Kidney Dialysis Centers

SIC 8092

Companies in this industry

Industry report:

This industry consists of establishments primarily engaged in providing kidney or renal dialysis services. Establishments operating as clinics of physicians are covered in SIC 8011: Offices and Clinics of Doctors of Medicine.

Industry Snapshot

An aging population and a growing health care sector were reflected in the continued growth of the dialysis center industry, which comprises approved independent and hospital-based or affiliated facilities. All kidney dialysis centers are regulated and subsidized by the federal government, which grants exclusive licenses to providers to supply long-term dialysis within a designated territory. The facilities are reimbursed through the Health Care Financing Administration (HCFA) with Medicare funds.

The United States had 4,200 end-stage renal disease facilities in 2012. Together these facilities generated revenues of $18 billion. The industry was highly concentrated, with the four largest corporations accounting for 90 percent of the dialysis centers. In the early 2010s, a dialysis center had an average employee base of 20 and generated average annual revenues of $3 million.

Background and Development

The process of dialysis was invented around 1854 by a Scottish chemist named Thomas Graham, who would later become the first to employ dialysis to prolong life. The procedure was not widely used until after 1945, when Dr. Wilhelm Kolff used it to save the life of a patient in active renal failure, demonstrating that the process not only could prolong life for a short time, but could actually increase survival rates for those in renal failure.

Most users of dialysis are patients with end-stage, irreversible renal disease that requires either dialysis or transplant for survival. Two kinds of dialysis are used: hemodialysis and peritoneal dialysis. Hemodialysis is generally performed three times a week in two- to four- hour sessions, removing waste though an artificial kidney machine outside of the patient's body. Peritoneal dialysis uses the peritoneum, a membrane in the abdomen, to remove the waste, using a procedure that can be performed at home by the patient but must be done seven days a week.

Between 1972 and 1996, the number of chronic dialysis patients increased a hundredfold. In 1996 an estimated 214,000 Americans received dialysis. The Health Care Financing Administration (HCFA) predicted that the number of these patients would continue to increase at least 9 percent per year. HCFA reimbursements accounted for the majority of payments to kidney dialysis centers. Scarcity of funds caused the federal government to cut its reimbursements, making it difficult for many hospital-based centers to keep operating. Some hospitals responded by referring patients to free-standing centers.

In the mid-1990s, however, that cost-cutting proved deadly. A National Kidney Foundation report published in 1995 found that dialysis patients in the United States faced a much higher mortality rate than dialysis patients in other countries. Figures for 1992 showed that nearly 24 percent of U.S. dialysis patients died, compared to a mortality rate of 9.7 percent in Japan, 10 percent in Germany, and 11 percent in France. Because cost incentives built into the system may have limited dialysis treatment times and frequency, and the reuse of supplies, the number of end-stage renal disease patients--and mortality rates--went up. The for-profit nature of dialysis centers seemed only partially to blame. The National Kidney Foundation study found that cost-cutting in the form of poorly trained staff and inefficient use of dialysis machines also seemed to be a factor in the 45,000 U.S. deaths.

A campaign was launched in 1995 by the National Kidney Foundation to improve patient care at dialysis centers and decrease deaths. The licensing of a new, relatively lightweight, and easy-to-use home-dialysis machine also brought changes to the industry.

The number of patients receiving kidney dialysis in the United States held steady at around 214,000 in the late twentieth century. However, the aging of the U.S. population began to contribute to an increase in patients. In 1999 the United States was the world's largest market for kidney dialysis, followed by Japan, the rest of Asia, and Latin America.

A treatment trend that emerged in the late 1990s was daily hemodialysis. Estimates suggest that in 1998, 12 centers worldwide were providing daily treatments for more than 100 individuals with renal failure. According to a report by Research and Markets in 2012, the global market for home hemodialysis (HHD) was expected to grow 6.5 percent between 2011 and 2015. The United States was the second-largest market for HHD behind Japan.

The kidney dialysis centers industry grew steadily throughout the 1990s, from revenues of $1.45 billion in 1990 to $3.38 billion in 1996. Employment in this industry, as in many other health care industries, also increased significantly. However, rapid increases in employment opportunities made adequate training a problem for the workforce.

Growth of individual businesses has been limited in some areas by the requirement for a Certificate of Need (CON). The certificate demonstrates that "the communities they're targeting for additional dialysis services need more service, that their proposed projects are the best way to meet those needs, that they're financially feasible and that they will deliver high-quality service," according to a 1997 article in the Puget Sound Business Journal. This system tended to favor small, local, or nonprofit businesses already in place, at the expense of national or worldwide firms seeking to expand their territory. Large companies complained that the regulation was anticompetitive. By the early 2010s, some states had phased out this requirement. In Ohio, prior to the elimination of the CON rule, the state foresaw a need for 40 new dialysis stations. Once the rule was lifted, 571 new ones were added.

The industry reported an estimated 3,647 kidney dialysis centers engaged in providing kidney or renal dialysis services in 2005, posting revenues of more than $9.25 billion and reporting 58,060 employees. In addition, the percentage of freestanding dialysis centers climbed from 74 percent to 86 percent from 1995 to 2005. An increase also occurred in the percentage of for-profit facilities, which rose from 65 percent to 78 percent. However, hospital-based clinics fell from 708 to 642 over the same period. In 2005 four nationwide, for-profit, publicly traded chains owned 60 percent of all dialysis centers, with 70 percent controlled by freestanding dialysis centers. Industry analysts reported that the number of facilities kept up with demand. There were more than 400,000 patients receiving dialysis in 2005, while more than 60,000 were on the waiting list for a kidney transplant. Overall, there were an estimated 20 million people (1 in 9) that suffered from chronic kidney disease (CKD).

