Berkshire Hathaway Bet Big on Dialysis Giant DaVita. Jim Chanos Thinks It’s a Scam.

When former hedge fund manager Ted WeschlerjoinedWarren Buffett’s Berkshire Hathaway, he brought with him knowledge of DaVita, a kidney dialysis provider. Between the September 2011 announcement of hishiring他2012年初开始日期，该公司出现在伯克郡的投资组合中。

It has become one of the latest known targets of prominent short-seller Jim Chanos, a man who makes a living betting against companies.

So far this year, Chanos is on thelosing side of the bet。DaVita’s market value climbed to $9.4 billion on December 3, with its shares soaring 40 percent since the end of 2018. The stock’s rise includes a 21 percent jump since Chanos, the founder of Kynikos Associates, first spoke publicly about his wager against the company on September 19 at the Delivering Alpha conference in New York.

There, Chanos pointed to what he alleged to be a massive insurance scam. According to Chanos, DaVita uses its relationship with the American Kidney Fund — a charitable group that helps people with kidney disease pay for lifesaving care — to profit by moving Medicare patients into more expensive commercial insurance.

The company’s growth is challenged in the near term because DaVita has “far too much earnings derived from its relationship with the American Kidney Fund,” JPMorgan Chase & Co. analyst Gary Taylor wrote in a November 5 research note. The charitable fund, which helps cover patients’ commercial insurance premiums, receives major funding from DaVita and rival dialysis provider Fresenius Medical Care, according to Chanos.

“It is a strange situation, no question,” said Matt Larew, an equity analyst at William Blair & Co. who covers DaVita, in a phone interview. “They get paid substantially more by private payers. And then they happen to be big-ticket donors to the AKF.”

DaVita benefits from the relationship with the American Kidney Fund because the reimbursements it receives from commercial insurers is much higher than what it gets from Medicare, according to analysts who follow the company. While controversial, it’s not illegal, they say.

“这只是它的工作方式，”拉雷说。“如果他们改变规则，我肯定的是达瓦塔将通过新规则运作。”

While Larew doesn’t see DaVita doing anything “unethical,” he said the company would be more vulnerable to a rule change than rival Fresenius, partly because it’s a “pure-play” dialysis company.

透析的商业收入无疑对大田士难以重要。“我们从商业付款人收到的付款几乎所有的利润，”公司在2018年表示annual report。

“They’re essentially 100 percent exposed,” said Larew, whereasFreseniusruns a business that’s “a little bit broader in nature.”

But Berkshire, a conglomerate that runs an insurance business alongside other holdings, doesn’t appear to be backing down from its investment in DaVita. That pits Chanos against the firm built by chairman and chief executive officer Buffett, a billionaire who has long earned wide respect from investors for his integrity — as well as his success at making such bets.

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In adocumentfiledlast month with the Securities and Exchange Commission, Berkshire reported a 29.7 percent stake in DaVita. While up slightly from the 27.8 percent ownership thefirm reported in August, the total shares held by Berkshire remained the same at 38,565,570.

随着达瓦塔的股票交易约72美元，伯克希尔的股份价值约为28亿美元。这是从周围开始的a half billion dollarsin early 2012, when the firm revealed a much smaller position, regulatory filings show. A less significant interest was first established by Berkshire during the final three months of 2011 — in the runup to Weschler’s start date — but the wager wasn’t Buffett’s, the firm said.

The bet is “a portfolio holding of one of our two portfolio managers (not Warren Buffett),” Debbie Bosanek, assistant to Buffett, said in an email to亚博赞助欧冠。“Our two portfolio managers are Todd Combs and Ted Weschler.”

Combs joined Berkshire in 2011 from hedge fund firm Castle Point Capital Management, whileWeschlerstarted working for Buffett in 2012. Weschler previously was a managing partner at Peninsula Capital Advisors, the hedge fund firm he founded in Charlottesville, Virginia, and shuttered in 2011.

DaVita was aholdingof Peninsula in 2011 — the year Weschler won a charity-auctioned lunch with Buffett for a second time before joining Berkshire.

In his 2012 annualletter to shareholders, Buffett said Berkshire “hit the jackpot” with new investment managers Combs and Weschler. They “have proved to be smart, models of integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect cultural fit,” he said in the letter. Buffett also noted stocks detailed by Berkshire in its annual reports would now include investments made by Combs and Weschler, either together or alone, provided the value met the firm’s dollar threshold for the year.

DaVita appears for the first time in Berkshire’s annual reports in 2014. At the end of that year, its 8.6 percent stake in the company was valued at $1.4 billion, making DaVita one of the firm’s 15 largest common stock investments. Thereport listedthe purchase price as $843 million.

