Study reveals that nearly 80% of U.S. dialysis centers are owned by just two companies, raising concerns about market concentration and physician self-dealing, as many doctors have financial ties to the facilities.
Shockingly, approximately one percent of the entire United States federal budget is allocated to dialysis care. With American taxpayers carrying such a significant responsibility, industry leaders have raised concerns about growing consolidation and the potential for antitrust enforcement to help lower costs; however, until recently, they lacked the data to make a systematic analysis. Riley League (right), assistant professor of finance at Gies College of Business, and a multi-university team of researchers, have uncovered that important data. They found that nearly 80 percent of dialysis facilities are owned by giants DaVita and Fresenius, and many physicians had vested interests in these centers.
The team found that from 2005 to 2019, the percentage of dialysis centers owned by DaVita and Fresenius increased from 59.1 percent to 77.1 percent, while physician-owned centers rose from 11.4 percent to 29.1 percent during the same 14-year period. They published their findings, ”Financial Ties, Market Structure, Commercial Prices, and Medical Director Compensation” in the Journal of the American Medical Association Health Forum.
Dialysis is among the most expensive treatments in healthcare, so much so that when it was first introduced, private insurers wouldn’t cover it. That is why, starting in the 1970s, patients with end-stage renal disease are automatically eligible for Medicare, regardless of age.
Those prices have increased over time, due in large part to the extreme concentration of the market, League said. To support that assessment, their research noted that markets with only one large chain had a nearly $500 higher commercial price for outpatient hemodialysis and a more than $550 higher doctor compensation cost than those markets without one of those big chains.
In many industries, this type of consolidation would naturally trigger antitrust oversight, but that’s because there are usually massive takeovers. But in dialysis, for a few reasons, this growth has largely flown under the radar.
“With big acquisitions, the Federal Trade Commission and other antitrust authorities take an interest and have had some oversight of these acquisitions,” said League, who is also a scholar for Gies’ Center for Business and Public Policy. “A lot of the acquisitions of dialysis centers are small enough that they don’t go through antitrust review. But if there are a dozen such occurrences every year, after 20 years, you end up with a market where 80 percent of the facilities are owned by two companies.”
Dialysis is a Medicare Part B service, so unless patients have supplemental coverage, they are going to hit their deductible fast and have no reason to price shop. The interest in cost reduction comes from insurance companies and the U.S government, which is ultimately covering the bulk of the cost through Medicare.
“The contribution we are making is simply bringing this data to bear,” League said. “Before our study, we really didn’t know how many of these facilities were owned by different chain owners, and there was almost no data on physician ownership, where joint ventures or nephrologists owned these dialysis facilities.”
The intersection of the high cost of dialysis and the concentration of the market has resulted in concern for insurance providers and policymakers alike.
“We and others who look at this market think that a lot of the action that is determining prices is not patient price sensitivity, but rather the negotiation between insurers and providers,” League said.
Through a series of requests under the Freedom of Information Act, the researchers identified ownership of individual dialysis centers and discovered the prevalence of joint ventures and physician ownership of these facilities.
“In most healthcare markets, policymakers tend to worry about physician ownership, particularly of other entities, because it gives doctors financial incentives to steer patients one way or another and to engage in self-dealing,” League said. “Stark Law makes it illegal for physicians to be a part of financial arrangements to get paid to refer patients, but interestingly, dialysis is carved out of the Stark Law. While it is, therefore, legal for nephrologists to make referrals to clinics in which they have a financial interest, until we uncovered the data, we had no idea of the prevalence of this. I think the physician-owner medical director angle is a key contribution of this study.”
While League’s role has been to simply uncover the data and not to make recommendations on potential action, he believes that some antitrust scrutiny is warranted.
“It does seem antitrust authorities should be interested in this market,” League said. “I think when it comes to physician ownership, the jury is still out on whether this is good or bad. We ban it in other healthcare markets because we don’t want physicians to be able to do this self-dealing. However, the dialysis market is unusual; referrals are made somewhat differently because there are fewer options. The policy conclusions might be premature, but it does certainly suggest certain areas that we should be looking into.”
While this project has concluded, League is working with many of the same researchers to explore how prices are determined and what the negotiation between insurers and providers is like.
“We have shown that this is a concentrated market, and we know prices are high, but we still want to verify that one is causing the other,” he said. “We’re trying to do a little bit of work to tease that out.”
