Segment reporting

The Company operates two major divisions, Kidney Care and DMG. The Kidney Care division is comprised of the Company’s U.S. dialysis and related lab services business, its ancillary services and strategic initiatives, including its international operations, and the Company’s corporate administrative support. The Company’s U.S. dialysis and related lab services business is its largest line of business, and is a leading provider of kidney dialysis services in the U.S. for patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD). The Company’s DMG division is a patient- and physician-focused integrated healthcare delivery and management company with over two decades of experience providing coordinated outcomes-based medical care in a cost-effective manner.

The Company’s ancillary services and strategic initiatives consist primarily of pharmacy services, disease management services, vascular access services, clinical research programs, physician services, direct primary care and the Company’s international dialysis and integrated health operations.

The Company’s operating segments have been defined based on the separate financial information that is regularly produced and reviewed by the Company’s chief operating decision maker in making decisions about allocating resources to and assessing the financial performance of the Company’s various operating lines of business. The chief operating decision maker for the Company is its Chief Executive Officer.

The Company’s separate operating segments include its U.S. dialysis and related lab services business, its DMG operations in each region, each of its ancillary services and strategic initiatives, and its consolidated international kidney care and other healthcare operations in the European and Middle Eastern, Latin America, and Asia Pacific markets, and under the Saudi Ministry of Health charter. The U.S. dialysis and related lab services business and the DMG business each qualify as separately reportable segments, and all of the other ancillary services and strategic initiatives operating segments, including the international operating segments, have been combined and disclosed in the other segments category.

The Company’s operating segment financial information included in this report is prepared on the internal management reporting basis that the chief operating decision maker uses to allocate resources and assess the financial performance of the operating segments. For internal management reporting, segment operations include direct segment operating expenses but exclude corporate administrative support costs, which consist primarily of indirect labor, benefits and long-term incentive based compensation of certain departments which provide support to various operating lines of business. These corporate administrative support costs are reduced by internal management fees received from the Company’s ancillary lines of businesses.

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



	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Segment net revenues:
U.S. dialysis and related lab services
Patient service revenues:
External sources	$	2,457,302		$	2,412,818		$	7,209,424		$	7,079,054
Intersegment revenues	26,342			16,040			76,538			44,819
Total dialysis and related lab services revenues	2,483,644			2,428,858			7,285,962			7,123,873
Less: Provision for uncollectible accounts	(117,973		)	(109,299		)	(334,078		)	(320,565		)
Net dialysis and related lab services patient service revenues	2,365,671			2,319,559			6,951,884			6,803,308
Other revenues⁽¹⁾	4,803			3,912			14,998			12,134
Total net dialysis and related lab services revenues	2,370,474			2,323,471			6,966,882			6,815,442
DMG
DMG revenues:
Capitated revenues	975,526			846,245			2,852,631			2,586,383
Net patient service revenues	187,678			166,622			556,179			448,222
Other revenues⁽²⁾	15,170			15,195			52,509			41,766
Intersegment capitated and other revenues	69			75			174			189
Total net DMG revenues	1,178,443			1,028,137			3,461,493			3,076,560
Other—Ancillary services and strategic initiatives
Net patient service revenues	95,490			57,498			246,349			165,742
Capitated revenues	40,839			26,293			103,848			74,149
Other external sources	263,996			311,292			795,731			942,478
Intersegment revenues	13,743			16,642			39,958			43,189
Total ancillary services and strategic initiatives revenues	414,068			411,725			1,185,886			1,225,558
Total net segment revenues	3,962,985			3,763,333			11,614,261			11,117,560
Elimination of intersegment revenues	(40,154		)	(32,757		)	(116,670		)	(88,197		)
Consolidated net revenues	$	3,922,831		$	3,730,576		$	11,497,591		$	11,029,363
Segment operating margin:
U.S. dialysis and related lab services⁽³⁾	$	442,777		$	452,187		$	1,837,989		$	1,341,432
DMG	(587,817		)	33,094			(588,389		)	(126,110		)
Other—Ancillary services and strategic initiatives	(36,518		)	361,903			(142,984		)	338,159
Total segment operating margin	(181,558		)	847,184			1,106,616			1,553,481
Reconciliation of segment operating margin to consolidated income before income taxes:
Corporate administrative support⁽⁴⁾	(10,965		)	(28,028		)	(32,587		)	(40,366		)
Consolidated operating (loss) income	(192,523		)	819,156			1,074,029			1,513,115
Debt expense	(109,623		)	(104,581		)	(322,014		)	(310,359		)
Other income, net	4,370			1,876			13,866			8,067
Consolidated (loss) income before income taxes	$	(297,776	)	$	716,451		$	765,881		$	1,210,823


(1)	Includes management fees for providing management and administrative services to dialysis centers that are wholly-owned by third parties and legal entities in which the Company owns a noncontrolling equity investment.


(2)	Includes medical consulting service fees and management fees for providing management and administrative services to unconsolidated joint ventures and revenue related to the maintenance of existing physician networks.


(3)	U.S. dialysis and related lab services operating income includes the net gain on the settlement with the VA for the nine months ended September 30, 2017.


(4)	Corporate administrative support costs includes an adjustment of $27,040 to reduce a receivable associated with the DMG acquisition escrow provision relating to an income tax item for the three and nine months ended September 30, 2016.

Depreciation and amortization expense by reportable segment was as follows:



	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
U.S. dialysis and related lab services	$	132,112	$	122,540	$	387,142	$	358,427
DMG	60,649		52,595		177,983		153,068
Ancillary services and strategic initiatives	10,522		6,604		28,402		19,980
	$	203,283	$	181,739	$	593,527	$	531,475

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

Assets by reportable segment were as follows:



	September 30, 2017		December 31, 2016
Segment assets
U.S. dialysis and related lab services (including equity investments of $87,549 and $66,924, respectively)	$	11,649,092	$	11,099,137
DMG (including equity investments of $9,155 and $10,350, respectively)	5,788,387		6,213,091
Other—Ancillary services and strategic initiatives (including equity investments of $448,349 and $425,115, respectively)	1,575,860		1,429,029
Consolidated assets	$	19,013,339	$	18,741,257

Expenditures for property and equipment by reportable segment were as follows:



	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
U.S. dialysis and related lab services	$	205,266	$	182,741	$	531,027	$	467,121
DMG	24,282		17,396		72,953		55,639
Ancillary services and strategic initiatives	11,341		16,479		35,849		52,483
	$	240,889	$	216,616	$	639,829	$	575,243