Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking statements

This Annual Report on Form 10-K, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements that are forward-looking statements within the meaning of the federal securities laws and as such are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements could include, among other things, DaVita's response to and the expected future impacts of the novel coronavirus (COVID-19), including statements about our balance sheet and liquidity, our expenses and expense offsets, revenues, billings and collections, potential need, ability or willingness to use any funds under government relief programs, availability or cost of supplies, treatment volumes, mix expectation, such as the percentage or number of patients under commercial insurance, the availability and administration of COVID-19 vaccines, and overall impact on our patients and teammates, as well as other statements regarding our future operations, financial condition and prospects, expenses, strategic initiatives, government and commercial payment rates, expectations related to value-based care and Medicare Advantage plan enrollment and our ongoing stock repurchase program. All statements in this report, other than statements of historical fact, are forward-looking statements. Without limiting the foregoing, statements including the words "expect," "intend," "will," "could," "plan," "anticipate," "believe," "forecast," "guidance," "outlook," "goals," and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on DaVita's current expectations and are based solely on information available as of the date of this report. DaVita undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of changed circumstances, new information, future events or otherwise, except as may be required by law. Actual future events and results could differ materially from any forward-looking statements due to numerous factors that involve substantial known and unknown risks and uncertainties. These risks and uncertainties include, among other things:

*•*the continuing impact of the dynamic and evolving COVID-19 pandemic, including, without limitation, on our patients, teammates, physician partners, suppliers, business, operations, reputation, financial condition and results of operations; the government’s response to the COVID-19 pandemic; the availability, acceptance, impact and efficacy of COVID-19 treatments, therapies and vaccines; further spread or resurgence of the virus, including as a result of the emergence of new strains of the virus; the continuing impact of the pandemic on our revenue and non-acquired growth due to lower treatment volumes; the consequences of an extended economic downturn resulting from the impacts of COVID-19, such as a potential negative impact on our commercial mix, which may persist even after the pandemic subsides; and continuing COVID-19-related costs, such as costs to procure equipment and clinical supplies and higher salary and wage expense. The aforementioned risks and uncertainties may also have the effect of heightening many of the other risks and uncertainties discussed below;

*•*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 or percentage of our patients under such plans, including, without limitation, 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;

*•*noncompliance by us or our business associates with any privacy or security laws or any security breach by us or a third party involving the misappropriation, loss or other unauthorized use or disclosure of confidential information;

*•*the extent to which the ongoing implementation of healthcare reform, or changes in or new legislation, regulations or guidance, enforcement thereof or related litigation result in a reduction in coverage or reimbursement rates for our services, a reduction in the number of patients enrolled in higher-paying commercial plans or that are enrolled in or select Medicare Advantage plans or other material impacts to our business; or our making incorrect assumptions about how our patients will respond to any such developments;

• a reduction in government payment rates under the Medicare End Stage Renal Disease program or other government-based programs and the impact of the Medicare Advantage benchmark structure;

*•*risks arising from potential changes in laws, regulations or requirements applicable to us, such as potential and proposed federal and/or state legislation, regulation, ballot, executive action or other initiatives, including those related to healthcare and/or labor matters, such as AB 290 in California;

*•*the impact of the political environment and related developments on the current healthcare 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 healthcare marketplace, as well as the composition of the U.S. Supreme Court and the new presidential administration and congressional majority;

*•*our ability to successfully implement our strategies with respect to home-based dialysis, value-based care and/or integrated kidney care, including maintaining our existing business and further developing our capabilities in a complex and highly regulated environment;

• changes in pharmaceutical practice patterns, reimbursement and payment policies and processes, or pharmaceutical pricing, including with respect to hypoxia inducible factors;

• legal and compliance risks, such as our continued compliance with complex government regulations;

• continued increased competition from dialysis providers and others, and other potential marketplace changes;

• 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, independent practice associations 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 in markets outside the United States, or to businesses outside of dialysis;

*•*the variability of our cash flows, including without limitation any extended billing or collections cycles; the risk that we may not be able to generate or access sufficient cash in the future to service our indebtedness or to fund our other liquidity needs; and the risk that we may not be able to refinance our indebtedness as it becomes due, on terms favorable to us or at all;

• factors that may impact our ability to repurchase stock under our stock repurchase program and the timing of any such stock repurchases, as well as our use of a considerable amount of available funds to repurchase stock;

• risks arising from the use of accounting estimates, judgments and interpretations in our financial statements;

• impairment of our goodwill, investments or other assets; and

• uncertainties associated with the other risk factors set forth in Part I, Item 1A. of this Annual Report on Form 10-K, and the other risks and uncertainties discussed in any subsequent reports that we file or furnish with the SEC from time to time.

The following should be read in conjunction with our consolidated financial statements.

Company overview

Our principal business is to provide dialysis and related lab services to patients in the United States, which we refer to as our U.S. dialysis business. We also operate various ancillary services and strategic initiatives including our international operations, which we collectively refer to as our ancillary services, as well as our corporate administrative support. Our U.S. dialysis business 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) or end stage kidney disease (ESKD).

On June 19, 2019, we completed the sale of our DaVita Medical Group (DMG) business to Collaborative Care Holdings, LLC, a subsidiary of UnitedHealth Group Inc. As a result of this transaction, DMG's results of operations have been reported as discontinued operations for all periods presented and DMG is not included below in this Management's Discussion and Analysis.

Notwithstanding the challenges of responding to the novel coronavirus pandemic (COVID-19), our year-over-year overall financial performance in 2020 benefited from increased revenue, which was primarily due to higher average revenue per treatment in our U.S. dialysis business as well as acquired growth in our international business. This was partially offset by increases in labor costs (both operating and overhead), lower margin on calcimimetics, increases in advocacy costs, and increased costs driven by the emergence of COVID-19, including increased costs related to compensation and medical supplies.

Drivers of our financial performance in 2020 included the following:

• improved key clinical outcomes in our U.S. dialysis business, including our recognition as an industry leader for the eighth consecutive year in CMS’ Quality Incentive Program and for the last seven years under the CMS Five-Star Quality Rating system;

• revenue growth of 0.9% in U.S. dialysis, 5.3% in U.S. ancillary services, and 11.0% in international operations;

• a net increase of 63 U.S. and 62 international dialysis centers, including entering a new country, the United Kingdom;

• operating cash flows of $1.979 billion from continuing operations;

• repurchase of 16,477,378 shares of our common stock for aggregate consideration of $1.447 billion, and reduction of our share count by 12.6% year-over-year;

• refinancing transactions, including the redemption of our 5.125% and 5.0% senior notes, the issuance of our new 4.625% and 3.75% senior notes and the repricing of our Term Loan B-1 resulting in lower debt expense; and

• impact of COVID-19 as further discussed in Part I. Item 1 “Business” and under the heading "COVID-19 and its impact on our business" below.

In 2021, we expect that COVID-19 will continue to impact our business and financial performance, as described in further detail below, though the magnitude of these impacts remains difficult to predict and subject to significant uncertainty due to a number of factors, including, among others, the severity and duration of the pandemic; further spread or resurgence of the virus, including as a result of the emergence of new strains of the virus; its impact on the CKD patient population and our patient population; the availability, acceptance, impact and efficacy of COVID-19 treatments, therapies and vaccines; the pandemics' continuing impact on the U.S. and global economies and unemployment; the responses of our competitors to the pandemic and related changes in the marketplace; and the timing, scope and effectiveness of federal, state and local government responses. The continued impacts and disruptions to our business as a result of the COVID-19 pandemic could have a material adverse impact on our patients, teammates, physician partners, suppliers, business, operations, reputation, financial condition, results of operations, cash flows and/or liquidity. On treatment volume, we continue to face pressure primarily driven by the impact of COVID-19 on mortality rates for dialysis patients. This pressure is also influenced by slowing industry growth and competitive activity. On reimbursement rate, we expect modest growth in aggregate, primarily due to the expected net market basket update for Medicare treatments as well as an increase in Medicare Advantage enrollment due to the 21st Century Cures Act, partially offset by the scheduled resumption of Medicare sequestration in 2021. On cost, we continue to expect inflationary pressure on wage rates and other costs, partially offset by continued savings on pharmaceutical costs. We expect to incur significantly less advocacy costs in 2021 than we experienced in 2020. We also expect to continue making investments to expand our ability to offer home-based dialysis service options and further advance our integrated care and value-based care initiatives in 2021. Finally, the timing and scope of any potential changes to the regulatory landscape remain uncertain, particularly in light of the ongoing COVID-19 pandemic and the incoming new federal administration, and as such, considerable uncertainty exists surrounding the continued development of the various governmental laws, regulations and other requirements that impact our business.

