share data for all prior periods presented have been adjusted to reflect the effects of the stock split.] Share repurchases consisted of [added: 12,966,672 shares of common stock for $810,949 in 2017,] 16,649,090 shares of common stock for $1,072,377 in 2016, and 7,779,958 shares of common stock for $575,380 in 2015. [added: No repurchases of common stock were made in 2014 or 2013.] Shares issued in connection with stock awards were [removed: $1,011,328] [added: 514,091] in [added: 2017, 1,011,328 in] 2016, 1,479,217 in 2015, 2,179,766 in 2014, [removed: 1,928,137 in 2013] and [removed: 4,751,142] [added: 1,928,137] in [removed: 2012.] [added: 2013.] |

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| Net revenues | $ | 10,876,634 | | | $ | 10,707,467 | | | $ | 9,982,245 | | | $ | 9,312,049 | | | $ | 8,580,225 | |

| Operating expenses and charges(2) | 9,063,879 | | | | 8,677,757 | | | | 8,845,479 | | | | 7,711,891 | | | | 7,464,599 | | |

| Operating income | 1,812,755 | | | | 2,029,710 | | | | 1,136,766 | | | | 1,600,158 | | | | 1,115,626 | | |

| Other income, net | 17,665 | | | | 7,511 | | | | 8,073 | | | | 1,935 | | | | 6,750 | | |

| Income from continuing operations before income taxes | 1,399,786 | | | | 1,623,105 | | | | 688,387 | | | | 1,094,322 | | | | 692,438 | | |

| Income tax expense(3) | 323,859 | | | | 431,761 | | | | 207,510 | | | | 366,894 | | | | 246,795 | | |

| Net income from continuing operations | 1,075,927 | | | | 1,191,344 | | | | 480,877 | | | | 727,428 | | | | 445,643 | | |

| Net (loss) income from discontinued operations, net of tax(4) | (245,372 | | ) | | (158,262 | | ) | | (53,467 | | ) | | 135,902 | | | | 298,182 | | |

| Ratio of earnings to fixed charges(6) | 2.94:1 | | | | 3.49:1 | | | | 1.93:1 | | | | 2.72:1 | | | | 2.01:1 | | |

| Working capital(1) | $ | 5,703,181 | | | $ | 1,283,784 | | | $ | 2,104,143 | | | $ | 1,547,518 | | | $ | 600,789 | |

| Total assets(1) | $ | 18,948,193 | | | $ | 18,755,776 | | | $ | 18,524,224 | | | $ | 17,624,137 | | | $ | 16,614,893 | |

| Long-term debt(1) | $ | 9,158,018 | | | $ | 8,944,676 | | | $ | 12,972,282 | | | $ | 8,298,624 | | | $ | 8,064,196 | |

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| (3) | Tax expense includes a net tax benefit of $251,510 related to U.S. tax legislation passed in December 2017. |

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| (4) | On December 5, 2017, we entered into an equity purchase agreement to sell our DMG division to Collaborative Care Holdings, LLC (Optum), a subsidiary of UnitedHealth Group Inc. As a result of this pending transaction, the DMG business has been reclassified as held for sale and its results of operations are reported as net (loss) income from discontinued operations, net of tax for all periods presented. Net (loss) income from discontinued operations, net of tax, also includes HomeChoice Partners Inc. (HomeChoice) which was divested on February 1, 2013. Net (loss) income from discontinued operations, net of tax, in 2017 includes estimated goodwill impairment charges of $651,659 related to certain DMG reporting units, a net tax benefit of $163,555 due to a remeasurement of deferred taxes resulting from DMG's reclassification to held for sale, a non-cash gain associated with our Magan acquisition of $17,129, restructuring charges of $9,569, and a reduction in estimated accruals for legal matters of $14,700. Net (loss) income from discontinued operations, net of tax, in 2016 included goodwill impairment charges of $253,000 related to certain DMG reporting units, a gain related to the partial sale of our interest in Tandigm of $40,280, a loss on the DMG Arizona sale of $10,489, an adjustment to reduce receivables associated with the DMG acquisition escrow provision relating to income tax items of $30,934, and estimated accruals for legal matters of $16,000. Net (loss) income from discontinued operations, net of tax, in 2015 included estimated goodwill and other intangible asset impairment charges of $206,169 related to certain DMG reporting units. Net (loss) income from discontinued operations, net of tax, in 2013 includes contingent earn-out obligation, a gain adjustment of $56,977 related to a decrease in DMG’s 2013 contingent earn-out obligation and an adjustment to reduce a tax asset associated with the DMG acquisition escrow provisions of $7,721. |

