Supreme Court to Hear DaVita’s Medicare Secondary Payer Act Case

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The U.S. Supreme Court has agreed to review the scope of the Medicare Secondary Payer Act (MSPA) as it relates to the treatment of patients with end-stage renal disease (ESRD). The case to be heard by the high court, Marietta Memorial Hospital Employee Health Benefit Plan v. DaVita, Inc.[1], originated from a suit brought by DaVita, Inc., one of the nation’s largest dialysis providers[2].

DaVita argued that Marietta Memorial Hospital’s employee health benefit plan effectively encourages patients to switch to Medicare to avoid paying higher copays, coinsurance, and deductibles for life-sustaining care. Specifically, the hospital’s health plan treats all dialysis providers as “out-of-network,” reimbursing them at the lowest rate level. DaVita argues that the lack of any “in-network” dialysis provider, coupled with the fact that nearly all ESRD patients qualify for Medicare regardless of age, makes it all but certain that plan participants with ESRD will elect to participate in Medicare to lower their healthcare costs.

The MSPA provides for coordination of benefits between Medicare and private plans for all situations where a member is dual-eligible; it requires that Medicare serve as the “secondary payer” for treatment of ESRD patients. If a health plan covers dialysis, the law requires that plan to be the primary payer for the first 30 months following diagnosis. The MSPA further prohibits health plans from taking into account the fact that a plan participant with ESRD is eligible for Medicare benefits, and prohibits plans from distinguishing between ESRD plan participants and other plan participants.

DaVita’s initial lawsuit was dismissed by a district court judge but was later revisited by the U.S. Court of Appeals for the Sixth Circuit[3], which ruled that the MSPA does prohibit primary plans from discriminating against ESRD patients. Before that decision, the MSPA was not considered a nondiscrimination statute. ESRD is considered a disability under the Americans with Disabilities Act (ADA) and as such, discrimination by a health plan based on ESRD status is already prohibited under federal law. Differentiation in benefits specific to a disability is permissible under the ADA, however, if it is based on risk factors determined by actuarial calculations or experience. This allowance for plan discretion under the ADA is consistent with standards imposed by the Employee Retirement Income Security Act of 1974 (ERISA), which precludes only “arbitrary and capricious” interpretations and enforcement of plans.

Marietta Memorial Hospital, its plan, and its third-party administrator have asked the Supreme Court to review that Court of Appeals ruling, arguing that the decision transformed the MSPA from a coordination-of-benefits law designed to protect Medicare into an anti-discrimination statute designed to protect certain providers (i.e., DaVita). They have argued that the Sixth Circuit’s opinion ignored the MSPA’s legislative history and precedential case law to hold that the MSPA is really another nondiscrimination statute that gives enhanced protection to providers. Given the overwhelming market share enjoyed by DaVita in the dialysis space, many legal commentators believe it unlikely, from a public policy perspective, that the Supreme Court will affirm the Circuit Court’s decision at the expense of self-insured, private health plans.

[1] US No. 20-1641, petition for review granted 11/5/21.

[2] This case is one of four MSPA cases that DaVita has filed. In each case, DaVita challenged a self-insured ERISA plan’s benefit design which specified that dialysis claims were always out-of-network and determined under a methodology applicable specifically to dialysis. In each case, DaVita claims a private cause of action under the MSPA against the plans, while also exercising the patient’s rights under an assignment.

[3] DaVita, Inc. v. Marietta Memorial Hospital Employee Health Benefit Plan, No. 19-4039 (6th Cir. 2020).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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