The discussion below includes analysis of our financial condition and results of operations for the years ended December 31, 2020 compared to December 31, 2019. Our Annual Report on Form 10-K for the year ended December 31, 2019, includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2018, in its Part II Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations".

References to the "Notes" in the discussion below refer to the notes to the Company's consolidated financial statements included in this Annual Report on Form 10-K at Item 15, "Exhibits, Financial Statement Schedules" as referred from Part II Item 8, "Financial Statements and Supplementary Data."

COVID-19 and its impact on our business

As noted above and described in further detail in Part I Item 1, "Business," we continue to closely monitor the impact on our business of the pandemic and the resulting economic environment, including the impact on our patients, teammates, physician partners, suppliers, vendors and business partners. We have dedicated and continue to dedicate substantial resources in response to COVID-19, to help safely maintain continuity of care for our patients throughout this crisis, whether in the hospital, outpatient or home setting, and to help protect our caregivers. Our COVID-19 response has included, among other things, the implementation of additional protocols and operational initiatives related to infection control and clinical best practices, redistribution of resources across geographies and increased investment in and utilization of telehealth capabilities. We also have maintained business process continuity during the pandemic by enabling most back office teammates to work remotely and implemented guidance early in the pandemic to help mitigate health and safety risks to our teammates imposed by COVID-19. Our response protocol generally has allowed us to maintain continuity of care for our patients and we carefully monitor the efficacy of these protocols and their impact on our operations and strategic initiatives as the pandemic continues.

Due in part to the protocols and initiatives described above, we incurred significant costs related to COVID-19 in 2020, and we expect to continue to incur extended and significant additional costs in connection with our response to COVID-19. For example, we have had, and expect to continue to have, increased costs associated with a high demand for our skilled clinical personnel. Additionally, the steps we have taken designed to help safely maintain continuity of care for our patients and help protect our caregivers, such as our policies to implement dedicated care shifts for patients with confirmed or suspected COVID-19 and other enhanced clinical practices, have increased, and are expected to continue to increase, our expenses and use of personal protective equipment (PPE). Our response to COVID-19 also has resulted in higher salary and wage expense, and we have provided, and may provide in the future, substantial financial support associated with relief reimbursement to our teammates. Furthermore, the effort and cost needed to procure certain of our equipment and clinical supplies, including PPE, have increased, and we expect that these increased costs will continue while the pandemic persists. However, our COVID-19 response reduced certain other expenses in 2020, such as those related to teammate travel, though it remains uncertain how much of these reductions, if any, will persist after the pandemic subsides.

We have experienced and expect to continue to experience a negative impact on revenue and non-acquired growth from COVID-19 due to lower treatment volumes, including from the negative impact on our patient census that is the result of changes in rates of mortality. Because ESRD patients may be older and generally have comorbidities, several of which are risk factors for COVID-19, we believe the mortality rate of infected patients is, and will continue to be, higher in the dialysis population than in the general population, and COVID-19 also could impact the CKD population differently. Over the longer term, we believe that changes in mortality in both the CKD and ESRD populations due to COVID-19 will depend primarily on the infection rate, case fatality rate, the age and health status of affected patients, the access to and efficacy of vaccinations as well as willingness to be vaccinated. We expect that these changes are likely to continue to negatively impact our revenue and non-acquired growth even as the pandemic subsides. However, determining the extent to which these impacts should be directly attributable to COVID-19 is difficult due to testing and reporting limitations, and other factors that may drive treatment volumes and new admissions over time, such as the number of transplants or deferred admissions. The magnitude of these cumulative impacts has been substantial, and depending on the ultimate severity and duration of the pandemic, could be material.

In addition, the COVID-19 pandemic and efforts to contain the virus have led to global economic deterioration and rapid and sharp increases in unemployment levels, which ultimately could result in a materially reduced share of our patients being covered by commercial insurance plans, with more patients being covered by lower-paying government insurance programs or being uninsured. These effects may persist after the pandemic subsides as, among other things, our patients could experience permanent changes in their insurance coverage as a result of changes to their employment status. In the event such a material reduction occurs in the share of our patients covered by commercial insurance plans, it would have a material adverse impact on our business, results of operations, financial condition and cash flows. The extent of these effects will be dependent upon, among other things, the extent and duration of the increased unemployment levels for our patient population, economic deterioration and potential recession; the timing and scope of federal, state and local governmental responses to the ongoing pandemic; and patients’ ability to retain existing insurance and their individual choices with respect to their coverage. Despite

the broader economic conditions in the U.S. in 2020, our commercial mix in 2020 was relatively flat as compared to our commercial mix in 2019, which we believe was largely due to the fact that older, higher-risk patients who tend to disproportionately have government health insurance coverage, have been more adversely impacted by COVID-19 to date, but the ultimate impact of COVID-19 on our commercial mix will depend on future developments that are highly uncertain and difficult to predict.

The government response to COVID-19 has been wide-ranging and will continue to develop over time, particularly in light of the new federal administration. As a result, we may not be able to accurately predict the nature, timing or extent of the impact of such changes on the markets in which we conduct business or on the other participants that operate in those markets, or any potential changes to the extensive set of federal, state and local laws, regulations and requirements that govern our business. We have worked with certain government agencies to respond to the COVID-19 pandemic, and in certain cases have sought waivers of regulatory requirements. We also are working to help make COVID-19 vaccines available to our patients and teammates, including through coordination with state and federal governments on direct vaccine distribution so that we can administer vaccines to our patients and teammates. These vaccines are currently available under emergency use authorizations, and there can be no assurance that our patients and caregivers will choose to receive a COVID-19 vaccine or that the vaccines will prove to be as safe and effective as currently understood by the scientific community. In addition, we may encounter difficulties with the availability and storage of the vaccines, or experience other complications related to administering the vaccines, some of which have multiple dose requirements. We operate in a complex and highly regulated environment, and the novel nature of our COVID-19 response, including, for example, with respect to regulatory waivers and our administration of the newly developed COVID-19 vaccines, may increase our exposure to legal, regulatory and clinical risks.

Furthermore, a significant initial part of the federal government response to the COVID-19 pandemic was the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion economic stimulus package that was signed into law on March 27, 2020. The CARES Act included a provision that suspended the 2% Medicare sequestration from May 1, 2020 through December 31, 2020, and in the year ended December 31, 2020 our revenues increased due to this suspension as further described below. The Consolidated Appropriations Act 2021, signed into law on December 27, 2020, extended the suspension of the 2% Medicare sequestration until March 31, 2021. While in effect, this legislation has increased, and will continue to increase our revenues. In addition, the CARES Act authorized $100 billion in funding to be distributed to healthcare providers through the federal Public Health and Social Services Emergency Fund (Provider Relief Fund). While we declined approximately $250 million of government funding received in the second quarter of 2020 from the Provider Relief Fund, certain of our competitors accepted such funds. There can be no assurance that financial or other assistance will be available from the government if we have a need for such assistance in the future.

