Warren Buffett’s Berkshire Hathaway is now the largest shareholder of DaVita HealthCare Partners Inc (NYSE:DVA) with 13,607,935 shares as of December 31, 2012. Buffett’s holding is worth more than $1.5 billion, which represents 2 percent of his portfolio.
Berkshire Hathaway initially acquired a stake in the DaVita HealthCare Partners Inc (NYSE:DVA) during the fourth quarter of 2011. Since then, the billionaire investor increased his position in the company. During the previous quarter, Berkshire Hathaway purchased more than 3.5 million shares, which shows that the billionaire investor really likes DaVita. Why does Warren Buffett and his new portfolio managers like DaVita HealthCare Partners Inc (NYSE:DVA)? Here are some of the possible reasons:
Increasing Demand for ESRD Treatment
DaVita HealthCare Partners Inc (NYSE:DVA) provides dialysis treatment for patients with chronic kidney failure and end stage renal disease (ESRD). DaVita operates 1,954 outpatient dialysis centers in the United States and 36 outpatient dialysis centers located in five other countries. In the United States alone, DaVita HealthCare Partners Inc (NYSE:DVA) provides services for approximately 153,000 patients. Eighty nine percent (89%) of its patients are covered under government-based programs, particularly Medicare, based on its regulatory filing. This means the company has a steady source of revenue.
The United States Congress enacted the ESRP program requiring Medicare to pay for the pay for hemodialysis, kidney transplant, or other related services of patients regardless of age or circumstances as long as they are eligible for Social Security benefits. Under the Omnibus Budget Reconciliation Act (OBRA) of 1981, the Composite Rate, or the reimbursement method, requires Medicare to pay 80% of the costs of dialysis, laboratory testing, and other related services. Patients will pay the remaining 20 percent through their own health insurance. Companies providing dialysis treatment like DaVita can charge medications separately through the Medicare Part B.
The most common cause of kidney failure is diabetes and high-blood pressure, according to the National Kidney and Urologic Diseases Information Clearing House, (NKUDIC). Data from the American Diabetes Association showed that there are 25.8 million people with diabetes. There are 100,000 people diagnosed with kidney failure every year. The United States government is spending billions of dollars for the treatment of patients with kidney failure. In 2012, Medicare spent $33 billion for ESRD patients, which accounts 6.3% of its budget.
Between1980 to 2009, the prevalent rate for ESRD increased by almost 600 percent, from 290 to 1,738 cases per million.