<SUBMISSION>
<ACCESSION-NUMBER>0000898430-01-501931
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20010630
<FILING-DATE>20010815
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>DAVITA INC
<CIK>0000927066
<ASSIGNED-SIC>8090
<IRS-NUMBER>510354549
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-04034
<FILM-NUMBER>1714523
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>21250 HAWTHORNE BLVD
<STREET2>SIE 800
<CITY>TORRANCE
<STATE>CA
<ZIP>90503-5517
<PHONE>3107922600
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>21250 HAWTHORNE BLVD SUITE 800
<STREET2>21250 HAWTHORNE BLVD SUITE 800
<CITY>TORRANCE
<STATE>CA
<ZIP>90503-5517
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>TOTAL RENAL CARE HOLDINGS INC
<DATE-CHANGED>19950524
</FORMER-COMPANY>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>TOTAL RENAL CARE INC
<DATE-CHANGED>19940719
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d10q.txt
<DESCRIPTION>FORM 10-Q FOR PERIOD ENDED 6/30/2001
<TEXT>
<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q

                      For the Quarter Ended June 30, 2001

            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number: 1-4034

                                  DAVITA INC.
                 (Former name: Total Renal Care Holdings, Inc.)

                        21250 Hawthorne Blvd., Suite 800
                        Torrance, California 90503-5517
                           Telephone # (310) 792-2600

<TABLE>
<S>                                            <C>
                  Delaware                                       51-0354549
          (State of incorporation)                  (I.R.S. employer identification no.)
</TABLE>

   The Registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.

   As of August 1, 2001, there were 84,302,734 shares of the Registrant's
common stock (par value $0.001) issued and outstanding.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                                  DAVITA INC.

                                     INDEX

<TABLE>
<CAPTION>
                                                                        Page No.
                                                                        --------
                         PART I. FINANCIAL INFORMATION

 <C>     <S>                                                            <C>
 Item 1. Condensed Consolidated Financial Statements:

         Consolidated Balance Sheets as of June 30, 2001 and December
         31, 2000....................................................       1

         Consolidated Statements of Income and Comprehensive Income
          for the three and six months ended June 30, 2001 and June
          30, 2000...................................................       2

         Consolidated Statements of Cash Flows for the six months
          ended June 30, 2001 and June 30, 2000......................       3

         Notes to Condensed Consolidated Financial Statements........       4

         Management's Discussion and Analysis of Financial Condition
 Item 2. and Results of Operations...................................      12

 Item 3. Quantitative and Qualitative Disclosures About Market Risk..      15

 Risk Factors.........................................................     16

                           PART II. OTHER INFORMATION

 Item 1. Legal Proceedings...........................................      20

 Item 4. Submission of Matters to a Vote of Security Holder..........      20

 Item 6. Exhibits and Reports on Form 8-K............................      20

 Signatures...........................................................     22
</TABLE>
--------
Note: Items 2, 3, and 5 of Part II are omitted because they are not applicable.

                                       i
<PAGE>

                                  DAVITA INC.

                          CONSOLIDATED BALANCE SHEETS
                                  (unaudited)
                 (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                        June 30,   December 31,
                                                          2001         2000
                                                       ----------  ------------

<S>                                                    <C>         <C>
                        ASSETS
                        ------

Cash and cash equivalents............................. $   85,258   $   31,207
Accounts receivable, less allowance of $53,551 and
 $61,619..............................................    297,907      290,412
Inventories...........................................     44,604       20,641
Other current assets..................................     12,726       10,293
Income taxes receivable...............................                   2,830
Deferred income taxes.................................     42,846       42,492
                                                       ----------   ----------
    Total current assets..............................    483,341      397,875
Property and equipment, net...........................    241,538      236,659
Intangible assets, net................................    945,821      921,623
Investments in third-party dialysis businesses........     11,206       34,194
Other long-term assets................................      2,117        1,979
Deferred income taxes.................................                   4,302
                                                       ----------   ----------
                                                       $1,684,023   $1,596,632
                                                       ==========   ==========

         LIABILITIES AND SHAREHOLDERS' EQUITY
         ------------------------------------

Accounts payable...................................... $   79,227   $   74,882
Other current liabilities.............................    116,066      102,563
Accrued compensation and benefits.....................     83,166       70,406
Current portion of long-term debt.....................     15,419        1,676
Income taxes payable..................................        689
                                                       ----------   ----------
    Total current liabilities.........................    294,567      249,527
Long-term debt........................................    935,247      974,006
Other long-term liabilities...........................      4,984        4,855
Deferred income taxes.................................        521
Minority interests....................................     21,125       18,876
Shareholders' equity:
  Preferred stock ($0.001 par value; 5,000,000 shares
   authorized; none issued or outstanding)............
  Common stock ($0.001 par value, 195,000,000 shares
   authorized; 84,135,381 and 82,135,634 shares issued
   and outstanding)...................................         84           82
  Additional paid-in capital..........................    450,817      430,676
  Notes receivable from shareholders..................                     (83)
  Treasury stock, at cost (126,000 shares)............     (2,494)
  Accumulated deficit.................................    (20,828)     (81,307)
                                                       ----------   ----------
    Total shareholders' equity........................    427,579      349,368
                                                       ----------   ----------
                                                       $1,684,023   $1,596,632
                                                       ==========   ==========
</TABLE>

           See notes to condensed consolidated financial statements.

                                       1
<PAGE>

                                  DAVITA INC.

           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                  (unaudited)
                 (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                     Three months ended    Six months ended
                                          June 30,             June 30,
                                     -------------------  -------------------
                                       2001      2000       2001      2000
                                     --------  ---------  --------  ---------
<S>                                  <C>       <C>        <C>       <C>
Net operating revenues.............. $400,640  $ 378,908  $786,857  $ 751,021
Operating expenses:
  Dialysis centers and labs.........  271,545    267,714   532,519    527,012
  General and administrative........   32,417     31,619    64,230     63,540
  Depreciation and amortization.....   26,624     29,670    52,772     57,388
  Provision for uncollectible
   accounts.........................     (378)    12,648    (8,563)    25,507
  Impairment and valuation
   adjustments......................               4,414                4,414
                                     --------  ---------  --------  ---------
    Total operating expenses........  330,208    346,065   640,958    677,861
                                     --------  ---------  --------  ---------
Operating income....................   70,432     32,843   145,899     73,160
Other income (loss), net............    1,120    (11,984)    2,468    (10,589)
Debt expense........................   18,715     34,482    38,439     67,647
Minority interests in income of
 consolidated subsidiaries..........   (2,269)    (1,023)   (4,726)    (2,021)
                                     --------  ---------  --------  ---------
Income (loss) before income taxes
 and extraordinary item.............   50,568    (14,646)  105,202     (7,097)
Income tax expense..................   22,000        709    45,700      4,411
                                     --------  ---------  --------  ---------
Income (loss) before extraordinary
 item...............................   28,568    (15,355)   59,502    (11,508)
Extraordinary gain related to early
 extinguishment of debt, net of tax
 of $652............................      977                  977
                                     --------  ---------  --------  ---------
    Net income (loss)............... $ 29,545  $(15,355)  $ 60,479  $(11,508)
                                     ========  =========  ========  =========
Earnings (loss) per common share--
 basic:
  Income (loss) before extraordinary
   item............................. $   0.34  $   (0.19) $   0.72  $   (0.14)
  Extraordinary gain, net of tax....     0.01                 0.01
                                     --------  ---------  --------  ---------
    Net income (loss)............... $   0.35  $   (0.19) $   0.73  $   (0.14)
                                     ========  =========  ========  =========
Earnings (loss) per common share--
 assuming dilution:
  Income (loss) before extraordinary
   item............................. $   0.32  $   (0.19) $   0.67  $   (0.14)
  Extraordinary gain, net of tax....     0.01                 0.01
                                     --------  ---------  --------  ---------
    Net income (loss)............... $   0.33  $   (0.19) $   0.68  $   (0.14)
                                     ========  =========  ========  =========
Comprehensive income:
  Net income (loss)................. $ 29,545  $ (15,355) $ 60,479  $ (11,508)
  Foreign currency translation......               4,718                4,718
                                     --------  ---------  --------  ---------
  Comprehensive income (loss)....... $ 29,545  $ (10,637) $ 60,479  $  (6,790)
                                     ========  =========  ========  =========
</TABLE>


           See notes to condensed consolidated financial statements.


                                       2
<PAGE>

                                  DAVITA INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                          Six months ended
                                                              June 30,
                                                        ----------------------
                                                           2001        2000
                                                        -----------  ---------
<S>                                                     <C>          <C>
Cash flows from operating activities:
  Net income (loss).................................... $    60,479  $ (11,508)
  Adjustments to reconcile net income to cash provided
   by operating activities:
    Depreciation and amortization......................      52,772     57,388
    Impairment and valuation losses....................                  4,414
    Loss (gain) on divestitures........................         362     (2,107)
    Deferred income taxes..............................       4,469      6,057
    Non-cash debt expense..............................       1,155      1,720
    Stock option expense and tax benefits..............       9,931        941
    Equity investment losses (income)..................      (1,070)       821
    Foreign currency translation loss..................                  4,718
    Minority interests in income of consolidated
     subsidiaries......................................       4,726      2,021
    Extraordinary gain.................................        (977)
  Changes in operating assets and liabilities, net of
   acquisitions and divestitures:
    Accounts receivable................................      (2,368)    37,016
    Inventories........................................     (23,456)     9,959
    Other current assets...............................        (957)     4,740
    Other long-term assets.............................         137      2,200
    Accounts payable...................................       4,031    (30,236)
    Accrued compensation and benefits..................       9,143      6,175
    Other current liabilities..........................      13,485     (2,593)
    Income taxes.......................................       2,767     19,789
    Other long-term liabilities........................         129        674
                                                        -----------  ---------
      Net cash provided by operating activities........     134,758    112,189
                                                        -----------  ---------
Cash flows from investing activities:
  Additions of property and equipment, net.............     (18,583)   (24,651)
  Acquisitions and divestitures, net...................     (51,124)   147,300
  Investments in affiliates, net.......................      20,646     (3,283)
  Intangible assets....................................         (10)      (381)
                                                        -----------  ---------
      Net cash provided by (used in) investing
       activities......................................     (49,071)   118,985
                                                        -----------  ---------
Cash flows from financing activities:
  Borrowings...........................................   1,305,824
  Payments on long-term debt...........................  (1,331,617)  (143,117)
  Deferred financing costs.............................      (9,972)    (1,092)
  Net proceeds from issuance of common stock...........      10,295        263
  Distributions to minority interests..................      (3,672)    (4,537)
  Purchase of treasury shares..........................      (2,494)
                                                        -----------  ---------
      Net cash used in financing activities............     (31,636)  (148,483)
                                                        -----------  ---------
Net increase in cash...................................      54,051     82,691
Cash and cash equivalents at beginning of period.......      31,207    107,981
                                                        -----------  ---------
Cash and cash equivalents at end of period............. $    85,258  $ 190,672
                                                        ===========  =========
</TABLE>

           See notes to condensed consolidated financial statements.

                                       3
<PAGE>

                                  DAVITA INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)
                 (dollars in thousands, except per share data)

   Unless otherwise indicated in this Form 10-Q "the Company", "we", "us",
"our" and similar terms refer to DaVita Inc. and its subsidiaries.

1. Condensed consolidated interim financial statements

   The condensed consolidated interim financial statements included in this
report have been prepared by the Company without audit. In the opinion of
management, all adjustments necessary for a fair presentation are reflected in
these interim financial statements. These adjustments are of a normal and
recurring nature. The results of operations for the periods ended June 30,
2001 are not necessarily indicative of the operating results for the full
year. The interim financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's 2000 Form 10-K as amended by Form 10-K/A. Certain reclassifications
have been made to prior periods to conform with current reporting.

