Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking statements

This Quarterly Report on Form 10-Q, 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, acceptance, impact, administration and efficacy of COVID-19 vaccines, treatments and therapies, the continuing impact on the U.S. and global economies, unemployment and labor market conditions, 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, integrated kidney 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" 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, including, among other things, federal, state and local vaccine mandates or surveillance testing requirements; the availability, acceptance, impact and efficacy of COVID-19 vaccines, treatments and therapies; further spread or resurgence of the virus, including as a result of the emergence of new strains of the virus, such as the Delta variant; the continuing impact of the pandemic on our revenue and non-acquired growth due to lower treatment volumes; the pandemic's continuing impact on the U.S. and global economies, unemployment, labor market conditions, inflation and evolving monetary policies; any potential negative impact on our commercial mix, which may persist even after the pandemic subsides; and continuing COVID-19-related costs, such as increased costs to procure equipment and clinical supplies, and higher salary and wage expense driven in part by labor market conditions and a high demand for our clinical personnel, any of which 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;

*•*our ability to successfully implement our strategies with respect to home-based dialysis, value-based care and/or integrated kidney care in the desired time frame and in a complex, dynamic and highly regulated environment, including, among other things, maintaining our existing business; recovering our investments; entering into agreements with payors, third party vendors and others on terms that are competitive and, as appropriate, prove actuarially sound; structuring agreements and arrangements to comply with evolving rules and regulations; and further developing our integrated care and other capabilities to provide competitive programs at scale;

*•*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 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 current presidential administration and congressional majority;

*•*our ability to attract, retain and motivate teammates and our ability to manage operating cost increases or productivity decreases whether due to union organizing activities, legislative or other changes, demand for labor, volatility and uncertainty in the labor market, the current highly competitive labor market conditions, or other reasons;

*•*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;

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

*•*legal and compliance risks, such as our continued compliance with complex, and at times, evolving government regulations and requirements;

*•*continued increased competition from dialysis providers and others, and other potential marketplace changes, including increased investment in and availability of funding to new entrants in the dialysis and pre-dialysis marketplace;

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, dispositions, joint ventures or other strategic transactions 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

*•*the other risk factors, trends and uncertainties set forth in our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 10-K), Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021 and this Quarterly Report on Form 10-Q, and the risks and uncertainties discussed in any subsequent reports that we file or furnish with the Securities and Exchange Commission from time to time.

The following should be read in conjunction with our condensed 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 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 Optum, 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.

COVID-19 and its impact on our business

We expect that COVID-19 will continue to impact our business and financial performance during 2021 and we continue to closely monitor these various impacts on our patients, teammates, physician partners, suppliers, vendors, business partners and the economic and political environment. The magnitude of these impacts remains difficult to predict and subject to significant uncertainty due to a number of factors, including, among others, the ultimate 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 such as the Delta variant; COVID-19’s impact on the chronic kidney disease (CKD) patient population and our patient population; the availability, acceptance, impact and efficacy of COVID-19 vaccines, treatments and therapies; the pandemic's continuing impact on the U.S. and global economies, unemployment and labor market conditions; the responses of our competitors to the pandemic and related changes in the marketplace; the timing, scope and effectiveness of federal, state and local government responses; and any potential changes to the extensive set of federal, state and local laws, regulations and requirements that govern our business. 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.

Operational and Financial Impacts

In the first nine months of 2021, treatment volumes reflected continued pressure primarily driven by the ongoing impact of COVID-19 on mortality rates for dialysis patients which has had a negative impact on our patient census. 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 has been higher in the dialysis population than in the general population, and COVID-19 also could impact the CKD population differently. The recent surge associated with the Delta variant led to an increase in COVID‑19 cases in our patient population. This recent surge has led to an increase in incremental mortality on an absolute basis in the third quarter compared to the second quarter of 2021, though COVID infections have declined since the end of the third quarter. 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, and access to and continued efficacy of vaccinations or other treatments or therapies, as well as willingness to be vaccinated. We expect that the impact of COVID-19 is likely to continue to negatively impact our revenue and non-acquired growth even as the pandemic subsides due to the compounding impact of mortalities, among other things. 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 significant and, depending on the ultimate severity and duration of the pandemic, could have a material adverse impact on our results of operations, financial condition and cash flows.

We continued to experience increased costs in the first nine months of 2021 due in part to the protocols and initiatives we implemented in response to COVID-19 to help us safely maintain continuity of care for patients. Among other things, we continued to experience significant cost inflation on personal protective equipment (PPE) in the first nine months of 2021, though certain other costs related to our COVID-19 response have decreased since the peak of the COVID-19 surge in the fourth quarter of 2020. We believe that the cost of these medical supplies will remain elevated at least through the end of the year due to limited supply and high demand. In addition, as we have done in prior periods, we are likely to provide in the future substantial financial support to our teammates, including support associated with relief reimbursement. As our COVID-19 response continues, we expect to continue to incur extended and significant additional costs, and we expect that certain of these increased costs may persist even after the pandemic subsides. On the other hand, our COVID-19 response has reduced certain other expenses, such as those related to teammate travel, though it remains uncertain how much of these reductions, if any, will persist after the pandemic subsides and more teammates return to their respective office locations.

In addition, the COVID-19 pandemic and efforts to contain the virus have impacted the global economy, resulting in, among other things, rapid and sharp increases in unemployment levels and volatility and uncertainty in labor market conditions.

These impacts could ultimately 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. Despite the broader economic conditions in the U.S. in the three months ended September 30, 2021, our commercial mix in the third quarter of 2021 was improved as compared to our commercial mix in the third quarter of 2020. The ultimate impact of COVID-19 on our commercial mix will depend on future developments that are highly uncertain and difficult to predict.

