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6
Structure of the Provider Community

Providers1 of outpatient dialysis treatment now represent the vast majority of the renal treatment provider community, and thus they are the primary focus of this chapter. Transplant centers, organ procurement agencies, and pediatric facilities are also discussed in order to provide information about the complete spectrum of renal treatment providers.

Structural change in the provider community is analyzed in terms of:

  • overall growth in treatment capacity, especially in relation to the increase in patient population;

  • growth of hospital-based versus independent facilities;

  • growth of for-profit versus not-for-profit facilities; and

  • growth of large versus small facilities.

The policy implications of these structural changes for access, patient choice, and quality of care are then briefly discussed with the committee's statements and recommendations.

The analyses in this chapter are based mainly on the data from HCFA's annual facility survey. All dialysis and transplant units are required to respond to the survey, and the information collected ranges from provider characteristics, such as size and ownership, to volume and type of treatments provided. Medicare as well as non-Medicare patients are included in the statistics, so the data may not agree completely with other HCFA data bases, which generally contain only Medicare beneficiary data.

Information about providers is generally well defined. HCFA distinguishes the following types of facilities by ownership: individual for-profit; partnership for-profit; corporation not-for-profit, individual not-for-profit; partnership not-for-profit; corporation not-for-profit; state government; county government; municipal government; Veterans Administration; and other federal



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Kidney Failure and the Federal Government 6 Structure of the Provider Community Providers1 of outpatient dialysis treatment now represent the vast majority of the renal treatment provider community, and thus they are the primary focus of this chapter. Transplant centers, organ procurement agencies, and pediatric facilities are also discussed in order to provide information about the complete spectrum of renal treatment providers. Structural change in the provider community is analyzed in terms of: overall growth in treatment capacity, especially in relation to the increase in patient population; growth of hospital-based versus independent facilities; growth of for-profit versus not-for-profit facilities; and growth of large versus small facilities. The policy implications of these structural changes for access, patient choice, and quality of care are then briefly discussed with the committee's statements and recommendations. The analyses in this chapter are based mainly on the data from HCFA's annual facility survey. All dialysis and transplant units are required to respond to the survey, and the information collected ranges from provider characteristics, such as size and ownership, to volume and type of treatments provided. Medicare as well as non-Medicare patients are included in the statistics, so the data may not agree completely with other HCFA data bases, which generally contain only Medicare beneficiary data. Information about providers is generally well defined. HCFA distinguishes the following types of facilities by ownership: individual for-profit; partnership for-profit; corporation not-for-profit, individual not-for-profit; partnership not-for-profit; corporation not-for-profit; state government; county government; municipal government; Veterans Administration; and other federal

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Kidney Failure and the Federal Government government. This analysis groups all facilities into two categories—for-profit and not-for-profit. Current information on the chain ownership of dialysis units is limited. Although such information was included in the annual facility survey report before 1986, it was omitted thereafter.2 HFCA facility ownership data do not indicate chain affiliation. OVERVIEW During the 1980s, major changes occurred in the structure of the renal treatment provider community: From 1980 to 1988, the total U.S. dialysis patient population increased from 52,364 to 105,958, an average annual growth of 9.2 percent. The total number of Medicare-certified renal dialysis treatment providers grew from 1,004 in 1980 to 1,740 in 1988, with independent facilities contributing to over 90 percent of this growth. In 1988, approximately 62 percent of all renal dialysis facilities were independent units, compared to about 40 percent in 1980. These units were generally larger than hospital-based units. By 1988, they accounted for almost 70 percent of the total number of dialysis stations,3 up from 50 percent in 1980. The number of for-profit renal dialysis facilities almost tripled from 342 in 1980 to 912 in 1988, an average annual growth rate of 13 percent; not-for-profit facilities grew at a rate of only 2.8 percent annually over the same period. Growth rates were slightly higher for larger dialysis facilities. From 1980 to 1988, small facilities (1 to 9 stations) decreased from 44 percent to 38 percent of all facilities, medium-size units (10 to 20 stations) increased from less than 41 percent to more than 47 percent, and large units (20+ stations) increased from 12 percent to 14 percent. In 1980, the largest group of dialysis providers consisted of small, not for-profit, hospital-based units. By 1988, medium-size, for-profit, independent facilities made up the largest group. The number of renal transplant centers grew from 151 units in 1980 to 219 units in 1989; the number of kidney transplants grew from 4,697 in 1980 to 8,976 in 1986 and since then has leveled off at around 9,000. Patients on transplant waiting lists, however, increased steadily from 5,072 in 1980 to 14,669 in 1989. Since 1987, following the National Organ Transplant Act of 1986, multiple organ procurement organizations (OPOs) in a single statistical metropolitan area (SMA) have been consolidated. As a result, there were only 70 OPOs [20 of which were hospital-based (HOPOs) and 50 of which were independent (IOPOs)] in 1990 compared to 115 in 1986.

