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Marietta Memorial Hospital Employee Health Benefit Plan v DaVita Inc. - Dialysis Carve-Out

By: David Ostrowsky

In one of last month’s momentous Supreme Court cases, Marietta Memorial Hospital Employee Health Benefit Plan v. DaVita Inc., the justices confronted the legal question of whether the health plan covering employees of a small Ohio hospital contained a dialysis carve-out discriminating against participants with end-stage renal dialysis (ESRD). The Court, in a 7-2 decision, ruled that there was no such discrimination because the dialysis carve-out neutrally applied to all outpatient dialysis claims, not just those involving ESRD, and thus did not violate the Medicare Secondary Payer Act (MSP). While the Court’s ruling in favor of Marietta Memorial Hospital was surely a major victory for health plans implementing dialysis carve-outs, as well as plan sponsors, the contextual background to this case speaks to some critical underlying issues in the healthcare industry.


Dialysis Monopoly

The unfortunate reality is that dialysis remains an exorbitantly expensive medical treatment primarily because the industry is highly concentrated. Just two companies, Fresenius Medical Care (Fresenius) and DaVita Healthcare Partners, Inc. (DaVita), control more than 80% of the market, according to research conducted by CNBC. Since just two providers have enormous leverage in the market, health plans have had to resort to various cost containment strategies, including dialysis carve-outs, to protect themselves from incurring such burdensome costs—while being careful not to run afoul of federal law. Indeed, sky-high prices are a systemic problem and one that can arguably only be remedied if more competitors enter the market to drive down the rates of a treatment that is already inherently pricey.

Necessary Due Diligence

In terms of the outcome of the case, Marietta Memorial Hospital was able to prevail in large part because the employer did its due diligence by confirming in its network contract that its dialysis carve-out was permissible and subsequently received such permission from the network in writing. Oftentimes, there can be misinterpretation during a verbal exchange—a plan may think a network agreed to a carve-out, when in actuality there was no explicit answer to indicate the affirmative. After all, it is important to remember that there are two agreements, the payer side contract and the provider side contract, and both entities are contracted separately with the network. In the case of a conflict arising between the two agreements, the provider side agreement typically takes precedence over what the payer believes to be the financial terms.

What This Victory Entails

Lastly, Marietta’s victory serves as a testament to the paramount importance of incorporating proper plan language specifying that a carve-out relates to all dialysis claims—and not just those involving individuals with ESRD. The Court’s decision is not a blanket approval of all dialysis carve-outs; rather, the ruling clearly laid out the framework for how plans can include language supporting well-drafted, neutrally applied dialysis carve-outs; language that The Phia Group has developed specialized expertise in crafting for its clients nationwide.