Our business is labor intensive and our financial and operating results have been and continue to be sensitive to variations in labor-related costs and productivity, and we have historically faced and expect to continue to face costs and difficulties in hiring and retaining caregivers due to a nationwide shortage of skilled clinical personnel. These challenges have been heightened by the increased demand for and demand upon such personnel by the ongoing pandemic. As referenced above, despite improving indicators in certain sectors of the U.S. economy as compared to earlier periods of the pandemic, the labor market continues to experience volatility, uncertainty and labor supply shortages, particularly in healthcare. In addition, a September 2021 Executive Order (Vaccine EO) directed federal agencies to develop rules and take action related to COVID-19 vaccination requirements, including rules that may impact employers with 100 or more employees as well as workers in the dialysis setting. This announcement builds on, and would be in addition to, previously announced state and local vaccination requirements that impact our teammates in certain facilities or geographies. The cumulative impact of these mandates, some of which have already gone into effect, contributes further to the volatility and uncertainty in the labor market and may ultimately further exacerbate labor shortages. Labor market conditions have led to increased costs that we generally expect to continue and which could be significant. In addition, these conditions have adversely impacted, and may continue to adversely impact, our ability to attract and retain employees, particularly clinical personnel. In response, as part of our continuing efforts in this highly competitive market, we expect to provide our teammates with additional compensation, among other things. Nevertheless, we have experienced staffing shortages and disruptions as a result of current labor market conditions, and further staffing shortages or disruptions, if material, could lead to the closure of certain centers or otherwise have a material adverse impact on our ability to provide dialysis services or the cost of providing those services. Prolonged volatility, uncertainty and labor supply shortages in the labor market, including, among other things, due to inflationary pressures or evolving monetary policies, could have an adverse impact on our ability to execute on our strategic initiatives, and ultimately could have a material adverse impact on our labor costs, results of operations, financial condition and cash flows.

Federal, State and Local Government Response

The government response to COVID-19 has been wide-ranging and will continue to develop over time. 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, including for example, the Vaccine EO and similar state and local mandates referenced above. 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 have contracted with the federal government for direct administration of COVID-19 vaccines to our patients and teammates at our clinics. Certain of 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, particularly as it may relate to variants of the virus. 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, or may require the administration of "boosters". Certain state and federal Occupational Safety and Health Administration (OSHA) agencies have released requirements, or are considering or are in the process of modifying existing requirements associated with the continued protection of employees as it relates to COVID-19. These requirements will result in increased costs related to, among other things, PPE, fit-testing, and paid time off and other increased obligations with which we must comply. In addition, any mandated surveillance testing of our teammates for COVID-19 may further impact our costs, create operational challenges and negatively impact our ability to attract and retain employees and creates a risk of non-compliance if we are not able to successfully implement such mandated surveillance testing. 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, our administration of the COVID-19 vaccines and our efforts to comply with evolving rules and regulations, may increase our exposure to legal, regulatory and clinical risks.

Federal COVID-19 relief legislation suspended the 2% Medicare sequestration from May 1, 2020 through March 31, 2021. The Medicare Sequester Relief Act, signed into law on April 14, 2021, extended the suspension of the 2% Medicare sequestration from March 31, 2021 through December 31, 2021. While in effect, the suspension of sequestration has significantly increased, and will continue to significantly increase, our revenues.

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" of the 2020 10-K under the headings, "COVID-19 and its impact on our business" and "Human Capital Management", as well as the risk factor in Part II Item 1A. Risk Factors of this Quarterly Report on Form 10-Q under the heading "We face various risks related to the dynamic and evolving novel coronavirus pandemic, many of which may have a material adverse impact on us."

Financial Results

The discussion below includes analysis of our financial condition and results of operations for the quarter ended September 30, 2021 compared to the quarters ended June 30, 2021 and September 30, 2020 and for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Consolidated results of operations

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


	Three months ended						Q3 2021 vs. Q2 2021				Q3 2021 vs. Q3 2020
	September 30, 2021		June 30, 2021		September 30, 2020		Amount		Percent		Amount		Percent
	(dollars in millions)
Revenues:
U.S. dialysis	$	2,698	$	2,676	$	2,694	$	22	0.8	%	$	4	0.1	%
Other - ancillary services	262		261		271		1		0.4	%	(9)		(3.3)	%
Elimination of intersegment revenues	(22)		(21)		(41)		(1)		(4.8)	%	19		46.3	%
Total consolidated revenues	$	2,938	$	2,917	$	2,924	$	21	0.7	%	$	14	0.5	%

Operating income (loss):
U.S. dialysis	$	510	$	534	$	471	$	(24)	(4.5)	%	$	39	8.3	%
Other - ancillary services	(7)		(18)		(7)		11		61.1	%	—		—	%
Corporate administrative support	(28)		(25)		(26)		(3)		(12.0)	%	(2)		(7.7)	%
Operating income	$	475	$	490	$	438	$	(15)	(3.1)	%	$	37	8.4	%

Adjusted operating income (loss)(1):
U.S. dialysis	$	510	$	534	$	471	$	(24)	(4.5)	%	$	39	8.3	%
Other - ancillary services	(7)		(18)		(7)		11		61.1	%	—		—	%
Corporate administrative support	(28)		(25)		(26)		(3)		(12.0)	%	(2)		(7.7)	%
Adjusted operating income	$	475	$	490	$	438	$	(15)	(3.1)	%	$	37	8.4	%

