Supreme Court: Health Plan's Dialysis Coverage Did Not Violate Medicare Secondary Payer Rules | Practical Law

Supreme Court: Health Plan's Dialysis Coverage Did Not Violate Medicare Secondary Payer Rules | Practical Law

In litigation involving reimbursements to health providers for dialysis treatment for end-stage renal disease (ESRD), the Supreme Court held that a group health plan's reimbursement provisions did not violate the Medicare Secondary Payer (MSP) rules. The Court rejected a Sixth Circuit ruling that the MSP statute authorized liability under a disparate-impact theory.

Supreme Court: Health Plan's Dialysis Coverage Did Not Violate Medicare Secondary Payer Rules

by Practical Law Employee Benefits & Executive Compensation
Published on 22 Jun 2022 • USA (National/Federal)
In litigation involving reimbursements to health providers for dialysis treatment for end-stage renal disease (ESRD), the Supreme Court held that a group health plan's reimbursement provisions did not violate the Medicare Secondary Payer (MSP) rules. The Court rejected a Sixth Circuit ruling that the MSP statute authorized liability under a disparate-impact theory.
In litigation over health provider reimbursements for dialysis treatment for end-stage renal disease (ESRD), the Supreme Court held that an employer-sponsored group health plan's reimbursement provisions did not violate the Medicare Secondary Payer (MSP) rules (Marietta Mem'l Hosp. Emp. Health Benefit Plan v. Davita Inc., (June 21, 2022)). The Supreme Court's ruling resolves a split on this issue between the Sixth and Ninth Circuits. (Regarding the Ninth Circuit's ruling on this question, see DaVita Inc. v. Amy's Kitchen, Inc., 981 F.3d 664 (9th Cir. 2020) and Legal Update, Ninth Circuit Rejects Dialysis Provider's Challenge to Plan's Reimbursement Provisions Under Medicare Secondary Payer Rules and ERISA.)

Health Plan Limited Reimbursements for Outpatient Dialysis

The plaintiff in this litigation, one of the primary providers of dialysis in the US, made its services available to individuals that included health plan participants. The health plan (defendant) in the case applied the same coverage terms for outpatient services to all participants, but imposed restrictive reimbursement rates on outpatient dialysis services. The provider sued the plan, asserting that the plan's relatively stringent coverage limits for outpatient dialysis violated the MSP rules by:
  • Differentiating between individuals with and without ESRD.
  • Taking into account the Medicare eligibility of individuals with ESRD.
A district court dismissed the provider's claims, concluding that the plan did not violate the MSP's anti-differentiation and take-into-account rules because the plan's terms generally (and its outpatient dialysis provisions, in particular) applied uniformly to all plan participants. Reversing, the Sixth Circuit concluded that:
  • The MSP rules permitted disparate-impact liability.
  • The limited payments for dialysis treatment had a disparate impact on individuals with ESRD.
(978 F.3d 326 (6th Cir. 2020).)
The Ninth Circuit subsequently disagreed with the Sixth Circuit's conclusions and rejected a provider's disparate-impact theory. In November 2021, the Supreme Court agreed to review the dispute (142 S. Ct. 457 (Nov. 5, 2021)).

Plan Did Not Violate MSP Rules

Under the MSP statute, as applicable to ESRD, a group health plan cannot:
  • Differentiate in the benefits it provides between individuals having ESRD and others covered under the plan based on the existence of ESRD, the need for renal dialysis, or in any other manner.
  • Take into account that an individual is entitled to or eligible for Medicare benefits because of ESRD during the first 30 months of the Medicare eligibility period.
(42 U.S.C. § 1395y(b)(1)(C); see Standard Clause, SPD Language, Coordination of Benefits: Drafting Note: Medicare COB Rules for Individuals with End Stage Renal Disease.)

