Dialysis Companies Continue to Face Economic Challenges

Katherine KwonKatherine Kwon, MD, is Partner at Lake Michigan Nephrology in Saint Joseph and serves on the Physician Executive Board of Panoramic Health.

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Dialysis companies will continue to face a challenging economic environment in 2023. That is the conclusion the market has drawn, based on the trend in stock prices for the publicly traded large dialysis organizations, DaVita and Fresenius Medical Care (FMC). Fewer patients needing dialysis, higher labor costs, and anemic reimbursement updates are all dragging down the bottom line.

The COVID-19 pandemic, entering its fourth year, has precipitated multiple adverse impacts on the business of providing dialysis to patients with end stage kidney disease (ESKD). Analysis of the U.S. Renal Data System population data suggested that the population of patients with ESKD had an absolute decrease of 0.6% in the first year after the pandemic started and a decrease of 3.5% from the expected population, based on the pre-pandemic established rate of growth (1). Higher mortality from COVID-19 in patients with ESKD, as well as in patients with advanced chronic kidney disease (CKD), has led to fewer patients needing dialysis treatments.

Labor costs have increased significantly across all segments of the health care market, and dialysis staff are no exception. In a second-quarter earnings call last year, FMC described higher staff turnover rates and reported paying significant wage premiums to temporary staffing agencies, while it struggled with a shortage of permanent dialysis nurses (2). DaVita blamed rising labor costs in its third-quarter earnings call in which the company reported it had fallen far short of earnings’ expectations (3). Despite rapidly rising labor costs, the Centers for Medicare & Medicaid Services has adopted only a 3.1% increase in the bundled payment rate for dialysis in 2024 (4). This will not be expected to cover the total increase in labor costs. There have already been reports of units closing due to staffing shortages (5, 6).

The medium-term outlook does not suggest that these conditions will improve any time soon. The viral forecast is for continued waves of illness, with influenza and other respiratory viruses adding to the toll on top of new COVID-19 variants. These will continue to lead to excess mortality in patients with ESKD. Although robust vaccination uptake can reduce mortality losses, the illness will still contribute to missed treatments and higher hospitalization rates, which also adversely impact dialysis units’ financial performance.

Continued pressures could trigger larger-scale changes at both companies. In October 2022, an investment firm with a history of initiating corporate restructuring acquired a significant stake in the parent company of FMC, Fresenius SE & Co. (7). This led to speculation that the dialysis division may be placed up for sale. Given the approximate 40% share of the dialysis market held by FMC, an ownership change would be a major shakeup. DaVita is less vertically integrated than FMC and may push further into value-based CKD care to make up lost revenue from dialysis.

What does all this mean to nephrologists? Unit closures will probably continue. This can force patients to travel farther for life-saving care and depending on the market, may force them to change nephrologists. Losing patients with ESKD is a significant financial hit under both fee-for-service and value-based care payment models. Joint-venture opportunities, which allow nephrologists to own a fraction of a dialysis unit, are financially more risky in such an adverse environment. Medical directorships, which are paid by the dialysis company to the physician, may also be aggressively renegotiated.

Nephrology has suffered for decades from being too dependent on dialysis as the major source of revenue. The advent of nephrology-specific, value-based care payment models under the 2019 Advancing American Kidney Health executive order had already started revaluing care of patients with earlier stages of CKD. This movement has been enhanced by the advent of new treatment options that are more effective at preserving kidney function and preventing kidney failure. Nephrology practices should continue to search for ways to diversify their income streams, including value-based care arrangements, ancillary services, and research. This will offer some protection from the anticipated continuing pressures in dialysis care.