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

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


	Nine months ended September 30,				YTD Q3 2021 vs. YTD Q3 2020
	2021		2020		Amount		Percent
	(dollars in millions)
Revenues:
U.S. dialysis	$	7,964	$	7,986	$	(22)	(0.3)	%
Other - ancillary services	785		777		8		1.0	%
Elimination of intersegment revenues	(75)		(117)		42		35.9	%
Total consolidated revenues	$	8,675	$	8,645	$	30	0.3	%

Operating income (loss):
U.S. dialysis	$	1,524	$	1,485	$	39	2.6	%
Other - ancillary services	(37)		(49)		12		24.5	%
Corporate administrative support	(79)		(123)		44		35.8	%
Operating income	$	1,408	$	1,313	$	95	7.2	%

Adjusted operating income (loss)(1):
U.S. dialysis	$	1,524	$	1,485	$	39	2.6	%
Other - ancillary services	(37)		(33)		(4)		(12.1)	%
Corporate administrative support	(79)		(88)		9		10.2	%
Adjusted operating income	$	1,408	$	1,364	$	44	3.2	%

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

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

U.S. dialysis results of operations

Revenues:


	Three months ended									Q3 2021 vs. Q2 2021				Q3 2021 vs. Q3 2020
	September 30, 2021			June 30, 2021			September 30, 2020			Amount		Percent		Amount		Percent
	(dollars in millions, except per treatment data)
Total revenues	$	2,698		$	2,676		$	2,694		$	22	0.8	%	$	4	0.1	%
Dialysis treatments	7,466,197			7,413,497			7,656,173			52,700		0.7	%	(189,976)		(2.5)	%
Average treatments per day	94,509			95,045			96,914			(536)		(0.6)	%	(2,405)		(2.5)	%
Treatment days	79.0			78.0			79.0			1.0		1.3	%	—		—	%
Average patient service revenue per treatment	$	360.54		$	360.14		$	349.63		$	0.40	0.1	%	$	10.91	3.1	%
Normalized non-acquired treatment growth(1)	(1.7)		%	(1.9)		%	0.6		%			0.2	%			(2.3)	%

(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 quarter versus the prior year quarter.


	Nine months ended September 30,				YTD Q3 2021 vs. YTD Q3 2020
	2021		2020		Amount		Percent
	(dollars in millions, except per treatment data)
Total revenues	$	7,964	$	7,986	$	(22)	(0.3)	%
Dialysis treatments	22,166,628		22,740,403		(573,775)		(2.5)	%
Average treatments per day	94,729		96,933		(2,204)		(2.3)	%
Treatment days	234.0		234.6		(0.6)		(0.3)	%
Average patient service revenue per treatment	$	358.42	$	349.82	$	8.60	2.5	%

U.S. dialysis revenues for the third quarter of 2021 increased from the second quarter of 2021 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 primarily driven by one additional treatment day, partially offset by a decline in our average treatments per day driven by increased mortality, unfavorable treatment day mix and an increase in missed treatments. Our U.S. dialysis average patient service revenue per treatment was positively impacted by favorable changes in commercial mix and increased hospital inpatient dialysis revenue per treatment driven by COVID-19, partially offset by unfavorable changes in government rates.

U.S. dialysis revenues for the third quarter of 2021 increased from the third quarter of 2020 primarily due to an increase in our average patient service revenue per treatment, partially offset by a decrease in dialysis treatments. The increase in our U.S. dialysis average patient service revenue per treatment was primarily driven by favorable changes in government mix due to shifts to Medicare Advantage plans, as well as favorable changes in government rates related to an increase in the Medicare base rate in 2021, favorable changes in commercial mix and increased hospital inpatient dialysis revenue per treatment. Our U.S. dialysis treatments decreased primarily due to the impact of increased mortality over recent periods on our patient population and a decline in non-acquired treatment growth. We believe the increased mortality is largely attributable to the impact of COVID-19 on our patient population.

U.S. dialysis revenues for the nine months ended September 30, 2021 decreased from the nine months ended September 30, 2020 primarily due to a decrease in dialysis treatments, partially offset by an increase in our average patient service revenue per treatment. The decrease in our U.S. dialysis treatments was driven by 0.6 fewer treatment days in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, increased mortality and missed treatments, the latter of which were higher in the first quarter of 2021 primarily due to winter storms. We believe the increased mortality is largely attributable to the impact of COVID-19 on our patient population. Our U.S. dialysis average patient service revenue per treatment increased primarily due to favorable changes in government rates related to an increase in the Medicare base rate in 2021 and the temporary suspension of Medicare sequestration, as well as favorable changes in government mix due to shifts to Medicare Advantage plans, increased hospital inpatient revenue per treatment and favorable changes in commercial mix.

In July 2021, CMS issued a proposed rule to update the Medicare ESRD Prospective Payment System payment rate and policies. Among other things, the proposed rule would modify ESRD Treatment Choices Model policies to decrease disparities

in rates of home dialysis and kidney transplants among ESRD patients with lower socioeconomic status, update the Acute Kidney Injury payment rate, and amend the reporting measures in the ESRD Quality Incentive Program, including proposals to address circumstances caused by COVID-19. CMS estimates that the overall impact of the proposed rule will increase ESRD facilities’ average reimbursement by 1.2% in 2022.

