Star Dialysis, LLC v. Winco Foods Emp. Benefit Plan

Decision Date12 July 2019
Docket NumberCase No. 1:18-cv-00482-CWD
Citation401 F.Supp.3d 1113
Parties STAR DIALYSIS, LLC; Ordust Dialysis, LLC ; Routt Dialysis, LLC; Panther Dialysis, LLC ; DaVita Inc., Plaintiffs, v. WINCO FOODS EMPLOYEE BENEFIT PLAN; WinCo Foods, LLC; and WinCo Holdings, Inc., Defendants.
CourtU.S. District Court — District of Idaho

Brendan S. Maher, Pro Hac Vice, John Stokes, Pro Hac Vice, Peter K. Stris, Pro Hac Vice, Rachana A. Pathak, Pro Hac Vice, Stris & Maher LLP, Los Angeles, CA, Michael N. Donofrio, Pro Hac Vice, Stris & Maher, Montpelier, VT, Jay M. Gustavsen, Davison Copple Copple & Copple, Boise, ID, for Plaintiffs.

Caitlin D. Kling, Hawley Troxell, Coeur D' Alene, ID, John Christopher Hughes, The Erisa Law Group, P.A., Tyler J. Anderson, Hawley Troxell Ennis & Hawley LLP, Boise, ID, for Defendants.


Honorable Candy W. Dale, United States Magistrate Judge


In this action for violations of the Employee Retirement Income Security Act of 1974 (ERISA) and the Medicare as Secondary Payer Act (MSPA), along with related state law claims, Defendants WinCo Foods Employee Benefit Plan, WinCo Foods, LLC, and WinCo Holdings, Inc. (collectively, "WinCo"), move to dismiss the complaint under Fed. R. Civ. P. 12(b)(6). Plaintiffs oppose the motion. For the reasons set forth below, the motion will be granted in part and denied in part.1

1. Allegations and Factual Background

Plaintiffs Star Dialysis, LLC, Ordust Dialysis, LLC, Routt Dialysis, LLC, Panther Dialysis, LLC, and DaVita, Inc. (collectively, "DaVita") are dialysis treatment providers. Compl. ¶ 1, ¶¶ 14-18. (Dkt. 1.) WinCo Foods, LLC, a subsidiary of WinCo Holdings, Inc., is a Delaware limited liability company with its principal place of business in Boise, Idaho. WinCo Foods operates supermarkets in nine western states. Id. ¶¶ 19-20. WinCo Holdings is the sponsor and plan administrator of the WinCo Foods Employee Benefit Plan ("Plan"), which provides medical and health benefits to WinCo employees. Id. ¶¶ 19-23. The Plan covers over ten thousand current or former WinCo employees and their family members. Id. ¶ 40.

DaVita provides dialysis treatment to beneficiaries of the Plan who suffer from end-stage renal disease

("ESRD"). Id. ¶ 1. ESRD is another term for kidney failure, and is the last stage of chronic kidney disease. Id. ¶ 24. Dialysis is a procedure that substitutes for many of the normal functions of the kidneys, such as removing waste products that the body produces, and allows patients with ESRD to survive. Id. ¶ 25.

Until December 31, 2016, WinCo paid DaVita an in-network, or contracted, rate through Blue Cross of Idaho Health Service, Inc., ("Blue Cross"), the Plan's contract administrator, which rate was "significantly lower than the usual and customary rates DaVita charges" for dialysis. Id. ¶ 1. As of January 1, 2017, WinCo eliminated network coverage and dramatically reduced reimbursement rates for dialysis by hiring EthiCare Advisors, Inc., as its contract administrator for dialysis patients, including patients with ESRD. Id. ¶ 2. (See also Dkt. 20-3 at 5.)3

According to DaVita, WinCo's elimination of in-network coverage violates the MSPA, which allocates payment responsibilities between Medicare and private payors. Id. ¶¶ 2-3. Before Congress enacted the MSPA, private insurers had an incentive to push ESRD sufferers onto Medicare, because individuals with ESRD are entitled to Medicare regardless of age or financial status. Id. ¶ 3. The MSPA reversed this coverage shifting by making "private insurers ... the ‘primary’ payers and Medicare the ‘secondary’ payer" during an individual's first thirty months of ESRD-based Medicare eligibility. Id. ¶ 3 (quoting Bio-Medical Applications of Tenn. v. Cent. Sts. Se. & Sw. Areas Health & Welfare Fund , 656 F.3d 277, 278 (6th Cir. 2011) ). DaVita claims that WinCo's Plan violates this "foundational principle" by eliminating in-network coverage of dialysis, in turn creating an incentive for patients with ESRD to drop out of the WinCo Plan and rely on Medicare, because their Medicare payment obligations will be lower. Id. ¶¶ 4–8.

