The Dirty Business of Clean Blood

We have given the power of life or death over more than half a million people to two dialysis monopolies, DaVita and Fresenius. A non-compete ban could change that.

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Today’s issue is about the two powerful corporations, DaVita and Fresenius, who control access to dialysis, the treatment for people whose kidneys are failing. But it’s also about the risk of Medicare-for-All, because kidney disease is the one area where the government pays for everyone, no matter the age or income level. It’s universal health care, for one organ in the body. But because monopolists control this market, dialysis has turned from a miraculous life-saving medical innovation of the 1960s into a legal morass full of pointless death and moral injury.

Fortunately, dialysis is one industry where newer technology, as well as policy around non-competition agreements, can save lives. I’d like to give a shout-out, a good chunk of this piece comes from the jaw-dropping and beautifully written book How to Make a Killing: Blood, Death and Dollars in American Medicine, by former investment banker Tom Mueller, on the dialysis industry and the dominant firms who run it. It’s one of the best nonfiction books I’ve ever read.

And now…

When Caregivers Turn into Jailers

To understand the totalizing power that DaVita and Fresenius have over end-stage renal disease patients, it helps to start with a Congressional hearing that took place a little over twenty years ago. In that hearing, titled Kidney Dialysis Patients: A Population at Undue Risk?, Senator Chuck Grassley expressed frustration that not many patients would testify about their experience, for fear of retaliation by their own health care providers.

“They must dialyze to live,” Senator Grassley said. “That fact alone has discouraged many patients interviewed by this committee from coming forward today to publicly testify.” It was a rather astonishing comment, that people were afraid of their own caregivers. But it wasn’t an outlandish one.

Kenneth Bays, a retired dentist and patient, explained that clinicians could hurt those on dialysis if they chose to do so. “You do not want to make them mad,” he told the assembled Senators, “because they have this needle as big as a 10 penny nail; they can make you behave.” It went beyond the physical infliction of pain; if you miss a few dialysis treatments, Bays added, you would die. And clinics could and did refuse treatment to patients who complained or asked too many questions. Since there was often no other clinic nearby, that meant no treatment. And no treatment for someone with end stage renal disease meant death.

The other patient witness, Brent Smith, told Grassley that an executive at the firm who owned his clinic, called him both before and after the testimony, which he believed was meant to intimidate him. Government investigators then inspected his clinic, finding many problems, such as “violations of sterile procedure” and even “fruit flies in the dialysis solution.” A few months later, Smith complained that something about his dialysate mixture wasn’t right, and during his dialysis run, he went into cardiac arrest and died. His sister, Brenda Smith, later said, “Brent always told us, ‘If something happens to me on dialysis, you better investigate.’ I think he was right. I think they killed him.”

No one can prove wrongdoing, as dialysis patients are already very sick, and cardiac arrest is a common side effect. It’s routine to notice that the person who used to sit next to you at your regular treatment time is no longer there, and to know why. But the culture of DaVita’s clinics can, at least according to New York nephrologist Leonard Stern, be consistent with a certain level of brutality. Some clinic managers, he said, “were exceptionally rigid and authoritarian—like prison camp guards. If a patient broke even minor rules of behavior, they were demeaned, ostracized, and potentially thrown out.” This kind of power dynamic is unlike any other medical specialty for capable adults, and the reason it exists in kidney care is fascinating.

Where Medicare For All Exists

For a number of different reasons, both physiological and legal, kidney disease in America is unique.

Let’s start with the disease. The kidney as an organ cleans your blood, removing chemicals and sending them out of your body in your urine. When the kidneys fail, your blood and body becomes chemically imbalanced, and you die fairly quickly. In the 1940s, physicians invented an artificial kidney that does something called dialysis, soon followed by the kidney transplant. In the 1960s, doctors opened the first clinics to mass distribute these procedures. To get dialysis, you sit in a chair with a big needle in your arm, and your blood is withdrawn and circulated through a machine dozens of times over the course of many hours. It can be awful, and if it’s done too fast or with the wrong dose of medicines, you get sick to your stomach, light-headed, unable to think clearly (known as ‘dialysis fog’), or go into cardiac arrest.

