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DaVita is Secretly Trying to Defend its Charity Scheme with a Lobbying Scheme
1. Hindenburg Research | August 13, 2019 | www.hindenburgresearch.com | please read our full disclaimer
DaVita is Secretly Trying to Defend its Charity
Scheme with a Lobbying Scheme
• DaVita is a $10 billion market cap dialysis company that derives much of its profits through
a charity scheme that has been exposed by the New York Times and the Southern
Investigative Reporting Foundation, among others.
• The scheme involves DaVita donating to a “charity”, the American Kidney Fund, which
then guides individuals into switching from low-cost public insurers (that DaVita makes
no profit from) to high-cost private insurers (that DaVita makes a substantial profit from).
• In California, a state estimated to account for 15-20% of the company’s dialysis business,
a bill has passed the state assembly that intends to close the charity scheme loophole.
• The assemblyman who introduced the bill has called DaVita’s charity loophole a “self-
serving scam” and “a scheme to bankroll patients’ healthcare premiums”.
• DaVita has responded to these legislative efforts by quietly funding a group called
“Patients and Caregivers to Protect Dialysis Patients” that claims to be a broad coalition
acting against the bill in order to protect the interests of the poor and disadvantaged.
• We spoke to numerous groups in the coalition; 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.
• In reality, about 90% of the recent monetary support for “Patients and Caregivers to
Protect Dialysis Patients” comes from large for-profit dialysis corporations such as DaVita
and Fresenius. DaVita represented about 60% of the group’s funding over the last 2 years,
having donated over $67 million in that period.
Introduction
We believe DaVita to be a corrupt healthcare organization whose historical success has relied largely on
gouging the healthcare system. The company has paid over $1.1 billion in the past 5 years to settle four
DoJ False Claims Act allegations. (1,2,3,4) The result of these settlements has been to mitigate several
profitable (and allegedly illegal) lines of business.
Now, 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.
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We at Hindenburg are typically known for taking short positions alongside our research, but the truth is
that we just like to call out scams when we see them. We have no position long or short in DaVita (for
reasons we will explain) but, nonetheless, we 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.
Background: Almost All of DaVita’s Profits Come from Commercial
Insurance Payors
DaVita is the second largest operator of dialysis clinics nationwide. According to its latest annual report,
it derives 79% of its revenue from these clinics.
The company acknowledges that it loses money on patients that use government insurance
(Medicare/Medicaid/Medi-Cal) and makes all its profit from patients using commercial insurance, who
are charged substantially higher rates for their dialysis services.
(Source: DaVita At 36th Annual J.P. Morgan Healthcare Conference)
Former DaVita CEO Kent Thiry said at the 2017 J.P. Morgan Healthcare conference:
“The private payors dramatically subsidize the government. Most of our patients are Medicare.
In fact, about 85%, 90% of our patients are from the government sector. On average we lose
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money on each one, which leads to a grotesquely large cross-subsidy from the private sector to
the government.”
Thus, the company’s profitability largely relies on its mix of commercial versus government payors across
its dialysis clinics.
Background on the American Kidney Fund (AKF), DaVita’s Charity
Scheme That it Uses to Juice Profits
In late 2016, the New York Times highlighted DaVita as being party to a scheme whereby it donates to a
‘non-profit’ entity called the American Kidney Fund (AKF), which then helps convert patients from low-
cost government payors (such as Medicare and Medicaid) toward high-cost private commercial insurers.
In September 2017, the Southern Investigative Reporting Foundation highlighted exactly how the scheme
works and how it results in billions of dollars dropping to DaVita’s bottom line at the expense of the
medical system.
The AKF targets low income and minority individuals who believe they will be getting better care (when,
in reality, many are being set up to pay higher costs or lose services later). The AKF then pays for the
patient’s co-pays, allowing dialysis operators to burden the commercial insurers with extraordinarily high
costs despite no apparent difference in treatment.
It is estimated that a year of commercial dialysis treatments for one patient can cost $160,000, compared
with $40,000 when Medicare pays for them.
Last year, DaVita and Fresenius (the two largest dialysis providers) donated $247 million to the AKF. As of
2017, the AKF paid premiums for over 74,000 patients, representing almost 20% of the nation’s dialysis
recipients.
Legislators Are Catching On: A Bill Just Passed the California State
Assembly Called AB 290 That Targets DaVita’s Charity Loophole in The
Crucial State.
Assemblyman: DaVita Involved in “A Scheme to Bankroll Patients’
Health Care Premiums”
In California, a bill called AB 290 just passed the State Assembly. It is directly focused on closing DaVita’s
charity loophole. The bill was introduced by Assemblyman Jim Wood, who, in his press release for the bill
called the actions of dialysis companies “a scheme to bankroll patients’ health care premiums.”
