| Segment reporting |
The Company operates two major divisions, DaVita Kidney Care (Kidney Care) and DaVita Medical Group (DMG). The Kidney Care division is comprised of the Company’s U.S. dialysis and related lab services business, various other ancillary services and strategic initiatives, including its international dialysis operations, and the Company’s corporate administrative support. The Company’s U.S. dialysis and related lab services business is its largest line of business, and is a leading provider of kidney dialysis services in the U.S. for patients suffering from chronic kidney failure, also known as ESRD. The Company’s DMG division is a patient- and physician-focused integrated health care delivery and management company with over two decades of providing coordinated outcomes-based medical care in a cost-effective manner.
The Company’s ancillary services and strategic initiatives consist primarily of pharmacy services, disease management services, vascular access services, clinical research programs, physician services, direct primary care and the Company’s international dialysis operations.
The Company’s operating segments have been defined based on the separate financial information that is regularly produced and reviewed by the Company’s chief operating decision maker in making decisions about allocating resources to and assessing the financial performance of the Company’s various operating lines of business. The chief operating decision maker for the Company is its Chief Executive Officer.
The Company’s separate operating segments include its U.S. dialysis and related lab services business, its DMG operations in each region, each of its ancillary services and strategic initiatives, and its consolidated international operations in the European and Middle Eastern, Latin America, and Asia Pacific markets, and under the Saudi Ministry of Health charter. The U.S. dialysis and related lab services business and the DMG business each qualify as separately reportable segments, and all of the other ancillary services and strategic initiatives operating segments, including the international operating segments, have been combined and disclosed in the other segments category.
The Company’s operating segment financial information included in this report is prepared on the internal management reporting basis that the chief operating decision maker uses to allocate resources and assess the financial performance of the operating segments. For internal management reporting, segment operations include direct segment operating expenses but exclude corporate administrative support costs, which consist primarily of indirect labor, benefits and long-term incentive based compensation of certain departments which provide support to all of the Company’s various operating lines of business. Corporate administrative support costs are reduced by internal management fees received from the Company’s ancillary lines of businesses.
The following is a summary of segment net revenues, segment operating margin (loss), and a reconciliation of segment operating margin to consolidated income before income taxes:
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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2016 |
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2015 |
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2016 |
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2015 |
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Segment net revenues: |
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U.S. dialysis and related lab services |
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Patient service revenues: |
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External sources |
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$ |
2,412,818 |
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$ |
2,287,329 |
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$ |
7,079,054 |
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$ |
6,679,251 |
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Intersegment revenues |
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16,040 |
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13,630 |
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44,819 |
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39,078 |
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Total dialysis and related lab services revenues |
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2,428,858 |
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2,300,959 |
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7,123,873 |
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6,718,329 |
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Less: Provision for uncollectible accounts |
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(109,299 |
) |
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(103,543 |
) |
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(320,565 |
) |
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(302,324 |
) |
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Net dialysis and related lab services patient
service revenues |
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2,319,559 |
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2,197,416 |
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6,803,308 |
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6,416,005 |
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Other revenues(1) |
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3,912 |
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3,490 |
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12,134 |
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10,214 |
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Total net dialysis and related lab services
revenues |
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2,323,471 |
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2,200,906 |
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6,815,442 |
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6,426,219 |
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DMG |
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DMG revenues: |
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Capitated revenues |
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846,245 |
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906,478 |
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2,586,383 |
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2,587,545 |
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Net patient service revenues |
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153,089 |
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78,938 |
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417,634 |
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241,385 |
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Other revenues(2) |
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28,728 |
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15,536 |
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72,354 |
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66,124 |
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Intersegment capitated and other revenues |
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75 |
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84 |
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189 |
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96 |
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Total net DMG revenues |
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1,028,137 |
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1,001,036 |
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3,076,560 |
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2,895,150 |
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Other—Ancillary services and strategic initiatives |
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Net patient service revenues |
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57,498 |
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41,858 |
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165,742 |
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116,535 |
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Capitated revenues |
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23,045 |
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20,369 |
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67,780 |
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56,007 |
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Other external sources |
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314,540 |
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275,210 |
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948,847 |
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793,511 |
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Intersegment revenues |
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16,642 |
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7,385 |
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43,189 |
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18,079 |
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Total ancillary services and strategic
initiatives revenues |
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411,725 |
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344,822 |
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1,225,558 |
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984,132 |
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Total net segment revenues |
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3,763,333 |
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3,546,764 |
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11,117,560 |
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10,305,501 |
