Berkshire adding DaVita makes pick among top at Buffett's firm

, Bloomberg

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Warren Buffett

Berkshire Hathaway Inc. has been buying about 1 million shares a month of dialysis-center operator DaVita HealthCare Partners Inc., making the holding among the dozen largest at Warren Buffett's company.

Berkshire has accumulated 13.6 million shares, or about 13 percent, of DaVita from the end of September 2011 through Dec. 6, according to regulatory filings. The stake is valued at about $1.45 billion, twice as much as Omaha, Nebraska-based Berkshire's position in Washington Post Co., one of Buffett's longest-held investments.

Buffett's firm benefited from DaVita's 32 percent rally since the Denver-based company announced a deal in May to buy HealthCare Partners, a manager of physician networks. The bet has stoked speculation about whether Berkshire will take over the business, as it did after building equity stakes in railroad Burlington Northern Santa Fe and insurer Geico.

"Are they going to own 20 percent of this at some point?" said Kevin Ellich, a senior research analyst at Piper Jaffray Cos. "And then, if that's it, is it end game?"

The HealthCare Partners deal helps an already "good-cash-flow business" and may aid DaVita as President Barack Obama's overhaul of the U.S. medical system is implemented, he said.

Chief executive officer Kent Thiry, 56, built DaVita as rising obesity and diabetes rates led to a surge in the number of patients seeking care for end-stage renal disease, or kidney failure. With more than 1,900 outpatient clinics, the company is the second-largest U.S. provider of dialysis services and treats about one-third of all ESRD patients in the country.

Weschler's Role

The DaVita holding probably was built by Ted Weschler, one of two stock pickers Buffett, 82, hired as part of a succession plan, Ellich said. The company was among the largest investments at Weschler's hedge fund, Peninsula Capital Advisors LLC, before he joined Berkshire. His hiring was announced in September 2011 and Buffett's firm had taken a 2.7 million-share stake by the end of that year.

Weschler helped with due diligence on an investment in dialysis provider National Medical Care Inc. when he was working for chemical maker W.R. Grace & Co. in the 1980s. In 1996, Grace merged NMC into Fresenius Medical Care AG, the world's largest provider of kidney dialysis. Buffett didn't respond to a request for comment sent to an assistant.

People receiving the most common treatment for ESRD, hemodialysis, typically make three visits a week to an outpatient clinic, where they are hooked up to a machine that filters toxins, fluids and salt from the blood.

Cash Flow

The federal government has covered most patients with ESRD since the 1970s, giving providers a dependable revenue source, said Dr. Tony Pfaffle, director of health care research at hedge fund Bearing Circle Capital LP. Along with drugs, hemodialysis cost about $88,000 per patient a year in 2010, according to the U.S. Renal Data System. Taxpayers' price tag for ESRD patients ballooned to $33 billion that year.

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