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DaVita challenges Ill. health facilities board

Fighting to crack the Chicago market, dialysis provider DaVita says the state facilities board is allowing it to open fewer new clinics than its much bigger rival, Fresenius Medical Care.

Over the past two years, the Illinois Health Facilities and Services Review Board has given Fresenius approval for 15 new dialysis clinics, compared with just three new DaVita clinics, DaVita says in a letter that accompanied its application for a new facility in Lawndale. The board rejected that application last week.

Denver-based DaVita says Fresenius already dominates the city of Chicago, with nearly 50 percent of the market for dialysis services, compared with 27 percent for DaVita.And the Bad Homburg, Germany-based company's “grasp on the market continues to grow,” DaVita says.

“Consumers are the only losers if DaVita is not permitted to establish and expand facilities to meet demand and to effectively compete with Fresenius,” according to the letter, written by the Chicago office of law firm Polsinelli Shughart PC, which represents DaVita.

DaVita's charges raise questions about the broader purpose of the facilities board, which is intended to help control rising health care costs by determining whether a proposed construction project is necessary or would merely duplicate existing services.

But there's no evidence that the certification-of-need process, which is used in 36 states, actually contains costs, said Kendall Antekeier, a health care analyst at the Heartland Institute, a conservative think tank in Chicago.

Instead, Ms. Antekeier said, the requirement limits competition and can result in favoritism.

“It's really subjective, in terms of who's deciding and what they're deciding from,” she said.

The administrator of the facilities board denies any unfair treatment of DaVita.

The nine-member board reviews each application individually on its merits, Courtney Avery said. Applicants are not judged against each other, and approving an application from one company doesn't create a need to approve the application of a competitor, she added.

“We don't do comparative reviews,” she said. “We don't keep score.”

In an interview, the DaVita executive in charge of the Chicago market played down the allegations, saying the board gives the company a chance to compete on a level playing field.

The comparison with Fresenius was merely intended to show that DaVita doesn't apply for new clinics as often as Fresenius, said Penny Davis, DaVita's division vice president.

“I don't think this is us against them,” Ms. Davis said. “We both face the same hurdle.”

DaVita is the second-largest dialysis provider in the country, operating more than 1,800 clinics for kidney dialysis that generated $1.9 billion in net revenue in the second quarter of 2012. Yet Fresenius is even larger, owning or managing more than 2,000 clinics in North America. Worldwide, the health care giant brought in $3.4 billion in revenue during the second quarter.

In a response, Fresenius challenged DaVita's calculations, saying DaVita incorrectly includes Fresenius' applications that merely moved existing clinics.

If the board approved all the projects that the two companies had proposed, DaVita would have added 98 stations, compared with 62 for Fresenius, according to the May 15 response.

Moreover, DaVita has added 383 dialysis stations between Jan. 1, 2010, and March 31, compared with 242 for Fresenius, Fresenius said.

“The continuing assertions by other dialysis facilities that their projects should be approved because Fresenius has a dominant 'market share' are inaccurate, and irrelevant,” Fresenius said in its response.

A spokeswoman for Fresenius' U.S. subsidiary declined to comment.
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