Yesterday, Governor Gavin Newsom signed into law AB290 which regulates commercial insurance coverage of dialysis services.The bill would do the following important things:
- Require reporting to health plans of third-party payments for premium assistance
- Require an outpatient dialysis facility to post notice in a large font type informing patients about the Insurance Counseling and Advocacy Program and prohibit a dialysis facility from steering, directing or advising a patient regarding any specific coverage program option or health care service plan
- Eliminate grandfather status for dialysis patients enrolled on or after Oct. 1, 2019 in a plan supported by a charity assistance program; patients subsequently enrolled will trigger the reimbursement provisions of the bill
- Beginning Jan. 1, 2022, a large dialysis provider that makes payments to the American Kidney Fund or has a financial relationship with an entity making third-party premium payments to a health plan on behalf of an insured will be paid the higher of Medicare reimbursement or an independently arbitrated rate for in-network provider. For out-of-network providers, the dialysis provider will be paid the lower of an independently arbitrated rate or the out-of-network rate
- Effective Jan. 1, 2022, patient cost-sharing will be based on the amount paid by the health plan and prohibits billing to patients any amount other than cost-sharing under the terms of the plan.
We covered the various provisions of the bill in detail in this note.
The Street has taken comfort in the effective date of the bill. After all, a lot can happen between now and 2022. However, we believe many analysts fail to appreciate the impact certain immediately effective provisions will have on third party premium support in California and beyond. Specifically, the bill prohibits steering of patients to any specific coverage option. As the Florida Blue lawsuit makes clear, and the AKF's disclosure on commercial insurance enrollment suggests, DVA's patients are probably getting some help navigating complex insurance options. With AB290, that will end.
We think the Street also under appreciates the reporting requirements.Several insurers who provided information to the California Legislative Analyst's Office indicated that third party premium support violates their conditions of coverage. However, the insurers are unable to identify which enrollees are getting premium assistance from AKF so they simply pay the bills when they arrive. While we believe the legislative text is a little confusing regarding the effective date of the reporting requirements, the AKF appears to be interpreting it to be Jan.1, 2020. For that reason, they have pledged to withdraw from the California market effective on that date.
Finally, we are somewhat skeptical of the impact of AB290 as quantified by DVA management. Since early 2018, they have cited a top line figure of $25MM to $40MM. Based on sell-side comments on earnings calls, the prevailing assumption appears to be that DVA's share of California dialysis patients is in line with the national figure of 35-40%. According to CDC data, there are 71,000 Californians with ESRD. Of this amount 21,000 have a functioning transplant. Of the remaining 50,000 patients, 16,200 receive dialysis at an FMS facility, according to the California Legislative Analyst's Office. Approximately 10,000 receive treatment at a facility not owned by FMS or DVA, according to CMS data. The balance, approximately 23,800 or 48% of patients are on the DVA census.
In addition to having greater exposure in California than many expect, the $25MM to $40MM figure does not appear to line up with previously disclosed commercial reimbursement rates. FMS disclosed to the California Legislative Analyst's Office that their commercial reimbursement rates were approximately twice the average Medicare reimbursement rate of $325. In its disclosures to the SEC, DVA suggests a commercial reimbursement rate of about $862. Using FMS's figure at the low end and DVA's at the high end, the total impact of AB290 appears to be somewhere between $90MM and $147MM or around $43MM to $70MM for DVA.
Of course, the top line impact is only part of the problem. DVA's heavy dependence on commercial reimbursement for its margin means even the smallest adjustment in commercial reimbursement can have an outsized impact.
We suspect that AB290 is not the last word on this issue. The AKF must wrestle with certain anti-discrimination provisions in the OIG's 1997 safe harbor opinion that are complicated by its decision to exit California. Other states, including Oregon and Illinois are looking at similar legislation. The SEIU, emboldened by this victory is likely to take their show on the road and promote ballot measures and legislation in other union dominated states.
And there is the small matter of related federal rulemaking under consideration at the White House...
Call with questions.
Emily Evans
Managing Director – Health Policy
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