Operating expenses:


	Three months ended						Q3 2021 vs. Q2 2021				Q3 2021 vs. Q3 2020
	September 30, 2021		June 30, 2021		September 30, 2020		Amount		Percent		Amount		Percent
	(dollars in millions, except per treatment data)
Patient care costs	$	1,808	$	1,756	$	1,781	$	52	3.0	%	$	27	1.5	%
General and administrative(1)	228		235		303		(7)		(3.0)	%	(75)		(24.8)	%
Depreciation and amortization	161		160		148		1		0.6	%	13		8.8	%
Equity investment income	(8)		(9)		(9)		1		11.1	%	1		11.1	%
Total operating expenses and charges	$	2,188	$	2,143	$	2,224	$	45	2.1	%	$	(36)	(1.6)	%
Patient care costs per treatment	$	242.09	$	236.90	$	232.57	$	5.19	2.2	%	$	9.52	4.1	%

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

(1)General and administrative expenses for the three months ended September 30, 2020 includes advocacy costs of approximately $66 million to counter union policy efforts, including a California ballot initiative.


	Nine months ended September 30,				YTD Q3 2021 vs. YTD Q3 2020
	2021		2020		Amount		Percent
	(dollars in millions, except per treatment data)
Patient care costs	$	5,303	$	5,366	$	(63)	(1.2)	%
General and administrative(1)	684		718		(34)		(4.7)	%
Depreciation and amortization	477		443		34		7.7	%
Equity investment income	(23)		(25)		2		8.0	%
Total operating expenses and charges	$	6,441	$	6,501	$	(60)	(0.9)	%
Patient care costs per treatment	$	239.24	$	235.97	$	3.27	1.4	%

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

(1)General and administrative expenses for the nine months ended September 30, 2020 includes advocacy costs of approximately $67 million 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 our dialysis centers.

U.S. dialysis patient care costs per treatment for the third quarter of 2021 increased from the second quarter of 2021 primarily due to an increase in compensation expenses driven by increased wage rates, health benefit expenses and payroll taxes, as well as increases in medical supply expense and utilities expense resulting from seasonality and lower expense in the second quarter of 2021 related to our virtual power purchase arrangements. These increases were partially offset by a decrease in insurance expense and other direct operating expenses associated with our dialysis centers.

U.S. dialysis patient care costs per treatment for the third quarter of 2021 increased from the third quarter of 2020 primarily due to compensation expenses driven by increased wage rates, health benefit expenses and payroll taxes, partially offset by decreased headcount, as well as increases in medical supply expense and other direct operating expenses associated with our dialysis centers. These increases were partially offset by decreased pharmaceutical unit costs and intensity and a decline in utilities expense driven by our virtual power purchase arrangements.

U.S. dialysis patient care costs per treatment for the nine months ended September 30, 2021 increased from the nine months ended September 30, 2020 primarily due to increases in other direct operating expenses associated with our dialysis centers, medical supply expense and compensation expenses related to increased wages and health benefit expenses due to lower than normal claims volume in the nine months ended September 30, 2020 due to COVID-19. These increases were

partially offset by decreases in pharmaceutical unit costs and intensity and COVID-19-related costs, as well as a decline in utilities expense driven by our virtual power purchase arrangements.

General and administrative expenses. U.S. dialysis general and administrative expenses in the third quarter of 2021 decreased from the second quarter of 2021 primarily due to declines in contributions to our charitable foundation and long-term incentive compensation, partially offset by an increase in professional fees.

U.S. dialysis general and administrative expenses for the third quarter of 2021 decreased from the third quarter of 2020 primarily due to a decline in advocacy costs and contributions to our charitable foundation, as well as decreases in compensation expenses related to labor costs and payroll taxes. These decreases were partially offset by increases in professional fees.

U.S. dialysis general and administrative expenses for the nine months ended September 30, 2021 decreased from the nine months ended September 30, 2020 due to decreases in advocacy costs and contributions to our charitable foundation, partially offset by increases in professional fees, compensation expenses related to labor costs, health benefit expenses and payroll taxes, as well as increases in long-term incentive compensation.

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 expenses for the quarter ended September 30, 2021 compared to the quarter ended June 30, 2021 increased primarily due to accelerated depreciation for expected center closures.

U.S. dialysis depreciation and amortization expenses for the quarter ended September 30, 2021 compared to the quarter ended September 30, 2020, and for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 increased primarily for the same reason described above as well as growth in the number of dialysis centers we operate.

Equity investment income. U.S. dialysis equity investment income for the third quarter of 2021 was relatively flat compared to the second quarter of 2021 and the third quarter of 2020.

U.S. dialysis equity investment income for the nine months ended September 30, 2021 decreased from the nine months ended September 30, 2020 primarily due to a decline in profitability at our nonconsolidated joint ventures.

Operating income:


	Three months ended						Q3 2021 vs. Q2 2021				Q3 2021 vs. Q3 2020
	September 30, 2021		June 30, 2021		September 30, 2020		Amount		Percent		Amount		Percent
	(dollars in millions)
Operating income	$	510	$	534	$	471	$	(24)	(4.5)	%	$	39	8.3	%


	Nine months ended September 30,				YTD Q3 2021 vs. YTD Q3 2020
	2021		2020		Amount		Percent
	(dollars in millions)
Operating income	$	1,524	$	1,485	$	39	2.6	%

U.S. dialysis operating income for the third quarter of 2021 decreased from the second quarter of 2021 primarily due to increases in compensation expenses, as described above, medical supply expense and utilities expense. Operating income was positively impacted by an increase in dialysis treatments, an increase in our average patient service revenue per treatment, as described above, and decreases in insurance expense, contributions to our charitable foundation and other direct operating expenses associated with our dialysis centers.

