On a Friday morning in mid-June, a string of representatives from two national dialysis companies spoke for more than two hours at a virtual Hawaii Department of Health hearing to make their case about whether there’s a need for a new dialysis center in Kahului, Maui.

U.S. Renal Care argued that the growing prevalence of end-stage renal disease in Hawaii justifies approving their application to open a new center, part of a string of new clinics they’re opening statewide.

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Fresenius, which operates Liberty Dialysis, argued that a new center would pull patients away from their existing Maui Lani dialysis clinic. That clinic funnels its profits to rural dialysis clinics, thus any change in its profitability could potentially threaten existing care for rural patients.

Fresenius is one of only two companies currently offering dialysis on Maui. The second is Kaiser, which did not oppose U.S. Renal Care’s application. U.S. Renal Care has been aggressively seeking to open new clinics statewide, hoping to double its Hawaii dialysis centers by 2023.

For the players involved, the Zoom hearing followed a familiar cadence. Similar arguments have been expressed time and time again at numerous hearings, a key part of Hawaii’s health care regulations that for decades have required state approval before new large health care facilities can be built.

U.S. Renal Care Beretania Dialysis.
U.S. Renal Care has been aggressively entering the Hawaii dialysis market despite long-time dominance of Fresenius, which operates Liberty Dialysis. Cory Lum/Civil Beat/2022

It’s a process called “certificate of need” that’s common in the eastern U.S.  Thirty-five states have some sort of certificate of need laws on the books, but the pandemic has fueled a pushback against the laws due to the sudden need for more health care infrastructure.

Federal policies fueled widespread adoption of certificate of need requirements in the 1970s. But since the federal government ended its financial incentives in the 1980s, fewer and fewer states have kept them on the books. Hawaii is one of six states in the West with such laws.

Rep. Ryan Yamane led an unsuccessful push to exempt dialysis centers from Hawaii’s certificate of need requirements last year. He said that at the time, he hoped it would improve access for patients.

“I was hearing a lot of complaints about the lack of those resources in our communities,” he said, including from one patient who could only find a dialysis appointment at 11 p.m. “I thought we had a really good chance at passing the measure.”

Lots Of Hoops

Yamane wasn’t wrong to be optimistic. The measure made it all the way through the final period of legislative negotiations and was actually scheduled for a final vote, when it was suddenly recommitted back to conference — Hawaii legislature parlance for effectively killed.

Part of the reason was opposition from dialysis companies like Fresenius and U.S. Renal Care. Pliny Arenas, who oversees the Hawaii centers for U.S. Renal Care, said he supports certificate of need requirements because they help ensure that only legitimate companies are entering the health care space.

Opening a dialysis center isn’t easy and requires a lot of resources, he said. Without the current regulations, dialysis clinics might open up, attract patients, then shut down suddenly because they’re not prepared or resourced for the long run.

But there’s a flip side to that as well, with the current system delaying the opening of new centers and making it easier for monopolies and oligopolies to flourish.

The recent hearing was U.S. Renal Care’s effort to enter the Maui dialysis market — its second attempt since its Wailuku application failed to overcome Fresenius opposition last year. The state is expected to decide on whether to approve the new Kahului application by mid-July.

At a minimum, the certificate of need mandate adds several months to the process of opening a new dialysis center: 30 days for the state to review the application, 30 days to schedule a hearing, 30 more for a final decision. Sometimes, the process adds years.

Back in 2020, U.S. Renal Care tried to open a clinic in Hilo but was denied after Fresenius opposed the application.

In its ruling, the Health Department cited testimony from Fresenius saying that in the face of the health care staffing shortage on Hawaii island, the proposed clinic would “further dilute Hilo’s health care personnel resources and directly impact the quality of health care services for the entire community.” In other words, because there aren’t enough health care staff in Hilo, it doesn’t make sense to open up another health care facility.

That reasoning came as a shock to U.S. Renal Care, which applied again addressing the workforce concerns and got approval. But now the Hilo clinic that was supposed to be open last summer won’t be up and running until 2023.

Sometimes, getting approval from the state is only part of the battle. When Kaiser got the green light to open its Rainbow Dialysis center on Maui, Liberty Dialysis sued to prevent the opening of the center.

