DaVita V. Marietta Hospital: A Judicial Warning Against Arbitrarily Low Dialysis Benefits

DaVita v. Marietta Hospital: A Judicial Warning Against Arbitrarily Low Dialysis Benefits

The first appellate court decision in the DaVita Medicare Secondary Payor Act (“MSPA”) cases has come down. This decision, in DaVita v. Marietta Hospital, came down in DaVita’s favor and is probably taking a lot of people by surprise.

The two-judge majority opinion in Marietta Hospital (one judge strongly dissenting) converted the MSPA, which Congress, all other courts and regulatory agencies have considered a slightly confusing Medicare coordination of benefits statute, into a nondiscrimination law which specifically protects plan members who have ESRD. Under this opinion the MSPA creates nondiscrimination “super-protection” which requires plans to pay dialysis claims at the plan’s highest benefit rates. Under this opinion the courts re-write plans which don’t meet this requirement, and providers can sue for penalties if a super-protected member of such a plan terminates plan coverage. Increased claims payments and penalty amounts would go straight to the providers’ bottom lines.

Some surprise is understandable, because the majority opinion ignored the long-accepted understanding of the MSPA to create a brand-new legal right which protects only a very small class of individuals (plan members who have end-stage renal disease) in order to increase the profits of two major corporation (DaVita and Fresenius, which between them control almost 90% of the dialysis market).

At Renalogic we’re not really surprised. This is the kind of case we’ve been thinking and warning about for years. We expected the providers to weaponize the MSPA and we built our cost containment model to defend against this legal strategy (and many others, of course). We believe our methodology presents the strongest defense against this kind of misinterpretation of the MSPA. But understanding why depends on some understanding of Marietta Hospital and the MSPA.

The Marietta Hospital decision is about complex, dense and difficult laws which can be confusing even for lawyers. The opinion itself is not very clear or well-organized and the analysis isn’t easy to follow. We’ve done an in-depth legal White Paper, so if you’re interested in the dense details please let us know and we can get you a copy. But here’s the executive summary version of the decision.

What Was the Marietta Hospital Court’s Motive?

We aren’t convinced that the judges who signed this opinion really want or expect it to be upheld or followed by other courts. When judges really want to change a law they write opinions to persuade other judges. They seriously analyze legislative history, carefully distinguish precedent or explain why it is wrong, consider how the change fits in with related laws, and prudently assess the public policy implications. The Marietta Hospital opinion really didn’t do any of that, and is no persuasive. We don’t think other courts will follow it and believe it will be overturned.

But changing the law was probably not the point. The point more likely was to send a message that the plan in this case cut dialysis reimbursement so far that it shocked the conscience of the court, and there could be consequences for that.

This particular plan was paying dialysis claims at 87.5% of Medicare, a rate below dialysis costs per treatment, based on Medicare as a reference basis. The court wasn’t able to specifically rule that this rate was unfair because there is no law that makes that a direct legal question. But because MSPA questions were presented the court could, and did, rule that the way the plan got to those rates violated the MSPA.

The point therefore was to send a message warning plans away from extreme and arbitrary cost containment. If the opinion gets over-ruled and no other courts follow it, the point has still been made, and prudent plans will make sure their dialysis claims determinations are made under terms less likely to shock the judicial conscience.

What Marietta Hospital Is About.

Marietta Hospital is one of four MSPA cases filed by DaVita. The others are DaVita v. Amy’s Kitchen, DaVita v. Virginia Mason, and DaVita v. WinCo. In all four cases DaVita challenged a self-insured ERISA plan’s benefits design which specified that dialysis claims were carved out-of-network and determined under a methodology applicable specifically to dialysis. In all cases DaVita sued alleging violations of the MSPA it claimed entitled it to a private cause of action against the plan in its own right, and also exercising the patient’s rights under an assignment.

Three of the cases (WinCo, Virginia Mason, Marietta Hospital) involve multiple-of-Medicare methodologies. One of the cases (Amy’s Kitchen) involves Renalogic’s market analysis-based Usual and Reasonable (U&R) methodology.

WinCo is still in trial court going through discovery. Amy’s Kitchen and Virginia Mason were dismissed by the trial courts and are on appeal in the 9th Circuit. Marietta Hospital was dismissed by the trial court and appealed in the 6th Circuit, which issued its decision reversing the trial court October 14.

In Marietta Hospital the plan had carved dialysis benefits out of the provider network and implemented a methodology under which dialysis claims were calculated at 125% of what Medicare would pay, and then reduced payment to 70% of that amount. Dialysis claims were therefore paid at an effective rate of 87.5% of Medicare. Whether or not he was motivated by the dialysis reimbursement terms, the patient DaVita was treating went on Medicare and ended his plan coverage before the end of the coordination period, during which the plan was supposed to be primary to Medicare.

The court was well-briefed on dialysis costs and other financial issues. An amicus brief from a group of plan advocacy and services support associations discussed the dialysis market in detail, including specific information about provider costs, charges and profits, and the effects of inflated dialysis charges on plan finances. (Please let us know if you’d like a copy of the brief and we’ll send it to you.)

