The Source Blog

On Tuesday, April 7, 2026, the 9th U.S. Circuit Court of Appeals struck down key provisions of California’s Assembly Bill 290 (2019), a law that capped the reimbursement rates dialysis providers could collect from private insurers for patients receiving premium assistance from charitable organizations and required related patient disclosures. The court held that the reimbursement cap and disclosure provisions violated the First Amendment by burdening the American Kidney Fund's right to associate with dialysis providers DaVita and Fresenius, and that California had not narrowly tailored the law to its asserted interests in protecting patients and preventing distortion of the insurance risk pool.

The dialysis market is nearly a duopoly, so the big chains possess significant leverage to negotiate favorable rates with private insurers.  This enables charitable premium assistance schemes where providers fund third-party organizations to pay for patients' private insurance premiums to steer patients away from lower-reimbursement public programs and into higher-reimbursement private plans.  California’s enactment of AB 290 was a strategic intervention designed to curb these financial incentives and a necessary check on market consolidation, ensuring that charitable assistance remains a genuine tool for patient access rather than a mechanism for driving up healthcare costs.  The decision in this case is a major setback for these efforts.

The Unusual Market for Dialysis Providers

There are several aspects to the dialysis market that make it unique, and in great need of reform:

• Extreme concentration with documented monopoly pricing. Two companies, Fresenius and DaVita have significant market power in dialysis clinics, with recent data showing the national share of facilities owned by these two at 77.1%. In 2019, 5% of the national population lived in areas without access to a dialysis facility other than  one of the big two, and markets with access to only one of the large chains had $495.08 higher mean commercial prices for outpatient hemodialysis and $564.56 higher medical director compensation per patient.
• Demand is inelastic and patients cannot meaningfully shop. End-stage renal disease patients require dialysis multiple times per week to survive and typically cannot travel beyond the nearest facility, eliminating the consumer substitution that competitive markets rely on to discipline price.
• Consolidation occurred largely outside antitrust review. Most of the acquisitions that produced the current duopoly fell below Hart-Scott-Rodino reporting thresholds and were not reviewed by federal antitrust authorities. The combined chains acquired roughly 1,425 facilities between 2005 and 2019, building national market power through serial sub-threshold transactions that the standard merger review framework was not designed to capture.
• Vertical integration with referring physicians compounds the problem. Vertical integration between physicians (especially nephrologists) and dialysis clinics is common in the U.S. dialysis industry and often involves the alignment of ownership, management, or contractual relationships between the physician and the facility where care is administered. Nearly 20% of dialysis clinics have some form of joint venture or shared ownership between physicians and dialysis facilities.
• Distorted payer mix and steering further insulate prices from competitive pressure. Commercial insurers pay several multiples of Medicare rates for dialysis — first-year spending averaged roughly $238,000 for commercially insured patients compared with $80,500 for Medicare patients. The share of dialysis patients on commercial plans rose substantially over the past two decades. Provider donations to charitable premium-assistance programs that fund private coverage for some patients have been alleged to channel patients toward the higher-paying payer, with the resulting reimbursement flowing back to the same providers.

American Kidney Fund Assists Dialysis Patients to the Benefit of Large Dialysis Providers

Patients who require regular dialysis may have their healthcare costs covered by Medicare or private insurance.  Research shows in 2017 commercial insurers were reimbursing DaVita at four times the rate of that public insurers like Medicare and Medicaid paid, and that the government reimbursement rate per treatment was below DaVita’s total expenses per treatment.  When patients with end-stage renal disease (ESRD) have private insurance, dialysis clinics benefit from higher reimbursement rates.  Insurers benefit when patients switch to public plans, but clinics benefit when patients remain on private insurance.