Patients with end stage renal disease have to get dialysis treatments roughly three times a week. And this doesn’t stop until you die or you qualify for and get a kidney transplant. About 550,000 undergo dialysis in America, a population that is disproportionately black, poor, and old, though not exclusively so. Unlike, say, chemo, dialysis doesn’t end. You just keep doing it to stay alive.

So it’s awful to have your kidneys fail. But in some ways, dialysis is also a uniquely remarkable medical story. Prior to the creation of modern dialysis in the 1960s, pretty much everyone whose kidneys stopped functioning would die. Today, not only can you stay alive, but every American can get access to this treatment, even if they can’t pay. And that’s because in 1972, Congress and President Richard Nixon signed a mini-Medicare-for-All law specifically for dialysis, guaranteeing that anyone who has the disease can get treatment on the government dime, no matter their age or income level.

Unfortunately, the creation of this universal treatment for dialysis occurred just as the anti-monopoly tradition in commerce, and in medicine, fell apart. What happened next in this industry is similar, though not identical, to the general story of consolidation in the rest of the economy. The similarity is that there was a massive roll-up of private power in the hands of corporate chains. But in contrast to, say, the rise of Walmart and its power over retail, dialysis is run wholly with public money, so care delivery in dialysis is about corporate giants intertwined with big government. In April, I wrote about how consolidation in health care was super-charged by Obamacare. Dialysis is that same story in micro. It’s more like the defense industrial base than big tech.

The consolidation story in dialysis starts with the creation of Medicare, which essentially dumped money into health infrastructure without much planning. In the late 1960s, you could get cash from the government, plus a guaranteed profit, to do pretty much anything health related, which led to an explosion of hospitals, clinics, specialty practices, and spending. Obviously Medicare was on net a good thing, since poverty among the elderly crashed, and life expectancy went up. But there were serious structural problems from the start, in a hybrid system of public spending and private profit off taxpayer money. With the expansion of dialysis in 1972, the Medicare model spread to dialysis.

At first, the dialysis industry was a reasonably well-regulated sector, with lots of independent clinics, some of which were pretty bad, but most of which were staffed by nurses and competent technicians. As I wrote earlier, hundreds of thousands of people were saved by this expansion. There had always been dialysis chains, started in some cases by former fast food franchise founders, but it was a regulated space. As with much of our economy, regulators were soon defunded. And in the 1990s, consolidation picked up steam.

For instance, the firm who owned the clinic used by the Congressional witness I highlighted above was called Total Renal Care, which renamed itself DaVita. In 1998, it bought Renal Treatment Centers for $1.3 billion, and in 2005, it bought Gambro Healthcare. DaVita has its own mergers and acquisitions department, where it buys and sells clinics - the most recent big one was in Utah - and organizes joint ventures with nephrologists. Fresenius, a German conglomerate which also made dialysis equipment, bought National Medical Care in 1996, the Renal Care Group in 2006 and Liberty Dialysis in 2012. In 2019, over objections from FTC Commissioner Rohit Chopra, it purchased NxStage Medical, which made home dialysis technology.

But this market isn’t a duopoly, it’s more a whole set of tiny monopolies. Patients usually can’t go for dialysis more than 20 miles from where they live, so they are beholden to their local clinic. The real acquisitions that matter are not big, but small, like whether the two dialysis clinics in their town become one. And yet here’s the big problem: from 1996-2017, there were 4,000 attempted acquisitions, most below the radar because the average individual clinic was valued at $4 million, and so they didn’t need to report the acquisition to antitrust authorities.

Today, DaVita and Fresenius control 80% of all dialysis in the U.S. (The published numbers conservatively show 70%, but I’m told that the number is almost certainly more like 80%.)