U.S. dialysis operating income for the third quarter of 2021 increased from the third quarter of 2020 primarily due to an increase in our average patient service revenue per treatment, and decreases in advocacy costs, pharmaceutical unit costs and intensity, and contributions to our charitable foundation. Operating income was negatively impacted by a decrease in dialysis treatments and increases in compensation expenses, both described above, as well as increases in medical supply expense and other direct operating expenses associated with our dialysis centers.

U.S. dialysis operating income for the nine months ended September 30, 2021 increased from the nine months ended September 30, 2020 primarily due to an increase in our average patient service revenue per treatment and decreases in pharmaceutical unit costs and intensity, advocacy costs, utilities expense driven by our virtual power purchase arrangements and contributions to our charitable foundation. These increases to operating income were partially offset by a decrease in

dialysis treatments and increases in compensation expense, as described above, other direct operating expenses associated with our dialysis centers and medical supply 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 September 30, 2021, these consisted primarily of integrated care and disease management, clinical research programs and physician services, as well as our international operations. These ancillary services, including our international operations, generated revenues of approximately $262 million and $785 million in the third quarter of 2021 and the nine months ended September 30, 2021, respectively, representing approximately 9% of our consolidated revenues in both periods. As part of our growth strategy, we have invested, and expect to continue to invest, significant resources in the further development of our integrated care business and value-based care initiatives. There can be no assurances that we will be able to successfully implement our strategies with respect to value-based care and integrated kidney care in the desired time frame and in a complex, dynamic and highly regulated environment, and we face risks including, among other things, those related to maintaining our existing business, recovering our investments, entering into agreements with payors, third party vendors and others on terms that are competitive, and as appropriate, that prove actuarially sound; structuring these agreements and arrangements to comply with evolving rules and regulations, including, among other things, rules and regulations related to the use of protected health information; and further developing our operational, IT and other capabilities to enable us to provide competitive programs at scale. If our value-based care and integrated kidney care programs are unsuccessful, it could result in a loss of our investments and have a material adverse effect on our growth strategy, and could have an adverse impact on our business, results of operations, financial condition and cash flows.

Furthermore, if any of our other ancillary services, 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 or loss of investment. In addition, we have in the past and may in the future incur material restructuring, write-off or impairment charges on our investment in one or more of these ancillary services, including goodwill.

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

As of September 30, 2021, our international dialysis operations provided dialysis and administrative services through a total of 333 outpatient dialysis centers located in ten countries outside of the United States.

Ancillary services results of operations


	Three months ended						Q3 2021 vs. Q2 2021				Q3 2021 vs. Q3 2020
	September 30, 2021		June 30, 2021		September 30, 2020		Amount		Percent		Amount		Percent
	(dollars in millions)
Revenues:
U.S. ancillary	$	92	$	88	$	125	$	4	4.5	%	$	(33)	(26.4)	%
International	171		174		147		(3)		(1.7)	%	24		16.3	%
Total ancillary services revenues	$	262	$	261	$	271	$	1	0.4	%	$	(9)	(3.3)	%

Operating (loss) income:
U.S. ancillary	$	(20)	$	(28)	$	(14)	$	8	28.6	%	$	(6)	(42.9)	%
International(1)	13		10		7		3		30.0	%	6		85.7	%
Total ancillary services operating loss	$	(7)	$	(18)	$	(7)	$	11	61.1	%	$	—	—	%

Adjusted operating (loss) income(2):
U.S. ancillary	$	(20)	$	(28)	$	(14)	$	8	28.6	%	$	(6)	(42.9)	%
International(1)	13		10		7		3		30.0	%	6		85.7	%
Total ancillary services adjusted operating loss	$	(7)	$	(18)	$	(7)	$	11	61.1	%	$	—	—	%

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

(1)The reported operating income for the three months ended September 30, 2021, June 30, 2021 and September 30, 2020, includes foreign currency gains (losses) embedded in equity method income recognized from our APAC joint venture of approximately $1.8 million, $(0.1) million and $(2.9) million, respectively.

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


	Nine months ended September 30,				YTD Q3 2021 vs. YTD Q3 2020
	2021		2020		Amount		Percent
	(dollars in millions)
Revenues:
U.S. ancillary	$	279	$	365	$	(86)	(23.6)	%
International	507		412		95		23.1	%
Total ancillary services revenues	$	785	$	777	$	8	1.0	%

Operating (loss) income:
U.S. ancillary	$	(73)	$	(74)	$	1	1.4	%
International(1)	36		25		11		44.0	%
Total ancillary services operating loss	$	(37)	$	(49)	$	12	24.5	%

Adjusted operating (loss) income(2):
U.S. ancillary	$	(73)	$	(58)	$	(15)	(25.9)	%
International(1)	36		25		11		44.0	%
Total ancillary services adjusted operating loss	$	(37)	$	(33)	$	(4)	(12.1)	%

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

(1)The reported operating income for the nine months ended September 30, 2021 and September 30, 2020, includes foreign currency gains embedded in equity method income recognized from our APAC joint venture of approximately $4.4 million and $3.1 million, respectively.

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

Revenues:

U.S. ancillary services revenues for the third quarter of 2021 increased from the second quarter of 2021 due to an increase in revenues in our integrated care and disease management business primarily related to our value-based care arrangements, slightly offset by a reduction in members in our special needs plans. International revenues for the third quarter of 2021 decreased from the second quarter of 2021 primarily due to decreased non-acquired growth.

U.S. ancillary services revenues for the third quarter of 2021 decreased from the third quarter of 2020 due to a decrease in revenues in our integrated care and disease management business primarily related to the reduction in members in our special needs plans, as well as a decrease in revenues related to completion of our ESCO programs in the first quarter of 2021, partially offset by an increase in revenues from our value-based care arrangements. Our international revenues for the third quarter of 2021 increased from the third quarter of 2020 primarily due to acquisition-related growth.

