Berkshire Hathaway Increases Its Stake In DaVita

In an SEC Form 4 filing after the market closed on Friday, July 5, Berkshire Hathaway (BRK.A, BRK.B) reported a $73 million increase in its investment in DaVita HealthCare Partners (DVA). Berkshire purchased 639,200 additional shares on July 2 and 3, and has been adding to its holdings in DaVita throughout 2012 and 2013. It currently is the largest shareholder of DaVita, with a 15% stake valued at $1.8 billion. Its most recent prior purchase of DaVita’s shares was four months ago, on March 4.

After the market closed on July 1, the Centers for Medicare and Medicaid Services (CMS) proposed a reduction of 9.4% for Medicare payments for kidney dialysis treatments in 2014. This exceeded Wall Street’s expectations of only a 4 – 5% reimbursement cut. As a result, DaVita’s shares declined 6% in price on July 2 to $114, and was 13% below its all-time high of $131 set on May 10. The proposed rates are open to public comment until August 30, with a final ruling expected later this year. DaVita derives about 2/3 of its revenues from Medicare patients, but its revenues have been growing rapidly as it expands both within the U.S. and overseas.

Ted Weschler has been closely following, and investing in, the kidney dialysis industry for almost 30 years. Apparently he has been purchasing these shares for Berkshire Hathaway. In 1984 he worked on the acquisition of National Medical Care Inc., a large provider of kidney dialysis services, for his employer, W.R. Grace. DaVita was also one of Ted Weschler’s largest investments in his hedge fund, Peninsula Capital, for the ten years preceding his hiring by Warren Buffett as a portfolio manager at Berkshire Hathaway. The sharp drop in DaVita’s shares on July 2 and 3 provided Mr. Weschler with an opportunity to add to Berkshire’s stake at a substantial discount, and represents a strong vote of confidence for DaVita’s future.