DaVita, Inc. v. Marietta Mem'l Hosp. Emp. Health Benefit Plan, No. 19-4039

• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)
• Writing for the Court: KAREN NELSON MOORE, Circuit Judge.
• Citation: 978 F.3d 326
• Parties: DAVITA, INC.; DVA Renal Health, Inc., Plaintiffs-Appellants, v. MARIETTA MEMORIAL HOSPITAL EMPLOYEE HEALTH BENEFIT PLAN; Marietta Memorial Hospital; Medical Benefits Mutual Life Insurance Co., Defendants-Appellees.
• Docket Number: No. 19-4039
• Decision Date: 14 October 2020

978 F.3d 326

DAVITA, INC.; DVA Renal Health, Inc., Plaintiffs-Appellants,
v.
MARIETTA MEMORIAL HOSPITAL EMPLOYEE HEALTH BENEFIT PLAN; Marietta Memorial Hospital; Medical Benefits Mutual Life Insurance Co., Defendants-Appellees.

No. 19-4039

United States Court of Appeals, Sixth Circuit.

Argued: July 30, 2020
Decided and Filed: October 14, 2020
Rehearing En Banc Denied December 23, 2020

KAREN NELSON MOORE, Circuit Judge.

978 F.3d 331

Plaintiff DaVita, Inc. and its subsidiary, DVA Renal Healthcare, Inc., appeal the district court's dismissal of their lawsuit alleging various violations of the Medicare Secondary Payer Act and the Employee Retirement Income Security Act of 1974 by an employee health benefit plan and its administrators. According to DaVita, the plan unlawfully treated a plan participant and DaVita patient—known as Patient A in this lawsuit—differently because this patient suffers from end-stage renal disease. In particular, the plan allegedly targeted renal dialysis services, which DaVita provides to Patient A, with poor reimbursement rates, in the hopes that dialysis patients like Patient A would switch to Medicare, which they are legally entitled to do three months after being diagnosed with the disease. Upon the defendants’ motions to dismiss, the district court dismissed all of DaVita's claims with prejudice, and DaVita appealed. For the following reasons, we are persuaded that, as to Counts I, II, and VII of its complaint, DaVita has plausibly alleged that the defendants have engaged in unlawful discrimination. As to the rest of its claims, DaVita lacks a sufficient interest to prosecute them. Accordingly, we AFFIRM in part, REVERSE in part, and REMAND for discovery and further proceedings on Counts I, II, and VII of DaVita's complaint.

I. BACKGROUND¹

Plaintiff DaVita, and its subsidiary, Plaintiff DVA Renal Healthcare, Inc., are leading providers of dialysis treatment in the United States. R. 1 (Compl. ¶¶ 11–12) (Page ID #5). Since April 15, 2017, DaVita has provided dialysis treatment to Patient A, an anonymous individual diagnosed with end-stage renal disease ("ESRD"). Id. ¶¶ 19, 29 (Page ID #6–7, 10). Before Patient A began receiving treatment, the patient signed an "Assignment of Benefits" form that assigned their rights under the insurance plan to DaVita. Id. ¶ 31 (Page ID #10). Between April 15, 2017, and August 31, 2018, the costs of Patient A's dialysis sessions were reimbursed by their health benefit plan, Defendant Marietta Memorial Hospital Employee Health Benefit Plan (the "Plan"), a self-funded plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"). Id. ¶¶ 13, 29 (Page ID #5, 10). The Plan is funded and administered by Defendant Marietta Memorial Hospital, and its benefit manager is Defendant Medical Benefits Mutual Life Insurance Co. ("MedBen"). Id. ¶¶ 14–15 (Page ID #5).

The Plan provides three tiers of reimbursement benefits, and during the period that Patient A was a member of the Plan, the Plan reimbursed DaVita for the patient's dialysis costs at the bottom tier, Tier 3. Id. ¶ 24 (Page ID #8). This bottom tier applied to providers, like DaVita, who are "out-of-network." Id. DaVita was not alone as a bottom-tier dialysis provider—under the Plan's terms, all dialysis providers are considered out-of-network and are thus subject to lower reimbursement amounts than providers in Tier 1 and Tier 2 are. Id. ¶ 25 (Page ID #8). In addition to this categorically lower reimbursement

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level, dialysis providers like DaVita are subject to a further, unique limitation. Whereas most out-of-network providers are reimbursed in the bottom tier based on a "reasonable and customary" fee as the term is understood in the healthcare industry, dialysis providers are subject to an "alternative basis for payment." Id. ¶ 27 (Page ID #9). Specifically, reimbursement for dialysis providers "will not exceed the maximum payable amount applicable ... which is typically one hundred twenty-five percent (125%) of the current Medicare allowable fee." Id. (quoting Compl. Ex. A at 17). Finally, for the dialysis service itself, the Plan reimburses at a rate of 70% of the 125% of the Medicare allowable fee—in other words, 87.5% of the Medicare rate, see Appellant Br. at 20—a fee which is already lower than the industry-wide definition of a "reasonable and customary" fee. R. 1 (Compl. ¶ 28) (Page ID #9–10). For these reasons, DaVita was reimbursed at a relatively lower rate both compared to in-network providers and to other out-of-network providers.