U.S. ancillary services revenues for the nine months ended September 30, 2021 decreased from the nine months ended September 30, 2020 due to a decrease in revenues at our integrated care and disease management business primarily due to a reduction in members in our special needs plans, as well as a decrease in revenues related to completion of our ESCO programs in the first quarter of 2021, decreased revenues related to the sale of RMS Lifeline, Inc. (Lifeline), our vascular access business, as described below, and a decrease in revenue in our clinical research programs, partially offset by an increase in revenues in our physician services business. Our international revenues for the nine months ended September 30, 2021 increased from the nine months ended September 30, 2020 primarily due to acquisition-related growth.

Charges impacting operating loss:

Loss on changes in ownership interests, net. In the second quarter of 2020, we sold 100% of the stock of Lifeline, our vascular access business, and recognized a loss of approximately $16 million on that transaction.

Operating loss and adjusted operating loss:

U.S. ancillary services operating loss and adjusted operating loss for the third quarter of 2021, each as compared to the second quarter of 2021, decreased due to an increase in operating performance in our integrated care and disease management business driven by decreased medical costs in our special needs plans and increased revenues related to our value-based care arrangements. International operating income for the third quarter of 2021 increased from the second quarter of 2021 primarily due to an increase in equity income resulting from fluctuations in foreign currency at our APAC JV.

U.S. ancillary services operating loss and adjusted operating loss for the third quarter of 2021, each as compared to the third quarter of 2020, increased due to a decline in operating results at our integrated care and disease management business due to increased investments to build up our integrated care support function. International operating results for the third quarter of 2021 increased from the third quarter of 2020 primarily due to acquisition-related growth in our international business, as well as an increase in equity income resulting from fluctuations in foreign currency at our APAC JV.

U.S. ancillary services operating loss and adjusted operating loss for the nine months ended September 30, 2021, each as compared to the nine months ended September 30, 2020, were impacted by the sale of Lifeline, as described above. These comparative losses were also impacted by a decline in operating results at our integrated care and disease management business due to increased investments to build up our integrated care support function, partially offset by improved performance at our physicians services business and decreased expenses in our clinical research business. International operating results for the nine months ended September 30, 2021 increased from the nine months ended September 30, 2020 primarily due to acquisition-related growth in our international business.

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. Corporate administrative support expenses are included in general and administrative expenses on our consolidated income statement.


	Three months ended						Q3 2021 vs. Q2 2021				Q3 2021 vs. Q3 2020
	September 30, 2021		June 30, 2021		September 30, 2020		Amount		Percent		Amount		Percent
	(dollars in millions)
Corporate administrative support	$	(28)	$	(25)	$	(26)	$	(3)	(12.0)	%	$	(2)	(7.7)	%
Adjusted corporate administrative support(1)	$	(28)	$	(25)	$	(26)	$	(3)	(12.0)	%	$	(2)	(7.7)	%

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


	Nine months ended September 30,				YTD Q3 2021 vs. YTD Q3 2020
	2021		2020		Amount		Percent
	(dollars in millions)
Corporate administrative support	$	(79)	$	(123)	$	44	35.8	%
Adjusted corporate administrative support(1)	$	(79)	$	(88)	$	9	10.2	%

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

Charges impacting corporate administrative support:

Accruals for legal matters. During the second quarter of 2020, we recorded a net charge for legal matters of $35 million which is included in general and administrative expenses.

Corporate administrative support expenses for the quarter ended September 30, 2021 compared to the quarters ended June 30, 2021 and September 30, 2020 increased primarily due to an increase in professional fees. The changes in corporate administrative support expenses for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, were impacted by accruals for legal matters as described above, as well as a decrease in severance accruals associated with our senior executive leadership transition in 2020.

Corporate-level charges


	Three months ended									Q3 2021 vs. Q2 2021				Q3 2021 vs. Q3 2020
	September 30, 2021			June 30, 2021			September 30, 2020			Amount		Percent		Amount		Percent
	(dollars in millions)
Debt expense	$	73		$	73		$	74		$	—	—	%	$	(1)	(1.4)	%
Debt prepayment, refinancing and redemption charges	$	—		$	—		$	86		$	—	—	%	$	(86)	(100.0)	%
Other (loss) income, net	$	(8)		$	15		$	5		$	(23)	(153.3)	%	$	(13)	(260.0)	%
Effective income tax rate	18.9		%	18.8		%	23.2		%			0.1	%			(4.3)	%
Effective income tax rate from continuing operations attributable to DaVita Inc. (1)	22.3		%	21.6		%	29.2		%			0.7	%			(6.9)	%
Net income attributable to noncontrolling interests	$	60		$	57		$	59		$	3	5.3	%	$	1	1.7	%

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


	Nine months ended September 30,						YTD Q3 2021 vs. YTD Q3 2020
	2021			2020			Amount		Percent
	(dollars in millions)
Debt expense	$	213		$	244		$	(31)	(12.7)	%
Debt prepayment, refinancing and redemption charges	$	—		$	89		$	(89)	(100.0)	%
Other (loss) income, net	$	9		$	11		$	(2)	(18.2)	%
Effective income tax rate	20.0		%	24.3		%			(4.3)	%
Effective income tax rate from continuing operations attributable to DaVita Inc.(1)	23.3		%	28.9		%			(5.6)	%
Net income attributable to noncontrolling interests	$	171		$	160		$	11	6.9	%

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

Debt expense

Debt expense for the third quarter of 2021 was relatively flat compared to the second quarter of 2021 and the third quarter of 2020. Debt expense decreased for the nine months ended September 30, 2021 from the nine months ended September 30, 2020 primarily due to a decrease in our overall weighted average effective interest rate on our debt, including a reduction in the LIBOR component of the interest rate on debt under our senior secured credit facilities and the repricing of our Term Loan B-1 as well as refinancing our 5.125% senior notes and 5.0% senior notes with lower cost debt, partially offset by additional debt expense associated with the Additional 2030 Notes offering completed in February 2021.

