Company Charges Private Insurance Quadruple for Dialysis

Veronica Hackethal, MD

May 24, 2019

The for-profit dialysis company, DaVita, charges four times more for dialysis paid for by private insurance in the US compared to that funded by government insurance, according to a new study.

In 2017, the government paid, on average, $248 per dialysis treatment compared to $1041 per treatment with private insurance, the results show.

"In 2017, commercial insurers paid one of the largest dialysis suppliers 4 times the rate of their government peers. Reducing payments from commercial insurers, perhaps through increased competition or fixing charges at a percent of Medicare reimbursement, may help alleviate excess spending on dialysis," write lead author Christopher Childers, MD, PhD, of the David Geffen School of Medicine at UCLA, Los Angeles, California, and colleagues, in their research letter, published recently in JAMA Internal Medicine.

Just two for-profit companies, DaVita and Fresenius Medical Care, control about 75% of the US dialysis market. DaVita operates 2500 dialysis centers throughout the country, and controls about 37% of the market.

These companies are tapping into a growing market of dialysis patients. The number of people needing dialysis in the US grew 4.3% each year between 1996 and 2016, according to background information in the article.

California Is Center of Debate

In recent years, for-profit dialysis companies have been scrutinized for trying to reduce costs and increase profits. Critics have argued that these practices could come at a cost to employees and patient care. Much of the argument has played out in California.

In 2018, Californians voted on Proposition 8, designed to limit dialysis companies' revenues and improve dialysis care. DaVita and Fresenius paid a near-record $98.8 million to oppose the legislation, which Californians voted down in November.

And early in 2018, a bill was introduced in the state to crack down on for-profit dialysis companies by capping dialysis payments at Medicare rates if they fail to follow certain rules. The bill passed later that year, but was vetoed by the governor. 

It has since been revived in the California State Assembly, which, two days ago, passed legislation by a bipartisan vote to contain costs in the dialysis and drug treatment industries that currently result in higher healthcare costs for all consumers.

But the problem isn't limited to the US. Citing anti-trade union practices by Fresenius in the US, dialysis unions in Europe, Asia, and North and South America this month launched a global alliance to protect workers' rights.  

Privately Insured Patients: Only 10% of Volume but 33% of Revenue

To see how the numbers add up, Childers and colleagues analyzed DaVita's annual financial statements, which were available online, from January 2010 through December 2017. They limited analyses to outpatient hemodialysis, peritoneal dialysis, inpatient dialysis, and laboratory services provided in the US, which accounted for 86% of DaVita's revenue.

Between 2010 and 2017, patient volume grew from 125,000 to 197,800 (6.8% annually), and number of treatments increased from 18 million to 28.3 million, (6.7% annually). Patients covered by commercial insurance accounted for 10.5% of patient volume but about 33% of revenue.

During these years, mean payment from both commercial and government payers decreased.  Because mean expenses similarly decreased, operating income changed very little.  

In 2017, DaVita reported a total revenue of $9.36 billion for dialysis and lab services.  For that same year, the government paid $248 per dialysis treatment, while private insurance paid $1041 per treatment. Reported actual costs were $269 per treatment.

The study had several limitations, the authors note. Payments by some private insurance companies may vary, which could have skewed results. Also, researchers analyzed data just from DaVita, and results may not apply to other companies and not-for-profit organizations.

Nevertheless, they point out that — compared with their nonprofit analogs — for-profit dialysis clinics have been criticized for engaging in practices aimed to reduce costs or increase revenue, such as using shorter treatments, less use of home dialysis, and encouraging fewer transplantations, which may lead to patient harm.

"This study demonstrates an additional mechanism through which for-profit companies increase revenue," the authors write.

Does Differential Need to Be So Large? Boat Needs to Be Rocked

What's important about this study is that it has "robustly calculated" numbers and it opens up the topic for discussion from both sides, according to Kam Kalantar-Zadeh, MD, PhD, a tenured professor and chief of nephrology, hypertension, and kidney transplantation at the University of California Irvine School of Medicine.

Specifically, the figures seem to imply that DaVita is losing money on Medicare patients and making up for it by charging more for commercial patients.

The government pays $248 per treatment, yet DaVita reported that each treatment costs $269, for a loss of $21 per government-funded treatment, Kalantar-Zadeh pointed out to Medscape Medical News.

Dialysis care is highly regulated by the government, with about two thirds of dialysis patients insured by Medicare, he added.

"What the company is saying is that they need the commercial payments to subsidize the majority of Medicare patients in their clinics," explained Kalantar-Zadeh, who was not involved with this research.

That raises another important point: the difference between private and government payments — almost $800 more. The company may need that differential to maintain profitability, he suggested.

"If they lower charges, DaVita may have no choice but to close some of the dialysis facilities, specifically dialysis units in underserved neighborhoods where the patients are non-commercial."

But does the differential need to be so large? Either way, the numbers don't make sense, Kalantar-Zadeh acknowledged.

"Why should DaVita lose $21 per [government] treatment and why should they make $800 more per treatment from commercial patients?  Something is wrong."

The real issue is that few people are questioning the differences in costs and earnings, including the government, he continued.

"I welcome rocking the boat on these questions," Kalantar-Zadeh said. "I'd like to see what the government also says about these differentials."

The study was funded by a grant from the Agency for Healthcare Research and Quality (AHRQ). Childers reports grants from the AHRQ. The other authors have disclosed no relevant financial relationships. Kalantar-Zadeh is medical director of dialysis centers run by Fresenius and DaVita.

JAMA Int Med. Published online May 13, 2019. Research Letter

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