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Kidney Failure and the Federal Government In addition to these documented changes, rural dialysis facilities have received some attention in recent years. The definition of rural units, however, is not well developed, and historical data do not exist for these units. In general, it appears that rural dialysis facilities are smaller, have fewer patients, and thus are less able to realize the efficiencies generated by volume. Currently, 18 facilities are dedicated solely to pediatric ESRD patients. All are hospital-based units located in children's hospitals, and they tend to be smaller than other facilities. The total number of pediatric facilities has not increased over the years in spite of an increasing number of pediatric ESRD patients. Outpatient Dialysis Facilities Since the ESRD program began in 1973, the total number of Medicare-certified renal treatment providers has grown from 606 to 1,819 in 1988, primarily in dialysis facilities. From 1980 to 1988, such facilities grew from 1,004 units to 1,740, an average annual growth rate of 7.1 percent (Table 6-1). The number of approved dialysis stations also has increased steadily since 1976. In 1976, there were 7,093 stations; this number increased to 12,216 in 1980 and to 22,803 by 1988. From 1980 to 1988, the average annual growth rate in stations was approximately 8 percent (Table 6-1). During this same period, the total U.S. dialysis population increased from TABLE 6-1 Growth of Outpatient Dialysis Providers, 1980–88 Year No. of Units No. of Stations No. of Patients No. of Treatmentsa 1980 1,004 12,216 52,364 5,672,277 1981 1,124 13,510 58,924 6,443,624 1982 1,155 14,270 65,765 7,072,072 1983 1,217 15,216 71,987 7,675,641 1984 1,307 17,138 78,483 8,463,376 1985 1,392 18,226 84,797 9,246,027 1986 1,507 19,799 90,886 10,137,701 1987 1,618 21,380 98,432 10,798,202 1988 1,740 22,803 105,958 11,866,112 Average annual growth (%) 7.1 8.1 9.2 9.7 a Outpatient hemodialysis (including training) treatments only. SOURCE: HCFA, 1980–88.

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Kidney Failure and the Federal Government TABLE 6-2 Definitions of Dialysis Unit Size, Demand, Capacity, and Utilization Dialysis facility size = number of stations:   Small, 1–9   Medium, 10–20   Large, 20+ Demand:     Unit demand = Actual hemodialysis treatments per year   System demand = Actual treatments per year (all units) Capacity:     Station capacity = (2 treatments per day) × (6 days per week) × (52 weeks per year) = 624 treatments per year   Unit capacity = (624 treatments per year) × (number of stations in the unit)   System capacity = (624 treatments per year) × (total number of stations in the provider community) Utilization:     Actual treatments per year per unit capacity 52,364 to 105,958, an average annual growth rate of 9.2 percent,4 and the number of outpatient hemodialysis treatments grew correspondingly at 9.7 percent annually (Table 6-1). Thus, total capacity of all renal treatment providers, measured by the aggregate number of hemodialysis stations, grew somewhat slower than the patient population and the number of dialysis treatments provided between 1980 and 1988. The optimal level of facility utilization has never been clearly defined, and justifiable geographic variations may exist. If the number of dialysis stations is used as the measure of capacity, unit capacity can then be defined as the number of stations in a dialysis facility that operate two patient treatment shifts a day for 6 days a week.5 This is equivalent to 624 treatments per station per year when a facility is running at full capacity (Table 6-2). If utilization or demand is measured in terms of hemodialysis treatments administered per station, then the treatment/station ratio can serve as a proxy indication of utilization rate; i.e., when the facility's average treatment/station ratio is 624 treatments per station per year, it can be regarded as operating at full capacity. These measures, though imperfect, are commonly used by the renal treatment community (REN Corporation, 1989; Community Psychiatric Centers, 1989). In the past decade, the more rapid increase in patient treatments compared to treatment capacity has resulted in a higher use of treatment at the program level. The number of hemodialysis treatments per station per year increased 12 percent, from 464 in 1980 to 520 treatments per station per year in 1988.6 On the other hand, there are substantial variations among

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Kidney Failure and the Federal Government states in the utilization rate of dialysis facilities. These variations may be due partly to state certificate-of-need or other regulatory constraints on capacity (see Chapter 7). Kidney Transplant Centers There were 167 renal transplant centers when the Medicare ESRD program was established in 1973. Each year the number decreased slightly until the early 1980s when the trend reversed, and the number of renal transplant centers grew at 4.2 percent annually from 151 in 1980 to 219 in 1989. On the basis of 1988 facility survey data, 55 percent of transplant centers perform 11 to 49 procedures annually. Fewer than 10 percent perform more than 100 procedures during any given year, but the largest centers perform more than 200 procedures per year. About 15 percent of the centers perform fewer than 10 procedures per year. The median transplant center size, as measured by the number of procedures performed, increased from 24 procedures in 1980 to 32 procedures in 1988. An effective transplantation program depends on the donation of organs and a system to procure and distribute the donated organs. The first programs to increase the procurement and distribution of cadaver kidneys began in 1968 in Boston and Los Angeles; several other centers were established in 1969. The Medicare ESRD program made federal funds available for kidney procurement and distribution through the reimbursement system, beginning in 1973. In 1986, about 115 OPOs were operating across the country (Task Force on Organ Transplantation, 1986). Although these agencies were initially established to procure kidneys, they now also procure and distribute other organs, including hearts and livers. Two types of organizations procure organs: IOPOs and HOPOs. In 1986, nearly one-half of the 115 organ procurement agencies were IOPOs—private, not-for-profit organizations created solely for the purpose of procuring organs. IOPOs usually supply organs to several transplant centers and serve more than half of the nation's hospitals. A HOPO is affiliated with a single transplant center at a given hospital and obtains organs primarily for that center. All organs procured, whether obtained by IOPOs or HOPOs, are offered first to local transplant centers, then regionally and nationally if no local recipients are identified.7 IOPOs generally obtain more organs and serve more hospitals than do HOPOs. However, the size and effectiveness of OPOs varies widely (Prottas, 1985). Some OPOs procure less than 10 organs a year; others obtain more than 300 organs a year. Since 1987, following the Omnibus Budget Reconciliation Act of 1986, multiple OPOs in a single SMA have been consolidated. As a result, there were only 70 OPOs (20 HOPOs and 50 IOPOs) in 1990, compared to 115 in 1986.

