Does a health insurance plan’s uniform classification of all dialysis providers as “out-of-network” violate the Medicare Secondary Payer Act by “tak[ing] into account” Medicare-eligibility of end-stage renal disease patients or “differentiat[ing]” in benefits eligible to Medicare-eligible end-stage renal disease patients?
This case asks the Supreme Court to decide what type of dialysis-reimbursement schemes are acceptable for group health plans considering that end-stage renal disease (“ESRD”) patients are eligible for Medicare. The Medicare Secondary Payer Act (“MSPA”) prohibits health plans from “tak[ing] into account” Medicare eligibility of ESRD patients and “differentiat[ing]” in benefits provided to Medicare-eligible ESRD patients. Marietta contends that its plan did not violate the “take into account” or “differentiation” provisions of the MSPA because the dialysis reimbursement applies equally to dialysis patients with and without ESRD and because the purpose of the MSPA is coordination-of-benefits for ESRD patients rather than anti-discrimination. DaVita counters that the design of Marietta’s plan is intended to induce ESRD-patient members to drop the Plan in favor of Medicare, and that the plan design differentiates based on the disparate impact that ESRD patients face when seeking dialysis reimbursement. The outcome of this case has heavy implications for ESRD access to care, dialysis-treatment reimbursement, and health insurance plan structuring.
Questions as Framed for the Court by the Parties
(1) Whether a group health plan that provides uniform reimbursement of all dialysis treatments observe the prohibition provided by the Medicare Secondary Payer Act that group health plans may not “take into account” the fact that a plan participant with end stage renal disease is eligible for Medicare benefits; (2) whether a plan that provides the same dialysis benefits to all plan participants, and reimburses dialysis providers uniformly regardless of whether the patient has end stage renal disease, observe the prohibition under the Medicare Secondary Payer Act that a group health plan also may not “differentiate” between individuals with end stage renal disease and others “in the benefits it provides”; and (3) whether the Medicare Secondary Payer Act is a coordination-of-benefits measure designed to protect Medicare, not an antidiscrimination law designed to protect certain providers from alleged disparate impact of uniform treatment.
DaVita and its subsidiary DVA Renal Healthcare (collectively “DaVita”) are well-known healthcare providers specializing in kidney care. DaVita, Inc. v. Marietta Mem. Hosp. at 2. On April 15, 2017, Patient A, an anonymous person suffering from end-stage renal disease (“ESRD”), began receiving dialysis treatment from DaVita. Id. at 2–3. Before starting dialysis, Patient A assigned their insurance plan rights to DaVita. Id. at 3. From April 15, 2017 to August 31, 2018, Marietta Memorial Hospital Employee Health Benefit Plan (the “Plan”) reimbursed DaVita for Patient A’s kidney treatment. Id. The Employee Retirement Income Security Act of 1974 (“ERISA”) governs the Plan. Id. Marietta Memorial Hospital and its benefits manager Medical Benefits Mutual Life Insurance Company (collectively, “Marietta”) funded and administered the Plan. Id.
While Patient A was a member of the Plan, the Plan had a multi-tiered system of reimbursements. Id. The Plan reimbursed DaVita for Patient A’s dialysis treatment at the lowest tier. Id. Under the Plan, all kidney dialysis providers are considered Tier 3 “out-of-network” providers and are thus reimbursed at the lowest rate. Id. The Plan typically reimburses “out-of-network” providers at a “reasonable” fee determined by healthcare industry standards. Id. However, the Plan singled out kidney dialysis providers and would reimburse them at an “alternative” rate of 70% of the 125% of the current fee allowed by Medicare. Id. This meant that DaVita would be reimbursed at 87.5%, a rate lower than other “out-of-network” health providers. Id. Patient A was thus subject to higher copayments and was at risk of having to pay for the treatment costs that the Plan had not reimbursed to DaVita. Id. at 4. On August 31, 2018, Patient A dropped the Plan and switched to Medicare. Id.
On December 19, 2018, DaVita, on its behalf and Patient A’s, sued Marietta in the United States District Court, Southern District of Ohio, Eastern Division (“District Court”), alleging that Plan’s distinct treatment of kidney care providers violates the Medicare Secondary Payer Act (“MSPA”) and ERISA. Id. DaVita’s core argument was that the Plan provided “inferior benefits” to ESRD patients and thereby “unlawfully incentivized” those patients to drop their current plans and apply for Medicare. Id.
