Dialysis cos. dole out more than $100M to beat Calif. ballot measure

The ballot initiative is the last front for what has become an expensive year in California for the dialysis industry. The measure would limit dialysis profits to 15% of the direct costs of patient care.

It is viewed as more drastic than a bill passed this summer by the state Legislature and vetoed in late September by Democratic Gov. Jerry Brown. That bill would have set commercial dialysis reimbursement at Medicare rates if industry-adjacent third parties helped pay for a patient's commercial plan on the individual market exchange. Significantly, the measure had the support of insurers, but they have stayed out of the ballot initiative fight.

DaVita has put up about $66 million for the opposition coalition group, while Fresenius has contributed about $28.5 million, according to analysis from Height Capital Markets. The two companies comprise nearly three-quarters of California's dialysis market, which is the largest in the country with 588 licensed chronic dialysis clinics. About 140,000 Californians received dialysis in 2016, according to the Office of Statewide Health Planning and Development.

California's 2005 initiative aimed at drug pricing, where Big Pharma raised $118 million, holds the record for the most expensive ballot campaign to date. The pharmaceutical industry poured about $110 million into a 2016 drug pricing initiative. But observers project Prop. 8 could surpass even these.

"Dialysis is poised to spend more than Pharma, and there are still three weeks to go," said Andrea Harris, senior vice president for Height Capital Markets' healthcare division. Her firm predicts the dialysis industry will need to outspend the unions who drove the measure eight-to-one.

The initiative, driven by the Service Employees International Union (SEIU), has raised just under $18.5 million to date. As of Oct. 11 the pro-Prop. 8 campaign had less than $1 million in cash on hand.

The union has backed similar locally focused ballot initiatives for hospitals. Two of these measures have reached the ballots in Livermore and Palo Alto, Calif. Like Prop. 8, they would limit healthcare charges to 115% of costs for direct patient care.

SEIU spokesperson Sean Wherley said that while the union has spoken with insurers about potential support for Prop. 8, the industry has declined to take a formal position.

Even though the opposition's fundraising is formidable, Wherley said he believes it ultimately aids the union's messaging to voters.

California's editorial boards and all the state's major medical trade groups, including the California Hospital Association and California Medical Association, have come out against Prop. 8.

Kathy Fairbanks, spokesperson for the coalition group that is mostly funded by DaVita, Fresenius and U.S. Renal Care, said the ballot measure would lead to clinic closures if it passes and push already pricey chronic dialysis care into even pricier hospital settings. She said

"[Prop. 8] doesn't lower healthcare costs, and we think healthcare costs would go up," Fairbanks said. "Patients without access to dialysis will show up in the emergency room, where it is more expensive to treat them. Hospitals are already crowded now, and imagine what they would be like now. It would be a real mess."

Wherley argued Prop. 8 would force clinics to reinvest profits back into their operations to improve their quality.

"This initiative pushes the dialysis corporations to do what they should have done long ago, to stop sending money to the shareholders and put them back in the clinics to make it better for the patients and workers," he said.

Wherley said the SEIU is optimistic about the poll results, but analysts are more skeptical that the wording used for the poll could accurately capture public opinion.

The poll stated that Prop. 8 "would place limits on how much profit a Kidney Dialysis Clinic is allowed to keep in California." A vote against the measure "would keep the current system, which means that dialysis clinics may make as much profit as they wish," the question said.

Fairbanks blasted the poll as "a joke," and the line about profit "hugely inflammatory."

"I'm surprised that it didn't get 80% yes, and if I'm on the yes side it would concern me that it did not crack 50% even with that wording," she said.

Fairbanks noted however that she finds the ballot language misleading as well. It states that Prop. 8 "regulates amounts outpatient kidney dialysis clinics charge for dialysis treatment."