We believe the ultimate impact of this public health crisis on the Company will depend on future developments that are highly uncertain and difficult to predict, including among other things the severity and duration of the pandemic; further spread or resurgence of the virus including as a result of the emergence of new strains of the virus; its impact on the CKD patient population and our patient population; the availability, acceptance, impact and efficacy of COVID-19 treatments, therapies and vaccines; the pandemic’s continuing impact on the U.S. and global economies and unemployment; the responses of our competitors to the pandemic and related changes in the marketplace; and the timing, scope and effectiveness of federal, state and local governmental responses. At this time, we cannot reasonably estimate the ultimate impact the COVID-19 pandemic will have on us, but the adverse impact could be material.

For additional discussion of the COVID-19 pandemic and our response, including its impact on us and related risks and uncertainties, please see the discussion in Part I Item 1 "Business" under the headings, "COVID-19 and its impact on our business" and "Human Capital Management", as well as the risk factor in Part I Item 1A. Risk Factors under the heading “We face various risks related to the dynamic and evolving novel coronavirus pandemic, any of which may have a material adverse impact on us.”

Consolidated results of operations

The following table summarizes our revenues, operating income and adjusted operating income by line of business. See the discussion of our results for each line of business following this table:

			Year ended December 31,												Annual change
			2020						2019						Amount						Percent
			(dollars in millions)
Revenues:
U.S. dialysis			$	10,660					$	10,563					$	97					0.9		%
Other - ancillary services			1,053						972						81						8.3		%
Elimination of intersegment revenues			(162)						(146)						(16)						(11.0)		%
Total consolidated revenues			$	11,551					$	11,388					$	162					1.4		%
Operating income (loss):
U.S. dialysis			$	1,918					$	1,925					$	(7)					(0.4)		%
Other - Ancillary services			(76)						(189)						113						59.8		%
Corporate administrative support			(147)						(92)						(54)						(58.7)		%
Operating income			$	1,695					$	1,643					$	51					3.1		%
Adjusted operating income (loss):****(1)
U.S. dialysis			$	1,918					$	1,925					$	(7)					(0.4)		%
Other - Ancillary services			(60)						(64)						4						6.3		%
Corporate administrative support			(112)						(92)						(19)						(20.7)		%
Adjusted operating income			$	1,746					$	1,768					$	(22)					(1.2)		%

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

(1)For a reconciliation of adjusted operating income (loss) by reportable segment, see the "Reconciliations of non-GAAP measures" section below.

U.S. dialysis business

Our U.S. dialysis business is a leading provider of kidney dialysis services, operating 2,816 outpatient dialysis centers and serving a total of approximately 204,200 patients. We also provide hospital inpatient dialysis services in approximately 900 hospitals. We estimate that we have approximately a 36% share of the U.S. dialysis market based upon the number of patients we serve.

Approximately 91% of our 2020 consolidated revenues were derived directly from our U.S. dialysis business. The principal drivers of our U.S. dialysis revenues include :

• our number of treatments, which is primarily a function of the number of chronic patients requiring approximately three in-center treatments per week as well as, to a lesser extent, the number of treatments for home-based dialysis and hospital inpatient dialysis; and

• our average dialysis patient service revenue per treatment, including the mix of patients with commercial plans and government programs as primary payor.

Within our U.S. dialysis business, our home-based dialysis and hospital inpatient dialysis services are operationally integrated with our outpatient dialysis centers and related laboratory services. Our outpatient, home-based, and hospital inpatient dialysis services comprise approximately 77%, 17% and 6% of our U.S. dialysis revenues, respectively.

In the U.S., government dialysis-related payment rates are principally determined by federal Medicare and state Medicaid policy. For 2020, approximately 68% of our total U.S. dialysis patient services revenues were generated from government-based programs for services to approximately 90% of our total U.S. patients. These government-based programs are principally Medicare and Medicare Advantage, Medicaid and managed Medicaid plans, and other government plans, representing approximately 57%, 7% and 4% of our U.S. dialysis patient services revenues, respectively.

Dialysis payment rates from commercial payors vary and a major portion of our commercial rates are set at contracted amounts with payors and are subject to intense negotiation pressure. On average, dialysis-related payment rates from contracted commercial payors are significantly higher than Medicare, Medicaid and other government program payment rates, and therefore the percentage of commercial patients in relation to total patients represents a significant driver of our total average dialysis patient service revenue per treatment. Commercial payors (including hospital dialysis services) represent approximately 32% of U.S. dialysis patient services revenues.

For discussion of government reimbursement, the Medicare ESRD bundled payment system, Medicare Advantage and commercial reimbursement, see the discussion in Part I. Item 1. Business under the heading “U.S. dialysis business – Sources of revenue-concentrations and risks.” For a discussion of operational, clinical and financial risks and uncertainties that we face in connection with the Medicare ESRD bundled payment system, see the risk factor in Part I. Item 1A. Risk Factors under the heading “Our business is subject to a complex set of governmental laws, regulations and other requirements and any failure to adhere to those requirements, or any changes in those requirements, could have a material adverse effect on our business, results of operations, financial condition and cash flows, could materially harm our stock price, and in some circumstances, could materially harm our reputation” For a discussion of operational, clinical and financial risks and uncertainties that we face in connection with commercial payors, see the risk factors in Item 1A. Risk Factors under the headings "We continuously have ongoing negotiations with commercial payors, and if the average rates that commercial payors pay us decline significantly, if patients in commercial plans are subject to restriction in plan designs or if we are unable to maintain contracts with payors with competitive terms, including, without limitation, reimbursement rates, scope and duration of coverage and in-network benefits, it would have a material adverse effect on our business, results of operations, financial condition and cash flows"; and "If the number of patients with higher-paying commercial insurance declines, it could have a material adverse effect on our business, results of operations, financial condition and cash flows."

Effective January 1, 2018, both oral and intravenous forms of calcimimetics became the financial responsibility of our U.S. dialysis business for our Medicare patients and are reimbursed under Medicare Part B. Since the effective date through December 31, 2020, the oral and intravenous forms of calcimimetics were separately reimbursed through a transitional drug add-on payment adjustment (TDAPA) and not as part of the ESRD PPS bundled payment. These separate reimbursement payments for calcimimetics were subject to change on an annual basis. During the initial TDAPA period, Medicare payments were based on a pass-through rate of the average sales price plus approximately 6% before sequestration (or 4% adjusted for sequestration), and in 2020 they were based on a pass-through rate of the average sales price plus 0%, before sequestration. As expected, as of January 1, 2021, calcimimetics was added to the ESRD PPS bundled payment. We therefore expect our operating income from calcimimetics to be more stable in the future as compared to the past three years under the TDAPA model.

Approximately 4% and 6% of our total U.S. dialysis patient services revenues for the years 2020 and 2019, respectively, are associated with the administration of separately-billable physician-prescribed pharmaceuticals, of which approximately 3% and 4% relate to the administration of calcimimetics, respectively.

We anticipate that we will continue to experience increases in our operating costs in 2021 that may outpace any net Medicare rate increases that we may receive, which could significantly impact our operating results. In particular, 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, regardless of whether there is a compensating inflation-based increase in Medicare payment rates or in payments under the ESRD bundled payment rate system. We also continue to expect to incur additional COVID-19-related costs while the pandemic continues. In addition, we expect to continue to incur capital expenditures to improve, renovate and maintain our facilities, equipment and information technology to meet evolving regulatory requirements and otherwise.

U.S. dialysis patient care costs are those costs directly associated with operating and supporting our dialysis centers, home-based dialysis programs and hospital inpatient dialysis programs, and consist principally of labor, benefits, pharmaceuticals, medical supplies and other operating costs of the dialysis centers.

The principal drivers of our U.S. dialysis patient care costs include:

• clinical hours per treatment, labor rates and benefit costs;

• vendor pricing and utilization levels of pharmaceuticals;

• business infrastructure costs, which include the operating costs of our dialysis centers; and

• certain professional fees.

Other cost categories that can present significant variability include employee benefit costs, insurance costs and medical supply costs. In addition, proposed ballot initiatives or referendums, legislation, regulations or policy changes could cause us to incur substantial costs to prepare for, or implement changes required. Any such changes could result in, among other things, increases in our labor costs or limitations on the amount of revenue that we can retain. For additional information on risks associated with potential and proposed ballot initiatives, referendums, legislation, regulations or policy changes, see the risk factor in Item 1A. Risk Factors under the heading, "Changes in federal and state healthcare legislation or regulations could have a material adverse effect on our business, results of operations, financial condition and cash flows."

