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Warren Buffet recently said:

“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

With that in mind, it would appear Buffett would never invest in LHC Group (Nasdsq: LHCG) or any of the home health operators I've been looking at because they are pure price takers -- Congress and CMS set the Medicare reimbursement rates they rely on as revenue.

With that said, that doesn't mean price-taker businesses are all bad investments, it just means they aren't great businesses. There is a difference.

The tradeoff you have with the home health operators is that you get an incredibly stable "customer base" (chronically ill geriatric patients) and a credit wrothy (gulp) payor in the US Goverment.

I guess Buffett would probably retort that we don't have to swing at such a pitch and we should wait for the true "fat pitches" that have it all.

[My apologies to Mr. Buffett for even thinking I know what his retort would be.]


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