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These selected consolidated financial results have been recast for all prior periods presented to reflect the retrospective application of these new presentation and disclosure requirements for patient service revenues.

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| Net revenues | | $ | 14,745,105 | | | $ | 13,781,837 | | | $ | 12,795,106 | | | $ | 11,764,050 | | | $ | 8,186,280 | |

| Operating expenses and charges(2) | | | 12,850,562 | | | | 12,611,142 | | | | 10,979,965 | | | | 10,213,916 | | | | 6,889,196 | |

| Operating income | | | 1,894,543 | | | | 1,170,695 | | | | 1,815,141 | | | | 1,550,134 | | | | 1,297,084 | |

| Other income, net | | | 8,734 | | | | 8,893 | | | | 2,374 | | | | 4,787 | | | | 3,737 | |

| Income from continuing operations before income taxes | | | 1,488,895 | | | | 723,136 | | | | 1,309,673 | | | | 1,124,978 | | | | 1,001,304 | |

| Income tax expense | | | 455,813 | | | | 295,726 | | | | 446,343 | | | | 381,013 | | | | 359,845 | |

| Income from continuing operations | | | 1,033,082 | | | | 427,410 | | | | 863,330 | | | | 743,965 | | | | 641,459 | |

| Income from operations of discontinued operations, net of tax(3) | | — | | | | — | | | | — | | | | | (139 | ) | | | (222 | ) |

| Ratio of earnings to fixed charges(6) | | 3.17:1 | | | | 1.95:1 | | | | 3.05:1 | | | | 2.73:1 | | | | 3.17:1 | | |

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| Working capital(1) | | $ | 1,283,783 | | | $ | 2,104,142 | | | $ | 1,547,519 | | | $ | 600,788 | | | $ | 546,478 | |

| Total assets(1) | | | 18,741,257 | | | | 18,514,875 | | | | 17,617,432 | | | | 16,612,401 | | | | 15,594,345 | |

| Long-term debt(1) | | | 8,947,327 | | | | 9,001,308 | | | | 8,298,624 | | | | 8,064,196 | | | | 8,230,393 | |

| (3) | Income from operations of discontinued operations, net of tax includes the operations for all prior periods presented of HomeChoice Partners Inc. (HomeChoice) which was divested on February 1, 2013. |

| (5) | On November 1, 2012, we completed our acquisition of DMG whereby DMG became a wholly-owned subsidiary of the Company. The total consideration paid for all of the outstanding common units of DMG was approximately $4.71 billion, which consisted of $3.65 billion in cash, net of cash acquired, and 18,760,624 shares of our common stock valued at approximately $1.06 billion. The operating results of DMG are included in our consolidated results beginning November 1, 2012. |

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We also maintain a Corporate Code of Conduct that applies to all of our employees, [added: officers and directors,] which is posted on our website.

Election of Directors”, “Corporate Governance”, and “Security Ownership of Certain Beneficial Owners and Management” included in our definitive proxy statement relating to our [removed: 2017] [added: 2018] annual stockholder meeting.

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The information required by this item will appear in, and is incorporated by reference from, the sections entitled “Executive Compensation” and “Compensation Committee Interlocks and Insider Participations” included in our definitive proxy statement relating to our [removed: 2017] [added: 2018] annual stockholder meeting.

The information required by Item 407(e)(5) of Regulation S-K will appear in and is incorporated by reference from the section entitled “Compensation Committee Report” included in our definitive proxy statement relating to our [removed: 2017] [added: 2018] annual stockholder meeting; however, this information shall not be deemed to be filed.