Getting Away with Merger

Despite the expansion of money and infrastructure for dialysis in the U.S., according to nephrologist Leonard Stern, 22% of patients die every year, vs 5-6% in Japan or between 9-12% in Western Europe. “So what is the difference?” Stern asked. “Well, for a start, most dialyzing in the United States is done for profit, and the for-profit survival is always less than the not-for-profit.” Even within the U.S., there’s some evidence for this statement, with veterans receiving dialysis through the government-run VA having much higher survival rates than those who did so outside the VA. Depending on how you do the math, that’s an extra 55,000 people dying in America who otherwise wouldn’t, purely based on the way we do dialysis.

The profit motive is part of the problem. But I suspect what Stern meant by ‘for-profit’ isn’t the profit a random doctor would make on a clinic, but the extreme focus on financial returns demanded by Wall Street investors, like Warren Buffett, who owns 40% of DaVita’s outstanding shares. After all, doctors, while they like to make money, don’t like to kill their patients. Doctors, however, have been increasingly stripped of power. Technically, every clinic must, by law, have a doctor as medical director, but that doctor never actually needs to set foot into the clinic (though most do). Doctors can and are often medical directors for a dozen different clinics. They are also, while often paid well, forced to sign non-compete agreements that limit them from joining a different clinic as medical director in any geographic area for two years after leaving their practice. If a doctor makes a provider mad, it’s possible their career could be over.

It’s not just doctors, of course. Patients don’t like to get hurt and die, and they would go to a different clinic if their existing provider is awful or throws them out. Unfortunately, those on dialysis increasingly have less choice for a clinic; as one economist found, patients are navigating a more consolidated market over time. Dialysis prices are fixed by Medicare, so the competition for patients is over quality. But “when facility acquisitions consolidate ownership… [clinics] lower quality as a result,” and “hospitalization rates rise while survival rates fall.” In other words, caregivers and patients can’t check the power of a dominant provider once competition disappears and they have no alternatives.

One key problem is that in the U.S. it is very difficult to do dialysis at home, which is a much more comfortable and healthier way to get treatment. The slower the blood flows into and out of the machine, the easier it is on the body, so the ideal situation would be to dialyze overnight in your own bed, with the treatment options under the control of the patient. Having to go to a clinic for four hours three times a week during business hours, and then recover physically, means it’s almost impossible to hold down a job if you are on dialysis. I’ve been on the Reddit forums for patients, and there are a lot of discussions of people who just want to give up. And it makes sense, as there really doesn’t seem to be a lot of hope once you start dialysis.

But there should be. Much of the technology to do dialysis hasn’t been improved since the 1990s, requiring several machines and a closet full of heavy supplies. But there are new technologies from firms like Quanta, DEKA Research & Development, and Outset entering this space to facilitate at-home dialysis, the equivalent of smartphones to flip phones, with remote monitoring and miniaturized equipment. There’s no technical reason a lot of patients shouldn’t be able to do dialysis at night over six to eight hours, and live much fuller lives, and eventually get a kidney transplant. But a classic symptom of monopolization is a lack of innovation, and that’s particularly brutal here.

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It’s not that DaVita and Fresenius don’t want to provide at home dialysis, both have programs set up to do so and did at certain points invest in them. As I noted earlier, Fresenius bought a company that makes at home dialysis machinery. The problem is they have invested substantial amounts of capital and know how in providing in-clinic care, and they don’t have the incentive to invest in learning how to make as much money offering in-home dialysis. Since Medicare pays a set bundle for each patient, it’s a volume business, and the faster you can get someone in and out of the clinic the more money the provider makes. Of course, it doesn’t help that Wall Street pushes these firms to cut care, speed up dialysis, and skimp on labor costs. Since doctors have limited power over clinics, patients have fewer choices, and a distant government that doesn’t notice what is happening to the actual customer, you know which way care is going to go.

I haven’t scratched the surface of how messed up dialysis can be. (One again, read How to Make a Killing if you want to go in-depth). Large legal settlements over alleged wrongdoing are routine, there are reports of dramatic over-use of dialysis, which can kill. And some nephrologists are rumored to put patients on dialysis before they actually need it. (As one doctor put it, “You just plug the patient in, they’re easy to manage, the money’s rolling in. Why look back?”) “The United States has only 1.9% of patients on home hemodialysis, the lowest patient survival rate among major industrial nations, and an annual expenditure on dialysis, from Medicare alone, of almost $38 billion,” wrote Mueller.

