Litigation Update: Marietta Memorial Hospital Employee Health Plan over DaVita

In the bottom of the ninth inning of a baseball game, score tied, bases loaded, two outs, everything on the line, a pitcher may decide to unnerve the hitter at the plate with a “brush back” pitch – a high and tight fastball. Very dangerous. Here, DaVita had “brushed back” Marietta (and perhaps all other health plans) with a Sixth Circuit decision that a “disparate impact” theory could apply to health plan designs. Marietta got up, dusted itself off, and followed with the game winning hit in last week’s Supreme Court decision that held that the Medicare Secondary Payer (MSP) statute does not authorize disparate-impact liability, and that the Marietta plan’s coverage terms for outpatient dialysis did not violate the statute because those terms apply uniformly to all covered individuals.

The case involved a coordination-of-benefits statute. The statute obligates employer-sponsored plans that offer dialysis benefits to cover the costs of dialysis for the first 30 months after a patient is diagnosed with End-Stage Renal Disease (ESRD). Specifically, the statute provides that a plan “may not differentiate in the benefits it provides between individuals having end stage renal disease and other individuals covered by such plan.”

The Supreme Court majority opinion ruled that the health plan did not violate MSP because it offered the exact same dialysis reimbursement rates and coverage for all individuals – rejecting DaVita’s claim that a plan design that treated all dialysis providers as out-of-network providers with lower benefit levels was impermissibly discriminatory.

The Marietta plan’s benefits were less than those provided under Medicare. They stood in stark contrast to typical private payor benefit levels. One study had found that private payers reimbursed DaVita up to four times the Medicare reimbursement rate.  And, because Medicare includes balance billing limits, Medicare beneficiaries were insulated from balance bills for the charges that weren’t covered under the employee benefit plan.

DaVita had argued that the statute authorized liability when a plan limit has a “disparate impact” on a  group of patients where the overwhelming majority have ESRD , prompting them to choose Medicare coverage.

In his majority opinion, Justice Kavanaugh disagreed with DaVita’ claim noting that:

  • The statute “does not authorize disparate-impact liability” …,
  • “The Government itself acknowledges, [that] the statute does not dictate any particular level of dialysis coverage by a group health plan”, … and
  • “that the Centers for Medicare and Medicaid Services have never adopted a disparate-impact theory in their longstanding regulations implementing this statute.”

The majority opinion confirms that the statute does not establish a minimum or floor with respect to dialysis benefits – either a specific, objective benchmark or a comparator relative standard.  Instead, it confirmed that the statute “requires inquiry into whether a plan provides different benefits to (i) those with end-stage renal disease and (ii) those without end-stage renal disease. The text does not ask about “the effects of non-differentiating plan terms that treat all individuals equally.” DaVita, Inc. v. Marietta Memorial Hospital Employee Health Plan, 6th Cir., 978 F. 3d, at 363, (2020).

Application to Other “Incentives”?

Increasingly, employers have incorporated opt-out incentives in their cafeteria plan design – offering either additional wage payments (carrots) or surcharges (sticks) as financial incentives for workers and/or family members to opt-out of the employer-sponsored plan in favor of other available coverage.

Such opt out incentives should not be designed to encourage the purchase of individual insurance policies on or off the Marketplace. The incentive may also affect the determination of “affordability” with respect to Health Reform’s employer mandate.

Similarly, employers who are subject to the Medicare Secondary Payer (MSP) rules are prohibited from offering employees or family members eligible for Medicare any financial or other incentives to not enroll in the employer-sponsored group health plan. The Department of Health and Human Services (HHS) has informally confirmed that opt-out incentives, where offered equally to all employees, regardless of Medicare eligibility, would not violate MSP rules. However, there is language in a CMS enforcement manual that diverges from HHS’ informal comments.

Dicta from the DaVita opinion suggests that a cafeteria plan opt-out incentive, uniformly applied, may not violate the MSP statute.