Item 1A. Risk Factors
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. Please read the cautionary notice regarding forward-looking statements in Item 7 of Part II of this Annual Report on Form 10-K under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations." These forward-looking statements involve risks and uncertainties, including those discussed below, and if any of the following risks or uncertainties develop into actual events or if the circumstances described in the risk or uncertainties occur or continue to occur, they could individually or in the aggregate, have a material adverse effect on our business, cash flows, financial condition, results of operations and/or could materially harm our reputation. The risks and uncertainties discussed below are not the only ones facing our business. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could also have a material adverse effect on our business, cash flows, financial condition, results of operations and/or could materially harm our reputation.
Summary Risk Factors
The following is a summary of the principal risks and uncertainties that could adversely affect our business, cash flows, financial condition and/or results of operations, and these adverse impacts may be material. This summary is qualified in its entirety by reference to the more detailed descriptions of the risks and uncertainties included in this Item 1A. below and you should read this summary together with those more detailed descriptions.
These principal risk and uncertainties relate to, among other things:
Risk Related to External Conditions
• global health conditions, changing population or demographic trend s, severe weather o r natural disasters an d general economic and pol itical conditions ;
Risks Related to the Operation of our Business
• the complex set of governmental laws, regulations and other requirements that impact us, including potential changes thereto ;
• the various lawsuits, demands, claims, qui tam suits, governmental investigations and audits and other legal matters that we may be subject to from time to time ;
• the number or percentage of patients with higher-paying commercial insurance and our ability to negotiate and maintain contracts with private payors on competitive terms ;
• our participation in government healthcare programs, including Medicare, Medicare Advantage, Medicaid and the Department of Veterans Affairs ;
• our business is labor intensive and we may experience increases in labor costs, our ability to attract and retain key leadership talent or employees, or union organizing activities ;
• our ability to establish and maintain supplier and service provider relationships that meet our needs at cost-effective prices or at prices that allow for adequate reimbursement as applicable, our ability to access new technology or superior products in a cost-effective manner and our increasing reliance on third party service providers ;
• changes in clinical practices, payment rates or regulations impacting pharmaceuticals and/or devices ;
• our ability to appropriately estimate the amount of dialysis revenues and related refund liabilities ;
Risks Related to Competition, Business Strategy Growth, Information Systems and New Technologies
• our ability to compete successfully, including, without limitation, implementing our growth strategy and/or retaining patients and physicians willing to serve as medical directors ;
• our acquisitions, mergers, joint ventures, noncontrolling interest investments or dispositions ;
• our ability to successfully implement our strategic and operational initiatives, including with respect to integrated kidney care, value-based care and home-based dialysis ;
• political, economic, legal, operational and other risks as we expand our operations and offer our services in markets outside of the U.S., and utilizing third-party suppliers and service providers operating outside of the U.S. ;
• our ability to comply with complex privacy and information security laws that impact us and/or our ability to properly maintain the integrity of our data, protect our proprietary rights to our systems or defend against cybersecurity attacks ;
• our ability to effectively maintain, operate or upgrade our information systems or those of third-party service providers upon which we rely, including, without limitation, our clinical, billing and collections systems, and our ability to adhere to federal and state data sharing and access requirements and regulations, and successfully adopt or adapt to new technologies ;
General Risks
• our current or future level of indebtedness, including, without limitation, our ability to generate cash to service our indebtedness and for other intended purposes and our ability to maintain compliance with debt covenants ;
• our goals and disclosures related to environmental, social and governance (ESG) matters ;
• changes in tax laws, regulations and interpretations or challenges to our tax positions ;
• liability claims for damages and other expenses that are not covered by insurance or exceed our existing insurance coverage ;
• our ability to successfully maintain an effective internal control over financial reporting ; and
• provisions in our organizational documents, our compensation programs and policies and certain requirements under Delaware law that may deter changes of control or make it more difficult for our stockholders to change the composition of our Board of Directors and take other corporate actions that our stockholders would otherwise determine to be in their best interests .
Risks Related to External Conditions
Global health conditions, changing population or demographic trends, severe weather events or natural disasters and general economic and political conditions, all of which are highly uncertain and difficult to predict, could have a material adverse impact on our business.
We continue to be impacted by external conditions, including, but not limited to, those related to general economic, political and global health conditions, changing population or demographic trends and severe weather events or natural disasters. These conditions can impact our business in a variety of ways, including, among other things, by affecting our patient census, treatment volumes and operating and other costs as further set forth below. These conditions are generally outside of our control and none of which we can reasonably predict and are interrelated or have interdependent complex consequences. As a result, the ultimate impact of these conditions on our business over time will depend on a myriad of future developments and is highly uncertain and difficult to predict. These conditions or developments may heighten many of the other risks and uncertainties discussed herein and are particularly heightened for our patients in part because individuals with chronic illness may be more susceptible to the adverse effects of global health conditions and also because any natural or other disaster, political instability or adverse weather event that or limits the operation of any of our centers or other facilities or services may or otherwise impact the services we provide to dialysis patients.
We continue to invest in initiatives designed to help mitigate cost and volume pressures that may develop, including as a result of these external conditions or developments. There can be no assurance that we will be able to continue to successfully execute these initiatives, that they will achieve expectations or succeed in helping offset the impact of these challenging conditions or that any mitigation efforts are possible. Any failure on our part to implement potential initiatives to mitigate these pressures, adjust our business operations in this manner in accordance with applicable legal, regulatory or compliance requirements or to adjust to other marketplace developments or dynamics, could adversely impact our ability to provide dialysis services or the cost of providing those services to our patients, among other things, and ultimately could have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
Global health conditions and changing population or demographic trends
Global health conditions may adversely impact our patient census and treatment volumes. For example, severe flu seasons and the ongoing incidence of other infectious diseases such as COVID-19 in recent years have driven elevated mortality in our patient population, which has in turn had a negative impact on treatment volume. The negative perception of vaccinations in the U.S. has exacerbated these risks. To the extent that these and other global health conditions such as any future severe flu seasons, global health crises, pandemics or epidemics drive sustained elevated mortality levels in the overall ESKD or CKD populations, we may experience adverse impacts on our new-to-dialysis admission rates, treatment volumes,
future revenues and non-acquired growth, among other things. Other trends in health conditions and changing population or demographic trends may also impact overall ESKD growth rates and our associated treatment volumes, including, among others, the growth and aging of the U.S. population, changing U.S. immigration levels, the availability of transplant opportunities, incidence rates for diseases that cause kidney failure such as diabetes and hypertension, or growth rates of minority populations with higher-than-average incidence rates of ESKD. Any decrease in growth rates for the ESKD or CKD patient population, higher mortality rates for dialysis patients or other reductions in demand for dialysis treatments, if sustained or significant, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Severe weather events or natural disasters
Severe weather events or natural or other disasters such as hurricanes, earthquakes, fires or flooding that damage, destroy or limit access to our facilities or impact our key suppliers or service providers could adversely impact our operations. In the past, such severe weather events or natural disasters impacting us or our suppliers have adversely impacted our patient census and treatment volumes and led to increased costs including, among other things, supply costs. If we experience such events or natural disasters in the future, we may face similar or greater risks, including among other things, potential limitations on our ability to admit new patients or provide dialysis treatments or clinical laboratory services, or potential threats to the safety of our teammates or patients at any of those locations. Such events may also require substantial expenditures and recovery time or could lead us to face other consequences, including, without , the potential of data, including protected health information (PHI) or personally identifiable information (PII), or subject us to compliance or regulatory . These impacts, in the aggregate, could materially impact our business, results of operations and financial condition, and could materially our reputation.
Severe weather events or natural disasters could also strain global supply chains to the extent such events result in equipment and clinical supply shortages, disruptions, delays or associated price increases. Because we are a nationwide provider, certain of our facilities, clinics or key suppliers are in areas that may be more susceptible to such effects and risks. For example, our clinical laboratory is in Florida, a state that has in the past experienced and may in the future experience hurricanes. These effects and risks may be further intensified by what has been documented as an increased risk of severe weather events. If the frequency, intensity and widening potential geographic scope of natural or other disasters or adverse weather events increase, we may face increased costs associated with operating our clinics, potential interruptions to and changes in our clinical and business operations, and increased compliance or regulatory risk to the extent laws or regulations are adopted in response to the increasing frequency of such events. These increased costs may include, without , costs for energy, supplies of water, or pharmaceuticals or other supplies necessary to the operations of our clinics.
General economic conditions
Certain economic conditions, including, among others, geopolitical and global economic volatility and instability, inflationary conditions and interest rate volatility, fluctuations in foreign currency exchange rates or regulatory requirements, trade disputes, labor supply shortages and other challenging labor market conditions have continued to put pressure on our existing cost structure, including among other things, staffing, labor and supply costs. We expect that certain of those increased costs will persist in the near term as inflationary and supply chain pressures and challenging labor market conditions continue. If these conditions continue for a prolonged period of time or if new adverse conditions emerge, we may experience increased labor and supply costs at a rate that outpaces Medicare or any other rate increases we may receive, and we may experience equipment and clinical supply shortages, disruptions, or associated price increases that could impact our ability to provide dialysis services or the cost of providing those services or impact our ability to execute on our other strategic initiatives, among other things.
If adverse economic conditions lead to a period of extended or increased job losses in the U.S., it could ultimately result in a smaller percentage of our patients being covered by an employer group health plan, a larger percentage being covered by lower-paying government insurance programs or being uninsured or underinsured, and an increase in uncollectible accounts independent of whether general economic conditions subsequently improve. The extent of these effects will depend upon, among other things, the extent and duration of any economic deterioration or potential recession and any resultant increased unemployment levels for our patient population, and the ability of our patients to retain existing insurance and their individual choices with respect to their coverage, all of which are highly uncertain and difficult to predict. If these adverse economic conditions persist or remain uncertain for an extended period of time, and associated impacts on our revenues and financial results may be material and may in turn lead us to incur future charges to recognize in the carrying amount of our goodwill and other intangible assets.
The aforementioned impacts may also drive an increased need for additional liquidity funded by accessing existing credit facilities, raising new debt in the capital markets, or other sources, and we may seek to refinance existing debt, which may be more difficult or costly in an uncertain or declining economic environment.
Political conditions
Political conditions may create additional risk and further intensify the impacts described above, including, among other things, global conflicts, as well as the changing U.S. political conditions that have driven changes in trade, tariff, monetary, healthcare, immigration and other policies by governmental authorities in the United States and across the globe. For example, the current administration in the United States has implemented policies and issued guidance that include: tariff and trade policies that have led to increased volatility in the global trade market; staff reduction policies at key agencies such as the Department of Health and Human Services and the Centers for Medicare & Medicaid Services (CMS) that may among other things, result in delays in Medicare enrollment, coverage verification, licensing and credentialing approval and may limit the availability of administrative and legal support that, among other things, delays claims resolution or similar processes; immigration policies that may adversely impact the labor market and treatment volume to the extent that such policies adversely impact access and availability to healthcare; and health policies and guidance related to the availability, use and adherence of vaccines, treatments and therapies; and other changes that may impact new-to-dialysis admission rates, treatment volumes, future revenues and non-acquired growth, among other things.