The corporate culture of DaVita reflects a shockingly aggressive mindset that seems quite far from that of a health care provider. John Oliver did a segment showing how the former CEO of DaVita, an ex-Bain and Company consultant named Kent Thiry, called himself the “Mayor” of the DaVita “Village,” and would organize corporate retreats where he dresses up like a character from The Man in the Iron Mask and draws cheers from his employees by entering on horseback. These retreats involve songs, plays, and raucous applause.

Former Bain and Company consultant and ex-DaVita CEO Kent Thiry.

In one skit, the masked and caped villains are a fictional masked Federal prosecutor, a government regulator, and an insurance executive, who collectively threaten to reduce DaVita’s profits after finding evidence of fraud or other misdeeds. That is, until one of the firm’s senior executives, dressed in a plumed hat and equipped with a sword, shouts “I am DaVita Director D’Artagnan.” He proceeds to murder the Federal prosecutor. Two other DaVita executives then kill the regulator and the insurance executive, all to cheers from the assembled employees in the audience.

The culture of DaVita is organized around the movie The Man in the Iron Mask. Here’s a DaVita recruiting page from Facebook.

The top-down control dehumanizes everyone involved. Doctors can come to feel powerless and burnt out, patients are afraid, and technicians can do very little except submit to an authoritarian culture. One common theme in Mueller’s book is that clinics will concoct false allegations to kick out patients who ask questions or notice problems. One patient, at a dialysis facility in Queens, was “terminated after being accused of striking other patients and jerking the dialysis needles out of her arm, while her husband, Juan, was said to have threatened staff members with a knife and a gun.” The clinic employee put these allegations in the patient’s medical record after the patient “reported staff misconduct to New York State health officials.” Later, the employee slipped the patient the following note, in which she admitted she was ordered to falsify the report.

I am writing you this letter to let you know about the truth what exactly Doctor O tell me what to do with you. He tell me to put in the false report on the wrap [i.e. “rap”] sheet. . . . He said to me that I have to stick up for the staff other wise that will cause me my job. . . . Please don’t be mad at me. I have to do that just to cover myself up because I have a family to feed. I hope that you cold forgive me for what I did to you. I bring you some Christmas gift plus this letter and please don’t tell nobody that I am at your door.

This story is a tragedy, with not just patient suffering, but caregivers often compelled to do harm in the name of Wall Street efficiency. (Though it’s not real efficiency, doing faster dialysis just harms a patient, it isn’t doing more with less.)

Innovating Away from Hopelessness

Theoretically, DaVita and Fresenius should be quite vulnerable to competition. After all, there’s a government program that pays good money on behalf of a patient for this kind of care. It should be easy for a frustrated doctor to start a new clinic at, say, a hospital, and help equally frustrated patients do better in-clinic care, or even home dialysis. The government actually changed payment bundles to facilitate treatments at home.

But doctors can’t, because of the standard two year non-compete on medical directorships. And that’s why nephrology is a fascinating medical specialty, but also an unusually frustrating one. Nearly all dialysis doctors are locked into working for two chains that mandate certain types of care. The pay can be very good, and there are lots of allegations of payoffs of nephrologists by the duopoly, but many doctors are frustrated with being locked into a narrow treatment paradigm by their noncompetes.

Last January, the Federal Trade Commission put forward a proposed rule to ban contractual provision that prevent workers from getting a job with rivals, what are known as ‘noncompetes.’ Banning noncompetes is meant not only to help people who work for a living, but also to promote innovation in markets where employees are unable to switch jobs or start businesses. In no sector is that dynamic as obvious as in small clinics of professionals, whether dialysis, fertility, veterinarian, dentistry, or others, that have been rolled up into giant chains.

