Patient Outcomes and Dialysis Consolidation—Two Big to Fail?

The dialysis industry has changed significantly in the past 2 decades, facilitated by Medicare’s near-universal coverage of patients with end-stage renal disease since 1973. As the dominant payer of dialysis care in the United States, Medicare has paid dialysis facilities a predetermined rate for each dialysis treatment since 1983 and under a single-bundled, prospective payment since 2011.¹ As the population with progressive kidney disease and subsequent organ failure with comprehensive insurance undergoing life-sustaining dialysis has grown from 65 700 in 1982 to more than 500 000 today, so too has the number of dialysis providers, from roughly 1000 to 6700 over the same period.²

While the total number of dialysis providers has grown, the mix of dialysis organizations has shifted significantly. Nonprofit, independently owned, and hospital-based facilities have been increasingly overtaken by freestanding, for-profit dialysis facilities affiliated with a smaller number of large dialysis organizations (LDOs). Trends in chain affiliation have been pronounced, as consolidations led to an increasing share of dialysis facilities being affiliated with fewer LDOs. In 1995, 41% of all dialysis facilities were affiliated with 7 LDOs, which increased to 63% in 2005 when consolidation reduced the number of LDOs to 5. This consolidation trend has continued to the point where the dialysis industry today can be characterized as a duopoly—with 2 corporations that together own nearly 70% of dialysis facilities in the United States.^3,4

Consolidation likely confers economies of scale and scope for providers, who may have access to resources and volume discounts on supplies, generate efficiencies from standardized operations and protocols as well as centralized management and administrative services. These organizational benefits of consolidation may translate to improvements in quality of care and may also increase dialysis organizations’ presence and power in local markets. To our knowledge, there is no direct evidence of these benefits. Empirical evidence based on data from 2003-2004 has shown that hospitalization rates⁵ and mortality rates⁶ are higher for patients receiving dialysis in for-profit and larger chain size facilities than in nonprofit or smaller facilities.

Patient outcomes might change over time for all dialysis facilities regardless of acquisition because of systematic improvements in the care of patients undergoing dialysis, which is evident in annual reports published by the US Renal Data System.⁷ Above and beyond any temporal changes in all facilities over time, outcomes might change in dialysis facilities that are acquired if the quality of the acquiring firm spills over to that of the acquired facility. Third, dialysis facilities that are not acquired might have a competitive response to facilities acquired in the same market by changing their care processes to improve quality and patient outcomes.

With this conceptual background, the analysis by Erickson and colleagues⁸ extends the prior work in important ways, by using 2001-2015 US Renal Data System data to understand the association between consolidation and patient outcomes. The study team compared 1-year hospitalization and mortality rates of patients initiating in-center hemodialysis in dialysis facilities that were eventually acquired and patients in facilities in the same markets that were not acquired. The authors also examined whether outcomes differed between acquired facilities previously affiliated with an LDO and facilities that were independent or affiliated with smaller chains.

Erickson and colleagues⁸ had 4 main findings. First, outcomes in all facilities improved over time. Second, facilities that were eventually acquired had lower hospitalization and mortality rates than facilities that were not acquired, which is consistent with findings from prior research that high-performing facilities are targets for acquisition.⁹ Third, outcome improvements were greater in nonacquired facilities than in facilities that were acquired. Fourth, overall improvements in outcomes were driven largely by facilities not acquired during the study period that were independent or affiliated with smaller chains.

The interpretation of these results and whether they provide evidence for the advantages or disadvantages of consolidation hinge on 4 possible explanations: (1) competitive spillover in the form of changes made by nonacquired firms, (2) less room for improvement in acquired facilities that were already higher quality at baseline, (3) acquiring firm quality that diffused to and changed the quality of the acquired facility, or (4) some combination of these factors. A sensitivity analysis mentioned in the Discussion section provides some support for the competitive response hypothesis, when the comparison group was changed from nearby facilities to facilities in other markets that were not acquired. Yet, the hypothesis that there was less room for improvement cannot be ruled out. The diffusion hypothesis was not tested because the quality of the acquiring firm was not empirically assessed or compared with the quality of the facilities they acquired.

Results from the study by Erickson and colleagues⁸ raise questions about how patient outcomes will change in the coming years if consolidation continues. Any attempt at forecasting is fraught with difficulty and depends on the extent to which acquiring firm quality spills over to acquired facilities and the preacquisition quality of the acquired facility. If there is little room for improvement among high-performing facilities, then acquisitions may not have a major effect on future improvements unless the acquiring firm institutes care management changes that adversely affect quality and outcomes. If facilities were of lower quality before acquisition, it remains unclear whether quality would improve, not change, or decline further. Reversing consolidation (eg, divestiture) would be unlikely to automatically lead to greater improvements in patient outcomes than might have occurred otherwise, but further consolidation should be carefully considered and monitored.

The dialysis industry serves an important case study of the effects of consolidation on patient outcomes, since other segments of health care in the United States have also undergone significant consolidation. While consolidation among nondialysis organizations has been associated with increasing costs,¹⁰ costs for dialysis treatment are largely fixed owing to Medicare end-stage renal disease entitlement. Yet, consolidation may limit choices for patients and has the potential to affect the quality of dialysis care.

This study by Erickson and colleagues⁸ represents an important contribution to the literature because it suggests that not all consolidations are equal, since independent facilities improved the most of all nonacquired facilities. The good news is that outcomes for all patients are improving over time, regardless of acquisition status. The cautionary tale of this study is that outcome improvements were greater for patients seen in facilities that were not acquired. Although the specific reasons for these differences remain unclear, these findings raise concerns about whether patients realize significant benefits from consolidation in the dialysis industry.

Whether consolidation in the dialysis industry influences patient outcomes depends on whether acquiring firms had a spillover effect on acquired firms that slowed their improvements or whether there was simply less room for improvement in these already high-quality facilities. Future work could build off of this important study to understand the conditions under which consolidations impede or facilitate improvements in patient care and outcomes. Such an extension would inform the Medicare Payment Advisory Commission and Federal Trade Commission evaluations of acquisitions in the years to come.

Accepted for Publication: March 28, 2019.

Published: May 17, 2019. doi:10.1001/jamanetworkopen.2019.3962

Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2019 Wang V et al. JAMA Network Open.

Corresponding Author: Matthew L. Maciejewski, PhD, Center of Innovation to Accelerate Discovery & Practice Transformation, Durham Veterans Affairs Medical Center, 508 Fulton St, Ste 600, Durham, NC 27705 (matthew.maciejewski@va.gov).

Conflict of Interest Disclosures: Drs Wang and Maciejewski reported grant R01 DK097165 from the National Institutes of Health National Institute of Diabetes and Digestive and Kidney Diseases and grants RCS 10-391 and CIN 13-410 and nonfinancial support from Department of Veterans Affairs during the conduct of the study. Dr Maciejewski owns Amgen stock due to his spouse’s employment.

Disclaimer: The opinions expressed are those of the authors and not necessarily those of the Department of Veterans Affairs, the US Government, or Duke University.