It's a case of doing well by doing good.
A unique government program to pay for life-saving kidney dialysis treatments, normally costing up to $25,000 a year per patient, has become a huge financial bonanza for private profit-making dialysis clinics.
The program, enacted in 1972 after only a half hour of debate, is the first and only government medical program to single out one disease with catastrophic costs and offer to bear the financial burden for patients of all ages regardless of income and regardless of whether they are otherwise eligible for government aid.
National Medical Care, Inc., a Boston-based chain that runs 115 outpatient dialysis centers nationwide, treated 8,000 patients in 1979, one-sixth of the total national patient load. The firm had $190 million in gross revenues, mostly from government payments, which cover 80 percent of the charges.
The company made $19 million net profit, after income taxes. Its chairman, Dr. Constantine Hampers, a Boston nephrologist who founded the company in 1968, received salary and bonuses of $216,500.
Hampers also built up credits toward a handsome pension and pulled in another $60,000 or so in dividends on his stockholdings in the company.
Peter Phildius, the company president, did well, too, with $150,000 in salary and bonuses plus $26,400 more in different types of cash-equivalent remuneration. And Dr. Edward Hager, director and cofounder, got $125,000 plus about $50,000 dividends on nearly 90,000 shares of stock. Hager later resigned to run for the Senate in New Hampshire and was awarded a $47,500 severance payment.
The growth of National Medical Care, a giant in the field of outpatient dialysis, which had only $1.9 million gross revenues in 1970 but will exceed $220 million this year, shows how government programs will compassionate objectives foster highly profitable medi-businesses.
More important, however, is how NMC fits into the raging dispute over the fast-rising costs of the program, which the government is desperately trying to flag down.
End-stage kidney disease is a vastly expensive condition to treat. When the patient's kidney's can no longer perform their function of cleaning out the blood, the patient dies unless he can get a kidney transplant or thrice-weekly dialysis. Although costs vary at different institutions, the cost of a single dialysis treatment averages $149 nationwide, excluding doctor costs. Total annual cost, including doctor fees, is normally $20,000 to $25,000.
On Sept. 30, 1972, Sen. Vance Hartke (D-Ind.) took the Senate floor and offered an amendment to have the Social Security Medicare system, assume the cost of transplants and dialysis for nearly anyone in the country of any age having end-stage kidney disease.
Then, he said, only 7,000 people were getting dialysis, but added thousands of lives could be saved if costs of this catastrophically expensive treatment were undertaken by the government. What Hartke was proposing was the nation's first major catastrophic illness program.
He estimated that up to 25,000 could be helped by dialysis, the first-year cost would be about $75 million and the annual cost after four years about $250 million. Wallace F. Bennett (R-Utah), warning of future costs, tried to block the amendment "at the risk of branding myself as one . . . who wants to see people die." But the Senate backed Hartke, 52 to 3, and the provision became law.
Hartke's figures, to put it mildly, have proved low. In the first year of the program, 1974, the cost was $172 million, not $75 million.
Spurred by inflation and much higher patient loads than anticipated, the program has leaped up to $1.5 billion estimated fiscal 1981 costs. Beneficiaries -- nine-tenths on dialysis, the rest getting transplants -- will total 68,000 in 1981. The 1984 cost to the federal government, which usually pays 80 percent of the outpatient dialysis cost, is estimated at $2.7 billion. Patient load isn't expected to level off until it reaches 90,000. And Rand Corp. senior social scientist Richard Rettig recently wrote that projected 1995 costs may be $4.6 billion. In constant dollars, costs per treatment haven't fallen as expected.
Although kidney patients constitute less than one-fifth of 1 percent of overall Medicare eligibles, they receive more than 4 percent of Medicare outlays. (Usually, Medicare covers only the elderly, but the kidney program is for people of all ages.)
In discussing costs, it is important to keep matters in focus. It isn't just doctors and chains like NMC that benefit. The program was designed to help the sick and it does. Kidney patients now have a longer life expectancy. hThey frequently can carry on normal lives, continuing to work. Without the government funding, many couldn't afford the expensive treatments and would die.
Tom Leahy of Rockville is one such person. He has a hereditary kidney disease and he must take dialysis thrice weekly, though he is now going to try a new type of treatment. With the help of dialysis, he has been able to attend Montgomery College as an art student.
His dialysis and attendant physician care costs roughly $25,000 a year, according to his mother, Jean Leahy Rayer. Medicare and the Maryland Kidney Disease Program have been paying virtually the entire bill -- Medicare 80 percent of most costs, the Maryland program the rest.
On top of the regular dialysis costs, he required hospitalization last year and the bill came to over $70,000. That was paid, too.
"I don't know how in the world anyone could pay it. I would have lost everything in the world and not paid it," said Raver. "It is literally a lifesaver."
With patient loads and program costs rising so rapidly, fulfilling Sen. Bennett's warnings, Congress and the Department of Health and Human Services (HHS) are desperately seeking ways to cut the tab.
One inviting place to begin, in the opinion of some, is on profits of businesses like NMC and fees of doctors who live almost entirely off the government funding and are getting what some consider excessive payment.
Doctors who treat kidney patients can get paid separately for all medical services performed, including supervising the dialysis. The doctors will get $180 to $260 per patient, 80 percent paid by Medicare and the rest from private insurance or Medicaid. This is in addition to what the center charges for the dialysis. A doctor with 40 patients, not an unusual load according to Hampers, thus could make up to $125,000 a year and still treat other private patients, too.
Dr. Belding Seribner of the University of Washington, the father of dialysis, left little doubt about his view that grabbing for dollars on the part of medical providers is one major cause of cost problems.
"What started out . . . as a noble experiment has degenerated into a highly controversial billion-dollar program riddled with cost overruns and enormous profiteering," he told a congressional committee a few years ago.