“我无法理解为什么Berkshire Hathaway将推广一家借鉴Davita的保险业务的公司，”Chanos在交付的阿尔法会议上表示，共同主持II和9月份的CNBC。达瓦塔是“经营保险骗局”，他指称，称之为“像伯克希尔一样的保险公司一样糟糕的寻找。”

Buffett’s assistant said in an email that Berkshire’s portfolio managers “don’t do interviews” and did not respond to a subsequent request for comment on Chanos’s allegation that DaVita is running an insurance scam.

透析公司最后在2015年通过市场价值中列出了伯克郡最大的股票持股。它在其年度报告中并未出现。仍然是股份，伯克希尔仍然超过四分之一的股票最大的利益攸关方, Nasdaq data show.

“大多数透析患者在绝大多数案件中陈旧和不那么富裕，符合Medicare和Medicaid的资格，”Chanos在提供alpha时说。“戴维塔正在努力做什么，就是通过奥巴马马尔交流推动那些患者进入，讽刺意义，更昂贵的商业保险合同。”

The patients are willing to move to commercial insurance because they’re told of better services, shorter wait times, and nicer facilities, Chanos alleged. Also, depending on their circumstances, the charitable American Kidney Fund will pay some to all of the premium tied to the private insurers, he said.

For DaVita and Fresenius, it’s a more profitable way to do business: They charge commercial insurers triple or quadruple what they get from the government’s Medicare and Medicaid programs, he said.

“Now, this is bad enough,” said Chanos. “But what really is interesting is that the two largest donors, at slightly less than 90 percent of the donations to the American Kidney Fund, are DaVita and Fresenius.”

Donations made by the two dominant dialysis providers have sparked concern over the potential for conflicts of interests, according to Jonathan Kanarek, an analyst with Moody’s Investors Service who covers Denver-based DaVita.

关切的是，他们的捐款可能会使人们保持更昂贵的保险形式，因此透析的提供者可以使“诸如Medicare将支付的倍数是相同的护理水平，”Kanarek在电话采访中表示。“这就是在行业中提出眉毛的原因。”

DaVita and Fresenius are permitted to donate to the American Kidney Fund, whose work helps them earn more, because they’re not the ones directing the charitable giving, according to Chanos. That distinction gives them safe harbor. “They just donate out of the goodness of their heart and, shockingly, they get this extra reimbursement,” he said.

DaVita says Chanos doesn’t understand its operations.

“Statements from this short seller contain false and misleading information and reflect a poor understanding of our business and our industry,” Courtney Culpepper, a spokesperson for DaVita, said in an emailed statement. “Contrary to his claims, charitable assistance is a longstanding financial safety net for a small percentage of kidney care patients who use it to afford their insurance plan, with the majority of patients using it to support their Medicare primary or secondary premiums.”

The spokesperson added that “this assistance helps ensure they have continuity of care for life-sustaining treatment and access to transplantation.”

美国肾脏基金发言人Alice Andors通过电话表示，“我们的使命正在照顾患者，这就是我们所做的。”她拒绝发表评论大塔正在运行保险骗局的指控，称相关陈述可以在其网站上找到。

One such statement was made in response to California congresswoman Katie Porter’scall in July for an investigationinto the dialysis industry’s practices. She raised concern that the country’s largest dialysis providers may be “lining their pockets at patients’ expenses” by using financial influence over the American Kidney Fund as donors.

非营利组织于7月24日回复statementthat it provides an “essential safety net for low-income end-stage renal disease patients” and that “internal firewalls ensure that dialysis providers have no say in whether AKF will assist their patients.”

Andors did not reply to an email seeking comment on the size of the donations made by DaVita and Germany’s Fresenius to the American Kidney Fund. Fresenius’s press desk in North America also did not respond to an email and phone call seeking comment on its donations to the charity and allegations of an insurance scam benefiting its bottom line. Matthias Link, a spokesman for Fresenius in Germany, did not reply to an email requesting comment.

Amid heightened concern over the potential for conflicts of interests in the dialysis industry, S&P Global Ratings credit analyst Ji Liu said it’s important to remember the life-saving nature of the business.

“It would be hard to have a very unfavorable regulation against the industry without potentially jeopardizing patient access,” Liu said in a phone interview. “There are patients who do need this to survive.”

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Chanos,who makes money when companies’ stock prices fall, has seen another potentially ominous sign for DaVita.

“它总是有趣的,在我的世界里,当一个人的your biggest customers sues you for fraud,” Chanos said at Delivering Alpha. “And this spring, Blue Cross of Florida sued DaVita.”

