Here it comes again! On 1 July, CMMS (the Centers for Medicare and Medicaid Services) proposed cutting the payment of dialysis allocations by 12%. (For those of you not well versed in math- that’s about a 1/8 cut.) But, that’s not quite right, since they also offered a 2.6% increase in the “bundle” payment rate, so the cut comes to about $ 24 less per treatment.

As I’ve written often, dialysis is a big expenditure for Medicare. 1/16 (6.3%) of every dollar Medicare spends is allocated to the ESRD (End Stage Renal Disease) program. And, only 2% of the Medicare beneficiaries are actually on dialysis. So, it’s not surprising that Medicare wants to slash the costs involved in the program.

And, Medicare (for that matter, all federal health programs) considers four primary attributes when evaluating a program- costs (preferably fixed or reduced ones), outcomes (which means no under- or over-treatment), the administration of the program, and politics (yes, voters matter here). Which is why this current scenario has been in the offing for over a decade.

It has always been my supposition that Medicare (and the rest of the Federal government) never complained about the concentration (i.e., the creation of a monopoly, duopoly, or triopoly) of ownership of dialysis centers because it met their needs. What needs you ask? The ability to cut payments for the program without the attendant screams of thousands of small business folks (most of whom were doctors back then) that the government was putting them out of business.

You see, way back in the infancy of the dialysis business, there were a few BIG players (the biggest was the company now known as Fresenius) and some 2000 other non-profits and individual clinics. Now, the big players are Fresenius, Davita, DCI (dialysis Clinic Inc) and Renal Advantage. Between these four, some 280K of the 350K patients are treated. And, the first two actually handle about 72% of all the patients. If we want to rank the providers by the number of centers they have around the US, then the top four own 87% of the available centers- with the top two comprising almost 80% ownership. (You can see what I mean about ownership concentration.)

So, with these proposed cuts- there aren’t going to be a plethora of complainers. Which is why the focus the providers are trying to promote is via the patients who will be harmed by this tremendous cut in payment. Many a dialysis center has had its social workers put letters in front of their patients asking them to sign. One such letter was headlined- Protect Dialysis Treatments. It was clearly headed to various congressfolks (but no names were on the letter). The letter highlighted the fact that the 12% ESRD cut by CMMS would render treatment untenable. Because two or three- or even four- big players are not going to make Congress change its mind. (OK, not without a few greased palms. Oh, wait, we call that lobbying money.)

Now, this proposed change is a big cut- and I am not sure it is one that is truly justified- or appropriate. It is what Congress demanded CMMS do- but the process is/was terribly flawed. You see the Medicare Improvements for Patients and Providers Act (2008) demanded that CMMS employ 2007 figures to construct the “bundled” payment model for ESRD. And, that data is way too dated to be of use now. One big change since that baseline is that EPO (erythropoeitin) dosage has been ratcheted down, and that was a big component of the costs to the dialysis program.

Let’s consider the big two companies first. Fresenius not only provides dialysis to patients, but it provides everything needed for dialysis- even to its competitors. And, it’s gross revenue worldwide is $ 14 billion- with net profits (yes, that’s AFTER taxes) of $ 1.14 billion. So, the $ 24 cut per treatment could mean their profit will be cut by something less than 40%. That’s a big cut.  Davita, the #2 player, had revenues of about $ 7 billion last year with net profits of $ 478 million- and the proposed cut could wipe away all their profits.

There are ways to accommodate these large cuts- but ones that will not keep these players happy. Right now, some 10% of all patients are treated at home (by themselves or with partners). There should be more of them treated at home- but the home patients don’t really make money for the companies. (By the way, 90% of nephrologists [the physician specialty that deals with dialysis] would only opt for home treatment, if they were required to survive by dialysis themselves.)

There used to be a company that offered this treatment modality. But, CMMS went out of its way to close their doors. (OK, they were only decimated- and then acquired by Fresenius.)

Moreover, I am unaware of a big push to rehabilitate dialysis patients. (This has been an issue for patients since forever.) If you think Black unemployment or youth unemployment is high- consider the 80% unemployment rate for dialysis patients between 18 and 54 years old (the prime working years). Oh- and here’s the big kicker- the determination of who is offered transplantation is preferential to those patients who are employed. So, folks are stuck on dialysis- with little chance for employment or transplant.

Given the drastic nature of these changes, you can bet something has to give- and it will, indeed, be patient care. Already, nonprofits (when compared to the profit-making dialysis centers) have higher nurse to patient ratios, more technicians, and BETTER patient outcomes. We’ll see what comes next- hopefully some sort of compromise between the providers and Medicare…

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