2. Earnings per share calculation

   The reconciliation of the numerators and denominators used to calculate
earnings per common share for the periods presented are as follows (shares in
000's):

<TABLE>
<CAPTION>
                                              Three months
                                                 ended        Six months ended
                                                June 30,          June 30,
                                            ----------------  ----------------
                                             2001     2000     2001     2000
                                            ------- --------  ------- --------
<S>                                         <C>     <C>       <C>     <C>
Basic:
  Net income............................... $29,545 $(15,355) $60,479 $(11,508)
                                            ======= ========  ======= ========
  Weighted average number of shares
   outstanding during the period...........  83,548   81,479   82,997   81,415
  Reduction in shares in connection with
   notes receivable from employees.........              (41)              (39)
                                            ------- --------  ------- --------
  Weighted average number of shares
   outstanding for earnings per share--
   basic...................................  83,548   81,438   82,997   81,376
                                            ======= ========  ======= ========
  Earnings per share--basic................ $  0.35 $  (0.19) $  0.73 $  (0.14)
                                            ======= ========  ======= ========
Assuming dilution:
  Net income............................... $29,545 $(15,355) $60,479 $(11,508)
  Debt expense, net of tax, resulting from
   dilutive effect of convertible debt.....   1,055             2,111
                                            ------- --------  ------- --------
    Net income--assuming dilution.......... $30,600 $(15,355) $62,590 $(11,508)
                                            ======= ========  ======= ========
  Weighted average number of shares
   outstanding for earnings per share--
   basic...................................  83,548   81,438   82,997   81,376
    Incremental shares from stock option
     plans.................................   4,266             4,386
    Incremental shares from convertible
     debt..................................   4,879             4,879
                                            ------- --------  ------- --------
  Weighted average outstanding and
   incremental shares for earnings per
   share--assuming dilution................  92,693   81,438   92,262   81,376
                                            ======= ========  ======= ========
  Earnings per share--assuming dilution.... $  0.33 $  (0.19) $  0.68 $  (0.14)
                                            ======= ========  ======= ========
</TABLE>

                                       4
<PAGE>

                                  DAVITA INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   For the three and six months ended June 30, 2001, the calculation of
earnings per share assuming dilution includes conversion of the 5 5/8%
convertible subordinated notes, but does not include conversion of the 7%
convertible subordinated notes as they were anti-dilutive. For the three and
six months ended June 30, 2000, both the 7% convertible subordinated notes and
the 5 5/8% convertible subordinated notes were anti-dilutive and therefore not
included in the computation of earnings per share assuming dilution.

   Shares associated with stock options that have exercise prices greater than
the average market price of shares outstanding during the period, which were
not included in the computation of earnings per share assuming dilution, as
they were anti-dilutive, are as follows:

<TABLE>
<CAPTION>
                                                   Three months   Six months
                                                    ended June    ended June
                                                        30,           30,
                                                   ------------- -------------
                                                    2001   2000   2001   2000
                                                   ------ ------ ------ ------
<S>                                                <C>    <C>    <C>    <C>
Shares associated with stock options not included
 in computation (shares in 000's).................  1,544  9,729  1,637  9,729
Exercise price range of shares not included in
 computation:
  Low............................................. $18.10 $ 3.92 $17.44 $ 4.07
  High............................................ $33.00 $36.13 $33.00 $36.13
</TABLE>

3. Debt transactions

   On April 6, 2001 the Company completed the issuance of $225,000 9 1/4%
Senior Subordinated Notes in a private offering. The Notes mature on April 15,
2011 and will be callable by the Company on or after April 15, 2006. Net
proceeds of $219,375 from the offering were used to pay down amounts
outstanding under the Company's then-existing senior credit facilities. In
August 2001 these notes were exchanged for a series of notes with identical
terms that had been registered under the Securities Act of 1933.

   On May 4, 2001 the Company completed a refinancing of its existing senior
credit facilities. Proceeds from this refinancing were used to pay down
$222,925, representing all outstanding amounts under the then-existing senior
credit facilities. The new credit facilities consist of a Term A loan of
$50,000, a Term B loan of $200,000 and a $150,000 undrawn revolving credit
facility. The starting interest rate for both the Term A and B loans was LIBOR
plus 2.75%, a decrease of 0.25% and 1.0%, respectively, from the previous term
loan rates. The Term A loan and revolver interest rates are subject to
increases or decreases based on changes in our leverage ratio. The new term
loan facilities are also subject to aggregate quarterly principal amortization
of $3,000 for the next five years. The entire facility is due in 2006 with an
automatic one year extension of the Term B loan if our $125,000 5 5/8%
subordinated convertible notes have been extended or converted by March 2006.

   As a result of these transactions, the write-off of deferred financing
costs and accelerated recognition of deferred swap liquidation gains
associated with the refinanced debt are reported as a net extraordinary gain
of $977 for the quarter ended June 30, 2001.

                                       5
<PAGE>

                                  DAVITA INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Long-term debt was comprised of the following:

<TABLE>
<CAPTION>
                                                         June 30,  December 31,
                                                           2001        2000
                                                         --------  ------------
   <S>                                                   <C>       <C>
   Senior secured credit facilities..................... $244,000    $498,800
   Senior subordinated notes, 9 1/4%, due 2011..........  225,000
   Convertible subordinated notes, 7%, due 2009.........  345,000     345,000
   Convertible subordinated notes, 5 5/8%, due 2006.....  125,000     125,000
   Acquisition obligations and other notes payable......    5,444         829
   Capital lease obligations............................    6,222       6,053
                                                         --------    --------
                                                          950,666     975,682
   Less current portion.................................  (15,419)     (1,676)
                                                         --------    --------
                                                         $935,247    $974,006
                                                         ========    ========
</TABLE>

   Scheduled maturities of long-term debt at June 30, 2001 were as follows:

<TABLE>
     <S>                                                                 <C>
     2001...............................................................   3,913
     2002...............................................................  18,064
     2003...............................................................  12,856
     2004...............................................................  12,365
     2005...............................................................  12,242
     2006............................................................... 318,288
     Thereafter......................................................... 572,938
</TABLE>

4. Provision for uncollectible accounts

   The provision for uncollectible accounts for the three and six months ended
June 30, 2001 includes cash recoveries of $8,944 and $24,944, respectively,
associated with aged accounts receivable that had been written-off in 1999.

5. Contingencies

   Health care provider revenues may be subject to adjustment as a result of
(1) examination by government agencies or contractors, for which the
resolution of any matters raised may take extended periods of time to
finalize; (2) differing interpretations of government regulations by different
fiscal intermediaries; (3) differing opinions regarding a patient's medical
diagnosis or the medical necessity of services provided; and (4) retroactive
applications or interpretations of governmental requirements.

   The Company's Florida-based laboratory subsidiary is the subject of a
third-party carrier review of its Medicare reimbursement claims. The carrier
has issued formal overpayment determinations in the amount of $5,600 for the
review period from January 1995 to April 1996, and $15,000 for the review
period from May 1996 to March 1998. The carrier has suspended all payments of
Medicare claims from this laboratory since May 1998. The carrier has also
determined that $16,100 of the suspended claims for the review period from
April 1998 to August 1999 and $11,600 of the suspended claims for the review
period from August 1999 to May 2000 were not properly supported by the
prescribing physicians' medical justification. The carrier has alleged that
99% of the tests the laboratory performed during the review period from
January 1995 to April 1996, 96% of the tests performed in the period from May
1996 to March 1998, 70% of the tests performed in the period from April 1998
to August 1999, and 72% of the tests performed in the period from August 1999
to May 2000 were not properly supported by the prescribing physicians' medical
justification.

                                       6
<PAGE>

                                  DAVITA INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company is disputing the overpayment determinations and has provided
supporting documentation of its claims. The Company has initiated the process
of a formal review of each of the carrier's determinations. The first step in
this formal review process is a hearing before a hearing officer at the
carrier. The Company has received minimal responses from the carrier to its
repeated requests for clarification and information regarding the continuing
payment suspension. The hearing regarding the initial review period from
January 1995 to April 1996 was held in July 1999. In January 2000 the hearing
officer issued a decision upholding the overpayment determination of $5,600.
The hearing regarding the second review period from May 1996 to March 1998 was
held in April 2000. In July 2000 the hearing officer issued a decision
upholding $14,200, or substantially all of the overpayment determination. The
Company has filed appeals of both decisions to a federal administrative law
judge, who has consolidated the two appeals at the Company's request. The
Company has received a request for additional information from the
administrative law judge. The Company expects to provide the requested
information in the third quarter of 2001. A hearing will be scheduled after
the administrative law judge receives this information.

   In addition to the formal appeal process with a federal administrative law
judge, beginning in the third quarter of 1999 we sought a meeting with the
Department of Justice, or DOJ, to begin a process to resolve this matter. The
carrier had previously informed the local office of the DOJ and HHS of this
matter, and we had provided requested information to the DOJ. The Company met
with the DOJ in February 2001 at which time the DOJ requested additional
information, which the Company is providing.

   Timing of the final resolution of this matter is highly uncertain, and
beyond the Company's control or influence. Beginning in the third quarter of
2000, the Company stopped recognizing Medicare revenue from this laboratory
until the uncertainties regarding both the timing of resolution and the
ultimate revenue valuations are at least substantially eliminated. The amount
of potential Medicare revenue not accrued beginning in the third quarter of
2000 was approximately $4,000 per quarter. We estimate that the potential cash
exposure as of June 30, 2001 is not more than $10,000 based on the carrier's
overpayment findings noted above. If this matter is resolved in a manner
adverse to the Company, the government could impose additional fines and
penalties, which could be substantial.

   In February 2001, the Civil Division of the United States Attorney's Office
for the Eastern District of Pennsylvania contacted us and requested that the
Company cooperate in a review of some of our historical practices, including
billing and other operating procedures and our financial relationships with
physicians. The Civil Division has requested that we provide a wide range of
information responding to the areas of review. The Civil Division has not
initiated any legal process or served any subpoena on the Company. The Civil
Division has indicated that it is not making any allegation of wrongdoing at
this time and that no criminal action against the Company or any individual is
contemplated. The Company is cooperating in this review. The inquiry appears
to be at an early stage. As it proceeds, the Civil Division could expand its
areas of concern. If a court determines there has been wrongdoing, the
penalties under applicable statutes could be substantial.

   In addition to the foregoing, DaVita is subject to claims and suits in the
ordinary course of business. Management believes that the ultimate resolution
of these additional matters, whether the underlying claims are covered by
insurance or not, will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.

6. Recent accounting pronouncements

   In July 2001 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and SFAS 142, Goodwill and Other Intangible Assets which will be
effective July 1, 2001 and January 1, 2002, respectively, for the Company.

                                       7
<PAGE>

                                  DAVITA INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated or completed after June 30, 2001. Under SFAS
142, amortization of goodwill and other indefinite-lived intangible assets,
including any such intangibles recorded in past business combinations, will be
discontinued beginning January 1, 2002. In addition, goodwill and other
indefinite-lived intangible assets recorded as a result of business
combinations completed during the six-month period ending December 31, 2001
will not be amortized.

   Under the new standards, goodwill and other indefinite-lived intangible
assets will be written down with a goodwill impairment charge against current
earnings whenever the recorded values exceed their fair values. As with
goodwill amortization, such goodwill charges would not directly affect cash
flows. The Company is currently reviewing the provisions of SFAS 141 and SFAS
142 and assessing the impact of their adoption.

7. Condensed consolidating financial statements

   The following information is presented as required under the Securities and
Exchange Commission's Financial Reporting Release No. 55 in connection with
the Company's publicly traded debt. The operating and investing activities of
the separate legal entities included in the consolidated financial statements
are fully interdependent and integrated. Revenues and operating expenses of
the separate legal entities include intercompany charges for management and
other services. Other income (loss) for the six months ended June 30, 2001
includes intercompany interest charges in accordance with the intercompany
debt agreements in effect at June 30, 2001.

   The $125,000 5 5/8% Convertible Subordinated Notes due 2006, issued by the
wholly-owned subsidiary Renal Treatment Centers, Inc., or RTC, are guaranteed
by DaVita Inc. The $225,000 9 1/4% Senior Subordinated Notes issued in April
2001 by DaVita Inc. are guaranteed by all of its wholly-owned domestic
subsidiaries. Non-wholly-owned subsidiaries, joint ventures and partnerships
are not guarantors of either obligation.

