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Employer's plan did not impermissibly encourage patients to switch to Medicare

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In a 7-2 decision, the U.S. Supreme Court made it harder to prove that a health plan violates the Medicare secondary payer rules if the plan requires patients to pay high out-of-pocket costs to treat kidney failure with dialysis, when patients who switch exclusively to Medicare coverage, regardless of age, could have dialysis covered at less cost to themselves.

In the dispute over health insurance reimbursements for outpatient kidney dialysis, the Supreme Court on June 21 agreed with a self-insured health plan in Marietta Memorial Hospital Employee Health Benefit Plan v. DaVita Inc., rejecting a claim from DaVita Inc., one of the nation's largest dialysis providers, that the health plan's low reimbursement rates violated federal law.

Justice Brett Kavanaugh, author of the majority opinion, was joined by Chief Justice John Roberts and Justices Samuel Alito, Amy Coney Barrett, Stephen Breyer, Neil Gorsuch and Clarence Thomas. In dissent, Justice Elena Kagan was joined by Justice Sonia Sotomayor.

DaVita, part of UnitedHealth Group's Optum division, argued that the employee health benefits plan at Marietta Memorial Hospital in Marietta, Ohio, violated the Medicare Secondary Payer Act (MSPA) by treating all dialysis providers as out-of-network and reimbursing them at the lowest-level rate. The MSPA requires private health plans that cover dialysis to be the primary payer of those treatments for at least 30 months after a patient is diagnosed with kidney failure, with Medicare as a secondary payer for Medicare-enrolled patients.

The lack of any in-network dialysis provider, DaVita argued, coupled with the fact that nearly all end-stage renal disease (ESRD) patients needing dialysis qualify for Medicare regardless of age, encouraged plan participants with ESRD to drop their employer-sponsored coverage and elect only to participate in Medicare to avoid high co-pays, co-insurance and deductibles for dialysis care.

The MSPA "requires that Medicare serve as the secondary payer for treatment of ESRD patients [and] prohibits plans from distinguishing between ESRD plan participants and other plan participants," wrote Katherine Heptig, an attorney at Rivkin Radler in Uniondale, N.Y., when the Supreme Court agreed to hear the case.

Secondary Payer Rules Not Violated

DaVita's initial lawsuit was dismissed by a district court judge but then reinstated by the 6th U.S. Circuit Court of Appeals, which ruled that the plan violated the MSPA by discriminating against ESRD patients.

The Supreme Court reversed the 6th Circuit's decision and remanded the case to be reheard consistent with the Supreme Court's ruling.

Kavanaugh wrote, "Because the Marietta plan provides the same outpatient dialysis benefits to all plan participants, whether or not a participant is entitled to or eligible for Medicare, the plan cannot be said to 'take into account' whether its participants are entitled to or eligible for Medicare" in a way that the MSPA doesn't allow.

In her dissent, Kagan wrote, "A reimbursement limit for outpatient dialysis is in reality a reimbursement limit for people with end stage renal disease. And so a plan singling out dialysis for disfavored coverage 'differentiate[s] in the benefits it provides between individuals having end stage renal disease and other individuals" in a way that is not permitted under the MSPA.

As for other relevant federal statutes, Heptig said differences in coverage specific to a disability such as ESRD are permissible under the Americans with Disabilities Act (ADA) if "based on risk factors determined by actuarial calculations or experience." Allowing for plan discretion under the ADA also is consistent with the Employee Retirement Income Security Act, which precludes only "arbitrary and capricious" interpretations and enforcement of plans, she added.

"Alongside the kidney care community, we are deeply disappointed by [the] Supreme Court decision to upend an important protection for Americans with chronic kidney failure," Javier Rodriguez, DaVita's chief executive, said in a statement.

He added that "dialysis patients deserve better, and we'll continue to advocate for patient choice in care and coverage."

DaVita's lawyers had warned that a ruling in favor the Marietta Memorial's health plan could open the door to other private health plans limiting payments for expensive dialysis treatments, prompting more ESRD patients to switch to Medicare, Reuters reported.

Dialysis Patient Citizens, an advocacy group for people with chronic kidney disease, issued a statement saying it would seek congressional action "to fix a statute the court has broken."

But another of the nation's largest dialysis providers, Fresenius Medical Care, said in a statement it does not "expect that this case triggers a major change in the relationship between providers and health insurers, as the vast majority of those in the industry are interested in the well-being of patients," Reuters reported.

Reuters also reported that John Kulewicz, a lawyer for Marietta's plan, thanked the court "for the close reading that it has given to the Medicare Secondary Payer Act."

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.

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