Continuing Medicare Secondary Payer Risks After Marietta: Keep Handling Dialysis with Care

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The U.S. Supreme Court’s 2022 decision in Marietta Memorial Hospital v. DaVita (“Marietta”) was a landmark affirmation of self-funded plan rights. These rights define dialysis benefits to help contain costs under the Medicare Secondary Payer Act (MSPA). Marietta is no “get out of jail free” MSPA card, as Prime Healthcare recently found out in Bio-Medical Applications v. Prime Healthcare Welfare Benefits Plan.

Before diving into the Prime Healthcare case, let’s set the context. The MSPA, which was confirmed by the U.S. Supreme Court in Marietta, has a purpose: to safeguard the financial well-being of Medicare. It does this by ensuring that health plans pay first to Medicare during a three-month “Waiting Period” that starts when someone begins dialysis before they can join Medicare. After that, there is a 30-month “Coordination Period” to continue this protection. Congress considered the waiting and coordination periods necessary because end-stage renal disease (ESRD) with the need for dialysis is one of the very few conditions that automatically qualifies someone for Medicare.

This raised concerns that some plans might try to force or incentivize their own members on dialysis to drop their private coverage in favor of Medicare. The MSPA therefore prohibits plans from taking such members’ Medicare eligibility “into account” or “differentiating benefits” to them before the end of the Coordination Period. There are also certain rules against unfair benefit terms and practices. These include limitations on benefits that don’t apply to everyone equally and paying less for dialysis services for people with ESRD compared to those without it. They also involve putting limitations or offering incentives to encourage these members to leave the plan and enroll in Medicare.

Marietta upheld self-funded plans’ right to carve dialysis benefits out from PPO rates to allow lower dialysis payments. It specifically approved of the 9th Circuit Court of Appeal’s holding in DaVita v. Amy’s Kitchen, which held that a plan which adopted Renalogic’s U&R dialysis repricing program demonstrably had not violated the MSPA. However, Marietta did not hold that plans can design dialysis benefits any way they want.

This was demonstrated in a companion case to Amy’s Kitchen, DaVita v. Virginia Mason. In the Virginia Mason case, the same 9th Circuit panel decided that the Virginia Mason health plan broke the rules of the MSPA because the plan changed how much it paid for dialysis treatment after the waiting period ended. DaVita and Virginia Mason then settled, under terms that not only included an agreement not to change benefits based on the Medicare coordination periods, but also to eliminate the following language from the plan: “Once the member receives 35 treatments, the Plan will reimburse dialysis claims at 125% of the then-current Medicare allowable rate for dialysis treatment.” This limitation was not an issue in the case, so it was not clear why it was part of the settlement.

It turns out, it was probably because Fresenius was pursuing a claim that this kind of treatment limitation itself violates the MSPA in Prime Healthcare. There were several issues with the plan’s design in that dialysis benefits case. The most significant of which was a lifetime limit of 39 treatments. At a typical average rate of three treatments per week, the limit would be reached in 13 weeks, a little over three months–that is, the length of the Waiting Period. Fresenius challenged this limitation under the MSPA, and the plan defended it based on Marietta. The court did not find the plan’s arguments “particularly convincing,” and held that the plan had violated the MSPA. The case is now in proceedings to determine the amount of damages the plan will pay Fresenius for the eight patients affected by the case. According to Fresenius, the damage is almost five million dollars, an amount which will be doubled as provided in the MSPA, along with attorneys’ fees.

Despite Marietta, the MSPA remains a serious risk for the unwary. Plans would be prudent to stick with carefully designed, tested methodologies. Renalogic’s U&R Program for dialysis claims repricing, called ImpactProtect, was designed with the MSPA thoroughly considered, and as court cases have shown remains the most prudent choice for dialysis cost containment.

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