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The following table provides information about our common stock that may be issued upon the exercise of stock-settled stock appreciation rights, restricted stock units and other rights under all of our existing equity compensation plans as of December 31, [removed: 2016,] [added: 2017,] which consist of our 2011 Incentive Award Plan and our Employee Stock Purchase Plan.

The material terms of these plans are described in Note [removed: 19] [added: 18] to the consolidated financial statements.

| Equity compensation plans not requiring shareholder approval | [removed: | |] — | | | [removed: |] — | | | | — | | | [removed: |] — | |

Other information required to be disclosed by Item 12 will appear in, and is incorporated by reference from, the section entitled “Security Ownership of Certain Beneficial Owners and Management” included in our definitive proxy statement relating to our [removed: 2017] [added: 2018] annual stockholder meeting.

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| Plan category | Number of shares to be issued upon exercise of outstanding options, warrants and rights | | | Weighted average exercise price of outstanding options, warrants and rights | | | | Number of shares remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | | Total of shares reflected in columns (a) and (c) | |

| | (a) | | | (b) | | | | (c) | | | (d) | |

| Equity compensation plans approved by shareholders | 8,034,080(1) | | | 67.92(2) | | | | 34,493,542 | | | 42,527,622 | |

| Total | 8,034,080 | | | $ | 67.92 | | | 34,493,542 | | | 42,527,622 | |

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| (1) | Includes 752,029 shares of common stock reserved for issuance in connection with performance share units and performance stock appreciation rights at the maximum number of shares issuable thereunder. |

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| (2) | This weighted-average includes performance stock appreciation rights at 100% of target amount and excludes full value awards such as restricted stock units and performance share units. |

| | | | | | | | | | | Number of shares | | | | | | |

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| | | | | | | | | | | remaining available for | | | | | | |

| | | Number of shares to be | | | | Weighted average | | | | future issuance | | | | Total of shares | | |

| | | issued upon exercise of | | | | exercise price of | | | | under equity compensation | | | | reflected in | | |

| | | outstanding options, | | | | outstanding options, | | | | plans (excluding securities | | | | columns | | |

| Plan category | | warrants and rights | | | | warrants and rights | | | | reflected in column (a)) | | | | (a) and (c) | | |

| | | (a) | | | | (b) | | | | (c) | | | | (d) | | |

| Equity compensation plans approved by shareholders | | | 8,122,819 | | | $ | 58.62 | | | | 37,789,231 | | | | 45,912,050 | |

| Total | | | 8,122,819 | | | $ | 58.62 | | | | 37,789,231 | | | | 45,912,050 | |

The information required by this item will appear in, and is incorporated by reference from, the section entitled “Certain Relationships and Related Transactions” and the section entitled “Corporate Governance” included in our definitive proxy statement relating to our [removed: 2017] [added: 2018] annual stockholder meeting.

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The information required by this item will appear in, and is incorporated by reference from, the section entitled “Ratification of Appointment of Independent Registered Public Accounting Firm” included in our definitive proxy statement relating to our [removed: 2017] [added: 2018] annual stockholder meeting.

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| | [removed: |] Page | [removed: | |]

| [Management’s Report on Internal Control Over Financial [removed: Reporting](#MANAGEMENT_S_REPORT_ON_INTERNAL_CONTROL) | | | F-1] [added: Reporting](#s4B4368C5D5F25486C909D6D7036D8652)] | [added: [F-1](#s4B4368C5D5F25486C909D6D7036D8652)] |

| [Report of Independent Registered Public Accounting [removed: Firm](#REPORT_OF_INDEPENDENT_REGISTERED_PUBLIC) | | | F-2] [added: Firm](#sD67D9DC0846BF653D0A5D6D7038E2444)] | [added: [F-2](#sD67D9DC0846BF653D0A5D6D7038E2444)] |

| [Report of Independent Registered Public Accounting [removed: Firm](#REPORT_OF_INDEPENDENT_IInd) | | | F-3] [added: Firm](#s4A8F7FB38A86B1E08F8CD6D703BF289F)] | [added: [F-3](#s4A8F7FB38A86B1E08F8CD6D703BF289F)] |