Our average clinical hours per treatment decreased in 2020 compared to 2019. We are always striving for improved productivity levels, however, changes in things such as federal and state policies or regulatory billing requirements can lead to increased labor costs. In 2020, the demand for skilled clinical personnel increased due to the demand of the pandemic on these resources, intensifying these competitive pressures; however, we managed to increase our overall clinical teammate retention in 2020. In 2020 and 2019, we experienced an increase in our clinical labor rates of approximately 3.0% and 2.0%, respectively, consistent with general industry trends. We also continue to experience increases in the infrastructure and operating costs of our dialysis centers, primarily due to the number of new dialysis centers opened, and general increases in rent, utilities and repairs and maintenance. In 2020, we continued to implement certain cost control initiatives to help manage our overall operating costs, including labor productivity, and we expect to continue these initiatives in 2021.

Our U.S. dialysis general and administrative expenses represented 9.0% and 8.1% of our U.S. dialysis revenues in 2020 and 2019, respectively. Increases in general and administrative expenses over the last several years were primarily related to strengthening our dialysis business and related compliance and operational processes, responding to certain legal and compliance matters, professional fees associated with enhancing our information technology systems and more recent advocacy costs in 2020 related to countering union policy efforts. We expect that these levels of general and administrative expenses will be impacted by lower advocacy costs in 2021 compared to 2020, offset by continued investment in developing our capabilities and executing on our strategic priorities, among other things.

U.S. dialysis results of operations

Revenues:

			Year ended December 31,												Annual change
			2020						2019						Amount						Percent
			(dollars in millions, except per treatment data)
Total revenues			$	10,660					$	10,563					$	97					0.9		%
Dialysis treatments			30,314,619						30,172,699						141,920						0.5		%
Average treatments per day			96,667						96,398						269						0.3		%
Treatment days			313.6						313.0						0.6						0.2		%
Average patient service revenue per treatment			$	350.31					$	349.02					$	1.29					0.4		%
Normalized non-acquired treatment growth(1)			1.0%						2.2%												(1.2)		%

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

(1)Normalized non-acquired treatment growth reflects year over year growth in treatment volume, adjusted to exclude acquisitions and other similar transactions, and further adjusted to normalize for the number and mix of treatment days in a given period versus the prior period.

U.S. dialysis revenues in 2020 increased primarily due to an increase in dialysis treatments and an increase in our average patient service revenue per treatment. The increase in our U.S. dialysis treatments was driven by approximately one additional treatment day in 2020 compared to 2019 and an increase in acquired and non-acquired treatments, partially offset by the deconsolidation of two dialysis partnerships, as described below under the heading "Equity investment income". Treatments were negatively impacted by higher mortality than experienced historically as well as a decline in new admissions. We believe the increased mortality rate is largely attributable to the impact of COVID-19 on our patient population. Our U.S. dialysis revenues were positively impacted by an increase in our average patient service revenue per treatment driven by favorable changes in government rate, including an increase in Medicare rates due to a base rate increase in 2020 and the temporary suspension of Medicare sequestration as well as an increase in hospital inpatient dialysis services revenue per treatment, partially offset by a decline in calcimimetics reimbursement.

Operating expenses and charges:

			Year ended December 31,												Annual change
			2020						2019						Amount						Percent
			(dollars in millions, except per treatment data)
Patient care costs			$	7,222					$	7,219					$	3					—		%
General and administrative(1)			958						857						101						11.8		%
Depreciation and amortization			595						583						11						1.9		%
Equity investment income			(33)						(22)						(11)						(50.0)		%
Total operating expenses and charges			$	8,742					$	8,638					$	104					1.2		%
Patient care costs per treatment			$	238.24					$	239.27					$	(1.03)					(0.4)		%

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

(1)General and administrative expenses for the year ended December 31, 2020 included advocacy costs of approximately $67 million incurred to counter union policy efforts, including a California ballot initiative.

Patient care costs. U.S. dialysis patient care costs are those costs directly associated with operating and supporting our dialysis centers and consist principally of compensation expenses including labor and benefits, pharmaceuticals, medical supplies and other operating costs of the dialysis centers.

U.S. dialysis patient care costs per treatment decreased primarily due to decreases in pharmaceutical unit costs, as well as decreased travel expenses due to COVID-19. These decreases were partially offset by an increase in labor costs and COVID-19-related costs, including compensation, medical supplies and teammate relief reimbursement and benefit program expenses.

General and administrative expenses. U.S. dialysis general and administrative expenses in 2020 increased primarily due to an increase in advocacy costs incurred to counter union policy efforts, including those related to a California ballot initiative. These increases were also driven by contributions to our charitable foundation, labor costs and COVID-19-related costs, including compensation expenses. These increases were partially offset by a decrease in travel expenses due to COVID-19 and a decrease in long-term incentive compensation expense.

Depreciation and amortization. Depreciation and amortization expense is directly impacted by the number of dialysis centers we develop and acquire. U.S. dialysis depreciation and amortization expense increased primarily due to growth in the number of dialysis centers we operate.

Equity investment income. U.S. dialysis equity investment income increased primarily due to the deconsolidation of two of our near 50%-owned dialysis partnerships at year-end 2019, based on a reassessment of relative rights and powers over these partnerships. Our portion of these partnerships' earnings are now recognized in equity investment income.

Operating income and adjusted operating income

			Year ended December 31,												Annual change
			2020						2019						Amount						Percent
			(dollars in millions)
Operating income			$	1,918					$	1,925					$	(7)					(0.4)		%
Adjusted operating income(1)			$	1,918					$	1,925					$	(7)					(0.4)		%

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

(1)For a reconciliation of adjusted operating income by reportable segment, see the "Reconciliations of non-GAAP measures" section below.

U.S. dialysis operating income and adjusted operating income in 2020 decreased compared to 2019 primarily due to a decrease in calcimimetics margin, increases in labor costs, advocacy costs and charitable contributions; and an increase in COVID-19-related expenses, including compensation, medical supplies, and reimbursement and benefit program expenses, as described above. These decreases to operating income were partially offset by volume growth from approximately one additional treatment day in the year and an increase in our average dialysis patient service revenue per treatment, as described above, as well as decreases in pharmaceutical unit costs, travel expenses and long-term incentive compensation expense.

Other - Ancillary services

Our other operations include ancillary services that are primarily aligned with our core business of providing dialysis services to our network of patients. As of December 31, 2020, these consisted primarily of integrated care (DaVita IKC), ESRD seamless care organizations (ESCOs), clinical research programs (DaVita Clinical Research), and physician services, as well as our international operations. These ancillary services, including our international operations, generated revenues of approximately $1.053 billion in 2020, representing approximately 9% of our consolidated revenues. As further described in the risk factor in Item 1A. Risk Factors under the heading, "Our ancillary services and strategic initiatives, including, without limitation, our international operations, that we operate or invest in now or in the future may generate losses and may ultimately be unsuccessful. In the event that one or more of these activities is unsuccessful, our business, results of operations, financial condition and cash flows may be negatively impacted and we may have to write off our investment and incur other exit costs," if any of our ancillary services or strategic initiatives, such as our international operations, are unsuccessful, it could have a negative impact on our business, results of operations, financial condition and cash flows, and we may determine to exit that line of business, which could result in significant termination costs. In addition, we have in the past and may in the future incur material write-offs or impairments of our investments, including goodwill, in one or more of these ancillary services.

We expect to add additional service offerings to our business and pursue additional strategic initiatives in the future as circumstances warrant, which could include, among other things, healthcare services not related to dialysis.

As of December 31, 2020, our international dialysis operations provided dialysis and administrative services through a total of 321 outpatient dialysis centers located in ten countries outside of the U.S. For 2020, total revenues generated from our international operations were approximately 5% of our consolidated revenues.