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Kidney Failure and the Federal Government Pretransplant laboratory costs account for about 20 percent of all Medi-care expenditures for kidney acquisition and must not be overlooked. Questions regarding the practices of tissue typing laboratories have been raised in recent years. A report from the DHHS Office of Inspector General (OIG, 1987) indicates that, in some areas of the country, there is widespread variation in pretransplant testing procedures, including duplication of testing. In many areas, renal transplant centers have agreed to use a single laboratory for all pretransplant testings. In other areas, however, individual renal transplant centers continue to operate their own laboratories. Pediatric Facilities Children with ESRD have special needs. Only a small number of renal treatment providers dedicate themselves exclusively to children. Currently, there are 18 Medicare-approved pediatric ESRD facilities, most of which were developed after 1973. All are connected with children's hospitals, and most also have pediatric transplantation units.8 Compared to the adult renal treatment facilities, pediatric units tend to be smaller. HCFA's 1987 facility survey, for example, shows that the median pediatric facility has only 4 dialysis stations and the largest pediatric unit has 10 stations. The number of patients in each facility ranged from 2 to 53, with an average of 16 patients. In 1987, only 289 patients—fewer than 10 percent of the total pediatric ESRD population—were being treated in these 18 pediatric units. The remaining children with ESRD receive their treatments from facilities that predominantly treat adults. There is general agreement that the treatment of choice for children with ESRD is transplantation. However, although patients who receive their care from pediatric facilities have more direct access to pediatric transplant units, they have a lower rate of transplantation than the general pediatric ESRD patients. On the basis of a survey conducted by the National Association of Children's Hospitals and Related Institutions (1987), only 46 percent of pediatric ESRD patients treated in the children's hospitals had been transplanted, compared to nearly 65 percent of pediatric patients who are treated elsewhere. The reasons for this difference are not clear. Patients treated in pediatric facilities are generally younger than other pediatric ESRD patients, and this may be one reason for the lower transplantation rate. Second, the proportion of black children treated in pediatric facilities is higher than in the adult facilities, and black patients receive transplants at lower rates than do whites. The number of pediatric ESRD patients is increasing (see Chapter 5), but the number of renal pediatric facilities is not. Hence, access to appropriate care for these children is becoming more difficult (see Chapter 7). Most pediatric ESRD patients are treated in adult-oriented renal treatment facili-

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Kidney Failure and the Federal Government ties that treat limited numbers of children. Thus, access to specialized care provided by pediatric nephrologists is needed for these patients. CHANGING STRUCTURE OF THE OUTPATIENT DIALYSIS COMMUNITY HCFA defines dialysis facilities as units (hospital-based or independent) approved to furnish outpatient maintenance dialysis services to ESRD patients. Outpatient dialysis providers can be categorized along three dimensions: hospital-based or independent; for-profit or not-for-profit; and size as measured by number of stations. Hospital-Based Versus Independent Providers9 Hospital-Based Providers The growth of hospital-based outpatient dialysis facilities can be examined in terms of increases in the numbers of facilities, dialysis stations, and patients, and their "market share" relative to that of independent facilities. Outpatient Dialysis Facilities The number of hospital-based dialysis facilities increased slightly from 600 in 1980 to 661 in 1988, a growth rate of 1.2 percent annually. By 1988, only 38 percent of dialysis facilities were hospital-based, a significant decrease from almost 60 percent in 1980 (Table 6-3). Over 97 percent of hospital dialysis facilities are not-for-profit, and this has not changed between 1980 and 1988. Dialysis Stations The total number of stations in hospital-based facilities has not grown rapidly. There were 6,105 dialysis stations in hospital-based facilities in 1980, increasing to 7,285 in 1988, an average annual growth rate of 2.2 percent (Table 6-3). These hospital-based stations accounted for half of the total number of dialysis stations in 1980, but only one-third in 1988. The average-size hospital-based dialysis unit grew slightly from just under 10 stations in 1980 to 10.3 stations in 1988. Patients In 1980, 26,537 patients received their outpatient dialysis treatments in hospital-based facilities. This number increased to 38,657 by 1988 for an average annual growth of 4.8 percent. The ESRD "patient share" of hospital-based facilities, however, declined dramatically from over 50 percent in 1980 to less than 37 percent in 1988 (Table 6-3). Although hospital-based facilities grew slowly in treatment capacity, their number of patients grew faster and, consequently, the average utilization rate increased. The median (50th percentile) hospital-based dialysis facility had 31 patients in 1988 compared to 17 patients in 1980. An analysis

