Effects of Medicare Reimbursement Rates on Quality of Dialysis Care and Patient Outcomes

The goal of this pilot project is to analyze the relationships between financing arrangements, treatment quality and health outcomes from dialysis care in the United States. Dialysis treatment is essential for maintaining patients with End-Stage Renal Disease (ESRD), a condition most commonly caused by chronic hypertension or
diabetes. The availability of a high quality-of-care in all parts of the country is particularly important for the management of ESRD, and for the health of ESRD patients, because of how frequently dialysis needs to be undertaken.
There are two aspects of the market for dialysis treatment that are distinctive, and that likely influence treatment quality. The first is near-universal insurance coverage under Medicare. Dialysis treatment is covered by Medicare even for patients under the age of 65 after an initial waiting period, during which a patient’s private/employer-based insurance or out-of-pocket payments cover health-care costs. This near-universal
coverage is historically unique in the United States. The second distinctive aspect of the dialysis market is the degree of industry concentration. Two companies, Davita and Fresenius Medical Care, operating about 60% of all dialysis facilities.
How might these market characteristics affect treatment quality and health outcomes? Medicare’s near-universal coverage elevates the importance of its reimbursement rate for dialysis treatment, compared with most other health care services. Choosing to reimburse for dialysis at higher rates may incentivize competition in service quality, and the entry of new facilities into more geographical locations. At the same time, too high a
reimbursement rate may result in excessive entry, overcrowding the market for services and resulting in low capacity utilization. Similar issues arise from the market concentration in the dialysis industry. For example, high industry concentration may enable providers to charge higher prices in the private market. This makes it harder
to benchmark Medicare’s payment rates to private market rates. But higher prices in the private market mayadditionally incentivize higher quality dialysis care and greater geographical coverage. As theoretically observed in the foundational papers by Spence (1975) and Mankiw and Whinston (1986), a concentrated market can in
some circumstances be more efficient than a competitive market. In this project, we explore these influences, and how they ultimately impact patient outcomes such as mortality and quality-of-life.