One more iron has been cast into the fire in the ongoing skepticism over kidney dialysis company – and Buffett portfolio staple – DaVita, which has already drawn criticism from well known short sellers like Jim Chanos and media outlets like the New York Times.
Critics have raised numerous questions about DaVita’s business practices, but none more important than the company’s relationship with the American Kidney Fund, who has been accused of helping DaVita intentionally steer dialysis patients from lower cost government insurance to high cost commercial payors – a move that has had a profoundly positive effect on DaVita’s bottom line.
This morning, research firm Hindenburg Research released a new investigative report highlighting that DaVita also appears to be the main funding entity behind a powerful lobbying group in California that has been set up to oppose state legislation targeting the AKF loophole. The report also exposes that many groups whose names are being used, allegedly in support of voting down the bill, had little to no knowledge that they were involved.
The report states:
“DaVita’s most lucrative scheme is finally becoming obvious to insurers, patients and legislators following multiple media exposés. As a result, legislation is starting to specifically target the company’s primary remaining profit center. We intend to highlight the legislative challenges currently facing DaVita at both the state and national level that we believe will persist until the loophole driving this scheme has been closed.
As DaVita works against one of its main legislative challenges of the moment, California Assembly Bill 290, we sought to understand the company’s lobbying effort. We found that DaVita is, in characteristic fashion, engaging in what looks to be underhanded lobbying tactics in order to defend its charity scheme.”
The report highlights that the state of California is estimated to account for 15-20% of the company’s dialysis business and that the assemblyman who introduced the California bill “called DaVita’s charity loophole a ‘self-serving scam’ and ‘a scheme to bankroll patients’ healthcare premiums'”.
A coalition that was formed to oppose the bill claims the support of many groups in California, but the report says, of these groups: “most readily admitted to not knowing anything about the bill and/or simply taking their cues from lobbyists or other organizations. Some didn’t even know they opposed it at all.”
For instance, the Commander of the State of California American GI Forum told Hindenburg:
“As far as I’m concerned, I haven’t been informed about anything that’s out there or stance that we take, etc., so I can’t really say why are we opposed to it.”
The report also reveals that about 90% of the funding for the lobbying group has come from large for-profit dialysis corporations such as DaVita and Fresenius. DaVita is said to have represented about 60% of the group’s funding over the last 2 years, having donated over $67 million to the group in that period.
Hindenburg writes that despite not having a position in the company’s stock, they “thought it would be important to shed light on the ridiculous abuse of the medical system that continues under a cloak of legitimate lobbying efforts.”
You can read the full report here: