Certain Limitations and Restrictions on Dialysis in Plan Design May Violate Medicare Secondary Payer Act

A recent decision from the Sixth Circuit Court of Appeals suggests commonly seen limitations and restrictions on dialysis treatment benefits in group health plans may violate the Medicare Secondary Payer Act (“MSP Act”).

The Sixth Circuit’s decision in DaVita Inc. et al. v. Marietta Memorial Hospital, et al., held that plans which would provide coverage primary to Medicare and which treat all dialysis patients the same may nevertheless violate the MSP Act’s “non-differentiation” and “take into account” provisions. According to the Court, those provisions protect individuals with end-stage renal disease (ESRD) if the plan’s provisions have a disparate impact on patients with a continuing need for dialysis.

Specifically at issue here were two provisions of Marietta Memorial Hospital’s employee group health plan, namely the plan’s treatment of all dialysis providers as “out-of-network” and the plan’s reimbursement rate for dialysis treatment, which was lower than the rate at which other out-of-network services were reimbursed. DaVita argued that even though they applied evenhandedly to all dialysis patients, the plan’s provisions still violated the MSP Act’s protections for individuals with ESRD because they had a disparate impact on patients with ESRD who have an ongoing need for dialysis treatment.

Siding with DaVita, the Sixth Circuit found that the ESRD anti-discrimination provisions of the MSP Act indeed extend to plan design features like those at issue here. While the cost-reimbursement scheme and “out-of-network” treatment of all dialysis providers applied to all dialysis patients, the Court held that such provisions may have a discriminatory effect through their disproportionate impact on ESRD patients (who, overwhelmingly comprise dialysis patients), which would be a violation of the MSP Act’s “non-differentiation” and “take into account” provisions. The Court found that DaVita could proceed with its claims and remanded the case back to the district court for further proceedings.

While the application of this decision is currently limited to employers and plans subject to the Sixth Circuit’s jurisdiction (which covers MI, TN, KY, and OH), the Ninth Circuit will be deciding a substantially similar case in the coming months. These cases suggest health plans which treat all dialysis providers as “out-of-network” or cap dialysis benefits at Medicare-based rates may be out of compliance with the MSP Act. Accordingly, employers who have similar provisions in their group health plans may want to reassess these design features given the Sixth Circuit’s ruling and the risk of noncompliance with the MSP Act. Research and Compliance will continue to monitor this situation and will provide updates as they become available.

This document is provided for general information purposes only and should not be considered legal or tax advice or legal or tax opinion on any specific facts or circumstances. Readers are urged to consult their legal counsel and tax advisor concerning any legal or tax questions that may arise.

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