Dialysis spending is out of control
More than 800,000 Americans suffer from life-threatening kidney failure. Paying for treatment of this condition costs the government more than $50 billion a year, and a recent Supreme Court decision risks driving the price tag even higher. Congress should take steps to promote innovation and competition in the dialysis industry – which would benefit patients and taxpayers alike.
Without dialysis or a kidney transplant, end-stage renal disease (ESRD) is fatal. As recently as the early 1970s, both procedures were too expensive for most Americans. In 1972, Congress passed a law that extended Medicare coverage to almost all ESRD patients, regardless of age. Since its creation, the program has grown from 10,000 beneficiaries to more than 600,000 today.
In an effort to contain costs, Congress in 1980 passed a law that makes Medicare the secondary payer when a beneficiary has alternative primary coverage, such as an employer plan. While a relatively small share of dialysis patients currently receive coverage through private plans, they represent a bountiful revenue source for dialysis providers, which often charge private insurers up to four times more than they do Medicare. That drives up premiums for people enrolled in employer-sponsored plans.
The health plan for one Ohio-based employer, Marietta Memorial Hospital, pushed back against this model. By treating dialysis providers as “out of network,” the Marietta plan reduced coverage for its members and paid providers less for treatment. DaVita Inc., one of two major dialysis providers in the US, filed suit, claiming that its policy discriminates against ESRD patients. A federal appeals court sided with DaVita, but in June, the Supreme Court reversed that decision. By a 7-2 majority, the court ruled in favor of Marietta, saying that the plan is legal because it offers the same terms to all of its members.
The impact of the court’s ruling is far-reaching. If other plans follow Marietta’s lead, more dialysis patients may opt to leave their private plans to avoid higher out-of-pocket costs; this would potentially reduce premiums for the plans’ other members but also increase Medicare spending. In the wake of the decision, lawmakers have proposed legislation to amend the language of the Medicare secondary payer statute to ensure private-plan dialysis patients don’t face reduced coverage.
That still leaves the bigger problem: the cost of ESRD care, which is driven by the need for patients to undergo in-person dialysis, usually at a clinic multiple times a week. The availability of cheaper, alternative forms of treatment for kidney disease, such as at-home dialysis machines, remains limited, in part because of industry resistance. DaVita and its main competitor, Fresenius, control more than 70% of the market, forming an effective duopoly that research suggests has raised prices for consumers and lowered the quality of care.
Congress should act in concert with regulators to control costs, support innovation and make it easier for new companies to enter the kidney-care field – for instance, by easing rules that require medical-service providers to get a “certificate of need,” an extra hurdle for market entrants. Expanding efforts started under the Trump administration to identify people in early stages of kidney disease and improve the supply of kidneys donated for transplant would be valuable as well.