Plan Did Not Differentiate in Benefits for Individuals with ESRD

The Supreme Court concluded that the plan did not differentiate in benefits it provided for individuals with ESRD relative to individuals without ESRD. As examples of prohibited differentiation in this context, according to the majority opinion, a group health plan could not single out participants with ESRD by:
  • Imposing higher deductibles on them.
  • Covering fewer services for them.
But in this case, the Court observed, the plan provided the same benefits—including the same outpatient dialysis benefits—to individuals with and without ESRD.
The provider argued that the MSP statute imposed liability even on plans that limited benefits in a uniform way if the plan's limit had a disparate impact on individuals with ESRD. In rejecting the provider's disparate-impact theory, the Court reasoned that the governing statute did not involve the effects of non-differentiating plan terms that treat all individuals the same. The Court observed that longstanding implementing regulations issued by the Centers for Medicare and Medicaid Services (CMS) never adopted a disparate-impact theory.
The Court also indicated that a disparate-impact theory would be very difficult to implement. By authorizing disparate-impact liability, the Court noted, it would follow that a plan's benefits for outpatient dialysis were insufficient. But courts would struggle, the majority opinion reasoned, to determine the level of benefits that is sufficient. Without an acceptable benchmark or comparator, the majority added, courts could not (without great difficulty) make an apples-to-apples comparison of a plan's coverage for outpatient dialysis versus its coverage for other services. The effect of a disparate-impact theory would therefore be "judicial and administrative chaos"—which suggested, in the majority's view, why a disparate-impact theory in this context was unworkable.
Finally, the Court noted that a disparate-impact theory would:
  • Be inconsistent with the MSP statute's purpose as a coordination of benefits provision (as opposed to being a traditional antidiscrimination mandate).
  • Require courts to establish some threshold level of benefits for outpatient dialysis.
But if Congress had wanted to impose parity between certain kinds of benefits in this context, the Court stated, it knew how to do so.

Proxy Theory Rejected

In a footnote, the Court also rejected the provider's proxy theory of liability. The provider had asserted that singling out outpatient dialysis was merely a proxy for singling out individuals with ESRD because those individuals disproportionately receive outpatient dialysis. The majority concluded that this theory also lacked support in the MSP statute. Under the MSP statute, the Court reasoned, a plan must provide the same dialysis benefits regardless of whether an individual has ESRD. As a result, if a plan provides the same benefits to all individuals, it does not—in the majority's view—differentiate in benefits provided to individuals with (and without) ESRD.
Voicing support for the provider's proxy theory, two dissenting justices stated that outpatient dialysis is a nearly "perfect proxy" for ESRD. Given this overlap between status and conduct, the dissenting justices suggested that a health plan that differentiates in benefits by targeting individuals with ESRD is essentially also targeting the use of dialysis. In other words, according to the dissent, a reimbursement limit for outpatient dialysis is effectively a limit for individuals with ESRD.

Plan Did Not Take into Account Beneficiary's Medicare Eligibility

The Court also rejected the provider's argument that the plan—in providing limited coverage for outpatient dialysis—impermissibly took into account the Medicare eligibility of participants with ESRD (42 U.S.C. § 1395y(b)(1)(C)(i)). As examples of this rule, the Court noted, plans generally could not limit or terminate an individual's coverage, or charge higher premiums, for an individual who had Medicare coverage due to ESRD.
Here, the Court noted, the plan's terms (including those governing outpatient dialysis coverage) were uniform for all individuals. According to the majority, because the plan provided the same outpatient dialysis benefits to all participants (whether or not a participant was entitled to or eligible for Medicare), the plan could not be said to take into account whether its participants were entitled to or eligible for Medicare.

Practical Impact

The Supreme Court's ruling will be of interest to health plans concerned about the cost of providing outpatient dialysis services. As the dissenting justices observe, the Court's ruling may make it easier for plans to shift the cost burden of providing dialysis to Medicare—provided the plan frames its restrictions in terms of dialysis rather than the individuals who require dialysis.