Any or all of the external conditions or developments discussed above, as well as other consequences of these conditions or developments, many of which are beyond our control and none of which we can reasonably predict, could have a material adverse effect on our patients, teammates, physician partners, suppliers, business, results of operations, financial condition and/or cash flows or materially harm our reputation.
Risks Related to the Operation of our Business
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 or in federal or state legislation or regulations, could have a material adverse effect on our business, and operations, and in some circumstances, could materially harm our reputation.
We operate in a complex regulatory environment with an extensive and evolving set of federal, state and local governmental laws, regulations and other requirements, including executive orders, that apply to us and shape the competitive environment in which we operate. These laws, regulations and other requirements are promulgated and overseen by a number of different legislative, regulatory, administrative, and quasi-regulatory bodies, each of which may have evolving priorities and varying interpretations, judgments or related guidance. Each of these laws, regulations and other requirements are continuously changing, and we utilize considerable resources on an ongoing basis to monitor, assess and respond to applicable legislative, regulatory and administrative requirements. Despite these efforts, there is no guarantee that we will be successful in our efforts to adhere to all of these requirements and there is no assurance that we will be able to accurately predict the nature, timing or extent of any changes to these laws, regulations or requirements or the impact of such changes on the markets in which we conduct business.
If any of our personnel, representatives, third party vendors or operations are found to violate any of these or other laws, regulations or requirements, we could suffer severe consequences that could have a material adverse effect on our business, results of operation, financial condition and cash flows. Any future penalties, sanctions or other consequences could be more severe in certain circumstances if any regulatory authority determines that we knowingly or repeatedly failed to comply with laws, regulations or requirements that apply to our business. Because the healthcare sector, including the dialysis industry, is regularly subject to negative publicity, the announcement or other public disclosure of governmental allegations or investigations and any associated adverse media coverage and political debate, regardless of merit, regarding the dialysis industry generally, or the U.S. healthcare system or DaVita in particular, may affect our reputation and stock price and could impact our relationships and/or contracts related to our business, among other things. See Note 15 to the consolidated financial statements included in this report for further details regarding certain pending legal proceedings and regulatory matters to which we are or may be subject from time to time, any of which may include of of applicable laws, regulations and requirements.
Changes to the complex and dynamic regulatory environment in which we operate can alter the regulatory framework of the healthcare marketplace and shape the competitive landscape for our current dialysis and ancillary businesses as well as for comprehensive and integrated kidney care markets. Such changes may require us to shift strategic priorities and initiatives to successfully compete. These changes may take the form of executive orders, presidential memoranda, legislative, regulatory and administrative developments and judicial proceedings, and may therefore be subject to evolving priorities and interpretations over time. As a result, considerable uncertainty exists surrounding the continued development of the healthcare regulatory and legislative environment including access to healthcare and the availability and affordability of commercial insurance over time. As an example, while the ACA and subsequent COVID-era legislation, including the enhanced premium tax credits offered for ACA exchange enrollment, resulted in an increasing number of patients with health insurance, recent
legislative and executive action such as the One Big Beautiful Bill Act (OBBBA) or the decision to let those enhanced premium tax credits expire at the end of 2025 may ultimately decrease the number of patients with access to health insurance, including Medicare and Medicaid. If access to healthcare is significantly altered or if other reforms limiting access to healthcare are enacted in the future, such changes could materially impact our business. Similar uncertainty surrounds government pilot programs and innovative payment models, healthcare reform measures and/or other changes or extensions to laws, regulations and other requirements at the federal and/or state level that govern our business. We have invested significant resources to adapt to any such changes or developments in the healthcare marketplace, and subsequent modifications, terminations or other developments may require additional investment or result in losses. For example, as described below in the risk factor under the heading " We invest in strategic and operational initiatives to maintain our business and expand our capabilities... " , we have made substantial investments in and dedicated resources to our integrated care business, value-based care initiatives and home-based dialysis business to address regulatory developments that include innovative payment models, and these investments are subject to risk in the event the regulatory environment changes and we do not or cannot adapt to such changes. More broadly, changes to the overall business and regulatory landscape, including, for example, changes related to the and competitive environment, also may require us to evaluate and adapt our operations or otherwise impact our business and ability to grow through acquisitions.
Legislative and regulatory initiatives may also have an impact on our business. For example, there have been several state initiatives to limit payments to dialysis providers, impose other burdensome operational requirements or prescribe wage levels. We may continue to face other similar proposed regulations or legislation or ballot initiatives in various states in future years, which could cause us to incur substantial costs to oppose any such proposed requirements or measures, impact our dialysis center development plans, and if passed and/or implemented, could materially reduce our revenues and increase our operating and other costs, adversely impact dialysis centers across the U.S. making certain centers economically unviable, lead to the closure of certain centers, restrict the ability of dialysis patients to obtain and maintain optimal insurance coverage and reduce the number of patients that select commercial insurance plans or Medicare Advantage (MA) plans for their dialysis care, among other things.
Any failure on our part to adequately adjust to any laws, regulations, or other permits applied to us, as well as the cumulative impact of any limitations, burdens or prescriptions imposed by any such initiatives that are passed into law, could, among other things, erode our patient base or reimbursement rates, and otherwise have a material adverse effect on our business, results of operations, financial condition and cash flows, and could materially harm our reputation.
To the extent that the information above describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions that are referenced. For additional information, see Part I Item 1. " Business " under the heading " Government Regulation. "
We are, and may in the future be, a party to various lawsuits, demands, claims, qui tam suits, governmental investigations and audits and other legal matters, which could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price and could materially harm our reputation.
We operate in a highly regulated industry, including, among other things, through our participation in government-sponsored healthcare programs and as a government contractor. As a result, we are, and may in the future be, subject to investigations and audits by governmental agencies, private civil qui tam complaints filed by relators and other lawsuits, demands, claims, legal proceedings and/or other actions alleging our failure to comply with a rule, regulation, law or practice of medicine. We are, and may be in the future, subject to audits from the government concerning the billing for our patient. If, following the conclusion of any audit, the government were to require us to refund amounts and/or modify our business practices, and such amounts or changes are significant, it could have a material adverse effect on our business, results of operations, financial condition and cash flows. The healthcare industry is highly visible and politically charged, and any allegation against us, our personnel, representatives, third party vendors, or operations in such matters or matters that involve patients suffering health outcomes, may materially our reputation and stock price, and materially impact our relationships and/or contracts related to our business, among other things.
Responding to subpoenas, investigations and other lawsuits, claims and legal proceedings, as well as defending ourselves in such matters, will continue to require management's attention and cause us to incur significant legal expense. Negative developments, findings or terms and conditions that we might agree to accept as part of a negotiated resolution of pending or future legal or regulatory matters, or that have been forced upon us, could result in, among other things, harm to our reputation, substantial financial penalties or awards against us, substantial payments made by us, required changes to our business practices, impacts on our various relationships and/or contracts related to our business, exclusion from future participation in Medicare, Medicaid and other healthcare programs and, in certain cases, criminal penalties, any of which could have a material adverse effect on us. It is possible that proceedings may be initiated us and/or individuals in our business in connection with governmental . Other than as may be described in Note 15 to the consolidated financial
statements included in this report, we cannot predict the ultimate outcomes of the various legal proceedings and regulatory matters to which we are or may be subject from time to time, or the timing of their resolution or the ultimate losses or impact of developments in those matters, which could have a material adverse effect on our business, results of operations, financial condition, cash flows and stock price, and could materially harm our reputation.
If the number or percentage 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.
A substantial portion of our U.S. dialysis patient service revenues are generated from patients on commercial plans who have private payors as their primary payor. The majority of these patients have insurance policies that pay us on terms and at rates that are generally significantly higher than Medicare rates. As such, our revenue and net income levels are sensitive to the number of our patients with higher-paying commercial insurance coverage and the percentage of our patients under higher-paying commercial plans relative to government-based programs. The payments we receive from commercial payors generate nearly all of our profit and all of our nonacute dialysis profits come from commercial payors. Depending on the extent of a reduction in the share of our patients covered by commercial insurance plans, it could have a material adverse impact on our business, results of operations, financial condition and cash flows.
Commercial insurance is generally available through direct insurance coverage, employer health plans or through the ACA exchanges. As a result, the availability and affordability of such insurance, and accordingly the number of patients with commercial insurance, is affected by changes in the economic and political landscape that may affect employment status, the ability of employer health plans to offer commercial insurance and to avoid offering commercial insurance, and changes to laws, rules and regulations that impact the healthcare marketplace, including, among other things, the ACA exchanges. For example, the expiration of certain enhanced premium tax credits available to patients who purchase health insurance on the ACA exchanges is expected to have an adverse impact on the affordability of commercial insurance plans, leading to a smaller percentage of patients covered by such plans. This may, in turn, result in more patients shifting to Medicare or becoming uninsured, further decreasing the percentage of patients covered under commercial insurance plans.
The availability and affordability of commercial insurance may also be impacted by rulemaking and legislative efforts at both the federal and state level regarding the use of charitable premium assistance for ESRD patients. For example, if implemented in its proposed form, certain provisions of California bill (AB 290), including the amount of reimbursement paid to certain providers for services provided to patients with commercial insurance who receive charitable premium assistance (reimbursement cap), could have negative consequences on the ability of patients to afford commercial coverage, which may in turn adversely impact our business, results of operations, financial condition and cash flows. If AB 290 or similar bills are introduced and implemented in other jurisdictions or if CMS or another regulatory agency or legislative authority issues new rules or guidance that challenges or restricts charitable premium assistance, organizations that provide charitable premium assistance may choose to withdraw from such jurisdictions, which may make it difficult for patients to obtain, or continue to receive, or receive for a limited duration, such financial assistance. In turn, this may limit the ability of patients to obtain and maintain optimal insurance coverage, which could ultimately lead to a reduction in the number of our patients covered under commercial insurance plans. The aggregate impact of any rulemaking or legislative efforts that results in a reduced number of our patients covered under commercial insurance plans could have a material effect on our business, results of operation, financial condition and cash flows.
