Group health plans do not violate Medicare’s Secondary Payer statute by offering all participants the same limited dialysis coverage.
Medicare’s Secondary Payer statute, 42 U.S.C. § 1395y(b), makes Medicare a “secondary” payer for certain medical services when an individual’s insurance plan also provides coverage. Those services include dialysis, a treatment reserved almost exclusively for patients with end stage renal disease. To prevent plans from denying or reducing coverage to circumvent their primary-payer obligation for renal disease, the Medicare statute imposes two restrictions on group health plans. First, plans may not “differentiate in the benefits [they] provide between individuals having end stage renal disease” and other covered individuals based on “the existence of end stage renal disease, the need for renal dialysis, or in any other manner.” § 1395y(b)(1)(C)(ii). Second, plans cannot “take into account that an individual is entitled to or eligible for” Medicare due to end stage renal disease. § 1395y(b)(1)(C)(i).
In this case, the Marietta plan offered all participants the same limited coverage for outpatient dialysis. DaVita, a major dialysis provider, sued the plan, arguing that its limited dialysis coverage violated both statutory restrictions. The district court dismissed DaVita’s claims, finding no violation of either provision. The Sixth Circuit reversed, holding that the statute authorized disparate-impact liability and that the plan’s limited dialysis coverage imposed such a disparate-impact on individuals with end stage renal disease. The U.S. Supreme court granted certiorari.
The Supreme Court reversed the Sixth Circuit, holding the Marietta plan did not violate the Medicare Secondary Payer statute. The Court explained that § 1395y(b)(1)(C)(ii) only prohibited plans from differentiating in benefits between individuals with and without end stage renal disease. Thus, it prohibits plans from imposing higher deductibles or covering fewer services based whether a member has end stage renal disease. The statute does not bar plans, such as Marietta’s, that provide uniform (albeit limited) coverage to their participants. The court rejected DaVita’s argument that the plan’s limited coverage for dialysis was a proxy for differentiating benefits based on whether a plan member had end-stage renal disease—even if individuals with end-stage renal disease disproportionately receive outpatient dialysis. The Court also rejected DaVita’s argument that the provision authorized disparate-impact liability, holding that “the text of the statute cannot be read to encompass a disparate impact theory” because it did not address the effects of otherwise equitable plan terms. Moreover, the disparate-impact theory would be “all but impossible to fairly implement” because courts would have no basis for determining adequate coverage for different services. Finally, the Court found that Marietta’s plan did not impermissibly “take into account” the Medicare eligibility of plan participants with end stage renal disease in violation of 42 U.S.C. § 1395y(b)(1)(C)(i) because the plan offered uniform coverage regardless of enrollees’ Medicare eligibility.
Justices Kagan and Sotomayor dissented, arguing that the Court should have ruled that, because outpatient dialysis is an almost perfect proxy for end stage renal disease, the plan’s reimbursement limit for outpatient dialysis was really a limit imposed solely on individuals with end stage renal disease, a violation of the differentiation prohibition in § 1395y(b)(1)(C)(ii).
The bulletin describing this appellate decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, who are partners at the appellate firm Horvitz & Levy LLP, and is republished with permission.