Willem Johan Kolff’s invention of the dialysis machine was singularly heroic. He cobbled together the first device from juice cans, sausage casings, and a washing machine — all the while running a hospital in wartime Europe and aiding the Dutch resistance.
Kolff emigrated to the United States after the World War II in part to spread dialysis use. That his adopted country embraced his invention would be an understatement.
The principles of dialysis have changed little since the first American underwent the procedure in 1948: toxins in a patient’s blood are filtered through a permeable membrane. The cleansed blood is returned to the body.
Yet dialysis is now delivered — and leveraged — in a manner as systematic as the environment in which it was created was chaotic. Dialysis is a big, profitable, and growing business in the United States. Outcomes trail those of other countries, however. Patient empowerment may be a path to improving costs and outcomes alike.
Dialysis has always exacted a toll. It is grueling for patients, whose bodies can experience wrenching physiological changes in the course of a typical four-hour session. “There is clearly a downhill course” for dialysis patients, says David Klassen, MD, the chief medical officer for the United Network of Organ Sharing (UNOS), a nonprofit organization that coordinates U.S. organ transplant activities, and the former longtime director of the kidney transplant program at the University of Maryland Medical Center in Baltimore.
Dialysis also became so expensive that Congress expanded the Medicare program in 1973 to include coverage for any patient who needed it.
That expansion initially covered some 10,000 patients. News coverage of the era indicated the maximum cost for this coverage would be about $200 million a year, or about $1.1 billion in today’s dollars. Those estimates were far short of today’s demand.
According to the U.S. Renal Data System, 468,000 patients underwent dialysis in 2013. That’s a nearly 47-fold increase in 40 years, driven in part by the rise nationwide in diabetes, hypertension, and other chronic conditions.
Medicare now shells out $34 billion a year for dialysis care, and these patients account for an outsized portion of the program’s total expenditures.
Dialysis care has improved gradually over the decades. Unadjusted mortality rates among patients dropped nearly 36% between 2001 and 2013.
The Corporatization of Dialysis Delivery
As dialysis has expanded, its delivery model has changed. It was once performed almost exclusively in hospitals. But now hundreds of thousands of Americans have their blood cleansed in anonymous storefronts, industrial parks, and strip malls. And a large majority of the dialysis services delivered in the U.S. are expected to turn a profit.
The two leading dialysis companies, German conglomerate Fresenius Medical Care and Colorado-based DaVita Healthcare Partners, control about 70% of the U.S. market. Together they operate about 3,900 locations nationwide — roughly the same number of Target, Best Buy, and Publix Super Market stores combined.
But while those better-known enterprises mostly compete on price, the dialysis sector mostly appears to compete on price growth.
It currently costs about $88,000 a year for a patient to undergo dialysis, according to the USRDS. That’s about 60% more than what the average U.S. household earns in a year. That figure includes not only dialysis itself, but the costs of collateral emergency room visits and hospitalizations.
Franklin Maddux, MD, executive vice president for clinical and scientific affairs and chief medical officer for Fresenius, which leads the U.S. market with a 48% share, notes that dialysis patients are likely to be made ill by excess fluid retention and other physiological imbalances that are difficult to control.
Luis Alvarez, MD, PhD, chief of the nephrology division at the Palo Alto Medical Foundation and chief medical officer of the startup firm Outset Medical, says dialysis patients can also suffer blood clots (from not enough blood thinners) or excessive bleeding (from too many blood thinners), heart attacks, or strokes.
According to data from Fresenius, one of its American dialysis patients will spend about 10 days in the hospital during each quarter — more than double the hospital days for its patients in Asia or Latin America. Maddux says the disparity is due to different record-keeping regulations in each country, and the rate of U.S. hospital days has actually declined 22% in recent years.
Despite the patient acuity, dialysis is enormously profitable for both DaVita and Fresenius. DaVita reported adjusted net income of $828 million for 2015, up more than $100 million from 2014. Three-quarters of its cash flow stems from dialysis services.
Fresenius fared even better, netting more than $1 billion in after-tax profit for 2015. For the first quarter of this year, its revenue was up 6%, net income up 9%.
The pharmaceutical industry also benefits tremendously from dialysis. Aside from regularly receiving blood thinners, many patients also receive Epogen, a drug that stimulates blood cell production (kidneys perform this when functioning properly).
“Those kind of drugs have been huge,” says Klassen. “They have had an enormous impact prolonging the lives of patients.”
Amgen, the California biotech company that holds the patent on Epogen, has reaped roughly $40 billion in sales since the FDA approved it for use in 1989, making it one of the biggest blockbuster drugs ever. After Congress approved having Medicare pay for more Epogen, average doses to dialysis patients tripled between 1991 and 2007.
