UPDATE: SCOTUS Finds That Health Plan Does Not Violate MSPA Because It Does Not Discriminate Against ESRD Patients

6.27.2022 Blog

The United States Supreme Court (SCOTUS) found in favor of the employee group health plan (Marietta) and rejected the dialysis company’s (DaVita) claims that the Plan discriminated against patients with ESRD.  Last week, we provided an overview of the statutory framework for ESRD Medicare benefits and the Medicare Secondary Payer Act’s (MSPA) anti-discrimination provisions, the challenged Plan at issue, and the underlying decision from the Sixth Circuit.

The Majority Opinion

The majority opinion, authored by Justice Kavanaugh and joined by six other justices, found that the Plan did not violate the MSPA because it did not differentiate or discriminate against ESRD patients because the Plan’s terms treated all members equally, and only offered different benefits based on services, rather than a member’s status.

The MSPA provides that a plan “may not differentiate in the benefits it provides between individuals having [ESRD] and other individuals covered by such plan on the basis of (1) the existence of end stage renal disease, (2) the need for renal dialysis, or (3) in any other manner.” 42 U.S.C §1395y(b)(1)(C)(ii) (emphasis and numbers added).

According to the Majority, if a plan does not provide different benefits to individuals with ESRD, then the plan has not “differentiated” under the MSPA, and the “differentiation inquiry” ends there.  If and only if a plan differentiates or provides different benefits between those with ESRD versus those without, would the court determine whether the plan differentiated by one of the three impermissible bases outlined by the statute.  The Majority did note that if there is differentiation between individual members, such differentiation is likely impermissible under the “in any other manner” catch-all.  However, the threshold inquiry remains whether the Plan differentiated between members at all.

The Majority also rejected the “disparate-impact theory” asserted by DaVita and adopted by the Sixth Circuit.  While a disparate-impact theory has been used to evaluate whether facially neutral laws impermissibly discriminate based on classifications such as race or gender, it had not been applied to the MSPA’s anti-discrimination rules.  In rejecting the disparate-impact theory, the Majority again noted that the MSPA’s text only requires an inquiry into whether a plan offers different benefits to those with or without ESRD; the MSPA does not address or focus on the results or effects of any provisions, rather, just the differentiation between types of beneficiaries; and CMS has never adopted a disparate-impact theory in their regulations implementing the MSPA.  The dissenting opinion from the Sixth Circuit provides a more thorough explanation of why the disparate-impact analysis should not apply to the MSPA.

The Majority also cited potential line drawing issues in implementing a disparate-impact theory: DaVita’s premise is that the Plan’s benefits for outpatient dialysis are inadequate.  Without a benchmark for what would be considered inadequate services, courts would be unable to determine whether a plan’s benefits are adequate, and DaVita’s approach would be a “prescription for judicial and administrative chaos,” further demonstrating that their disparate-impact theory is not a correct interpretation of the MSPA.

In a footnote, the Majority also rejected DaVita’s related “proxy theory”: that singling out the treatment (i.e. dialysis) is a proxy for singling out the class (i.e. ESRD patients).  The Majority noted the MSPA is a “coordination of benefits” statute, and not a “traditional antidiscrimination” statute, and concluded that if Congress wanted to force health plans to provide certain benefits or ensure parity between different kinds of benefits, Congress could have written such a law.

Using near identical reasoning, SCOTUS also concluded that the Plan did not “take into account” the patient’s Medicare eligibility as the Plan’s terms included uniform coverage to all members.

The Dissent

The dissent by Justice Kagan and joined by Justice Sotomayor, agreed with the Majority’s rejection of DaVita’s “disparate-impact” and “take into account” theories; however, they felt DaVita could use a “proxy theory” to establish an MSPA violation.  Although the Plan only differentiates between treatment – rather than individuals – the Dissent argued that the treatment in question is almost a perfect proxy for ESRD: “virtually everyone with ESRD – and hardly anyone else – undergoes outpatient dialysis.  Ninety-seven percent of people diagnosed with ESRD – all those who do not obtain a preemptive kidney transplant – undergo dialysis…  And 99.5% of DaVita’s outpatient dialysis patients have or develop ESRD.”

According to Justice Kagan:

“Common sense suggests that we should not care whether a health plan differentiates in benefits by targeting people with [ESRD], or instead by targeting the use of dialysis. When “status and conduct” are proxies for each other, ‘[o]ur decisions have declined to distinguish’ between them.  So, for example, we have explained that a penalty for ‘homosexual conduct’ is a penalty for ‘homosexual persons.’  And likewise, a ‘tax on wearing yarmulkes is a tax on Jews.’  The same goes here: A reimbursement limit for outpatient dialysis is in reality a reimbursement limit for people with [ESRD]. And so, a plan singling out dialysis for disfavored coverage ‘differentiate[s] in the benefits it provides between individuals having [ESRD] and other individuals.’ That is so even if, as petitioner Marietta notes, dialysis is also a treatment for some miniscule number of people with acute kidney injury.  That a proxy is only 99.5% (not 100%) accurate should make no difference.  A tax on yarmulkes remains a tax on Jews, even if friends of other faiths might occasionally don one at a Bar Mitzvah.”

(internal citations omitted)

Going further, even if the proxy was not enough to establish differentiation on the basis of ESRD, the Dissent argues that Congress intended to prevent this type of treatment by prohibiting differentiation based on “the need for dialysis” or “in any other manner.”  The second portion does in fact bar plans from differentiating between persons even if such differentiation is accomplished indirectly by targeting the treatment or by relying on another proxy for the condition.

The Dissent also asserted that their reading falls within the MSPA’s purpose: to prevent plans from passing dialysis costs onto Medicare.  “Yet the court now tells plans they can do just that, so long as they target dialysis, rather than the patients who rely on it, for disfavored coverage.  Congress would not – and did not – craft a statute permitting such a maneuver.  Now Congress will have to fix a statute that this Court has broken.”

Potential Impacts

While the Majority’s tendency to strictly interpret the MSPA’s text will likely be favorable for other entities attempting to avoid Secondary Payer compliance issues, it does seem that the structure of the Plan is specifically the type Congress intended to prevent when creating the “non-differentiation” and “taking into account” provisions.

Several district courts and the Ninth Circuit Court of Appeals applied the same reasoning as the Majority in denying challenges to similar plans.  It remains to be seen to what extent this decision will impact ESRD patients and possibly shift dialysis costs to Medicare.

Our office will continue to monitor these impacts and future interpretations of the MSPA.  In the meantime, if you have any questions regarding Medicare compliance or Medicare secondary payer issues, our attorneys are available to help at any time.

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.