Shares of DaVita HealthCare Partners Inc. sank Tuesday before markets opened as analysts worried about potential Medicare payment cuts the dialysis services provider may face.
The Centers for Medicare and Medicaid Services on Monday proposed a net 9.4 percent Medicare rate cut on such services for operators like DaVita. That's at least three times worse than expected, said Raymond James analyst John Ransom, and could hurt earnings per share by nearly $2, or more than 20 percent, next year. He lowered his rating on DaVita shares to "Market Perform" from "Outperform."
Analysts polled by FactSet expect earnings of $7.89 per share in 2014.
Medicare is the federally funded program that provides health coverage for the elderly and disabled people. Denver-based DaVita provides dialysis services to patients with chronic kidney failure and end-stage renal disease. It runs nearly 2,000 outpatient U.S. dialysis centers that serve about 156,000 patients.
Final rates are expected in October, and the cut may wind up being phased in over a few years, which could soften the blow, Ransom said in a research note.
But DaVita shares could be supported on Tuesday by last month's announcement that Warren Buffett's Berkshire Hathaway Inc. has agreed to buy up to a 25 percent stake in the company, said Citi analyst Gary Taylor.
Shares of DaVita fell 6.7 percent, or $8.10, to $113.05 in premarket trading Tuesday. The stock has gained nearly 10 percent this year.
U.S.-traded shares of Fresenius Medical Care AG & Co. also dropped 8.7 percent, or $3.10, to $32.40 before the market open Tuesday. The German company provides kidney dialysis products and services in the U.S.