If we are unable to negotiate and maintain contracts with private payors on competitive terms, it could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We continuously negotiate existing and potential new agreements with private payors who aggressively negotiate terms with us, and we can make no assurances that these negotiations will result in agreements on competitive terms or at all, nor can we accurately predict the timing of any potential rate changes resulting from these negotiations. Our negotiations with private payors may relate to commercial fee-for-service contracts, value-based care (VBC) contracts and MA agreements. A material portion of both our commercial revenue and MA revenue is concentrated with a limited number of private payors, and any changes impacting our highest paying private payors or our relationships with these payors will have a disproportionate impact on us. We have in the past, and we currently are, renegotiating many significant agreements with large private payors at the same time, which further increases this risk.
Our negotiations with payors and the related affordability and accessibility of health plan coverage for our patients occurs in a highly competitive, dynamic and complicated environment that is influenced by numerous factors, including, among other things, increasing consolidation amongst commercial payors, new business activities of commercial payors that may overlap or impact with the provider space, legislative or regulatory changes such as recent price transparency regulations, as well as general conditions in the political and economic environment. As a result, we cannot predict the ultimate result of our negotiations with payors or any future changes to patient benefits by group health plans or health insurance issuers in the group
and individual markets. If we are unable to negotiate and maintain contracts with private payors on competitive terms or at all, including, without limitation, as set forth below, it could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Rates and Network
We negotiate reimbursement rates as part of these discussions, and we continue to experience downward pressure on some of our rates with private payors as a result of the aforementioned and other general conditions in the market and political environment, including, among other things, as employers seek to shift to less expensive options for medical services, as commercial payors dedicate increased focus on dialysis services and, in the case of MA plans, as pressures to reduce government spending impact MA rates paid to these private payors. These negotiations may therefore result in decreases in contracted rates, may result in termination or non-renewals of existing agreements, or may adversely impact the scope and duration of coverage and in-network benefits available to our patients, among other things. If we fail to maintain contracts with payors and other healthcare providers with competitive or favorable terms, this may in turn lead to reductions in the number of our patients that are covered by commercial plans. In addition, if we fail to accurately estimate the price for or manage our medical costs in an effective manner, whether due to inflationary pressures or otherwise, such that the of our commercial, MA or other value-based products is impacted, the cumulative effect of these negotiations could have a material effect on our business, results of operations, financial condition and cash flows, and could materially our reputation.
Plan Design and CPA
We also negotiate or are subject to provisions related to reimbursement for the scope of services that we provide, including relative to products on and off the healthcare exchanges, among other things. Certain payors have been attempting to design and implement plans that restrict or limit coverage for treatment needed by ESRD patients in the commercial market. Among other things, these restrictive plan designs seek to limit the duration and/or the breadth of ESRD benefits, limit in-network providers, set arbitrary provider reimbursement rates, or otherwise restrict access to care, all of which may result in a decrease in the number of patients covered by commercial insurance or the reimbursement rate for ESRD services. Payors have also disputed the scope and duration of ESRD benefit coverage under their plans, and, among other things, have required patients to seek Medicare coverage for ESRD treatments. If commercial or employer group health plans seek to implement or utilize plan designs that discourage or prevent ESRD patients from retaining their commercial coverage, during upcoming open enrollment periods or otherwise, it may lead to a decrease in the number of patients with commercial plans, the duration of benefits for patients under commercial plans and/or a decrease in the payment rates we receive. The ultimate impact of these plan design provisions, and any related negotiations, remains uncertain as we and payors continue to adapt to changes in the legislative and judicial environment, such as the Supreme Court’s decision in Marietta Memorial Hospital Employee Health Plan, et al. v. DaVita Inc., et.al. (Marietta) and the removal of objective time and distance standards for network adequacy for outpatient dialysis centers. With respect to Marietta , there remains uncertainty as to, among other things, whether and to what extent payors, including employer group health plans, third party administrators and out-of-network payors, may seek to design and implement plans to restrict access to or limit reimbursement for ESRD treatments in light of the decision; the results of proposed and pending legislative responses to the decision; how courts will interpret other anti-discriminatory provisions in Employee Retirement Income Security Act of 1974, as amended and the Medicare Secondary Payor Act that may apply; whether there could be other potential impacts of the decision and any resultant employer plan behavior on our payor mix or the number of our patients covered by commercial insurance; and the timing of each of these items.
Certain payors have challenged the ability of ESKD patients to utilize assistance from charitable organizations for the payment of premiums, including, through litigation and other legal proceedings. Certain payors have also incorporated policies into their provider manuals limiting or refusing to accept charitable premium assistance from non-profit organizations, such as the American Kidney Fund (AKF). These and other efforts by payors to restrict eligibility and affordability of commercial health plans and dialysis coverage thereunder could impact the number of our patients who are eligible to enroll in, and remain on, commercial insurance plans, including plans offered through healthcare exchanges.
We are subject to risks associated with our participation in government healthcare programs.
We participate in various federal, state and local government healthcare programs, and a substantial portion of our dialysis revenues are generated from patients who have Medicare or MA as their primary payor. As a result, we are subject to risks associated with participation in these programs as further described below. These risks relate to, among other things, changes or shortfalls in program funding and reimbursement rates, changes in legislative or administrative regulations or guidance, and government audits and investigations. Each of these risks are also subject to fluctuations in the political environment such as changing political dynamics, disruptions in federal government operations and federal budget sequestration cuts. In addition, our participation in these government healthcare programs subjects us to risks associated with
routine, regular and special governmental investigations, audits, reviews and assessments and any potential associated adverse consequences as further described in the risk factor under the heading " We are, and may in the future be, a party to various lawsuits, demands, claims, qui tam suits, governmental investigations and audits and other legal matters... "
Medicare ESRD Prospective Payment System
Dialysis treatment reimbursement payments for patients with Medicare coverage are currently made under a single bundled payment that presents certain unique operating and financial risks. The bundled payment provides for a fixed payment rate to encompass all goods and services provided during the dialysis treatment that are related to the treatment of dialysis, subject to certain adjustments (the ESRD Prospective Payment System (PPS)). Most lab services are also included in the bundled payment. Rates and bundled payments under the ESRD PPS are subject to adjustment from time to time based on a number of factors and may not cover our costs thereby having an adverse impact on our revenues. Risks for adjustment include modifications for new drugs, services, treatments, labs or medical equipment and supplies are added to the ESRD bundle or changes based on external data such as time on treatment. Each of these and other similar adjustments to the ESRD PPS may have either a positive financial effect or a negative one depending on whether the government adequately addresses the costs borne by dialysis facilities. Any failure to adequately calculate or fund the costs associated with these items or a material reduction in reimbursement under the ESRD PPS could have a material effect on our business, results of operations, financial condition and cash flows.
CMS or its contractors could also implement other new payment provisions, change interpretations of existing regulations, or impose new data reporting requirements that limit our ability to be paid for services or increase our operational costs, and commercial insurers could in turn adopt similar limitations. Additionally, failures in our clinical and operational processes or systems could lead to inaccurate data reporting to CMS or other data integrity issues with respect to the reported information, potentially resulting in overpayment and potential associated liabilities, penalties, and reputational harm.
Medicare Advantage
We contract with commercial payors that administer MA plans to provide their members with Medicare Part A, Part B and/or Part D benefits. Our MA business presents similar operating, clinical and financial risks as those related to the bundled payment system, which include, without limitation, the risk that CMS sets annual reimbursement rates or modifies risk adjustment methodologies for MA plans that in turn lead commercial payors to seek to reduce their negotiated rates with us and/or fund us less for services rendered, the risk that we are found not to be compliant with applicable MA requirements, inclusive of MA marketing and education requirements and restrictions, as well as the risks that we are found not be compliant with our contractual terms with associated plans, particularly as our initiatives associated with MA (including chronic condition special needs and dual eligible special needs plans) continue to evolve and progress. Failure to do so could result in termination of agreements with plans as well as enforcement by state and federal agencies for violation of insurance, consumer protection and fraud and abuse laws and regulations, among other things.
Legislation and other administrative, regulatory and executive developments may result in modifications to these programs, including those described above, which require us to adapt to our business to comply with such regulations or compete in the post-change environment. Any failure on our part to adequately adapt to these or any other changes or developments related to the Medicare ESRD or MA programs could have a material adverse effect on our business, results of operations, financial condition, cash flows, and could materially harm our reputation.
Medicaid Programs and Department of Veterans Affairs (VA)
Primary coverage for a significant number of our patients also comes from state Medicaid programs partially funded by the federal government, and we have patients covered by other non-Medicare government-based programs, such as coverage through TRICARE and the VA. As state governments and other governmental organizations face increasing financial hardship and budgetary pressure, including as a result of changes in the political environment, we may in turn face reductions in payment rates, delays in the receipt of payments, limitations on enrollee eligibility or other changes to the applicable programs.
State Medicaid programs are increasingly adopting Medicare-like bundled payment systems, but sometimes these payment systems are poorly defined and are implemented without any claims processing infrastructure, or patient or facility adjusters. These programs may also have complex eligibility requirements that vary across states, including states that may require citizen enrollees to provide documented proof of citizenship, as well as recent requirements in the OBBBA that introduce work requirements for certain “able-bodied” adult beneficiaries, among other things, which could negatively impact our patient based with an ESRD disability. On balance, these eligibility requirements are part of an overarching phase down of federal Medicaid expenditures in the OBBBA, along with provisions such as higher cost-sharing for certain patients and limitations on state funding mechanisms, known as provider taxes and state-directed payments. If these and other changes result in decreased patient volumes and revenue, substantially reduced Medicaid payments, reduction or delay in receipt of payment
for dialysis and related services or increased costs for submitting claims or otherwise managing Medicaid program patients, it could have a material adverse impact on our business, results of operations, financial condition and/or cash flows.
We also contract with the VA to provide dialysis services under a National Dialysis Service Contract (NDSC). Since 2013, the VA has maintained a pricing methodology linked to the Medicare PPS bundle as part of their NDSC with the Company. In compliance with Federal Acquisition Requirements, our current agreement with the VA provides the VA with the right to terminate the contract without cause on short notice, among other things. Should the VA not renew or cancel our current contract for any reason or if we are unable to negotiate favorable terms of a new contract to provide services to the VA following expiration of the current agreement, we may be required to cease accepting patients under this program and may be forced to close centers or experience lower reimbursement rates, among other things, which in the aggregate could have a material adverse effect on our business, results of operations, financial condition and cash flows, and could materially harm our reputation.
Our business is labor intensive and if our labor costs continue to rise or if we are unable to attract and retain employees or key leadership positions, it could have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
Our business is labor intensive, and our financial and operating results have been and continue to be sensitive to variations in labor-related costs, productivity and the number of pending or potential claims against us related to labor and employment practices. With pressure on increasing hourly wages across many states and the general state of economic pressure, we face increasing labor costs generally, including through elevated compensation levels to our teammates, and we continue to face increased labor costs and difficulties in hiring skilled clinical personnel, including nurses, due to nationwide shortages of such which have been exacerbated by current macroeconomic conditions and a challenging labor market, particularly in healthcare. The ultimate duration and extent of these increased costs will depend on current macroeconomic and political conditions and ancillary impacts on the labor market, among other things. For example, to the extent that general elevated inflationary or other wage pressures continue, this may in turn increase our labor and supply costs at a rate that outpaces Medicare, or any other rate increases we may receive.
