DaVita Inc. v. Amy's Kitchen, Inc.

Decision Date24 November 2020
Docket NumberNo. 19-15963,19-15963
Citation981 F.3d 664
Parties DAVITA INC.; Star Dialysis, LLC, Plaintiffs-Appellants, v. AMY'S KITCHEN, INC.; Amy's Kitchen, Inc. Employee Benefit Health Plan, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

John Patrick Elwood (argued), Andrew T. Tutt, and Samuel F. Callahan, Arnold & Porter Kaye Scholer LLP, Washington, D.C., for Plaintiffs-Appellants.

Floyd G. Short (argued) and Katherine M. Peaslee, Susman Godfrey LLP, Seattle, Washington, for Defendants-Appellees.

Deanna J. Reichel, Fish & Richardson P.C., Minneapolis, Minnesota, for Amicus Curiae Dialysis Patient Citizens.

Mary L. Stoll, Stoll Law Group, PLLC, Seattle, Washington, for Amici Curiae Self-Insurance Institute of America, Inc. and Pacific Health Coalition.

Before: Susan P. Graber and William A. Fletcher, Circuit Judges, and Leslie E. Kobayashi,* District Judge.

Opinion by Judge Graber

GRABER, Circuit Judge:

Renal dialysis

is a life-saving treatment for those with serious kidney afflictions, including acute kidney injury and end-stage renal disease ("ESRD"). Plaintiffs DaVita, Inc., and Star Dialysis (collectively, "DaVita") provide dialysis treatment to many patients and seek payment from any applicable group health plan. One of DaVita's patients is a beneficiary of Defendant Amy's Kitchen's Employee Benefit Health Plan ("Amy's Plan" or "the Plan"), a health plan offered and administered by Defendant Amy's Kitchen, Inc. ("Amy's Kitchen"). The patient has ESRD and has received routine maintenance dialysis from DaVita. Amy's Plan covers all types of dialysis, regardless of the underlying diagnosis, but the Plan's reimbursement rate for dialysis differs from the rate it pays for many other services. The Plan paid DaVita according to the Plan's terms.

Dissatisfied with the payment amounts that it received from Amy's Plan, DaVita brought this action, arguing that the Plan's dialysis provisions violate (1) the Medicare as Secondary Payer provisions ("MSP") of the Social Security Act, (2) the Employee Retirement Income Security Act of 1974 ("ERISA"), and (3) state law. The district court dismissed the federal claims and declined to exercise supplemental jurisdiction over the state-law claims. With respect to the MSP claim, the court held that, because the Plan reimburses at the same rate for all dialysis services, regardless of underlying diagnosis and regardless of Medicare eligibility, the Plan does not violate the MSP. Reviewing de novo and taking the allegations in the complaint as true, Daewoo Elecs. Am., Inc. v. Opta Corp., 875 F.3d 1241, 1246 (9th Cir. 2017), we agree with the district court's conclusions and therefore affirm.

FACTUAL AND PROCEDURAL HISTORY

Doctors classify chronic kidney disease

into five stages. The last stage, Stage 5, is known as kidney failure or ESRD. More than 700,000 people in the United States have ESRD. To survive, a person with ESRD requires either a kidney transplant or routine maintenance dialysis, a treatment that performs the functions of a kidney. 42 C.F.R. § 406.13(b) ; see also Kidney Disease Statistics for the United States, Nat'l Insts. of Health (December 2016), https://www.niddk.nih.gov/health-information/health-statistics/kidney-disease. Most persons with ESRD never receive a kidney transplant, so they receive regular maintenance dialysis for the remainder of their lives. According to DaVita, a person with ESRD typically receives dialysis three times a week. Persons with ESRD are eligible for Medicare pursuant to 42 U.S.C. § 426-1 after the first three months of regular dialysis treatment.

People with ESRD are not the only recipients of dialysis. The other common recipients of dialysis are those with "acute kidney injury," described by the National Kidney Foundation as "a sudden episode of kidney failure

or kidney damage that happens within a few hours or a few days." Acute Kidney Injury, Nat'l Kidney Found. (Oct. 30, 2020), https://www.kidney.org/atoz/content/ AcuteKidneyInjury. Acute kidney injury has many different causes and correlated diseases. Id. Recently, for example, a study cited by the National Kidney Foundation concluded that "people hospitalized with COVID-19 are at significant risk of [acute kidney injury]." Kidney Disease and COVID-19, Nat'l Kidney Found., https://www.kidney.org/coronavirus/kidney-disease-covid-19 (last visited Nov. 16, 2020). Treatment of acute kidney injury restores long-term kidney function. Accordingly, unlike persons with ESRD, persons with acute kidney injury generally recover enough kidney function so that they no longer need dialysis. Similarly, unlike persons with ESRD, persons with acute kidney injury are not eligible for Medicare pursuant to 42 U.S.C. § 426-1.

