California Law Targeting Dialysis Centers Is Unconstitutional

Wednesday, April 8, 2026

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Ninth Circuit:

California Law Targeting Dialysis Centers Is Unconstitutional

Opinion Says Provisions Aimed at Eliminating Alleged Conflict of Interest in Scheme in Which Providers Donate to Charitable Groups That Steer Funds to Patients to Help Lower Costs of Services Violate First Amendment

By Kimber Cooley, associate editor

The Ninth U.S. Circuit Court of Appeals yesterday struck down as unconstitutional California statutes purportedly aimed at preventing dialysis providers from profiting from an alleged conflict-of-interest scheme in which the centers make charitable contributions to groups that offer premium assistance to help their patients secure insurance policies that pay out for the services they provide.

Saying that multiple provisions of the legislation, including a cap on the rate at which providers may be reimbursed by insurers if they make donations to charities that offer help with premium payments, violate the First Amendment by placing a burden on free association between the centers and the charitable groups that does not survive exacting scrutiny, the court declared that the offending sections are not severable and struck down the law in its entirety.

At issue is Assembly Bill 290, passed in 2019 based on legislative findings that dialysis providers had “demonstrated a willingness to exploit the Affordable Care Act’s” elimination of preexisting conditions as a basis for denial of insurance coverage “for their own financial benefit.” The bill, which was judicially blocked from taking effect, would have added sections to the Health and Safety Code and the Insurance Code.

Purportedly concerned that providers were making charitable gifts to encourage patients to choose private insurance, which reimburses the centers at a higher rate than Medicare, the legislation sought to level the playing field by capping recoupment numbers at the publicly funded level.

Among other provisions, the law would also require charities to disclose the names of patients receiving premium assistance and restrict the ability of such groups to limit payments to those choosing dialysis over other treatment options.

Circuit Judge Ryan D. Nelson authored the opinion, joined in by Circuit Judge Lawrence VanDyke, saying that the state failed to overcome the exacting scrutiny triggered by the law’s effect of burdening the First Amendment rights of the providers and the charities to expressive association. Then-Circuit Judge Sandra Ikuta, who died in December, participated in the Oct. 24 oral argument in Pasadena.

Yesterday’s decision was issued by a quorum of the panel under Ninth Circuit General Order 3.2(h).

Complaints Filed

The question arose after American Kidney Fund Inc. (“AKF”) and individual patients as well as an advocacy group, on the one hand, and two dialysis providers, Fresenius Medical Care Orange County LLC and Davita Inc., on the other, filed complaints against the state in November 2019, one month after Gov. Gavin Newsom signed the bill into law, seeking to enjoin enforcement.

AKF’s biggest donors are Davita and Fresenius, with one estimate suggesting that the centers account for 80% of the organization’s funding. AKF uses part of the donations to pay for its Health Insurance Premium Program (“HIPP”), which helps patients with end-stage renal disease (“ESRD”), whose kidneys no longer effectively filter blood, pay their insurance premiums if their monthly household income does not exceed expenses by more than $600.

Roughly 60% of California HIPP recipients maintain public insurance, and most patients continue with whatever coverage they had before they started receiving assistance. A party receiving dialysis has blood filtered through a machine multiple times a week.

In December 2019, District Court Judge David O. Carter of the Central District of California granted requests by each set of plaintiffs for a preliminary injunction, declaring that “AB 290, in its entirety, shall not come into effect pending the resolution of this litigation.”

After Attorney General Rob Bonta and each set of plaintiffs filed dueling motions for summary judgment, Carter ruled in January 2024 that an anti-steering provision, prohibiting dialysis clinics from directing patients to “any specific coverage program option,” and the patient disclosure rule violate the First Amendment but upheld the remainder of the bill as constitutionally permissible after finding that the offending sections were severable.

Each side challenged the order but Bonta did not dispute that the anti-steering provision violated constitutional principles. The cases were consolidated on appeal.

Reimbursement Cap

Saying that “AB 290 burdens Providers’ ability to charitably contribute,” Nelson opined that “we must decide whether Providers’ burdened charitable contributions to AKF are protected under the First Amendment, either as association or speech.” Noting that “AKF is an expressive association that engages in various protected activities, including educational and lobbying efforts on behalf of Americans struggling with” kidney disease, he wrote:

“But the First Amendment does not only protect the rights of expressive associations; it also protects the rights of donors to those expressive associations. Laws that ‘impose[] a widespread burden on donors’ associational rights’ are subject to ‘exacting scrutiny.’…Because the Reimbursement Cap effectively burdens Providers’ First Amendment right to donate to an expressive association, it triggers exacting scrutiny.”

Rejecting California’s attempt to distinguish the bill from other invalidated laws because the other cases involved a legislative intent to chill expression or implicated political contributions, he declared that intent is irrelevant and remarked:

“California incorrectly sees contributions as an all-or-nothing proposition—either a contribution is ‘primarily expressive,’ or it is ‘non-expressive.’ But, as California concedes, Providers’ donations are expressive at least in part and therefore qualify for expressive protection. That AKF is not a political campaign or association is irrelevant….[I]f expressive at all, the associational rights of AKF and Providers are not merely incidentally burdened. AKF has stated that it will have to cease operations in California if AB 290 takes effect, and Providers will largely stop donating.”

Having found that “exacting scrutiny” applies, he pointed out that “California defends two interests behind AB 290’s Reimbursement Cap—preventing unjust enrichment for Providers who donate to AKF and preventing insurance premiums from rising.”

Narrow Tailoring

Commenting that “California has not produced enough evidence to sustain the argument that AKF or Providers are steering patients” and that “the Reimbursement Cap is not narrowly tailored” to meet the concerns about rising premiums, he reasoned:

“California insists that AB 290 is a direct regulation on reimbursement rates. But AB 290 only targets providers who donate to charities like AKF. Had California simply dropped this burden on charitable contributions and capped reimbursement rates for ESRD patients at the Medicare rate…, the same effect might have been achieved without burdening Providers’ and AKF’s rights to association.”

He found that the patient disclosure requirement similarly fails to withstand scrutiny, as the only alleged interest in the provision relates to the reimbursement cap, and said that “California may not have as its stated interest the effectuation of an unconstitutional provision.” As to the restriction on charitable groups prohibiting the conditioning of assistance on any particular treatment plan, he said:

“AKF has a right to choose which patients to support. AB 290 directly interferes with that right.”

The court found other sections pass constitutional muster, such as a requirement that organizations inform patients of all available health care options, but declared that the offending sections are not severable, saying that “[t]o sever such a provision, it ‘must be grammatically, functionally, and volitionally separable.’ ”

Noting that “under the volitional severability prong, we must determine whether the California legislature would have passed the Coverage Disclosure Requirement as a standalone provision to advance the above-stated goals,” the jurist wrote:

“There is no compelling reason why a rational legislator would think the Coverage Disclosure Requirement, without its sister provisions, would do much to prevent steering from public to private insurance.”

The case is Fresenius Medical Care Orange County LLC v. Bonta, 24-3654.