What happened

Warren Buffett might like it, but DaVita (NYSE:DVA) was down 9.7% at 3:42 p.m. EDT, after an analyst at J.P. Morgan downgraded the kidney-dialysis company from neutral to underweight, citing legal battles as a reason to be skeptical of DaVita's prospects.

So what

Earlier this year, DaVita and fellow dialysis company Fresenius Medical Care (NYSE:FMS) received subpoenas from the U.S. Department of Justice over their contributions to the American Kidney Fund, a charity that provides financial assistance for patients who need dialysis.

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The relationships between the companies and the nonprofit have raised concerns: Would the donations from the two largest kidney-dialysis companies lead American Kidney Fund to favor patients going to those dialysis facilities, while shunning patients going to facilities that haven't made contributions? The charity has an agreement with the government that forbids it from choosing patients based on their clinics.

American Kidney Fund was also helping patients pay for private insurance rather than rely on Medicaid, which would pay the dialysis facilities less per patient than private insurers. Those insurers are trying to figure out which patients American Kidney Fund is subsidizing and remove them from their rolls.

Now what

DaVita hasn't disclosed the total number of commercial patients that American Kidney Fund is subsidizing, but the J.P. Morgan analyst estimates that 60% to 80% of DaVita's earnings power is derived from its relationship with the American Kidney Fund. That isn't actually 60% to 80% of DaVita's total patient population, but since those patients are more profitable, they represent a larger portion of earnings.

If the analyst is right on his estimate and the profitable patients go away through either a settlement or court order, it could be painful to DaVita's earnings.

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