The state’s recent approval of a new dialysis center — a joint venture between Satellite Healthcare, Queens and HMSA — prompted another lawsuit from Fresenius, this time against the state seeking to overturn the decision. Neither lawsuit was successful.

Jocelyn Saccamago, regional vice president for Fresenius in Hawaii, said the company has supported many past applications for dialysis centers from competitors when it saw a need.

“The regulatory process in Hawaii simply ensures a level playing field for all competitors, evaluating each application on the specific needs of that local community,” she said.

Kalani Pagan receives dialysis during a 5-week training on how to use the machines with registered nurse Linda Tsui RN looking on. The process takes a little under 3 hours.
In-home dialysis is becoming a more popular option in Hawaii. Cory Lum/Civil Beat/2022

Access To Care

The Maui application that’s sitting before the State Health Planning and Development Agency, which is attached to the health department, is yet another fight.

Jennifer Ontai, an attorney for Fresenius, testified that the application should be denied because patient growth isn’t expected for in-center dialysis. Instead, patients are expected to flock to in-home dialysis, which is growing more popular in Hawaii. She also addressed the issue of access.

“The state plan explicitly distinguishes access from convenience,” Ontai said. “Therefore, the argument that more stations will be more convenient for certain residents should not be considered a benefit when evaluating whether the proposal truly improves accessibility.”

Still, for many patients, that convenience is a huge part of making their lives better despite the long hours they spend getting their blood filtered.

“It’ll be ideal for all rural residents on Maui County,” John Pahawai, a Maui resident, said of the proposed center. He has been on dialysis for 18 years.

When his dad was living in Haiku in the 1980s, he’d drive 45 minutes to Wailuku for dialysis. When his mother was on dialysis in the 2000s, she made the same long drive. A Kahului center wouldn’t have cut that commute by much, but Pahawai testified that the new center is something Maui residents like himself have been wanting for 25 years.

“When you have rural areas where you don’t have a lot of health care you don’t want to provide a lot of additional barriers to entry, especially when they’re not needed.” — Timothy Halliday

The question of whether certificate of need policies are beneficial to patients has been studied a lot, but several studies suggest the answers still aren’t clear cut. One 2020 analysis reviewed 90 studies of certificate of need programs. The researchers’ results were mixed.

“Our cost-effectiveness analysis estimates that the costs of CON laws somewhat exceed their benefits, although our estimates are quite uncertain,” they wrote. “The literature has not yet reached a definitive conclusion on how CON laws affect health expenditures, outcomes, or access to care.”

Timothy Halliday, a health economist at the University of Hawaii, says the evidence he’s seen indicates limiting competition in dialysis markets can worsen patients’ likelihood of getting transplants.

“The existing evidence for dialysis facilities shows that when you have market concentration — which you have in spades in the dialysis market in Hawaii and elsewhere — everything that’s bad about monopolies happens,” he said. “Prices go up, quantities go down and quality is worse.”

Limiting Competition

More states seem to agree and are moving away from the requirement, with the support of guidance issued by the Federal Trade Commission during the Trump administration.

So far Hawaii isn’t going in that direction — and in fact, there may be appetite to go the opposite way. The year before Yamane’s bill died, another proposal was briefly considered: a bill to give existing hospitals and dialysis centers the “right of first refusal” if a competitor wanted to open up a new center where they’re operating. The measure didn’t last long.

But there are other options besides getting rid of the certificate of need requirement entirely.

The National Conference of State Legislatures reported that states like Maine and Oregon have exempted rural hospitals from the certificate requirement, in recognition of the need for more services in rural areas. Washington also made the change in 2020.

Georgia got rid of application fees for rural health providers. The southern state also doesn’t allow competitors to object to certificate of need applications, a law that’s been in place since 2019.

Halliday thinks such reform make sense.

“When you have rural areas where you don’t have a lot of health care you don’t want to provide a lot of additional barriers to entry, especially when they’re not needed,” the UH economist said.

He said certificate of need laws make sense for some facilities with specialized equipment, but that competitors shouldn’t have a say in their determination.

“It is ridiculous that an incumbent has leverage over who enters their market,” he said. “These decisions should be made by an objective board, not captured by people who are making money from that market.”

This story was produced with support from the USC Annenberg Center for Health Journalism’s 2022 Impact Fund for Reporting on Health Equity and Health Systems, and Civil Beat supporter Dr. Mary Therese Perez Hattori.

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