Treating All Dialysis Providers as Out of Network Does not Violate Medicare: Supreme Court

By: HUB’s EB Compliance Team

Self-funded plans recently won a significant victory at the Supreme Court. In Marietta Memorial Hospital v. DaVita, the Supreme Court ruled that a plan that treats all outpatient dialysis providers as out of network providers and fixes a consistent reimbursement rate for outpatient dialysis does not violate the Medicare Secondary Payer Rules (MSPR). This gives plan sponsors additional flexibility in dealing with outpatient dialysis expenses.

Background

As HUB previously reported, there were multiple lawsuits by DaVita, one of the two major outpatient dialysis providers, challenging dialysis carve-out programs. 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 fixed 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.

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 one is available. 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. When the coordination period ends, Medicare then takes over and pays the provider first and the group health plan pays second.

Under the MSPR, a plan may not "take into account" a person's eligibility for Medicare during the coordination period. The MSPR says 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."

The Case

In this case, DaVita, the outpatient dialysis provider, argued that by implementing a dialysis carve-out program, the health plan effectively took Medicare into account. In other words, the health plan was treating plan participants with ESRD differently than other plan participants. Two separate Circuit Courts of Appeal had reached contrary conclusions on this question.

The Supreme Court in a 7-2 decision disagreed with the dialysis provider. The Supreme Court noted that the outpatient dialysis carve-out program applied to all plan participants receiving dialysis regardless of the reason. For example, if a participant had an acute kidney injury requiring dialysis, that person’s dialysis was reimbursed at the same rate as someone with ESRD.

The Court ruled this way even though, as noted by the dissent, the overwhelming majority of individuals receiving outpatient dialysis have ESRD. However, the majority of the Court held that the MSPR do not impose a “disparate-impact” type analysis where a plan provision that does not discriminate by its terms (here, the reimbursement is the same for all) nevertheless violates the statute because it has a disproportionate impact on individuals with ESRD. While some federal employment statutes require this kind of analysis, the Court held that the MSPR does not.

What’s Next?

Plan sponsors should be thankful the Supreme Court sided with them. If it had gone with DaVita, the case would have drummed up significant business for the outpatient dialysis providers. Instead, plan sponsors now appear to have flexibility to implement dialysis carve-out programs.

However, given the level of reimbursements involved, it is likely that the outpatient dialysis providers will attempt additional legal challenges. Therefore, while this Supreme Court case takes one very significant issue off the table, plan sponsors and plan administrators of self-funded plans should still consult counsel before implementing a dialysis carve-out program. In doing so, they should review the plan designs, plan language, and other information provided by dialysis carve-out vendors carefully. 

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

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Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.