Health care reforms implemented in the United States through the Patient Protection and Affordable Care Act (ACA) enacted in 2010 have coincided with market consolidation through mergers and acquisitions, renewing concerns about the effects of consolidation on the cost and quality of care.1 Mergers, acquisitions, and consolidation may result from value-based payment reform when larger organizations are better equipped to invest in quality and to promote value through high-volume, integrated care.2 Yet evidence supporting a link between value-based payment reforms and market consolidation remains limited.3 Trends in hospital market consolidation preceded the ACA.1 Even if past payment reforms did prompt acquisitions, it is unknown whether similar reforms will continue to do so in health care markets that have recently become highly concentrated, such as markets for hospital care.
Analyses of US dialysis care can offer insights into how national policy reforms affect highly concentrated health care markets. Unlike many other areas of health care, dialysis markets have been highly concentrated for decades, and are currently dominated by 2 large for-profit chains.4 Dialysis care, including nephrologists and dialysis centers, has been a focus of numerous mandatory national policy reforms enacted to address concerns about high costs and reduced quality of dialysis care. Furthermore, a national registry of people with end-stage kidney disease (ESKD)—the United States Renal Data System (USRDS)—facilitates the analysis of dialysis policies.
In the JAMA Health Forum study by Sloan et al,5 the authors examined the effects of a national reform to dialysis reimbursement on dialysis facility acquisitions and closures. In 2011, the Centers for Medicare & Medicaid Services (CMS) expanded its bundled payment for dialysis care (the ESKD Prospective Payment System [PPS]) to include expensive injectable dialysis medications that were previously paid for separately. At the time of the reform, stakeholders argued that some dialysis centers would face economic hardship under the new reimbursement system.
Sloan et al5 used data from the USRDS registry and Medicare to identify dialysis facility acquisitions and closures between 2006 and 2016. Their primary focus was on independently owned dialysis facilities and smaller chains (<20 dialysis facilities), which were considered to be at higher risk of acquisitions and closures. They used discrete time hazard models to examine trends in acquisitions and closures prior to and following expansion of the ESKD PPS in 2011. Models estimated the immediate effects of the payment reform on acquisitions and closures as well as its effects on longer-term trends over time. Multivariable regression adjusted for key patient and dialysis facility characteristics, including measures of market competition.
The authors observed an increase in acquisitions associated with expansion of ESKD PPS.5 Prior to 2011, the predicted probability that an “at-risk” dialysis facility would be acquired in a given year was 3.2%. After 2011, the annual predicted probability increased to 5.8%. Smaller dialysis facilities, newer facilities, and independently owned, for-profit centers were more likely to be acquired. Despite this 1-time increase in dialysis facility acquisitions associated with policy reform, no significant changes in longer-term acquisition trends were noted. Similar to a previous analysis,6 dialysis facility closures were relatively infrequent over the 10-year study period and did not change in association with reimbursement reform. Trends in acquisitions and, to a lesser extent, closures corresponded with an increase in the proportion of all dialysis facilities operated by large dialysis organizations from 69% in 2006 to 85% in 2016.5
The observation that dialysis facility acquisitions increased in association with reimbursement reform is particularly notable because dialysis markets were already highly concentrated prior to the new policy. Before 2011, the average patient receiving hemodialysis had only 2 competing dialysis sources from which to choose.4 The authors speculate that the increase in acquisitions may have occurred because of an expectation that new financial uncertainties would disproportionately affect smaller dialysis chains and independently owned facilities.5 At the time of the policy reform, larger dialysis chains were thought to be relatively protected from economic pressures associated with expansion of the dialysis payment bundle due to their access to bulk discounts in dialysis supplies, medication purchases, and electronic medical record and laboratory service fees. The authors suggest that it was not until after the reimbursement reform was implemented, and revenue margins remained stable, that acquisitions of smaller dialysis centers were no longer deemed necessary.
The findings also raise several questions. An important mechanism through which acquisitions can influence health care prices and quality is by limiting market competition. For example, following the acquisition of an independent dialysis facility, dialysis recipients living near the acquired facility may be left with little to no choice. They may continue to undergo dialysis at a facility, despite concerns about the quality of care at that facility, simply because there are no other nearby options. Likewise, private insurers operating in less-competitive markets may need to keep a dialysis facility in-network owing to a lack of nearby alternatives, even if the dialysis organization’s prices are unfavorably high. It is unknown whether dialysis facility acquisitions following expansion of the ESKD PPS led to declining competition among dialysis facilities.
In the decade prior to expansion of the ESKD PPS, dialysis facility acquisitions served primarily to maintain highly concentrated markets.4 This is because acquisitions occurred at the same time that new dialysis centers entered growing dialysis markets. As more facilities have continued to enter dialysis markets since 2011, acquisitions associated with reimbursement reform may have similarly helped to maintain highly consolidated markets without inducing declines in market competition. Future studies will need to examine whether dialysis markets became less competitive following expansion of the ESKD PPS.
The selected study design assumes that expansion of the ESKD PPS was the only temporal change that influenced adjusted outcomes of interest.5 However, other major developments occurred near the time of expansion of the ESKD PPS that could have also influenced expectations about the financial performance of dialysis facilities. Updates to the US Food and Drug Administration’s black box warning for erythropoietin stimulating agents and enactment of a mandatory national pay-for-performance program for dialysis facilities (the ESKD Quality Incentive Program) both occurred at around the same time as expansion of the ESKD PPS. These developments could have influenced dialysis facility financial performance and, consequently, decisions about acquisitions and closures.
Studies in dialysis have linked acquisitions to decreased quality of care and worse health outcomes,7,8 and growth in large dialysis organizations may lead to higher prices paid by private insurers.9 The finding that dialysis facility acquisitions increased in association with a national dialysis reimbursement reform highlights the need for policymakers to consider how dialysis payment policies influence market competition. Looking forward, it will be important to understand how new payment models arising from the recently enacted Advancing American Kidney Health Initiative influence the structure of dialysis markets. To the extent that value-based payment reforms result in mergers, acquisitions, and consolidation, potential downstream impacts on quality and costs risk compromising broader policy aims.
As with dialysis, studies in other areas of health care demonstrate associations between market competition, prices, and—in some instances—quality of care.1,10 Lessons from dialysis markets can inform health care policy more broadly. The findings of Sloan et al5 suggest the need to continue monitoring the effects of policy reform on acquisitions and market concentration, even in health care markets that have already become highly concentrated.
Published: November 5, 2021. doi:10.1001/jamahealthforum.2021.3378
Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2021 Parvathareddy V et al. JAMA Health Forum.
Corresponding Author: Kevin Erickson, MD, MS, Section of Nephrology, Baylor College of Medicine, 2002 Holcombe Blvd, Mail Code 152, Houston, TX 77030 (firstname.lastname@example.org).
Conflict of Interest Disclosures: Dr Erickson provides consulting services for Acumen LLC, Burlingame, California, has received honoraria from Dialysis Clinics Inc and Satellite Healthcare, and receives grant funding from the Health Care Services Corporation/Blue Cross and Blue Shield of Texas. No other disclosures were reported.
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Parvathareddy V, Erickson KF. How Did Medicare Payment Reform Affect Highly Concentrated Dialysis Markets? JAMA Health Forum. 2021;2(11):e213378. doi:10.1001/jamahealthforum.2021.3378