A measure appearing on the November 6 ballot in California would cap the profits of dialysis clinics at 115% of “all direct patient care service costs and all health care quality improvement costs.” If clinics were to exceed that cap, they would be required to issue rebates to private payers, which are typically private insurance companies. Dialysis companies would also have to pay interest on those rebates.
The measure, Proposition 8, was written and funded by the labor union SEIU-United Health Workers West (SEIU-UHW). Its backers contend that the measure would reign in what they characterize as exorbitant profits by two large dialysis companies, DaVita and Fresenius. These companies operate about 72% of all clinics in California, according to an analysis of the measure by the California Legislative Analyst’s Office (LAO). Combined, all dialysis providers operating in the state earn about $3 billion annually from their in-state operations, the report stated.
Patients undergo dialysis to remove toxins from their blood, a function they have lost due to kidney failure. Dialysis patients typically require treatment three days per week, for hours at a time, according to a representative from the National Kidney Foundation. A nonpartisan analysis of Proposition 8 by the LAO found that, as of May, there were 588 licensed dialysis clinics providing treatment to approximately 80,000 patients per month in the state.
Sean Wherley, spokesperson for the “Yes on Prop 8” campaign and for SEIU-UHW, said that Prop 8 is intended to address issues reported by patients at dialysis clinics, including unclean environments and understaffing. “Dialysis patient care in California is in a crisis,” he said. “Workers and patients report bloodstains, cockroaches, [and] understaffing that is threatening the safety and the lives of patients. And this initiative seeks to improve care by pushing the industry to invest in hiring more staff, purchasing new equipment and improving facilities.”
A list of supporters for “Yes on Prop 8” on the campaign’s website mostly consists of: labor unions and advocacy groups; minority health care advocacy groups; regional Democratic Party offices; faith leaders; and community organizations.
Opponents argue that the measure would make it impossible or extremely difficult for dialysis clinics to remain profitable, which could cause many to close or reduce services to the detriment of dialysis patients. “The proponents are saying this will improve patient care. But our biggest concern is actually it will harm care and result in cuts to patient care,” Tonya Saffer, vice president of health policy for the National Kidney Foundation, said.
A list of opponents on the “No on Prop 8” website largely include: national, state and regional professional health associations; chambers of commerce; veterans’ groups; patient advocacy organizations; and cultural community groups.
According to the LAO, costs allowed to be factored into dialysis clinics’ profit cap include “staff wages and benefits, staff training and development, drugs and medical supplies, facilities and electronic health information systems.” Administrative overhead costs are not “allowable,” as the LAO put it.
The report found that the new profit structure for dialysis clinics would “significantly reduce” their revenues, meaning they “would be less profitable or could even be unprofitable.” The LAO analysis concluded that dialysis clinic operators would likely respond to Prop 8’s passage by adjusting their operations to limit the impact of the rebate requirement. To do so, the report states, they could:
– “increase allowable costs, such as wages and benefits for non-managerial staff providing direct patient care”
– reduce other costs that do not count toward the revenue cap, such as administrative overhead
– challenge the rebate provision in court to seek a higher revenue cap
– or scale back operations by opening fewer clinics or even closing some.
“One of the ways the corporations can comply is by sending more of the profits back into patient care, whether that’s hiring staff, purchasing equipment, or improving the facilities. But it’s really up to them,” Wherley said. “We are giving the industry the flexibility to improve care in whichever way they find necessary. They killed attempts to improve staffing levels through legislation in Sacramento. So this is a different, more broad approach in which they can improve care in all kinds of ways without it having to be explicit to staffing.”
In late September, Gov. Jerry Brown vetoed a bill backed by SEIU-UHW that would have placed a cap on profits for dialysis providers.
The SEIU-UHW has been advocating for change among dialysis clinics since at least two years ago, when Wherley said workers approached the union “with concerns about poor patient care and work conditions.” He said that “the industry came down very hard on these individuals,” and that, for now, “the union organizing effort is in the background.” He added, “The focus is on improving patient care, and this is one way if this passes on November 6 that voters can deliver to improve the care and working conditions.”
Wherley cited statistics illustrating the need for improvement at California dialysis clinics. “Last year, the department of public health documented 1,400 deficiencies during inspections of clinics. And over the last five years in California, more than 4,400 dialysis patients have died from infections,” he said.
Dr. David Aizuss, president of the California Medical Association, noted that dialysis clinics in California outperform those in other states. “Data from both federal regulators and state regulators shows that in California, we’re out-performing most states in both clinical quality and patient satisfaction,” he said. “If you look at the data from the Centers for Medicare [& Medicaid] Services, California has more four- and five-star clinics than the rest of the nation; 62% of the centers in the state are rated four and five stars, whereas in the rest of the country only about 50%.”
Aizuss continued, “And, if you look at patient satisfaction, California patients are ranking clinic staff and clinic facilities at nine or ten, which is a higher average than the rest of the nation. If you look at the infection rate, California facilities infection rate is 16% less than the national average.” He added, “In California, the dialysis clinics have to adhere to 376 different regulations and they are surveyed for compliance with those regulations. So, if someone is making a claim that the facilities aren’t clean, I find that highly doubtful.”
Wherley contended that patient care has declined at clinics operated by the two major providers, DaVita and Fresenius, despite their sizable profit margins. “DaVita and Fresenius made a combined $4 billion in profits last year in the country. And that is their bottom line. That is all they’re about,” Wherley said. “That is why they have committed $100 million to defeat this initiative, making it the most expensive measure in the country.” Wherley said that the “Yes on Prop 8” campaign has about $19 million in backing, by comparison.
Saffer does not believe the proposition addresses Wherley’s concerns about DaVIta and Fresenius. “There are two large companies that provide most of the dialysis in this country. I am not sure how Prop 8 is addressing that, honestly, because this proposition actually affects all dialysis clinics, including the dialysis clinics operating in California that are smaller clinics, and nonprofit providers,” she said.
Saffer continued, “Those smaller providers and those nonprofit providers would have an even harder time operating than a large dialysis organization. So I could see a world in which Fresenius and DaVita, being the two largest [providers], are able to continue their duopoly because some of the smaller providers are not able to operate any longer, or have to scale back substantially their operations.” She noted that smaller, less profitable clinics serving publicly insured patients are often located in rural and inner-city areas.
In order for dialysis clinics to remain profitable under Prop 8, the LAO’s report noted, companies could increase their spending on the costs allowed to be factored into the 115% profit cap. As a result, the report stated, “the average cost of dialysis treatment would increase” and “rates that health insurers pay for dialysis treatment might increase above what they would have been in the absence of the measure.” Insurers might then pass on some of their higher costs by raising health insurance premiums, which, according to the report, could result in increased costs to government employers that contract with private insurers.
Aizuss contended that Prop 8 would result in a reduction of dialysis treatment access. Missing just one dialysis treatment results in a 30% increase in likelihood that a patient will die, he said. “Patients on dialysis must get dialysis or they don’t survive. And having a proposition deal with a complex medical issue is certainly not the way medical decision making should be performed,” he said.
Wherley argued that dialysis companies would still make a profit under Prop 8, adding, “It just won’t be the outrageous one that they have been doing up until now.”