| [Consolidated Statements of Income for the years ended December 31, [added: 2017,] 2016, [removed: 2015,] and [removed: 2014](#CONSOLIDATED_STATEMENTS_OF_INCOME) | | | F-4] [added: 2015](#s210715F0B556F166EC9ED6D6EF39DCE7)] | [added: [F-4](#s210715F0B556F166EC9ED6D6EF39DCE7)] |

| [Consolidated Statements of Comprehensive Income for the years ended December 31, [added: 2017,] 2016, [removed: 2015,] and [removed: 2014](#CONSOLIDATED_STATEMENTS_OF_COMPREHENSIVE) | | | F-5] [added: 2015](#sC9484EE56916E69C1A12D6D6ECC8CEA2)] | [added: [F-5](#sC9484EE56916E69C1A12D6D6ECC8CEA2)] |

| [Consolidated Balance Sheets as of December 31, [removed: 2016,] [added: 2017,] and [removed: 2015](#CONSOLIDATED_BALANCE_SHEETS) | | | F-6] [added: 2016](#s51BE270EDF234DB6F577D6D6EEAD20E3)] | [added: [F-6](#s51BE270EDF234DB6F577D6D6EEAD20E3)] |

| [Consolidated Statements of Cash Flow for the years ended December 31, [added: 2017,] 2016, [removed: 2015,] and [removed: 2014](#CONSOLIDATED_STATEMENTS_OF_CASH_FLOW) | | | F-7] [added: 2015](#sA6EE8BF44BE78D510198D6D6EE2135C6)] | [added: [F-7](#sA6EE8BF44BE78D510198D6D6EE2135C6)] |

| [Consolidated Statements of Equity for the years ended December 31, [added: 2017,] 2016, [removed: 2015,] and [removed: 2014](#CONSOLIDATED_STATEMENTS_OF_EQUITY) | | | F-8] [added: 2015](#s9132759556F9F7546C13D6D6EECC14AD)] | [added: [F-](#s9132759556F9F7546C13D6D6EECC14AD)8] |

| [Notes to Consolidated Financial [removed: Statements](#NOTES_TO_CONSOLIDATED_FINANCIAL_STATEMEN) | | | F-10] [added: Statements](#sDD0B382C75C6EDBFF0B5D6D70504E319)] | [added: [F-](#sDD0B382C75C6EDBFF0B5D6D70504E319)9] |

| [Schedule II—Valuation and Qualifying [removed: Accounts](#SCHEDULE_II_VALUATION_AND_QUALIFYING_ACC) | | | S-4] [added: Accounts](#sEA5BA6B54A8F110B1AA2D6D6EE5F6713)] | [added: [S-](#sEA5BA6B54A8F110B1AA2D6D6EE5F6713)3] |

[removed: (1) Exhibits:][added: (3) Exhibits]

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The information required by this Item is set forth in the Exhibit Index that precedes the signature pages of this Annual Report on Form 10-K.

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| [Report of Independent Registered Public Accounting Firm](#REPORT_OF_INDEPENDENT_IIIrd) | | | S-3 | |

| 2.1 | | Agreement and Plan of Merger, dated as of May 20, 2012, by and among DaVita Inc., Seismic Acquisition LLC, HealthCare Partners Holdings, LLC, and the Member Representative.(28) |

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| 2.2 | | Amendment, dated as of July 6, 2012, to the Agreement and Plan of Merger, dated as of May 20, 2012, by and among DaVita Inc., Seismic Acquisition LLC, HealthCare Partners Holdings, LLC, and the Member Representative.(29) |

| 3.1 | | Restated Certificate of Incorporation of DaVita Inc., as filed with the Secretary of State of Delaware on November 1, 2016.(1) |

| 3.2 | | Certificate of Ownership and Merger Merging DaVita Name Change, Inc. with and into DaVita Inc., as filed with Secretary of State of the State of Delaware on November 1, 2012.(31) |

| 3.3 | | Amended and Restated Bylaws for DaVita Inc. dated as of September 7, 2016.(1) |

| 4.1 | | Indenture, dated August 28, 2012, by and among DaVita Inc., the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee.(30) |

