Feds tackle dialysis giants with antitrust probe
The Federal Trade Commission investigation of DaVita and Fresenius Medical Care follows years of consolidation in the dialysis industry.
The Federal Trade Commission is investigating the nation’s two largest dialysis providers over allegations they illegally thwart smaller competitors, according to three people with knowledge of the probe.
The investigation focuses in part on how the companies make it difficult for the physicians who work in their clinics to leave for rivals and start new businesses, said the three people, who were granted anonymity to speak about a confidential matter. The agency is investigating whether noncompete agreements the companies require doctors to sign snarl efforts by rivals that want to make it easier for dialysis patients to be treated at home.
The investigation began earlier this year and is in its early stages, the people said, and examines the business models of the two companies, DaVita and Fresenius Medical Care, which dominate the U.S. dialysis market, controlling at least 70 percent of outpatient clinics. Though neither company is a household name, their clinics are found in suburban shopping malls, big-city downtowns and rural communities in the U.S.
The probe is the latest effort by the FTC, which has become one of the Biden administration’s top corporate cops. Alongside its counterparts at the Justice Department, the agency has leveraged its regulatory power to curb corporate concentration across the economy — a key part of the White House’s economic agenda. The agency has scrutinized Amazon over anticompetitive pricing and a large anesthesiologist group over monopolization allegations in Texas; has challenged mergers in a number of markets, including groceries and mattresses; and is expected to sue three health care companies over skyrocketing insulin costs.
“We are cooperating with the commission staff to answer their questions and demonstrate the advantages of our structure in serving the kidney care community,” said DaVita spokesperson Karen Modlin. “We are confident the analysis will show that we have enhanced competition and that our practices promote valuable investments for the betterment of physicians, clinic staff, and patients.”
Spokespeople for the FTC and Fresenius declined to comment.
The noncompete agreements under the microscope concern nephrologists, who specialize in treating kidney disease. More than a half-million Americans receive dialysis treatment, which removes waste from the blood when their kidneys cannot do the job. Fresenius is also the largest supplier of dialysis machines used in hospitals, clinics and at home, and supplies DaVita with machines for home use.
Both Fresenius and DaVita — which serve a majority of patients in clinics — sign contracts with doctors to serve as medical directors in their clinics. Those contracts typically include noncompete provisions during, and for some time after, they expire. Those include bans on doctors serving as medical directors in any competing setting, including a patient’s home, in the same geographic market.
States, including California, have banned noncompete agreements outright, while others such as Delaware, Rhode Island and Massachusetts bar them specifically for doctors. The FTC is seeking to ban most noncompetes nationwide, but is facing a skeptical judge in Texas who appears inclined to strike down the regulation.
Overturning the noncompete ban doesn’t prevent the FTC, or any other plaintiff from challenging the contracts in court on a case-by-case basis.
The American Society of Nephrology has expressed its support for the FTC’s noncompete rule.
“Restrictive covenants imposed by these companies can limit the ability of a nephrologist or entire group of nephrologists to provide services at competing centers,” the group wrote in a public comment. “These restrictive covenants allow dialysis companies to establish and maintain monopolies in communities with already scarce and limited access to care by barring competition from entering the market and severely limiting patient choice.”
Home dialysis technology has greatly improved in recent years, said Paul Conway, head of policy and former president at the American Association of Kidney Patients. And home care is a vastly different experience for patients, he said. “But if you’re a young doctor and you’re aggressive and you want to have a larger group of home patients and you’re working for a company that doesn’t really have that, why should your creativity and ambition and talent to help people be limited by that?”
Scott Bieber, a nephrologist with Kootenai Health in Coeur d’Alene, Idaho, and a medical director with Fresenius, said that because of billing changes in recent years, home dialysis has become more profitable, and both DaVita and Fresenius are expanding that option. But that doesn’t solve the problem, he said: Nephrologists feel they are trapped by the clauses, which can lead to fewer employment options for doctors and treatment options for patients. The clauses also can make it difficult for the upstart device companies, he said.
A number of companies — including Quanta, Deka Research and Development and Outset Medical — are making a new generation of dialysis machines for the home market.
Conway said home dialysis access is improving, but slowly. “To some degree, it’s gotten easier,” said Conway, who served as chief of staff to George W. Bush administration Labor Secretary Elaine Chao, and is a former dialysis patient. But “we do not think that it is actively offered to all patients.”
Market concentration in the sector has long drawn FTC scrutiny. In 2019, Fresenius bought home dialysis equipment maker NxStage after agreeing to sell overlapping assets. The FTC’s two Democratic commissioners at the time — including current Commissioner Rebecca Kelly Slaughter — criticized the settlement saying it didn’t go far enough and that it could harm competition in the market for home treatments. And in 2021, DaVita sold several clinics as part of an agreement with the FTC to complete a deal in Utah. Earlier this year, Fresenius sold dialysis clinics in several South American countries to Davita.
The relationship between doctors and the clinics is complicated. The medical director positions, which typically supplement a nephrologist’s main practice, are “very lucrative,” he said. “They are a guaranteed source of income that doesn’t flex up or down,” like the rest of their practice, which allows them to operate a more stable business.