Supreme Court Allows Health Plans to Limit Dialysis Benefits

Legal Sidebari

Supreme Court Allows Health Plans to Limit
Dialysis Benefits
September 14, 2022
This past term, the Supreme Court issued a variety of impactful decisions in the health care arena,
including some that affect coverage and reimbursement for health care services under federal programs,
such as Medicare and Medicaid. Among these decisions is Marietta Memorial Hospital Employee Benefit
Plan v. DaVita, a case about the intersection of Medicare and employment-based health benefits for
patients with end-stage renal disease (ESRD). In DaVita, the Court held that an employer-sponsored
health plan could limit benefits for kidney dialysis services without running afoul of the Medicare
Secondary Payer (MSP) statute, a provision designed to reduce Medicare spending by moving health care
costs from the Medicare program to private payment sources. This Legal Sidebar provides background on
the MSP statute, discusses the Court’s decision in DaVita, and concludes with selected legal
considerations for Congress.
Background
Medicare is a federal health care program that provides benefits to persons age 65 and older and other
qualified beneficiaries, including eligible individuals with ESRD. ESRD is a medical condition involving
permanent cessation of kidney function. Patients with ESRD must receive routine dialysis treatment or a
kidney transplant to survive. Health care costs for ESRD patients are high. Recent reports estimate that
Medicare annually spends approximately $51 billion on ESRD-related treatment.
Typically, Medicare is the default “primary payer” for an eligible beneficiary’s covered medical expenses,
even when a beneficiary has an additional form of health insurance. Under the MSP statute, however,
there are conditions in which payment responsibility shifts to another insurance plan or program and
Medicare becomes a back-up, secondary payer, thereby reducing Medicare expenditures. Under the MSP
statute, Medicare is a secondary payer to employment-based health plans during a 30-month coordination
period. However, federal law does not prevent Medicare-eligible individuals from terminating their
employment-sponsored coverage, enrolling in Medicare, and receiving benefits through the program
rather than through their employer (although Medicare coverage may not begin immediately).
Most relevant to the DaVita case, the MSP statute includes two provisions aimed at preventing employers
from transferring ESRD-related treatment costs to the Medicare program:
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1. First, health plans that provide ESRD benefits cannot “differentiate” in the benefits
provided between individuals with and without ESRD on the basis of the existence of
ESRD, the need for renal dialysis, or in any other manner.
2. Second, a health plan cannot “take into account” that an individual is entitled to or
eligible for Medicare benefits due to ESRD during the coordination period.
Implementing regulations specify that a health plan cannot, for instance, impose longer waiting periods
for benefits or set higher premiums only for individuals with ESRD.
DaVita Decision
In DaVita, a dialysis provider filed suit against an employment-based group health plan and others,
alleging that the plan’s out-of-network coverage classification for dialysis benefits and “artificially low”
provider reimbursement rates for outpatient dialysis services violated the MSP statute’s anti-
differentiation and take-into-account requirements. The provider asserted, among other things, that the
plan’s policies forced ESRD patients to shoulder high out-of-pocket costs and incentivized them to drop
their employment-based coverage and enroll in Medicare before the end of the coordination period.
The district court dismissed the provider’s claims under the MSP statute, but the U.S. Court of Appeals
for the Sixth Circuit reversed on this issue. The appeals court generally determined that the MSP statute
prohibits facially neutral plan policies that have a disparate impact on ESRD patients, even if such
policies do not expressly target these individuals. Subsequently, the health plan petitioned the Supreme
Court for review of the case.
In a 7-2 decision by Justice Brett Kavanaugh, the Supreme Court sided with the health plan, holding that
because the plan’s terms uniformly applied to all plan participants (i.e., those with and without ESRD),
there was no violation of the MSP statute. Examining the MSP statute’s anti-differentiation requirement,
the Court determined that the language did not allow for the provider’s disparate impact claim. As the
Court observed, the MSP statute does not speak to “the effects of non-differentiating plan terms that treat
all individuals equally.” Such a reading, the Court explained, would ultimately compel the health plan to
provide some level of outpatient dialysis benefits, and there was no textual support for such a result. The
Court further explained that the MSP statute is structured as a coordination-of-benefits statute, not an anti-
discrimination statute. Additionally, the Court concluded that because the plan offered the same dialysis
benefits to all covered individuals, regardless of their Medicare entitlement or eligibility, the plan did not
violate the MSP statute’s take-into-account requirements. The Court reversed the Sixth Circuit’s judgment
and remanded the case to the lower court for further proceedings.
Justice Elena Kagan authored a partial dissent in DaVita, joined by Justice Sonia Sotomayor. In the
dissent’s view, the majority disregarded a central fact in the case—that almost every person that
undergoes outpatient dialysis has ESRD. By ignoring this “perfect proxy” and comparing dialysis benefits
for those with ESRD and the small number of non-ESRD patients, the dissent maintained that the
majority created “a massive and inexplicable workaround” under the MSP statute that is inconsistent with
the statute’s text and purpose.
Considerations for Congress
The Court’s decision in DaVita appears to benefit employer-based health plans. As the Court confirmed,
these plans may provide limited ESRD-related benefits without running afoul of the MSP statute, so long
as the same level of these benefits is offered to all insured individuals. The case has prompted debate over
whether employer health plans will now seek to limit further ESRD-related benefits to employees,
potentially leading employees with this condition to end their employment-based coverage to receive
benefits through the Medicare program. Such an option may not be desirable for all ESRD patients.

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Among other factors a patient might consider, Medicare typically requires enrollees to pay 20%
coinsurance for Part B ESRD and other benefits (although cost sharing may be lower if a beneficiary
participates in a Medicare Advantage managed care plan), potentially making dialysis and other
treatments costly for beneficiaries. ESRD patients may also seek to remain enrolled in their employer
plans if they have dependents that receive coverage through the plans, as these dependents may not
receive Medicare coverage based on a family member having ESRD.
The Court’s decision in DaVita only addressed the requirements of the MSP statute. Other federal
requirements may continue to affect the provision of ESRD-related benefits in private employer-
sponsored group health plans. For instance, federal law prevents group health plans from basing coverage
eligibility rules on certain health-related factors, such as a medical condition. In addition, a health plan
may not require an individual to pay a higher premium or contribution than another “similarly situated”
participant, based on these health-related factors. Additionally, small group plans (i.e., typically
businesses with 50 or fewer employees) must provide a core package of “essential health benefits” (EHB)
to participants. The EHB package varies by state, but most states require dialysis benefits to be included.
Congress may consider legislation that further addresses the coordination of Medicare and employer-
based coverage with respect to benefits for ESRD patients. Federal legislation could, among other things,
address a level of dialysis coverage that must be provided by a group health plan, or amend the MSP
statute to address further the circumstances under which employers may limit such benefits. Legislation
introduced in the Senate and the House during the 117th Congress—the “Restore Protections for Dialysis
Patients Act” (S. 4750 and H.R. 8594)—would amend the MSP statute to specify, for example, that a
health plan impermissibly differentiates between ESRD and non-ESRD patients if the plan “limits,
restricts, or conditions” plan benefits for dialysis services, as compared to plan benefits for other covered
chronic medical conditions.

Author Information

Jennifer A. Staman

Legislative Attorney




Disclaimer
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