In recent weeks, three Circuit Courts of Appeal decisions have been issued that challenge the legality of a group health plan offering kidney dialysis carve-out programs under the Medicare Secondary Payer Rules (MSPR). Self-funded plan sponsors with dialysis carve-out programs should take note of these cases.
Under a dialysis carve-out program, the plan excludes all dialysis providers from the provider network, (making them out-of-network providers) and implements a different reimbursement formula for dialysis care providers. The reimbursement levels for out-of-network dialysis providers are usually set at a percentage of the Medicare reimbursement rates, such as 125% of Medicare.
Cost of dialysis care for ESRD Patients
Patients suffering from kidney failure (also known as End Stage Renal Disease or ESRD) require dialysis several times per week, to survive while the individual awaits a kidney transplant. If there is no transplant, dialysis can continue for the remainder of the person’s life, which makes dialysis treatments one of the costliest treatments group health plans cover. The other common recipients of dialysis are those with an acute kidney injury.
Medicare and ESRD
People with ESRD, regardless of age, are eligible for Medicare under federal law after the first three months of dialysis treatment. If the individual is enrolled in a group health plan, the MSPR, require the group health plan to pay as primary payer for the dialysis for a 30-month coordination period, before Medicare becomes the primary payer.
The MSPR also impose two substantive requirements on the group health plan to protect persons with ESRD. First, during the coordination period, a plan may not "take into account" a person's eligibility for Medicare. Second, a plan may not discriminate against providers rendering care to ESRD patients (‘MSRP antidiscrimination rules’). For example, a plan may not "differentiate in the benefits it provides between individuals having ESRD and other individuals covered by the plan on the basis of the existence of ESRD, the need for renal dialysis, or in any other manner." When the coordination period ends, Medicare then takes over and pays the provider first and the group health plan pays second.
Over the past 10 years, self-insured group health plans have seen the cost of dialysis treatment rise substantially, due to the consolidation in dialysis providers and an increase in the number of participants that require on-going dialysis care. In response, plan administrators have developed risk management strategies to reduce plan costs for dialysis treatment, which has led to litigation from the dialysis providers.
Lawsuits Challenge Plan Amendments that Lower Reimbursement Rates for Dialysis Coverage
These three Circuit Courts of Appeal cases, represent a shift that could potentially allow dialysis providers to bring a private right of action under the MSPR against plan sponsors pursuing dialysis carve-outs. Specifically, dialysis providers have alleged that plan designs with dialysis carve-outs violated the MSPR by taking into account an employee or beneficiary’s eligibility for Medicare due to ESRD and also violate the MSRP provider anti-discrimination rules, as plans provided lower reimbursement rates (usually predicated on a percentage of Medicare) for dialysis care than for other services. Providers allege that lower reimbursement rates for dialysis results in plan participants or beneficiaries terminating employer-provided coverage and enrolling solely in Medicare.
While the decision in each case differs, these rulings put plan administrators and fiduciaries on notice to be cautious when designing dialysis reimbursement programs. All three cases are still ongoing.
In DaVita v. Marietta Hospital the 6th Circuit Court of Appeals (jurisdiction over district courts in KY,MI,OH and TN) found that DaVita plausibly alleged that Marietta Hospital’s plan design may have violated the MSPR. The Court concluded that DaVita can could continue pursuing its claim against Marietta Hospital to recover double damages under the MSPR. The Marietta Hospital plan had a dialysis carve-out program that considered all dialysis providers as out-of-network. Rather than pay dialysis providers the reasonable and customary fee applicable to out-of-network providers, the plan paid claims at 87.5% of the Medicare allowable fee. As a result of the lower reimbursement levels, the plan beneficiary who suffered from ESRD, exited the group health plan at open enrollment and enrolled in Medicare, making Medicare the primary payer for all dialysis care.
In DaVita v. Virginia Mason the 9th Circuit Court of Appeals (jurisdiction over District Courts in CA, OR, WA, AK, AZ, ID, MT, HI and NV) similarly held that DaVita could continue pursuing its claims under the MSPR. In this case, Virginia Mason Hospital carved-out all dialysis services from its network and made all providers out-of-network. Instead of paying for ESRD Medicare-eligible services according to the reimbursement schedule in effect for out-of-network providers, the plan paid claims for ESRD services at 125% of the then current Medicare allowable charge for ESRD services. Again, it remains to be seen whether DaVita will ultimately win this case.
In DaVita v. Amy’s Kitchen the same 9th Circuit Court of Appeals agreed with the trial court’s dismissal of DaVita’s claims finding that Amy’s Kitchen had not violated MSPR. The plan here disregarded an in-network/out-of-network distinction for dialysis-related reimbursements. Instead, in the plan administrator’s discretion, dialysis claims were paid based on the Customary, Usual and Reasonable Charges (UCR). UCR charges are based on the average payment actually made for reasonably comparable services and/or supplies, based upon reasonably available data, adjusted for inflation and subject to a cost review by the plan administrator. In this case, the 9th Circuit determined the reimbursement for dialysis care not to be in violation of MSPR because that reimbursement schedule applied uniformly to all individuals receiving dialysis, regardless of the diagnosis.
Other cases are percolating at the trial court level in many jurisdictions on similar allegations.
Takeaways
Plan administrators of self-insured plans nationwide should consult their counsel to carefully understand the laws and regulations governing ESRP, review plan designs of dialysis carve-out programs offered by vendors, and consider the plan language that they should incorporate into their plan documents to avoid provider suits for alleged violations of the MSPR. Since a violation of the MSPR can be the basis for double damages, these are issues to be approached with care and an understanding of the risks.
There are potential dialysis carve-out strategies that allow plans to pay for dialysis care, and other non-dialysis claims, at less than provider-billed charges. However, employers will want to make sure they are comfortable with the risks of any strategy they adopt, particularly in light of this ongoing litigation.
If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.