American Kidney Fund Legal Issues A Major Overhang For DaVita Shares

As such, the firm downgraded shares of DaVita from Neutral to Underweight and lowered its price target from $66 to $51.

At time of writing, DaVita shares were plunging 7.32 percent to $55.44.

Analysts Gary Taylor and Patrick Feeley clarified that AKF's updated disclosures heighten their existing concern regarding the level of earnings power that DaVita derives from AKF operations.

The analysts' updated estimates revealed that about 60–80 percent of DaVita's earnings power is derived from its AKF relationship. This, according to the analyst, is in addition to the company's previous HIX-subsidized enrolment disclosure of $230 million or 18 percent of its total earnings.

See also: Patient-Steering Allegations Only One Reason DaVita Shares Getting Downgraded

A year back, the firm had estimated that DaVita contributed about $100 million, annually, to AKF and received about $500 million to $700 million, accounting for about 30–45 percent of its annual pre-tax income, from this unique relationship as an independent 501(c)3 tax-exempt organization.

With DaVita refusing to publicly disclose its total number of AKF-subsidized commercial patients, the firm advised investors to Underweight the company's shares until it can receive greater clarity.

JPMorgan also said DaVita's contributions to AKF also fund premium subsidization/adverse selection in the COBRA, Medigap and Part B markets.

Meanwhile, the firm said, "The earnings power is at risk if the legal legitimacy of the AKF is compromised by a possible DOJ investigation AND as health plans ferret out subsidized patients that they are under no legal obligation to underwrite."