Dialysis Providers Withstand Regulatory Haymaker

In early November, the most recent and perhaps most significant volley in the battle against payers and providers of dialysis services failed to hit the mark, as California’s Proposition 8 was defeated by voters, at a ratio of about 3:2.  This significant initiative would have completely changed the landscape for dialysis services and payment in the state with the most patients and clinics in the country – quite literally overnight.

Proposition 8, if passed, would have required dialysis clinics to issue refunds to patients and payers, at the end of each year, of any amounts representing revenue above 115% of providers’ costs of care and healthcare improvements.  While no direct limits are placed on point of service charges, this is a de facto limitation of a 15% markup by the providers who engage in some of the most egregious markups on any services, anywhere (they would be required to pay interest and penalties on the amounts rebated, incentivizing them to keep their charges as close to the expected final 115% threshold as possible). It would also have prohibited discrimination against patients based on how services were being paid for – another major step in that it would prevent providers from refusing patients care until a third party payer agrees to pay inflated and unreasonable charges.

Additionally, by accounting for providers’ costs of healthcare improvements rather than just the cost of providing care, this initiative would have incentivized providers to focus resources on improving the quality and efficiency of their care.  For example, as California’s Official Voter Information Guide explains in its “Argument In Favor of Proposition 8” section, “Dialysis patients should have a clean, sterile environment during their treatments, but big, corporate dialysis providers, which make billions by charging these critically ill patients as much as $150,000 a year, won’t invest enough in basic sanitation. Bloodstains, cockroaches, and dirty bathrooms have all been reported at dialysis clinics, and patients’ lives have been put at risk from exposure to dangerous infections and diseases.”[1] By investing resources in having safer, cleaner, and more efficient facilities, aside from the obvious value of providing better care, providers could even increase the value of that 15% “markup” by increasing the dollar amount it was being calculated from.

With the amount of money at stake (anyone who has looked at the cost of a single course of dialysis treatment can extrapolate that to the entire state of California and have an idea of the amounts we’re talking about), it’s not surprising that this question was the most expensive of the year, in terms of money raised in support or opposition.  The provider-driven entities opposing the measure raised $111,462,540.26, while those in support of these limitations raised $18,867,532.13.  In contrast to the 3:2 margin of defeat, the opposition raised six times more money, and spent almost five times more.[2]

As the state’s Official Voter Information Guide indicated, the proposition did leave some uncertainty on important points such as calculation of which costs are allowable.  For example, the cost of staff wages and benefits are specifically allowable, but only for “non-managerial” staff that provide direct care to patients.  Some positions, such as medical directors and nurse managers, perform managerial functions but are also involved in patient care.  Expenses which providers incur in order to provider care but cannot be counted as “cost of care” further impact providers’ bottom line an bolster their arguments that the 15% markup allowed is not sufficient to allow them to be financially viable.  Opposition also predictably argued that, rather than adjusting operations to comply with new market norms, the majority of clinics would simply close down, leaving patients with a dangerous lack of access to lifesaving care.

Despite the measure failing, 40% support by voters can be seen as encouraging, particularly in the fact of the six to one deficit in terms of financial support.  Clearly legislators and the public alike are beginning to acknowledge the significance of a major problem and a major contributor to the state of the health care system as a whole.  It’s entirely possible that several more such measures will fail before meaningful reform is accomplished, but each failure can help to shine a light on serious issue and hopefully bolster support for the next battle.

[1] https://vig.cdn.sos.ca.gov/2018/general/pdf/complete-vig.pdf

[2] https://ballotpedia.org/California_Proposition_8,_Limits_on_Dialysis_Clinics%27_Revenue_and_Required_Refunds_Initiative_(2018)

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