We compete for nurses and nurse practitioners (NPs) with hospitals and other healthcare providers, and the ongoing nursing shortage may limit our ability to expand our operations. Furthermore, changes in certification requirements for nurses may impact our ability to maintain sufficient staff levels, including to the extent our teammates are not able to meet new requirements, and limitations on what services can be provided or oversight required of NPs, could limit our ability to expand our kidney care services in both integrated kidney care (IKC) and kidney care, among other things. In addition, if we experience a higher-than-normal turnover rate for our skilled clinical personnel or if we fail to effectively operationalize, scale and provide sufficient clinical oversight for new initiatives or pilot programs, our operations, operating expenses, including training costs, and treatment growth may be negatively impacted.
We also face competition in attracting and retaining talent for key leadership positions that are responsible for developing and executing the Company's business strategy and operational initiatives. Increased competition for top leadership talent in our industry and general marketplace conditions, including recent negative publicity and events surrounding the healthcare industry, could also impact our ability to attract and retain qualified leaders. If we are unable to attract and retain qualified individuals, including with respect to our leadership team, we may experience disruptions in our business operations, including, without limitation, our ability to achieve our strategic goals.
These factors could, individually or in the aggregate, have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
If union organizing or other activities, including, among others, governmental laws, rules, regulations or ballot initiatives, result in significant increases in our operating costs, decreases in productivity or impose additional requirements or limitations on our operations or profitability, it could have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
Our industry has experienced increased union organizing activities and ongoing union organizing activities at our facilities could continue or increase due to, among other things, political or other efforts at the national or local level. Union petitions have been filed at a number of our clinics in California. While we have won some elections, we are in different stages of the voting process and have been subject to legal challenges. We also have experienced a week-long attempted union-related work stoppage in some of these clinics, which subsequently concluded and did not impact our ability to provide patient care. Regardless of the outcome of any particular election in any particular state, other teammates at other clinics may file similar petitions in the future, and these petitions, if filed, may lead to additional elections. If a significant portion of our teammates were to become unionized, we could experience, among other things, potential additional work stoppages or other business
disruptions; adverse impacts to our financial results due to the costs of bargaining or implementing a grievance procedure and processing grievances; decreases in our operational flexibility and efficiency; or negative impacts on our employee culture.
We have been subject to targeted corporate campaigns by union organizers, which resulted in us expending substantial resources. Such targeted campaigns and associated expenses may continue in the future. We may also continue to face state or local ballot initiatives sponsored or promoted by union organizers, which, if passed, could impose additional requirements or limitations on our operations or profitability.
Any of the foregoing events or circumstances, including our responses to such events or circumstances, could individually or in the aggregate have a material adverse effect on our employee relations, treatment growth, productivity, business, results of operations, financial condition and cash flows and could materially harm our reputation.
If certain of our suppliers do not meet our needs, if there are material price increases on supplies, if we are not reimbursed or adequately reimbursed for drugs we purchase or if we are unable to effectively access new technology or superior products, it could negatively impact our ability to effectively provide the services we offer and could have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
We have significant suppliers that provide key clinical and other supplies to us, with a substantial portion of our total vendor spend concentrated with a limited number of third party suppliers. Our suppliers may experience prolonged supply chain disruptions due to macroeconomic conditions, global events, geopolitical instability, trade disputes, natural disasters or severe weather events, product recalls, logistical challenges, fluctuations in foreign currency exchange rates, varying regulatory requirements or other shortages or disputes, and we may not be able to find adequate alternative sources for these products or services on a timely or cost-effective basis. As a result, we may experience material price increases from these suppliers or otherwise in connection with our actions to secure needed products that we are unable to mitigate; certain drugs that we purchase from our suppliers may not be reimbursed or not reimbursed by commercial or government payors; or if we may be to secure new or existing products, including pharmaceuticals at competitive rates and within the time frame. If our significant suppliers do not meet our needs for the products they supply, it could, due to our contract terms or otherwise, require us to make significant operational changes, could among other things, impact our ability to effectively provide the services we offer or impact our ability to effectively execute certain important corporate functions, and could materially increase certain of our costs, and could otherwise have a material impact on our business, results of operations, financial condition and cash flows and materially our reputation.
We have experienced service disruptions relating to key business functions and supply chain shortages with respect to certain of our equipment and clinical supplies, including critical clinical and other supplies. For example, after a severe weather event in September 2024 damaged a supplier’s manufacturing plant and halted production of critical clinical products, we implemented responsive operational measures to maintain continuity of care for our patients, which resulted in increased expense and slowed growth of our home-based dialysis business in 2024 and the early portion of 2025. We continue to assess the balance of efficiency and resilience in evaluating our third-party vendor strategy and the risk of future supply chain shortages or service disruption . Any of these risks could have a material adverse effect on our business, results of operations, financial condition and cash flows, and could materially our reputation.
We are subject to the risk associated with our increased reliance on third party service providers, which could lead to loss of control over critical services, potential termination or disruption of service, and challenges in securing timely or cost-effective alternative sources, any of which could have material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
We have significant third party service providers that perform key functions for us, including, among others, claims processing, financial accounting, and information technology functions, and we have increased our use of certain third party service providers in recent years. We rely on these third party service providers to provide important and required services, and this reliance subjects us to risks arising from the loss of control over these services, changes in pricing that may affect our operating results, and potentially, termination or disruption of the provision of these services by our providers. There can be no assurance that third party service providers will provide, or will continue to provide, the services that we require, or that substitute services, or alternative service providers, can be identified or transitioned to on a timely or cost-effective basis or at all. In certain cases, there may be a limited number of viable alternate service providers that have the capacity or capability to offer these services.
Changes in clinical practices, payment rates or regulations impacting pharmaceuticals and/or medical equipment or supplies could have a material adverse effect on our business, results of operations, financial condition, and cash flows and materially harm our reputation.
Medicare bundles certain pharmaceuticals and the use of certain medical equipment and supplies into the ESRD PPS payment rate at industry average doses and prices. Variations above the industry average may be subject to partial reimbursement through the PPS outlier reimbursement policy . As a result, our ability to obtain sufficient reimbursement levels for the care we provide depends in part on changes to industry averages or increased utilization of certain pharmaceuticals whose costs are included in a bundled reimbursement rate. We are therefore subject to risks relating to potential drivers of changes to these industry averages or utilization rates, including among other things, changes in physician prescribing practices, including in response to the introduction of new drugs, treatments or technologies, changes in best and/or accepted clinical practice, changes resulting from the use of artificial intelligence to support clinical practices, changes in private payor or governmental payment criteria or changes in administration policies regarding pharmaceuticals and/or devices. If we are unable to preserve our margins per treatment or are not otherwise able to obtain adequate reimbursement for the services we provide, it could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Regulations and processes impacting reimbursement for pharmaceuticals and/or devices and any changes thereto could similarly affect our operating results. Among other things, as new kidney care drugs, treatments or technologies, medical equipment or supplies are introduced over time, we expect that the use of transitional payment adjustments to incorporate certain of these items as defined by the CMS policy into the bundled Medicare Part B ESRD payment may lead to fluctuations in associated levels of operating income and risk that the reimbursement levels of such drugs, treatments or technologies may not adequately cover our cost to obtain the item or other associated costs. Drivers of these risks include, among other things, the risk that CMS may not provide adequate funding in the Medicare Part B ESRD payment in the transitional or post-transitional period or that such items are not covered by transitional add on pricing, in which case there may be less clarity on the reimbursement. For example, under current CMS regulation, certain oral-only drugs were paid separately under Medicare Part D until January 1, 2025, at which time they were incorporated in the ESRD bundled payment. We cannot predict, at this time, whether CMS' TDAPA amounts for oral phosphate binders or other TDAPA eligible drugs adequately account for the inclusion of these oral medications or other TDAPA eligible drugs and the additional costs associated with dialysis providers having to supply such drugs. We have developed operational and clinical processes designed to provide the drug as may be required under the applicable regulations and as may be prescribed by physicians and have also worked to contract with manufacturers of drug(s) to establish terms and access to the product, as well as payors, as applicable, for reimbursement and/or administration of the drug. If the government or other payors implement other new requirements or protocols for patients to receive the drug and include pricing in the bundle, we could experience significant fluctuations in our associated levels of operating income and could be subject to material financial, operational and/or legal risk if we are not reimbursed for the cost of the drug, if we are to implement and appropriate operational measures to distribute or bill for the drug, if we to implement appropriate storage and controls or if we cannot obtain competitive pricing for the drug. The cumulative impact of these risks could have a material effect on our business, results of operation, financial condition and cash flows.
Similar operating and clinical rigor and appropriate processes will be needed for other potential new drugs, treatments or technologies that are approved and come onto the market, as well as for drugs, treatments or technologies, medical equipment or supplies that we contract to receive from third party suppliers. Any failure to successfully contract with manufacturers for such items, sufficiently and timely access competitive pricing, failure to successfully contract with the government or other payors for appropriate reimbursement, or failure to prepare, develop and implement processes that provide for appropriate availability and use in our clinics in compliance with applicable laws, including those related to controlled substances, could have a material adverse impact on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
We may also be subject to increased inquiries or audits from governmental bodies or claims by third parties related to pharmaceuticals or the incorporation of new technologies, treatments, therapies, medical equipment or supplies, which would require management's attention and could result in significant legal expense and other adverse results in the event of any negative findings. Any negative findings could result in, among other things, substantial financial penalties or repayment obligations, the imposition of certain obligations on and changes to our practices and procedures as well as the attendant financial burden on us to comply with the obligations, or exclusion from future participation in the Medicare and Medicaid programs, and could have a material adverse effect on our business, results of operations, financial condition, and cash flows and could materially harm our reputation. For additional information on these risks, see the risk factor under the heading " We are, and may in the future be, a party to various lawsuits, demands, claims, qui tam suits, governmental and audits and other legal matters. "
There are significant risks associated with estimating the amount of dialysis revenues and related refund liabilities that we recognize, and if our estimates of revenues and related refund liabilities are materially inaccurate, it could impact the timing and the amount of our revenues recognition or have a material adverse effect on our business, results of operations, financial condition and cash flows.
