Analysis: Uneven blows to dialysis industry expected in wake of California legislation

Dialysis machine
ARA's collaboration with the AFK has been an issue in several states. (Getty/porpeller)

California's General Assembly passed a controversial bill this week which would cap payments for dialysis providers with connections to charities that subsidize their patients' commercial insurance — a measure lauded by insurers and employers but opposed by dialysis providers and the American Kidney Fund.

Specifically, the bill would cap reimbursement for individuals receiving American Kidney Fund premium assistance at Medicare rates. The bill is expected to soon head to Gov. Jerry Brown's desk and it is unclear if he will sign it.

As MarketWatch reported, dialysis giants DaVita Kidney Care and Fresenius Medical Care AG — which both have substantial presences in California — both saw their share price drop Thursday 9% and 2% following the vote. DaVita and Fresenius earned a combined $3.9 billion in profits from dialysis operations in 2016, the Sacramento Bee reported.

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In a report released Thursday, Leerink called the legislation "a very manageable risk given the limited exposure" with ARA having only five clinics in California. They also said it doesn't appear the legislation offers a read on what might happen in other states.

Leerink predicted intense lobbying could have the impact to stop the measure.

MarketWatch reported Heights Capital Markets analyst Andrea Harris estimates the odds of the bill becoming law are around 45%. If it were signed, she also estimates it could cause up to $95.5 million a year in operating-income losses for DaVita.

In November, voters will also consider a statewide ballot initiative known as Proposal 8, which would cap revenue dialysis providers could make from patients with commercial insurance. More than $40 million has been raised by dialysis clinics and unions on opposite sides of the measure, the Sacramento Bee reported this week.