SIC 8092
KIDNEY DIALYSIS CENTERS



This industry consists of establishments primarily engaged in providing kidney or renal dialysis services. Establishments operating as clinics of physicians are covered in SIC 8011: Offices and Clinics of Doctors of Medicine.

NAICS Code(s)

621492 (Kidney Dialysis Centers)

Industry Snapshot

An aging population and a growing health care sector were reflected in the continued growth of the dialysis center industry, which is composed of approved independent and hospital-based or affiliated facilities. All kidney dialysis centers are regulated and subsidized by the federal government, which grants exclusive licenses to providers to supply long-term dialysis within a designated territory. The facilities are reimbursed through the Health Care Financing Administration (HCFA) with Medicare funds.

As in many other sectors of the economy, trends toward mergers, acquisitions, and nationwide chains influenced the growth of this industry. Investors have grown increasingly interested in this area, attracted by an increase in revenues of nearly 190 percent during the 1990s.

Background and Development

The process of dialysis was invented about 1854 by a Scottish chemist named Thomas Graham, who would later become the first to employ dialysis to prolong life. The procedure was not widely used until after 1945, when Dr. Wilhelm Kolff used it to save the life of a patient in active renal failure, demonstrating that the process not only could prolong life for a short time, but could actually increase survival rates for renal failure.

Most users of dialysis in the late twentieth century were victims of end-stage renal disease, which requires either dialysis or transplant for survival and is not reversible. Two kinds of dialysis are used: hemodialysis and peritoneal dialysis. Hemodialysis is generally performed three times a week in two-to four-hour sessions, removing waste though an artificial kidney machine outside of the patient's body. Peritoneal dialysis uses the peritoneum, a membrane in the abdomen, to remove the waste, using a procedure that can be performed at home by the patient. The amount of patients receiving peritoneal dialysis is expected to increase, as it is a cost-saving measure that keeps patients out of the hospital. By the end of the 1990s, however, the technology for peritoneal dialysis was not sufficiently advanced to allow all patients to use it, particularly those with severely impaired renal function. In 1999, less than 15 percent of kidney patients were treated at home.

Since 1972, the number of chronic dialysis patients has increased a hundredfold. In 1996, an estimated 214,000 Americans received dialysis. The HCFA predicted that the number of these patients will increase by at least 9 percent per year. HCFA reimbursements accounted for the majority of payments to kidney dialysis centers. Scarcity of funds caused the federal government to cut back on its reimbursement rates, making it difficult for many hospital-based centers to keep operating. Some hospitals have responded by referring patients to free-standing centers.

In the mid 1990s, however, that cost-cutting proved deadly. A National Kidney Foundation report published in 1995 found that American dialysis patients faced a much higher mortality rate than dialysis patients in other countries. Figures for 1992 showed that nearly 24 percent of U.S. dialysis patients died, compared with a mortality rate of 9.7 percent in Japan, 10 percent in Germany, and 11 percent in France. Because cost incentives built into the system may have limited dialysis treatment times and frequency, and the reuse of supplies, the number of end-stage renal disease patients — and mortality rates — went up. The for-profit nature of dialysis centers seemed only partially to blame. The National Kidney Foundation study found that cost-cutting in the form of poorly trained staff and inefficient use of dialysis machines also seemed to be a factor in the 45,000 American deaths. As Dr. Neil Kurtzman told the Journal of the American Medical Association, "The government pays for visits to a facility. We believe it should change this and pay for the actual care a patient receives."

A campaign was launched in 1995 by the National Kidney Foundation to improve patient care at dialysis centers and decrease deaths. The licensing of a new, relatively lightweight, and easy to use home-dialysis machine was also expected to bring changes to the industry.

Current Conditions

The number of patients receiving kidney dialysis in the United States was expected by some analysts to hold steady at close to 214,000, given the increasing number of kidney transplants being performed and the expectation of improved transplant success in the future. The HCFA, however, predicted in 1996 that the number of patients would continue to grow at the rate of 9 percent annually until at least 2001, and possibly until 2006. The aging of the American population was also expected to contribute to an increase in patients. In 1999, the United States was the world's largest market for kidney dialysis, followed by Japan, the rest of Asia, and Latin America.

A treatment trend of the late 1990s was daily hemodialysis. Estimates suggest that in 1998, 12 centers worldwide were providing daily treatments for more than 100 individuals with renal failure. This treatment plan was not for the general public, however; at that time, such frequent treatments were not covered by Medicare, which paid for any patient with end-stage renal disease.