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Kidney Failure and the Federal Government TABLE 6-3 Outpatient Dialysis Providers, Independent Versus Hospital-Based, 1980–88   Independent Hospital-Based Year No. of Units No. of Stations No. of Patients No. of Units No. of Stations No. of Patients 1980 404 6,111 25,827 600 6,105 26,537 1981 296 7,082 30,112 628 6,428 28,812 1982 522 7,701 34,215 633 6,569 31,550 1983 610 8,837 40,163 607 6,379 31,824 1984 686 10,509 45,082 621 6,629 33,401 1985 763 11,486 49,817 629 6,740 34,980 1986 869 12,835 54,902 638 6,964 35,984 1987 961 14,089 60,815 657 7,291 37,617 1988 1,079 15,518 67,301 661 7,285 38,657 Average annual growth (%) 13.1 12.4 12.7 1.2 2.2 4.8 Total share (%):             1980 40.2 50.0 49.3 59.8 50.0 50.7 1988 62.0 68.1 63.5 38.0 32.0 36.5   SOURCE: HCFA, 1980–88. based on USRDS data shows that about 18 percent of the hospital-based facilities had more than 100 patients in 1988, compared to only 8.5 percent in 1980 (USRDS, 1989). Independent Providers The growth of independent outpatient dialysis facilities can be examined in a manner similar to that used for hospital-based providers. Outpatient Dialysis Facilities The number of independent outpatient dialysis facilities grew much more rapidly than the number of hospital-based units (Figure 6-1), increasing from 404 units in 1980 to 1,079 units in 1988, an average annual growth rate of 13.1 percent (Table 6-3). By the end of 1988, about 62 percent of all dialysis facilities were independent, compared to approximately 40 percent in 1980. During this time, the independent facilities accounted for 92 percent of the increase in all outpatient dialysis facilities. Unlike their hospital-based counterparts, independent dialysis facilities are predominantly for-profit. From 1980 to 1988, for-profit facilities accounted for over 80 percent of the total independent facilities, and for 84 percent of the 675 new independent units established during this period.

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Kidney Failure and the Federal Government FIGURE 6-1 Outpatient Dialysis Units, 1980–88: Independent Versus Hospital-Based SOURCE: HCFA, 1980–88. Dialysis Stations The total number of stations in independent facilities also grew significantly from 6,111 dialysis stations in 1980 to 15,518 stations in 1988, at an average annual growth rate of 12.4 percent (Table 6-3 and Figure 6-2). By 1988, dialysis stations in independent facilities accounted for over 68 percent of all dialysis stations, up by 50 percent from 1980. Patients Independent facilities provided maintenance dialysis to 25,827 patients in 1980. This increased to 67,301 patients by 1988, an average annual increase of 12.7 percent. The proportion of patients in independent facilities increased from just under 50 percent in 1980 to over 63 percent in 1988 (Table 6-3). The number of patients treated by the median independent for-profit dialysis facility was 48 patients in 1988 compared to 49 patients in 1980 (USRDS, 1989). The median independent not-for-profit dialysis facility had 56 patients in 1988, down from 65 patients in 1980. By contrast, the median hospital-based unit increased from 17 patients in 1980 to 31 patients in 1988. Utilization of dialysis stations is lower in independent units compared to hospital-based units. Independent facilities accounted for over 68 percent of total national dialysis stations but treated slightly less than 64 percent of the patients in 1988. The average size of an independent facility decreased slightly from 14.6 stations in 1980 to 14.1 stations in 1988, whereas the

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Kidney Failure and the Federal Government FIGURE 6-2 Outpatient Hemodialysis Stations, 1980–88: Independent Versus Hospital-Based Units SOURCE: HCFA, 1980–88. number of facilities grew significantly. Since the growth in the number of independent facilities and stations was comparable to the increase in demand for patient treatments from 1980 to 1988, on a national level the independent facilities experienced no significant utilization rate increase.10 Not-For-Profit Versus For-Profit Providers11 In 1988, about 52 percent of all outpatient dialysis facilities were proprietary (Table 6-4), a substantial increase from 34 percent in 1980. Since there are only 18 hospital-based for-profit facilities, almost all growth of the proprietary sector was accounted for by independent facilities (Table 6-5). Not-for-profit renal treatment facilities are mainly hospital-based, although the number of independent not-for-profit facilities increased during the 1980s. Not-For-Profit Providers Examination of not-for-profit outpatient dialysis facilities in terms of the increases of numbers of facilities, dialysis stations, and patients shows that their market share relative to that of for-profit facilities has declined over the past decade. Outpatient Dialysis Facilities Not-for-profit renal treatment facilities grew relatively slowly during the 1980s from 662 units in 1980 to 828 units in