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Elimination of intersegment revenues |
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(32,757 |
) |
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(21,099 |
) |
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(88,197 |
) |
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(57,253 |
) |
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Consolidated net revenues |
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$ |
3,730,576 |
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$ |
3,525,665 |
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$ |
11,029,363 |
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$ |
10,248,248 |
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Segment operating margin (loss): |
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U.S. dialysis and related lab services |
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$ |
452,187 |
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$ |
461,899 |
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$ |
1,341,432 |
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$ |
795,255 |
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DMG |
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33,094 |
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82,562 |
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(126,110 |
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215,192 |
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Other—Ancillary services and strategic initiatives |
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361,903 |
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(30,118 |
) |
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338,159 |
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(70,153 |
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Total segment operating margin |
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847,184 |
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514,343 |
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1,553,481 |
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940,294 |
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Reconciliation of segment operating margin to
consolidated income before income taxes: |
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Corporate administrative support(3) |
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(28,028 |
) |
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(4,975 |
) |
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(40,366 |
) |
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(14,534 |
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Consolidated operating income |
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819,156 |
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509,368 |
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1,513,115 |
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925,760 |
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Debt expense |
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(104,581 |
) |
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(103,481 |
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(310,359 |
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(305,121 |
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Debt redemption and refinancing charges |
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— |
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— |
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— |
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(48,072 |
) |
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Other income, net |
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1,876 |
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2,484 |
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8,067 |
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4,262 |
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Consolidated income before income taxes |
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$ |
716,451 |
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$ |
408,371 |
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$ |
1,210,823 |
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$ |
576,829 |
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(1) |
Includes management fees for providing management and administrative services to dialysis centers that are wholly-owned by third parties and legal entities in which the Company owns a noncontrolling equity investment. |
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(2) |
Includes medical consulting service fees and management fees for providing management and administrative services to unconsolidated joint ventures, as well as revenue related to the maintenance of existing physician networks. |
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(3) |
Corporate administrative support costs also include $27,040 of an adjustment to reduce a receivable associated with the DMG acquisition escrow provision relating to an income tax item. |
Depreciation and amortization expense by reportable segment is as follows:
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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2016 |
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2015 |
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2016 |
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2015 |
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U.S. dialysis and related lab services |
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$ |
122,540 |
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$ |
111,828 |
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$ |
358,427 |
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$ |
326,281 |
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DMG |
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52,595 |
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43,523 |
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153,068 |
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129,890 |
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Ancillary services and strategic initiatives |
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6,604 |
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6,711 |
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19,980 |
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18,523 |
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$ |
181,739 |
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$ |
162,062 |
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$ |
531,475 |
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$ |
474,694 |
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Summary of assets by reportable segment is as follows:
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September 30, |
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December 31, |
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2016 |
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2015 |
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Segment assets |
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U.S. dialysis and related lab services (including equity
investments of $41,624 and $34,801, respectively) |
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$ |
11,460,732 |
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$ |
11,591,507 |
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DMG (including equity investments of $11,293 and $22,714,
respectively) |
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6,218,912 |
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6,150,666 |
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Other—Ancillary services and strategic initiatives (including
equity investments of $463,466 and $20,853, respectively) |
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1,246,009 |
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772,702 |
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Consolidated assets |
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$ |
18,925,653 |
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$ |
18,514,875 |
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Expenditures for property and equipment by reportable segment is as follows:
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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2016 |
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2015 |
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2016 |
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2015 |
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U.S. dialysis and related lab services |
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$ |
182,741 |
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$ |
138,683 |
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$ |
467,121 |
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$ |
385,734 |
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DMG |
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17,396 |
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18,885 |
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55,639 |
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36,870 |
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Ancillary services and strategic initiatives |
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16,479 |
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13,772 |
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52,483 |
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|
39,609 |
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$ |
216,616 |
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$ |
171,340 |
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$ |
575,243 |
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$ |
462,213 |
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