Marietta filed a motion to dismiss, which the District Court granted. Id. The District Court reasoned that there was no cause of action under the MSPA because DaVita did not allege that Medicare made a conditional payment. Id. The District Court reasoned that a conditional payment only exists when Medicare pays a provider because a plan has failed to do so. Id. Therefore, without a plausible claim under the MSPA, the District Court held that the Plan did not unlawfully discriminate against ESRD patients. Id. at 4–5.
DaVita appealed to the United States Court of Appeals for the Sixth Circuit (“Sixth Circuit”). Id. at 5. The Sixth Circuit disagreed with the District Court and found that DaVita plausibly alleged that the Plan violated the MSPA, which amounts to unlawful discrimination under ERISA. Id. at 31. The Sixth Circuit determined that a plan could violate the MSPA by offering “differential benefits” that create the “possibility” that Medicare must make conditional payments to ensure that a provider continues treating a patient. Id. at 15. Moreover, the Sixth Circuit reasoned that Patient A’s decision to leave the Plan and join Medicare was not truly voluntary because Patient A’s leaving was a direct consequence of the Plan’s underpayments to dialysis providers. Id. at 16. Additionally, the Sixth Circuit found that DaVita alleged a plausible unlawful discrimination claim under ERISA because, even though the Plan’s exclusionary provision applies to all dialysis patients, a jury could find “a near-perfect overlap between ESRD patients and dialysis patients” because ESRD patients frequently use dialysis. Id. at 26–27, 32.
ESRD AND THE MSPA’S “TAKE INTO ACCOUNT” CLAUSE
Marietta argues that plain text of the MSPA that disallows plans from “tak[ing] into account” Medicare eligibility clearly requires plans to treat individuals who are eligible for Medicare the same as those who are ineligible. Brief for Petitioners, Marietta at 33. According to Marietta, the only plan terms that are barred by the “take into account” clause are those that expressly target individuals who are Medicare eligible due to ESRD. Id. at 34. Marietta points to the fact that in addition to individuals with ESRD, dialysis is also the applicable treatment for individuals with “acute kidney injur[ies].” Id. at 8. Marietta asserts that unlike ESRD, “acute kidney injur[ies]” do not make individuals eligible for Medicare. Id. Thus, Marietta posits that because the Plan’s dialysis reimbursement scheme applies equally to those with ESRD and those without, the Plan has not taken Medicare eligibility into account. Id.
Marietta asserts that setting the Plan’s dialysis reimbursement at 87.5% of the Medicare rate does not run counter to the purpose of the MSPA. Id. at 19, 20. In fact, according to Marietta, when drafting the MSPA, Congress expressly contemplated ESRD patients signing up for Medicare as secondary insurance. Id. Marietta emphasizes that in the case of dialysis treatment for ESRD, the Plan will make a payment as the primary payer and Medicare will cover the cost-sharing as the secondary payer. Id. In support of this contention, Marietta notes that beyond being a secondary payer, Medicare provides extra protections for ESRD patients. Id. at 17. In particular, Marietta points to protections for Medicare-enrollees against balance billing, a practice where dialysis providers attempt to collect from the patient charges that were unpaid by primary or secondary insurance. Id.
Marietta contends that DaVita’s reading of the MSPA would be inconsistent with the ERISA. Id. at 37. Marietta points to the language in ERISA that does not require benefits plans to enact any specific substantive requirements for benefits. Id. Marietta thus contends that requiring a higher level of coverage for dialysis reimbursement would be a fixed level of benefits in violation of ERISA. Id. Furthermore, Marietta argues that the “take into account” provision must apply equally to other Medicare-eligible statutes, including “persons age 65 and over who remain employed” and “certain disabled persons.” Id. at 39. Marietta contends that under DaVita’s reading of the “take into account” provision, a health plan would violate the MSPA by refusing to prioritize benefits that would be more useful to disable individuals. Id. at 40.
DaVita counters that Marietta in its plan design has “taken into account” that individuals with ESRD are entitled to Medicare benefits. Brief for Respondents, DaVita at 42. DaVita contends that because Marietta’s plan specifically targets dialysis treatment, it is created to induce members to “drop out of the plan and instead enroll in Medicare.” Id. at 43. In support of this contention, DaVita points to Marietta’s own argument that ESRD patients will not suffer because Medicare as a secondary payer will cover obligations which ESRD patients cannot pay. Id. Thus, DaVita points out that Marietta acknowledges that ESRD patients cannot afford to pay the cost-sharing associated with dialysis. Id.