There are significant risks associated with estimating the amount of U.S. dialysis patient service revenues and related refund liabilities that we recognize in a reporting period. The billing and collection process is complex due to ongoing insurance coverage changes, geographic coverage differences, differing interpretations of contract coverage and other payor issues, such as ensuring appropriate documentation. Determining applicable primary and secondary coverage for approximately 200,500 U.S. patients at any point in time, together with the changes in patient coverage that occur each month, requires complex, resource-intensive processes. Errors in determining the correct coordination of benefits may result in refunds to payors. Revenues associated with Medicare and Medicaid programs are also subject to estimating risk related to the amounts not paid by the primary government payor that will ultimately be collectible from other government programs paying secondary coverage, the patient's commercial health plan secondary coverage or the patient. Collections, refunds and payor retractions typically continue to occur for up to three years and longer after services are provided. We generally expect our range of U.S. dialysis patient service revenues estimating risk to be within 1% of revenues. If our estimates of U.S. dialysis patient service revenues and related refund liabilities are materially inaccurate, it could impact the timing and the amount of our revenues recognition and have a material adverse impact on our business, results of operations, financial condition and cash flows.
Risks Related to Competition, Business Strategy Growth, Information Systems and New Technologies
If we are unable to compete successfully it could materially adversely affect our business, results of operations, financial condition and cash flows.
We operate in a highly competitive and continuously evolving environment across the spectrum of kidney care, and operating in this market requires us to successfully execute on strategic initiatives which, among other things, build or retain our patient population through acquisition or referrals, or that develop and maintain our relationships with physicians and hospitals in both the dialysis and pre-dialysis space. If we are not able to effectively compete in the markets in which we operate it could materially adversely affect our business, results of operations, financial condition and cash flows. Our ability to successfully compete encompasses, among other things: implementing our growth strategy; building or retaining our patient population and levels of non-acquired growth, particularly if there is a continued decline in the rate of growth of the ESRD patient population, higher mortality rates for dialysis patients or other reductions in demand for dialysis treatments; implementing or adapting to new technologies, treatments or therapies; effectively adjusting our business and operations in light of evolving marketplace dynamics or broader changes to the regulatory landscape, including changes related to the antitrust and competitive environment or changes resulting from new business activities in the dialysis or pre-dialysis space by our existing competitors, other market participants, or new entrants; and maintaining and developing relationships with nephrologists and hospitals, particularly medical director relationships.
We continue to face intense competition in existing and potential new geographies for physicians qualified to serve as medical directors, for hospital relationships, for limited acquisition targets and for individual patients. In addition to large and medium-sized competitors with substantial financial resources and other established participants in the dialysis space, we also compete with individual nephrologists who have opened their own dialysis units or facilities. We continuously compete to maintain or develop relationships with physicians that are qualified to serve as medical directors at our centers. Physicians, including medical directors, choose where they refer their patients, and neither of our current or former medical directors have an obligation to refer their patients to our centers. Certain physicians prefer to have their patients treated at dialysis centers where they or other members of their practice supervise the overall care provided as medical director of the center. As a result, referral sources for many of our centers include the physician or physician group providing medical director services to the center. Moreover, because Medicare regulations require medical directors for each of our Medicare certified dialysis centers, our ability to operate our centers depends in part on our ability to secure medical director agreements with the required number of nephrologists at any given point in time. Our ability to enter into agreements with the requisite number of medical directors depends in part on multiple factors, some of which are beyond our control, including, among others, the aging of the nephrologist population, potential declines in the overall number of nephrologists, presented by our competitors or other hospitals and other healthcare providers, and our ability to maintain compliance with the terms of any existing agreement. Our ability to retain medical directors also may impact the degree to which physicians feel in referring patients to our dialysis centers. If a significant number of physicians or hospitals were to referring patients to our dialysis centers, whether due to law, rule or regulation, new competition, a perceived decrease in the quality of service levels at our centers or other reasons, it would have a material effect on our business, results of operations, financial condition and cash flows.
In addition, as we continue to expand offerings across the kidney care continuum, our ability to enter into and maintain integrated kidney care relationships with physicians and other providers may have an impact on our ability to participate in integrated kidney care. This environment is highly competitive and continues to evolve. For example, there have been a number of announcements, initiatives and capital raises by non-traditional kidney care providers and others, which relate to entry into the dialysis and pre-dialysis space, the development of innovative technologies, or the commencement of new business activities that could be transformative to the industry. Some of these entrants have considerable financial resources. Although these and other potential competitors may face operational or financial challenges, the evolving nature of the dialysis and pre-dialysis marketplaces has presented some opportunities for relative ease of entry for these and other potential competitors. As a result, we may compete with these smaller or non-traditional providers or others in an asymmetrical environment with respect to data and regulatory requirements that we face as an ESRD service provider, thereby negatively impacting our ability to effectively compete. These and other factors have continued to drive change in the dialysis and pre-dialysis space, and if we are unable to adapt to these dynamics, it could have a material impact on our business, results of operations, financial condition and cash flows. As an example, some participants in the CMMI payment models or otherwise establish value-based care programs, may have higher financial or compliance risk tolerance and/or may not be subject to the same regulatory restrictions as the Company, which could impact our ability to enter into competitive arrangements. These competitive pressures may intensify as our industry experiences overall growth and competition increases. Such increased pressure may in turn increase the financial and compliance risks associated with future acquisitions, strategic transactions or other business relationships if we pursue arrangements with less terms or structures.
We may engage in acquisitions, mergers, joint ventures, noncontrolling interest investments, or dispositions, which may materially affect our results of operations, debt-to-capital ratio, capital expenditures or other aspects of our business, and, under certain circumstances, could have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
Our business strategy includes growth through acquisitions of dialysis centers and other businesses, as well as through entry into joint ventures. We may engage in acquisitions, mergers, joint ventures or dispositions or expand into new business lines or models, which may affect our results of operations, debt-to-capital ratio, capital expenditures or other aspects of our business.
There can be no assurance that we will be able to identify suitable acquisition or joint venture targets, merger partners or buyers for dispositions or that, if identified, we will be able to agree to acceptable terms on the desired timetable. There can also be no assurance that we will be successful in completing any acquisitions, joint ventures, mergers or dispositions that we announce, executing new business lines or models, or integrating any acquired business into our overall operations. There is no guarantee that we will be able to operate acquired businesses successfully as stand-alone businesses, or that any such acquired business will operate profitably or will not otherwise have a material adverse effect on our business, results of operations, financial condition and cash flows or materially harm our reputation. In addition, acquisition, merger or joint venture activity conducted as part of our overall growth strategy is subject to antitrust and competition laws (federal and state), and regulators may seek to future, pending or consummated transactions. Furthermore, a number of states have passed or are considering legislation that may impose significant pre-merger notification and approval requirements on healthcare transactions. These laws could impact our ability to pursue these transactions or our ability to consummate them on a timely basis; could require us to devote additional resources to potential transactions; and under certain circumstances, could result in mandated , among other things. If a proposed transaction or series of transactions is subject to under or competition laws, we may incur substantial legal costs, management’s attention and resources may be , and if we are found to have these or other related laws, regulations or requirements, we could consequences that could have a material effect on our business, results of operations, financial condition and cash flows and could materially our reputation and stock price. Further, we cannot be certain that key talent at the business being acquired will continue to work for us after the acquisition or that they will be to continue to manage or have adequate resources to operate any acquired business.
Businesses we acquire may have unknown or contingent liabilities or liabilities that are in excess of the amounts that we originally estimated, and may have other issues, including, without limitation, those related to internal control over financial reporting or issues that could affect our ability to comply with healthcare laws and regulations and other laws applicable to our expanded business, which could harm our reputation and otherwise be costly. As a result, we cannot make any assurances that the acquisitions we consummate will be successful. Although we generally seek indemnification from the sellers of businesses we acquire for matters that are not properly disclosed to us, we are not always successful. In addition, even in cases where we are able to obtain indemnification, we may discover liabilities greater than the contractual limits, the amounts held in escrow for our benefit (if any), or the financial resources of the indemnifying party. In the event that we are responsible for liabilities substantially in excess of any amounts recovered through rights to indemnification or alternative remedies that might be available to us, or any applicable insurance, we could consequences that would have a material effect on our business, results of operations, financial condition and cash flows and could materially our reputation.
Joint ventures with minority or noncontrolling interest investments inherently involve a lesser degree of control over business operations, thereby potentially increasing the financial, legal, operational and/or compliance risks associated with the joint venture where we have a noncontrolling interest investment. Many of our joint ventures with physicians or physician groups also have certain physician owners providing medical director services to centers we own and operate. Because our relationships with physicians are governed by the federal and state anti-kickback statutes, and other applicable fraud and abuse laws, we have sought to structure our joint venture arrangements and medical director directorships to satisfy as many federal safe harbor requirements as we believe are commercially reasonable. Our joint venture arrangements do not satisfy all of the elements of any safe harbor under the federal Anti-Kickback Statute, however, and therefore are susceptible to government scrutiny. If our joint ventures are found to violate applicable laws or regulations, we could consequences that would have a material effect on our business, results of operations, financial condition and cash flows and could materially our reputation. From an operations standpoint, we may be dependent on joint venture partners, controlling shareholders or management who may have business interests, strategies or goals that are with ours. Business decisions or other actions or of the joint venture partner, controlling shareholders or management may require us to make capital contributions or necessitate other payments, result in or regulatory action us, result in reputational to us or affect the value of our investment or partnership, among other things. In addition, we have potential obligations to purchase the interests held by third parties in many of our joint ventures as a result of put provisions that are exercisable at the third party's discretion within specified time periods, pursuant to the applicable agreement. If these put provisions were exercised, we would be required to purchase the third-party owner's equity interest, generally at the appraised market value, and the cumulative impact of such provisions may be material. In addition, certain of our acquired dialysis centers and facilities have been in service for many years, which may result in a higher level of maintenance costs. Further, our facilities, equipment and information technology may need to be or renovated to maintain or increase operational , attract patients and physicians, or meet changing regulatory requirements. In addition, increases in maintenance costs and/or capital expenditures could have, under certain circumstances, an impact on our business, results of operations, financial condition and cash flows.
We invest in strategic and operational initiatives to maintain our business and expand our capabilities in a complex, evolving and highly regulated environment. These operations and initiatives are subject to risk and may generate losses or may ultimately be unsuccessful, which could result in a loss of our investments, incurrence of exit costs or could otherwise have a material adverse effect on our growth strategy, could adversely impact our business, results of operations, financial condition and cash flows, and could materially harm our reputation.
