NEW YORK (Reuters) - Legendary short-seller Jim Chanos said on Tuesday he is betting against companies that provide kidney dialysis, because their profits may be threatened by insurers that are balking at the high cost of the treatments.
Chanos, who runs the hedge fund Kynikos Associates and was among the first to predict and later profit from the fall of Enron Corp before it filed for bankruptcy in 2001, declined to say which companies he is betting against. The world of kidney dialysis providers is small.
“You can assume we are short the dialysis companies,” Chanos said at the Reuters Global Investment 2018 Outlook Summit in New York.
The three dominant players are Fresenius Medical Care AG (FMEG.DE) (FMS.N), DaVita Inc (DVA.N), and American Renal Associates Holdings Inc (ARA.N). American Renal’s shares have tumbled 50 percent so far this year while DaVita has lost 14 percent. On the other hand, U.S.-listed shares of Germany’s Fresenius have climbed 15 percent.
Kynikos’ hedge fund gained 22 percent in the first 10 months of 2017.
Betting against these companies, which provide medical procedures to patients whose kidneys are not functioning normally, is part of Chanos’ overarching view that health-care companies’ business models will be more closely scrutinized after insurers tolerated steep price increases. That review is likely to pick up speed as well as Washington attempts to overhaul the Affordable Care Act, which was passed in 2010.
“Rent-seeking business models will be the most under pressure,” Chanos said. Private insurers that have been providing higher reimbursements to dialysis companies than the government, which pays for most dialysis treatments, are now pushing back on such high fees, he said.
He predicted that years of rising health-care expenditures are coming to an end. “Payers will find innovative ways to not pay” for these kinds of treatments, Chanos said.
Although the government covers most dialysis patients’ costs, many patients have supplemental private insurance.
Chanos acknowledged that it is often difficult to bet against stock prices, especially when the market has been setting record highs. But he said there are enough poorly run companies and companies operating in troubled sectors to make short-selling profitable.
“It is a time to be more enterprising on the short side,” he said.
Chanos was among a small number of hedge fund managers who made money on Valeant Pharmceuticals VRX.TO, a one-time industry darling whose stock price cratered amid government scrutiny over its drug pricing as well as its business and accounting practices. Valeant created the largest single loss for hedge fund managers in modern history, he said, noting that investors lost some $90 billion.
Editing by Leslie Adler