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Kidney Failure and the Federal Government TABLE 6-4 Outpatient Dialysis Providers, For-Profit Versus Not-For-Profit, 1980–88   For-Profit Not-For-Profit Year No. of Units No. of Stations No. of Patients No. of Units No. of Stations No. of Patients 1980 342 4,986 20,317 662 7,230 32,047 1981 413 5,758 23,835 711 7,752 35,089 1982 429 6,221 26,940 726 8,049 38,825 1983 495 7,028 30,911 722 8,188 41,076 1984 554 8,376 34,675 753 8,762 43,808 1985 622 9,187 38,458 770 9,039 46,339 1986 722 10,507 43,361 785 9,292 47,525 1987 803 11,718 48,846 815 9,662 49,586 1988 912 13,077 54,528 828 9,726 51,430 Average annual growth (%) 13.0 12.8 13.1 2.8 3.8 6.1 Total share (%):             1980 34.1 40.8 38.8 65.9 59.2 61.2 1988 52.4 57.4 51.5 47.6 42.7 48.5   SOURCE: HCFA, 1980–88. 1988, for an average annual growth rate of 2.8 percent. By 1988, not-for-profit facilities represented less than half of all dialysis facilities, a significant decrease from nearly two-thirds in 1980 (Table 6-4). Although hospital-based facilities still made up about 78 percent of the not-for-profit sector in 1988, that was down from 88 percent in 1980. Independent not-for-profit facilities grew at a faster pace, from 79 units in 1980 to 185 units in 1988, an average annual growth rate of 11.2 percent (Table 6-5). Dialysis Stations The total number of stations in not-for-profit facilities grew slowly from 7,230 in 1980 to 9,726 in 1988, an average annual growth rate of 3.8 percent. The not-for-profit facilities accounted for almost 60 percent of total stations in 1980, but declined to less than 43 percent in 1988 (Table 6-4). Hospital-based facilities provided about 74 percent of the stations in the not-for-profit sector in 1988, down from 83 percent in 1980. Patients Outpatient treatments in not-for-profit facilities were provided to 32,047 patients in 1980, which increased an average of 6 percent annually to 51,430 patients in 1988. However, the proportion of patients under

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Kidney Failure and the Federal Government care by the non-profit sector declined steadily from 61 percent in 1980 to less than 49 percent in 1988 (Table 6-4). Although the increase in average facility size was small—from 10.6 to 11.2 stations between 1980 and 1988—the overall utilization rate for the not-for-profit sector still increased significantly from 4.4 patients per station in 1980 to 5.3 patients per station in 1988. The not-for-profit sector accounted for 42.7 percent of the treatment capacity in 1988 but 48.5 percent of the total patient population. For-Profit Providers For-profit providers have been a major source of growth in outpatient dialysis since 1980 with increases in the numbers of facilities, dialysis stations, and patients receiving treatment. Outpatient Dialysis Facilities For-profit units accounted for about 34 percent of all renal dialysis facilities in 1980 but more than 52 percent by 1988 (Figure 6-3), increasing from 325 to 894 at an average annual growth rate of 13.5 percent (Table 6-5). Proprietary dialysis facilities are predominantly independent units and included only 18 hospital-based units in 1988, up from 17 in 1980 (Table 6-5). Dialysis Stations The total number of stations in for-profit facilities grew from 4,986 stations in 1980 to 13,077 stations in 1988, an average annual growth rate of 12.8 percent. The share of for-profit dialysis stations increased from 41 percent in 1980 to over 57 percent in 1988 (Table 6-4 and Figure 6-4). Patients For-profit dialysis facilities provided maintenance dialysis to 20,317 patients in 1980 and to 54,528 patients by 1988, for an average annual increase of 13.1 percent (Table 6-4). The ''patient share'' treated by the for-profit sector increased from under 39 percent in 1980 to over 51 percent in 1988. From 1980 to 1988, for-profit facilities and stations grew at a rate comparable to their patient load. Average facility size decreased slightly from 14.2 stations in 1980 to 14.0 stations in 1988. Consequently, the national patient/station ratio increased only slightly from 4.1 patients per station in 1980 to 4.2 patients per station in 1988. Size of Outpatient Dialysis Facilities12 In general, the size of dialysis facilities, as measured by the number of stations in each unit, increased slightly during the 1980s. Small facilities (1–9 stations) grew at an average rate of only 4.9 percent annually, whereas medium-size (10–20 stations) and large (over 20 stations) facilities increased

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Kidney Failure and the Federal Government FIGURE 6-3 Outpatient Hemodialysis Units, 1980–88: For-Profit Versus Not-For-Profit SOURCE: HCFA, 1980–88. FIGURE 6-4 Outpatient Hemodialysis Stations, 1980–88: For-Profit Versus Not-For-Profit Units SOURCE: HCFA, 1980–88.

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Kidney Failure and the Federal Government almost twice as fast at an average annual rate of nearly 9 percent from 1980 to 1988. The number of small facilities grew from 456 units in 1980 to 666 units in 1988, whereas the number of medium-size and large facilities nearly doubled during the same period from 419 units to 824 units and from 129 units to 250 units, respectively (Table 6-6 and Figure 6-5). In 1980, over 45 percent of all facilities were small, 42 percent were medium-size, and 13 percent were large. By 1988, however, that distribution had changed to 38 percent, 47 percent, and 14 percent, respectively (Table 6-6). A shift toward larger facilities is also evident in the relative shares of "treatment capacity." From 1980 to 1988, small facilities changed from accounting for over 22 percent of all dialysis stations to only about 18 percent; medium-size facilities increased from less than 48 percent of stations to over 50 percent; and large facilities increased from 30 percent of stations to 31 percent (Table 6-6). Most hospital-based facilities remain small; they made up the second largest number of facilities in 1988 (Table 6-7). However, the medium-size and large facilities accounted for the growth of hospital-based renal treatment facilities during the 1980s. Although independent facilities are predominantly medium or large in size, they increased during the 1980s in all three size categories. The growth of medium-size and large independent facilities is most evident in the for-profit sector. Medium-size for-profit independent facilities increased from 173 in 1980 to 490 by 1988, making them the single largest sector and accounting for over 28 percent of the number of facilities (Table 6-7) and almost 30 percent of the stations (Table 6-8). Additionally, the medium-size and large for-profit independent facilities together represented over 50 percent of the total dialysis stations in the entire provider community in 1988. The largest renal treatment provider group in 1980 was small not-for-profit hospital-based facilities. By 1988, medium-size for-profit independent facilities made up the largest provider group. This is the most telling summary of structural changes in the renal treatment provider community. It is plausible that the growth of facility size has been stimulated by an effort to realize economies of scale. Other factors that are likely to have affected both facility size and the number of facilities are the changes in the availability of nursing staff and in the timing of patient treatment shifts. In the earlier years of the ESRD program, some units operated 24 hours a day, with four or five patient shifts. Over the past 10 to 15 years, physicians, nurses, and patients increasingly have rejected treatment at night. Consequently, either larger units or more units were needed to accommodate a reduction in the number of shifts and an increasing patient population.

