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tFrom the State and Local Legal Center

In Marietta Memorial Hospital Employee Health Benefit Plan v. DaVita, the U.S. Supreme Court held 7-2 that group health plans which offer all participants the same limited outpatient dialysis benefits don’t violate the Medicare Secondary Payer statute.

US Supreme CourtIn 1972 Medicare began covering those with end-stage renal disease, regardless of age or disability. In the early 1980s Congress passed the Medicare Secondary Payer statute which makes Medicare the “secondary” payer to an individual’s health insurance plan for dialysis, if the plan covers dialysis.

According to Justice Brett Kavanaugh, writing for the court, “Congress recognized that a [private health] plan might try to circumvent the statute’s primary-payer obligation by denying or reducing coverage for an individual who has end-stage renal disease, thereby forcing Medicare to incur more of those costs.”

To prevent this, per the statute, a plan “may not differentiate in the benefits it provides between individuals having end stage renal disease and other individuals covered by such plan on the basis of the existence of end stage renal disease, the need for renal dialysis, or in any other manner.” Also, a plan “may not take into account that an individual is entitled to or eligible for” Medicare due to end-stage renal disease.

DaVita, one of the two major dialysis providers in the United States, sued the Marietta Memorial Hospital Employee Health Benefit Plan arguing that it “(i) differentiates between individuals with and without end-stage renal disease and (ii) takes into account the Medicare eligibility of individuals with end-stage renal disease in violation of the Medicare Secondary Payer statute.” While Marietta’s plan provides the same outpatient dialysis coverage to all its participants it subjects dialysis to “relatively limited reimbursement rates.”

The court first rejected DaVita’s differentiation argument. The “statutory language prohibits a plan from differentiating in benefits between individuals with and without ends-stage renal disease. For example, a group health plan may not single out plan participants with end-stage renal disease by imposing higher deductibles on them, or by covering fewer services for them. If a plan does not differentiate in the benefits provided to individuals with and without end-stage renal disease, then a plan has not violated that statutory provision, and the differentiation inquiry ends there.”

DaVita argued that even if the plan limits benefits uniformly it still violates the statute of it has a disparate impact on those with end-stage renal disease. The court rejected this argument noting that the statute’s text “cannot be read to encompass a disparate-impact theory” and that a disparate-impact theory would be “all but impossible to fairly implement.” “The premise of the disparate-impact theory is that the plan’s benefits for outpatient dialysis are inadequate. But what level of benefits would be adequate, and how would courts determine the level of benefits that qualifies as adequate?”

The court also rejected DaVita’s argument that a plan providing limited coverage for outpatient dialysis impermissibly “take[s] into account” the Medicare eligibility of plan participants with end-stage renal disease in violation of the statute. “Because the Plan provides the same out-patient dialysis benefits to all Plan participants, whether or not a participant is entitled to or eligible for Medicare, the Plan cannot be said to ‘take into account’ whether its participants are entitled to or eligible for Medicare.”

Justices Elena Kagan and Sonia Sotomayor dissented, noting that almost everyone receiving outpatient dialysis has end stage renal disease. “A reimbursement limit for outpatient dialysis is in reality a reimbursement limit for people with end stage renal disease. And so a plan singling out dialysis for disfavored coverage ‘differentiate[s] in the benefits it provides between individuals having end stage renal disease and other individuals.’ ”

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This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.