A connection between the two for-profit dialysis giants and rising treatment costs was made by Leemore Dafny, PhD, and David Cutler, PhD, health care economists with Northwestern University’s Kellogg School of Management and Harvard University, respectively, in a 2012 study for the National Bureau of Economic Research. Their findings: Average spending for DaVita and Fresenius patients rose about 50% from 2005 to 2009, to about $120,000 annually. Spending for dialysis patients in Medicare rose about 20% during that time, but reached only about $60,000 a year.
Dafny, who is a Lead Advisor for NEJM Catalyst, said she was drawn to studying dialysis in part due to its extraordinary profitability. “We saw an increase in private prices as there was increase in the joint market share of both companies,” she told NEJM Catalyst. Both Fresenius and DaVita grew dramatically starting about 15 years ago as they moved to consolidate the sector.
The market leaders might be even more profitable if not for the litigation surrounding their business practices.
DaVita has paid out nearly $1 billion since 2013 to settle three whistleblower suits. Last year, it paid $495 million to settle a suit filed by two former employees accusing it of overbilling the Medicare and Medicaid programs. It was the largest settlement ever for a whistleblower suit where the federal government declined to intervene.
Earlier this year, Fresenius paid $250 million to settle a suit regarding two supplementary dialysis products it markets and sells, a smaller yet significant profit center for it and DaVita. The products, GranuFlo and NaturaLyte, were linked to sudden cases of cardiac arrests in dialysis patients. The suit, joined by several state attorneys general, accused Fresenius of issuing warnings to its own dialysis centers regarding the risks associated with the products, but not other centers that used GranuFlo and NaturaLyte.
Both companies remain the subjects of various state and federal probes.
The big for-profit operators have also been shown to have much higher mortality rates than nonprofit dialysis centers in the U.S. A 2010 article in Health Services Research tallied a 19% higher risk of death at Fresenius facilities, and a 24% higher death risk at DaVita facilities, than patients receiving care at the biggest nonprofit chain. The study authors concluded, “Given the movement toward further consolidation of large FP chains, reasons behind the increase in mortality require scrutiny.”
A 2009 article titled “Why Is the Mortality of Dialysis Patients in the United States Much Higher than the Rest of the World?” co-authored by Raymond Hakim, MD, PhD, who was Maddux’s predecessor as Fresenius chief medical officer, acknowledged that U.S. one-year mortality rates were among the highest in the world: 21.7% in 2003, versus 15.6% in Europe and 6.6% in Japan. The authors fingered patient nutrition and staff training as particular causes of the discrepancy.
Cost Growth, and Cutbacks
The huge growth curve in expenditures for dialysis patients has not been lost on the federal government. In 2011, Medicare began bundling dialysis care payments in an attempt to better control expenses, paying about $240 per treatment, or around $37,000 a year.
In 2012, Medicare approved other drugs to stimulate blood cell production. That helped render Epogen sales anemic: They are now about half of their peak six years ago. This year, Medicare put about 2% of dialysis payments at risk based on providers meeting certain quality measures, which is intended to cut the huge costs related to treating complications.
But if a dialysis patient has private insurance, that payer is required to cover services for the first 30 months until Medicare becomes the primary payer. Private payers typically pay at least twice Medicare rates, according to Alvarez.
Those 30 months represent the window within which dialysis providers collect their paydays. DaVita earns its entire dialysis profit from the privately insured, even though they represent only about 10% of all of its patients; Medicare patients account for a double-digit negative margin. In its most recent earnings call, DaVita officials discussed pushing commercial insurers reluctant to continue covering dialysis patients. (DaVita did not respond to written questions seeking comment on issues raised in this article.)
Fresenius declined to break out its payer numbers, but Maddux acknowledges the differential. “We do recognize that the different payer types have vastly different payments. There are patients we dialyze where we don’t make any money, and there are those patients where we do make a margin on it,” he says.
There are other options to cut costs in private-sector dialysis. Home dialysis, for example, has significantly lower costs than the labor and sunk costs of operating a dialysis center. But Fresenius’ and DaVita’s home dialysis rates hover around 20% and 10%, respectively. Dafny believes both companies are reluctant to promote home dialysis because they are paid less to furnish supplements and other services.
Maddux notes that home dialysis isn’t always feasible: Patients must be able to take care of a lot of the dialyzing themselves, or have the means for a home caregiver, among other variables.
Richard Gibney, MD, might be the first person to combine the words “dialysis” and “joyful” in a sentence. A veteran nephrologist practicing in Waco, Texas, Gibney oversees the operations of several Fresenius-owned dialysis centers in the region, where he takes an unorthodox approach to delivering care. For example, he holds yoga classes for patients as they’re being dialyzed — a response to the rising rates of diabetes among the patients and a need to increase their circulatory performance.
