Caught in the Cross-Fire: Patients, Doctors, DaVita, Amgen, and Medicare

The New York Times just published a report that raised intriguing questions about the biggest US commercial dialysis provider, and, its relationships with a large biotechnology company on one hand, and the US government's Medicare system, on the the other. These questions thus end up being about how the power of big business and big government intersect within US health care.

First, here is some background. In the US, nearly all dialysis for patients with end-stage renal disease (ESRD) is funded by Medicare, the government single-payer insurance system for the elderly and disabled. Yet nearly all such patients get their dialysis in commercially run clinics. We recently posted about allegations of anti-competitive practices by some of the companies that run such clinics.

The NY Times focused on another company, DaVita, "a leading provider of dialysis services."

1 - Who is really responsible for key clinical decisions made on behalf of dialysis patients in commercially run clinics?

This will require more background. Epogen (epoetin , manufactured by Amgen), combats the anemia that often afflicts dialysis patients. There has been recent controversy about whether physicians use the drug too aggressively, raising expenses, and possibly doing patients no good, and even harm. Moreover, Medicare pays for Epogen separately from other dialysis services, and allows clinics that administer it to mark up the price, making it a lucrative source of revenue. (See our related posts here, here and here.)

DaVita patients apparently receive a lot of Epogen.

How DaVita makes much of its money: by administering the drug Epogen to treat anemia in dialysis patients. DaVita receives more from Medicare and private insurers for providing Epogen than it pays to buy the drug from its manufacturer, Amgen.

DaVita treats about 106,000 patients in more than 1,300 clinics and appears to be the most aggressive Epogen user among major dialysis chains, according to the United States Renal Data System, a government-funded registry of dialysis data. Epogen accounts for 25 percent of DaVita’s revenue and up to 40 percent of its earnings, according to the Stanford Group Company, a research firm.

In the article, Kent J Thiry, DaVita's CEO, appeared to assume responsibility for the use of all this Epogen. Thiry took "issue with what he describes as unfair accusations that his company’s profits are built on a product that causes harm to patients." He then said "he would welcome a well-designed change in the reimbursement system to eliminate perceived incentives to overuse Epogen, which is commonly referred to as Epo. 'Do that tomorrow so we get rid of the taint,' he said. 'We’re still going to use the same amount of Epo.'

But how did Mr Thiry, described as a graduate of "Harvard Business School, ... [who] was a consultant at Bain & Company and then ran Vivra, a dialysis chain in Northern California," become so confident about the reasons DaVita patients get so much Epogen? He is not a doctor. He said "DaVita did not overuse Epogen. He said decisions on how much to use are made by patients’ physicians."

Then how could he be sure how these physicians would prescribe in the future?

Maybe it is because "DaVita does have a central protocol to advise doctors on dosage."

So just how much direct control DaVita physicians have over their own prescribing, versus how much they must toe the company line is unclear.

2 - Are prescribing decisions affected by conflicts of interest?

Dialysis clinics lose money on the fee paid by Medicare for a dialysis treatment because the payments haven’t kept pace with inflation. Yet industry executives say the clinics can typically recoup those losses by getting reimbursed for Epogen and other drugs.

Government officials “understood they were subsidizing the cost of dialysis by allowing us to make a profit on the drugs,” said Dr. J. Michael Lazarus, chief medical officer of Fresenius [another commercial dialysis provider].

Amgen offers discounts and rebates to dialysis companies based, in part, on how much Epogen they use and how much that use increases year to year. DaVita says in regulatory filings that failure to qualify for such discounts could have a 'material adverse effect' on the company’s earnings.

Mr. Thiry declined to comment about Amgen. But in previous comments to reporters and analysts, he has accused Amgen of 'abuse of monopoly power' and has said that Washington would not care as much about Epogen if the price were lower.

In a letter to Amgen in February 2006, DaVita protested terms of a new contract, saying it would face huge financial penalties if it didn’t increase usage of Epogen by 4 percent.

What sense did the contract with Amgen make if DaVita has no control over the amount of Epogen its physicians prescribe? But did the structure of contracts between DaVita and Amgen put pressure on the company to in turn pressure its physicians to prescribe more Epogen? Did this amount to a conflict of interest? Did DaVita patients know that the company's profits were tied to how aggressively their physicians prescribed?

The NY Times has provided a disturbing look into how corporate motives intrude into the patient-physician relationship, and how this intrusion was apparently facilitated by how the US government's single payer health insurance system, Medicare, works. The end results seems to be patients and physicians caught in the cross-fire between a commercial dialysis provider, a biotechnology company, and the US government.