                                       8
<PAGE>

                                  DAVITA INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


                     Condensed Consolidating Balance Sheets

<TABLE>
<CAPTION>
                                       Wholly-owned
                                       subsidiaries
                                     -----------------
                            DaVita              All     Non-participating Consolidating
                             Inc.      RTC     others     subsidiaries     adjustments  Consolidated
                          ---------- -------- --------  ----------------- ------------- ------------
<S>                       <C>        <C>      <C>       <C>               <C>           <C>
As of June 30, 2001
Cash and cash
 equivalents............  $   75,065 $      7 $ 10,186                                   $   85,258
Accounts receivable,
 net....................               89,839  178,706      $ 29,362                        297,907
Other current assets....       1,533   14,307   82,306         2,030                        100,176
                          ---------- -------- --------      --------       -----------   ----------
 Total current assets...      76,598  104,153  271,198        31,392                        483,341
Property and equipment,
 net....................       8,713   56,465  152,117        24,243                        241,538
Investments in
 subsidiaries...........     252,411                                       $  (252,411)
Receivables from
 subsidiaries...........     894,483                                          (894,483)
Intangible assets, net..      20,080  289,050  520,648       116,043                        945,821
Other assets............       7,366    4,712    1,201            44                         13,323
                          ---------- -------- --------      --------       -----------   ----------
 Total assets...........  $1,259,651 $454,380 $945,164      $171,722       $(1,146,894)  $1,684,023
                          ========== ======== ========      ========       ===========   ==========
Current liabilities.....      26,937   21,809  241,352         4,469                        294,567
Payables to
 subsidiaries/parent....              116,291  747,822        30,370          (894,483)
Long-term liabilities...     805,135  125,151    5,327         5,139                        940,752
Minority interests......                                                        21,125       21,125
Shareholders' equity....     427,579  191,129  (49,337)      131,744          (273,536)     427,579
                          ---------- -------- --------      --------       -----------   ----------
 Total liabilities and
  shareholders' equity..  $1,259,651 $454,380 $945,164      $171,722       $(1,146,894)  $1,684,023
                          ========== ======== ========      ========       ===========   ==========

As of December 31, 2000
Cash and cash
 equivalents............  $   16,553 $  1,871 $ 12,783                                   $   31,207
Accounts receivable,
 net....................               83,313  180,263      $ 26,836                        290,412
Other current assets....       2,014   15,967   55,947         2,328                         76,256
                          ---------- -------- --------      --------       -----------   ----------
 Total current assets...      18,567  101,151  248,993        29,164                        397,875
Property and equipment,
 net....................       5,377   61,686  146,959        22,637                        236,659
Investments in
 subsidiaries...........     199,079                                       $  (199,079)
Receivables from
 subsidiaries...........     938,183                                          (938,183)
Intangible assets, net..       9,548  299,813  493,946       118,316                        921,623
Other assets............      37,692    2,146      593            44                         40,475
                          ---------- -------- --------      --------       -----------   ----------
 Total assets...........  $1,208,446 $464,796 $890,491      $170,161       $(1,137,262)  $1,596,632
                          ========== ======== ========      ========       ===========   ==========
Current liabilities.....      15,278   23,996  206,275         3,978                        249,527
Payables to
 subsidiaries/parent....              146,877  746,892        44,414          (938,183)
Long-term liabilities...     843,800  125,000    5,311         4,750                        978,861
Minority interests......                                                        18,876       18,876
Shareholders' equity....     349,368  168,923  (67,987)      117,019          (217,955)     349,368
                          ---------- -------- --------      --------       -----------   ----------
Total liabilities and
 shareholders' equity...  $1,208,446 $464,796 $890,491      $170,161       $(1,137,262)  $1,596,632
                          ========== ======== ========      ========       ===========   ==========
</TABLE>

                                       9
<PAGE>

                                  DAVITA INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


                  Condensed Consolidating Statements of Income

<TABLE>
<CAPTION>
                                         Wholly-owned
                                         subsidiaries          Non-
                                      -------------------- participating Consolidating
                          DaVita Inc.   RTC     All others subsidiaries   adjustments  Consolidated
                          ----------- --------  ---------- ------------- ------------- ------------
<S>                       <C>         <C>       <C>        <C>           <C>           <C>
For the six months ended
 June 30, 2001
Net operating revenues..   $ 65,271   $253,247   $440,793     $89,822      $(62,276)     $786,857
Operating expenses......     37,347    210,732    387,302      67,853       (62,276)      640,958
                           --------   --------   --------     -------      --------      --------
 Operating income.......     27,924     42,515     53,491      21,969                     145,899
Other income (loss),
 net....................     39,519        (43)  (37,008)                                   2,468
Debt expense............     34,730      3,446     (2,361)      2,624                      38,439
Minority interests......                                                     (4,726)       (4,726)
Income taxes............     14,067     16,820     14,813                                  45,700
Equity earnings in
 consolidated
 subsidiaries...........     40,856                14,619                   (55,475)
Extraordinary gain......        977                                                           977
                           --------   --------   --------     -------      --------      --------
 Net income.............   $ 60,479   $ 22,206   $ 18,650     $19,345      $(60,201)     $ 60,479
                           ========   ========   ========     =======      ========      ========
For the six months ended
 June 30, 2000
Net operating revenues..   $ 53,959   $251,857   $417,499     $77,746      $(50,040)     $751,021
Operating expenses......     18,464    236,664    407,520      65,253       (50,040)      677,861
                           --------   --------   --------     -------      --------      --------
 Operating income.......     35,495     15,193      9,979      12,493                      73,160
Other income (loss),
 net....................    (10,182)               (1,067)        660                     (10,589)
Debt expense............     63,693      4,083     (1,857)      1,728                      67,647
Minority interests......                                                     (2,021)       (2,021)
Income taxes............    (15,736)     5,305     14,946        (104)                      4,411
Equity earnings in
 consolidated
 subsidiaries...........     11,136                 9,508                   (20,644)
                           --------   --------   --------     -------      --------      --------
 Net income (loss)......   $(11,508)  $  5,805   $  5,331     $11,529      $(22,665)     $(11,508)
                           ========   ========   ========     =======      ========      ========
</TABLE>

                                       10
<PAGE>

                                  DAVITA INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                         Wholly-owned
                                         subsidiaries          Non-
                                     --------------------- participating Consolidating
                         DaVita Inc.    RTC     All others subsidiaries   adjustments  Consolidated
                         ----------- ---------  ---------- ------------- ------------- ------------
<S>                      <C>         <C>        <C>        <C>           <C>           <C>
Six months ended June
 30, 2001
Cash flows from
 operating activities:
 Net income............   $  60,479  $  22,206   $ 18,650     $19,345      $(60,201)    $  60,479
 Changes in operating
  and intercompany
  assets and
  liabilities and non
  cash items included
  in net income........      34,221    (21,340)    13,344     (12,147)       60,201        74,279
                          ---------  ---------   --------     -------      --------     ---------
   Net cash provided by
    operating
    activities.........      94,700        866     31,994       7,198           --        134,758
                          ---------  ---------   --------     -------      --------     ---------
Cash flows from
 investing activities:
 Purchases of property
  and equipment, net...      (4,217)    (2,881)    (7,531)     (3,954)                    (18,583)
 Acquisitions and
  divestitures, net....                           (51,124)                                (51,124)
 Other items...........                            20,611          25                      20,636
                          ---------  ---------   --------     -------      --------     ---------
   Net cash used in
    investing
    activities.........      (4,217)    (2,881)   (38,044)     (3,929)                    (49,071)
                          ---------  ---------   --------     -------      --------     ---------
Cash flows from
 financing activities:
 Long-term debt........     (29,800)       151      3,453         403                     (25,793)
 Other items...........      (2,171)                           (3,672)                     (5,843)
                          ---------  ---------   --------     -------      --------     ---------
   Net cash provided by
    (used in) financing
    activities.........     (31,971)       151      3,453      (3,269)                    (31,636)
                          ---------  ---------   --------     -------      --------     ---------
Net increase (decrease)
 in cash...............      58,512     (1,864)    (2,597)        --                       54,051
Cash at the beginning
 of the period.........      16,553      1,871     12,783                                  31,207
                          ---------  ---------   --------     -------      --------     ---------
Cash at the end of the
 period................   $  75,065  $       7   $ 10,186     $   --       $    --      $  85,258
                          =========  =========   ========     =======      ========     =========
Six months ended June
 30, 2000
Cash flows from
 operating activities:
 Net income (loss).....   $ (11,508) $   5,805   $  5,331     $11,529      $(22,665)    $ (11,508)
 Changes in operating
  and intercompany
  assets and
  liabilities and non
  cash items included
  in net income
  (loss)...............      61,920   (104,511)   152,790      (9,167)       22,665       123,697
                          ---------  ---------   --------     -------      --------     ---------
   Net cash provided by
    (used in) operating
    activities.........      50,412    (98,706)   158,121       2,362           --        112,189
                          ---------  ---------   --------     -------      --------     ---------
Cash flows from
 investing activities:
 Purchases of property
  and equipment, net...        (111)    (8,936)   (14,410)     (1,194)                    (24,651)
 Acquisitions and
  divestitures, net....                105,342     41,958                                 147,300
 Other items...........        (342)               (3,322)                                 (3,664)
                          ---------  ---------   --------     -------      --------     ---------
   Net cash provided by
    (used in) investing
    activities.........        (453)    96,406     24,226      (1,194)                    118,985
                          ---------  ---------   --------     -------      --------     ---------
Cash flows from
 financing activities:
 Long-term debt........    (139,615)               (2,334)     (1,168)                   (143,117)
 Other items...........        (829)               (4,537)                                 (5,366)
                          ---------  ---------   --------     -------      --------     ---------
   Net cash used in
    financing
    activities.........    (140,444)               (6,871)     (1,168)                   (148,483)
                          ---------  ---------   --------     -------      --------     ---------
Net increase (decrease)
 in cash...............     (90,485)    (2,300)   175,476                                  82,691
Cash at the beginning
 of the period.........      90,544      4,118     13,319                                 107,981
                          ---------  ---------   --------     -------      --------     ---------
Cash at the end of the
 period................   $      59  $   1,818   $188,795     $   --       $    --      $ 190,672
                          =========  =========   ========     =======      ========     =========
</TABLE>

                                       11
<PAGE>

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

 Forward-looking statements

   This Form 10-Q contains statements that are forward-looking statements
within the meaning of the federal securities laws, including statements about
our expectations, beliefs, intentions or strategies for the future. These
statements involve known and unknown risks and uncertainties, including risks
resulting from economic and market conditions, the regulatory environment in
which we operate, competitive activities, other business conditions,
accounting estimates, and the risk factors set forth in this Form 10-Q. These
risks, among others, include those relating to possible reductions in private
and government reimbursement rates, the concentration of profits generated
from PPO and private indemnity patients and from ancillary services including
pharmaceuticals, the ongoing payment suspension and review of the Company's
Florida laboratory subsidiary by its Medicare carrier and the Department of
Justice, the ongoing review by the Civil Division of the US Attorney's Office
for the Eastern District of Pennsylvania and the Company's ability to maintain
contracts with physician medical directors. Our actual results may differ
materially from results anticipated in our forward-looking statements. We base
our forward-looking statements on information currently available to us, and
we have no current intention to update these statements, whether as a result
of changes in underlying factors, new information, future events or other
developments.

 Results of operations

   Continental U.S. and non-continental U.S. operating revenues and operating
expenses were as follows (dollars in millions):

<TABLE>
<CAPTION>
                                                         Quarter ended
                                                   ----------------------------
                                                   June 30,   March    June 30,
                                                     2001    31, 2001    2000
                                                   --------  --------  --------
<S>                                                <C>  <C>  <C>  <C>  <C>  <C>
Revenues:
  Continental U.S................................. $397  99% $382  99% $345  91%
  Non-continental U.S.............................    4   1%    4   1%   34   9%
                                                   ---- ---  ---- ---  ---- ---
                                                    401 100%  386 100%  379 100%
                                                   ==== ===  ==== ===  ==== ===
Operating expenses:
  Continental U.S.................................  326  99%  306  98%  308  89%
  Non-continental U.S.............................    4   1%    5   2%   38  11%
                                                   ---- ---  ---- ---  ---- ---
                                                    330 100%  311 100%  346 100%
                                                   ==== ===  ==== ===  ==== ===

Consolidated operating income..................... $ 71      $ 75      $ 33
                                                   ====      ====      ====
</TABLE>

   The Company's divestiture of its dialysis operations outside the
continental United States was substantially completed during 2000, reducing
the number of dialysis centers that we operate outside the continental United
States from 84 to 2 by the end of 2000. Because all operations outside the
continental United States have been divested with the exception of the pending
completion of the sale of two centers in Puerto Rico, the non-continental U.S.
operating results are excluded from the revenue and cost trends discussed
below.

