DaVita Expects $240M CARES Act Payment May Offset COVID-19 Impact

The dialysis provider does not expect a significant impact from the coronavirus outbreak on its Q1 results, which will be released May 5.

DaVita Inc. expects the $240 million that the company received as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act may offset the short-term financial impact of the ongoing coronavirus disease 2019 (COVID-19) outbreak.

The $2 trillion economic stimulus package, signed by President Donald Trump at the end of March, included financial support for hospitals and other healthcare organizations in the face of the ongoing pandemic. So far, the COVID-19 outbreak has infected over 500,000 people in the U.S. and killed more than 20,000, according to the Centers for Disease Control and Prevention.

While commending the federal government for its passage of the CARES Act, DaVita also stated that the suspension of 2% Medicare sequestration from May 1 to the end of the year will increase company revenues by $50 million, according to a filing with the Securities and Exchange Commission Monday morning.

The Denver-based dialysis provider does not expect a significant impact from the coronavirus outbreak on its Q1 results, which will be released May 5.

Related: Dialysis Patients Panic As Financial 'Life Raft' Becomes Unmoored  

DaVita stated that future results could "vary materially" from its previously issued guidance, adding that the company "cannot reasonably estimate the ultimate impact COVID-19 will have on us," though the effects could be material.

The company laid out four potential impacts on the bottom line as a result of the pandemic, including higher salary and wage expenses due to increased hours and overtime worked by clinical care staffers, increased supply costs associated with elevated demand for personal protective equipment, revenue pressures due to low treatment volumes, and the reduced share of patients being covered by commercial insurers.

S&P Global Ratings posted a note regarding DaVita's filing, estimating that treatment volume shifts would reduce the company's operating income by $170 million to $240 million.

S&P added that if the company suffered a $220 million reduction in free cash flow for 2021, then the company's share repurchases could not exceed $600 million for the next two years in order for DaVIta to maintain its adjusted leverage of below 4x by the end of 2021.

"There are mitigants, though. DaVita has a good track record in managing its cost structure when facing revenue pressure. The CARES Act will also provide one-time benefits," the report stated. "We could lower our rating if we lose confidence that DaVita will maintain adjusted leverage below 4x on a sustained basis."

Related: A Quarter of Rural Hospitals at 'High Risk' of Closure, COVID-19 Likely to Make it Worse

In fiscal year 2019, DaVita recorded total revenues of $11.3 billion, down slightly year-over-year but boosted by $811 million in net income.

The company posted an operating income of $1.6 billion for 2019 with an adjusted operating income of $1.76 billion, which was within DaVita's projected range.

Related: Year-end Revenues Plateau but Net Income Spikes for DaVita  

Editor's note: This story has been updated to include commentary from S&P Global Ratings.