DaVita contends that Marietta’s interpretation of the MSPA runs counter to the purpose of the statute. Id. at 44. According to DaVita, “tak[ing] into account” means “giving consideration to,” and therefore a plan can take into account ESRD patients’ Medicare eligibility without expressly targeting ESRD patients. Id. DaVita asserts that under Marietta’s interpretation of the “take into account” provision, plans could easily evade the MSPA’s mandate by not including express references to Medicare eligibility; thus, plans could only be charged with violating the provision if they were “careless enough to expressly reference Medicare eligibility.” Id. at 45. Therefore, DaVita argues that Marietta could violate the “take into account” provision by designing the Plan with the intention that ESRD patients would abandon the Plan for Medicare. Id.
DaVita maintains that its interpretation does not require health plans to set a fixed level of coverage for benefits, nor provide priority treatment for dialysis. Id. at 45, 46. DaVita posits that its interpretation does not violate ERISA because plans are “generally free” to adopt and modify plans under ERISA; however, these plans are faced with specific statutory requirements for ESRD patients under the MSPA. Id. at 46. According to DaVita, plans would not be required to reimburse services for the disabled or elderly “on a priority basis.” Id. Instead, DaVita contends that these plans simply are not allowed to take Medicare eligibility into account when designing health plans. Id.
THE MSPA’S “DIFFERENTIATION” PROVISION AND DISPARATE IMPACT LIABILITY
Marietta argues that it has not “differentiat[ed]” in benefits provided to ESRD patients because it offers the same benefits to individuals with ESRD as others covered by the Plan. Brief for Petitioners at 46. Marietta contends that because there is no such difference, it could not possibly have differentiated. Id. In support of this contention, Marietta asserts that plans only violate the differentiation provision if they provide different benefits to ESRD patients, either by name or by definitions that impliedly target that group. Id. at 47. For example, Marietta posits, a plan that targets “routine maintenance dialysis” would impliedly target ESRD patients. Id. at 50. According to Marietta, because its plan does not do so, it has not differentiated. Id.
Marietta also contends that disparate impact liability—where a facially neutral policy is shown to discriminate based on an adverse impact on a specific population—should not apply to the MSPA. Id. at 57. In support of this contention, Marietta points to the plain language of the statute. Id. Marietta asserts that Congress knew the difference between “differentiate” and “discriminate,” and thus, by using the term “differentiate'' in the MSPA, Congress did not intend to create disparate impact liability. Id. Furthermore, Marietta argues that none of the MSPA’s specified practices of differentiation—(1) “existence of ESRD,” (2) “need for renal dialysis,” or (3) “in any other manner”—provide a basis for disparate impact liability. Id. at 52.
DaVita counters that Marietta has demonstrated “differentiation” of ESRD patients by “disfavoring outpatient dialysis.” Brief for Respondents at 21. According to DaVita, Marietta’s plan provides more favorable cost-sharing obligations for inpatient dialysis as opposed to outpatient dialysis. Id. at 31. DaVita argues that this difference represents “differentiation” because inpatient dialysis is the typical setting for treatment of acute kidney injury, whereas ESRD patients typically receive dialysis in an outpatient setting. Id. at 31, 32.
DaVita also urges that the “differentiation” provision provides a basis for disparate impact liability. Id. at 32. DaVita contends that because the differentiation provision of the MSPA refers to the “consequences of actions,” and not just the “mindset of actors,” disparate impact liability is appropriate. Id. at 47. In support of this contention, DaVita points to the language “differentiation… in any other manner” to demonstrate that Congress intended for the differentiation provision to be broad. Id. at 48. Thus, DaVita argues, even if Marietta’s plan is facially neutral, it still violates the MSPA’s differentiation provision by disproportionately affecting ESRD patients. Id.
MEDICARE & THE PRICE OF KIDNEY DIALYSIS
On behalf of its 45 members, Pacific Health Coalition, in support of Marietta, asserts that major dialysis providers have taken advantage of stringent Medicare regulations and economic restraints on market activity to inflate the costs of their dialysis services substantially. Brief of Amicus Curiae Pacific Health Coalition et al., in support of Petitioners at 32–33. Pacific Health Coalition argues that, since 2004, employment-based group health plans (“EGHPs”) have, on average, paid out over 260% of the Medicare rate for kidney dialysis treatment. Id. at 33. Pacific Health Coalition points out that, even when Medicare per-patient spending decreased for kidney dialysis treatment, EGHPs continued to pay substantially higher prices to major dialysis providers, with those providers reaping substantial profits. Id. at 33–34.
