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A federal appeals court ruled last week that California's attempt to limit how much dialysis companies profit from certain privately insured patients is unconstitutional — a victory for an industry that has repeatedly beaten back efforts to control its costs.
The 9th U.S. Circuit Court of Appeals struck down key pieces of Assembly Bill 290, a law designed to limit how much dialysis companies could profit from privately insured patients who receive premium assistance from charity groups.
About 800,000 people in the U.S. suffer from end stage renal disease, a condition that requires being connected to machines that filter their blood for up to five hours several times a week.
Most dialysis patients — about 80% — are on Medicare. But when patients end up on private insurance instead, costs balloon. Individual marketplace plans pay roughly three times what Medicare pays for dialysis, according to a 2021 study from the University of Southern California. Though dialysis patients make up just a sliver of the individual market, their average monthly costs run 33 times higher than other enrollees — driving up premiums for everyone else.
"The issue is that dialysis care is just significantly more expensive in the individual market, and it has to do with how consolidated the market has been allowed to become," said Dr. Eugene Lin, assistant professor of medicine at USC and co-author of the study.
A Contested Practice
At the center of the legal dispute was an alleged practice that supporters of the law referred to as a “profit maximizing scheme.” Dialysis providers DaVita Inc. and Fresenius Medical Care donate to the American Kidney Fund, a nonprofit that provides premium assistance to some 3,000 dialysis patients in California. For years, insurers, consumer advocacy groups and unions have claimed that in exchange for those donations, the American Kidney Fund steers patients away from public insurance — Medicare and Medicaid — and into private insurance by paying for their premiums. This benefits dialysis providers because private insurance tends to pay at higher rates than public payers. The American Kidney Fund has long denied the accusations.
Lawmakers designed AB 290, which Gov. Gavin Newsom signed into law in 2019, to target that alleged practice. First, it capped the reimbursement rate that dialysis providers can receive for privately insured patients who receive premium assistance from nonprofit charities. The law set that reimbursement cap to what Medicare pays. It also required that those charitable organizations disclose the names of patients who receive premium assistance, so that insurers could know which patients have capped reimbursement rates.
DaVita and Fresenius, along with the American Kidney Fund and a group of patients, sued the state soon after the law passed, keeping it from going into effect.
Last week the 9th Circuit ruled these provisions unconstitutional. The court found that the law’s reimbursement cap and the patient disclosure provisions violate the First Amendment by burdening the American Kidney Fund’s right to associate with DaVita and Fresenius. If California’s intent was to protect patients from abusive practices and prevent distortion to the insurance risk pool – something that happens when health plans take on more high-cost patients – the state did not narrowly tailor the law’s provisions to achieve those interests, the judges said.
A district court previously struck down a separate provision of the law, which more directly banned clinics from steering or advising patients on insurance plan options. That court said California did not produce enough evidence to sustain its argument that charities or clinics are steering patients.
The appellate court’s ruling drew praise from the industry. DaVita said it was “encouraged that the 9th Circuit found AB 290 unconstitutional and unenforceable.”
LaVarne Burton, president and CEO of the American Kidney Fund, called the decision “a resounding victory for people with kidney failure who cannot afford the cost of health care.”
The California Department of Managed Health Care and the Department of Public Health defended the law in court, represented by the State Attorney General’s Office. The departments issued a joint statement that they are “currently reviewing the ruling, the impacts of the decision and appropriate next steps.”
For now, the ruling leaves things as they are. Dialysis patients who currently receive premium assistance from the American Kidney Fund will see no immediate changes. But the court’s decision leaves unresolved concerns about overspending in dialysis care.
“I think a huge issue with the way we think about kidney care in this country is that we don't,” Lin said. "Even though, as taxpayers…we all should be thinking about this more so than any other chronic disease because it's so expensive.”
Supported by the California Health Care Foundation (CHCF), which works to ensure that people have access to the care they need, when they need it, at a price they can afford. Visit www.chcf.org to learn more.
This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.
