Healthcare market consolidation: What the dialysis industry tells us

There’s an American aversion to anti-competitive market practices. A capitalist society assumes that competition means more innovation, more choices, and lower prices, and that market consolidation means less of these things.

However, this is not always the case – especially in healthcare. Understanding the consequences of past consolidation in healthcare markets can inform us of whether future healthcare policies should aim to preserve market competition.

Consolidation in the dialysis arena is not a new phenomenon. The Medicare program insures more than 80 percent of patients with end-stage renal disease (ESRD) in the United States. This has resulted in an emphasis on reducing outpatient dialysis costs, which has fueled more than a decade of national consolidation among dialysis providers. This created a market environment in which just two for-profit corporations now provide dialysis for more than 70 percent of patients with ESRD.

The Patient Protection and Affordable Care Act has coincided with a wave of additional merger activity in healthcare markets, leading to concern about the effects of consolidation on cost, quality, and access to care. Because this type of market structure shift is well-established within the dialysis market, it is an area that is ripe with policy insight for other areas of healthcare.

Our research shows that, between 2001 and 2011, the number of dialysis facilities in the United States rose by more than 50 percent to meet the increasing needs of a growing dialysis population.  However, the new facilities entering the market were primarily members of larger dialysis chains and several large mergers that occurred during the decade led to a decrease in the number of different uniquely-owned competing dialysis providers in the United States.

Source: Erickson et al. Consolidation in the Dialysis Industry, Patient Choice, and Local Market Competition. CJASN 2016. Nov 9. pii: CJN.06340616. [Epub ahead of print]
Source: Erickson et al. Consolidation in the Dialysis Industry, Patient Choice, and Local Market Competition. CJASN 2016. Nov 9. pii: CJN.06340616. [Epub ahead of print]
Surprisingly, we did not find evidence that this national decline in competing dialysis providers translated into fewer choices available to individual patients. Dialysis facilities compete for patients at a local level. For the average patient, there was actually a 10 percent increase in the number of competing, nearby facilities from which they could choose to receive dialysis.

The increasing level of patient choice is surprising in what, by standard measures, is a highly concentrated market that has experienced ongoing consolidation. For reference, we looked at the Hirschman Herfindal Index (HHI) to measure competition. HHI is a measure of market concentration and an indication of the amount of competition within a given industry. An HHI of zero would be a market with perfect competition. An HHI of one would be a monopoly. The Federal Trade Commission and Department of Justice consider markets with an HHI of greater than .25 to be highly concentrated, where even small changes in market concentration due to mergers raises significant competitive concerns.

In 2001, the HHI of the average local dialysis market was .46 and it remained at that level throughout the study period. This suggests that markets are highly concentrated, but that consolidation that occurred at the national level did not lead to more concentrated local markets.

Concerns that market consolidation resulting from regional and national mergers and acquisitions will limit patient choice may be unfounded when considering the actual choices available to patients. Our research highlights the need to exercise caution when drawing conclusions about how national merger headlines affect choices available to individual patients.

Recent consolidation in the dialysis market has not, on average, limited patient choice.  However, we also found that dialysis markets have been highly concentrated. Future research will be required to understand whether a sustained absence of dialysis market competition has affected the delivery of care, costs paid by private insurers, and patient health outcomes, and whether these patterns are observable across the healthcare industry.

-By Dr. Kevin Furman Erickson, assistant professor of medicine, section of nephrology at Baylor College of Medicine

2 thoughts on “Healthcare market consolidation: What the dialysis industry tells us

  • December 7, 2016 at 5:01 am

    Dr. Erickson equates more dialysis centers with greater patient choices. However, he fails to acknowledge that patient outcomes are significantly better at nonprofit dialysis centers (USRDS Chapter 10). Unfortunately for patients, the percentage of nonprofit dialysis centers has been decreasing. Most dialysis patients are shepherded into profit-maximizing treatment regimens that virtually no nephrologists would choose for themselves or their own family members.

    • December 22, 2016 at 10:01 am

      The commenter raises an important concern, and one that we did not explicitly address in our analysis. While national dialysis consolidation may not have restricted the numbers of choices available to patients among competing dialysis facilities, it may have influenced the types of facilities from which patients can choose. The commenter cites one of a series of studies indicating, for the most part, that patients who receive dialysis at non-profit institutions experience better health outcomes than patients receiving dialysis at for-profit facilities.(1) The commenter suggests that the choices available to patients are worse as a consequence of national industry consolidation and the growth of for-profit institutions in provision of dialysis care.

      Has the quality of dialysis care suffered, even as the choices available to patients increased or remained the same? This question remains unanswered. In our analysis we did not evaluate the quality of different dialysis facilities, nor did we evaluate whether patient satisfaction with the care they receive changed over the decade. While this enabled us to examine one particular issue in great detail – the number of choices available to patients and market competition – it prevented us from addressing concerns such as those raised by the commenter. One encouraging trend, however, is that the adjusted mortality rate among patients receiving dialysis in the United States – albeit extremely high – has declined over the past decade.(2)

      There are many dialysis facility characteristics that may be important to patients. For-profit status is just one of them, and not all for-profit and non-profit institutions are the same. Other important characteristics may include closeness of a facility to one’s home, the quality of nursing staff, availability of desired dialysis shifts, facility size, availability of translators, affiliation with a major medical center, and availability of home dialysis. Recently the Centers for Medicare and Medicaid Services initiated a Five Star system for rating dialysis facilities. Some or all of these characteristics may be important to varying degrees among different patients.

      While we found that the number of choices available to patients did not change between 2001 and 2011, we found that market competition remained limited. Many patients had, at most, two nearby facilities from which to choose. This general lack of choices among competing facilities could compromise care in a number of important ways. We emphasize the need to study the markets that became more consolidated during the decade in order to determine whether the absence of choices affects the care patients receive.

      Devereaux PJ et al. Comparison of mortality between private for-profit and private not-for-profit hemodialysis centers: A systematic review and meta-analysis. JAMA 288: 2449–2457, 2002
      Zhang Y et al.The effect of dialysis chains on mortality among patients receiving hemodialysis. Health Serv Res 46: 747–767, 2011

      Lee DK et al. Reexploring differences among for-profit and nonprofit dialysis providers. Health Serv Res 45: 633–646, 2010

      Garg PP et al. Effect of the ownership of dialysis facilities on patients’ survival and referral for transplantation. N Engl J Med 341: 1653–1660, 1999

      Rooks JM et al. Effect of dialysis center profit-status on patient survival: a comparison of risk-adjustment and instrumental variable approaches. Health Serv Res 41:2267–2289, 2006
      Foley RN et al. Comparative mortality of hemodialysis patients at for-profit and not-for-profit dialysis facilities in the United States, 1998 to 2003: A retrospective analysis. BMC Nephrol 9: 6, 2008

      Dalrymple et al. Comparison of hospitalization rates among for-profit and nonprofit dialysis facilities. CJASN 2014 Jan;9(1):73-81.

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