Dialysis consolidation bad for Medicare Advantage plan health, study says

Dialysis consolidation bad for Medicare Advantage plan health, study says
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Policymakers should tackle the consolidation of dialysis providers, as it could lead to negative downstream effects for Medicare Advantage beneficiaries, a study published Monday in Health Affairs suggested.

Researchers at the University of Southern California found three large Medicare Advantage insurers paid 127% of fee-for-service Medicare costs for dialysis treatment in 2016 and 2017. If the number of dialysis patients enrolling in Medicare Advantage continues to grow following recent policy changes, insurers could be forced to cut back on other benefits to pay for dialysis treatments.

While the recent elimination of dialysis network adequacy requirements for Medicare Advantage may alleviate some concerns, policymakers should look for ways to increase competition in the dialysis market, the study said.

“If we think that choice is an important value in the Medicare program, is plan health important?” said Dr. Eugene Lin, a clinical and resident fellow at the USC Schaeffer Center and one of the study’s authors. “This kind of makes it harder to run a Medicare Advantage plan, and then you might not have as many options available for patients.”

Dialysis for end-stage renal disease is one of the few conditions that qualifies a person for Medicare, regardless of age. Until 2021, patients could generally only enroll in Medicare Advantage before they developed ESRD. In 2018, only 22% of Medicare patients with ESRD enrolled in Medicare Advantage, compared with 34% of beneficiaries overall, the study said.

But after Congress lifted the prohibition, dialysis giant DaVita Kidney Care reported that 42% of its Medicare patients had Medicare Advantage plans by the end of 2021, according to the study. DaVita is one of the largest dialysis chains in the country, along with Fresenius Medical Care North America.

In 2018, 44% of Medicare Advantage beneficiaries with ESRD were enrolled in plans with negative ESRD margins, according to the Medicare Payment Advisory Commission. An influx of ESRD patients could exacerbate financial difficulties for the insurers: While Medicare Advantage pays providers the same or slightly less than traditional Medicare for most non-dialysis services, the same was not true for dialysis payment, the study found.

Researchers compared fee-for-service claims to more than one million outpatient dialysis claims from 2016 and 2017 paid for by UnitedHealth Group, Aetna and Humana. In the sample, the median Medicare Advantage hemodialysis price was $296, or 127% of the fee-for-service Medicare price.

“As dialysis grows to be a larger share of the [Medicare Advantage] population, that might have implications on things like whether [plans] charge a premium, whether they can offer as many extended benefits that do or the types of rebates,” said Lin, who is also an assistant professor at the University of Southern California.

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Market consolidation in the dialysis industry might be at the root of the difference in payment, the researchers said. DaVita and Fresenius provided 75% of the total fee-for-service Medicare dialysis services in 2018, according to MedPAC. Data analyzed for Health Affairs indicated the businesses were able to leverage their hold on the market to negotiate higher rates with Medicare Advantage plans.

The researchers found little regional variation in the markups negotiated by large dialysis organizations, suggesting dialysis facilities require Medicare Advantage insurers to include all their facilities in a network—even in hypercompetitive dialysis markets.

Dialysis chains had even more negotiating power before 2021, because regulators required Medicare Advantage insurers to ensure at least 90% of beneficiaries lived within a certain distance of an in-network dialysis facility. As a result, in-network dialysis became more extensive than out-of-network treatment, the study found.

The Centers for Medicare and Medicaid Services tossed this requirement in 2021, and the Health Affairs study’s data does not capture this change. Growing Medicare Advantage enrollment also may give plans more leverage to negotiate lower rates with dialysis chains.

But policymakers should think about market reforms to decrease dialysis consolidation, the researchers argue.

Policymakers could ban so-called all-or-nothing contracting, the researchers suggested. There’s previous for this: Sutter Health agreed in 2019 to end its all-inclusive contracting practices and pay $575 million to settle a 2014 lawsuit that alleged its used anti-competitive contracting practices.

“When a large chain is operating in areas with little competition, but then they use that as leverage in areas that have a lot of competition to get the same price markup… then that does start to become more anti-competitive,” Lin said.

Policymakers should also pay more attention to how dialysis contract negotiations affect Medicare Advantage insurers’ financial health, Lin added. Lin said he’s hesitant to recommend policymakers shore up the losses insurers have faced from dialysis network negotiations but they could think more creatively about how networks are constructed.

“How do we navigate an industry that’s already become consolidated? That leads to a number of issues, not just in the Medicare Advantage market,” he said. “Maybe that’s something the government should think about regulating.”

The federal government has dipped its toes into dialysis market regulation, including by limiting DaVita’s ability to acquire new clinics in Utah for the next 10 years.

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