We have added, and expect to continue to add additional service offerings to our business and to pursue additional strategic initiatives or investments in the future as circumstances warrant. These investments may be related to healthcare products or services associated with kidney care or they may be unrelated. These additional offerings and financial investments, such as our U.S. integrated kidney care business/offerings, home-based dialysis modalities and other U.S. based ancillary services are subject to many of the same risks, regulations and laws, as described in the risk factors related to our dialysis business set forth in this Item 1A. "Risk Factors," and are also subject to additional risks, regulations and laws specific to the nature of the particular strategic initiative. Many of these initiatives require or would require investments of both management and financial resources and can generate significant losses for a substantial period of time and may not become profitable in the expected timeframe or at all. There can be no assurance that any such strategic initiative or investment will ultimately be successful. Any significant change in market conditions or business performance, including, without limitation, as a result of the political, legislative or regulatory environment, may impact the performance, economic viability and compliance risks associated with any of these strategic initiatives.
If we determine to exit a particular line of business or investment we may also incur significant termination costs. We may also incur material write-offs or impairments of our investments, including, without limitation, goodwill or other assets, in one or more of our U.S. integrated kidney care or U.S. other ancillary services. In that regard, we have taken, and may in the future take, impairment and restructuring charges related to our U.S. integrated kidney care of U.S. other ancillary services. If any of our other strategic initiatives or investments, including those set forth below, are unsuccessful, it could have an adverse impact on our business, and depending on the scale or scope of our investment, could have a material adverse effect on our business, results of operations, financial condition and cash flows, and could materially harm our reputation.
Integrated Kidney Care
For example, as part of our growth strategy we have continued to invest substantial resources to grow our IKC business that manages patients and coordinates their care through value-based care (VBC) arrangements with commercial payors and through government programs such as Medicare Fee for Service and MA. Our IKC and VBC business operates in a complex, evolving and highly competitive and regulated environment, and the success of these initiatives depends on our ability to, among other things, reduce the overall cost of care for our IKC patients; maintain our existing business; and enter into agreements with payors, physicians, third party vendors and others on competitive terms that prove actuarially sound. Because
we assume financial accountability for total patient cost in these IKC and VBC arrangements, we are exposed to the risk that the funding and financial terms of these arrangements may not be sufficient to cover our expenses and the costs associated with the covered services that we are required to provide. Changes to these expenses, such as increases in staffing and labor costs or expansions in the scale or scope of covered services, may impact the profitability of these programs.
F uture legislative or regulatory action related to , among other things, existing or future integrated kidney care initiatives, including among others, CMMI payment models , and/ or full capitation demonstration for ESRD may impact our ability to provide a competitive and successful integrated care program at scale. For example, we have made significant investments in our participation in the CKCC program payment model and there is no assurance that this program will be extended or modified in the future and, among other things, any such extension or modification could adversely impact our costs of care, associated reimbursement rates or risk adjusted revenues. The evolving regulatory structure regarding integrated kidney care also subjects us to execution and compliance risks such as our ability to structure VBC agreements and arrangements and to develop and maintain related operational, IT, billing and telehealth systems in accordance with such evolving rules and regulations, including rules and regulations related to fraud and abuse, the use of protected health information, and accurately capturing relevant patient care data, among other things.
Home-based Dialysis
Similarly, our home-based dialysis services, which include home hemodialysis and peritoneal dialysis (PD), are an important part of our overall strategy, and as such we have made investments in processes and infrastructure to continue to grow this modality. There are, however, risks associated with this growth, including, among other things, financial, legal, regulatory and operational risks related to our ability to design and develop infrastructure and to plan for capacity in a modality that is part of an evolving marketplace. Certain of these risks include, among others, risks associated with our ability to find, train and retain appropriate staff, contract with payors for appropriate reimbursement, and maintain processes to adhere to the complex regulatory and legal requirements, including without limitation those associated with billing Medicare. There are also a limited number of available suppliers for certain critical home-based dialysis supplies, and any disruptions involving such supplies could materially impact our operations and require significant resources or operational changes in response.
As our home-based dialysis business grows, certain risks inherent to home-based dialysis will increase, including risks related to managing transitions between in-center and home-based dialysis, billing and telehealth systems, among others. An increased focus on home-based dialysis is also indicative of the generally evolving market for kidney care. This developing market may create additional opportunities for competition with relative ease of entry, and our ability to succeed in this environment will require us to successfully adapt to these or other marketplace developments, which, among other things, may include regulatory changes with respect to conditions of coverage, in a timely and compliant manner.
Expansion of our operations to and offering our services in markets outside of the U.S., and utilizing third-party suppliers and service providers operating outside of the U.S., subjects us to political, economic, legal, operational and other risks that could have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
We are continuing to expand our operations by offering our services and entering new lines of business in certain markets outside of the U.S., and as a result have increased our utilization of third-party suppliers and service providers operating outside of the U.S., which increases our exposure to the inherent risks of doing business in international markets. Depending on the market, these risks include those relating to:
• changes in the local economic environment including, among other things, labor cost increases and other general inflationary pressures;
• political instability, armed conflicts or terrorism;
• public health crises, such as pandemics or epidemics;
• social changes;
• intellectual property legal protections and remedies;
• trade regulations, policies and tariffs;
• procedures and actions affecting approval, production, pricing, reimbursement and marketing of products and services;
• foreign currency and applicable exchange rates;
• additional U.S. and foreign taxes;
• export controls;
• antitrust and competition laws and regulations;
• lack of reliable legal systems which may affect our ability to enforce contractual rights;
• changes in local laws or regulations, or interpretation or enforcement thereof;
• potentially longer ramp-up times for starting up new operations and for payment and collection cycles;
• financial and operational, and information technology systems integration;
• failure to comply with U.S. laws, such as the FCPA, or local laws that prohibit us, our partners, or our partners' or our agents or intermediaries from making improper payments to foreign officials or any third party for the purpose of obtaining or retaining business;
• laws, regulations or other guidance that require enhanced disclosures and due diligence surrounding the impacts of our Company and value chain on, and the financial risks and opportunities for our Company from, ESG or other similar sustainability or corporate responsibility matters, as well as enhanced policies, processes and controls designed to appropriately monitor and track such information and enhanced actions to address our Company's impact on these matters; and
• data and privacy restrictions, among other things.
Issues relating to the failure to comply with applicable non-U.S. laws, requirements or restrictions may also impact our domestic business and/or raise scrutiny on our domestic practices.
Additionally, some factors that will be critical to the success of our international business and operations will be different than those affecting our domestic business and operations. For example, conducting international operations in new or existing markets requires us to devote significant management resources to implement our controls and systems, to comply with local laws and regulations, including to fulfill financial reporting and records retention requirements among other things, and to overcome the numerous challenges inherent in managing international operations, including, without limitation, challenges based on differing languages and cultures, challenges related to establishing clinical operations in differing regulatory and compliance environments, and challenges related to the timely hiring, integration and retention of a sufficient number of skilled personnel to carry out operations in an environment with which we are not familiar.
Any expansion of our international operations through acquisitions or through organic growth could increase these risks. Additionally, while we may invest material amounts of capital and incur significant costs in connection with the growth and development of our international operations, including to start up or acquire new operations, we may not be able to operate them profitably on the anticipated timeline, or at all. If we suffer losses in these operations and such losses are sustained and significant, we may also incur material write-offs or impairments of our investments, including, without limitation, goodwill or other assets.
These risks could have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
If we fail to properly maintain the integrity of our data, protect our proprietary rights to our systems or defend against cybersecurity attacks, we may be subject to government or private actions due to privacy and security breaches or suffer losses to our data and information technology assets, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows, and could materially harm our reputation.
Information security risks have significantly increased in recent years, in part because of the proliferation of new technologies, the increasing use of the Internet and telecommunications technologies to conduct our operations, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including, among others, foreign state agents. Our business and operations rely on the secure and continuous processing, transmission and storage of confidential, proprietary and other information in our computer systems and networks, including sensitive personal information, such as PHI, social security numbers, and/or credit card information of our patients, teammates, physicians, business partners and others. Our business and operations also rely on certain critical IT vendors that support such processing, transmission and storage.
We regularly review, monitor and implement multiple layers of security measures through technology, processes and our people. We utilize security technologies designed to protect and maintain the integrity of our information systems and data, and our defenses are monitored and routinely tested internally and by external parties. Despite these efforts, our facilities and systems, and those of our third-party service providers may be vulnerable to privacy and security incidents; security attacks and breaches; acts of vandalism or theft; computer viruses and other malicious code; coordinated attacks by a variety of actors, including, among others, activist entities or state sponsored cyberattacks; emerging cybersecurity risks; cyber risk related to connected devices; misplaced or lost data; programming and/or human errors; or other similar events that could impact the security, reliability and availability of our systems and the availability, authenticity, and/or confidentiality of information stored on those systems, such as personal or other sensitive information. Internal and external parties have attempted to, and will continue to attempt to, our security systems, and we have in the past, and expect that we will in the future, , experience, and respond to attacks on our network including, without , reconnaissance probes, of service attempts, software attacks including ransomware or other attacks intended to render our internal operating systems or data , and phishing attacks or business email compromise. For example, we became aware of a cybersecurity in April 2025 that impacted our network, resulting in the exfiltration of certain data, including PII and PHI, and to our operations. We have restored all relevant business functions and patient care continued throughout the and response. The impacted our billing and revenue collection cycles, our ability to accept new patients and our ability to perform certain business functions and, as a result, we continue to incur expenses and experience revenue as a result of the .
Cybersecurity requires ongoing investment and diligence against evolving threats. For example, healthcare companies, including our Company and certain of our third-party service providers, strategic partners, consultants and contractors, are increasingly incorporating into information technology capabilities machine learning or automation for real-time prevention utilizing artificial intelligence for anomaly-based detection, among other uses. The reliability and performance of these new capabilities remain unknown, and it is possible they may not perform as desired, by being either too restrictive and inhibiting operation or not restrictive enough and allowing attacker traffic. The increasing use of this rapidly evolving technology intensifies the cybersecurity and reputational risks we face given its novel and untested nature, particularly to the extent such technology involves the use of PHI or PII. Threat actors continue to evolve their methods with ever increasing sophistication, and are also increasingly utilizing artificial intelligence and other technologies as part of their efforts to infiltrate information systems. Emerging and increasingly advanced cybersecurity threats, including, without limitation, coordinated attacks, may require us to implement or maintain additional layers of security which may or impact of our operations. As with any information security program, there always exists the risk that employees will our policies our compliance efforts or that certain attacks may be beyond the ability of our security and other systems to prevent or detect. There can be no assurance that investments, diligence and/or our internal controls will be sufficient to prevent or timely discover an attack.