                                      12
<PAGE>

                          Continental U.S. operations
               (dollars in millions, except per treatment data)

<TABLE>
<CAPTION>
                                               Quarter ended
                                    -----------------------------------------
                                     June 30,                       June 30,
                                       2001      March 31, 2001       2000
                                    -----------  ----------------- ----------
   <S>                              <C>     <C>  <C>       <C>     <C>    <C>
   Revenues........................ $  397  100% $    382    100 % $  345 100%
   Operating expenses:
     Dialysis centers and labs.....    269   68%      256     67 %    240  70%
     General and administrative....     32    8%       32      8 %     30   9%
     Depreciation and
      amortization.................     26    7%       26      7 %     26   8%
     Provision for uncollectible
      accounts.....................     (1)            (8)    (2)%     12   3%
                                    ------       --------          ------
                                       326   82%      306     80 %    308  89%
                                    ------       --------          ------
   Operating income before
    impairment losses.............. $   71   18% $     76     20 % $   37  11%
                                    ======       ========          ======
   Dialysis treatments (000's).....  1,409          1,366           1,336
   Average dialysis revenue per
    dialysis treatment............. $  276       $    274          $  249
</TABLE>

   Net operating revenues for the continental U.S. operations were $397
million for the second quarter of 2001, approximately 15% higher than in the
second quarter of 2000. Approximately 10% was due to higher average revenue
per treatment and approximately 5% was due to the increase in the number of
treatments. The average dialysis revenue per treatment (excluding lab and
pharmacy revenues and management fee income) was $276 for the second quarter
of 2001, compared with $249 for the same period of 2000. The increase in the
average revenue per treatment was principally attributable to improvements in
revenue capture, billing and collections operations, and payor contracting,
increased revenue associated with the administration of new higher-cost drugs
and the increases in the Medicare composite reimbursement rate that became
effective on both January 1 and April 1, 2001. Non-dialysis revenues were
approximately $8 million in the second quarter of 2001, approximately
$4 million lower than the second quarter of 2000 primarily due to reduced lab
revenues and reduced management fees resulting from the acquisition of eight
previously managed centers in the first quarter of 2001.

   Second quarter 2001 net operating revenues were approximately 3.7% higher
than in the first quarter of 2001. The number of treatments increased by 3.1%
in the second quarter. Net dialysis revenue per treatment increased
approximately $2 from first quarter 2001 to second quarter of 2001,
principally attributable to the Medicare rate increase that became effective
April 1, 2001.

   Center operating expenses were approximately 68% of operating revenues for
continental U.S. operations in the second quarter of 2001, compared with 67%
in the first quarter of 2001 and 70% in the second quarter of 2000. On a per-
treatment basis, second quarter 2001 center operating expenses were
approximately $2 higher than in the prior quarter, and averaged approximately
$10 per treatment higher than in the second quarter of 2000. The higher
average cost per treatment was primarily attributable to higher labor and drug
costs, which were more than offset by the increased revenue per treatment.

   General and administrative expenses were approximately 8% of operating
revenues for continental U.S. operations in both the second and first quarters
of 2001, compared to 9% in the second quarter of 2000. The decrease from the
second quarter of 2000, measured as a percentage of revenue, was attributable
to the higher average revenue rate per treatment in the second and first
quarters of 2001. In absolute dollars, general and administrative expenses for
the second quarter of 2001 were approximately 2% higher than in the first
quarter, reflecting higher labor and infrastructure costs.

   During the first and second quarters of 2001, we realized cash recoveries
of $16.0 and $8.9 million associated with aged accounts receivables reserved
in 1999. We recognized the cash recoveries as a reversal of bad debt expense.
Before considering these cash recoveries, the provision for uncollectible
accounts receivable

                                      13
<PAGE>

for the second quarter of 2001 was approximately 2% of operating revenues
compared with approximately 3.5% for the same period for 2000. We anticipate
the provision for uncollectible accounts receivable will be generally in the
range of 2% to 3% over the long term.

   Debt expense of $19 million for the second quarter of 2001 was
approximately $16 million lower than the same period of 2000 due to lower
effective interest rates and reduced debt balances.

   Based on current conditions and recent experience, our current projections
are for normal operating earnings before depreciation and amortization, debt
expense and taxes to be in the range of $340 million to $360 million for the
year 2001, excluding the cash recoveries of previously reserved accounts
receivables discussed above. These projections assume the continuation of
current cost growth trends and current trends in the internal annual growth
rate in the number of dialysis treatments, minimal acquisitions, no
significant changes in billing practices, continued non-recognition of
Medicare lab revenue and no significant settlement or impairment losses. These
and other underlying assumptions involve significant risks and uncertainties,
and actual results may vary significantly from these current projections.
Additionally, the renegotiation or restructuring of unfavorable managed care
contracts, medical director agreements or other arrangements may result in
future impairment or other charges.

 Liquidity and capital resources

   Cash flow from operations during the first half of 2001 amounted to $135
million and the reduction in long-term debt totaled $26 million. The positive
cash flow included $131 million from earnings adjusted for non-cash items.
Non-operating cash outflows included acquisitions of dialysis centers for $51
million (offset by liquidation of investments in third-party dialysis
operations) and $19 million in capital asset expenditures.

   In April 2001, $225 million of 9 1/4% Senior Subordinated Notes were
issued. The net proceeds of this offering were used to pay down amounts
outstanding under our then-existing senior credit facilities. In August these
notes were exchanged for a series of notes with identical terms that had been
registered under the Securities Act of 1933.

   On May 4, 2001 the Company completed a refinancing of its senior credit
facilities. The new financing includes a Term A loan of $50 million, a Term B
loan of $200 million and a $150 million undrawn revolving credit facility. The
starting interest rate for both the Term A and B loans was LIBOR plus 2.75%, a
decrease of 0.25% and 1.0%, respectively, from the previous term loan rates.
The Term A loan and revolver interest rates are also subject to increases or
decreases based on changes in our leverage ratio. The new term loan facilities
are subject to aggregate quarterly principal amortization of $3 million for
the next five years. The entire facility is due in 2006 with an automatic one
year extension of the Term B loan if our $125 million 5 5/8% subordinated
convertible notes have been extended or converted by March 2006.

   Continental U.S. accounts receivable at June 30, 2001 amounted to $291
million, a decrease of $5 million during the quarter. This balance represented
approximately 68 days of net revenue, an improvement of approximately 3 days
over the previous quarter.

 New accounting pronouncements

   In July 2001 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and SFAS 142, Goodwill and Other Intangible Assets which will be
effective July 1, 2001 and January 1, 2002, respectively, for the Company.

   SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated or completed after June 30, 2001. Under SFAS
142, amortization of goodwill and other indefinite-lived intangible assets,
including any such intangibles recorded in past business combinations, will be
discontinued beginning January 1, 2002. In addition, goodwill and other
indefinite-lived intangible assets recorded as a result of business
combinations completed during the six-month period ending December 31, 2001
will not be amortized.

                                      14
<PAGE>

   Under the new standards, goodwill and other indefinite-lived intangible
assets will be written down with a goodwill impairment charge against current
earnings whenever the recorded values exceed their fair values. As with
goodwill amortization, such goodwill charges would not directly affect cash
flows. We are currently reviewing the provisions of SFAS 141 and SFAS 142 and
assessing the impact of their adoption.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 Interest rate sensitivity

   The table below provides information about our financial instruments that
are sensitive to changes in interest rates.

<TABLE>
<CAPTION>
                     Expected maturity date                            Average
                  -----------------------------                  Fair  interest
                  2001 2002 2003 2004 2005 2006 Thereafter Total value   rate
                  ---- ---- ---- ---- ---- ---- ---------- ----- ----- --------
                                      (dollars in millions)
<S>               <C>  <C>  <C>  <C>  <C>  <C>  <C>        <C>   <C>   <C>
Long-term debt
  Fixed rate.....                          $125    $570    $695  $681    7.76%
  Variable
   rate.......... $ 4  $18  $13  $13  $12   193       3     256   256    6.81%
</TABLE>

Exchange rate sensitivity

   We are currently not exposed to any foreign currency exchange rate risk.

                                       15
<PAGE>

                                 RISK FACTORS

   This Form 10-Q contains statements that are forward-looking statements
within the meaning of the federal securities laws, including statements about
our expectations, beliefs, intentions or strategies for the future. These
forward-looking statements include statements regarding our expectations for
treatment growth rates, revenue per treatment, expense growth, levels of the
provision for uncollectible accounts receivable, earnings before depreciation
and amortization, debt expense and taxes, and capital expenditures. We base
our forward-looking statements on information currently available to us, and
we have no current intention to update these statements, whether as a result
of changes in underlying factors, new information, future events or other
developments.

   These statements involve known and unknown risks and uncertainties,
including risks resulting from economic and market conditions, the regulatory
environment in which we operate, competitive activities and other business
conditions. Our actual results may differ materially from results anticipated
in these forward-looking statements. Important factors that could cause actual
results to differ materially from the forward-looking statements include those
set forth below. The risks discussed below are not the only ones facing our
business.

If the percentage of our patients paying at or near our list prices declines,
then our revenues, cash flows and net income would be substantially reduced.

   Approximately 41% of our continental U.S. dialysis revenues in 1999 and 42%
in both 2000 and the first six months of 2001 were generated from patients who
had private payors as the primary payor. A minority of these patients have
insurance policies that reimburse us at or near our list prices, which are
significantly higher than Medicare rates. The majority of these patients have
insurance policies that reimburse us at rates that are below our list prices
but, in most cases, higher than Medicare rates. We believe that pressure from
private payors to decrease the rates at which they pay us may increase. If the
percentage of patients who have insurance that pays us at or near our list
prices decreases significantly, it would have an adverse effect on our
revenues, cash flows and net income.

If we are unable to renegotiate material contracts with managed care plans on
acceptable terms, we may experience a decline in same center growth.

   We have contracts with some large managed care plans that include
unfavorable terms. Although we are attempting to renegotiate the terms of
these contracts, we cannot predict whether we will reach agreement on new
terms or whether we will renew these contracts. As a result, we may lose
numerous patients of these managed care plans and experience a decline in our
same center growth, which will negatively impact our revenues.

Future declines, or the lack of further increases, in Medicare reimbursement
rates would reduce our net income and cash flows.

   Approximately 54% of our continental U.S. dialysis revenues in 1999 and 53%
in both 2000 and the first six months of 2001 were generated from patients who
had Medicare as their primary payor. The Medicare ESRD program reimburses us
for dialysis and ancillary services at fixed rates. Unlike many other Medicare
programs, the Medicare ESRD program does not provide for periodic inflation
increases in reimbursement rates. These rates have declined over 70% in real
dollars since 1972. Congress recently enacted two separate increases of 1.2%
to the Medicare composite reimbursement rate for dialysis effective January 1,
2000 and January 1, 2001. An additional 1.2% increase became effective April
1, 2001, plus an adjustment factor designed to provide the benefits of the
increase as if it had become effective on January 1, 2001. These were the
first increases in the composite rate since 1991 and are significantly less
than the cumulative rate of inflation since 1991. In addition, the Medicare
Payment Advisory Commission has recommended to Congress that there be no
increase in the composite rate for 2002. Increases in operating costs that are
subject to inflation, such as labor and supply costs, have occurred and are
expected to continue to occur without a compensating increase in reimbursement
rates.

                                      16
<PAGE>

We cannot predict the nature or extent of future rate changes, if any. To the
extent these rates are not adjusted to keep pace with inflation, our net
income and cash flows would be adversely affected.

Future changes in the structure of, and reimbursement rates under, the
Medicare ESRD program could substantially reduce our net income and cash
flows.

   In legislation enacted in December 2000, Congress mandated government
studies on whether:

  .  The Medicare composite rate for dialysis should be modified to include
     an annual inflation increase--study due July 2002;

  .  The Medicare composite rate for dialysis should be modified to include
     additional services, such as laboratory and other diagnostic tests and
     the administration of EPO and other pharmaceuticals, in the composite
     rate--study due July 2002; and

  .  Reimbursement for many outpatient prescription drugs that we administer
     to dialysis patients should be reduced from the current rate of 95% of
     the average wholesale price--study due September 2001.

