First Choice Health Network Drops Large Dialysis Organizations (LDOs)

First Choice Health Network Drops Large Dialysis Organizations (LDOs)

The Latest Development in Dialysis Carves in Pacific Northwest Dialysis

In recent years the Pacific Northwest has been the venue for repeated disputes between the large dialysis organizations (“LDOs”) Fresenius and DaVita and payors trying to manage very high LDO charges. In the latest round, effective January 1, 2021, First Choice Health Network (“FCHN”), a major regional PPO, terminates its participating provider contracts with both LDOs.

The back-story on this is PPO rates, in general, are negotiated between the PPO and its participating providers and agreed upon in the participating provider agreements. Participating provider agreements, especially their financial terms, are always confidential to the providers and the PPO.  The rest of us usually have to infer their terms from claims payment patterns, and information dropped in court documents and various public or otherwise non-confidential sources. One clear thing is that for many PPOs, participating provider rates are a fixed discount off provider billed charges or “rack rates” – with little or no control over the provider’s ability to increase those rates.

This approach is a problem in the dialysis market, where the LDOs own almost 90% of the facilities nationally. The LDOs can own 100% in some regional markets. In this too concentrated market, there are no competitive pressures to keep prices down, and the LDOs are enormous public companies for which profits are significant. The LDOs, therefore, have strong incentives to increase their rates over time, and they have done so. But a PPO discount rate of, say, 20% off billed charges, which might make some sense for annualized dialysis billings of $180,000 in 2006 (which would still net a hefty charge to the plan of $144,000) becomes worthless when applied to annualized billings of $750,000 in 2020 (net charge to the plan $600,000).

Therefore, plans and their administrator have felt increasing pressure to find dialysis cost containment solutions other than PPOs by carving dialysis benefits out of their networks. The problem is that PPO contracts are highly variable: The saying is, “when you’ve seen one PPO contract, you’ve seen one PPO contract.” Some PPO contracts let plans or TPAs carve out dialysis at will; some prohibit it, absolutely.  Sometimes they even require the plan or TPA to comply with the terms of the PPO’s participating provider agreements without even allowing them to see it (it’s confidential, remember). Most fall somewhere in the middle so that that carving dialysis may put the plan, the TPA or the PPO – or all three – at risk of provider lawsuit if claims aren’t paid at PPO rates. And the LDOs have shown that they are very willing to litigate.

Therefore, dialysis carves against PPOs require careful analysis and often negotiations among plan, TPA, and PPO to identify and manage these risks. Over the years, some patterns have emerged, and it’s clear that it’s possible to carve against many types of PPO at an acceptable level of risk. Of course, there will probably never be without risk when dealing with well-funded LDOs willing and able to litigate, with large sums at stake, but it can often be possible. Some other PPOs in the Pacific Northwest have been able to successfully take this risk, but it’s been hard for FCHN.

The problem for FCHN – inferring from information from non-confidential sources – seems likely to be that its participating provider agreements were older and bound it to discount rates, which became less and less valuable as dialysis charges rose. It also seems likely that these agreements made FCHN liable to the providers if they weren’t paid those rates. This process makes sense since FCHN is a provider-based network founded in 1985; its documents were probably developed to be favorable to providers, at a time when dialysis inflation wasn’t an issue.

But this would put FCHN between a rock and a hard place with plans and administrators needing to carve to control plan costs. With other PPOs allowing carves or plans otherwise able to carve dialysis out-of-network, it wouldn’t be competitive.

What the record shows is that FCHN began allowing dialysis carves, and this resulted in lawsuits against FCHN, and in some cases TPAs. (It no doubt also resulted in plan appeals and threatened litigation which settled without reaching litigation and so left no public record.) Recently these have been trending against FCHN, which could create substantial financial exposure. More to the point, perhaps, it means that FCHN clearly could not allow dialysis carves without risk to itself and TPAs.

So it makes sense that FCHN would drop the LDOs out of its network. Plans need to be able to access dialysis at rates they can afford, TPAs need to be able to offer such access, and PPOs which can’t provide it will lose market to those which can. Unless the LDOs are willing to accept rates, plans can reasonably afford – which they don’t believe they can or should – PPO discounts are not a viable solution.

What exactly this means for plans in the Pacific Northwest isn’t yet clear, of course. The LDOs may sue to stop the termination; they don’t mind litigating to preserve revenues. But the best outcome will be that FCHN, which is a very positive player in Pacific Northwest healthcare, will be able to let plans carve dialysis while accessing their network.

The lesson in all this for plans and TPAs is that carving dialysis can be a right solution but must be handled with care. Any strategy which reduces LDO revenues comes with risks and needs to be based on informed consideration and risk management.

At Renalogic, we’ve been doing dialysis cost containment successfully for almost two decades, and we’ve seen a thing or two. We won’t take a carve on unless we understand the PPO contracts and the risks, and work with our clients to make sure they have the information they need to make informed choices. Whatever your PPO, we can help you understand how it works with a dialysis carve.

Find out how we can help manage your risks with proven dialysis claim repricing and the clinical outreach of our Kidney Dialysis Avoidance Program.