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Kidney Failure and the Federal Government TABLE 6-6 Outpatient Dialysis Providers, by Facility Size, 1980–88   Small (1–9 stations) Medium (10–20 stations) Large (20+ stations) Year No. of Units No. of Stations No. of Patients No. of Units No. of Stations No. of Patients No. of Units No. of Stations No. of Patients 1980 456 2,697 10,799 419 5,823 24,648 129 3,696 16,475 1981 527 3,146 12,904 454 6,304 27,320 143 4,060 18,480 1982 5-12 3,093 13,351 488 6,764 30,788 155 4,413 20,770 1983 545 3,366 14,822 508 7,134 33,089 164 4,716 22,426 1984 525 3,237 13,967 584 8,229 36,896 198 5,672 27,424 1985 556 3,406 15,427 627 8,838 40,073 209 5,982 28,959 1986 593 3,659 16,357 690 9,692 43,684 223 6,448 30,277 1987 630 3,953 17,448 751 10,579 48,368 237 6,848 32,182 1988 666 4,205 18,866 824 11,509 52,235 250 7,089 34,195 Average annual growth (%) 4.9 5.7 7.2 8.8 8.9 9.8 8.6 8.5 9.6 Total share (%):                   1980 45.4 22.1 20.6 41.7 47.7 47.1 12.8 30.3 31.5 1988 38.2 18.4 17.8 47.4 50.5 49.3 14.4 31.1 32.3   SOURCE: HCFA, 1980–88.

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Kidney Failure and the Federal Government FIGURE 6-5 Outpatient Dialysis Units, by Size, 1980–88 SOURCE: HCFA, 1980–88. Facility Ownership Facility ownership has long been of great concern in the health care sector. The past decade's growth of outpatient dialysis chains, defined by HCFA as two or more units under the same ownership, thus deserves attention. However, information about the chain affiliations of dialysis units is limited. A question on such affiliation was originally included in HCFA's annual facility survey, but many facilities, especially for-profit ones, did not indicate whether they were affiliated with a chain. After 1985, the question was removed. The following discussion is based, in part, on the information provided by Dialysis Management, Incorporated (D.L. Vlchek, Dialysis Management Incorporated, personal communication, October 10, 1989) which has not been independently validated. As previously noted, independent dialysis facilities, especially the for-profit ones, have grown far more rapidly than hospital-based units during the past decade. This growth of proprietary independent facilities has been accompanied by an increase of multiunit "chains." The project staff estimate that by 1988 more than half of all 912 for-profit renal dialysis facilities were affiliated with a chain. National Medical Care (NMC) is by far the largest for-profit chain. On the basis of the most recent data that were available to the study committee, almost 20 percent of all U.S. dialysis patients receive their regular maintenance dialysis treatments in one of the 300+ NMC-owned facilities. NMC

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Kidney Failure and the Federal Government TABLE 6-7 Outpatient Dialysis Providers, by Type of Facility, Profit Status, and Size, 1980–88   Independent Hospital-Based   For-Profit Not-For-Profit For-Profit Not-For-Profit Year Small Medium Large Small Medium Large Small Medium Large Small Medium Large 1980 87 173 65 18 43 18 13 3 1 338 200 45 1981 132 192 73 31 48 20 12 3 1 352 211 49 1982 120 215 81 35 46 25 9 3 1 348 224 48 1983 156 237 89 46 55 27 12 1 0 331 215 48 1984 135 293 110 47 66 35 13 3 0 330 222 53 1985 164 322 119 45 77 36 14 3 0 333 225 54 1986 195 380 129 50 81 34 14 3 0 334 226 60 1987 220 425 141 55 85 35 14 3 0 341 238 61 1988 250 490 155 61 90 34 14 4 0 341 241 61 Average annual growth (%) 14.1 13.9 11.5 16.5 9.7 8.3 0.9 3.7 -100 0.1 2.4 3.9 Total share (%):                         1980 8.7 17.2 6.5 1.8 4.3 1.8 1.3 0.3 0.1 33.7 19.9 4.5 1988 4.4 28.2 8.9 3.5 5.2 2.0 0.8 0.2 0.0 19.6 13.9 3.5 NOTE: Small = 1–9 stations; medium = 10–20 stations; large = 20+ stations. SOURCE: HCFA, 1980–88.