| 4.2 | | Form of 5.750% Senior Notes due 2022 and related Guarantee (included in Exhibit 4.1).(30) |

| 4.3 | | Indenture, dated June 13, 2014, by and among DaVita Inc., the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee. (34) |

| 4.4 | | Form of 5.125% Senior Notes due 2024 and related Guarantee (included in Exhibit 4.3). (34) |

| 4.5 | | Second Supplemental Indenture for the 5.750% Senior Notes due 2022, dated June 13, 2014, by and among DaVita Inc., the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee. (35) |

| 4.6 | | Indenture for the 5.000% Senior Notes due 2025, dated April 17, 2015, by and among DaVita Inc., the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee. (22) |

| 4.7 | | Form of 5.000% Senior Notes due 2025 and related Guarantee (included in Exhibit 4.6). (22) |

| 10.1 | | Employment Agreement, dated as of October 31, 2005, effective October 24, 2005, by and between DaVita Inc. and Dennis Kogod.(6)* |

| 10.2 | | Amendment to Mr. Kogod’s Employment Agreement, effective December 12, 2008.(18)* |

| 10.3 | | Second Amendment to Mr. Kogod’s Employment Agreement, effective December 31, 2012.(18)* |

| 10.4 | | Employment Agreement, effective September 22, 2005, by and between DaVita Inc. and James Hilger.(8)* |

| 10.5 | | Separation Agreement, effective November 30, 2016, by and between DaVita Inc. and Mr. Kogod.✓* |

| 10.6 | | Consulting Agreement, effective December 1, 2016, by and between DaVita Inc. and Mr. Kogod.✓* |

| 10.7 | | Amendment to Mr. Hilger’s Employment Agreement, effective December 12, 2008.(18)* |

| 10.8 | | Second Amendment to Mr. Hilger’s Employment Agreement, effective December 27, 2012.(33)* |

| 10.9 | | Employment Agreement, effective July 25, 2008, between DaVita Inc. and Kent J. Thiry.(15)* |

| 10.10 | | Employment Agreement, effective August 1, 2008, between DaVita Inc. and Allen Nissenson.(16)* |

| 10.11 | | Employment Agreement, effective March 17, 2010, by and between DaVita Inc. and Javier Rodriguez.(20)* |

| 10.12 | | Employment Agreement, effective November 1, 2016, by and between DaVita Inc. and Charles G. Berg.✓* |

| 10.13 | | Employment Agreement, effective February 21, 2017, by and between DaVita Inc. and Joel Ackerman.✓* |

| 10.14 | | Form of Indemnity Agreement.(12)* |

| 10.15 | | Form of Indemnity Agreement.(7)* |

| 10.16 | | DaVita Deferred Compensation Plan.✓* |

| 10.17 | | Executive Incentive Plan (as Amended and Restated effective January 1, 2009).(19)* |

| 10.18 | | Executive Retirement Plan.(18)* |

| 10.19 | | DaVita Voluntary Deferral Plan.(5)* |

| 10.20 | | Deferred Bonus Plan (Prosperity Plan).(17)* |

| 10.21 | | Amendment No. 1 to Deferred Bonus Plan (Prosperity Plan).(18)* |

| 10.22 | | Amended and Restated Employee Stock Purchase Plan.(13)* |

Based upon our evaluation under the COSO framework, we have concluded that the Company’s internal control over financial reporting was effective as of December 31, [removed: 2016.][added: 2017.]

[removed: The] [added: To the Stockholders and] Board of Directors [removed: and Shareholders]

[added: | Amounts attributable to] DaVita Inc.: [added: | | | | | | | | | | | |]

We have audited the accompanying consolidated balance sheets of DaVita Inc. and subsidiaries [added: (the Company)] as of December 31, [removed: 2016 and 2015,] [added: 2017] and [added: 2016,] the related consolidated statements of income, comprehensive income, equity, and cash [removed: flows] [added: flow] for each of the years in the three‑year period ended December 31, [removed: 2016.][added: 2017, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements).]

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the [added: consolidated] financial statements are free of material [removed: misstatement.][added: misstatement, whether due to error or fraud.]