Scribner's is a voice of particular authority. Although the artificial kidney was first invented by Dr. Willem J. Kolff in Nazi-occupied Holland in the 1940s, routine outpatient maintenance dialysis didn't become possible until 1960, when Scribner perfected the artificial teflon "shunt," which could be implanted in the arm to remove blood, pass it through the machine for purification and then return it.
With their large profits, big salaries and big doctor fees, for-profit kidney dialysis centers have become a prime candidate for government cost-cutting attention. (Non-hospital clinics usually provide only dialysis services; hospitals, of course, are multipurpose institutions.)
But here, according to government sources, Rettig and Hampers, the cost-cutters run into a strange fact: NMC is low-cost and efficient compared with outpatient dialysis services offered by hospitals, many of which are nonprofits.
Thus, according to HHS figures, the average cost per session of dialysis outpatients getting their treatment at hospitals is $159, excluding the doctor fee. But at outside "free-standing" clinics like the 115 run by NMC, the average cost is only $138. At NMC itself, the average is only $136, according to Hampers.
And Hampers boasts that NMC has never sought a fee above $138.
"I hope when you say a bonanza, you'll say it's a well-earned, deserved bonanza," said Hampers proudly in a telephone interview from Boston. He added that his salary and other compensation are similar to what excutives of similar-size corporations receive elsewhere in the economy.
Some people theorize that hospital outpatient dialysis centers are more costly because they have more personnel per patient. Others say it is because they normally handle sicker patients, leaving the healthier and less troublesome to outsider clinics like those run by NMC. But there is no strong evidence for this; "There is not one shred of evidence that patients treated by hospital [outpatient] dialysis are sicker," declared Hampers.
Rettig said that NMC clinics are cheaper and "there seem to be no measurable differences in the quality" of services provided by NMC as compared with hospitals. So if the amounts Medicare will pay to private clinics are substantially lowered -- which HHS is pondering -- the result might be to knock out some private clinics and shift more people into the expensive hospitals which now account for about 57 percent of all treatments. The end result might be to lose, not save, money.
The reason for NMC's efficiency, acording to Hampers, is simple. Since it is a profit-making chain and must watch costs, it does watch them. Hospitals he said, aren't really in the habit.
Hampers said his firm saves money by doing its own lab work cheaply through a subsidiary called LIFE CHEM, buying and making its own equipment through another subsidiary (ERIKA) and through its factory in Ireland, volume purchasing of what it doesn't make, and careful nursing schedules which seek to get two shifts of patients (dialysis can take from four to six hours) covered by one nursing shift.
HHS, however, clearly is considering some reduction in reimbursement schedules. Since 1974 it has reimbursed institutions on up to a maximum of $138 per treatment (excluding doctor costs), but those which can demonstrate higher costs may be allowed more.Hospitals repeatedly come in for these "exceptions" and that is why their outpatient dialysis costs average $159.
The "free-standing" nonhospital clinics like NMCs have stayed within the $138 ceiling. (In both cases, reimbursement is 80 percent of the costs.)
HHS is now auditing 110 institutions to find out the reasons for cost differences.
It may be that HHS will seek some "optimum" new ceiling for profit-makers, like $129 or $130, designed to save money without driving them out of business. Many at HHS believe the profit-making outpatient clinics are doing well financially because their real costs are far below the $138 maximum. d
Another possibility is to increase the number of people who perform dialysis at home, without as many support personnel. In 1972, about 40 percent of those being dialyzed did it at home, but this figure has since dropped to 13 percent. HHS estimates the average cost of home dialysis at $105 per treatment, in addition to the $7,000 to $8,000 cost of a home dialysis machine. Congress, at the urging of Scribner and his associate, Dr. Chris Blagg, director of the Northwest Kidney Center in Seattle, two years ago passed legislation to encourage home dialysis. At that time, Sen. Herman Talmadge (D-Ga.) accused NMC of lobbying against the bill for fear it would reduce business at centers; the firm denied it.
Blagg said in an interview that he believes more than 50 percent of all patients could successfully perform dialysis at home, helped by a relative or visiting aide, with huge savings in money eventually. He said patients using home dialysis under supervision of his center have costs under $100 per treatment.
However, this is clearly not for all patients and Hampers and some others dispute that the figure could be as high as 50 percent. (The 1978 legislation initially cited the 50 percent figure but then backed off making it mandatory. But HHS wants to encourage more home dialysis, at any rate.)
Another possibility: encourage more kidney transplants. The initial cost ranges from $19,000 to $26,000 but if successful, the long-term cost is far lower than dialysis. However, only 4,362 transplant were performed in 1979. Rettig said there is a shortage of kidneys from both live and deceased donors.
Rettig said prevention of kidney disease (by campaigns against hypertension which helps cause it, for example) and reuse of expensive dialysis machine parts (the plastic membrane costing $20 to $35 is normally used only once but can be cleaned and reused) are other possibilities. However, some nephrologists frown on reuse.
All these things are going to take time, however. Meanwhile, the patient load is still increasing rapidly; hoped-for cost reductions from improved technology haven't materialized; and a very high proportion of national medical outlays is being spent on providing "catastrophic" protection for a relatively tiny number of patients. As so often with other programs, the modest cost estimates used by Hartke to support his amendment proved much lower than the reality. And HHS is having difficulty controlling costs. But for those like Tom Leahy with end-stage kidney disease, the program means life itself. CAPTION: Picture, Treatment and care for Tom Leahy of Rockville cost about $25,000 annually and last year hospitalization added another $70,000 -- virtually all of it covered by government programs. The funding, his mother says, "is literally a lifesaver." By James M. Thresher -- The Washington Post