The court therefore knew that dialysis provider costs per treatment are probably slightly higher than the Medicare base rate, and payment at 87.5% of that rate looks pretty unfair even to a plan advocate. The court also clearly believed it was arbitrary to use Medicare as a reference basis – why pick Medicare instead of community- or market-based rates?

These two factors may well be why two out of three judges decided to essentially “spank” the plan with an over-the-top ruling that blew past precedent to rule the carve and methodology illegal, and give the giant dialysis companies the chance for a major windfall. In other words, the opinion was intended as a message to plans to be careful not to be arbitrary and cut too close to the bone in determining benefits.

How Marietta Hospital Reinterpreted the MSPA.

Understanding how the Marietta Hospital majority spanked the plan requires a little explanation of the MSPA.

The MSPA really is just about coordination of benefits between Medicare and private plans, for all situations where a member has dual coverage. This includes not only plan members entitled to Medicare because they have end-stage renal disease (ESRD), but members who are 65 and over or have a disability.

For dual coverage members with ESRD the MSPA requires plans to pay primary to Medicare through an initial three month “waiting period” from the start of dialysis and a subsequent 30 month “coordination period.” Through the end of the coordination period plans are prohibited from terminating coverage for or giving members with ESRD incentives to terminate plan coverage.

If a primary plan fails to pay benefits for a dual coverage member and Medicare makes a “conditional payment” to ensure treatment, Medicare can recover what it paid from the plan, upon demand. If Medicare has to take the plan to court to recover, it can recover twice the amount of its conditional payments (“double damages”) as a penalty. As a backup the MSPA also allows a private party to sue for double damages if Medicare has made and not recovered conditional payments.

Before Marietta Hospital the MSPA was not considered a nondiscrimination statute. Nondiscrimination is covered at the federal level by the Americans with Disabilities Act (“ADA”). ESRD and the need for dialysis are considered disabilities under the ADA. The ADA applies to disability discrimination across the board, specifically including discrimination by health plans, and prohibits any differentiation in benefits specific to a disability unless it is based on risk factors determined by actuarial calculations or experience. This ADA allowance for plan discretion is consistent with ERISA standards, under which the courts are supposed to defer to plan sponsor and administrator judgments as long as they are informed and not arbitrary.

The Marietta Hospital majority opinion ignored the MSPA’s legislative history and blew past MSPA precedent and the established understanding of the law, to hold that the MSPA is really a nondiscrimination statute which gives “super-protection” to plan members who have ESRD, without acknowledging that the ADA already applies (or even that the ADA exists). It did so by holding that:

  • The MSPA requires a plan to pay dialysis benefits at the same rate as any other benefit under the plan. Under an assignment of benefits from a member who has ESRD a provider can sue for injunctive relief to have the plan re-written to establish this preferred dialysis benefit. Unlike the ADA, the MSPA does not permit risk-based differentiation in benefits, and unlike ERISA, the MSPA does not defer to plan discretion. Like the ADA, ERISA deference standards were not even acknowledged in the opinion.
  • If a plan does pay dialysis benefits differently from other benefits, and a member with ESRD terminates plan coverage, it is presumed that Medicare made conditional payments for all services to the member the plan would have covered if the member had not terminated. No proof of any payment by Medicare is required. So, if a member with ESRD terminates plan coverage, a dialysis provider can sue the plan under the MSPA private cause of action and collect twice the amount of any payments Medicare made after plan termination. The plan can only defend against this by proving that the member’s plan termination was “truly voluntary,” a unique standard the court did not explain. The court strongly suggested that the very fact that a plan pays dialysis benefits differently would be enough to demonstrate that termination by a member with ESRD was not “truly voluntary.”

The Marietta Hospital majority was well aware that almost all of these increased payments would go straight to two providers’ already hefty profits, at the expense of private health plan finances and ability to fund all types of benefit. It is hard to believe the judges really believed that this is a good public policy outcome.

Conclusion

Marietta Hospital represents such a dramatic change to the MSPA, with such important public policy consequences, on such a legally unpersuasive basis, that it is difficult to believe it was really intended to change the law. The Marietta Hospital majority opinion didn’t even try to do the kind of heavy lifting that would require. It’s therefore much more likely that it’s a “shot across the bow” warning plans against dialysis claims reimbursement practices that go too far, which the judges expect to be overturned. It certainly doesn’t look like the kind of decision that will hold up on review or in other courts.

But Marietta Hospital also certainly sent an effective message, and plans should consider themselves warned: Don’t determine dialysis claims on an arbitrary basis, and don’t make dialysis payments that are shockingly low.

Find out how we can help manage your risks with proven dialysis claim repricing and the clinical outreach of our Kidney Dialysis Avoidance Program.

Renalogic

Renalogic, headquartered in Phoenix, AZ, was founded in 2002 as a specialty dialysis cost-containment company to help clients understand the unique market dynamics in the dialysis provider community. The company has evolved to become a comprehensive provider of data-driven, end-to-end chronic kidney disease (CKD) care and cost management programs for the self-insured industry. Renalogic’s professional team includes leaders in healthcare administration, care management, legal specialists in ERISA and healthcare law, contract negotiation, payer/provider negotiation, and clinical experts.