What’s Driving California’s Most Expensive Ballot Proposition

Over $140 million has been spent on the battle over Proposition 8, which would limit dialysis industry revenue. But health care experts say they have no idea how it could impact patients if it passes in November.

Adrian Perez undergoes dialysis at a DaVita Kidney Care clinic in Sacramento, Calif. on Sept. 24. If approved by voters in November, Proposition 8, would limit dialysis clinics' profits.
AP Photo/Rich Pedroncelli
Oct. 22, 2018, 8 p.m.

California’s ballot proposition to cap the revenue of dialysis clinics has turned into one of the most expensive fights in the midterm-election cycle, with over $140 million spent so far by the backers and opposition combined.

“If clinics had to close, people like me would die,” said dialysis patient Sasona Goodblatt in a No on Proposition 8 ad that ran during a nationally televised Los Angeles Dodgers playoff game on Fox Sports 1. “Proposition 8 literally threatens my life.”

Supporters argue that the initiative on the November ballot could help rein in costs and improve quality of care, while opponents say that this would close clinics and impact patient access.

Health care experts, however, say there are too many unknown factors to predict how the proposal would affect dialysis patients, who rely on this lifesaving service when their kidneys fail. Dialysis fulfills the role of a healthy kidney by filtering a person’s blood of waste, and patients typically receive this treatment three times a week. Dialysis providers also usually charge patients with private insurance higher rates than other payers, such as Medicare.

The ballot proposition would place a revenue cap on clinics equal to 115 percent of direct patient-care-services costs and health care quality-improvement costs. If clinics exceed this cap, they must issue rebates to private payers.

The policy is backed by the Service Employees International Union-United Healthcare Workers West, which has endorsed other initiatives in the past to reform the dialysis industry. Supporters of the proposition have spent roughly $37.8 million as of Oct. 22.

SEIU-UHW President Dave Regan said the proposition helps address a top concern for American voters: the rising costs of health care. The policy would incentivize companies to invest more in the quality of the services by including staffing in the cost of care, he said, and dialysis centers can then charge 15 percent on top of that cost, making increased investments into staffing more attractive.

“Under our measure it would actually provide a financial incentive to staff these clinics better and not be a choice between profits and staffing, which is the choice that exists right now and frankly what we see over and over again is they choose profits over staffing and by extension higher quality care,” he added.

The groups opposing this ballot proposition have so far spent a whopping $105.6 million, the bulk of which has come from the two biggest dialysis companies in California: DaVita and Fresenius Medical Care. A spokesperson for the No on Proposition 8 coalition said the primary concern is patient access.

“It literally puts their lives at risk with the closure of dialysis clinics,” said Kathy Fairbanks, who also said patients would likely turn to hospital emergency rooms for this care and raise health care costs. Fairbanks added that this measure was put on the ballot for the “wrong reason” as a “union negotiating tool.”

“I think the patients who are the most upset about this are those who feel like they’re being used as pawns in a political game,” she said.

But health and market experts told National Journal that the ultimate impacts of this policy on dialysis patients are unclear. “This isn’t a very clearly written proposition and so there’s uncertainty just in terms of like how the text would be interpreted,” said Erin Trish, associate director of health policy at the USC Schaeffer Center.

While there is a real concern about the prices private insurers pay for dialysis, Trish said she doesn't think this policy is the way to address the issue.

“This is a very blunt instrument with a lot of unknowns that could potentially have harms for patient care in the sense of facilities may shut down, it could have harms in the sense that it could drive poor incentives for the way that dollars are allocated,” she said. “I think it’s coming from the interest in addressing kind of a pricing issue or a market-failure issue, but it’s too unclear, it’s too uncertain, and it’s too kind of vaguely applied.”

Trish instead suggested that pursuing an antitrust-enforcement action against the concentrated dialysis industry would be a better way to get at these pricing issues.

The actual underlying cost to provide dialysis is also unknown, making it hard to predict how this policy would impact clinics and patients, said Kristof Stremikis, director of the Market Analysis and Insight Team at the California Health Care Foundation. While he did not take a position on the ballot issue, he emphasized the need for more transparency to help determine value.

“The hard part is that no one really knows what we should be spending on health care, and this is sort of shocking, but nobody actually knows what it costs to deliver health care even within the industry,” he said.

The California Legislative Analyst’s Office said there are major sources of uncertainty within the proposal, including what would be part of allowable costs. “The impact of the measure would depend on how allowable costs are defined,” the office stated in an analysis of the measure. “Including more costs as allowable would make revenue caps higher and allow [chronic-dialysis clinics] to keep more of their revenues (by requiring smaller rebates). Including fewer costs as allowable would make revenue caps lower and allow clinics to keep less of their revenues (by requiring larger rebates).”

The office’s prediction on how the industry would react runs the gamut from dialysis centers increasing allowable costs, which could in turn boost wages and benefits for nonmanagerial staff, to clinics potentially closing their doors because of large rebates and reduced revenues.

This isn’t the first attempt to target dialysis-industry revenue in California. At the end of September, Gov. Jerry Brown vetoed legislation that aimed to address concerns that patients were being steered by providers into private insurance, when they were eligible for other options like Medicare, in order to boost profits. The bill was also backed by the Service Employees International Union.

While Brown acknowledged “the questionable practice of financially interested entities” in his letter to the California State Senate, he vetoed the measure because “this bill goes too far as it would permit health plans and insurers to refuse premium assistance payments and to choose which patients they will cover.”

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