Pension & Benefits News Dialysis provider’s ERISA, Medicare Secondary Payer Act claims restored on appeal
Friday, October 30, 2020

Dialysis provider’s ERISA, Medicare Secondary Payer Act claims restored on appeal

By Pension and Benefits Editorial Staff

The U.S. Court of Appeals for the Sixth Circuit reversed a lower court ruling that dismissed a dialysis provider’s suit against an employee health plan for indirectly causing a patient to leave the plan in favor of Medicare coverage. The appellate panel found merit to the dialysis provider’s argument that low reimbursement for dialysis treatment forced the patient out of the plan. The panel also found that the patient had assigned rights to payment to the care provider but not any right to sue for breach of fiduciary duty.

Allegations of discriminatory reimbursement. DaVita, Inc. sued an employee health benefit plan and its administrators, alleging violations of the Medicare Secondary Payer Act (MSPA) and ERISA. According to DaVita, the plan unlawfully treated a DaVita patient differently because this patient had end-stage renal disease (ESRD). The plan allegedly targeted renal dialysis services, which DaVita provided, with poor reimbursement rates, hoping that dialysis patients would switch to Medicare, which they were legally entitled to do three months after diagnosis. The plan provided three tiers of benefits, and reimbursed DaVita for the patient’s dialysis costs at the bottom tier, Tier 3. This bottom tier applied to providers, like DaVita, who were "out-of-network." The plan considered all dialysis providers to be out-of-network and subject to lower reimbursements. Additionally, dialysis services were reimbursed at a rate lower than other Tier 3 providers—at 87.5 percent of the Medicare rate. During the time the patient was covered by the plan, there were no in-network options for dialysis services, resulting in higher out-of-pocket costs. DaVita appealed the trial court order dismissing all its claims.

MSPA private claim upheld. The Sixth Circuit concluded that the lower court erred in dismissing the MSPA claim. A conditional payment by Medicare was required as a precondition to a private cause of action under the MSPA, and the complaint here contained sufficient allegations of such a payment. The MSPA prohibits group plans from differentiating in the benefits it provides between patients with ESRD and other individuals. Congress allowed for private claims alleging violations of this law. A primary plan is liable under a private claim when it discriminates against plan holders based on Medicare eligibility, causing Medicare to pay. In this case, DaVita plausibly alleged that Medicare made conditional payments because the subject patient’s decision to leave the plan and go on Medicare was not voluntary. It was a result of the plan’s discriminatory underpayment. Moreover, the appellate court held that the MSPA’s antidiscrimination provisions prohibited conduct beyond the express differential treatment of individuals with ESRD. Its plain text also prohibited indirect discrimination based on an individual’s ESRD-specific need for renal dialysis or other factors. According to the court, it is possible for a plan to engage in unlawful discrimination against ESRD patients even if it does not explicitly discriminate.

ERISA claims. The appellate court reversed the trial court concerning DaVita’s ERISA claim for insurance proceeds payment but affirmed the lower court as to DaVita’s ERISA fiduciary claims. DaVita brought these ERISA claims based on an Assignment of Benefits form the patient had signed prior to receiving treatment. The form assigned to DaVita all "right, title and interest in any cause of action and/or any payment due" under any ERISA-covered employee benefit plan. The Sixth Circuit found that the patient had assigned his rights to health insurance proceeds to DaVita under this assignment. However, the assignment form language assigning "any cause of action” to DaVita under “ERISA or any other applicable law" did not assign breach-of-fiduciary-duty claims. The form stressed the patient’s transferring rights as a beneficiary, linking "any cause of action" and "any payment due" to the patient’s status as a "beneficiary." Consequently, the patient did not assign claims not related to recovering proceeds.

Dissenting opinion. Judge Eric E. Murphy opined that the judgment of the trial court should have been completely affirmed. He felt that DaVita did not allege an MSPA violation because the plan did not target anyone for different benefits. It offered the same benefits to all participants. The MSPA did not allow for the majority’s disparate impact theory. Moreover, DaVita’s ERISA claims mistakenly relied on two inapplicable ERISA sections. The first section enables participants to enforce "the terms of the plan." But DaVita sought to invalidate, not enforce, those terms. The second provision bars a plan from adopting "eligibility" rules that discriminate. However, DaVita challenged benefits rules, not eligibility rules.

SOURCE: DaVita, Inc. v. Marietta Memorial Hospital Employee Health Benefit Plan, (CA-6), No. 19-4039, October 14, 2020.

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