Ancillary services results of operations

			Year ended December 31,												Annual change
			2020						2019						Amount						Percent
			(dollars in millions)
Revenues:
U.S. ancillary			$	489					$	464					$	25					5.4		%
International			564						508						56						11.0		%
Total ancillary services revenues			$	1,053					$	972					$	81					8.3		%
Operating (loss) income:
U.S. ancillary			$	(99)					$	(66)					$	(33)					(50.0)		%
International(1)			23						(123)						146						118.7		%
Total ancillary services loss			$	(76)					$	(189)					$	113					59.8		%
Adjusted operating (loss) income(2):
U.S. ancillary			$	(83)					$	(66)					$	(17)					(25.8)		%
International(1)			23						2						21						1,050.0		%
Total adjusted operating loss:			$	(60)					$	(64)					$	4					6.3		%

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

(1)The reported operating income (loss) and adjusted operating income for the years ended December 31, 2020 and December 31, 2019, include approximately $3 million and $2 million, respectively, of foreign currency losses.

(2)For a reconciliation of adjusted operating (loss) income by reportable segment, see the "Reconciliations of non-GAAP measures" section below.

Revenues:

Our U.S. ancillary services revenues in 2020 increased due to an increase in revenues at our integrated care business, primarily due to revenue increases in our special needs plans, as well as an increase in revenues in our ESCO and physician services businesses. These increases were partially offset by a decrease in revenue in our clinical research programs, as well as due to the sale of Lifeline, as described below. Our international revenues increased primarily as a result of acquired treatment growth as we continue to expand our international business.

Charges impacting operating income:

Loss on changes in ownership interests, net. We sold 100% of the stock of Lifeline, our vascular access business, effective May 1, 2020 and recognized a loss of approximately $16 million on this transaction.

Goodwill impairment charges. During 2019, we recognized goodwill impairment charges of $125 million in our international reporting units. See further discussion of these impairment charges and our reporting units that remain at risk of goodwill impairment in Note 10 to the consolidated financial statements.

Operating loss and adjusted operating loss:

Our U.S. ancillary services operating loss in 2020 was negatively impacted by the loss on sale of Lifeline, as described above, and both U.S. ancillary operating loss and adjusted operating loss were negatively impacted by an increase in medical costs due to COVID-19 in our integrated care business and a decrease in revenue in our clinical research programs, partially offset by increases in revenues in our integrated care and ESCO businesses. International operating results and adjusted operating results increased in 2020 compared to 2019. International operating results in 2019 were negatively impacted by goodwill impairment charges, as described above, and both international operating results and adjusted operating results benefited in 2020 primarily from acquisition-related growth and the reduction of certain other periodic expenses, partially offset by increased medical supplies costs and higher mortality due to COVID-19.

Corporate administrative support

Corporate administrative support consists primarily of labor, benefits and long-term incentive compensation expense, as well as professional fees for departments which provide support to all of our various operating lines of business. In 2020, corporate support also included an accrual for legal matters. Corporate administrative support expenses are included in general and administrative expenses on our consolidated income statement.

Accruals for legal matters. During 2020, we recorded a net charge for legal matters of $35 million.

Corporate administrative support expenses increased $54 million in 2020 primarily driven by accruals for legal matters, as described above. In addition, both corporate administrative support and adjusted corporate administrative support expenses increased in 2020 due to an increase in severance accruals recorded in the second quarter of 2020 associated with our senior executive leadership transition and an increase in long-term compensation expense.

Corporate-level charges

			Year ended December 31,												Annual change
			2020						2019						Amount						Percent
			(dollars in millions)
Debt expense			$	304					$	444					$	(140)					(31.5)		%
Debt prepayment, refinancing and redemption charges			$	89					$	33					$	56					169.7		%
Other income, net			$	17					$	29					$	(13)					(44.8)		%
Effective income tax rate			23.8		%				23.4		%										0.4		%
Effective income tax rate from continuing operations attributable to DaVita Inc.(1)			28.6		%				28.3		%										0.3		%
Net income attributable to noncontrolling interests			$	221					$	210					$	11					5.2		%

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

(1)For a reconciliation of our effective income tax rate from continuing operations attributable to DaVita Inc., see the "Reconciliations of non-GAAP measures" section below.

Debt expense

Debt expense decreased primarily due to a decrease in our outstanding debt balances and a decrease in the overall weighted average effective interest rate on our debt in 2020. Our overall weighted average effective interest rate in 2020 was 3.59% compared to 5.01% in 2019. See Note 13 to the consolidated financial statements for further information on the components of our debt and changes in them since 2019.

Debt prepayment, refinancing and redemption charges

Debt prepayment, refinancing and redemption charges were $89 million in 2020 as a result of the redemption in full of both our $1.75 billion aggregate principal amount outstanding of 5.125% senior notes and our $1.50 billion aggregate principal amount outstanding of 5.0% senior notes. These 2020 charges represented debt redemption premium charges and deferred financing cost write-offs associated with our prior senior note debt that was paid in full. These charges recognized in 2020 also included $3 million of refinancing charges comprised partially of fees incurred on the repricing of our Term Loan B and partially of deferred financing costs written off for the portion of this debt considered extinguished and reborrowed. In 2019, we incurred debt prepayment, refinancing and redemption charges of $33 million as a result of the repayment of all principal balances outstanding under our prior senior secured credit facilities and the redemption of our $1.25 billion aggregate principal amount outstanding of 5.75% senior notes. See further discussion of our 2020 debt prepayment, refinancing and redemption charges in Note 13 to the consolidated financial statements.

Other income

Other income consists primarily of interest income on cash and cash equivalents and short- and long-term investments, realized and unrealized gains and losses recognized on investments, and foreign currency transaction gains and losses. Other income decreased in 2020 primarily due to a decrease in interest income on our holdings of cash and cash equivalents in 2020 and a decrease in foreign currency transaction gains.

Provision for income taxes

The effective income tax rate and effective income tax rate from continuing operations attributable to DaVita Inc. increased in 2020 primarily due to an increase in nondeductible advocacy costs and the impact of a discrete benefit included in the 2019 tax rate from a reduction in the blended state rate. This increase was partially offset by a reduction in accruals associated with uncertain tax positions in 2020.

Net income attributable to noncontrolling interests

The increase in income attributable to noncontrolling interests in 2020 compared to 2019 was due to improved earnings at certain U.S. dialysis partnerships, including, among other things, reimbursements we made to certain of our U.S. dialysis partnerships for certain COVID-19-related expenses, partially offset by the deconsolidation of two dialysis partnerships at year-end 2019.

Accounts receivable

Our consolidated accounts receivable balances at December 31, 2020 and December 31, 2019, were $1.824 billion and $1.796 billion, respectively, representing approximately 59 days and 58 days of revenue (DSO), respectively, net of allowances for uncollectible accounts. The increase in consolidated DSO was primarily due to an increase of one day of DSO in our U.S. dialysis business primarily due to held claims for COVID-19-related cohort arrangement billings as well as claims from centers impacted by hurricanes in the fourth quarter of 2020. Our DSO calculation is based on the current quarter’s average revenues per day. There were no significant changes during 2020 from 2019 in the amount of unreserved accounts receivable over one year old or the amounts pending approval from third-party payors.

As of December 31, 2020 and 2019, our net patient services accounts receivable balances that are more than six months old represents approximately 17% and 18%, respectively of our total net accounts receivable balances outstanding. Substantially all revenue realized is from government and commercial payors, as discussed above. There were no significant unreserved balances over one year old. Less than 1% of our revenues are classified as patient pay.

Amounts pending approval from third-party payors associated with Medicare bad debt claims as of December 31, 2020 and 2019, other than the standard monthly billing, consisted of approximately $154 million and $138 million, respectively, and are classified as other receivables. A significant portion of our Medicare bad debt claims are typically paid to us before the Medicare fiscal intermediary audits the claims but are subject to subsequent adjustment based upon the actual results of those audits. Such audits typically occur one to four years after the claims are filed.