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Kidney Failure and the Federal Government TABLE 6-8 Hemodialysis Stations, by Type of Facility, Profit Status, and Size, 1980–88   Independent Hospital-Based   For-Profit Not-for-Profit For-Profit Not-For-Profit Year Small Medium Large Small Medium Large Small Medium Large Small Medium Large 1980 555 2,415 1,876 114 666 485 76 43 21 1,952 2,699 1,314 1981 840 2,689 2,092 196 733 532 73 43 21 2,037 2,839 1,415 1982 785 2,979 2,338 217 711 671 55 43 21 2,036 3,031 1,383 1983 1,071 3,334 2,545 290 847 750 66 12 0 1,939 2,941 1,421 1984 940 4,182 3,143 290 979 975 66 45 0 1,960 3,079 1,587 1985 1,109 4,583 3,381 268 1,131 1,041 69 45 0 1,960 3,079 1,587 1986 1,334 5,385 3,666 293 1,181 976 75 47 0 1,957 3,079 1,806 1987 1,504 6,038 4,052 329 1,200 966 84 40 0 2,036 3,301 1,830 1988 1,714 6,828 4,402 369 1,275 930 82 51 0 2,040 3,355 1,757 Average annual growth 15.1 13.9 11.3 15.8 8.5 8.5 1.0 2.2 -100 0.5 2.8 3.7 Total share (%):                         1980 4.5 19.8 15.4 0.9 5.5 4.0 0.6 0.4 0.2 16.0 22.1 10.8 1988 7.5 29.9 19.3 1.6 5.6 4.1 0.4 0.2 0.0 9.0 14.7 7.7 NOTE: Small = 1–9 stations; medium = 10–20 stations; large = 20+ stations. SOURCE: HCFA, 1980–88.

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Kidney Failure and the Federal Government also provides dialysis supplies in the product market through its Dialysis Products Division, as well as laboratory services to over 30 percent of the dialysis market. Because NMC is a wholly owned subsidiary of W.R. Grace, Inc., the publicly available information reported to the Securities and Exchange Commission is quite limited. In addition to NMC, there are four other major chains: Community Psychiatric Centers (which recently separated its dialysis division and formed a new publicly traded common stock company, Vivra Incorporated), Laguna Hills, California; Dialysis Clinics, Incorporated (DCI), Nashville, Tennessee; National Medical Enterprises—Medical Ambulatory Care (MAC), Tacoma, Washington; and REN Corporation-USA, Nashville, Tennessee. Of these, DCI is the only not-for-profit chain. The size of these chains varies from approximately 18 facilities (REN Corporation) to 85 facilities (Vivra). Together, these four chains owned nearly 200 facilities and provided services to about 10,000 patients in 1989. Vivra and REN, in 1989, became the first publicly traded all-dialysis service corporations. Additionally, there are a number of smaller chains, including Greenfield Health Systems Corporation, Detroit, Michigan; Renal Treatment Centers Corporation, Philadelphia, Pennsylvania; Satellite Dialysis, San Francisco, California; Northwest Kidney Center, Seattle, Washington; Salick Health Care, Los Angeles, California; Kidney Care, Jackson, Mississippi; Clinishare, Los Angeles, California; Neomedica Dialysis Centers, Inc., Chicago, Illinois; Home Intensive Care, N. Miami Beach, Florida; Hemodialysis, Inc., Los Angeles, California; West Suburban Kidney Centers, Chicago, Illinois; Health Systems Management, southeastern United States; New West Dialysis, Sacramento, California; Tidewater Nephrology Associates, Norfolk, Virginia; Regional Kidney Disease Program, Minneapolis, Minnesota; and American Outpatient Services Corporation, Los Angeles, California. These chains together serve an estimated 8,000 to 10,000 dialysis patients. Allowing for some other small chains not accounted for, we estimate that in 1989 nearly 50,000 out of a total of 116,000 dialysis patients received their dialysis treatments in chain-affiliated facilities. HCFA's current renal data systems do not identify ownership except as for-profit or not-for-profit, and as individual, corporate, or public institutions. Individual units, however, may be owned by one or more nephrologists, or by nonnephrologists (physicians as well as nonphysicians), or jointly by nephrologists and nonnephrologists. The possibility of conflicts of interest over physician ownership of dialysis units cannot be examined with current data. A market exists for buying and selling renal dialysis facilities. A few hospitals and the large proprietary chains are the major buyers, whereas physician owners and hospitals are usually the sellers. Purchasing terms are usually based on potential revenue, i.e., number of regular patients in the

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Kidney Failure and the Federal Government facilities (Dialysis Management Inc. 1990. Perspectives on the renal care provider community—1989. Golden Colorado, unpublished data). Prices range from $10,000 to $40,000 per patient. During 1988–89, one hospital in Ohio bought a unit with 50 patients for $2.3 million, i.e., $46,000 per patient. The average purchase price in 1988, however, was estimated at $18,000 to $20,000 per patient. Prices apparently fell in 1989 to an estimated range of $15,000 to $18,000 per patient; changes in federal income tax law, quite independent of ESRD, significantly slowed corporate acquisitions. In states without CON regulations, the prices tend to be lower. Proprietary health care facilities grew rapidly in the American health care system in the past decade. Consequently, concerns have been raised about the effect of profit-seeking on medical decision making (Gray, 1986). In the ESRD program, it is unclear whether the quality of care is affected by facility ownership or chain affiliation. The multiunit chains presumably realize economies of scale and generate higher profit margins on the firm level than do sole-owner units. However, some studies have suggested that competition in local markets may reduce facilities' profits by driving them to provide more amenities to patients (Held and Pauly, 1983). Objective and credible information about the profitability of renal dialysis chains is still quite limited, as is the relation between ownership and quality of care. CONCLUSIONS Renal dialysis facilities have increased substantially in number since the ESRD program started in 1973. This increase has paralleled the growth of the patient population, although certain geographic areas still lack adequate treatment capacity to meet increasing demand. In addition, other factors may influence growth in the number of facilities. Facilities seeking to protect their existing patient base (or local market share) from competitors may open additional units conveniently located for their patients.13 Growth in the number of units also may respond to a desire for independence from a corporate organization or from a hospital by physicians. In light of the increased demand for treatment, the committee finds that the rate of growth in outpatient treatment capacity is reasonable. The quality-of-care implications of the changing composition of the dialysis provider community need careful monitoring. The continued expansion of dialysis capacity, especially in the independent for-profit sector, cannot in itself be taken as evidence that reimbursement is adequate to provide quality care. Only an integrated assessment of cost and quality would permit such judgments to be made. However, as discussed in Chapters 11 and 12, neither the federal government nor providers have monitored quality systematically or developed adequate tools for its assessment.

