America's Benefit Specialist December 2023

POLICY SERIES

REDUCING THE COST OF HEALTHCARE—CONSOLIDATION AMONG DIALYSIS PROVIDERS THE PROBLEM Consolidation of care is a prominent issue for patients and health plans across the industry, but nowhere is this issue as prevalent as in the end stage renal disease (ESRD) market. In 1995, 41 percent of dialysis facilities were owned by seven companies; today, just two companies own 80 percent of all dialysis facilities in the United States. This duopoly results in decreased quality of care for patients and a significantly increased financial burden on employer-sponsored health plans. Unlike most hospital and surgical providers, dialysis facilities serve patients at the end-stage of a disease for a single condition. In this way, dialysis pro viders exert limited influence on demand for services, yet they have sub stantial influence over the manner in which ESRD care is delivered. Patients’ proximity to services is also critical for hemodialysis care, limiting the size of markets. An extensive body of research has shown that provider consolidation, gen erally speaking, leads to higher healthcare prices for those covered by private insurance. Intense consolidation practices in the ESRD industry by the two foremost companies have exacerbated the problem. On the employers’ side, consolidation has led to dramatically increased healthcare costs, as only two providers enjoy immense bargaining power and can negotiate higher and higher reimbursement rates. Dialysis is considered one of the most expensive medical services in the United States. A 2021 JAMA study found that mean monthly spending for patients with kidney failure was an average of $13,964 higher than it was for other plan participants. Another JAMA study released a year later found that spending on dialysis for patients in commercial plans in the first year of treatment was $238,126—compared to $80,509 spent on Medicare patients. While insurers and employer plans experienced significant, sustained in creases in spending when patients initiated dialysis, out-of-pocket spending also increased for dialysis patients—by an average of $170 per month after starting treatment. In addition to being a financial burden to plan sponsors and dialysis pa tients, the ESRD duopoly strains the Medicare budget. Each year CMS releas es the ESRD Prospective Payment System (PPS) final rule, where the agency updates payment rates and policies and outlines projected financials for the ensuing calendar year. Under the PPS for 2024, Medicare expects to pay $6.4 billion to approximately 7,800 ESRD facilities for dialysis services; if 80 per cent of all dialysis facilities are owned by two companies, this means that the vast majority of this federal spending is spent reimbursing them alone. According to the National Bureau of Economic Research, most dialysis acquisitions do not require premerger notifications (which involves the merging entities completing an HRS Form that provides the FTC and DOJ with information about large mergers and acquisitions before they occur). Many proposed dialysis facility acquisitions that would otherwise be blocked over 95 percent of the time are blocked less than five percent of the time when exempt from premerger notification requirements. The National Bureau of Economic Research found in 2021 that acquisitions of competing dialysis facilities that were exempt from premerger notifica tion were linked to a 3.6 percent increase in hospitalization rates and a 1.8 percent decrease in survival rates. Empirical evidence based on data from 2003 to 2004 has also shown that hospitalization rates and mortality rates

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