Cross posted from [billpeckham.com](http://www.billpeckham.com/)
Dialysis nanotechnology forum, video 3
On Saturday I wrote The future of dialysis: T and G membranes about CIMIT’s forum: Quest for a Wearable Kidney: Will Nanotechnology Make a Difference? . The forum is broken up into five video segments; I thought this week I would review one video segment a day. On Monday video one CKD overview video: Dr. Bonvertre. Tuesday video two Dialysis: a future with nanotechnology. Video three (about 23 minute run time) looks at the business side of improving the provision of dialysis.
Greg Erman, MBA, Serial Entrepreneur and former President & CEO, Renalworks Medical Corporation is featured in video three. He goes over the business challenges of bring a continuous mode of dialysis to market. He is speaking from a private equity perspective, a venture capital perspective. This is a critical point of view since funding is required to bring any product to market. However, I was surprised that his presentation missed many of the ESRD program’s funding subtleties.
He starts with the premise that Medicare spends on average $100,000 a year per dialysis patient. That’s not the number. Medical expenses for all dialyzors form a bi-modal distribution. There is the average cost for people that are Medicare primary and another average cost (much higher) for people with private insurance primary. The United States Renal Data System publishes Medicare’s dialysis cost data. The 2005 data is available here (pdf link). There is a lot of detail available.
From USRDS table K2: Total Medicare cost for ESRD (dialysis and transplant) is 19.3 billion dollars in 2005: total outpatient 7.15 billion (almost all dialysis); total inpatient 6.96 billion (transplant and dialysis); total physician/supplier 4.1 billion (transplant and dialysis, includes post transplant medications). 75% of the people on dialysis have this cost profile (remembering that Medicare pays 80% so total medical cost per Medicare primary patient would be 125% of Medicare expenditures).
On the per patient per year level it’s $24,000 outpatient, $20,000 inpatient and $14,000 physician/supplier. To get to that $100,000 per patient average for the whole program you can work backwards to calculate the average cost to private insurers to support someone who is on dialysis. With just 10% of the patient population their average cost would be on the order of $300,000 with the about the same distribution among inpatient, outpatient and physician. A classic bimodal distribution with very few people in between the two modes.
The problem from the equity perspective is that you have to work under the Medicare cost structure. The private pay cost structure is far more generous but Medicare is the ESRD rule setter in the United States. Many products could thrive under the private reimbursement constraints but in the US it has to work under the Medicare reimbursement framework. Instead of $100,000 the relevant number is Medicare’s share of the their beneficiary’s cost, a more modest $55 -$60,000 for those not in skilled nursing facilities.
One thing that Mr. Erman said that was wrong and offensive was his description of the ESRD program under Medicare as “the last social welfare program left in the country for healthcare. Anybody is entitled to get covered for dialysis if they lose their kidney function.” Medicare is insurance. It is not means tested, you earn it through working enough quarters. If you don’t have the quarters of paid employment (and therefor the quarters of paying FICA taxes) you don’t qualify for the Medicare ESRD program. True it is subsidized insurance but Erman mischaracterizes the program.
Beyond implying that dialyzors are uniquely on the dole he states that dialyzors are “very suicidal” and “a large percentage of patients are suicidal”. Now it is true that depression is a problem in many chronic illnesses but it is wrong to imagine that dialyzors need to be on a suicide watch. Depression can be a consequence of Chronic Renal Under Dialysis and/or untreated anemia but I haven’t seen data to suggest “a large percentage of patients are suicidal”. Mr. Erman seems to take this as a given and a reason why NxStage and other healthier home modalities don’t have more adopters.
Australia and New Zealand have much higher adoption rates of home hemodialysis (13%) and peritoneal dialysis (25%) than the US. Her in teh US the Northwest Kidney Centers in Seattle has 5% on home hemodialysis and 9% on PD. Obviously there is something else generally preventing people in the United States from adopting home therapies. Home Dialysis Central works hard to promote home therapies, compiles and studies the barriers to going home and being suicidal is not on the list.
Another point Erman makes is that unlike cardiovascular patients, dialysis patients don’t offer savings from fewer hospitalizations. That was a surprise to hear. The USRDS data shows that Medicare spends nearly as much on inpatient ESRD procedures as it does on outpatient procedures. Looking at the sample Dialysis Facility Report the national average number of days in the hospital per admission for people on dialysis is 8.1 days. On average dialyzors spend 16 days a year in the hospital. A significant number of those admissions are due to access issues but over half are for something else.
The problem isn’t that there isn’t money to be saved it’s that because of the artificial accounting wall between Medicare Part A and Medicare Part B savings on hospitalizations can not pay for additional Part B dialysis. The problem is not with the dialyzors. I think the problem is that our system of venture capitol funded innovation does not work when it comes to a condition dominated by Medicare. The difference between the cardiac market and the dialysis market isn’t based on the personalities of the patients and doctors, the difference is due to the funding models.
Venture capitalists look to replace labor expenses with technology expenses. I believe on average a dialysis patient consumes 5 to 10 hours of labor a week. How many hours of labor would continuous dialysis consume a week? Currently home therapies like NxStage have an economic model that depends on labor savings. The bigger pot of money to be saved would be in hospitalizations but for Part A spending to enter the calculus it would require a change in DC.