The American Kidney Fund (AKF) is a leading non-profit organization to support people with kidney disease, including providing financial assistance, education, and advocacy for those with chronic kidney disease.  AKF has a program to help ESRD patients pay their insurance premiums, which has come under fire with claims that it was being used as a tool by the major dialysis providers to steer patients into high-reimbursement private insurance plans rather than public ones.  According to case materials, in 2021, AKF gave premium assistance to over 70,000 patients nationwide, with over 3,000 in California.  AKF’s premium assistance helps those on private or public insurance – approximately 60% of California recipients are on Medicare.  The court ruling notes that giant dialysis companies DaVita and Fresenius Medical Care are estimated to provide 80% of AKF’s funding.  To the extent patients use AKF assistance to remain on private insurance, DaVita and Fresenius benefit from the higher reimbursement rates that follow.

AKF premium assistance functions as the financing mechanism that monetizes the dialysis duopoly. The duopoly creates the ability to charge supracompetitive commercial prices, and AKF is the channel that ensures a steady supply of commercially insured patients to charge those prices to. Without the duopoly, the assistance program would be an unremarkable charity. Without the assistance program, the duopoly's commercial rates would still exist but would generate far less revenue because fewer ESRD patients would end up on commercial coverage.

California Steps In

California is among the states with the largest geographic concentration of dialysis clinics, due to population scale and some of the highest rates of end-stage renal disease.  In California, DaVita and Fresenius have spent tens of millions of dollars opposing various bills that "would have imposed staffing ratio requirements, mandated data transparency, and constrained certain reimbursement practices."

In October 2019, California enacted AB290.  The Governor’s message stated that the “bill removes financial incentives for providers to steer patients into specific health care coverage by providing that certain health providers, including dialysis clinics and substance use disorder treatment centers, be reimbursed at Medicare rates for services rendered to patients who receive premium assistance.”  Dr. Eugene Lin, an assistant professor of medicine at USC, has stated, “[t]he issue is that dialysis care is just significantly more expensive in the individual market, and it has to do with how consolidated the market has been allowed to become.”

The bill had certain provisions that were key to the lawsuit.  First, the law capped reimbursement to providers at Medicare levels if the provider had donated to a group like AKF.  Second, groups like AKF would have to release the names of patients they assisted with premiums to insurers so insurers would know who was qualified for the lower reimbursement rate.  Third, organizations like AKF would be prevented from conditioning aid on treatment eligibility.  Fourth, there was a requirement that assistance organizations inform patients of all insurance options, including Medicare and Medicaid.  While the bill is broadly written, it does state it is intended to set “forth standards governing the reimbursement of financially interested providers, including, but not limited to, chronic dialysis clinics.”

At the time, AKF said it would shut down operations in California if the bill took effect.

Court Ruling

Fresenius, DaVita, AKF, and a collection of patients brought suit against the state, challenging the constitutionality of five provisions of the California law.

The Ninth Circuit ruled that three of the challenged provisions violated the First Amendment and that the provisions could not be severed from the entire law, thereby invalidating it in its entirety.  The ruling held that the law unconstitutionally burdened AKF's right to associate with the dialysis clinics and patients, and that, although California has a legitimate interest in preventing distortions to insurance risk pools and protecting patients, the law was not narrowly tailored enough to pass muster.  According to the ruling, "The text eliminates AKF's ability to determine who its patients will be.  This burdens AKF's right to associate far more than would be required to fix the narrow problem of the abusive practices California cites.”

The requirement that AKF disclose the names of patients receiving aid to insurance companies was deemed unconstitutional, after the cap was struck down, as it leaves no surviving government interest without the Medicare price cap.

The Court did not overturn the coverage disclosure requirement, under which groups like AKF must inform patients of all insurance options, finding it compelling and uncontroversial and related to a legitimate interest in preventing consumer deception.  But since the unconstitutional sections were deemed unseverable from the entire law, this requirement will not survive either.

The Ninth Circuit also noted that AKF engages in lobbying, education, and charitable work, which the First Amendment generally protects.

Next Steps

For now, California returns to its pre-AB 290 ways.  DaVita released a statement saying, "[t]his decision is a critical protection for patients, defending their access to uninterrupted care."   But the concerns that provider-funded charitable premium assistance may be distorting private insurance (with resulting higher premiums) that the law intended to address will remain.  The Court's ruling suggests that California could address these concerns legislatively in a more narrowly tailored way, but it remains to be seen whether the state will do so.

 

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