Liquidity and capital resources

The following table summarizes our major sources and uses of cash, cash equivalents and restricted cash:

			Year ended December 31,												Annual change
			2020						2019**(1)**						Amount						Percent
			(dollars in millions)
Net cash provided by operating activities:
Net income			$	995					$	1,021					$	(27)					(2.6)		%
Non-cash items in net income			1,089						964						124						12.9		%
Other working capital changes			(78)						111						(190)						(171.2)		%
Other			(26)						(24)						(1)						(4.2)		%
			$	1,979					$	2,072					$	(93)					(4.5)		%
Net cash (used in) provided by investing activities:
Capital expenditures:
Routine maintenance/IT/other			$	(399)					$	(375)					$	(24)					(6.4)		%
Development and relocations			(275)						(391)						116						29.7		%
Acquisition expenditures			(182)						(101)						(81)						(80.2)		%
Proceeds from sale of self-developed properties			93						58						36						62.1		%
DMG net sale proceeds received, net of DMG cash sold			(47)						3,825						(3,872)						(101.2)		%
Other			(15)						(20)						5						25.0		%
			$	(825)					$	2,995					$	(3,821)					(127.6)		%
Net cash used in financing activities:
Debt (payments) issuances, net			$	(64)					$	(1,995)					$	1,931					96.8		%
Deferred financing and debt redemption costs			(106)						(85)						(21)						(24.7)		%
Distributions to noncontrolling interests			(253)						(233)						(20)						(8.6)		%
Contributions from noncontrolling interests			43						57						(14)						(24.6)		%
Stock award exercises and other share issuances			(1)						11						(12)						(109.1)		%
Share repurchases			(1,458)						(2,384)						925						38.8		%
Other			(8)						(68)						60						88.2		%
			$	(1,847)					$	(4,696)					$	2,850					60.7		%
Total number of shares repurchased			16,477,378						41,020,232						(24,542,854)						(59.8)		%
Free cash flow from continuing operations(2)			$	1,188					$	1,127					$	61					5.4		%

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

(1)Represents consolidated cash flow activity, including cash flows related to discontinued operations.

(2)For a reconciliation of our free cash flow from continuing operations, see the "Reconciliations of Non-GAAP measures" section below.

Consolidated cash flows

Consolidated cash flows from operating activities for 2020 were $1,979 million, all of which was from continuing operations, compared with consolidated operating cash flows for the same period in 2019 of $2,072 million, of which $1,973 million was from continuing operations. The increase in cash flow from continuing operations was primarily driven by a decrease in cash interest paid partially offset by COVID-19-related expenses in 2020, and increases in labor and advocacy costs, as well as an increase in DSO of approximately one day in 2020 compared to 2019.

Cash flows from investing activities in 2020 decreased $3,821 million compared to 2019 primarily due to the net cash proceeds received from the DMG sale, which closed in June 2019, as well as an increase in acquisition expenditures partially offset by a decrease in capital expenditures. We developed 31 fewer centers and acquired 51 additional centers in 2020 compared to 2019. See below for additional information regarding the growth in our dialysis centers.

Cash flows from financing activities improved $2,850 million in 2020 compared to 2019. Significant sources of cash during 2020 included issuances of $1,500 million in aggregate principal amount of 3.75% senior notes due 2031 in August 2020 and $1,750 million in aggregate principal amount of 4.625% senior notes due 2030 in June 2020, as well as a net draw of $75 million on our revolving line of credit. Significant uses of cash during 2020 included the subsequent redemptions in full of $1,500 million in aggregate principal amount of 5.0% senior notes due 2025 in August 2020 and $1,750 million in aggregate principal amount of 5.125% senior notes due 2024 in July 2020. Other net payments during 2020 primarily consisted of regularly scheduled mandatory principal payments under our senior secured credit facilities totaling approximately $55 million on Term Loan A and $27 million on Term Loan B-1 and additional required principal payments under other debt arrangements. In addition, we incurred bond issuance costs of approximately $38 million, debt redemption premium charges related to the redemption of our senior notes due in 2024 and 2025 of approximately $67 million and costs of repricing our Term Loan B of approximately $3 million. See further discussion in Note 13 to the consolidated financial statements related to debt financing activities. By comparison, in 2019 debt payments primarily consisted of principal prepayments totaling $5,142 million on our term debt under our prior senior secured credit facility funded primarily by the net proceeds from the DMG sale and the redemption of all of our outstanding 5.75% senior notes due in 2022 for an aggregate cash payment consisting of principal and redemption premium of $1,262 million, partially offset by funding of our term debt of $4,500 million under our new senior credit facility. Cash flows used for share repurchases also decreased in 2020 as compared to 2019. See below for further information on our share repurchases.

Dialysis center capacity and growth

We are typically able to increase our capacity by extending hours at our existing dialysis centers, expanding our existing dialysis centers, relocating our dialysis centers, developing new dialysis centers and by acquiring dialysis centers. The development of a typical new outpatient dialysis center generally requires approximately $2.4 million for leasehold improvements and other capital expenditures. Based on our experience, a new outpatient dialysis center typically opens within a year after the property lease is signed, normally achieves operating profitability in the second year after Medicare certification, and normally reaches maturity within three to five years. Acquiring an existing outpatient dialysis center requires a substantially greater initial investment, but profitability and cash flows are generally accelerated and more predictable. To a limited extent, we enter into agreements to provide management and administrative services to outpatient dialysis centers in which we own a noncontrolling interest or which are wholly-owned by third parties in return for management fees.

The table below shows the growth in our dialysis operations by number of dialysis centers owned or operated:

			U.S.												International
			2020						2019						2020						2019
Number of centers operated at beginning of year			2,753						2,664						259						241
Acquired centers			8						7						66						16
Developed centers			81						115						5						2
Net change in non-owned managed or administered centers(1)			—						(1)						(6)						1
Sold and closed centers(2)			(6)						(10)						—						(1)
Closed centers(3)			(20)						(22)						(3)						—
Number of centers operated at end of year			2,816						2,753						321						259

(1)Represents dialysis centers which we manage or provide administrative services to but in which we own a noncontrolling equity interest or which are wholly-owned by third parties, including our Asia Pacific joint venture centers.

(2)Represents dialysis centers that were sold and/or closed for which the majority of patients were not retained.

(3)Represents dialysis centers that were closed for which the majority of patients were retained and transferred to one of our other existing outpatient dialysis centers.

Stock repurchases

The following table summarizes our common stock repurchases during the years ended December 31, 2020 and 2019:

			Year ended December 31,
			2020						2019
			(dollars in millions and shares in thousands, except per share data)
Open market repurchases
Shares			8,495						19,218
Amounts paid			$	742					$	1,168
Average paid per share			$	87.32					$	60.79
Tender offers**(1)**
Shares			7,982						21,802
Amounts paid			$	705					$	1,234
Average paid per share			$	88.32					$	56.61
Total
Shares			16,477						41,020
Amounts paid			$	1,447					$	2,402
Average paid per share			$	87.80					$	58.57

(1)The aggregate amounts paid for shares repurchased pursuant to our 2020 and 2019 tender offers for our shares during the years ended December 31, 2020 and 2019, include their clearing prices of $88.00 and $56.50 per share, respectively, plus related fees and expenses of $2.5 million and $2.3 million, respectively.

Subsequent to December 31, 2020, we have repurchased 1,063,000 shares of our common stock for $123 million at an average cost of $115.98 per share from January 1, 2021 through February 10, 2021. We retired all shares of common stock held in treasury effective December 31, 2020 and December 31, 2019.

See further discussion of our share repurchase activity and authorizations in Note 19 to the consolidated financial statements.

