There are two short, but informative, articles about hemodialysis in the February 17 issue of the New England Journal of Medicinehere and here. The first by the journal’s national correspondent, John Iglehart, outlines the various maneuvers  that Medicare is performing in an attempt to reduce costs. The second by Richard Retig from RAND gives a brief history of the end-stage renal disease (ESRD) program in the US.

Retig recounts how the first practical dialysis machine was invented in Nazi occupied Holland during World War II by Willem Kolf. It took less than 20 years for American physicians to adapt the machine so it was able to provide renal replacement therapy for an indefinite time to patients with endstage renal disease (ESRD). Obviously the cost of this treatment was beyond the means of almost all patients who needed it. After considerable study and lobbying congress extended Medicare benefits to patients with ESRD; this was in October 1972.

Forty years later there are close to 600,000 patients undergoing dialysis in the US at a cost of about $40 billion. About 70% of this is paid by the federal government with the remainder from medical insurance. But 100% of the rules are written by the federal government.

Iglehart describes the numerous attempts to contain cost that Medicare has employed. They’ve all failed. There has been the typical arms race that always ensues when the government assume financial responsibility for a service. The feds try to control cost with regulations while the providers devise ways to preserve their income. The providers typically win.

Iglehart is concerned, as are many others, that two publicly traded companies (DaVita and Fresinius) control two thirds of this market. He doesn’t seem bothered that one provider, CMS (Center for Medicare and Medicaid Services) effectively controls 100% of this market. I won’t get into the specifics of this issue as they are ably presented in these two articles. Before the CMS assumed the cost of dialysis it was rationed by committees that tried to assess which patients with ESRD were more worthy of treatment. It was a terrible system. We may be on the way back to a similar system.

The ESRD program in this country has been a medical success, but a financial disaster. The money spent on ESRD is far out of proportion to its frequency. CMS spends far more on it than it does on treating coronary artery disease. It would probably make far more sense for the government to give each patient with ESRD a voucher and let him obtain his own dialysis care. Prices would almost certainly fall if a market for this service was created, but this has as much chance of happening as General Motors releasing a perpetual motion powered car.

Of course the ESRD program is just part of a vast entitlement program that is on the road to fiscal ruin. What will most likely happen is that Mancur Olson’s conclusion that major systems can only be reformed after they collapse will prevail. Not a pretty prospect.