   If Medicare began to include in its composite reimbursement rate any
ancillary services that it currently reimburses separately, our revenue would
decrease to the extent there was not a corresponding increase in that
composite rate. In particular, Medicare revenue from EPO was approximately 13%
of our net revenue in 1999, 2000 and the first six months of 2001. If EPO were
included in the composite rate, and if the composite rate were not increased
sufficiently, our revenue would decrease substantially. Reductions in current
reimbursement rates for EPO or other outpatient prescription drugs would also
reduce our revenue.

If a significant number of physicians were to cease referring patients to our
dialysis centers, whether due to regulatory or other reasons, our revenue and
earnings would decline.

   If a significant number of physicians stop referring patients to our
centers, it could have a material adverse effect on our revenue and earnings.
Many physicians prefer to have their patients treated at centers where they or
other members of their practice supervise the overall care provided as medical
directors of the centers. As a result, the primary referral source for our
centers is typically the physician or physician group providing medical
director services to the center. If a medical director agreement terminates,
whether before or at the end of its term, it may negatively impact the former
medical director's decision to treat his or her patients at our centers.

   Medical directors contract with us for fixed periods, generally five to ten
years. Medical directors have no obligation to extend their agreements with
us. The agreements with medical directors at 48 centers are at risk of
expiring on or before December 31, 2002. This includes agreements with terms
expiring on or before December 31, 2002 and those with automatic renewal terms
that will expire on or before December 31, 2002 if we or the medical director
elect not to renew the agreement.

   We also may take actions to restructure existing relationships or take
positions in negotiating extensions of relationships in order to assure
compliance with anti-kickback and similar laws. These actions could negatively
impact physicians' decisions to extend their medical director agreements with
us. For example, we have recalled stock options and we require monthly
statements from our medical directors certifying that they have performed
their contractual obligations. To our knowledge, we are the only major
dialysis provider to have done this. In addition, if the terms of an existing
agreement were found to violate applicable laws, we may not be successful in
restructuring the relationship, which could lead to the early termination of
the agreement.

If the current shortage of skilled clinical personnel or our high level of
personnel turnover continues, we may experience disruptions in our business
operations and increases in operating expenses.

   We are experiencing difficulties in hiring nurses and increased labor costs
due to a nationwide shortage of skilled clinical personnel. This shortage
limits our ability to expand our operations. We also have a high personnel
turnover rate in our dialysis centers and central billing offices. Turnover
has been the highest among

                                      17
<PAGE>

our reuse technicians, patient care technicians and unit secretaries. Recent
efforts to reduce this turnover may not succeed. If we are not successful, or
if we are unable to hire skilled clinical personnel when needed, our
operations and our same center growth will be negatively impacted.

Adverse developments with respect to EPO could materially reduce our net
income and cash flows and affect our ability to care for our patients.

   Amgen is the sole supplier of EPO and may unilaterally decide to increase
its price for EPO. For example, Amgen unilaterally increased its base price
for EPO by 3.9% effective March 2000 and by an additional 3.9% effective May
2001. We expect Amgen to continue to increase its base price from time to
time. Also, we cannot predict whether we will continue to receive the same
discount structure for EPO that we currently receive, or whether we will
continue to achieve the same levels of discounts within that structure as we
have historically achieved. In addition, Amgen is developing a new product,
NESP, that may replace EPO or reduce its use. We cannot predict when NESP will
be introduced to the dialysis market, nor what its cost and reimbursement
structure will be. Increases in the cost of EPO and the introduction of NESP
could have a material adverse effect on our net income and cash flows.

Changes in clinical practices and reimbursement rates or rules for EPO and
other drugs could substantially reduce our revenue and earnings.

   The administration of EPO and other drugs accounted for approximately 32%
of our net operating revenue in 1999, 35% in 2000 and 38% in the first six
months of 2001. Changes in physician practice patterns and accepted clinical
practices, changes in private and governmental reimbursement rates and rules,
the introduction of new drugs and the conversion to alternate types of
administration, for example from intravenous administration to subcutaneous or
oral administration, that may also result in lower or less frequent dosages,
could reduce our revenues and earnings from the administration of EPO and
other drugs.

If we fail to adhere to all of the complex government regulations that apply
to our business, we could suffer severe consequences that would substantially
reduce our revenue and earnings.

   Our dialysis operations are subject to extensive federal, state and local
government regulations, including Medicare and Medicaid reimbursement rules
and regulations and federal and state anti-kickback laws. The regulatory
scrutiny of healthcare providers, including dialysis providers, has increased
significantly in recent years. For the fiscal year ended September 30, 2000,
the DOJ announced total recoveries of $840 million from healthcare civil fraud
cases, including a $486 million settlement with one of our competitors as a
result of an OIG and DOJ investigation into some of its business practices. In
addition, the frequency and intensity of Medicare certification surveys and
inspections of dialysis centers has markedly increased over the last year,
consistent with recommendations of the OIG.

   We endeavor to comply with all of the requirements for receiving Medicare
and Medicaid reimbursement and to structure all of our relationships with
referring physicians to comply with the anti-kickback laws; however, the laws
and regulations in this area are complex and subject to varying
interpretations. In addition, our historic dependence on manual processes that
vary widely across our network of dialysis centers exposes us to greater risk
of errors in billing and other business processes.

   If any of our operations are found to violate these or other government
regulations, we could suffer severe consequences, including:

  .  Mandated practice changes that significantly increase operating
     expenses;

  .  Suspension of payments from government reimbursement programs;

  .  Refunds of amounts received in violation of law or applicable
     reimbursement program requirements;

                                      18
<PAGE>

  .  Loss of required government certifications or exclusion from government
     reimbursement programs, such as the Medicare ESRD program and Medicaid
     programs;

  .  Loss of licenses required to operate healthcare facilities in some of
     the states in which we operate; and

  .  Fines or monetary penalties for anti-kickback law violations, submission
     of false claims or other failures to meet reimbursement program
     requirements.

The pending federal review of some of our historical practices and third-party
carrier review of our laboratory subsidiary could result in substantial
penalties against us.

   We are voluntarily cooperating with the Civil Division of the United States
Attorney's Office for the Eastern District of Pennsylvania in a review of some
of our historical practices, including billing and other operating procedures
and our financial relationships with physicians. In addition, our Florida-
based laboratory subsidiary is the subject of a third-party carrier review of
claims it has submitted for Medicare reimbursement. All further Medicare
payments to this laboratory were suspended in May 1998, and the DOJ is also
reviewing the situation. We are unable to determine when these matters will be
resolved, whether any additional areas of inquiry will be opened or any
outcome of these matters, financial or otherwise. Any negative findings could
result in substantial financial penalties against us and exclusion from future
participation in the Medicare and Medicaid programs.

Our rollout of new information technology systems will significantly disrupt
our billing and collection activity, may not work as planned and could have a
negative impact on our results of operations and financial condition.

   We intend to roll out new information technology systems and new processes
in each of our dialysis centers over the next few years. It is likely that
this rollout will disrupt our billing and collection activity and may cause
other disruptions to our business operations, which may negatively impact our
cash flows. Also, the new information systems may not work as planned or
improve our billing and collection processes. If they do not, we may have to
spend substantial amounts to enhance or replace these systems.

                                      19
<PAGE>

                                    PART II

                               OTHER INFORMATION

Item 1. Legal Proceedings.

   The information in Note 5 of the Notes to Condensed Consolidated Financial
Statements in Part I, Item 1 of this report is incorporated by this reference
in response to this item.

Items 2 and 3 are not applicable.

Item 4. Submission of Matters to a Vote of Security Holders.

   Our annual meeting of shareholders was held on June 5, 2001.

   Proposal 1 submitted to our stockholders at the meeting was the election of
directors. The following directors were elected at the meeting, with the
number of votes cast for each director or withheld from each director set
forth after the director's respective name. Nancy-Ann DeParle and William L.
Roper also continued as directors after the meeting.

<TABLE>
<CAPTION>
                                                           Votes for  Authority
   Name                                                     Director  Withheld
   ----                                                    ---------- ---------
   <S>                                                     <C>        <C>
   Richard B. Fontaine.................................... 72,669,800   741,916
   Peter T. Grauer........................................ 72,667,900   743,816
   C. Raymond Larkin, Jr.................................. 72,667,826   743,890
   John M. Nehra.......................................... 72,669,980   741,736
   Kent J. Thiry.......................................... 63,589,496 9,822,220
</TABLE>

   Proposal 2 submitted to our stockholders at the meeting was the approval of
an amendment to our 1999 Equity Compensation Plan to increase the number of
shares available for grant under the plan by 2,750,000. The votes were cast as
follows:

<TABLE>
<CAPTION>
          For                           Against                                           Abstain
          ---                           -------                                           -------
       <S>                             <C>                                                <C>
       58,703,477                      14,542,702                                         165,537
</TABLE>

   Proposal 3 submitted to our stockholders at the meeting was the approval of
the DaVita Inc. Executive Incentive Plan. The votes were cast as follows:

<TABLE>
<CAPTION>
          For                            Against                                            Abstain
          ---                            -------                                            -------
       <S>                              <C>                                                 <C>
       71,509,246                       1,770,495                                           131,975
</TABLE>

Item 5 is not applicable.

Item 6. Exhibits and Reports on Form 8-K.

   (a) Exhibits:

  1.1 Purchase Agreement, dated April 6, 2001, among DaVita Inc., the
      subsidiaries of DaVita Inc. named therein and Credit Suisse First
      Boston Corporation, Banc of America Securities LLC, SunTrust Equitable
      Securities, BNY Capital Markets, Inc. and Scotia Capital (the "Initial
      Purchasers").*

  4.1 Indenture, dated as of April 11, 2001, between DaVita Inc., the
      subsidiaries of DaVita Inc. named therein and U.S. Trust Company of
      Texas, National Association, as trustee.*

  4.3 Registration Rights Agreement, dated as of April 11, 2001, among DaVita
      Inc., the subsidiaries of DaVita Inc. named therein and the Initial
      Purchasers.*


                                      20
<PAGE>

  10.1 Credit Agreement, dated as of May 3, 2001, by and among DaVita Inc.,
       the lenders party thereto, Bank of America, N.A., as the
       Administrative Agent, Banc of America Securities LLC as joint Book
       Manager and Credit Suisse First Boston Corporation as joint Book
       Manager and Syndication Agent (the "Credit Agreement").*

  10.2 Security Agreement, dated as of May 3, 2001, made by DaVita Inc. and
       the subsidiaries of DaVita Inc. named therein to Bank of America,
       N.A., as the Collateral Agent for the lenders party to the Credit
       Agreement.*

  10.3 Subsidiary Guarantee, dated as of May 3, 2001, made by the
       subsidiaries of DaVita Inc. named therein in favor of the lenders
       party to the Credit Agreement.*

  10.4 Amended and Restated 1999 Equity Compensation Plan.**

  10.5 Employment Agreement, effective as of June 15, 2000, by and between
       DaVita Inc. and Joseph C. Mello. X

  12.1 Ratio of earnings to fixed charges. X

   (b) Reports on Form 8-K

     None.
--------
X  Filed herewith

 * Filed on June 8, 2001 as an exhibit to our Registration Statement on Form
   S-4 (Registration Statement No. 333-62552).

** Filed on April 27, 2001 as an exhibit to the Definitive Proxy Statement for
   our 2001 Annual Meeting of Stockholders.

                                      21
<PAGE>

                                   SIGNATURE

   Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                          DAVITA INC.

                                                   /s/ Gary W. Beil
                                          By: _________________________________
                                                        Gary W. Beil
                                               Vice President and Controller*

Date: August 14, 2001
--------
*  Mr. Beil has signed both on behalf of the Registrant as a duly authorized
   officer and as the Registrant's chief accounting officer.