Our overall weighted average effective interest rate for the third quarter of 2021 was 3.34% compared to 3.36% for the second quarter of 2021 and 3.31% for the third quarter of 2020. See Note 8 to the condensed consolidated financial statements for further information on the components of our debt.

Debt prepayment, refinancing and redemption charges

Debt prepayment, refinancing and redemption charges were $86 million and $89 million in the three and nine months ended September 30, 2020, respectively, as a result of the redemption in full of our $1.75 billion aggregate principal amount outstanding of 5.125% senior notes and $1.50 billion aggregate principal amount outstanding of 5% senior notes. The charges recognized in the three and nine months ended September 30, 2020 represented debt redemption premium charges and deferred financing cost write-offs associated with our prior senior note debt that was paid in full. In addition, the nine months ended September 30, 2020 also includes $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.

Other (loss) income, net

Other (loss) income, net consists primarily of interest income on cash and cash equivalents and short- and long-term investments, realized and unrealized gains and losses on investments, and foreign currency transaction gains and losses.

Other income for the third quarter of 2021 decreased compared to the second quarter of 2021 primarily due to losses in the third quarter of 2021 on certain investments that began trading in public markets during the second quarter of 2021 in which gains were recognized, in addition to recognized losses on foreign currency transactions in the third quarter of 2021 compared to recognized gains in the second quarter of 2021. Other income for the third quarter of 2021 decreased compared to the third quarter of 2020 primarily due to losses on investments as described above. Other income decreased for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to a decrease in interest income combined with net losses on investments as described above in the nine months ended September 30, 2021, partially offset by recognized net gains on foreign currency transactions in the nine months ended September 30, 2021 compared to recognized net losses in the nine months ended September 30, 2020.

Effective income tax rate

The effective income tax rate was relatively flat for the third quarter of 2021 compared to the second quarter of 2021 and the effective income tax rate from continuing operations attributable to DaVita Inc. for the third quarter of 2021 increased from

the second quarter of 2021 primarily due to a reduction in tax benefits from stock-based compensation recognized during the third quarter of 2021.

The effective income tax rate and the effective income tax rate from continuing operations attributable to DaVita Inc. for the third quarter of 2021 and for the nine months ended September 30, 2021 decreased from the third quarter of 2020 and nine months ended September 30, 2020, respectively, primarily due to an increase in tax benefits from stock-based compensation deductions as well as a reduction in nondeductible advocacy spending in 2021.

Net income attributable to noncontrolling interests

The increase in net income attributable to noncontrolling interests for the third quarter of 2021 from the second quarter of 2021 was primarily due to improved earnings at certain U.S. dialysis partnerships driven by one additional treatment day. The increase in net income attributable to noncontrolling interests for the third quarter of 2021 from the third quarter of 2020 and for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was primarily due to improved earnings at certain U.S. dialysis partnerships as well as growth in the number of joint venture centers we operate.

Accounts receivable

Our consolidated accounts receivable balances at September 30, 2021 and December 31, 2020 were $2.028 billion and $1.824 billion, respectively, representing approximately 64 and 59 days sales outstanding (DSO), respectively. Consolidated DSO increased primarily due to temporary billing holds and a delay in collections related to certain payors. Our DSO calculation is based on the current quarter’s average revenues per day. There were no significant changes from the second quarter of 2021 to the third quarter of 2021 in the carrying amount of accounts receivable outstanding over one year old.

Liquidity and capital resources

The following table shows the summary of our major sources and uses of cash, cash equivalents and restricted cash:


		Nine months ended September 30,	YTD Q3 2021 vs. YTD Q3 2020
			2021		2020		Amount		Percent
	(dollars in millions and shares in thousands)
Net cash provided by operating activities:
Net income			$	962	$	760	$	202	26.6	%
Non-cash items in net income			650		826		(176)		(21.3)	%
Other working capital changes			(183)		(71)		(112)		157.7	%
Other			(28)		(21)		(7)		33.3	%
			$	1,401	$	1,494	$	(93)	(6.2)	%

Net cash (used in) provided by investing activities:
Capital expenditures:
Routine maintenance/information technology/other			$	(289)	$	(239)	$	(50)	20.9	%
Development and relocations			(163)		(211)		48		(22.7)	%
Acquisition expenditures			(45)		(113)		68		(60.2)	%
Proceeds from sale of self-developed properties			43		79		(36)		(45.6)	%

Other			6		(4)		10		(250.0)	%
			$	(448)	$	(487)	$	39	(8.0)	%

Net cash provided by (used in) financing activities:
Debt issuances net of (payments) and financing costs			$	791	$	(207)	$	998	(482.1)	%
Distributions to noncontrolling interests			(177)		(179)		2		(1.1)	%
Contributions from noncontrolling interests			28		33		(5)		(15.2)	%
Share repurchases			(882)		(1,026)		144		(14.0)	%
Other			(69)		(3)		(66)		2,200.0	%
			$	(309)	$	(1,382)	$	1,073	(77.6)	%

Total number of shares repurchased			7,750		12,284		(4,534)		(36.9)	%

Free cash flow(1)			$	843	$	977	$	(134)	(13.7)	%

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

(1)For a reconciliation of our free cash flow, see "Reconciliations of Non-GAAP measures" section below.