As an industry, kidney dialysis centers grew steadily throughout the 1990s, from revenues of $1.45 billion in 1990 to $3.38 billion in 1996. Projected revenues for 1998 were $4.19 billion, reflecting a growth of nearly 190 percent. Employment in this industry, like many other health care industries, was also forecast to increase significantly. Most positions—such as nurses, physicians, and lab technicians—were expected to increase by close to 50 percent by the year 2006. Rapid increases in employment opportunities have made adequate training a problem for the work force in this industry.

Growth of individual businesses has been limited in some areas by the requirement for a Certificate of Need (CON). The certificate demonstrates that "the communities they're targeting for additional dialysis services need more service, that their proposed projects are the best way to meet those needs, that they're financially feasible and that they will deliver high-quality service," according to a 1997 article in the Puget Sound Business Journal. This system has tended to favor smaller, local, or nonprofit businesses already in place at the expense of national or worldwide firms seeking to expand their territory. Larger companies have complained that the regulation is anticompetitive. Some states have phased out this requirement. In Ohio, prior to the elimination of the CON rule, the state foresaw a need for 40 new dialysis stations. Once the rule was lifted, 571 new ones were added. Current dialysis providers in Washington fear the frenzied competition created by lifting the CON rule will drive several existing companies out of business, particularly independent providers.

Industry Leaders

As of 1998, the largest companies in this industry, ranked by sales and number of employees, were Fresenius National Medical Care, Gambro Healthcare Inc. (with its subsidiaries COBE Laboratories Inc., Vivra Inc., and REN Corporation), and Total Renal Care.

Fresenius National is the U.S. subsidiary of Fresenius Medical Care, based in Germany. In 1998, Fresenius National reported $2.2 billion in sales—a figure that also reflects its interests in home health care service and other medical products, although in mid 1998 the company sold off its U.S. holdings not related to its core business of kidney dialysis. In 1999, Fresenius claimed to serve 23 percent of dialysis patients in the United States. In the late 1990s, Fresenius was the subject of two major lawsuits charging false claims; the company settled in both cases without acknowledging any wrongdoing.

Gambro Healthcare posted $1 billion in sales in 1998, and its subsidiaries also did well: COBE Laboratories reported $1.7 billion in sales; Vivra, $517 million, and REN, $132 million. Gambro acquired Vivra in 1997, making the company second only to Fresenius as a worldwide provider of dialysis products and services. In 1999, Gambro announced plans for a joint venture with Baxter Healthcare, a pioneer in hemodialysis technology. Baxter created the first commercial artificial kidney machine in 1956 and was also a leader in developing home-based dialysis products. Gambro also announced plans to reorganize the company significantly in 1999, possibly selling COBE Labs and consolidating worldwide operations by moving offices from Sweden into its Colorado headquarters.

Gambro's closest competitor for second place was California-based Total Renal Care, which acquired Renal Treatment Centers Inc. in 1997. Total Renal Care Holdings Inc. claimed $1.2 billion in revenues for 1998. Total Renal Care stock was popular with investors until mid 1999, when its CEO and chief financial officer both stepped down and the company posted a second-quarter loss of $21 million. The interim CEO blamed a billing backlog—uncollected moneys from both patients and hospitals—for the financial setback.

Further Reading

Donahue, Ann. " Total Renal Care Seeks to Reassure Troubled Investors." Los Angeles Business Journal, 23 August 1999.

"Fresenius Reaches Settlement with U.S. for Medicare Billing." The Wall Street Journal, 18 May 1999.

"Home Dialysis Makes Patients Independent." USA Today, February 1996.

Medical and Healthcare Marketplace Guide. Philadelphia: Dorland's Biomedical, 1999-2000.

Neurath, Peter. "Kidney Centers Rekindle Certification Debate." Puget Sound Business Journal, 28 November 1997.

Plunkett, Jack W. Plunkett's Health Care Industry Almanac 1999-2000. Houston: Plunkett Research Ltd., 1999.

Service Industries USA. 4th ed. Farmington Hills, MI: Gale Group, 1998.

Snow, Charlotte. "Renal-Care Biggies Plan Merger." Modern Healthcare, 24 November 1997.

Taylor, Mark. "False Claims Suit Settled for $16.5 Million." Modern Healthcare, 21 June 1999.

"Total Renal Care Announces Appointment Of David Barry as President and Chief Operating Officer." PR Newswire, 26 January 2000.

"Total Renal Care Announces Estimated Fourth Quarter Charges." PR Newswire, 19 January 2000.

"Vivra Stock Falls on News of Federal Investigation." New York Times, 28 December 1996: 41.

Ward's Business Directory of U.S. Public and Private Companies. Farmington Hills, MI: Gale Group, 1996.



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