                                       22
<PAGE>

                               INDEX TO EXHIBITS

Exhibit Number                            Description

   1.1 Purchase Agreement, dated April 6, 2001, among DaVita Inc., the
       subsidiaries of DaVita Inc. named therein and Credit Suisse First
       Boston Corporation, Banc of America Securities LLC, SunTrust Equitable
       Securities, BNY Capital Markets, Inc. and Scotia Capital (the "Initial
       Purchasers").*

   4.1 Indenture, dated as of April 11, 2001, between DaVita Inc., the
       subsidiaries of DaVita Inc. named therein and U.S. Trust Company of
       Texas, National Association, as trustee.*

   4.3 Registration Rights Agreement, dated as of April 11, 2001, among
       DaVita Inc., the subsidiaries of DaVita Inc. named therein and the
       Initial Purchasers.*

  10.1 Credit Agreement, dated as of May 3, 2001, by and among DaVita Inc.,
       the lenders party thereto, Bank of America, N.A., as the
       Administrative Agent, Banc of America Securities LLC as joint Book
       Manager and Credit Suisse First Boston Corporation as joint Book
       Manager and Syndication Agent (the "Credit Agreement").*

  10.2 Security Agreement, dated as of May 3, 2001, made by DaVita Inc. and
       the subsidiaries of DaVita Inc. named therein to Bank of America,
       N.A., as the Collateral Agent for the lenders party to the Credit
       Agreement.*

  10.3 Subsidiary Guarantee, dated as of May 3, 2001, made by the
       subsidiaries of DaVita Inc. named therein in favor of the lenders
       party to the Credit Agreement.*

  10.4 Amended and Restated 1999 Equity Compensation Plan.**
  10.5 Employment Agreement, effective as of June 15, 2000, by and between
       DaVita Inc. and Joseph C. Mello.X

  12.1 Ratio of earnings to fixed charges.X

--------
X  Filed herewith.

 * Filed on June 8, 2001 as an exhibit to our Registration Statement on Form
   S-4 (Registration Statement No. 333-62552).

** Filed on April 27, 2001 as an exhibit to the Definitive Proxy Statement for
   our 2001 Annual Meeting of Stockholders.

                                      23

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>3
<FILENAME>dex105.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT-JOSEPH C. MELLO
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.5

                             EMPLOYMENT AGREEMENT
                             --------------------


     This Employment Agreement (this "Agreement") is entered into effective June
15, 2000 (the "Effective Date"),  by and between DaVita Inc. ("Employer") and
Joseph C. Mello ("Employee").

     In consideration of the mutual covenants and agreements hereinafter set
forth and for other good and valuable consideration, the parties hereto,
intending to be legally bound hereby, agree as follows:

     Section 1.  Employment and Duties.  Employer hereby employs Employee to
                 ---------------------
serve as Chief Operating Officer.  Employee accepts such employment on the terms
and conditions set forth in this Agreement.  Employee shall perform the duties
of Chief Operating Officer of the Employer and shall perform such other duties
as may be assigned from time to time by the Chief Executive Officer.  Employee
agrees to devote substantially all of his time, energy, and ability to the
business of  Employer on a full-time basis, provided, however, that from the
                                            --------  -------
date hereof until October 2, 2000, or such earlier date as Employee may
determine (the "Transition Period"), Employee shall be employed on a part-time
basis to enable Employee to complete the transition from his former employer
(the "Transition Activities").  Except for the Transition Activities during the
Transition Period, Employee shall not engage in any other business activities
during the term of this Agreement.  Employee shall at all times observe and
abide by the Employer's policies and procedures as in effect from time to time.

     Section 2.  Compensation.  In consideration of the services to be performed
                 ------------
by Employee hereunder, Employee shall receive the following compensation and
benefits:

          2.1  Base Salary.  Employee shall be paid a base salary of $325,000
               -----------
per annum, less standard withholdings and authorized deductions, provided,
                                                                 --------
however, that Employee will initially earn a salary of $2,700 per month during
-------
the Transition Period, which salary shall be increased proportionally to any
significant increase in Employee's workload during the Transition Period.
Employee shall be paid consistent with Employer's payroll schedule. The Base
Salary will be reviewed each year during Employer's annual salary review.
Employer, in its sole discretion, may increase the Base Salary as a result of
any such review.

          2.2  Benefits.  Employee and/or his family, as the case may be, shall
               --------
be eligible for participation in and shall receive all benefits under Employer's
health and welfare benefit plans (including, without limitation, medical,
prescription, dental, disability, and life insurance) under the same terms and
conditions applicable to most executives at similar levels of compensation and
responsibility, provided, however, during the Transition Period, Employee will
                --------  -------
not be entitled to any such benefits until Employee regularly works twenty-four
(24) or more hours per week.

                                       1
<PAGE>

          2.3  Bonus.
               -----

               (a)  Employee shall be eligible to receive a discretionary
performance bonus (the "Bonus"), payable in a manner consistent with Employer's
practices and procedures. The amount of the bonus, if any, will be decided by
the Chief Executive Officer and/or the Board of Directors or the Compensation
Committee of the Board in his/its sole discretion.

               (b)  Employee must be employed by Employer (or an affiliate) on
the date any Bonus is paid to be eligible to receive such Bonus and, if Employee
is not employed by Employer (or an affiliate) on the date any Bonus is paid for
any reason whatsoever, Employee shall not be entitled to receive such Bonus,
provided, however, that in the event Employee dies or is terminated by Employer
--------  -------
by reason of Disability (as defined below), Employee (or his estate) shall be
entitled to receive, at such time as bonuses for such year are otherwise paid by
Employer, a pro rated Bonus for that portion of any year prior to such
termination (or for the whole year and a portion of a year if such termination
occurs after December 31 of any year and prior to the date on which the Bonus
for such year is paid) regardless of whether Employee is employed on the date
such Bonus is paid; and provided further, that, in the event Employee is
                        -------- -------
terminated without Material Cause (as defined below) or resigns following
Constructive Discharge (as defined below) at any time, Employee shall be
entitled to receive a Bonus for the year in which such termination occurs equal
to the normal Bonus, if any, which he received for the immediately preceding
calendar year multiplied by two (2), which Bonus shall be payable within five
(5) business days after the effective date of such termination.

          2.4  Vacation.  Employee shall have vacation, subject to the approval
               --------
of the Chief Executive Officer.

          2.5  Stock Options.  Employee shall receive options to purchase
               -------------
450,000 shares of Employer stock. Such options shall have a five-year term and
vest over a four-year period, one-quarter vesting on each anniversary date of
the grant. The exercise price for 225,000 shares shall be the closing price as
reported on the New York Stock Exchange on the start date of this Agreement,
June 15, 2000; the exercise price for the remaining 225,000 shares of Employee's
options shall be the closing price as reported on the New York Stock Exchange on
the second day of Employee's employment, June 16, 2000. The options will be
reflected in a separate Stock Option Agreement.

          2.6  Indemnification.  Employer agrees to indemnify Employee against
               ---------------
and in respect of any and all claims, actions, or demands, in accordance with
all applicable laws. Employer also agrees to reimburse Employee in accordance
with Employer's reimbursement policies for travel and entertainment expenses, as
well as other business-related expenses, incurred in the performance of his
duties hereunder.

          2.7  Changes to Benefit Plans.  Employer reserves the right to modify,
               ------------------------
suspend, or discontinue any and all of its health and welfare benefit plans,
practices, policies, and programs

                                       2
<PAGE>

at any time without recourse by Employee so long as such action is taken
generally with respect to all other similarly-situated peer executives and does
not single out Employee.

     Section 3.  Provisions Relating to Termination of Employment.
                 ------------------------------------------------

          3.1  Employment Is At-Will.  Employee's employment with Employer is
               ---------------------
"at will" and is terminable by Employer or by Employee at any time and for any
reason or no reason, subject to the notice requirements set forth below.

          3.2  Termination for Material Cause.  Employer may terminate
               ------------------------------
Employee's employment for Material Cause (as defined below) upon at least thirty
(30) days' advance written notice specifying in detail the cause for the
termination and the intended termination date. Upon termination for Material
Cause, Employee shall (i) be entitled to receive the Base Salary and benefits as
set forth in Section 2.1 and Section 2.2, respectively, through the effective
             -----------     -----------
date of such termination and (ii) not be entitled to receive any other
compensation, benefits, or payments of any kind, except as otherwise required by
law or by the terms of any benefit or retirement plan or other arrangement that
would, by its terms, apply.

          3.3  Other Termination.  Employer may terminate the employment of
               -----------------
Employee for any reason or for no reason at any time upon at least thirty (30)
days' advance written notice. If Employer terminates the employment of Employee
for reasons other than for Material Cause or Disability, or if Employee resigns
within sixty (60) days following Constructive Discharge (as defined below),
Employee shall (i) be entitled to receive the Base Salary and benefits as set
forth in Section 2.1 and Section 2.2, respectively, through the effective date
         -----------     -----------
of such termination, (ii) be entitled to receive the Bonus provided for in
Section 2.3(b), (iii) be entitled to receive a lump-sum payment equal to the
--------------
Base Salary in effect as of the date of such termination; (iv) be entitled to
continue to receive during the one-year period following the effective date of
such termination (the "Severance Period") the employee health insurance benefits
set forth in Section 2.2 (to the extent Employee can continue to receive such
             -----------
benefits under Employer's health insurance policies and programs in effect at
the effective time of such termination through the exercise of his rights under
COBRA, Employee shall elect to receive COBRA benefits, and Employer shall pay
Employee's insurance premiums for COBRA coverage during the Severance Period;
provided, however, to the extent such benefits cannot be provided under such
--------  -------
policies and programs, Employer shall purchase for Employee reasonably
equivalent health insurance benefits during the Severance Period subject to the
limitation set forth below and subject to the limitation set forth in Section
                                                                      -------
2.7); and (v) not be entitled to receive any other compensation, benefits, or
---
payments of any kind, except as otherwise required by law or by the terms of any
benefit or retirement plan or other arrangement that would, by its terms, apply.
The foregoing notwithstanding, in the event Employee accepts employment (as an
employee or as an independent contractor) with another employer during the
Severance Period, (x) Employee shall immediately notify Employer of such
employment and (y) Employer's obligation to continue to provide certain health
insurance benefits pursuant to clause (iv) of the immediately preceding sentence
shall terminate.

                                       3
<PAGE>

          3.4.  Voluntary Resignation.  Employee may resign from Employer at any
                ---------------------
time upon at least ninety (90) days' advance written notice. If Employee resigns
from Employer other than within sixty (60) days following Constructive
Discharge, Employee shall (i) be entitled to receive the Base Salary and
benefits as set forth in Section 2.1 and Section 2.2, respectively, through the
                         -----------     -----------
effective date of such termination and (ii) not be entitled to receive any other
compensation, benefits, or payments of any kind, except as otherwise required by
law or by the terms of any benefit or retirement plan or other arrangement that
would, by its terms, apply.  In the event Employee resigns from Employer at any
time, Employer shall have the right to make such resignation effective as of any
date before the expiration of the required notice period.

          3.5  Death.  In the event of Employee's death, Employee's estate shall
               -----
(i) be entitled to receive the Base Salary and benefits as set forth in Section
                                                                        -------
2.1 and Section 2.2, respectively, through the date of Employee's death, (ii) be
---     -----------
entitled to receive the Bonus provided for in Section 2.3(b) pro rated through
                                              --------------
the date of Employee's death, and (iii) not be entitled to receive any other
compensation, benefits, or payments of any kind, except as otherwise required by
law or by the terms of any benefit or retirement plan or other arrangement that
would, by its terms, apply.

          3.6  Disability.  Upon thirty (30) days' advance notice (which notice
               ----------
may be given before the completion of the periods described herein), Employer
may terminate Employee's employment for Disability (as defined below), provided
that either (i) immediately upon the effective date of such termination,
Employee shall be eligible to receive full disability benefits under the
disability insurance, if any, provided to Employee by Employer or (ii) Employer
shall continue to pay the Base Salary to Employee until the first to occur of
(A) full disability benefits are received or (B) one (1) year from the effective
date of such termination.