In May, Blue Cross and Blue Shield of Florida and Health Options — collectively known as Florida Blue — filed a complaint against DaVita for allegedly engaging in a “deceptive and illegal scheme” by making donations to the American Kidney Fund that are then used to buy commercial health insurance coverage for its dialysis patients. The company bills insurance companies such as Florida Blue for their services when the patients could instead be covered by cheaper Medicare or Medicaid programs, the insurer alleged in the complaint, filed in the U.S. District Court for the Middle District of Florida, Jacksonville Division.

“戴维塔利用其相当大的资源，以符合条件”为Medicare或Medicaid进入佛罗里达蓝商业健康保险的转向患者，或者让他们注册他们不需要或无法承受的计划。这样，根据诉讼，他们可以从保险公司获得更高的付款。

“通过这个计划，达瓦塔在过去的几年里，达瓦塔损坏了佛罗里达蓝的曲调到数千万美元的曲调，”保险公司涉嫌投诉。戴维塔在10月提交的法院文件中否认，它从事佛罗里达蓝色所称的“欺骗性和非法计划”。

“The challenge for any dialysis company, DaVita included, is to continually replenish the number of commercially insured patients that it treats,” said Kanarek of Moody’s. “Medicare is not profitable for dialysis companies.”

But commercial insurers would naturally prefer that patients who are eligible for Medicare move to the government program as soon as possible. “For whatever reason,” some patients are opting to stay put, according to Kanarek. The American Kidney Fund adds “complexity” to the dynamic because it’s supported by industry donations and its financial assistance may allow patients to stay on their existing commercial plan longer, he said.

That can drive up costs in a healthcare system under broader scrutiny for being expensive, according to Kanarek.

Details of a separate lawsuit involving DaVita, filed by a whistleblower in 2016, were unsealed about four months ago.

The suit led to an investigation but did not result in any intervention by the Department of Justice, according to a document filed in July with the U.S. District Court for the District of Massachusetts.

The whistleblower’s complaint against DaVita, Fresenius, and the American Kidney Fund alleged the dialysis companies were receiving kickbacks through favorable treatment from the fund’s charitable giving. The recently unsealed case revealed the identity of the whistleblower to be David Gonzalez, a former employee of the American Kidney Fund. After 12 years with the nonprofit, in October 2015 Gonzalez allegedly was “forced out of the organization for questioning the practices” detailed in his lawsuit, according to the complaint.

“We now know that this suit was brought by a former employee who, prior to making this complaint, was terminated for cause,” LaVarne Burton, the American Kidney Fund’s president and chief executive officer, said in an early Auguststatement。The nonprofit group “strictly adheres to the federal advisory opinion that governs our charitable premium assistance program,” she said. “We have in place strict safeguards and conflict of interest policies to ensure that.”

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And yet,despite whistleblowers, public warnings, and lawsuits, the DaVita short has been an unmitigated disaster for Chanos and other short sellers in 2019.

DaVita short sellers are down $190.7 million, or about 41 percent this year, with more than half of those paper losses posted during the first week of last month, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. (Chanos and Kynikos didn’t respond to requests for comment on DaVita.)

The number of DaVita shares shorted this year has risen by 90 percent, Dusaniwsky said in an email. The firm’s data showed a total $533 million of short interest in DaVita on December 2.

“We have not seen short covering after DVA’s recent price jump,” Dusaniwsky said in a November 8 email, meaning S3 Partners did not observe investors immediately rushing to exit their short positions following DaVita’s better-than-expectedearnings report。

DaVita’s shares had jumped 13 percent to $70.51 on November 6, the day after the company reported its third-quarter earnings. Investors who were short DaVita saw $83.4 million in mark-to-market losses, he said.

The company’s earnings in the third quarter beat expectations as Wall Street “almost certainly didn’t model” for the earnings contribution from calcimimetics — a type of drug prescribed to patients with kidney disease — according to a November 5 report from JPMorgan’s Taylor, who has a neutral rating on DaVita.

DaVita’s “one-time benefit” tied toCalcimetics.will mostly disappear next year, according to S&P Global analyst Liu, who gives the company a speculative-grade rating of BB with a negative outlook. DaVita was able to buy the drugs more cheaply, helping its cash flow in 2019, Liu said.

“更大的故事是他们对透析治疗的报销，”他说。“有一个奇怪的动态。”

Ninety percent of DaVita’s treatment volumes are paid by Medicare, business in which the company “barely breaks even,” he explained. Ten percent of volumes are paid by commercial insurance, from which “the company earns pretty much all of their operating profits.” Liu said that’s because commercial insurers pay three to four times what taxpayer-funded Medicare pays.

