Segment Reporting

12 Months Ended

Dec. 31, 2017

Segment Reporting [Abstract]

Segment Reporting

Segment reporting

The Company has consisted of 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 ancillary services and strategic initiatives, including its international 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 ancillary services and strategic initiatives consist primarily of pharmacy services, disease management services, vascular access services, clinical research programs, physician services, direct primary care, ESRD seamless care organizations and comprehensive care as well as the Company’s international operations.

The Company’s DMG division is a patient- and physician-focused integrated healthcare delivery and management company with over two decades of providing coordinated outcomes-based medical care in a cost-effective manner. On December 5, 2017, the Company entered into an equity purchase agreement to sell its DMG division to Optum, a subsidiary of UnitedHealth Group Inc. The transaction is expected to close in 2018 and is subject to regulatory approval and other customary closing conditions. As a result of this pending transaction, the DMG business has been reclassified as held for sale and its results of operations are reported as discontinued operations for all periods presented in these consolidated financial statements.

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, each of its ancillary services and strategic initiatives, its consolidated international kidney care operations in each country and under the Saudi Ministry of Health charter, its equity method investment in the Asia Pacific joint venture, and its other health operations in Europe. The U.S. dialysis and related lab services business qualifies as a separately reportable segment, and all 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 Company's operating segments. For internal management reporting, segment operations include direct segment operating expenses but generally exclude corporate administrative support costs, which consist primarily of indirect labor, benefits and long-term incentive-based compensation expenses of certain departments which provide support to all of the Company’s various operating lines of business, except to the extent that such costs are charged to and borne by certain ancillary services and strategic initiatives via internal management fees. These corporate administrative support costs are reduced by internal management fees received from the Company’s ancillary lines of business.

The following is a summary of segment revenues, segment operating margin (loss), and a reconciliation of segment operating margin to consolidated income from continuing operations before income taxes:

	Year ended December 31,
	2017			2016			2015
Segment revenues:
U.S. dialysis and related lab services
Patient service revenues:
External sources	$	9,767,123		$	9,524,067		$	9,014,577
Intersegment revenues	55,175			27,355			19,414
Total U.S. dialysis and related lab services revenues	9,822,298			9,551,422			9,033,991
Less: Provision for uncollectible accounts	(482,007		)	(429,882		)	(406,530		)
Net U.S. dialysis and related lab services patient service revenues	9,340,291			9,121,540			8,627,461
Other revenues(1)	19,774			16,649			13,971
Total net U.S. dialysis and related lab services revenues	9,360,065			9,138,189			8,641,432
Other - Ancillary services and strategic initiatives
Net patient service revenues	323,156			201,867			134,496
Other external sources	1,248,588			1,394,766			1,225,731
Intersegment revenues	24,603			24,739			22,204
Total ancillary services and strategic initiatives revenues	1,596,347			1,621,372			1,382,431
Total net segment revenues	10,956,412			10,759,561			10,023,863
Elimination of intersegment revenues	(79,778		)	(52,094		)	(41,618		)
Consolidated net revenues	$	10,876,634		$	10,707,467		$	9,982,245
Segment operating margin (loss):
U.S. dialysis and related lab services	$	2,297,198		$	1,777,014		$	1,259,632
Other—Ancillary services and strategic initiatives	(439,477		)	266,324			(103,901		)
Total segment margin	1,857,721			2,043,338			1,155,731
Reconciliation of segment operating margin to consolidated income from continuing operations before income taxes:
Corporate administrative support	(44,966		)	(13,628		)	(18,965		)
Consolidated operating income	1,812,755			2,029,710			1,136,766
Debt expense	(430,634		)	(414,116		)	(408,380		)
Debt redemption charges	—			—			(48,072		)
Other income	17,665			7,511			8,073
Consolidated income from continuing operations before income taxes	$	1,399,786		$	1,623,105		$	688,387

(1) Includes management fee revenues from providing management and administrative services to dialysis ventures in which the Company owns a noncontrolling interest or which are wholly-owned by third parties.

Depreciation and amortization expense by segment is as follows: 

	Year ended December 31,
	2017		2016		2015
U.S. dialysis and related lab services	$	520,965	$	482,768	$	438,238
Other - Ancillary services and strategic initiatives	38,946		26,729		25,667
	$	559,911	$	509,497	$	463,905

 Subsequent to the issuance of the Company’s fiscal year 2016 consolidated financial statements and their inclusion in its Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2017 (the 2016 10-K), the Company determined that it had misstated its disclosure of segment assets at December 31, 2016 in Note 25 to those consolidated financial statements. This misstatement resulted in an overstatement of "U.S. dialysis and related lab services" segment assets of $338,963 and a corresponding understatement of "Other - ancillary services and strategic initiatives" segment assets of the same amount.  The Company performed an assessment of the materiality of this misstatement and concluded that this misstatement as originally disclosed was not materially misleading in its 2016 consolidated financial statements taken as a whole.  The Company therefore has not amended its financial statements filed on its 2016 10-K to correct this misstatement, but has provided the corrected disclosure here.

Summary of assets by segment is as follows:

	Year ended December 31,
	2017		2016
Segment assets
U.S. dialysis and related lab services (including equity investments of $84,866 and $66,924, respectively)	$	11,776,042	$	11,108,386
Other - Ancillary services and strategic initiatives(1) (including equity investments of $160,668 and $425,115, respectively)	1,410,509		1,434,299
DMG - Held for sale (including equity investments of $10,321 and $10,350, respectively)	5,761,642		6,213,091
Consolidated assets	$	18,948,193	$	18,755,776

(1) Includes approximately $125,932 and $96,396 in 2017 and 2016, respectively, of net property and equipment related to the Company’s international operations.

Expenditures for property and equipment by segment is as follows: 

	Year ended December 31,
	2017		2016		2015
U.S. dialysis and related lab services	$	759,218	$	675,994	$	584,513
Other - Ancillary services and strategic initiatives	50,891		68,702		56,685
DMG - Held for sale	95,141		84,399		66,800
	$	905,250	$	829,095	$	707,998