Calif. governor vetoes dialysis reimbursement cap

In a massive win for dialysis giants DaVita and Fresenius Medical Care, California Gov. Jerry Brown on Sunday vetoed a measure that would have slashed and capped their commercial insurance reimbursements.

DaVita's and Fresenius' stocks tumbled in late August after the California Legislature approved SB 1156, which would have capped insurer payments at Medicare if dialysis industry-tied charities and third-party organizations subsidized the premiums on behalf of patients. Financial analysts had predicted the measure might have driven DaVita out of California entirely, a $300 million loss to the company. The state represents a massive and fast-growing market for commercial dialysis.

In his veto message, Brown acknowledged the complexity of the issue, noting the "questionable practice of financially interested entities providing premium assistance payments for the purposes of obtaining higher fees for medical services."

However, the governor found SB 1156 broad enough to allow insurers to cherry-pick patients, and he urged stakeholders to cohere around narrower language.

Brown's veto followed intense lobbying from the industry. DaVita and the not-for-profit American Kidney Fund issued statements praising Brown's move.

"We are deeply relieved and want to thank Governor Brown for protecting dialysis patients and vetoing SB 1156, a bill that would have significantly hurt dialysis patients throughout the state," said Javier Rodriguez, CEO of DaVita Kidney Care.

Like Rodriguez, LaVarne A. Burton—president and CEO of the American Kidney Fund—blasted insurers and a major labor group for pushing the bill. The fund helps pay for individual market premiums for dialysis patients who are otherwise covered by Medicare and Medicaid. DaVita and Fresenius are major contributors to the charity and insurers argue that the two companies game the system for their own financial benefit by leveraging the Affordable Care Act's guaranteed-issue provision and steering patients into plans that will yield high profits.

Burton said that the California measure "was introduced and passed through the Legislature at the behest of health insurers and" the labor union Service Employees International Union.

"For 21 years, low-income California kidney patients have turned to AKF and our federally approved health insurance premium program for help with the devastating financial impacts that accompany this disease," Burton said.

The California legislation was the health insurance industry's biggest push yet against the dialysis industry, driven by Blue Cross and Blue Shield of California, but Brown's veto isn't likely to end fighting on the increasingly contentious issue.

In November, state voters will weigh in on a ballot initiative backed by the SEIU that also aims to cap dialysis reimbursements at 115% of Medicare. The Sacramento Bee has reported that the two warring sides have spent more than $40 million in the advertising fight.

California is a hot spot because it represents such a large market share for commercial dialysis, but the third-party payment issue has roiled other states as well.

In 2017, Washington's insurance commissioner filed a cease-and-desist order against DaVita after Premera Blue Cross complained that despite frequent attempts to negotiate with DaVita and Fresenius the companies billed at 1,800% and 2,200% of Medicare in regions where they owned the only dialysis facilities. Sometimes, Premera said, the charges exceeded 3,100% of Medicare.

In the order, Insurance Commissioner Mike Kreidler wrote that his staff had obtained a PowerPoint presentation that directed DaVita financial and insurance counselors and social workers to steer Medicaid-eligible patients to commercial insurance, telling them that commercial insurance would give them access to "better services."

For this year's elections, the SEIU failed to secure Arizona and Ohio ballot initiatives similar to the California effort.

Correction: An earlier version of this story incorrectly stated that SB 1156 would have capped reimbursement at 115% of Medicare if premiums were subsidized by industry-tied third party payments. The bill would have capped reimbursement at Medicare or less. The story has been updated.