When a patient with ESRD is enrolled in both Medicare and a group health plan, the MSP allocates primary-payer responsibility between Medicare and the plan. Once the individual becomes eligible for Medicare, which occurs after three months of dialysis treatment, the plan remains the primary payer and Medicare becomes the secondary payer during a 30-month coordination period. 42 U.S.C. § 1395y(b)(1)(C)(i). When the coordination period ends, the plan may be the secondary payer thereafter. Id. § 1395y(b)(1)(C).

The MSP also imposes two substantive requirements on group health plans with respect to persons with ESRD. First, during the coordination period, a plan may not "take into account" a person's eligibility for Medicare due to ESRD. Id. § 1395y(b)(1)(C)(i). Second, a plan may not "differentiate in the benefits it provides between individuals having [ESRD] and other individuals covered by [the] plan on the basis of the existence of [ESRD], the need for renal dialysis

, or in any other manner." Id. § 1395y(b)(1)(C)(ii).

Amy's Kitchen sells organic foods throughout the United States and employs more than 2,400 people. Many employees are eligible to enroll in Amy's Plan, which is an "employee benefit plan" pursuant to ERISA. Amy's Plan is a preferred provider organization health plan. A beneficiary may visit any medical provider, some of which are "in-network" and some of which are "out-of-network." For many medical services, the Plan provides no coverage at all, whether that service is given by an in-network or an out-of-network provider. But for most services covered by the Plan, the processing of claims depends on whether the beneficiary visits an in-network provider or an out-of-network provider. Visiting an in-network provider generally results in lower copayments and other advantages for beneficiaries. The Plan typically pays in-network providers according to a rate determined by contract and pays out-of-network providers, in the words of the Plan, the "Customary, Usual, and Reasonable Charge" for the service.

"Patient 1" is a beneficiary of Amy's Plan who has ESRD. Patient 1 began receiving regular dialysis treatment in 2016 from DaVita. At the time, DaVita was an in-network provider, and the Plan reimbursed DaVita at the appropriate contractual rate.

In 2017, Amy's Plan modified its terms of coverage by implementing a "Dialysis Benefit Preservation Program." The Plan explained that it had found evidence of "significant inflation" of prices charged by dialysis providers; the use of inflated revenues "to subsidize reduced prices to other types of payers as incentives"; and "the specific targeting of the Plan and other non-governmental and non-commercial plans by the dialysis providers as profit centers." The Plan implemented the program because of its

fiduciary obligation to preserve Plan assets against charges which (i) exceed reasonable value due to factors not beneficial to covered persons ... and (ii) are used by the dialysis providers for purposes contrary to the covered persons’ interests, such as subsidies for other plans and discriminatory profit-taking.

The Program applies to all claims for "reimbursement of products and services provided for purposes of outpatient dialysis, regardless of the condition causing the need for dialysis." The Plan no longer uses the in-network/out-of-network distinction for dialysis-related reimbursements. Instead, "[a]ll dialysis-related claims will be subject to cost review by the plan administrator to determine whether the charges indicate the effects of market concentration or discrimination in charges."

With respect to dialysis-related claims, the plan administrator shall determine the Usual and Reasonable Charge based upon the average payment actually made for reasonably comparable services and/or supplies to all providers of the same services and/or supplies by all types of plans in the applicable market during the preceding calendar year, based upon reasonably available data, adjusted for the national Consumer Price Index medical care rate of inflation.

The "Usual and Reasonable Charge" differs from the "Customary, Usual, and Reasonable Charge" that applies to reimbursements for some other types of medical treatment.

DaVita alleges that the reimbursements that it received beginning in 2017 were far less than the reimbursements that it received in 2016. DaVita brought this action, alleging claims on its own behalf and as an assignee of Patient 1's claims. DaVita alleges that the Plan's 2017 implementation of the dialysis-specific program violated the MSP, ERISA, and state law. The district court dismissed with prejudice all federal claims and declined to exercise supplemental jurisdiction over the state-law claims. DaVita timely appeals.

DISCUSSION
A. MSP Claim

The MSP imposes two substantive requirements on group health plans with respect to persons with ESRD. A group health plan:

(i) may not take into account that an individual is entitled to or eligible for benefits under this subchapter under section 426-1 of this title [during the 30-month coordination period]; and
(ii) may not differentiate in the benefits it provides between individuals having end stage renal disease

and other...

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