It's not every day that someone aggressively goes after one of Warren Buffett's stock picks.
But legendary card salesman Jim Chanos is doing just that, saying he is focusing on renal dialysis provider DaVita HealthCare Partners.
At the recent conference Delivering Alpha hosted by CNBC, Chanos criticized the company's business model and its relationship to a charity that helps patients pay for care – a matter that is the subject of a new lawsuit. He regards the suit as a major threat to the stock.
Along the way, he questioned Buffett's Berkshire Hathaway conglomerate ̵[ads1]1; which owns a number of insurance companies – to be DaVita's largest investor.
"This I think is a very bad look for an insurance company like Berkshire Hathaway, to promote a company that I think is absolutely running an insurance fraud, and if the whistleblower is correct, it is actually insurance fraud," Chanos said.
In a statement, DaVita said that Chano's statements "contain false and misleading information and reflect a poor understanding of our business and our industry," and that only a small proportion of patients use charitable help to pay for health care.
Berkshire first disclosed an investment in DaVita in late 2011 and owns 28% of the stock. Chanos said he took his short position several years ago.
Chanos is the founder and managing partner of Kynikos Associates and has made headlines for short-circuiting other health care companies including medical manufacturers Valeant Pharmaceuticals and Mallinckrodt.
He said DaVita is similar to them in that they make big profits through dubious means that can make it a target for regulators or legislators. Some large public fines have already been paid in recent years.
Last month, an insurance provider from Florida sued DaVita and its competitor Fresenius in federal court and all charged that the companies overcharged it for several years. It says DaVita pushed Medicare and Medicaid patients to buy private insurance, saying they would get better treatment, and then charged private insurers more money than it charged the government.
The private insurance was allegedly paid for, in whole or in part, by the American Kidney Fund, a charity that receives substantial funding from DaVita and Fresenius.
"It's always interesting in my world when one of your biggest customers sues you for fraud," Chanos said.
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Chanos said the company is also facing new obstacles, including a push by the Trump administration to get more dialysis patients to have transplants or treatment at home instead of facilities like DaVita & # 39; s, as well as the potential for Medicare for All and other types of health reform.
Despite all this, Chanos says, the stock is expensive compared to Fresenius, and Buffett's stamp of approval is a big reason.
"This company has not grown earnings per share in 10 years, despite massive buybacks … with falling margins," he said.