In 2005 the industry reported some 6,000 dialysis patients were displaced following Hurricane Katrina, and another 7,300 were displaced after Hurricane Wilma hit Louisiana, Alabama, Mississippi, and Florida. The American Kidney Fund's Disaster Relief Program offered emergency funding to these patients and either reopened facilities or directed them to different ones. New legislation, including the Patient Protection and Affordable Care Act of 2010 and the Kidney Care Quality and Improvement Act, also aided the industry. Industry experts projected that 2.2 million new patients would require dialysis treatments by 2030.

According to the National Kidney Foundation (NKF), in 2008 more than 78,000 Americans were on the waiting list for a kidney transplant, 355,000 depended on dialysis to stay alive, and another 26 million suffered from chronic kidney disease. Dialysis treatment, per patient, cost approximately $70,000 a year. To cut costs and reward efficiency, the Centers for Medicare and Medicaid Services (CMS), which pays for the bulk of dialysis treatments, announced a new payment plan to reimburse dialysis centers in 2009.

Rather than paying on a per-item basis, CMS announced that it would begin providing a single bundled payment that would cover all services and goods related to the given dialysis service, including dialysis treatment, prescription drugs, and laboratory tests. As a result, dialysis centers no longer billed for specific amounts of drugs used during dialysis for a particular patient. Instead, CMS would bundle all services related to a dialysis session, including items that were previously billed separately, such as oral drugs. The payment schedule was expected to be implemented over several years and was expected to lower reimbursement rates approximately 3 to 4 percent. In addition, a study mentioned in Internal Medicine News found that a sample of African Americans starting dialysis had lower initial hemoglobin levels, which required higher levels of oral drugs during dialysis. These findings suggested that certain minorities might have difficulty finding treatment under the new payment plan.

Hemodialysis continued to be the treatment of choice for dialysis patients. Seven-day-a-week, home-based peritoneal dialysis reached its peak in the mid-1980s, accounting for approximately 15 percent of all dialysis treatments. By 2006 just 8.2 percent of patients were on peritoneal dialysis, which fell again in 2008 to 6,725 patients, or 6.2 percent. Once expected to increase in popularity because of its ability to allow patients to avoid multiple trips to the dialysis center every week, at the end of the first decade of the 2000s, peritoneal dialysis was losing favor. According to specialist Rajnish Mehrotra in Renal & Urology News, this disparity might have been due to several reasons. Most program employees lacked the training to provide sufficient home-dialysis education to patients. Additionally, many in the industry wrongly assumed that peritoneal dialysis provided a worse outcome, even though patient satisfaction and health survey showed otherwise. In addition, the infrastructure did not adequately provide peritoneal treatment seamlessly. Finally, dialysis centers were financially motivated to fill the chairs in their centers, even though CMS provided financial incentives for patients to pursue home-based treatment. By the beginning of the twenty-first century, home-based treatment had become a more attractive option for many dialysis patients.

Current Conditions

According to the National Kidney Foundation (NKF), in 2010 the number of Americans on a waiting list for a life-saving organ transplant, including kidneys, surpassed 110,000. According to the organization's annual report, "NKF worked with Congress and the Organ Procurement and Transplantation Network to begin expanding opportunities for paired donation and donor chains." In 2010, 35 percent of the NKF's revenues were from contributions, and work to engage more volunteers in organ-donating and fundraising efforts was ongoing.

The United States remained the single largest revenue-generating market for kidney dialysis centers in the early 2010s, according to Global Industry Analysts. According to the report, "The number of dialysis patients in the U.S. is expected to grow by around 5 percent annually, driven by a rise in aging population [and a] growing prevalence of hypertension and diabetes." A majority of the U.S. dialysis center market originated from hemodialysis treatment, while peritoneal dialysis accounted for the remainder.

Industry Leaders

In the early 2010s, industry leader Fresenius Medical Care North America (FMCNA) provided care for 135,000 patients at 1,800 kidney dialysis centers. The Waltham, Massachusetts-based company employed 45,000. FMCNA was a subsidiary of Fresenius Medical Care AG & Co., based in Homberg, Germany, which in 2011 posted overall sales of $12 billion. DaVita, Inc., headquartered in Denver, Colorado, operated more than 1,800 dialysis treatment centers and treated 145,000 patients per year. The company also worked with inpatient treatment programs with hundreds of hospitals. DaVita reported revenues of $496 million in 2011. In May 2012, HealthCare Partners, which had revenues of $2.4 billion in 2011, announced that it would purchase DaVita for approximately $4.4 billion. The newly combined company would be called DaVita Health Care Partners Inc. Other industry leaders included Diversified Specialty Institutes (DSI), a privately held company headquartered in Nashville, Tennessee, which operated 80 kidney dialysis clinics in 21 states, and Renal Advantage Inc., a private company headquartered in Franklin, Tennessee, which operated 150 free-standing dialysis centers in 20 states. The latter merged with former rival Liberty Dialysis of Washington State in 2010.

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