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Berkshire Hathaway's key positions in 4th quarter 2013

Part 6
Berkshire Hathaway's key positions in 4th quarter 2013 (Part 6 of 6)

Buffett bet on healthcare, raising DaVita Healthcare Partners stake

Berkshire Hathaway and DaVita Healthcare Partners

Berkshire Hathaway said in its year end letter that it increased its ownership interest last year in each of its “Big Four” investments—American Express (AXP), Coca-Cola (KO), IBM (IBM), and Wells Fargo (WFC). It also bought shares in Exxon Mobil (XOM), DaVita HealthCare Partners (DVA), Liberty Global (LBTYA), and Goldman Sachs (GS).

Berkshire Hathaway increased its position in DaVita Healthcare Partners (DVA), a provider of dialysis services in the U.S., by 5,014,464 shares to 2.20% last quarter. The position was first initiated in 4Q 2011 and has been built up over the last several quarters. Berkshire Hathaway signed a standstill agreement in May last year and agreed not to acquire more than 25% of the company.

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According to regulatory filings, Berkshire Hathaway recently purchased 1.13 million more shares of DaVita HealthCare Partners, increasing its stake in the kidney dialysis company to 17.7%. With these purchases, Berkshire now owns over 37.6 million shares.

In a recent interview with CNBC, Berkshire Hathaway portfolio manager Ted Weschler explained why DaVita is interesting. He said that DaVita provides better quality of care, delivers net savings to the healthcare system, provides a higher return on capital, and has a predictable growth and shareholder-friendly management. He further said that “five years from now it will be a more valuable franchise.”

Shares rallied as the company posted earnings and revenue above analyst estimates. DaVita’s adjusted income was up 18% year-over-year, to $0.99 per share, as revenue climbed 24%, to $3.06 billion. DaVita was impacted last year by proposed Medicare cuts but is now poised to benefit after CMS agreed to keep reimbursement rates flat in 2015.

DaVita also agreed to a settlement for a federal investigation into its physician relationships. The settlement will include the payment of approximately $389 million, an amount previously announced and reserved, entry into a corporate integrity agreement, the appointment of an independent compliance monitor, and the imposition of certain other business restrictions related to a subset of its joint venture arrangements. The company also will unwind some joint ventures it created with nephrologists, who specialize in kidney care.

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DaVita’s largest line of business is U.S. dialysis and related lab services business. It’s a leading provider of kidney dialysis services in the U.S. for patients suffering from chronic kidney failure, also known as “end stage renal disease” (or ESRD). As of December 31, 2013, DaVita provided dialysis services to a total of approximately 168,000 patients at 2,147 outpatient dialysis centers, of which 2,074 centers are located in the United States and 73 centers are located in ten countries outside of the United States. In November 2012, DaVita changed its name to DaVita HealthCare Partners Inc. from DaVita Inc., following its merger with HealthCare Partners (HCP). HCP is a patient- and physician-focused integrated healthcare delivery and management company with nearly three decades of experience providing coordinated, outcomes-based medical care in a cost-effective manner. Through capitation contracts with some of the leading U.S. health plans, as of December 31, 2013, HCP had approximately 764,000 members under its care in southern California, central and south Florida, southern Nevada, central New Mexico, and central Arizona.

In August of last year, DaVita declared it would issue a stock dividend in the form of a two-for-one split of its common stock that increased the number of outstanding shares to 212.5 million from 106.2 million at the end of June.

To learn more about Berkshire Hathaway, see the Market Realist series Why Warren Buffett’s XOM purchase can affect your portfolio.

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