Supreme Court Rules Medicare Secondary Payer Act Coordinates Benefits Rather Than Regulating Disparate Impact Discrimination in Coverage for Dialysis Treatments.

By: Kristine Maher & Michaela Taylor 

In a 7-2 decision, the U.S. Supreme Court issued its decision in Marietta Memorial Hospital Employee Health Benefit Plan v. DaVita, Inc. (No. 20-1641), holding that the health plan's reimbursement rates for outpatient dialysis do not violate the Medicare Secondary Payer Act (MSPA). Graydon analyzed the split between the Sixth Circuit and Ninth Circuit in our blog post after the Court granted Marietta’s cert petition. While taking a textual approach, Justice Kavanaugh and the other justices joining the majority opinion gave great weight to the impractical impact of a decision in DaVita’s favor.

The MSPA is a coordination of benefits statute that seeks to force private health plans to first shoulder the financial burden of dialysis treatments for individuals diagnosed with end stage renal disease (ESRD). Medicare serves as the secondary payer for those treatments when the individual’s private health plan also covers dialysis treatments. The key provisions at issue—along with similar cases DaVita has filed—are the prohibitions on (1) differentiating in coverage for those with ESRD and those without; and (2) “taking into account” that a participant is eligible for Medicare.

Specific to this dispute, the Court analyzed Marietta’s self-insured health plan, which classified all dialysis treatments as “out-of-network” and reimbursed those services at a lower rate by comparison to in-network reimbursement rates for other covered benefits.  DaVita argued that the “out-of-network” treatment of dialysis amounted to discrimination against plan participants with ESRD in violation of MSPA because the plan’s limits, even when applied uniformly, disparately impacted those with ESRD.

Justice Kavanagh took a strict textual approach, breaking down the differentiation provision into two parts when rejecting DaVita’s provision. He concluded that, on its face, Marietta’s plan did not differentiate in coverage between those with ESRD and those without because the plan “provides the same benefits, including the same outpatient dialysis benefits, to individuals with and without end-stage renal disease.” Marita Memorial, No. 20-1641, at 5. Justice Kavanagh explained that the second component of the differentiation prohibition—that the dissent focuses on—does not come into play unless a health plan’s provisions show differentiation on their face between individuals with ESRD and those without it.

The Court also directly rejected DaVita’s disparate-impact theory of interpretation: “[t]he text does not ask about ‘the effects of non-differentiating plan terms that treat all individuals equally.’”[1] Id. Adopting DaVita’s approach would be “all but impossible to fairly implement” and would amount to a “prescription for judicial and administrative chaos.” Id. at 6. On top of those challenges, the Court found DaVita’s position to “ultimately require group health plans to maintain some (undefined) minimum level of benefits for outpatient dialysis.” Id. Instead, the “statutory provision simply coordinates payments between group health plans and Medicare,” and “does not dictate any particular level of dialysis coverage by a group health plan.” Id.  Noting the government’s alignment with these conclusions, the Court found that if Congress intended to “mandate that group health plans provide particular benefits,” it would have written the MSPA in that way. Because it did not, the Court could not rule in DaVita’s favor.

In her dissent, Justice Elena Kagan also rejected the disparate-impact theory but agreed with DaVia that “outpatient dialysis is an almost perfect proxy for end stage renal disease.” Marita Memorial, No. 20-1641, at 1 (Kagan, E., dissenting). She noted that 97% of people with ESRD undergo dialysis and 99.5% of DaVita’s outpatient dialysis patients have or develop end stage renal disease. But she did not address the majority’s concerns about the practical impact of ruling for DaVita. Rather, she interpreted the plain language of the differentiation provision in a different manner and urged Congress to revise the MSPA to override the majority’s decision.

This ruling signifies a win for group health plans. Unless Congress amends the MSPA, courts considering similar disputes will first look to whether a health plan provision offers different coverage to individuals who have ESRD compared to those who do not. If the provision provides the same coverage regardless of an ESRD diagnosis, the differentiation inquiry should end there. If you have any questions about this decision, dialysis coverage provisions in your company’s group health plan, or health plan drafting in general, please contact a Graydon employee benefits attorney.

[1] Graydon successfully made this same argument on behalf of its client in a nearly identical case, leading to dismissal of DaVita’s complaint in 2019.

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