Similarly, The Self-Insurance Institute of America (“The Institute”), in support of Marietta, argues that EGHPs’ payment policies ensure that plan resources are used effectively. Brief of Amicus Curiae The Self-Insurance Institute of America, Inc., in support of Petitioners at 25. The Institute emphasizes that these payment policies combat the considerable price inflation that major dialysis providers have attached to the costs of their services. Id. The Institute warns that if EGHPs are required to reimburse dialysis providers at higher rates, employee contributions to health plans will increase significantly, or EGHPs will cut coverage for other critical medical benefits. Id. at 26–27. The Institute highlights that people with ESRD will continue to receive dialysis; the only issue is whether kidney providers will receive greater profit margins if EGHPs are forced to remove their cost-control measures. Id. at 27.
Dialysis Patient Citizens, in support of DaVita, counter that private health plans are economically incentivized to reduce kidney-related care coverage and shift the costs of treatment to Medicare because ESRD patients need frequent dialysis. Brief of Amicus Curiae Dialysis Patient Citizens, in support of Respondents at 9–10. Dialysis Patient Citizens points out that ESRD patients on Medicare typically have “worse kidney-related health outcomes” compared to ESRD patients with private health plans—typically because private plans have broader coverage of ESRD-related diseases such as diabetes and a larger pool of doctors accepting private plans. Id. at 12. Dialysis Patient Citizens highlights that ESRD patients require over 150 dialysis treatments a year. Id. at 14–15. Dialysis Patient Citizens warns that, between Medicare premiums and copayments, ESRD patients face significant financial burdens when switching from their private health plans to Medicare. Id.
Furthermore, Kidney Care Council and Renal Healthcare Association (collectively, “Kidney Care Council”), in support of DaVita, contend that singling out reimbursement for outpatient dialysis would threaten patient health and shift billions of dollars in treatment costs onto Medicare. Brief of Amici Curiae Kidney Care Council and Renal Healthcare Association, in support of Respondents at 24. Kidney Care Council highlights that most major private health plans provide reimbursement for dialysis above the Medicare rate and frequently provide in-network access to outpatient kidney dialysis. Id. at 25–26.
DISCRIMINATION, DIALYSIS NEEDS & ESRD PATIENTS
Pacific Health Coalition, in support of Marietta, argues that EGHPs are responsible for and must fund a wide variety of services for their members, including treatment for chronic illnesses like diabetes and hemophilia and “catastrophic cases” like cancer and traumatic injuries. Brief of Pacific Health Coalition at 14. Pacific Health Coalition stresses that a benefits-designed plan helps limit inflated dialysis costs and “protect[s] the interests” of all the health plan members who require different types of care. Id. at 18–19
Moreover, the United States of America (“the United States”), in support of reversal, argues that limiting the medical benefits of a particular treatment for all plan members does not amount to discrimination against plan members with severe medical conditions. Brief of Amicus Curiae The United States, in support of reversal at 28–29. The United States warns that denouncing a private health plan’s coverage of outpatient dialysis because of its effect on ESRD patients would “invite scrutiny” of other health benefits, especially benefits with less coverage but more common among ESRD patients. Id. at 31.
By contrast, the National Association for the Advancement of Colored People (the “NAACP”), in support of DaVita, responds that kidney transplants are the best treatment for ESRD patients, and whether they have private health insurance has a significant impact on their chance of receiving a kidney transplant. Brief of Amicus Curiae The NAACP, in support of Respondents at 10–11. Moreover, the NAACP points out that ESRD often stems from chronic kidney disease, which Black Americans are three times more likely than White Americans to develop. Id.
Furthermore, Mr. Thmas A. Scully, the former Administrator of the Centers for Medicare and Medicaid Services (“Mr. Scully”), in support of DaVita, highlights that around 98% of patients receiving outpatient kidney dialysis are ESRD patients. Brief of Amicus Curiae Mr. Scully, in support of Respondents at 5. Mr. Scully points out that outpatient dialysis is not merely “associated” with ESRD patients; the reality is that dialysis remains an “almost exclusively” ESRD treatment. Id. at 7.
- Adam Lidgett, High Court to Review DaVita's Dialysis Bias Fight, LAW 360 (Nov. 5, 2021).
- Dan Schweitzer, Supreme Court Report: Marietta Memorial Hospital Employee Health Benefit Plan v. Davita, Inc., 20-1641, National Association of Attorneys General (Nov. 9, 2021).
- Lisa Soronen, Supreme Court to Decide Medicare Dialysis Case, National Conference of State Legislators (Nov. 16, 2021).