Court upholds controversial dialysis law

Published On: Jan 10 2013 05:00:08 PM EST
TALLAHASSEE, Fla. -

A federal appeals court Thursday upheld the constitutionality of a heavily lobbied 2002 law that prevents Florida doctors from referring kidney-dialysis patients to labs in which the doctors have financial stakes.

National dialysis-clinic companies Fresenius Medical Care Holdings, Inc., and Davita, Inc., along with a Davita subsidiary, challenged the restrictions, arguing that they conflicted with a federal law and were aimed politically at helping a Florida laboratory firm.

But the 11th U.S. Circuit Court of Appeals issued a 23-page ruling that upheld the law, which the state contends was designed to help hold down health-care costs and prevent over-utilization of services and conflicts of interest. The three-judge panel agreed with a lower court that, among other things, the law did not discriminate against Fresenius and Davita and didn't violate their constitutional rights.

"Because it is reasonably conceivable that Florida ESRD (end-stage renal disease) patients would be better served if their physicians were prohibited from making self-referrals to associated laboratories, we conclude that the Florida act survives rational basis scrutiny and that the law does not deprive appellants (Fresenius and Davita) of their rights to substantive due process,'' part of the ruling said.

The Legislature in 1992 passed a law that barred most physicians from sending patients to labs in which the doctors had financial interests, but the measure included an exemption for physicians in the dialysis industry. That was similar to a federal law that applied to physicians who treated Medicaid and Medicare patients.

During a 2002 special legislative session, however, Florida lawmakers eliminated the exemption for physicians in the dialysis industry. The move, which was included in a broader health-care bill, came after a lobbying battle in the industry.

Fresenius and Davita, which filed the lawsuit in 2003, argued the change would harm what court documents describe as a "vertically integrated" business model, which would allow them to refer blood work to associated labs after patients receive dialysis at their clinics.

The lawsuit contended that the restrictions were unconstitutional, in part, because the federal law trumps state law. Also, it said the restrictions improperly discriminated against out-of-state companies that had "vertically integrated" business models and that the change was motivated politically to help a Florida firm, identified in court documents as ESRD Laboratories.

"In fact, the Florida act benefits ESRD Laboratories by diverting laboratory work from appellants, helping the domestic company obtain a larger share of the market for laboratory services,'' Fresenius and Davita attorneys wrote in an appeals-court brief.

But state attorneys countered in a brief that nothing in the law prevents the companies from operating in Florida and that it does not discriminate against out-of-state firms. Also, the state argued lawmakers have the legal latitude to make such changes if, for example, they believe physician self-referrals to laboratories would increase health costs.

"If indeed plaintiffs' claims are rooted in fact, and if indeed the Legislature's assumptions are fallacious, plaintiffs have remedies in both Congress and the Florida Legislature,'' the state brief said. "But for now, they have not even shown the Florida self-referral law, insofar as it might affect their laboratories, has had any impact at all."

The appeals court made similar conclusions about issues such as whether the law discriminated against Fresenius and Davita.

"Although the burden at present falls solely on appellants, and although they may no longer enjoy certain competitive advantages over an in-state competitor, the Florida act does not inhibit the competitive, interstate market for the provision of renal dialysis clinical and laboratory services,'' the ruling said. "Out-of-state businesses may freely enter the market to operate clinics and laboratories in Florida so long as they comply with the Florida act's prohibition against physician self-referrals."