Available liquidity

As of December 31, 2020, our cash balance was $325 million and we held approximately $20 million in short-term investments. At that time we also had $925 million available and $75 million drawn on our $1.0 billion revolving line of credit under our senior secured credit facilities. Credit available under this revolving line of credit is reduced by the amount of any letters of credit outstanding under this facility, but we had no such letters of credit outstanding as of December 31, 2020. As of December 31, 2020 we also separately had approximately $65 million in letters of credit outstanding under a separate bilateral secured letter of credit facility.

See Note 13 to the consolidated financial statements for components of our long-term debt and their interest rates.

The COVID-19 pandemic and efforts to prevent its spread have dramatically reduced global economic activity and driven increased volatility in the financial markets. We have maintained business process continuity during the COVID-19 pandemic by enabling most back office teammates to work remotely, and as of the date of this report, we have not experienced a material deterioration in our liquidity position as a result of the COVID-19 crisis. In addition, we elected not to accept approximately $250 million in funds available to us through the CARES Act Provider Relief Fund and returned the funds we received in May 2020. There can be no assurance that we will be able to continue to forgo financial or other assistance available under the CARES Act or similar subsequent legislation or that similar assistance will be available from the government if we have a need for such assistance in the future. The ultimate impact of the pandemic will depend on future developments that are highly uncertain and difficult to predict.

We believe that our cash flow from operations and other sources of liquidity, including from amounts available under our senior secured credit facilities and our access to the capital markets, will be sufficient to fund our scheduled debt service under the terms of our debt agreements and other obligations for the foreseeable future, including the next 12 months. Our primary recurrent sources of liquidity are cash from operations and cash from borrowings, which are subject to general, economic, financial, competitive, regulatory and other factors that are beyond our control, as described in Item 1A Risk Factors under the

heading "The level of our current and future debt could have an adverse impact on our business, and our ability to generate cash to service our indebtedness and for other intended purposes and our ability to maintain compliance with debt covenants depends on many factors beyond our control."

Reconciliations of non-GAAP measures

The following tables provide reconciliations of adjusted operating income (loss) to operating income (loss) as presented on a U.S. generally accepted accounting principles (GAAP) basis for our U.S. dialysis reportable segment as well as for our U.S. ancillary services, our international business, and for our total ancillary services which combines them and is disclosed as our other segments category. These non-GAAP or “adjusted” measures are presented because management believes these measures are useful adjuncts to, but not alternatives for, our GAAP results.

Specifically, management uses adjusted operating income (loss) to compare and evaluate our performance period over period and relative to competitors, to analyze the underlying trends in our business, to establish operational budgets and forecasts and for incentive compensation purposes. We believe this non-GAAP measure is also useful to investors and analysts in evaluating our performance over time and relative to competitors, as well as in analyzing the underlying trends in our business. We also believe this presentation enhances a user's understanding of our normal operating income by excluding certain items which we do not believe are indicative of our ordinary results of operations.

In addition, our effective income tax rate on income from continuing operations attributable to DaVita Inc. excludes noncontrolling owners' income, which primarily relates to non-tax paying entities. We believe this adjusted effective income tax rate is useful to management, investors and analysts in evaluating our performance and establishing expectations for income taxes incurred on our ordinary results attributable to DaVita Inc.

Finally, our free cash flow from continuing operations represents net cash provided by operating activities from continuing operations less distributions to noncontrolling interests and all capital expenditures (including development capital expenditures, routine maintenance and information technology), plus contributions from noncontrolling interests and proceeds from the sale of self-developed properties. Management uses this measure to assess our ability to fund acquisitions and meet our debt service obligations and we believe this measure is equally useful to investors and analysts as an adjunct to cash flows from operating activities from continuing operations and other measures under GAAP.

It is important to bear in mind that these non-GAAP “adjusted” measures are not measures of financial performance under GAAP and should not be considered in isolation from, nor as substitutes for, their most comparable GAAP measures.

			Year ended December 31, 2020
			U.S. dialysis						Ancillary services																		Corporate administration
						U.S.						International						Total									Consolidated
			(dollars in millions)
Operating income (loss)			$	1,918					$	(99)					$	23					$	(76)					$	(147)					$	1,695
Loss on changes in ownership interests, net									16												16												16
Accruals for legal matters																											35						35
Adjusted operating income (loss)			$	1,918					$	(83)					$	23					$	(60)					$	(112)					$	1,746

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

			Year ended December 31, 2019
			U.S. dialysis						Ancillary services																		Corporate administration
						U.S.						International						Total									Consolidated
			(dollars in millions)
Operating income (loss)			$	1,925					$	(66)					$	(123)					$	(189)					$	(92)					$	1,643
Goodwill impairment															125						125												125
Adjusted operating income (loss)			$	1,925					$	(66)					$	2					$	(64)					$	(92)					$	1,768

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

			Year ended December 31,
			2020						2019
			(dollars in millions)
Income from continuing operations before income taxes			$	1,318					$	1,195
Less: Noncontrolling owners’ income primarily attributable to non-tax paying entities			(222)						(210)
Income from continuing operations before income taxes attributable to DaVita Inc.			$	1,097					$	986
Income tax expense for continuing operations			$	314					$	280
Less: Income tax attributable to noncontrolling interests			(1)						(1)
Income tax expense from continuing operations attributable to DaVita Inc.			$	313					$	279
Effective income tax rate on income from continuing operations attributable to DaVita Inc.			28.6		%				28.3		%

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

			Year ended December 31,
			2020						2019
			(dollars in millions)
Net cash provided by continuing operating activities			$	1,979					$	1,973
Less: Distributions to noncontrolling interests			(253)						(233)
Plus: Contributions from noncontrolling interests			43						57
Cash provided by continuing operating activities attributable to DaVita Inc.			1,769						1,797
Less: Expenditures for routine maintenance and information technology			(399)						(355)
Less: Expenditures for development			(275)						(373)
Plus: Proceeds from sale of self-developed properties			93						58
Free cash flow from continuing operations			$	1,188					$	1,127

Certain columns or rows may not sum or recalculate due to the presentation of rounded numbers.

Off-balance sheet arrangements and aggregate contractual obligations

In addition to the debt obligations and operating lease liabilities reflected on our balance sheet, we have commitments associated with letters of credit, as well as certain working capital funding obligations associated with our equity investments in nonconsolidated dialysis ventures that we manage and some we manage that are wholly-owned by third parties.

We also have potential obligations to purchase the noncontrolling interests held by third parties in many of our majority-owned dialysis partnerships and other nonconsolidated entities. These obligations are in the form of put provisions that are exercisable at the third-party owners’ discretion within specified periods as outlined in each specific put provision. For additional information see Note 17 to the consolidated financial statements.

The following is a summary of these contractual obligations and commitments as of December 31, 2020:

			2021						2022-2023						2024-2025						Thereafter						Total
			(dollars in millions)
Scheduled payments under contractual obligations:
Long-term debt(1):
Principal payments			$	147					$	349					$	1,512					$	5,882					$	7,890
Interest payments on credit facilities and senior notes			219						429						389						704						1,741
Financing leases(2)			22						48						54						150						274
Operating leases, including imputed interest(2)			480						969						774						1,438						3,661
			$	868					$	1,795					$	2,729					$	8,174					$	13,566
Potential cash requirements under other commitments:
Letters of credit			$	65					$	—					$	—					$	—					$	65
Noncontrolling interests subject to put provisions			1,023						145						97						65						1,330
Non-owned and minority owned put provisions			110						6						—						—						116
Operating capital advances			1						2						2						4						9
Purchase commitments			542						721						92						—						1,355
			$	1,741					$	874					$	191					$	69					$	2,875

(1)See Note 13 to the consolidated financial statements for components of our long-term debt and related interest rates.

(2)See Note 14 to the consolidated financial statements for components of our leases and related interest rates.

In 2017, we entered into a Sourcing and Supply Agreement with Amgen USA Inc. (Amgen) that expires on December 31, 2022. Under the terms of the agreement, the Company will purchase EPO from Amgen in amounts necessary to meet no less than 90% of its requirements for erythropoiesis-stimulating agents (ESAs) through the expiration of the contract. The actual amount of EPO that we will purchase will depend upon the amount of EPO administered during dialysis as prescribed by physicians and the overall number of patients that we serve.