Consolidated cash flows

Consolidated cash flows from operating activities during the nine months ended September 30, 2021 were $1,401 million, compared to consolidated operating cash flows for the nine months ended September 30, 2020 of $1,494 million. The decrease in operating cash flows was primarily driven by an increase in total DSO of approximately five days for the nine months ended September 30, 2021 compared to a decrease of 0.3 day for the nine months ended September 30, 2020, combined with net legal settlement payments and increased tax payments for the nine months ended September 30, 2021 partially offset by the timing of debt interest payments and other working capital items.

Free cash flow during the nine months ended September 30, 2021 decreased from the nine months ended September 30, 2020 primarily due to a decrease in net cash provided by operating activities as described above and a decrease in proceeds from the sale of self-developed properties.

Other significant sources of cash included proceeds from the issuance of $1.0 billion in aggregate principal amount of the Additional 2030 Notes as an add-on offering to our 4.625% senior notes due 2030 that were issued at an offering price of 101.750% of face amount in February 2021. Other significant uses of cash in the nine months ended September 30, 2021 included the repayment in full of borrowings under our revolving line of credit. Other net debt payments during the nine months ended September 30, 2021 primarily consisted of regularly scheduled mandatory principal payments under our senior secured credit facilities totaling approximately $66 million on Term Loan A and $21 million on Term Loan B-1 as well as additional

required principal payments under other debt arrangements. We also incurred bond issuance costs of approximately $9 million in cash during this period. See further discussion in Note 8 to the condensed consolidated financial statements related to our debt financing activities. In addition, during the nine months ended September 30, 2021 we used cash to repurchase 7,749,637 shares of our common stock.

By comparison, the same period in 2020 included our issuances of $1.50 billion in aggregate principal amount of 3.75% senior notes due 2031 in August 2020 and $1.750 billion in aggregate principal amount of 4.625% senior notes due 2030 in June 2020. Other significant uses of cash included the subsequent redemptions in full of $1.50 billion in aggregate principal amount of 5% senior notes due 2025 in August 2020 and $1.75 billion in aggregate principal amount of 5.125% senior notes due 2024 in July 2020. Other net debt payments during the nine months ended September 30, 2020 primarily consisted of regularly scheduled mandatory principal payments under our senior secured credit facilities totaling approximately $33 million on Term Loan A and $21 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 the repricing of our Term Loan B of approximately $3 million in cash. See further discussion in Note 8 to the condensed consolidated financial statements related to debt financing activities. For the nine months ended September 30, 2020 we used cash to repurchase 12,283,977 shares of our common stock.

Dialysis center footprint and growth

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


	U.S.				International
	Three months ended September 30,		Nine months ended September 30,		Three months ended September 30,		Nine months ended September 30,
	2021	2020	2021	2020	2021	2020	2021	2020
Number of centers operated at beginning of period	2,828	2,795	2,816	2,753	331	287	321	259
Acquired centers	1	5	2	8	3	11	10	36
Developed centers	9	17	40	67	1	1	5	5
Net change in non-owned managed or administered centers(1)	(1)	—	(1)	—	(2)	(7)	—	(6)
Sold and closed centers(2)	(3)	(1)	(7)	(5)	—	—	(3)	—
Closed centers(3)	(12)	(7)	(28)	(14)	—	(1)	—	(3)
Number of centers operated at end of period	2,822	2,809	2,822	2,809	333	291	333	291

(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 three and nine months ended September 30, 2021 and 2020:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
	(dollars in millions and shares in thousands, except for per share data)
Open market repurchases:
Shares	2,731		250		7,750		4,302
Amount paid	$	336	$	21	$	899	$	324
Average paid per share	$	123.14	$	85.04	$	116.06	$	75.40

Tender offer:
Shares	—		7,982		—		7,982
Amount paid(1)	$	—	$	704	$	—	$	704
Average paid per share	$	—	$	88.22	$	—	$	88.22

Total:
Shares	2,731		8,232		7,750		12,284
Amount paid	$	336	$	725	$	899	$	1,029
Average paid per share	$	123.14	$	88.13	$	116.06	$	83.73

(1)Represents the aggregate amount paid for shares repurchased pursuant to our 2020 tender offer for our shares during the three and nine months ended September 30, 2020, including its clearing price of $88.00 per share plus related fees and expenses of $2 million.

See further discussion of our stock repurchases in Note 10 to the condensed consolidated financial statements.

Available liquidity

As of September 30, 2021, we had an undrawn $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 thereunder, of which there were none as of September 30, 2021. We separately have approximately $69 million in letters of credit outstanding under a separate bilateral secured letter of credit facility.

See Note 8 to the condensed consolidated financial statements for components of our long-term debt and their interest rates. We may from time to time seek to obtain funds or refinance existing debt through additional debt financings or other capital alternatives.

The COVID-19 pandemic and efforts to prevent its spread have dramatically impacted 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 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 the receipt of financial or other assistance 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 of our 2020 10-K*.*

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.


	Three months ended September 30, 2021
	U.S. dialysis			Ancillary services								Corporate administration
			U.S.			International			Total			Consolidated
	(dollars in millions)
Operating income (loss)	$	510		$	(20)		$	13		$	(7)	$	(28)	$	475



Adjusted operating income (loss)	$	510		$	(20)		$	13		$	(7)	$	(28)	$	475