SCOTUS Decision on Medicare Secondary Payer Act

On June 21, 2022, the Supreme Court found, in Marietta Memorial Hospital Employee Health Benefit Plan v. DaVita Inc., No. 20-1641, 2022 WL 2203328 (United States, June 21, 2022), that terms of a benefit plan limiting reimbursement for dialysis treatments did not violate the Medicare Secondary Payer Act (MSP). The terms of the benefit plan in question resulted in reimbursement for dialysis roughly equivalent to the (low) Medicare rate. Dialysis provider DaVita challenged the provisions as violating MSP law.

For your information, Medicare coverage is available to those who are otherwise eligible and who are (1) at least 65 years old, (2) disabled, or (3) diagnosed with end-stage renal disease (“ESRD”) – chronic renal failure. The MSP Act and its regulations state that, for most individuals who receive both Medicare coverage due to ESRD and commercial medical coverage under a benefit plan benefits, the commercial benefits plan must remain Medicare’s primary payer for a 30-month Coordination of Benefits (COB) period. To avoid endgames around this COB period, Congress included two relevant prohibitions in the law: Health plans are prohibited, during this COB period, from (1) “considering” Medicare eligibility d an individual, and (2) “differentiation” in the benefits provided “between individuals having [ESRD] and other persons covered by this scheme on the basis of the existence of [ESRD], the need for kidney dialysis, or in any other way. 42 USC § 1395y(b)(1)(C).

DaVita argued that the benefit plan’s limitation on reimbursement for dialysis violated the MSP Act’s “recognition” and “differentiation” prohibitions, and in October 2020, the Sixth Circuit Court of Appeals ruled. agree with DaVita. The Supreme Court has now reversed the Sixth Circuit’s decision, in a majority opinion written by Justice Kavanaugh. Six justices joined the majority, with Justices Kagan and Sotomayor dissenting in part.

The Court ruled that a benefit plan that provides limited benefits for outpatient dialysis, as the plan in question did, “but does so uniformly for all plan members,” does not violate the law. MSP. The majority opinion explained that the prohibition on differentiation had not been violated because the terms of the Plan dealing with dialysis applied to people with and without ESRD, and “the text of the law cannot be interpreted as encompassing a disparate impact theory”. The majority cited the absence of any theory of disparate impact in the CMS regulations and the difficulty of implementing a prohibition against disparate impact, and said that the MSP Act does not require any particular level of coverage of dialysis by a benefit plan nor does it require parity between dialysis and other types of benefits.

DaVita had argued in the case that dialysis is a substitute for ESRD because virtually all dialysis treatment is provided to people with ESRD. In a footnote, the majority held that DaVita’s “proxy theory” failed because it was not supported by the statutory text. “This law is a coordination of benefits law, not a traditional anti-discrimination law.”

The Court went on to rule that the benefits plan also did not violate the prohibition against “taking into account” Medicare eligibility, because “the plan provides the same outpatient dialysis benefits to all plan participants, whether or not a participant is entitled or eligible for Medicare.”

The dissent, written in part by Judge Kagan and joined by Judge Sotomayor, argued that “the Court’s craft[ed] for the Medicare Secondary Payer Act (MSPA) a massive, inexplicable workaround” that Congress should fix. Although the dissent agreed with the majority that the MSP Act does not allow disparate impact liability claims, it “is part[ed] manners with the majority as to DaVita’s “proxy” theory (which the majority relegates to a footnote). According to the dissent, the conclusion that it is acceptable to distinguish between dialysis and other treatments, but not between those with and without ESRD, is contrary to common sense and the law, because “[o]ambulatory dialysis is an almost perfect substitute for end-stage renal disease. Given that 99.5% of DaVita patients have or develop ESRD, the dissidents said that targeting dialysis use is the same as targeting people with ESRD: “A tax on yarmulkes is still a tax on Jews, although friends of other faiths may sometimes wear one to a Bar Mitzvah.

The dissent pointed out that the law prohibits differentiation based on ESRD, but also based on “the need for kidney dialysis, or otherwise.” According to Judge Kagan, this encompasses indirect differentiation, targeting the treatment required by people with ESRD. The dissent objected to what she saw as the Court telling benefit plans that they could impose the costs of dialysis on Medicare, “as long as they target dialysis, rather than the patients who depend on it, for underprivileged coverage”.

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