“The treatment itself is the same,” he said, creating tension between the commercial insurers and the dialysis providers. There’s a limit to how long dialysis patients can be covered under private plans, though, as they will eventually be moved toMedicare据刘某说，他们的年龄无论如何。“患者只能在搬到Medicare之前留在商业保险33个月内，”他说。“这只是法律。”

根据其关注，Davita对Davita的前景是消极的部分，它可以采用“更具侵略性的财政政策”，其中包括行业基本面的持续债务水平超过四次，这是行业基本面，根据其11月14日的报告。例如，公司将不得不导航“持久的报销压力”，在监管审查，S＆P说，并在接受透析治疗的人数中的增长放缓。

DaVita provided dialysis services to about 202,700 U.S. patients at 2,664 outpatient dialysis centers at the end of last year, according to S&P. Obesity and heart failure are among the chronic health conditions that lead to dialysis treatment, said William Blair’s Larew. While companies like DaVita naturally profit from extending the lives of patients with the dialysis they provide, kidney transplants make such treatments unnecessary. That may be behind the market’s slowdown.

达维塔是苦苦挣扎的一点理解why growth is slowing in the dialysis market, Larew said. One explanation the company has provided is linked to the opioid epidemic. In a conference call, “they pointed out that the opioid crisis has increased the number of healthy kidneys on the transplant list because it’s killing younger, healthier people who have died from opioid overdose,” Larew said. DaVita isn’t saying that is “the” overall problem, he said, but the company is seeking to understand why the number of patients going into end-stage renal disease is slowing.

“如果你在一个地方你的有机增长limited to basically market growth, and that market growth is slowing, you’re in a tough spot from a topline perspective,” Larew said. However challenging for DaVita, or darkly tied to the opioid crisis, fewer people in need of dialysis because their lives are saved by kidney transplants is undoubtedly a positive development.

Other avenues for growth are also muted, according to analysts. As DaVita’s potential organic growth declines, expanding through large U.S. acquisitions in the dialysis sector is also unlikely, said Larew. Regulators likely wouldn’t approve a large purchase by DaVita because, alongside Fresenius, it is one of two dominant providers of dialysis treatment to patients with end-stage renal disease in the U.S., he explained. DaVita and Fresenius provide services to nearly 75 percent of U.S. patients in need of dialysis, according to S&P.

And of the two, DaVita is more vulnerable to industry headwinds.

“We view DaVita as a weaker credit compared with Fresenius due to smaller scale, lack of diversification, and higher leverage,” S&P said in its November 14 report. The analysts expect the company will rely more on share buybacks to reach theguidanceit provided for its 2022 earnings per share at its capital-markets-day event in September.

DaVita doesn’t seem shaken.

“我们对我们的长期战略保持着自信，”Davita的发言人Culpepper在一封电子邮件中表示。她表示，这是最近的2022年收入，每股收益和现金流动的指导。其首都市场日演示文稿显示该公司预计2022年的每股收益将为6.25美元至7.25美元，而去年为3.57美元。

But in the meantime, DaVita faces political threats.

Abill10月签署的加州州长will “lower the reimbursements to arbitrated rates for all dialysis patients” who receive subsidies from the charitable premium assistance program, according to the S&P report. While DaVita is fighting the legislation in court, the credit ratings firm said the harm to its operating income could increase should other states follow suit.

“They are spending extra money for advocacy costs,” S&P’s Liu said. But the cost of lobbying efforts hasn’t stopped them from increasing earnings-per-share guidance next year. “They’ve actually increased their EPS guidance for 2020,” he said.

Other disruptive proposals could arise from the U.S. presidential election in 2020.

“如果我们获得所有医疗保险，或者医疗保险选择，或者由于联邦法院裁决，ACA被关闭，这一商业模式完全爆发，”Chanos在提供阿尔法时说。虽然德克萨斯州的联邦法官视为经济实惠的护理法案，或者去年违宪，仍然是美国法律。据此，依据a November reportfrom nonprofit news service Kaiser Health News.

ChanoS引用了越过大田和肾透析行业的影子的其他问题。

At the Delivering Alpha conference, he claimed there was “rampant use of opioids amongst dialysis patients.” They’re overseen by doctors and nephrologists “who should know better,” he said, pointing to a 2017 study fromPaul Kimmelthat cautions against overprescribing opioids to dialysis patients.

In apaper那年他合著,direc Kimmel——一个项目tor with the Division of Kidney, Urologic, and Hematologic Diseases at the National Institutes of Health’s National Institute of Diabetes and Digestive and Kidney Diseases — found “high rates of both chronic opioid prescription and excessive dosing in the maintenance dialysis population.”

DaVita has been tested in the past. S&P likes the management team and their track record of successfully battling reimbursement pressures over the past two decades, according to Liu. “They come out of those battles okay,” he said.

For all the headwinds and allegations surrounding the kidney dialysis industry, investors aren’t fleeing DaVita. Instead, they pushed its shares to a series of new 52-weeks highs in November.

至少现在，这使得伯克希尔的赌注看起来很好。