But Gibney’s most radical approach toward dialysis is the notion of “empowering” patients by having them perform some or much of the setup and monitoring of their treatment. The model follows one originally developed in Sweden.
“The entire country does what we in Texas call ‘hunker-down dialysis.’ They tell you to sit down, put out your arm (to be connected to the machine), and don’t say anything,” explains Gibney, who says he was inspired to change the process through his interactions with the Institute for Healthcare Improvement (IHI). He contends that enforced passivity results in miserable patients reluctant to share symptoms of pain and discomfort while being dialyzed, leading to a greater rate of clinical complications.
In 2011, IHI published a case study of Swedish dialysis patients who had taken on self-management of their own dialysis and care. The operating costs of the unit dropped 33% because of reduced complications, and patient satisfaction was undeniably improved.
Patients involved in empowered dialysis at Gibney’s centers are given a variety of options for what they can do themselves. That includes cannulating (inserting the needles into their bodies), responding to alarms, and testing their own blood, among other steps.
Gibney has about 280 patients currently engaged in empowered dialysis in a dozen centers in the Waco area. Some centers operate a hybrid model, offering empowered treatment along with traditional processes; two centers treat empowered patients only.
The limited results have been encouraging. Between January and October of 2015 in the two centers using the hybrid model, 181 empowered patients experienced four deaths and 103 hospitalizations, rates of 2.2% and 57%, respectively. Of the 588 patients who underwent traditional dialysis, 69 died and there were 904 hospitalizations, rates more than five times and two times higher, respectively.
Outset Medical, based in San Jose, California, seeks to empower dialysis patients through technology.
Outset’s Tablo device aims to transform dialysis in the way ATMs have done for banking and self-checkout kiosks for grocery shopping.
The Tablo, which resembles a dormitory refrigerator, breaks down the act of dialyzing in simple steps. Patients and/or technicians are given prompts on a video screen. Concentrates required for the session come in modules easily installed into the machine, which in turn can be connected to a sink faucet, bypassing the need to purify the water supply. There is also no need for “stringing” — the need to push tubing throughout the device much in the same way an old film projector is threaded. Patients can hook themselves up in about 10 minutes and as quickly as six minutes, according to Outset CEO Leslie Trigg.
During the dialysis session, the screen displays the patient’s progress through a tree that slowly turns from white to green. When it concludes, Tablo plays a jazzy tune reminiscent of a morning talk show interlude and transmits relevant clinical data to providers. It then self-cleans for the next patient.
“We have tried in every way to make this a consumer experience,” Trigg says, down to subtle details such as the ventilation holes, which have a pattern similar to the Jabra wireless speaker.
Trigg says a marker of success for Tablo would be in making dialysis pleasant enough for patients to reduce missed treatments, which she says average more than 13 per year and lead to higher hospitalization rates.
Private equity firms have liked what they have seen with Tablo: Outset raised $91 million in equity and debt funding last year.
Fresenius will be deploying the Tablo in a pilot program that begins later this year, which will include some of the sites under Gibney’s management. “We’ll want to know if it delivers adequate dialysis, if it’s durable, and if the service from the manufacturer is good,” Maddux says.
Another outcome of Tablo’s revamp of an old clinical process is reduced labor costs and medical complications. The former is DaVita’s and Fresenius’ biggest expense. The latter puts patients in the hospitals — where Dafny notes those companies aren’t paid to dialyze them.
And if patients can hook themselves up to the dialysis machines themselves, what becomes of the thousands of technicians staffing the dialysis centers?
“That’s not my area of interest and expertise,” Gibney says. However, he adds that staff have asked if they are going to lose their jobs.
“I said ‘No, that’s totally wrong. We’re transitioning from you being a worker bee, a madman like you’re running cattle through a chute, to becoming teachers, mentors, and cheerleaders,’ ” he says.
Alvarez says that the staffs of many dialysis centers — particularly the technicians who are responsible for hooking up and monitoring the progress of each session and who comprise the bulk of employees — are under tremendous pressure to perform. “The guy you’re depending on for your life does not make much more than someone who works at Jamba Juice,” he says. “A lot of patients are angry at you, it’s a stressful job, and turnover is monumental.”
Alvarez, who straddles two worlds as a veteran kidney clinician and a key executive in a hot startup company, takes a fairly blunt position on how dialysis should evolve.
Improved profitability and outcomes must go “hand-in-hand” in this particular area of health care delivery, he says. “We are spending 8% of the Medicare budget on these patients. That’s an enormous expenditure for us as a nation, and it behooves us to deliver greater value.”