Any security breach involving the misappropriation, loss or other unauthorized disclosure or use of confidential information, including, among others, PHI, PII, financial data, competitively sensitive information, trade secrets or other proprietary data, whether by us or a third party, could have a material adverse effect on our business, results of operations, financial condition, and cash flows and could materially harm our reputation. As security threats evolve, we may be required to invest significant additional resources to modify our protective measures and programmatic cybersecurity controls, to investigate and remediate vulnerabilities or other exposures, and to make notifications required under applicable regulations or contractual obligations. The occurrence of any such events could, among other potential things, result in interruptions, or delays in our operations, the loss or of data, cessations in the availability of systems and liability under privacy and information security laws or regulations. to protect and maintain the of our information systems (including our networks) and data, or to cybersecurity attacks, could subject us to monetary , civil suits, civil or sanctions and requirements to the publicly, could subject our legal representatives or senior management to liability and/or a temporary during which they cannot exercise managerial duties. As cyber activity , including activity that originates outside of the U.S., and as we continue with certain remote work arrangements and a broadened technology footprint, the risks we face relating to the transmission, storage and processing of data within our network and our use of service providers outside of our network have intensified. There have been increased international, federal, state and other privacy, data protection and security enforcement efforts and we expect this trend to continue. While we plan to continue to maintain cyber liability insurance, which we have consistently maintained for years, there can be no assurance that we will be to obtain such insurance on terms and conditions that are to us or at all, and such liability insurance may not cover us for all types of or , or otherwise be sufficient to protect us the amount of all . Any of these foregoing risks or developments, either individually or in the aggregate, could have a material effect on our business, results of operations, financial condition and cash flows, materially our reputation, our relationships with our patients, physicians, vendors and other business partners, and could subject us to regulatory actions, private party and other potential liability.
For additional information about our assessment of our cybersecurity risks, see discussion in Part I Item 1C. " Cybersecurity ."
Privacy and information security laws are complex, and if we fail to comply with applicable laws, regulations and standards, including with respect to third-party service providers that utilize sensitive personally identifiable information on our behalf, it could have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
We must comply with numerous federal and state laws and regulations in both the U.S. and the foreign jurisdictions in which we operate governing the collection, dissemination, access, use, security and privacy of PII. In the U.S., these laws include, without limitation, the Health Insurance Portability and Accountability Act of 1996 and its implementing privacy, security, and related regulations, as amended by the federal Health Information Technology for Economic and Clinical Health Act (HITECH) (collectively referred to as "HIPAA"). We are also required to report known breaches of PHI and certain sensitive PII consistent with breach reporting set forth in HIPAA and other applicable privacy laws and regulations. From time to time, we may be subject to federal or state inquiries, investigations or audits related to HIPAA or other privacy or information security laws or regulations associated with complaints and data breaches, among other things, and we conduct audits and assessments for ongoing compliance. In foreign jurisdictions, our international business may similarly be subject to inquiries investigations, or audits under country privacy and data protection laws. If we fail to comply with applicable privacy and information security laws, regulations and standards, including with respect to third-party service providers that utilize sensitive PII or PHI, or financial information or payroll data on our behalf or with respect to the use of certain third-party digital advertising technologies, or if we to properly maintain the of our data, protect our proprietary rights, or cybersecurity attacks, such could materially our reputation and/or have a material effect on our business, results of operations, financial condition and cash flows. These risks may be intensified to the extent that the laws change or to the extent that we increase our use of third-party service providers that utilize sensitive PII, including PHI, on our behalf.
Data protection and privacy laws and regulations are evolving globally, and may continue to add additional compliance costs and legal risks to our operations. The costs of compliance with, and other burdens imposed by these data protection laws and regulations and other new laws, regulations and policies implementing these regulations may impact our operations and may limit the ways in which we can provide services and operate, use or otherwise process personal data collected while providing services. For example, data protection and privacy laws and regulations regarding the use of artificial intelligence and machine learning continue to evolve and mature, and as our use of such technologies increases, we may be required to invest additional resources, expend additional compliance costs and assume additional legal risk to our operations. If we fail to comply with the requirements of these and other laws, regulations or policies, we could be subject to damage awards in private litigation or penalties that, in some cases, could have a material adverse impact on our business, results of operations, financial condition and cash flows. For additional information on the risks related to our failure to comply with the requirements of these and other laws, regulations or policies, see the risk factor under the heading " We are, and may in the future be, a party to various lawsuits, demands, , qui tam suits, governmental and audits and other legal matters... "
We operate in a dynamic highly competitive and highly regulated environment, and failing to effectively maintain, operate or upgrade our information systems or those of third-party service providers upon which we rely or failing to successfully adopt or adapt to new technologies, including artificial intelligence and machine learning, or new treatments and therapies could materially adversely affect our business, results of operations, financial condition and cash flows and could materially harm our reputation.
We expect the dynamic highly competitive environment in which we operate to become increasingly more competitive as the market evolves and new technologies, treatments or therapies continue to be introduced. Operating in this environment requires us to continuously adopt and adapt to developing technologies, treatments and therapies, and our failure to do so, and to do so in a manner that remains in compliance with the evolving state and federal regulatory landscape, could materially adversely affect our business, results of operations, financial condition and cash flows and could materially harm our reputation.
Information Systems
Our business depends significantly on effective information systems. Our information systems require an ongoing commitment of significant resources to maintain, upgrade and enhance existing systems and develop or contract for new systems in order to keep pace with an evolving cyber threat landscape in information processing technology, emerging cybersecurity risks and threats, evolving industry, legal and regulatory standards and requirements, new models of care, and other changes in our business, among other things. For example, in the clinical environment, any failure of our clinical systems or the systems of our third-party service providers could adversely impact the clinical care provided to patients, and any failure to accurately capture relevant claims data or any data integrity issues in our clinical systems with respect information reported
to government payors could adversely impact our payments from such payors. In addition, our billing systems, among others, are critical to our billing operations. This includes our systems for our dialysis clinics as well as our systems for our hospital services and our ancillary businesses, including our international business. If there is any failure in our ability to operate our billing systems, or billing systems or services of third parties upon which we rely, we may experience difficulties in our ability to successfully bill and collect for services rendered, including, without limitation, a delay in collections, a reduction in the amounts collected, increased risk of retractions from and refunds to commercial and government payors, an increase in our provision for uncollectible accounts receivable and noncompliance with reimbursement laws and related requirements, any or all of which could materially adversely affect our results of operations.
We have made and expect to continue to make significant investments in updating and integrating our clinical IT systems and continuing to build our data interoperability capabilities. Rulemaking in these areas is ongoing, and there can be no assurances that the implementation of planned enhancements to our systems, such as our implementation of these data interoperability provisions or our other ongoing efforts to upgrade and better integrate our clinical systems, will be successful once the regulatory environment settles or that we will ultimately realize anticipated benefits from investments in new or existing information systems. In addition, we may from time to time obtain significant portions of our systems-related support, technology or other services from third parties, which may make our operations vulnerable if such third parties fail to perform adequately.
If we fail to successfully implement, operate and maintain effective and efficient information systems with adequate technological capabilities, if there are deficiencies or defects in the systems and related technology, if the information we rely upon to run our business is found to be inaccurate or unreliable, if we or third parties on which we rely fail to adequately maintain information systems and data integrity effectively, whether due to software deficiencies, human coding or implementation error or otherwise, or if we fail to efficiently and effectively implement ongoing system upgrades or consolidate our information systems to eliminate redundant or applications, we could face increased legal and compliance risks and competitive and we could experience meeting clinical outcome goals, be subject to sanctions or , incur increases in operating expenses or other consequences, among other things, any of which could be material. As an example, to comply with provisions related to data interoperability, information blocking, patient privacy requirements including those related to notice of PHI collection, uses or sharing, or requests for patient access to their PHI or choice (consent management) on how PHI may be collected, used or shared, may, among other things, result in and sanctions, impact our Medicare business, our ability to scale our integrated care business and our ability to compete with certain smaller and/or non-traditional providers who may take of an asymmetrical environment with respect to data and/or regulatory requirements given our status as an ESRD service provider. The cumulative effect of the foregoing could have a material effect on our business, financial condition, results of operations and cash flows and could materially our reputation.
Artificial Intelligence
Artificial intelligence is increasingly driving innovations. As a result, an increasing part of implementing, operating and maintaining efficient and effective systems, technologies or processes may require the adoption of new technology and analytics that utilize artificial intelligence technologies. The use of these technologies presents certain distinct risks in part due to the novel and rapidly evolving nature of artificial intelligence and the laws and regulations that govern its use. The failure to incorporate legal requirements related to the use (or misuse) of technology, including artificial intelligence, into our internal standards could subject us to risk of regulatory actions, private party litigation and other potential liability. This dynamic environment increases the complexity of any adoption and implementation of both artificial intelligence technologies, as well as the associated governance, compliance and operational infrastructure required to responsibly and successfully utilize these technologies. As an example of this complexity, implementation and adoption risks include, among other things, potential design defects, defects in the development of algorithms or other technologies, biased data/discrimination, potential security or access to or use of PHI, to comply with certain state requirements or training of the model on DaVita data, human oversight or or , or human user . While we have made and expect to continue to invest significant resources in the implementation of these new artificial intelligence technologies, this complexity increases execution risk and there can be no assurances that the technology will be implemented in all cases for their intended purposes.
If we are unable to implement these technologies in an efficient and cost-effective manner, including in our clinical operations and laboratory, if these technologies or applications fail to operate as anticipated or do not perform as specified, or if we are unable to successfully implement adequate governance and compliance structures to manage these new technologies, we may be, among other things, unable to efficiently adapt to evolving laws and requirements, unable to remain competitive with others who successfully implement and advance this technology, subject to increased risk under existing laws, regulations and requirements that apply to our business, we may suffer adverse consequences, such as the potential loss of our investment, the failure of the technology to its goals, and the of management’s attention for other business priorities.
The impact of such developments could have a material adverse impact on our business, results of operations and financial condition and could materially harm our reputation.
Clinical Technologies, Treatments or Therapies
New clinical technologies may also lead to drugs, treatments or other therapies with improved clinical outcomes or are preferred by patients and their physicians, and if we are unable to incorporate these products into our business or otherwise find adequate alternatives on a cost-effective and timely basis it could impact our ability to compete effectively. For example, hemodiafiltration (HDF), a treatment that combines hemodialysis and hemofiltration to improve clearance of middle molecule uremic toxins from the blood, is a developing technology not yet widely adopted in the U.S. The adoption of this technology would require significant capital investment in equipment and infrastructure and is subject to risks associated with its cost, availability and ultimately any associated reimbursement rate. While there remains uncertainty regarding HDF’s ultimate efficacy in the U.S. market given the current absence of large-scale U.S. studies on HDF, if competitors begin to adopt HDF and it proves to be a treatment that results in improved clinical outcomes or is preferred by patients and their physicians, we could be at a competitive disadvantage if we fail to effectively integrate it into our services. International studies have shown that expanded hemodialysis with the use of medium -off dialyzers can similarly provide middle molecule clearance. We have made investments to evaluate these medium -off dialyzers for use in the U.S. In the event these medium -off dialyzers do not clinical results or if we are to secure the necessary supply of medium -off dialyzers, we may be required to invest additional time and resources in an alternative middle-sized molecule treatment initiatives. The to adapt to these and other technological developments could, among other things, place us at a competitive , result in increased costs without adequate reimbursement to offset such costs, and could ultimately have a material effect on our business, results of operations, financial condition and cash flows and could materially our reputation.
