Seeking to control healthcare costs, many group health plans have adopted amendments that lower reimbursement rates for the treatment of end-stage renal disease ("ESRD"), which requires long-term dialysis treatment or a kidney transplant, resulting in higher-than-average medical expenses. In several recent lawsuits, large dialysis providers have challenged these amendments, contending that they result in violations of the Medicare Secondary Payer Act.

The Medicare Secondary Payer Act ("MSPA"), provides that employer-based group health plans must act as the primary payer for an individual's dialysis treatment during the first 30 months in which the individual is eligible for Medicare based on ESRD. According to 42 U.S.C. 426-1(b)(1), an individual with ESRD becomes eligible for Medicare on the first day of the fourth month of dialysis treatment, but many working-age individuals with ESRD also have employer-based coverage under a group health plan. In 1980, Congress enacted the MSPA, 42 U.S.C. §1395y(b), which requires that Medicare act as the secondary payer and employer-based coverage act as the primary payer for all dialysis treatments provided during the first 30 months in which an individual is eligible for Medicare due to ESRD.

The MSPA contains several provisions intended to ensure that employer-based plans pay on a primary basis for the duration of the 30 month "coordination period." The MSPA's private right of action allows for suit against a group health plan if: a) the plan fails to make a primary payment due under the MSPA; and b) Medicare then steps in and makes a payment that the primary plan was required to make. 42 U.S.C. § 1395y(b)(3)(A).

Additionally, the MSPA forbids employer-sponsored plans from discriminating on the basis of whether an individual with ESRD has Medicare coverage. Specifically, under the MSPA's "take into account" provision, a "group health plan … may not take into account that an individual is entitled to or eligible for benefits under" Medicare due to ESRD during the coordination period. 42 U.S.C. 1395y(b)(1)(C)(i). And, the MSPA's "differentiation" provision states that a group health plan "may not differentiate in the benefits it provides between individuals having end stage renal disease and other individuals covered by such plan on the basis of the existence of end stage renal disease, the need for renal dialysis, or in any other manner." § 1395y(b)(1)(C)(ii). Plan provisions prohibited by the non-differentiation rule include benefit limitations that apply to persons who have ESRD, but not to other enrollees. 42 C.F.R. §§ 411.161(b).

Dialysis providers have filed several lawsuits challenging plan amendments that lower the rate of reimbursement for dialysis, contending that they run afoul of the MSPA. A recent case, DaVita, Inc. v. Marietta Mem'l Hosp. Emple. Health Ben. Plan, 2019 U.S. Dist. LEXIS 160793 (S.D. Ohio Sep. 20, 2019), involved ESRD-related amendments to the group health plan sponsored by Marietta Memorial Hospital ("Marietta"). The hospital amended its plan to classify all ESRD providers as out-of-network, which reduced the reimbursements the plan paid for ESRD services. DaVita, Inc., which has a 37% share of the market for dialysis services, sued Marietta, contending that its practice of reimbursing all ESRD providers at out-of-network rates had a disparate impact on individuals with ESRD, because they make up a disproportionate number of individuals receiving dialysis.

On Marietta's motion to dismiss under Federal Rule 12(b)(6), the Marietta court—like several other courts considering this issue—concluded that Marietta's ESRD amendments complied with the MSPA's nondiscrimination provisions. A group health plan violates the MSPA's "take into account" provision only "through disparate treatment based on Medicare eligibility—that is, when a group health plan treats those eligible for Medicare differently than those who are not." A health plan violates the non-differentiation provision only "when it treats those with ESRD differently than those who do not have ESRD." Marietta's plan amendments did not violate either of the MSPA's nondiscrimination provisions because the provisions "apply to all enrollees receiving dialysis," not just those who were eligible under Medicare due to ESRD.

The court also rejected DaVita's ERISA claims. The plan and Marietta had not discriminated among participants based on whether they had ESRD, an alleged violation of 29 U.S.C. § 1182(a)(1), because individuals with ESRD were provided the same benefits as those without ESRD. Similarly, the court rejected DaVita's argument that the amendments improperly classified ESRD providers as out-of-network providers. Again, because the plan amendments did not run afoul of the MSPA, the plan had properly paid DaVita at out-of-network rates.

Finally, the court determined that DaVita had no private right of action under § 1395y(b)(3)(A). The provider did not allege that Medicare ever "had to step in to make payments that the Plan…failed to make." Medicare only began making payments after the patient voluntarily ended her coverage under the plan and enrolled in Medicare.

DaVita has appealed the Marietta ruling. The ruling from the U.S. Court of Appeals for the Sixth Circuit bears watching by health payers and their counsel.

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