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DaVita Inc. v. Virginia Mason Memorial Hospital

United States District Court, W.D. Washington, Seattle

July 16, 2019

DAVITA INC., Plaintiff,


          Barbara Jacobs Rothstein U.S. District Court Judge


         Established in 1965 as part of the Social Security Act, 42 U.S.C. § 1395 et seq., Medicare is a federally funded medical insurance program for the elderly, disabled, and individuals with end-stage renal disease (“ESRD”). For many years, Medicare served as the primary payer of healthcare costs for Medicare eligible individuals regardless of whether these individuals were also covered by privately-funded health insurance, but in 1980 Congress enacted the Medicare Secondary Payer Act (“MSPA”), 42 U.S.C. §1395y(b), to curb the impact of skyrocketing healthcare costs on the federal fisc. MSPA inverted the relationship between Medicare and privately-funded health insurance by making Medicare secondary to any primary plan obligated to pay a Medicare recipient's medical expenses. 42 U.S.C. § 1395y(b)(2)(A). In other words, when both Medicare and a private plan would cover a Medicare beneficiary's expenses, MSPA makes Medicare the “secondary” payer and the private plan the “primary” payer.

         With respect to individuals in ESRD, specifically, MSPA is the secondary payer to privately-funded group health plans for a “coordination period”-a period of up to 30 consecutive months that begins the month in which the individual became eligible for Medicare based on ESRD. During this time, the individual can choose to have the privately-funded group health plan remain the primary payer or switch to Medicare as the primary payer. MSPA forbids the privately-funded group plan from “taking into account” an individual's ESRD diagnosis or “differentiating” in the benefits offered to that individual during this 30-month coordination period.

         Plaintiff DaVita Inc. (“Plaintiff”) is a medical facility that provides kidney care, including dialysis treatment, for individuals with kidney disease, including at least one individual (“Patient 1”) who is a beneficiary of a privately-funded group health insurance plan (“the Plan”) offered by Virginia Mason Memorial Hospital f/k/a Yakima Valley Memorial Hospital (“the Hospital”) to its employees. Plaintiff instituted this lawsuit in May 2019, alleging that the Plan provides reduced benefits to Medicare-eligible ESRD patients and reimburses at a lower rate services provided to such patients in violation of MSPA. Plaintiff further alleges that as a result of these violations, the Plan underpaid Plaintiff for its services to Patient 1 by at least $1.7 million. Plaintiff brings this action against the Plan and the Hospital (collectively “Defendants”) for double damages pursuant to MSPA's “private cause of action” at § 1395y(b)(3)(A).

         Currently before the Court is Defendants' motion to dismiss Plaintiff's complaint for failure to state a claim on which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). Dkt. No. 18. Plaintiff opposes the motion. Dkt. No. 22. Having reviewed the motion, the opposition thereto, the record of the case, and the relevant legal authorities, the Court will grant the motion. The reasoning for the Court's decision follows.


         The Plan at issue in this lawsuit is an employee welfare benefit plan governed by ERISA. Its purpose is to provide health and medical benefits to the Hospital's employees. According to the complaint, the Plan operates like most privately-funded group health insurance plans in that it offers different levels of coverage based on whether services are rendered by in-or out-of-network providers. Dkt. No. 1 at ¶ 24. The Plan reimburses providers for those services based on contractually agreed upon fee schedules. Id. at ¶ 26.

         However, Plaintiff alleges that the Plan places services provided to ESRD Medicare-eligible individuals in “an entirely separate” category with a significantly “lower[] payment regime.” Id. at ¶ 27. According to Plaintiff, instead of paying for ESRD Medicare-eligible services according to the contractually agreed upon fee schedules, the Plan “pay[s] claims for ESRD services at 125% of the then current Medicare allowable for ESRD services.” Id. Plaintiff claims that this rate is significantly “lower than the amount the Plan pays for exactly the same services before a patient becomes Medicare eligible because of ESRD.” Id. at ¶ 28. Therefore, Plaintiff argues, the Plan violates both the MSPA's prohibition against “taking into account” an ESRD patient's Medicare eligibility and its admonishment that a private insurer “not differentiate” in the benefits it provides to individuals in ESRD.

         As stated above, Plaintiff claims that it provides dialysis services to Patient 1, an ESRD Medicare-eligible individual covered by the Plan. According to Plaintiff, it treated Patient 1 for ESRD for three months before Patient 1 became Medicare eligible due to the ESRD diagnosis. Plaintiff alleges that during those three months, the Plan reimbursed Plaintiff for its services according to the pre-arranged fee schedule. However, at the end of the three months (i.e., once Patient 1 became eligible for Medicare due to the ESRD), Plaintiff alleges that the Plan began reimbursing it at the reduced Medicare-based rate. Plaintiff claims that the Plan continued to reimburse it at this reduced rate for the next 20 months until Patient 1 “switched from the Plan to Medicare for primary coverage” of his treatment. Id. at ¶ 36. As a result, Plaintiff alleges, it was underpaid for its services to Patient 1 by “at least $1.7 million”. Id. at ¶ 35.


         In considering a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss, the Court must determine whether the plaintiff has alleged sufficient facts to state a claim for relief which is “plausible on its face.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1951 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible if the plaintiff has pled “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. 556). In making this assessment, the court accepts all facts alleged in the complaint as true, and makes all inferences in the light most favorable to the non-moving party. Baker v. Riverside County Office of Educ., 584 F.3d 821, 824 (9th Cir. 2009) (internal citations omitted). The court is not, however, bound to accept the plaintiff's legal conclusions. Iqbal, 129 S.Ct. at 1949-50. While detailed factual allegations are not necessary, the plaintiff must provide more than “labels and conclusions” or a “formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555.


         As stated above, Plaintiff brings this action against Defendants alleging a violation of MSPA based on Plaintiff's dialysis services to Patient 1 who is a beneficiary of the Plan and is Medicare-eligible based on an ESRD diagnosis. Plaintiff alleges that Defendants have “blatantly violated their duties to provide unbiased coverage to patients who have [ESRD]” by “tak[ing] into account” an ESRD patient's Medicare eligibility in shaping [the Plan's] benefits” and by “differentiat[ing] in the benefits [the Plan] provides between individuals having [ESRD] and other individuals covered by [the Plan] on the basis of the existence of [ESRD].” Dkt. No. 22 at 2. Plaintiff alleges that as a result of ...

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