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Kidney Failure and the Federal Government The quality implications of the shift toward for-profit and physician ownership merit careful assessment. The committee is aware of no evidence that the shift from hospital-based to independent and from not-for-profit to for-profit dialysis facilities has resulted in problems in access or quality. The lack of systematic efforts to assess quality, as indicated above, preclude the development of such evidence at this time. The committee recommends, however, that ownership changes be monitored closely over time and that means be developed to assess their implications for access and quality. NOTES 1.   In this chapter, the term "provider" refers to treatment facilities, not physicians, unless otherwise noted. 2.   HCFA defines a chain as two or more facilities under the same ownership. 3.   A dialysis station consists of a dialysis machine, a chair or a bed, and the associated floor space required to dialyze a single patient. 4.   About 80 percent of all dialysis patients are treated as in-center hemodialysis patients; the remaining 20 percent are primarily home dialysis patients, most of whom receive peritoneal dialysis. 5.   Treatments here refer to outpatient hemodialysis only. Peritoneal dialysis treatments are excluded from the statistics to better capture the relationship between number of hemodialysis treatments and number of dialysis stations, and thus to estimate utilization more precisely. 6.   Average treatment/station ratios provided here are national, not facility-specific, figures. 7.   The primary exception to this practice is the rule that a six-antigen match between an organ and a prospective donor must be shared. 8.   See Chapter 5 for a discussion of pediatric ESRD patients. According to the prevalent patient count, there were 3,989 patients under age 20 in 1987. 9.   The distinction between hospital-based and independent outpatient dialysis providers is based on HCFA's categorization of renal treatment facilities. Currently, HCFA distinguishes between hospital-based and independent (sometimes called freestanding) units by ownership, not by operational characteristics. Major differences exist, however, among "hospital-based" facilities in terms of their operation and patient population: Some are physically located within a hospital and dialyze mainly inpatients and a very limited number of outpatients; many, however, are not physically located within a hospital, care mainly for outpatients, and do not differ operationally from independent units. 10.   Data on utilization, measured by the number of treatments per station per year, were not readily available for the period from 1980 to 1988. The number of patients per station per year is used as a rough equivalent here. The patient/station ratio for independent facilities was 4.3 patients per station in 1988, a slight increase from 4.2 in 1980. 11.   The discussion here refers to dialysis facilities only. Physician ownership should not be confused with the for-profit or not-for-profit status of such facilities. Nephrologists who serve as medical directors or attending physicians at for-profit facilities do not necessarily own them. 12.   The size of a dialysis facility is defined here by the number of stations: a small facility has 1 to 9 stations; a medium-size facility has 10 to 20 stations; and a large facility has more than 20 stations. 13.   This point was suggested by Dr. David D. Zinn, Medical Director of Northeast Alabama Kidney Clinic, Inc., personal communication, May 17, 1990.

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Kidney Failure and the Federal Government REFERENCES Community Psychiatric Centers. 1989. Proxy Statement, July 12. Laguna Hills, Calif. Gray BN., ed. 1986. For-Profit Enterprise in Health Care. Institute of Medicine. Washington, D.C.: National Academy Press. HCFA (Health Care Financing Administration). 1980–88. Annual Facility Surveys. Baltimore, Md. Held PJ, Pauly MV. 1983. Competition and efficiency in the End-Stage Renal Disease program. J Health Econ 2:95-118. IHPP (Intergovernmental Health Policy Project). 1989. Certificate of Need (CON) Regulation of ESRD Service: Findings of a 50-State Survey. Report prepared for the Institute of Medicine. George Washington University, Washington, D.C. National Association of Children's Hospitals and Related Institutions. 1987. Pediatric Patient Profile. Unpublished data. OIG (Office of the Inspector General, U.S. Department of Health and Human Services). 1987. Organ acquisition costs: An overview. Washington, D.C., September. Prottas J. 1985. The structure and effectiveness of the U.S. organ procurement system. Inquiry 22:366. REN Corporation-USA. 1989. Prospectus, November 28. Nashville, Tenn. Task Force on Organ Transplantation. 1986. Organ Transplantation: Issues and Answers. Washington, D.C.: U.S. Department of Health and Human Services, pp. 214–216. USRDS (U.S. Renal Data System). 1989. USRDS 1989 Annual Data Report. National Institute of Diabetes and Digestive and Kidney Diseases, Bethesda, Md., August.