          3.7  Definitions.  For the purposes of this Section 3, the following
               -----------                            ---------
terms shall have the meanings indicated:

               (a)  "Change of Control" shall mean (i) any transaction or series
of transactions in which any person or group (within the meaning of Rule 13d-5
under the Exchange Act and Sections 13(d) and 14(d) of the Exchange Act) becomes
the direct or indirect "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), by way of a stock issuance, tender offer, merger, consolidation,
other business combination or otherwise, of greater than 40% of the total voting
power (on a fully diluted basis as if all convertible securities had been
converted and all warrants and options had been exercised) entitled to vote in
the election of directors of Employer (including any transaction in which
Employer becomes a wholly-owned or majority-owned subsidiary of another
corporation), (ii) any merger or consolidation or reorganization in which
Employer does not survive, (iii) any merger or consolidation in which Employer
survives, but the shares of Employer's Common Stock outstanding immediately
prior to such merger or consolidation represent 40% or less of the voting power
of Employer after such merger or consolidation, and (iv) any transaction in
which more than 40% of Employer's assets are sold. However, despite the
                                                   -------
occurrence of any of the above-described events, a Change of Control will not
                                                                          ---
have occurred if Kent Thiry remains the Chief Executive Officer of Employer for
at least two (2) years after the Change

                                       4
<PAGE>

of Control or becomes the Chief Executive Officer of the surviving company with
which Employer merged or consolidated and remains in that position for at least
two (2) years after the Change of Control.

               (b)  "Constructive Discharge" shall mean the occurrence of any of
the following events after the date of a Change of Control without Employee's
express written consent: (i) the scope of Employee's authority, duties and
responsibilities are materially diminished or are not (A) in the same area of
operations, (B) in the same general level of seniority, or (C) of the same
general nature as Employee's authority, duties, and responsibilities with
Employer immediately before such Change of Control; (ii) the failure by Employer
to provide Employee with office accommodations and assistance substantially
equivalent to the accommodations and assistance provided to Employee immediately
before such Change of Control; (iii) the principal office to which Employee is
required to report is changed to a location that is more than twenty (20) miles
from the principal office to which Employee is required to report immediately
before such Change of Control; or (iv) a reduction by Employer in Employee's
Base Salary, bonus arrangement, or other material benefits as in effect on the
date of such Change of Control.

               (c)  "Disability" shall mean the inability, for a period of six
(6) months, to adequately perform Employee's regular duties, with or without
reasonable accommodation, due to a physical or mental illness, condition, or
disability.

               (d)  "Material Cause" shall mean any of the following: (i)
conviction of a felony; (ii) the adjudication by a court of competent
jurisdiction that Employee has committed any act of fraud or dishonesty
resulting or intended to result directly or indirectly in personal enrichment at
the expense of Employer; (iii) repeated failure or refusal by Employee to follow
policies or directives reasonably established by the Chief Executive Officer of
Employer or his designee that goes uncorrected for a period of thirty (30)
consecutive days after written notice has been provided to Employee; (iv) a
material breach of this Agreement that goes uncorrected for a period of thirty
(30) consecutive days after written notice has been provided to Employee; (v) an
act of unlawful discrimination, including sexual harassment; (vi) a violation of
the duty of loyalty or of any fiduciary duty; (vii) exclusion of Employee from
participating in any federal health care program; or (viii) a failure to perform
his duties in a satisfactory manner, as determined by the Chief Executive
Officer of Employer, in his sole discretion, so long as Kent Thiry is the Chief
Executive Officer, which goes uncorrected for a period of thirty (30)
consecutive days after written notice has been provided to Employee.

          3.8  Notice of Termination.  Any purported termination of Employee's
               ---------------------
employment by Employer or by Employee shall be communicated by a written Notice
of Termination to the other party hereto in accordance with Section 7 hereof.  A
                                                            ---------
"Notice of Termination" shall mean a written notice that indicates the specific
termination provision in this Agreement relied upon and sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Employee's employment.

                                       5
<PAGE>

          3.9  Effect of Termination.  Upon termination, this Agreement shall be
               ---------------------
of no further force and effect and neither party shall have any further right or
obligation hereunder; provided, however, that no termination shall modify or
affect the rights and obligations of the parties that have accrued prior to
termination; and provided further, that the rights and obligations of the
                 -------- -------
parties under Section 3, Section 4, Section 5, Section 6 and Section 7 shall
              ---------  ---------  ---------  ---------     ---------
survive termination of this Agreement.

     Section 4.  Certain Covenants of Executive.
                 ------------------------------

          4.1  Confidential Information.
               ------------------------

               (a)  Employee acknowledges and agrees that: (i) in the course of
his employment by Employer, it will or may be necessary for Employee to create,
use, or have access to (A) technical, business, or customer information,
materials, or data relating to Employer's present or planned business that has
not been released to the public with Employer's authorization, including, but
not limited to, confidential information, materials, or proprietary data
belonging to Employer or relating to Employer's affairs (collectively,
"Confidential Information") and (B) information and materials that concern
Employer's business that come into Employer's possession by reason of employment
with Employer (collectively, "Business Related Information"); (ii) all
Confidential Information and Business Related Information are the property of
Employer; (iii) the use, misappropriation, or disclosure of any Confidential
Information or Business Related Information would constitute a breach of trust
and could cause serious and irreparable injury to Employer; and (iv) it is
essential to the protection of Employer's goodwill and maintenance of Employer's
competitive position that all Confidential Information and Business Related
Information be kept confidential and that Employee not disclose any Confidential
Information or Business Related Information to others or use Confidential
Information or Business Related Information to Employee's own advantage or the
advantage of others.

               (b)  In recognition of the acknowledgment contained in Section
                                                                      -------
4.1(a) above, Employee agrees that, during the term of this Agreement and
------
thereafter until the Confidential Information and/or Business Related
Information becomes publicly available (other than through a breach by
Employee), Employee shall: (i) hold and safeguard all Confidential Information
and Business Related Information in trust for Employer, its successors, and
assigns; (ii) not appropriate or disclose or make available to anyone for use
outside of Employer's organization at any time, either during employment with
Employer or subsequent to the termination of employment with Employer for any
reason, any Confidential Information and Business Related Information, whether
or not developed by Employee, except as required in the performance of
Employee's duties to Employer; (iii) keep in strictest confidence any
Confidential Information or Business Related Information; and (iv) not disclose
or divulge, or allow to be disclosed or divulged by any person within Employee's
control, to any person, firm, or corporation, or use directly or indirectly, for
Employee's own benefit or the benefit of others, any Confidential Information or
Business Related Information.

                                       6
<PAGE>

               (c)  Employee agrees that all lists, materials, records, books,
data, plans, files, reports, correspondence, and other documents ("Employer
material") used or prepared by, or made available to, Employee shall be and
remain property of Employer. Upon termination of employment, Employee shall
immediately return all Employer material to Employer, and Employee shall not
make or retain any copies or extracts thereof.

          4.2. Competition.  Employee agrees that during the term of this
               -----------
Agreement and for a period of one (1) year after the termination of his
employment with Employer for any reason, he shall not: (i) be an officer,
director, consultant, partner, owner, stockholder, employee, creditor, agent,
trustee, independent contractor, or advisor of any individual, partnership,
limited liability company, corporation, independent practice association,
management services organization, or any other entity (collectively, "Person")
that either is in the business of or, directly or indirectly, derives any
economic benefit from providing, arranging, offering, managing, or
subcontracting dialysis services or renal care services; or (ii) directly or
indirectly, own, manage, control, operate, invest in, acquire an interest in, or
otherwise engage in, act for, or act on behalf of any Person (other than
Employer and its subsidiaries and affiliates) engaged in any activity in the
United States or in those countries outside the United States in which Employer
or any of its subsidiaries or affiliates had conducted any business during
Employee's employment hereunder, where such activity is similar to or
competitive with the activities carried on by Employer or any of its
subsidiaries or affiliates. As used herein, the term "dialysis services" or
"renal care services" includes, but shall not be limited to, all dialysis
services and nephrology-related services provided by Employer at any time during
the period of Employee's employment, including, but not limited to,
hemodialysis, acute dialysis, apheresis services, peritoneal dialysis of any
type, staff-assisted hemodialysis, home hemodialysis, dialysis-related
laboratory and pharmacy services, access-related services, Method II dialysis
supplies and services, nephrology practice management, or renal physician/center
network management, and any other services or treatment for persons diagnosed as
having end stage renal disease ("ESRD") or pre-end stage renal disease,
including any dialysis services provided in an acute hospital. The term "ESRD"
shall have the same meaning as set forth in Title 42, Code of Federal
Regulations 405.2101 et seq. or any successor thereto. Employee acknowledges
that the nature of Employer's activities is such that competitive activities
could be conducted effectively regardless of the geographic distance between
Employer's place of business and the place of any competitive business.
Notwithstanding anything herein to the contrary, such activities shall not
include the ownership of 1% or less of the issued and outstanding stock, which
is purchased in the open market, of a public company that conducts business that
is similar to or competitive with the business carried on by the Employer or any
of its subsidiaries or affiliates.

     Employee acknowledges and agrees that the geographical limitations and
duration of this covenant not to compete is reasonable.  In particular, Employee
agrees that his position is national in scope and that he will have an impact on
every location where Employer currently conducts and will conduct business.
Therefore, Employee acknowledges and agrees that, like his position, this
covenant cannot be limited to any particular geographic region.

                                       7
<PAGE>

          4.3  Solicitation of Employees.  Employee promises and agrees that he
               -------------------------
will not, for a period of one (1) year after the termination of his employment,
directly or indirectly, solicit any of Employer's employees to work for any
business, individual, partnership, firm, corporation, or other entity that is
then in competition with Employer's business or any subsidiary or affiliate of
Employer. Employee also agrees that during his employment and for a period of
one (1) year after the termination of his employment, directly or indirectly,
that he will not hire any of Employer's employees to work (as an employee or an
independent contractor) for any business, individual, partnership, firm,
corporation, or other entity that is then in competition with Employer's
business or any subsidiary or affiliate of Employer. In addition, Employee
agrees that during his employment and for a period of one (1) year after the
termination of his employment, directly or indirectly, that he will not take any
action that may reasonably result in any of Employer's employees going to work
(as an employee or an independent contractor) for any business, individual,
partnership, firm, corporation, or other entity that is then in competition with
Employer's business or any subsidiary or affiliate of Employer.

          4.4  Other solicitation.  Employee promises and agrees that during the
               ------------------
term of this Agreement and for a period of one (1) year after the termination of
his employment for any reason, he shall not, directly or indirectly: (i) induce
any patient or customer of Employer, either individually or collectively, to
patronize any competing dialysis facility; (ii) request or advise any patient,
customer, or supplier of Employer to withdraw, curtail, or cancel such person's
business with Employer; (iii) enter into any contract the purpose or result of
which would benefit Employee if any patient or customer of Employer were to
withdraw, curtail, or cancel such person's business with Employer; (iv) solicit,
induce, or encourage any physician (or former physician) affiliated with
Employer or induce or encourage any other person under contract with Employer to
curtail or terminated such person's affiliation or contractual relationship with
Employer; (v) disclose to any Person the names or addresses of any patient or
customer of Employer or of any physician (or former physician) affiliated with
Employer; or (vi) disparage Employer or any of its agents, employees, or
affiliated physicians in any fashion.

          4.5  Enforcement.  In the event that any part of this Section 4 shall
               -----------                                      ---------
be held unenforceable or invalid, the remaining parts hereof shall nevertheless
continue to be valid and enforceable as though the invalid portions had not been
a part hereof. In the event that the area, period of restriction, activity, or
subject established in accordance with this Section 4 shall be deemed to exceed
                                            ---------
the maximum area, period of restriction, activity, or subject that a court of
competent jurisdiction deems enforceable, such area, period of restriction,
activity, or subject shall, for the purpose of Section 4, be reduced to the
                                               ---------
extent necessary to render them enforceable.

