Measure to Cap Dialysis Profits Pummeled After Record Spending by Industry

Record-breaking spending by the dialysis industry helped doom a controversial California ballot measure to cap its profits.

The industry, led by DaVita and Fresenius Medical Care, spent nearly $111 million to defeat Proposition 8, which voters trounced, 62 to 38 percent, and appeared to approve in just two of 58 counties. The measure also faced strong opposition from medical organizations, including doctor and hospital associations, which argued it would limit access to dialysis treatment and thus endanger patients.

The opposition presented a powerful message that “if you can’t get dialysis, you will die,” said Gerald Kominski, a senior fellow at the UCLA Center for Health Policy Research. “If you didn’t know that, the commercials made it clear.”

Despite arguments about the outsize profits of dialysis companies, Kominski said the “Yes on 8” case wasn’t as clear. The measure, sponsored by the Service Employees International Union-United Healthcare Workers West, sought to cap dialysis clinic profits at 115 percent of the costs of patient care. Revenues above that amount would have been rebated primarily to insurance companies. Medicare and other government programs, which pay significantly lower prices for dialysis, wouldn’t have received rebates.

The union raised nearly $18 million — a large sum for most initiatives but about 16 percent of what the opposition mustered.

The proposition also was poorly written and difficult for voters to understand, said Erin Trish, associate director of health policy at the USC Schaeffer Center for Health Policy and Economics. Trish said she wasn’t surprised by the landslide defeat given the widespread ads against the initiative about the potential harms to patients. “The message came through loud and clear,” she said.

Trish said health care industry groups genuinely viewed Proposition 8 as a poor initiative — but they also didn’t want to see rate regulation. “This is not what most of these associations want to open the door to,” Trish said.

Generally speaking, said Jessica Levinson, a professor at Loyola Law School, voters’ default on initiatives is “no.” In addition, money spent against an initiative is usually more effective than money spent for it. Levinson said people weren’t 100 percent sure what they were voting on with Proposition 8. All of those factors made passage “an uphill battle,” she said.

Kathy Fairbanks, a spokeswoman for the opposition, credited the electorate for properly sorting out the facts. “Voters did their homework and saw who lined up on both sides,” Fairbanks said. “All the leaders of the medical community were against Proposition 8 because of the negative impact it would have had on patients and access to dialysis.”

Proponents of the measure argued that highly profitable dialysis companies don’t invest enough in patient care and that they need to hire more staff and improve clinic safety. Opponents said passage would have forced clinics to cut their hours or close altogether, resulting in more emergency room visits by dialysis patients.

SEIU-UHW said the opponents tried to “scare and mislead” voters. It vowed to continue targeting profitable dialysis companies with another measure on the 2020 ballot, as well as through legislation.

“We exposed problems within the dialysis industry and we put a spotlight on a sector that has operated in the shadow for far too long,” said Sean Wherley, spokesman for the “Yes” campaign. “But we are not finished yet. … The need is still there to hold this industry accountable.

He added that the union is proud to have put a spotlight on “the inflated charges that drive up health care costs for all California.”

Critics say that SEIU-UHW, which represents more than 95,000 workers in California, uses state and local ballot initiatives as a way to pressure legislators and gain bargaining power. They’ve sponsored measures on such topics as hospital and clinic funding, access to affordable insurance and training for in-home caregivers.

The union maintains its goal is simply to improve health care.

Two other Bay Area initiatives sponsored by SEIU, aiming to limit hospital pricing, also were defeated Tuesday, indicating that the ballot box may not be the best place to address concerns about costs in the health care industry.

“This is too complicated to do by ballot proposition,” Trish said.

Dialysis patients participated heavily in both the pro and con sides of the initiative, appearing in dramatic television ads and presenting their personal stories on social media.

Lili Hernandez, 27, who began treatment four years ago, showed up to her appointments at a DaVita clinic in Hollywood with “Yes on Prop. 8” placards even as the clinic posted “No” signage, she said.

Hernandez supported the initiative because she believes the corporations should be held accountable, she said. “They take advantage of how much money they can charge, but don’t give the best service,” she said. “Too many people are at risk of infection and neglect.”

She woke up Wednesday feeling defeated. “I was awake last night, checked results online, had my cry and went to sleep,” she said, adding that she thinks people were confused about the initiative and believed the “false ads.”

Meanwhile, DeWayne Cox, a dialysis patient from Los Angeles, expressed relief. “This means that voters got the message, they understood,” he said.

Cox, 56, said he comes from a union family and believes in unions, but this was a “terrible” move by SEIU because it could lead to cutbacks in services. “Not only was this scary for me, but they made me angry,” he said. “If their motive was truly to help patients, they would have written a better, more precise measure.”

The measure became the most expensive race in California this year. Industry giants DaVita and Fresenius Medical Care, which operate nearly three-quarters of the chronic dialysis clinics in California, were responsible for more than 90 percent of the contributions in opposition to the measure

The California Medical Association, the California Hospital Association and the California chapter of the American College of Emergency Physicians all opposed Proposition 8. “Our concern was the impact on patient care,” said hospital association spokeswoman Jan Emerson-Shea. “If dialysis clinics were forced to close and patients needed care, we are the only place within the health care system that is open 24/7.”

Municipal ballot initiatives sponsored by SEIU-UHW targeted Stanford Health Care in Livermore and Palo Alto by attempting to cap prices at 115 percent of the “reasonable” cost of care. Under the initiatives, hospitals and other medical providers would have been required to pay back any charges above the cap each year to private commercial insurers. The initiatives failed dramatically, losing 77 to 23 percent in Palo Alto and in Livermore, 82 to 17 percent.

Voters did approve three statewide health care initiatives Tuesday, however:

• Proposition 2 won 61 to 39 percent, allowing the state to issue $2 billion in bonds for housing for homeless people in need of mental health services. Bond money will be distributed to counties and repaid with proceeds from the Mental Health Services Act, which levies a 1 percent tax on personal incomes of $1 million and above.
• Proposition 4, which won by the same margin, allows the state to distribute $1.5 billion in bonds to help the state’s 13 children’s hospitals’ pay for construction and equipment. It was the third time in 14 years that voters had agreed to subsidize the hospitals.
• Proposition 11, passing with 59 percent of the vote, requires private ambulance employees to remain on call during their breaks — just as firefighters, policemen and other public emergency workers do.

Samantha Young and Harriet Rowan contributed to this report.

KHN’s coverage of these topics is supported by California Health Care Foundation and Blue Shield of California Foundation.

This story was produced by Kaiser Health News, which publishes California Healthline, a service of the California Health Care Foundation.