SCOTUS Set to Decide What Constitutes a Conditional Payment in the Context of a Health Plan’s Alleged Discrimination of ESRD Patients

The United States Supreme Court (SCOTUS) is set to decide a case concerning what qualifies as a conditional payment, and the ability of health care providers to utilize the Private Cause of Action (PCA) in the context of a health plan’s alleged discrimination of Medicare-eligible patients.

The underlying case, Marietta Memorial Hospital Employee Health Benefit Plan v. DaVita Inc., concerns patients with end-stage renal disease (ESRD).  The plaintiff dialysis company, DaVita, Inc., accused an employee group health plan and its affiliates (Marietta) of intentionally reducing and limiting benefits for dialysis to induce ESRD patients to utilize Medicare for their treatment.  DaVita alleged that the improper discrimination led to Medicare making conditional payments for dialysis treatment, and they sought double damages under the MSPA’s Private Cause of Action.

Medicare Benefits for ESRD, and MSPA Antidiscrimination Provisions
The overwhelming majority of patients with ESRD require kidney dialysis.  Generally, persons with ESRD automatically qualify for Medicare benefits after undergoing dialysis for three months.  However, under the Medicare Secondary Payer Act (MSPA), the patient’s group health plan (GHP) must pay for the first 30 months of dialysis (the “coordination period”).  During this coordination period, the GHP operates as the primary payer, and although Medicare may pay secondary for cost-sharing (deductibles, coinsurance and co-pays), the patient may need to pay additional fees for coverage and may also still have out-of-pocket costs.  After 30 months of dialysis, Medicare steps into the role of the primary payer.  Additionally, once entitled to Medicare after the first three months, the patient may cancel their private health plan and use Medicare for dialysis.

Because dialysis is expensive, and because a patient can terminate their GHP coverage and use Medicare after only the first three months, Congress added “antidiscrimination” provisions to the MSPA intended to prevent GHP’s from coercing ESRD patients to cancel their plan during the coordination period and shift costs to Medicare.  The statute prohibits GHP’s from:

1. “Taking into account” Medicare eligibility during the first 30-month period; and
2. Differentiating benefits between persons with ESRD and others “on the basis of” them having ESRD, their need for dialysis, or “in any other manner.”

The Lawsuit
DaVita, a major dialysis company in the US, alleged that Marietta discriminated against one of its patients (Patient A) by:

1. Not providing any in-network coverage for dialysis under their plan,
2. Paying only a fraction of the Medicare reimbursement rates for dialysis (as opposed to the “reasonable and customary” rates it uses for other benefits), and
3. Subjecting dialysis to heightened scrutiny such as “cost containment review.”

While the reimbursement methodology led to lower reimbursement to DaVita, it also exposed patients to potential balance billing for the difference.  Additionally, the “no in-network” scheme exposed Patient A to higher copayments and deductibles.   DaVita alleged that these rules resulted in higher out-of-pocket costs to Patient A, and ultimately caused Patient A to cancel their plan with Marietta and switch to Medicare after 16 months of treatment.

Marietta argued that the provisions were not discriminatory because they applied to all dialysis patients equally, and not just persons with ESRD.  However, as noted in the Sixth Circuit’s opinion and by Justice Kagan during oral arguments, 99% of persons with ESRD require dialysis, and 97% of persons requiring dialysis have ESRD.  Therefore, the rule certainly has a significant impact on ESRD patients.

Procedural History
DaVita alleged that Marietta’s rules violated the MSPA’s antidiscrimination rules and sought double damages under the Private Cause of Action.  DaVita also alleged ERISA violations premised on an assignment of rights executed by Patient A.

The District Court for the Southern District of Ohio granted Marietta’s Motion to Dismiss all counts.  The District Court found that Marietta did not discriminate under the MSPA, and therefore there were no conditional payments and no basis for a Private Cause of Action.  The District Court also found that DaVita had no standing to pursue the ERISA claims because Patient A’s assignment did not confer the right to bring equitable claims.

In a 33-page opinion, the US Court of Appeals for the Sixth Circuit sided with DaVita .  Following a detailed analysis of the text of both the MSPA’s antidiscrimination and conditional payment provisions, the Sixth Circuit found DaVita adequately alleged that Marietta violated the MSPA, that Marietta’s practices caused Patient A to switch their coverage and led to Medicare making a conditional payment, and if DaVita could prove discrimination at trial, they could pursue a Private Cause of Action under both MSPA and ERISA.

SCOTUS granted certiorari and heard oral arguments on March 1, 2022.

While the District Court took a very limited reading of the statute, the Sixth Circuit utilized a more expansive interpretation of the MSPA’s conditional payment and antidiscrimination provisions.  When SCOTUS publishes its decision, we will analyze its interpretation of the MSPA, and discuss potential implications on Medicare Secondary Payer compliance.

For additional background information, you can read the Sixth Circuit’s opinion, and listen to the audio recording of the parties’ 87 minutes of oral arguments before SCOTUS. SCOTUS’ blog also provided a condensed summary of the oral arguments.  While we await SCOTUS’ decision, please feel free to contact us with any Medicare Secondary Payer questions and check out some of our articles on the NBKL Blog.

The NBKL blog is provided for informational purposes; we are not giving legal advice or creating an attorney/client relationship by providing this information.  Before relying on any legal information of a general nature, you may consider consulting legal counsel as to your particular facts and applications of the law.