The “Advancing American Kidney Health” Executive Order: Challenges and Opportunities for the Large Dialysis Organizations

Although patients with end-stage kidney disease (ESKD) constitute 1% of the Medicare population, they account for more than 7% of Medicare spending.¹ Outpatient dialysis treatments make up more than 25% of this spending. Close to 90% of patients undergoing dialysis use in-center hemodialysis, a trend that has persisted for more than two decades, despite evidence suggesting that home dialysis has similar patient outcomes,² greater patient satisfaction,³ and reduced Medicare costs.¹ In July 2019, the “Advancing American Kidney Health” Executive Order (AAKH)⁴ was signed, which aims to reduce the dominance of in-center hemodialysis in the United States (US). In this perspective, we examine how the AAKH might reshape the US dialysis market. We focus on the two large dialysis organizations (LDOs), DaVita and Fresenius, which provide over 75% of US ESKD dialysis treatments.⁵

PROPOSED POLICY CHANGES: A THREAT TO THE EXISTING DIALYSIS INDUSTRY

The AAKH made it a national goal to increase the adoption of home dialysis and kidney transplantation to 80% of the incident ESKD population by 2025,⁴ a dramatic increase from its current combined rate of 12%.¹ To achieve this goal, the Centers for Medicare & Medicaid Services’ Innovation Center (CMMI) proposed a mandatory payment model, the End-stage renal disease Treatment Choices (ETC) model, that will adjust dialysis facilities’ and nephrologists’ payments based on home dialysis and kidney transplantation rates.⁶ Bonuses and penalties are potentially large, up to 10% and 13% of total payments, respectively. Additionally, CMMI has proposed four voluntary payment models that will reward nephrologists who successfully steer patients away from in-center hemodialysis through preemptive transplantation or forestalling ESKD.⁷

The central thrust of these models is to discourage in-center hemodialysis. While the LDOs might agree with this goal, they would likely prefer gradually phasing in home dialysis to coordinate with depreciating in-center capital investments (e.g., dialysis machines, water treatment facilities, etc.). Despite payment incentives for home dialysis,⁸ an additional year of in-center hemodialysis increases a facility’s margin by 0.15% versus 0.08% with peritoneal dialysis.⁹ In the short-term, in-center hemodialysis is less costly given already existing (and paid for) capital. Under the ETC, facilities must accelerate plans to expand home dialysis investments and to retrain its staff to support home dialysis. Consequently, dialysis providers dependent on in-center hemodialysis face large risks of having to write down the value of in-center capital investments.

Unsurprisingly, the LDOs and other dialysis providers have written a joint letter to CMS criticizing the ETC model.¹⁰ Originally slated to start on January 1, 2020, the model has not been implemented, with no final rule released to date. Historically, the LDOs have mounted successful resistance against changes in regulation that could meaningfully change the dialysis industry.¹¹

REFORMING STATUS QUO KIDNEY CARE

The new payment models represent a unique opportunity to reshape status quo kidney care. In-center hemodialysis outcomes are dismal; 22% of patients die the first year of dialysis and patients experience an average of 1.7 hospitalizations per year.¹ Poor outcomes are partially attributable to suboptimal pre-dialysis care.¹² Over 80% of patients starting dialysis use a catheter, even though most transition to a superior dialysis access by the end of the first year.¹ The probability of switching from in-center hemodialysis to home dialysis drops from 7% in the first month of dialysis to less than 1% by the fourth month.¹³ Earlier pre-dialysis care coordination could hasten optimal dialysis access placements and more effectively promote home dialysis.

Additionally, the highly consolidated dialysis industry has had mixed success in improving outcomes. Theoretically, industry consolidation should result in efficiency gains through economies of scale¹⁴ that could be allocated to improve care coordination. However, observational studies suggest that for-profit facilities have lower patient satisfaction¹⁵ and marginally lower rates of living- and deceased-donor transplant.¹⁶ Still, given the right incentives, the LDOs could effect meaningful change. One example is the Comprehensive ESRD Care (CEC) model, which allows dialysis facilities (mostly LDOs) to function as Accountable Care Organizations. Under the CEC, dialysis facilities modestly reduced overall healthcare expenditures and hospitalizations.¹⁷ Unfortunately, the CEC did not increase home dialysis use or kidney transplantation listings.

Market consolidation also presents unique challenges and opportunities to the ETC. To assess the ETC’s effects, CMMI has proposed a randomized rollout. However, because CMMI will evaluate individual facilities’ (and not chains’) performances, the LDOs may be tempted to funnel home dialysis resources from control facilities to facilities randomized to mandatory participation. Accordingly, commenters including the Medicare Payment Advisory Commission (MedPAC) have criticized its design.¹⁸ One alternative is to evaluate chain performance and to randomize one entire LDO to mandatory participation. Such a design would allow the participating LDO to leverage its size to experiment with establishing regional centers specializing in home dialysis or with coordinating care among multiple facilities.