The reimbursement rate DaVita is paid for dialysis treatment depends upon whether a patient's insurance is government-sponsored or private, and whether DaVita is in-network or out-of-network. Id. ¶¶ 31-39. For government-sponsored plans like Medicare, the Medicare fee schedule is set by the federal government and is generally a "small fraction" of the usual and customary amounts DaVita charges and receives for its services, and is much lower than the rates DaVita has negotiated with third party plan administrators, such as Blue Cross of Idaho. Id. ¶¶ 54-55. For private insurance plans, provider reimbursement rates depend upon whether DaVita is "in-network" or "out-of-network" with the plan. Id. ¶¶ 32-34. When DaVita is in-network, DaVita is paid a contractually negotiated rate, and beneficiaries receive financial incentives, such as lower copayments, coinsurance amounts, or deductibles. Id. ¶ 33. When DaVita is out-of-network, it is generally paid a percentage of the usual and customary rate for services (the "UCR" rate). Id. ¶ 34. Beneficiaries who receive care from out-of-network providers may face financial disincentives, such as higher copayments, coinsurance amounts, or deductibles, along with the responsibility to pay any charged amounts not reimbursed by the plan. Id. ¶ 34.

The WinCo Plan is a preferred provider organization ("PPO") health plan, meaning it incentivizes Plan participants to select healthcare providers that have contracted with the Plan for discounted rates. Id. ¶¶ 32. In-network coverage generally protects beneficiaries from having to pay any charged amounts not reimbursed by the Plan. Id. ¶ 38. The WinCo Plan also covers services by out-of-network providers who have not contracted with the Plan. Id. ¶ 34. The Plan pays out-of-network providers a percentage of the usual and customary rate for the services rendered, and the beneficiary must pay all charged amounts not paid by the Plan in addition to any co-payment, co-insurance or deductible. Id. ¶ 34.

WinCo's Plan relies also on third-party claims administrators such as Blue Cross to determine whether to process claims for benefits under the Plan on an in-network or an out-of-network basis. Id. ¶ 35. DaVita contracted with Blue Cross of Idaho and other Blue Cross and Blue Shield companies to provide discounted dialysis treatment to their insureds, and these negotiated rates were substantially lower than the usual and customary rates DaVita charged for its services. Id. ¶¶ 36-37. Until December 31, 2016, WinCo Plan beneficiaries had access to DaVita as an in-network provider, and Blue Cross of Idaho processed claims for treatment rendered to Plan beneficiaries on an in-network basis. Id. ¶ 36-37. DaVita received the rates it had negotiated with Blue Cross of Idaho and other Blue Cross and Blue Shield companies, which rates were substantially lower than the usual and customary rates DaVita charged for its services. Id. ¶ 37. DaVita also did not bill beneficiaries for amounts not paid by the Plan. Id. ¶ 37.

On January 1, 2017, WinCo's Plan contracted with EthiCare Advisors, Inc., a company that purports to specialize in "dialysis claim savings." Id. ¶ 42. The Plan and its agents advised beneficiaries with ESRD that they no longer had access to the Blue Cross network of dialysis providers, including DaVita, and advised beneficiaries that they must select providers in the EthiCare network. Id. ¶ 44. DaVita alleges that this change effectively eliminated in-network coverage for dialysis treatment as of January 1, 2017, because there are no providers included in the EthiCare network. Id. ¶¶ 43-45. EthiCare, as the third-party claims administrator for the WinCo Plan with respect to dialysis claims only, processes all dialysis claims on an out-of-network basis. Id. ¶ 46. Thus, beginning on January 1, 2017, the third-party claims administrator for the WinCo Plan no longer processed claims for treatment rendered by DaVita to Plan beneficiaries on an in-network basis, and DaVita was free to bill beneficiaries for amounts not paid by the Plan. Id. ¶¶ 46-48. As a result, DaVita alleges that WinCo's arrangement with EthiCare induced ESRD sufferers to move from the WinCo Plan to Medicare as their primary payer. Id. ¶ 50.

In addition, DaVita alleges that, since January 1, 2017, the Plan has paid DaVita for treatment rendered to Plan beneficiaries at a Medicare-based rate, which has "nothing to do with" the usual and customary rates for DaVita's services. Id. ¶¶ 53-54. DaVita alleges also that the "Medicare-based rate represents a small fraction of the usual and customary amounts DaVita charges and receives for its services," and is also much lower than the rates DaVita previously negotiated with Blue Cross of Idaho and other Blue Cross and Blue Shield companies. Id. ¶ 55. Further, DaVita alleges that the WinCo Plan continues to pay out-of-network providers of services other than dialysis at more favorable rates than rates based on Medicare. Id. ¶ 56.4

The causes of action in the Complaint arise from the dialysis treatment provided by DaVita to six patients who were beneficiaries of the WinCo Plan both before and after January 1, 2017. Id. ¶¶ 60–65. The allegations regarding the six patients are substantially similar:

a. Prior to treatment,5 DaVita representatives followed standard procedures for the intake of patients and the receipt of payment for services rendered, which procedures included contacting WinCo Plan representatives to verify coverage and to authorize treatment;
b. During the course of these communications, and based on past practice, "the Plan led DaVita to believe it would pay for dialysis" for the six patients at the contracted rate between DaVita and Blue Cross. DaVita alleges that, with regard to Patient 1, DaVita was told in March of 2017 specifically that coverage and benefits

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