The purchase commitments in the table above represent our agreements with various suppliers to purchase set amounts of dialysis equipment, parts, and supplies. If we fail to meet the minimum purchase commitments under these contracts during any year, it is required to pay the difference to the supplier.

Settlements of approximately $88 million of existing income tax liabilities for unrecognized tax benefits, including interest, penalties and other long-term tax liabilities, are excluded from the table above as reasonably reliable estimates of their timing cannot be made.

Contingencies

The information in Note 16 to the consolidated financial statements included in this report is incorporated by reference in response to this item.

Critical accounting policies, estimates and judgments

Our consolidated financial statements and accompanying notes are prepared in accordance with United States generally accepted accounting principles. These accounting principles require us to make estimates, judgments and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities, contingencies and noncontrolling interests subject to put provisions (redeemable equity interests). All significant estimates, judgments and assumptions are developed based on the best information available to us at the time made and are regularly reviewed and updated when necessary. Actual results will generally differ from these estimates, and such differences may be material. Changes in estimates are reflected in our financial statements in the period of change based upon on-going actual experience trends or subsequent settlements and realizations depending on the nature and predictability of the estimates and contingencies. Certain accounting estimates, including those concerning revenue recognition and accounts receivable, impairments of goodwill, accounting for income taxes, fair value estimates, and loss contingencies are considered to be critical to evaluating and understanding our financial results because they involve inherently uncertain matters and their application requires the most difficult and complex judgments and estimates. For additional information, see Part II Item 15, "Exhibits, Financial Statement Schedules" – Note 1 – "Organization and summary of significant accounting policies" as referred from Part II Item 8, "Financial Statements and Supplementary Data."

U.S. dialysis revenue recognition and accounts receivable. There are significant estimating risks associated with the amount of U.S. dialysis revenue that we recognize in a given reporting period. Payment rates are often subject to significant uncertainties related to wide variations in the coverage terms of the commercial healthcare plans under which we receive payments. In addition, ongoing insurance coverage changes, geographic coverage differences, differing interpretations of contract coverage, and other payor issues complicate the billing and collection process. Net revenue recognition and allowances for uncollectible billings require the use of estimates of the amounts that will ultimately be realized considering, among other items, retroactive adjustments that may be associated with regulatory reviews, audits, billing reviews and other matters.

Revenues associated with Medicare and Medicaid programs are recognized based on (a) the payment rates that are established by statute or regulation for the portion of the payment rates paid by the government payor (e.g., 80% for Medicare patients) and (b) for the portion not paid by the primary government payor, the estimated amounts that will ultimately be collectible from other government programs providing secondary coverage (e.g., Medicaid secondary coverage), the patient’s commercial health plan secondary coverage, or the patient. Our dialysis related reimbursements from Medicare are subject to certain variations under Medicare’s single bundled payment rate system whereby our reimbursements can be adjusted for certain patient characteristics and other variable factors. Our revenue recognition depends upon our ability to effectively capture, document and bill for Medicare’s base payment rate and these other factors. In addition, as a result of the potential range of variations that can occur in our dialysis-related reimbursements from Medicare under the single bundled payment rate system, our revenue recognition is subject to a greater degree of estimating risk.

Commercial healthcare plans, including contracted managed-care payors, are billed at our usual and customary rates; however, revenue is recognized based on estimated net realizable revenue for the services provided. Net realizable revenue is estimated based on contractual terms for the patients covered under commercial healthcare plans with which we have formal agreements, non-contracted commercial healthcare plan coverage terms if known, estimated secondary collections, historical collection experience, historical trends of refunds and payor payment adjustments (retractions), inefficiencies in our billing and collection processes that can result in denied claims for payments, the estimated timing of collections, changes in our expectations of the amounts that we expect to collect and regulatory compliance matters. Determining applicable primary and secondary coverage for our approximately 204,200 U.S. dialysis patients at any point in time, together with the changes in patient coverages that occur each month, requires complex, resource-intensive processes. Collections, refunds and payor retractions typically continue to occur for up to three years or longer after services are provided.

We generally expect the range of our U.S. dialysis revenue estimating risk to be within 1% of revenue, which can represent as much as approximately 5% of our U.S. dialysis business’s adjusted operating income. Changes in estimates are reflected in the then-current financial statements based on on-going actual experience trends, or subsequent settlements and realizations depending on the nature and predictability of the estimates and contingencies. Changes in revenue estimates for prior periods are separately disclosed and reported if material to the current reporting period and longer term trend analyses, and have not been significant.

Revenues for laboratory services, which are integrally related to our dialysis services, are recognized in the period services are provided at the estimated net realizable amounts to be received.

Impairments of goodwill. We account for impairments of goodwill in accordance with the provisions of applicable accounting guidance. Goodwill is not amortized, but is assessed for impairment when changes in circumstances warrant and at least annually. An impairment charge is recorded when and to the extent a reporting unit's carrying amount is determined to exceed its estimated fair value.

Changes in circumstance that may trigger a goodwill impairment assessment for one of our business units can include, among others, changes in the legal environment, addressable market, business strategy, development or business plans, reimbursement structure, operating performance, future prospects, relationships with partners, and/or market value indications for the subject business. We use a variety of factors to assess changes in the financial condition, future prospects and other circumstances concerning the subject businesses and to estimate their fair value when applicable. Any change in the factors, assessments or assumptions involved could affect a determination of whether and when to assess goodwill for impairment as well as the outcome of such an assessment. These assessments and the related valuations can involve significant uncertainties and require significant judgment on various matters, some of which could be subject to reasonable disagreement.

Accounting for income taxes. Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in the United States and numerous state and foreign jurisdictions, and changes in tax laws or regulations may be proposed or enacted that could adversely affect our overall tax liability. The actual impact of any such laws or regulations could be materially different from our current estimates.

Significant judgments and estimates are required in determining our consolidated income tax expense. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets within the jurisdictions from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, results of recent operations, and assumptions about the amount of future federal, state, and foreign pre-tax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require significant judgments and are consistent with the plans and estimates we use to manage the underlying businesses. To the extent that recovery is not likely, a valuation allowance is established. The allowance is regularly reviewed and updated for changes in circumstances that would cause a change in judgment about the realizability of the related deferred tax assets.

Fair value estimates. The FASB defines fair value generally as the amount at which an asset (or liability) could be bought (or assumed) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale. It also defines fair value more specifically for most purposes as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

We rely on fair value measurements and estimates for purposes that require the recording, reassessment, or adjustment of the carrying amounts of certain assets, liabilities and noncontrolling interests subject to put provisions (redeemable equity interests). These purposes can include purchase accounting for business combination transactions; impairment assessments for goodwill, other intangible assets, and other long-lived assets; recurrent revaluation of investments in debt and equity securities, contingent earn-out obligations, interest rate cap agreements, and noncontrolling interests subject to put provisions; and the accounting for equity method and other investments and stock-based compensation, among others. The criticality of a particular fair value estimate to our consolidated financial statements depends upon the nature and size of the item being measured, the extent of uncertainties involved and the nature and magnitude or potential effect of assumptions and judgments required. Critical fair value estimates can involve significant uncertainties and require significant judgment on various matters, some of which could be subject to reasonable disagreement.

Loss contingencies. As discussed in Notes 1 and 16 to the consolidated financial statements, we operate in a highly regulated industry and are party to various lawsuits, claims, qui tam suits, governmental investigations and audits (including, without limitation, investigations or other actions resulting from its obligation to self-report suspected violations of law), contract disputes and other legal proceedings. Assessments of such matters can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. We record accruals for loss contingencies on such matters to the extent that we determine an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. See Note 16 to the consolidated financial statements included in this report for further discussion.

Significant new accounting standards

See Note 1 to the consolidated financial statements included in this report for information regarding certain recent financial accounting standards that have been issued by the FASB.