The rising and substantial market caps of the two companies that dominate the dialysis clinic business across the country, DaVita (DVA) and Fresenius Medical Care (FMS), can be viewed in large part as the capitalized future streams of Medicare payments. Tens of billions of dollars a year. Most dialysis patients are essentially disabled, have a limited life expectancy, and the government and it alone pays for their treatment.
Indeed, few industries are as reliant on direct government payments. And any that are must be standing back in gape-mouthed admiration at the lobbying feat the dialysis industry is in the midst of, as brilliantly reported in today’s New York Times. Essentially, DaVita and Fresenius and their mouthpieces have convinced a bunch of Congressman – who for the most part voted to cut back some payments to the firms earlier – to reverse course and now continue those payments.
How cynical is this exercise? Any worse than the average industry lobbying blitz? Well, consider this: the industry formerly prescribed a drug in question, Epogen, in great quantities, insisting that it helped dialysis patients, even though there was mounting medical evidence that the dosages were at times hurting patients. The clinics were at that time reimbursed based on how much of the drug they gave patients.
When the reimbursement formula was changed to discourage over-administering of the drug, giving the companies instead enough money for what were considered reasonable doses, but paying a set amount regardless of the level of use of the drug, the companies prescribed far less than expected, keeping the set amount of reimbursement and skipping the expense of buying the drug in many cases.
DaVita and Fresenius and their like have sprinkled around some $8 million in campaign contributions since 2009, the Times reports, to both Republicans and Democrats, and now have some of those same lawmakers leading the charge to preserve what the newspaper estimates as excess payments by the government of between $530 million and $880 million a year.
That’s a meaningful sum to DaVita and Fresenius.
The episode, of course, shows how flat-footed government people are in structuring incentives, and reminds us how adept the private sector is at putting its hand into Uncle Sam’s pockets, all the while bellyaching about too much regulation. Now, the dialysis companies are warning that, without the extra payments, they could have to close money-losing or less profitable clinics, particularly in rural areas. It seems likely we’ll never find out if they’re B.S.’ing us, because Congress seems to be moving toward reversing the reduction in payments and, for all its talk, the Obama Administration has proven to be highly accommodative to the healthcare industry.
One might want to recall, however, the long line of industries that cried wolf. Detroit assured us that airbags would bankrupt it. The utility industry said the Clean Air Act would do likewise, and then won such huge concessions on emission standards and SO-2 trading allowances that it made the law profitable for the industry. Our government people really lack the attention spans and the rigor to deal with the business world, don’t they? Saps.
Of course, the dialysis industry wouldn’t be collecting tens of billions of dollars a year if the country looked after its health. The Wall Street Journal today, in an article on soda pop consumption, informs us that per-capita U.S. consumption was 165.3 liters in 2012. Great news for Coca-Cola (KO) and Pepsi (PEP), and by extension great news for DaVita and Fresenius, as diabetes in its extreme destroys kidneys and lands one on dialysis.
A better diet would help, scoff if you will at New York Mayor Michael Bloomberg’s failed effort to outlaw giant soda pop portions, and proposals by others to tax sugary drinks to offset their health effects. But how – and when in the course of a patients’ illnesses – dialysis is administered also greatly impacts health outcomes and cost. And Italy, of all places, shames the U.S. in its approach to dialysis, as The Atlantic earlier reported.
What started out as a humane, and relatively small government program to help those with kidney failure some 40 years ago has mushroomed into a $33 billion-a-year expense. DaVita and Fresenius -- both are roll-ups, acquiring lots of smaller dialysis operations to gain market share – wouldn’t likely exist as huge U.S. operations (Fresenius is a German company and also makes equipment) without the Medicare program. And now, it seems, they’re dictating the shape of that programs to fit their own needs. Their scale seems to provide a competitive moat, and high obesity rates provide, given government guarantees of treatment, steady growth in clientele.
Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at email@example.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.