Commenting on the intention of the bill, Wood said:
“Runaway costs in health care affect everyone, and I’m committed to protecting patients but I’m
not interested in protecting dialysis companies from scamming the system for their own
benefit…”
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“…When unscrupulous dialysis companies, through a third party, steer patients away from
Medicare or Medi-Cal by indirectly paying a patient’s premiums, for the company’s own financial
benefit, these companies are price gouging and it’s a scam. It doesn’t improve care for patients
and increases the cost of health care premiums for everyone.”
The bill goes on to note the effect that the scheme has on taxpayers:
“Nationally, this problem has added billions of dollars of costs to the individual and group health
insurance markets.”
DaVita Is Now Defending Its Charity Scheme by Quietly Directing Over
$95 Million Into Lobbying Schemes
Rather than attacking the bill on its merits, DaVita instead quietly spent $95 million on “advocacy costs”
to fuel lobbying efforts to wage a propaganda war against the bill and others like it.
Keep in mind that net income attributable to DaVita Inc. for 2018 was only $159.3 million, so the amounts
spent are clearly material.
In California alone, DaVita has quietly directed $67 million in the past two years to a single group in order
to combat legislation aimed at closing its charity loophole.
Meet the California ‘Non-Profit’ Group Claiming to Defend the Poor
and Disadvantaged—Funded with Over $67 Million In DaVita Cash
The lead lobbying group working against AB 290 in California, “Patients and Caregivers to Protect Dialysis
Patients”, has set up a website called “Dialysis Life Support”. The group claims to be “fighting to protect
dialysis patient access to quality care.”
On its site, it argues that AB 290 is discriminatory and puts low-income patients at a disadvantage.
Specifically, the group states:
“AB 290 attacks vulnerable, low-income dialysis patients by eliminating charitable premium
assistance (CPA) in California.”
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It sounds like a virtuous fight. So, where does the money come from?
At the bottom of the lobbying group’s website, it notes that it is paid for by “Patients and Caregivers to
Protect Dialysis Patients, sponsored by the California Dialysis Council”.
Despite its public claims to be advocating for the poor and disadvantaged, the California Dialysis Council’s
organizational documents say that it was formed to act in the interest of dialysis providers:
“The specific purpose of this corporation is to provide state-wide representation for end stage
renal dialysis providers”.
As we will show, “Patients and Caregivers to Protect Dialysis Patients” seems to be nothing more than a
cleverly disguised support arm for DaVita’s business, appearing to act in the interests of protecting the
company rather than patients.
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The Non-Profit Group Seems to Conceal That 90% of its Funding
Comes from For-Profit Dialysis Providers
FollowtheMoney.org shows that about $100 million, or 90% of the budget for “Patients and Caregivers to
Protect Dialysis Patients” has come from just two entities: DaVita ($67 million) and Fresenius ($33 million),
providers that collectively control 70% of the California dialysis market.
Usually when you direct tens of millions to a non-profit cause they feature your sponsorship and highlight
how critical your donation is to the organization. They might even throw you a dinner or name a building
in your honor!
Contrary to that expectation, we see that DaVita and other for-profit dialysis operators are instead buried
near the very bottom of the list of coalition members on the lobbying group’s website.
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DaVita’s name falls well below relatively unknown organizations such as the “Scottish American Military
Society”, “Sacramento Valley Section-National Council of Negro Women, Inc.”, and the “American Legion,
Department of California”.
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We Called the Organizations That Supposedly Back DaVita’s Lobbying
Effort: Some Didn’t Even Know They Were Opposed to the Bill, Others
Had No Idea DaVita Funded the Group
Since many of these obscure organizations were listed above DaVita and Fresenius on the list of those
who oppose AB 290, we figured perhaps they were vital to the efforts against the bill.
After calling numerous organizations on the list, a couple things became clear:
1. Most people we spoke with didn’t seem to have a grasp on the bill’s content, why they opposed
it, or how it was even brought to their attention in the first place. Some were not even aware they
opposed it at all.
2. Most of the organizations seemed small. Some were difficult to get a hold of, with “official” phone
numbers leading to personal voicemails and recorded messages. Another had a defunct website.
Here’s what some of the groups that oppose the bill told us, in their own words:
• Commander of the State of California American GI Forum: “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.”
• CEO of the Oxnard Chamber of Commerce: “Um, I’m trying to remember off the top of
my head which one this is. We’ve followed some that have to do with dialysis for 2 or 3
years now, so I’m trying to wrap my head around which one this is.”
When asked if she knew they were part of the coalition: “Yes, but we’re probably in 50 or
60 coalitions.”
When asked if she knew DaVita and Fresenius funded the coalition: “That wouldn’t
surprise me. They’re trying to protect their interest obviously.”
