Acclaimed short seller Jim Chanos explains why he's betting against a healthcare business loved by Warren Buffett
- Legendary short seller Jim Chanos - the president and founder of Kynikos Associates - says he's made a bet against kidney dialysis company DaVita, which counts Warren Buffett's Berkshire Hathaway conglomerate as its biggest shareholder.
- Chanos named a recent lawsuit against DaVita as a major risk, and challenged Berkshire for investing in the company based on its insurance holdings.
- While Chanos said the company faces multiple regulatory threats and growth has been weak, he said Berkshire's seal of approval has made its stock expensive.
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It's not every day that someone aggressively goes after one of Warren Buffett's stock picks.
But the legendary short seller Jim Chanos is doing just that, saying he's bet against kidney dialysis provider DaVita HealthCare Partners.
At the recent Delivering Alpha conference hosted by CNBC, Chanos criticized the company's business model and its relationship with a charity that helps patients pay for care - a relationship that's the subject of a recent lawsuit. He considers the suit a big threat to the stock.
Along the way he questioned Buffett's Berkshire Hathaway conglomerate - which owns numerous insurance companies - for being DaVita's largest investor.
"This I think is a very bad look for an insurance company like Berkshire Hathaway, to be promoting a company that I think is certainly running an insurance scam, and if the whistle-blower is correct, it's actually insurance fraud," Chanos said.
In a statement, DaVita said Chanos' statements "contain false and misleading information and reflect a poor understanding of our business and our industry," and that only a small proportion of its patients use charitable assistance to pay for health care.
Berkshire first disclosed an investment in DaVita in late 2011 and owns 28% of its stock. Chanos said he took his short position several years ago.
He said DaVita is similar to them in that it's earning big profits through questionable means that could make it a target of regulators or lawmakers. It's already paid some large government fines in recent years.
Last month a Florida insurance provider sued DaVita and competitor Fresenius in federal court and all edged that the companies overcharged it for years. It says DaVita pushed Medicare and Medicaid patients to buy private insurance, telling them they would get better treatment, and then charged those private insurers more money than it charged the government.
The private insurance was reportedly paid for, in part or in full, by the American Kidney Fund, a charity that receives significant funding from DaVita and Fresenius.
"It's always interesting in my world when one of your biggest customers sues you for fraud," Chanos said.
Chanos said the company also faces new hurdles including a push by the Trump administration to have more dialysis patients get transplants or treatment at home instead of at facilities like DaVita's, as well as the potential for Medicare for All and other types of health reform.
Despite all of that, Chanos says, the stock is expensive compared to that of Fresenius, and Buffett's seal of approval is a big reason.
"This company hasn't grown earnings per share in 10 years, despite massive buybacks ... with declining margins," he said.
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