          4.6  Equitable Relief.  Employee agrees that any violation by Employee
               ----------------
of any covenant in Section 4 will or would cause Employer to suffer irreparable
                   ---------
injury, the exact amount of which will be difficult to ascertain.  For that
reason, Employee agrees that Employer shall be entitled, as a matter of right,
to a temporary, preliminary, and/or permanent injunction and/or other injunctive
relief, ex parte or otherwise, from any court of competent jurisdiction,
restraining any further violations by Employee.  Such injunctive relief shall be
in addition to and in no way limit any

                                       8
<PAGE>

and all other remedies Employer shall have in law and equity for the enforcement
of such covenants and provisions. Employee consents and stipulates to the entry
of such injunctive relief in such a court prohibiting him from any further
violation of the covenants and provisions of Section 4.
                                             ---------

     Section 5.  Excess Parachute Payment.  In the event that any payment or
                 ------------------------
benefit received or to be received by Employee in connection with a Change of
Control, whether payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement by Employer, any predecessor or successor to
Employer or any corporation affiliated (within the meaning of Section 1504 of
the Internal Revenue Code of 1986, as amended (the "Code")) with Employer or
which becomes so affiliated pursuant to the transactions resulting in a Change
of Control (collectively all such payments are hereinafter referred to as the
"Total Payments"), is deemed to be an "Excess Parachute Payment" (in whole or in
part) to Employee within the meaning of Section 280G of the Code, as in effect
at such time, no change shall be made to the Total Payments to be made in
connection with the Change of Control, except that, in addition to all other
amounts to be paid to Employee by Employer hereunder, Employer shall, within
thirty (30) days of the date on which any Excess Parachute Payment is made, pay
to Employee, in addition to any other payment, coverage or benefit due and owing
hereunder, an amount determined by (i) multiplying the rate of excise tax then
imposed by Code Section 4999 by the amount of the "Excess Parachute Payment"
received by Employee (determined without regard to any payments made to Employee
pursuant to this Section 5) and (ii) dividing the product so obtained by the
                 ---------
amount obtained by subtracting (A) the aggregate local, state and Federal income
tax rates (including the value of the loss of itemized deductions under Section
68 of the Internal Revenue Code) applicable to the receipt by Employee of the
"Excess Parachute Payment" (taking into account the deductibility for Federal
income tax purposes of the payment of state and local income taxes thereon) from
(B) the amount obtained by subtracting from 1.00 the rate of excise tax then
imposed by Section 4999 of the Code.  It is Employer's intention that Employee's
net after-tax position be identical to that which would have obtained had
Sections 280G and 4999 not been part of the Code.  For purposes of implementing
this Section 5, (i) no portion, if any, of the Total Payments, the receipt or
     ---------
enjoyment of which Employee shall have effectively waived in writing prior to
the date of payment of the Total Payments, shall be taken into account, and (ii)
the value of any non-cash benefit or any deferred cash payment included in the
Total Payments shall be determined by Employer's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

     The calculation of the excess parachute payment is as follows:  X = Y / (1
- (A + B + C)), where X is the total dollar amount of the Tax Gross-Up Payment,
Y is the total Excise Tax imposed with respect to such Change in Control
Benefit, A is the Excise Tax rate in effect at the time, B is the highest
combined marginal federal income and applicable state income tax rate in effect,
after taking into account the deductibility of state income taxes against
federal income taxes to the extent allowable, for the calendar year in which the
Tax Gross-Up Payment is made, and C is the applicable Hospital Insurance
(Medicare) Tax Rate in effect for the calendar year in which the Tax Gross-Up
Payment is made.

                                       9
<PAGE>

     Section 6.  Representations, Warranties and Agreements of Employee.
                 ------------------------------------------------------
Employer represents and warrants to Employer that (i) upon the conclusion of the
Transition Period, he will have resigned as an officer and employee of Vivra
Asthma and Allergy, Inc. and all affiliated companies and, as of the date
hereof, is not an officer, director, or employee of any other corporation or
entity, (ii) the performance of this Agreement will not breach any other
agreement or obligation by which Employee is bound to keep in confidence
proprietary information acquired by Employee in confidence or in trust before
employment by Employer and or any agreement restricting or purporting to
restrict his right to perform services for Employer, and (iii) upon the
conclusion of the Transition Period, he will not have taken and will not have in
his possession or control any confidential information or property relating to
any former employer.  Employee agrees that he will not use confidential
information or property of any other employer while employed by Employer.
Employee shall indemnify and hold Employer harmless for any breach of the
representations, warranties, and agreements set forth in Section 6, including
reasonable attorneys' fees and costs of suit.

     Section 7.  Miscellaneous.
                 -------------

          7.1  Mediation of Disputes Concerning Employment. In the event of any
               -------------------------------------------
dispute concerning Employee's employment by Employer, whether or not relating to
this Agreement, Employee and Employer shall first attempt to resolve such
dispute through mediation as provided in this Section 7.1 before instituting any
                                              -----------
action or other proceedings with respect thereto; provided, however, that
                                                  --------  -------
neither party shall be required to utilize such mediation procedures to the
extent that equitable relief is being sought by a party in the good faith belief
that an immediate remedy is required to avoid irreparable injury to such party.
Except as otherwise provided in the proviso to the immediately preceding
sentence, in the event that either party desires to institute litigation or
other legal proceedings to resolve a dispute concerning Employee's employment by
Employer, such party shall first give written notice to the other party setting
forth in detail the nature of the dispute and the facts which such party
believes supports such party's position in such dispute.  The parties shall then
promptly (and, in any event, within ten (10) business days of the giving of
notice of a dispute) engage the services of an impartial, experienced employment
mediator (the "Mediator") under the auspices of JAMS/Endispute (or such other
mediation service as the parties may mutually select) in Los Angeles County,
California.  If the parties cannot mutually agree on the selection of a
Mediator, JAMS/Endispute shall select a Mediator within ten (10) business days
after being advised of the parties' inability to select a Mediator.  Once the
Mediator is selected, the parties shall promptly schedule a mediation session
with the Mediator for a date which is not later than forty-five (45) days after
the date of the selection of the Mediator.  The Mediator shall conduct a one-day
mediation session, attended by both parties and their counsel, in an attempt to
informally resolve the dispute. By oral or written agreement of both parties,
follow-up or additional mediation sessions may be scheduled, but neither party
shall be required to participate in more than one day of mediation.  Neither
party shall be required to submit briefs or position papers to the Mediator, but
both parties shall have the right to do so, subject to such rules and procedures
as the Mediator may establish in his or her sole discretion.  Except as
otherwise agreed by the parties, all written submissions to the Mediator shall
remain confidential as between the submitting party and the Mediator.  The
mediation

                                       10
<PAGE>

process shall be treated as a settlement negotiation and no evidence introduced
in the mediation process may be used in any way by either party or any other
person in connection with any subsequent litigation or other legal proceedings
(except to the extent independently obtained through discovery in such
litigation or proceedings) and the disclosure of any privileged information to
the Mediator shall not operate as a waiver of privilege with respect to such
information. Each party shall bear all of its own costs, attorneys' fees and
expenses related to preparing for and attending any mediation conducted under
this Agreement. The fees and expenses of the Mediator and the mediation service
used, if any, shall be borne equally by Employer and Employee.

          7.2  Arbitration.  Except as provided below and in Section 4, any
               -----------                                   ---------
controversy or claim arising out of, relating to, or in any way connected with
this Agreement, any alleged breach thereof, or Employee's employment, which was
not resolved through the use of the mediation procedure set forth in Section
                                                                     -------
7.1, shall be settled by arbitration in accordance with the rules of the
---
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association.  Without limiting the general nature of the foregoing,
such claims include, but are not limited to: wage and benefit claims; contract
claims; tort claims; defamation claims; claims for employment discrimination
(statutory or nonstatutory) based on age, race, sex, national origin, color,
religion, disability (perceived, actual, or record of), medical condition,
sexual orientation, and marital status; claims for harassment; and claims for a
violation of federal, state, local, or other government law, constitution,
statute, regulation, or ordinance.  The arbitrator shall apply the appropriate
federal or state law, shall have the authority to interpret this Agreement (but
does not have the power to amend, change, delete, or add any terms), and shall
have the power to determine the appropriate legal or equitable remedy, if any.
The arbitrator's decision, which must be in writing, will be final and binding,
and the arbitrator's award may be entered in any court having jurisdiction
thereof.  The arbitration will be held in a mutually agreeable location in
Southern California.  The arbitrator shall apply California law.

          7.3  Entire Agreement; Amendment.  This Agreement and the separate
               ---------------------------
Stock Option Agreement represents the entire understanding of the parties hereto
with respect to the employment of Employee and supersedes all prior agreements
with respect thereto. This Agreement may not be altered or amended except in
writing executed by both parties hereto.

          7.4  Assignment; Benefit.  This Agreement is personal and may not be
               -------------------
assigned by Employee.  This Agreement may be assigned by Employer and shall
inure to the benefit of and be binding upon the successors and assigns of
Employer.

          7.5  Applicable Law.  This Agreement shall be governed by the laws of
               --------------
the State of California, without regard to the principles of conflicts of laws.

          7.6  Notice.  Notices and all other communications provided for in
               ------
this Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States registered mail, return receipt
requested, postage prepaid, addressed to Employer at its principal office and to
Employee at Employee's principal residence as shown in Employer's

                                       11
<PAGE>

personnel records, provided that all notices to Employer shall be directed to
the attention of the Chief Executive Officer with a copy to the General Counsel
of Employer, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.

          7.7  Construction.  Each party has cooperated in the drafting and
               ------------
preparation of this Agreement.  Hence, in any construction to be made of this
Agreement, the same shall not be construed against any party on the basis that
the party was the drafter.  The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.

          7.8  Execution.  This Agreement may be executed in one or more
               ---------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  Photographic or
facsimile copies of such signed counterparts may be used in lieu of the
originals for any purpose.

          7.9  Legal Counsel.  Employee and Employer recognize that this is a
               -------------
legally binding contract and acknowledge and agree that they have had the
opportunity to consult with legal counsel of their choice.

          7.10  Waiver.  The waiver by any party of a breach of any provision of
                ------
this Agreement by the other shall not operate or be construed as a waiver of any
other or subsequent breach of such or any provision.

          7.11  Invalidity of Provision.  In the event that any provision of
                -----------------------
this Agreement is determined to be illegal, invalid, or void for any reason, the
remaining provisions hereof shall continue in full force and effect.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date and year first written above.

DAVITA INC.                                 EMPLOYEE



By   /s/ Kent J. Thiry                      /s/ Joseph C. Mello
     __________________________________     ____________________________________
     Kent J. Thiry                                    Joseph C. Mello
     Chief Executive Officer and
     Chairman of the Board

                                       12

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.1
<SEQUENCE>4
<FILENAME>dex121.txt
<DESCRIPTION>RATIO OF EARNINGS TO FIXED CHARGES
<TEXT>
<PAGE>

                                                                    EXHIBIT 12.1

                                  DAVITA INC.

                       RATIO OF EARNINGS TO FIXED CHARGES

   The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings. Earnings is defined as pretax income from continuing operations
adjusted by adding fixed charges and excluding interest capitalized during the
period. Fixed charges means the total of interest expense, amortization of
financing costs, and the estimated interest component of rental expense on
operating leases.

<TABLE>
<CAPTION>
                         Six months           Year ended December 31,
                         ended June ---------------------------------------------
                          30, 2001    2000     1999       1998     1997    1996
                         ---------- -------- ---------  -------- -------- -------
                                         (dollars in thousands)
<S>                      <C>        <C>      <C>        <C>      <C>      <C>
Income (loss) before
 income taxes,
 extraordinary items and
 cumulative effect of a
 change in accounting
 principle..............  $105,202  $ 44,935 $(181,826) $ 48,641 $ 81,178 $54,563
                          --------  -------- ---------  -------- -------- -------
Fixed charges:
  Interest expense and
   amortization of debt
   issuance costs and
   discounts on all
   indebtedness.........    38,439   116,637   110,797    84,003   29,082  13,670
  Interest portion of
   rental expense.......     8,773    17,140    17,501    12,992    8,196   5,301
                          --------  -------- ---------  -------- -------- -------
    Total fixed
     charges.......... .    47,212   133,777   128,298    96,995   37,278  18,971
                          --------  -------- ---------  -------- -------- -------
Earnings (loss) before
 income taxes,
 extraordinary items,
 cumulative effect of a
 change in accounting
 principle and fixed
 charges................  $152,414  $178,712 $ (53,528) $145,636 $118,456 $73,534
                          ========  ======== =========  ======== ======== =======
Ratio of earnings to
 fixed charges..........      3.23      1.34    (a)         1.50     3.18    3.88
                          ========  ======== =========  ======== ======== =======
</TABLE>
--------
(a) Due to the Company's loss in 1999, the ratio coverage was less than 1:1.
    The Company would have had to generate additional earnings of $181,826 to
    achieve a coverage of 1:1.

</TEXT>
</DOCUMENT>
</SUBMISSION>