DaVita was not the only entity that allegedly suffered due to the Plan's differential treatment of dialysis reimbursement. During the time that Patient A was covered by the Plan, the patient had no in-network options for dialysis services, exposing them to higher copayments, coinsurance amounts, and deductibles. Id. ¶ 48 (Page ID #16–17). Patient A was allegedly at risk of DaVita billing them for the balance of what the Plan had not reimbursed DaVita. Id. ¶ 35 (Page ID #11–12). The Plan also identified dialysis as subject to heightened scrutiny, such as "cost containment review" and "claim audit and/or review," which allegedly incentivizes dialysis patients to abandon the Plan and switch to Medicare. Id. ¶ 51 (Page ID #18). On August 31, 2018, Patient A dropped the Plan as a primary insurance provider and switched to Medicare, to which they were entitled by virtue of having ESRD. Id. ¶ 29 (Page ID #10); see 42 U.S.C. § 426–1.

On December 19, 2018, DaVita filed a complaint against the defendants, alleging that the Plan treats dialysis providers differently from other medical providers in violation of the Medicare Secondary Payer Act ("MSPA") and ERISA. R. 1 (Compl. at 1) (Page ID #1). The complaint is brought on DaVita's behalf and on behalf of Patient A. Id. ¶ 10 (Page ID #4). The crux of DaVita's complaint is that by offering inferior benefits to individuals with ESRD, the Plan unlawfully incentivized such individuals, like Patient A, to drop the Plan as their health insurer and go on Medicare. Id. ¶ 6, 50 (Page ID #3, 17–18). On February 14, 2019, Marietta Memorial Hospital and the Plan moved to dismiss DaVita's complaint, R. 17 (Marietta Mot. to Dismiss at 1) (Page ID #182), and on the next day, MedBen did the same, R. 18 (MedBen Mot. to Dismiss at 1) (Page ID #192).

On September 20, 2019, the district court granted the defendants’ motions to dismiss in a written opinion and order, dismissing all of DaVita's counts with prejudice. See DaVita, Inc. v. Marietta Mem'l Hosp. Emp. Health Benefit Plan , No. 2:18-CV-1739, 2019 WL 4574500, at *5, 7 (S.D. Ohio Sept. 20, 2019). As to DaVita's MSPA claim, the district court explained that the MSPA private cause of action was available only to sue for recovery of payments that Medicare had made to a provider when a plan failed to make these payments and that, in this case, Medicare had made no such payments. Id. at *2–3. Alternatively, the district court held that even if this private cause of action were available, the Plan had not discriminated unlawfully against individuals with ESRD through its reimbursement system. Id. at *3–5. As to DaVita's ERISA claims that were premised on MSPA violations, the district court held that its analysis regarding the lack of unlawful discrimination foreclosed these

978 F.3d 333

claims. Id. at *5. Lastly, as to DaVita's ERISA claims that were premised on a breach-of-fiduciary-duty theory, the district court held that the Assignment of Benefits signed by Patient A was insufficient to confer standing on DaVita to bring these claims. Id. at *5–7.² DaVita timely appealed. R. 48 (Notice of Appeal at 1) (Page ID #494).

II. STANDARD OF REVIEW

We review de novo the district court's grant of a motion to dismiss. Milligan v. United States , 670 F.3d 686, 692 (6th Cir. 2012). A complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), and is properly dismissed if it "fail[s] to state a claim upon which relief can be granted," Fed. R. Civ. P. 12(b)(6). "[A] federal court of appeals is not restricted to ruling on the district court's reasoning, and may affirm a district court's grant of a motion to dismiss on a basis not mentioned in the district court's opinion." In re Comshare, Inc. Sec. Litig. , 183 F.3d 542, 547–48 (6th Cir. 1999). "This Court reviews de novo the district court's decision to dismiss a claim for lack of standing." Coyne v. Am. Tobacco Co. , 183 F.3d 488, 492 (6th Cir. 1999).

III. DISCUSSION

A. The Private Cause of Action

DaVita's complaint first alleges a violation of the MSPA through the Act's private cause of action. The defendants argue that a Medicare conditional payment is required before a party can sue under this cause of action and that, in this case, Medicare was not allegedly forced to make a conditional payment to cover the Plan's obligations. We agree with the first proposition and disagree with the second. Although the plain text of the private-cause-of-action provision requires Medicare to make a conditional payment before the cause of action is available, Medicare allegedly made such a payment in this case. In order to explain why, a brief background on the statutory framework is...