So one important consequence of eliminating non-competes would be a revolutionary change in how we get medical care. And indeed, when the FTC proposed this rule, that’s one of the arguments the commission used. More importantly, tens of thousands of people commented, many of them doctors who wanted to change jobs so they could deliver better or more innovative forms of care, but were prevented by a contract with their employer.

Multiple commenters came from nephrology. “As a dialysis physician,” one anonymous doctor told the FTC, elimination of non-competes would help “us innovate treatment options that we can administer ourselves without being threatened by the big dialysis companies that hire us as their medical directors who would then control what we can do or not.” Said another, noncompetes “prevented me from opening a dialysis clinic in the inner city area of Harrisburg, where it was needed very badly.”

A common theme is coercion from the incumbents. “The implied and often written threat of costly litigation directed towards physicians who wish to pursue other career opportunities while continuing to provide care for patients…” It wasn’t just doctors, but patients, such as the organization of people who want to take their dialysis treatments at home, and the National Kidney Foundation, asking the FTC to eliminate non-competes wielded by DaVita and Fresinius.

In addition to this policy shift, there are a host of other legal attacks on the power of DaVita and Fresenius. SEIU is trying to organize non-physician employees, the Antitrust Division tried to go after the CEO of DaVita for wage-fixing, the firms are facing a host of lawsuits, and there are ballot initiatives in California to attack various mechanisms these firms use to extract taxpayer money. Fresenius, in fact, can see the writing on the wall, spinning off its dialysis arm last November.

Medicare for All?

The easiest path forward is to get rid of non-compete agreements for nephrologists, but there are many other levers we need to pull to fix this space. The FTC will put that rule into effect, but it’ll be challenged in the courts as an overreach of regulatory authority. There’s no reason, however, that the Centers for Medicare and Medicaid Services, which sets payment terms for dialysis, couldn’t simply mandate that dialysis clinics are not allowed to use non-competes for physicians if they want access to Medicare. There’s plenty of evidence that a lack of competition kills, so it’s a safety issue under CMS’s rubric.

Taking a step back, it’s important to recognize that the brutal acts, the bad behavior, the pointless deaths, represent not personal malevolence but a system organized by policy. Taxpayers pay everyone involved, and we can pay them to do things differently. One way to look at it is that because of what Richard Nixon did in 1972, hundreds of thousands of people’s lives are saved, every year. But a different way to see it is that compared to other countries, survival rates in the U.S. for dialysis patients are low, which means that we are killing tens of thousands of dialysis patients with bad policy.

And that bad policy has a specific valence that will require reorganizing how we think about health care. Most of the energy in health care reform over the last forty years has been organized for more access to the system, more public money for patients. For instance, in 2003, the Republicans created a government program to pay the prescription drug costs of seniors, and in 2010, the Democrats passed Obamacare to get more people insurance. Both are about more access. And even today, Democrats seek more insurance access. Yet, dialysis is an actual example of full Medicare for All, where no one need be concerned about the cost of paying for dialysis. And it can be a nightmare, because the problem of health care isn’t really an access problem. 90% of Americans have insurance. It’s a problem that in virtually every health care market, the market structure is organized to foster consolidation and extraction, not to ensure doctors can better treat patients.

The situation is not, of course, inevitable, nor is it some sort of vague symptom of capitalism, whatever we want to imagine that term means. It’s a specific consequence of market structure, across many health care markets. There’s another much smaller example of a government created health program for everyone that did work. It was during Covid, when Operation Warp Speed made it so anyone who wanted one could get a free Covid vaccine. There was genuine competition in vaccine development and distribution, all of which was done with government money. And it worked to deliver the vaccine for free to all.

Dialysis is a medical miracle, one of many that the human mind and our ingenious scientists and caregivers have discovered. There are an endless number of such inventions, waiting to be created, and used by us to live longer, healthier, better lives. We only need to decide to pay some attention to how we organize our markets to make sure that we can take advantage of these miracles. We’re paying for them either way.

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Thanks for reading. And keep those tips on monopolies flowing, they are essential to this work.

And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

cheers,

Matt Stoller