The introduction of new technologies, treatments or therapies may also impact ESKD growth rates or the demand for dialysis treatments over time, including, among others, the glucagon-like peptide 1 (GLP-1) receptor agonist, SGLT2 inhibitors, and other classes of drugs or new classes of drugs or other treatments that may, among other things, slow the progression of CKD. Any decrease in growth rates for the ESRD patient population, higher mortality rates for dialysis patients, increase in the availability of kidneys or replacement kidneys (e.g., via xenotransplantation or artificial kidneys) for transplant, or other reductions in demand for dialysis treatments, if sustained or significant, could have a material adverse effect on our business, results of operations, financial condition and cash flows.
General Risk Factors
We have a substantial amount of indebtedness outstanding and we may incur substantial additional indebtedness in the future, which may limit our intended uses of capital or reduce operational flexibility, and may put additional stress on our ability to generate cash.
We have a substantial amount of indebtedness outstanding and we may incur substantial additional indebtedness in the future, including indebtedness incurred to finance repurchases of our common stock pursuant to our share repurchase authorization discussed under " Stock Repurchases " in Part II Item 7. " Management's Discussion and Analysis of Financial Condition and Results of Operation s ." As described in Note 12 to the consolidated financial statements included in this report, we are party to a senior secured credit agreement (as amended, the Credit Agreement), which consists of an up to $1.5 billion secured revolving line of credit, a secured term loan A-2 facility and a secured term loan B-2 facility. Our long-term indebtedness also includes $6.25 billion aggregate principal amount of senior notes.
We are subject to interest rate risk on our indebtedness that bears interest at a variable rate. Interest rate increases may increase our cost of borrowing and require us to change or reduce our intended or announced uses or strategies for capital deployment, including, without limitation, stock repurchases, capital expenditures, planned expansions or other strategic initiatives.
Our ability to fund these capital deployment uses and indebtedness obligations depends on our ability to generate cash through our operations. This ability to generate cash is subject to economic, financial, competitive, regulatory and other factors that are beyond our control. We cannot provide assurances that our business will generate sufficient cash flows from operations in the future or that we will be able to refinance, restructure, or otherwise amend some or all of such indebtedness or raise additional cash through the sale of our equity or equity-related securities on favorable terms or at all.
In the event we incur additional substantial indebtedness in the future, the risks described in this risk factor could intensify. In addition, our debt agreements include restrictive covenants, and if we incur any new debt obligations that subject us to additional restrictive covenants, it could further limit our financial and operational flexibility. Further, any breach or failure to comply with any of these covenants could result in a default under our indebtedness. Increasing amounts of
indebtedness may also increase our vulnerability to general adverse economic and industry conditions, could place us at a competitive disadvantage compared to our competitors that have less debt and could limit our ability to borrow additional funds, or to refinance existing debt on favorable terms when otherwise available or at all. The borrowings under our senior secured credit facilities and senior indentures are guaranteed by certain of our domestic subsidiaries, and borrowings under our senior secured credit facilities are secured by substantially all of our and certain of our domestic subsidiaries' assets. Such guarantees and the fact that we have pledged such assets may make it more difficult and expensive for us to make, or under certain circumstances could effectively prevent us from making, additional secured and unsecured borrowings.
Any failure to pay any of our indebtedness when due or any other default under our credit facilities or our other indebtedness could have a material adverse effect on our business, results of operations, financial condition and cash flows, and could trigger cross default or cross acceleration provisions in our other debt instruments, thereby permitting the holders of that other indebtedness to demand immediate repayment or cease to make future extensions of credit, and, in the case of secured indebtedness, to take possession of and sell the collateral securing such indebtedness to satisfy our obligations.
Our goals and disclosures related to ESG matters expose us to risks, including without limitation risks to our reputation and stock price.
We have a longstanding program relating to environmental, social and governance (ESG) issues and have engaged with key stakeholders to identify focus areas and to set operational and sustainability-related goals that are aligned with our business strategy, many of which are aspirational. We have set and disclosed these focus areas, goals and related objectives, but our goals and objectives reflect our current plans and are not guarantees that we will be able to achieve them. Our efforts to accomplish and accurately report on these goals and objectives present various operational, reputational, financial, legal and other risks, certain of which are outside of our control, and could have, under certain circumstances, a material adverse impact on us, including on our reputation and stock price.
Applicable regulatory requirements affecting ESG standards, frameworks and disclosures, as well as standards for measuring and reporting on related metrics, continue to evolve. If our practices do not meet investor or other stakeholder expectations and standards, then our reputation, our ability to attract or retain employees and our attractiveness as an investment, business partner or acquirer could be negatively impacted. In addition, our failure or perceived failure to adequately pursue or fulfill our goals and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts and expose us to other risks, which under certain circumstances could be material. If we are not able to adequately recognize and respond to the rapid and ongoing developments and governmental and social expectations relating to these matters, this failure could result in corporate , additional regulatory, social or other of us, the imposition of costs, or to our reputation with governments, patients, teammates, third parties and the communities in which we operate, which in turn could have a material effect on our business, financial condition, results of operations and cash flows and could cause the market value of our common stock to .
We could be subject to adverse changes in tax laws, regulations and interpretations or challenges to our tax positions.
We are subject to tax laws and regulations of the U.S. federal, state and local governments as well as various foreign jurisdictions. We compute our income tax provision based on enacted tax rates in the jurisdictions in which we operate. As the tax rates vary among jurisdictions, a change in earnings attributable to the various jurisdictions in which we operate could result in a change in our overall tax provision.
Changes in tax laws or regulations may be proposed or enacted that could adversely affect our overall tax liability. There can be no assurance that changes in tax laws or regulations, both within the domestic and foreign jurisdictions in which we operate, will not materially and adversely affect our effective tax rate, tax payments, results of operations, financial condition and cash flows. Similarly, changes in tax laws and regulations that impact our patients, business partners and counterparties or the economy may also impact our results of operations, financial condition and cash flows.
In addition, tax laws and regulations are complex and subject to varying interpretations, and any significant failure to comply with applicable tax laws and regulations in all relevant jurisdictions could give rise to material penalties and liabilities. We are regularly subject to audits by various tax authorities. It is possible that the final determination of any such tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. Any changes in enacted tax laws, rules or regulatory or judicial interpretations; any adverse development or outcome in connection with tax audits in any jurisdiction; or any change in the pronouncements relating to accounting for income taxes could materially and adversely impact our effective tax rate, tax payments, results of operations, financial condition and cash flows.
We may be subject to liability claims for damages and other expenses that are not covered by insurance or exceed our existing insurance coverage that could have a material adverse effect on our business, results of operations, financial condition and cash flows and could materially harm our reputation.
Our operations and how we manage our business may subject us, as well as our officers and directors to whom we owe certain defense and indemnity obligations, to litigation and liability. Our business, profitability and growth prospects could suffer if we face negative publicity or we pay damages or defense costs in connection with a claim that is outside the scope or limits of coverage of any applicable insurance coverage, including, without limitation, claims related to adverse patient events, cybersecurity incidents, contractual disputes, antitrust and competition laws and regulations, government and internal investigations, professional and general liability and directors' and officers' duties. In addition, we have received notices of claims from commercial payors and other third parties, as well as and civil investigative demands from the federal government, related to our business practices, including, without , our historical billing practices and the historical billing practices of acquired businesses. Although the ultimate outcome of these cannot be predicted, an result with respect to one or more of these could have a material effect on our business, results of operations, financial condition and cash flows, and could materially our reputation. We maintain insurance coverage for those risks we deem are appropriate to insure and make determinations about whether to self-insure as to other risks or layers of coverage. However, a claim, including, without , a professional liability, or claim or a claim related to and competition laws or a cybersecurity , which is in excess of any applicable insurance coverage, that is outside the scope or limits of any applicable insurance coverage, or that is subject to our self-insurance retentions, could have a material effect on our business, results of operations, financial condition, and cash flows and could materially our reputation.
In addition, if our costs of insurance and claims increase, then our earnings could decline. Market rates for insurance premiums and deductibles have been steadily increasing. Our business, results of operations, financial condition and cash flows could be materially and adversely affected by, among other things, the collapse or insolvency of our insurance carriers; further increases in premiums and deductibles; increases in the number of liability claims against us or the cost of settling or trying cases related to those claims; obtaining insurance with exclusions for things such as communicable diseases; or an inability to obtain one or more types of insurance on acceptable terms, if at all.
If we fail to successfully maintain an effective internal control over financial reporting, the integrity of our financial reporting could be compromised, which could have a material adverse effect on our ability to accurately report our financial results, the market's perception of our business and our stock price.
The integration of acquisitions and addition of new business lines into our internal control over financial reporting has required and will continue to require significant time and resources from our management and other personnel and has increased, and is expected to continue to increase, our compliance costs. Failure to maintain an effective internal control environment could have a material adverse effect on our ability to accurately report our financial results, the market's perception of our business and our stock price. In addition, we could be required to restate our financial results in the event of a significant failure of our internal control over financial reporting or in the event of inappropriate application of accounting principles.
Provisions in our organizational documents, our compensation programs and policies and certain requirements under Delaware law may deter changes of control and may make it more difficult for our stockholders to change the composition of our Board of Directors and take other corporate actions that our stockholders would otherwise determine to be in their best interests.
Our organizational documents include provisions that may deter hostile takeovers, delay or prevent changes of control or changes in our management, or limit the ability of our stockholders to approve transactions that they may otherwise determine to be in their best interests. These include provisions prohibiting our stockholders from acting by written consent, advance notice requirements for director nominations and stockholder proposals and granting our Board of Directors the authority to issue preferred stock and to determine the rights and preferences of the preferred stock without the need for further stockholder approval.
Most of our outstanding employee stock-based compensation awards include a provision accelerating the vesting of the awards in the event of a change of control under certain circumstances. These and any other change of control provisions may affect the price an acquirer would be willing to pay for our Company.
We are also subject to Section 203 of the Delaware General Corporation Law that, subject to exceptions, prohibits us from engaging in any business combinations with any interested stockholder, as defined in that section, for a period of three years following the date on which that stockholder became an interested stockholder.
The provisions described above may discourage, delay or prevent an acquisition of our Company at a price that our stockholders may find attractive. These provisions could also make it more difficult for our stockholders to elect directors and take other corporate actions and could limit the price that investors might be willing to pay for shares of our common stock.