• Legislative Affairs Manager at Valley Industry and Commerce Association: We asked if
he knew that most of the funding for the coalition came from DaVita and Fresenius. His
response: “Uh, no.”
• Press Contact for the Desert AIDS Project seemed completely surprised that the
organization was involved in anything to do with dialysis:
“This being Desert AIDS project…we have 6500 clients who are getting medical care from
us. Only half of them actually have HIV, the other half are just getting primary care – a lot
of those folks are getting treatment for Hepatitis C. So, when you’re talking about kidney
care, I’m like ‘wow, that’s interesting’”
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• President of the National Veterans Foundation: “I really listen to those veteran lobbyists
that advise the group…I just wait and look at everybody and then once they say ‘hey, this
is really good’ and they do a little paragraph, I go ‘OK, NVF supports’.”
• Associate Director of Alameda-Contra Costa Medical Association: “Normally we are in
alignment with CMA’s view. If the CMA opposes something, most likely we’ll be opposing
it…Our main leader is the California Medical Association when it comes to this
opposition.”
(Despite the California Medical Association seemingly guiding its local chapters, roughly a
dozen chapters were individually listed as opponents, in addition to the CMA itself. This
gives the appearance of a broad coalition of medical organizations opposing the bill
despite the direction coming from only one group.)
In other instances, we called organizations opposed to the bill and found that they either went straight to
voicemail or didn’t seem to have much of an organization at all.
For instance, the website address we found for the Chambers of Commerce Alliance of Ventura & Santa
Barbara Counties, www.chamberalliance.biz, came up with a message that said “This Website is Disabled”.
Our calls went straight to voicemails when we called the ROA Department of the Golden West and the
Black Women Organized for Political Action.
All told, despite dozens of calls to numerous organizations, we couldn’t find one well-informed member
of the coalition who read the bill or who could articulate clear reasons for their opposition.
Charity Scheme Victim: The AKF Cost My Mom Her Last Chance at a
Kidney Transplant, We Were “Devastated”
The ultimate impact of this charade is significant. Along with burdening the medical system with billions
in excess costs, the AKF has also impacted patients and their families.
The daughter of one victim recently wrote an op-ed for the California Capital Weekly, highlighting DaVita’s
scheme and how it led to her mother missing the opportunity for a possibly lifesaving kidney transplant:
“…It didn’t take long for us to realize what a mistake we’d made. Patient care was never the
priority of the American Kidney Fund. It was making a profit for its funders, DaVita and Fresenius.
Patients like my mom were encouraged to switch to private health insurance because it lets the
large, for-profit dialysis corporations make more profit than they would from patients covered by
Medi-Cal or Medicare.
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After signing up with the American Kidney Fund, my mom started having to pay high out-of-pocket
costs for her medications – something she never had to do with Medi-Cal. When she tried to
schedule a normal appointment with her doctor, the clinic said they couldn’t see my mom because
they didn’t accept her new health insurance.
With all the money we were spending, we were getting so stressed. That’s when we began trying
to get my mom back into Medi-Cal, a process that took eight months. By that time though, she
was 68 and considered too old to be eligible for a kidney transplant.
We were devastated. My mom’s dialysis clinic told us we were doing the right thing by switching
to commercial insurance paid for by the American Kidney Fund, and yet she ended up with inferior
coverage that cost my mom her chance of getting a new kidney.
When California Assemblyman Wood introduced AB 290 he specifically called out this problem:
“…patients caught up in these schemes may face higher out-of-pocket costs and mid-year
disruptions in coverage, and may have a more difficult time obtaining critical care such as kidney
transplants.”
Why We Have No Position in the Stock, Long or Short
We’d like to provide a quick note on the dynamics of DaVita’s stock. As investors, we look for sustainable
business models and therefore view DaVita as a terrible long-term business model. That being said, we
have no position today because the company has a liquid balance sheet after the recent sale of a division,
and has signaled an aggressive intent to buy back its shares.
While now we are primarily concerned with shining light on the company’s lobbying scheme, we may
reevaluate DaVita as a potential short down the road.
Conclusion: DaVita is Engaged in a Multi-Front Fight for Its Life That
We Expect It Will Eventually Lose, Though It Will Take Time
Organizations that provide great service at reasonable prices don’t need to use underhanded lobbying
efforts to save their charity scams.
While the proposed California bill has made some headlines, much of the work against it (and against
similar legislation in other states) is being done behind closed doors. The purpose of our article today is
to provide an update on the DaVita story and to shine sunlight into a lobbying effort that appears, at least
to us, to be yet another scheme born out of an already existing scheme to further strain an already
inefficient healthcare system.
Disclosure: We have no position in any of the stocks mentioned
Additional disclaimer: Use of Hindenburg Research’s research is at your own risk. In no event
should Hindenburg Research or any affiliated party be liable for any direct or indirect trading
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