CMMI has also shifted its focus away from dialysis facilities and toward including nephrologists.⁷ Even though the ETC is ostensibly an ESKD payment model, steering care toward kidney transplantation and home dialysis and away from in-center hemodialysis requires substantial pre-dialysis planning, which is mostly within nephrologists’ purview. Additionally, the ETC directly evaluates nephrologists’ performance, in contrast to prior value-based purchasing programs. Finally, the voluntary payment models explicitly require the inclusion of patients with CKD, with bonuses and penalties attached to slowing CKD progression and transplantation.

Even so, nephrologists’ leverage is limited. The path to kidney transplantation is slowed by a drastic shortage of deceased donor organs and impediments to living kidney donation, including familial clustering of kidney disease and its risk factors, knowledge deficits, fears, and insufficient consideration of financial and medical barriers to the donor. Moreover, lack of social supports and fears of “medicalizing” the home often lessen enthusiasm for home dialysis. Still if nephrologists are successful in increasing home dialysis, promoting preemptive transplantation, and slowing progression to ESKD, the LDOs will need to change tack from an in-center hemodialysis centric business model.

IMPLICATIONS FOR THE LARGE DIALYSIS ORGANIZATIONS

Assuming CMMI implements the payment models, the LDOs will begin shifting away from an in-center hemodialysis dominant strategy (Table 1). The transition will undoubtedly require substantial upfront spending through home dialysis capital purchases and medical staff retraining programs. To this end, Fresenius has already made a large home hemodialysis investment by acquiring NxStage Medical in February 2019, with the goal of increasing home dialysis use from 12% to 25% of its patients by 2022.¹⁹

TABLE 1:

Potential Impact of the Proposed Medicare Payment Models on the Dialysis Market

Market Feature	Potential Future Change
Treatment Focus	Shift from in-center hemodialysis centric to optimizing CKD management, increasing home dialysis use, and transplantation
Capital Investments	Accelerated depreciation of in-center capital in favor of home dialysis capital Closures of aging brick and mortar in-center hemodialysis units Vertical integration with home dialysis suppliers (e.g., Fresenius’ acquisition of NxStage)
Staff	Retraining of staff to increase provision of home dialysis
Costs	Financial penalties for over-reliance on in-center hemodialysis Potential reductions in home dialysis supply costs
Revenue Opportunities	Bonuses for collaborating with nephrologists to slow progression of CKD Bonuses for increasing home dialysis and transplantation
Competition	Emergence of new competitors focused on improving care coordination (Strive, Cricket, Somatus) and home dialysis (CVS)
Regulation	Implementation of ETC model Payment models to transition away from focusing on dialysis to focusing on the entire spectrum of kidney disease

Abbreviations: CKD = chronic kidney disease, ETC = End-stage renal disease Treatment Choices

A successful business strategy will likely require collaborative partnerships with nephrologists able to coordinate pre-dialysis care, plan for home dialysis, and refer for transplantation. The most effective partnerships could take several different forms, including joint governance partnerships or even strategic buyouts of nephrology practices. Common to any of these strategies is a focus on reducing the morbidity, mortality, and costs associated with the first year of ESKD care.

Increased demand for home dialysis may also lower home dialysis operating costs, by rejuvenating a market dominated by a few companies (e.g., Baxter owns 80% of the global peritoneal dialysis supply market).²⁰ Baxter announced in 2019 that it would expand its manufacturing capabilities to meet the increased demand for peritoneal dialysis supplies.²¹ Other suppliers may also expand their production, and new companies could enter the market, bolstering a fragile supply chain that disrupted peritoneal dialysis growth in 2014, when Baxter suddenly announced peritoneal dialysis supply shortages.²²

The payment models’ projected effect on consolidation in the dialysis market remains unclear. The influx of patients with ESKD into Medicare Advantage plans in 2021 may dilute the models’ impact and further casts uncertainty over the future.²⁴ Although the LDOs hold the most in-center capital, they have a successful track record in adapting to payment policy changes. Smaller dialysis companies or new entrants²⁴ may find it difficult to meet all regulatory requirements. If the LDOs can effectively maintain patients on home dialysis and increase kidney transplantation rates, these policies could increase market consolidation. To the extent these developments improve patient outcomes, such developments would be welcome despite a more consolidated market.

On the other hand, the new payment models may increase market competition by reducing the infrastructure requirements of providing dialysis, making entry easier than with an in-center dominant market. CVS has already emerged as a potential competitor to the LDOs and recently launched its first clinical trial for a new home hemodialysis device.²⁵ If successful, the company plans to offer dialysis services in direct competition to the LDOs. Other companies, such as Cricket Health, Somatus, and Strive Health have also entered the marketplace.

CONCLUSIONS

In the past, a consolidated dialysis market has been associated with mixed outcomes, lower patient satisfaction, and sluggish innovation. The LDOs’ resistance to CMS’ new kidney disease payment models suggests that the LDOs have much to lose in a market that prioritizes home dialysis and kidney transplantation over in-center hemodialysis. It is unclear whether the LDOs will adapt to these changes given their strong resistance. These changes might further consolidate the dialysis industry or, conversely, provide opportunity to new entrants. Irrespective of the policies’ effects on consolidation, the nephrology community has reason for optimism, if incentives to improve care and payment for that care are finally aligned.