Amicus Curiae Brief — Marietta Memorial Hospital Employee Health Benefit Plan, et al., Petitioners v. DaVita Inc., et al.

Supreme Court briefDec 22, 2021

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No. 20-1641

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In The

Supreme Court of the United States

---------------------------------♦--------------------------------MARIETTA MEMORIAL HOSPITAL

EMPLOYEE HEALTH BENEFIT PLAN, ET AL.,

Petitioners,

DAVITA INC., ET AL.,

Respondents.

---------------------------------♦--------------------------------On Writ Of Certiorari To The

United States Court Of Appeals

For The Sixth Circuit

---------------------------------♦--------------------------------BRIEF OF THE

PACIFIC HEALTH COALITION, ET AL.

AS AMICUS CURIAE

IN SUPPORT OF PETITIONERS

---------------------------------♦--------------------------------MARY L. STOLL

STOLL LAW GROUP, PLLC

9725 SE 36th St., Suite 201

Mercer Island, WA 98040

marys@mlstoll-law.com

Telephone (206) 623-2855

JOHN R. CHRISTIANSEN

Counsel of Record

CHRISTIANSEN IT LAW

2103 Harrison Ave. NW,

Suite 2

PMB-885

Olympia, WA 98502

john@christiansenlaw.net

Telephone (360) 915-9895

Counsel for Amicus Curiae

December 22, 2021

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COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .................................

iii

INTEREST OF AMICUS CURIAE ......................

SUMMARY OF THE ARGUMENT .....................

ARGUMENT ........................................................

II.

The Structure of the U.S. Dialysis Financing System .................................................

Mandatory Dialysis Benefit Terms Are

Contrary to Established Principles of Benefit Design Deference ................................

A. ERISA and the Invention of the

EGHP ...................................................

B. Legislative Deference to Plan Benefit

Design ....................................................

C. Benefits Design and the Financial Realities of Self-Insured EGHPs.................. 14

II.

Medicare Dialysis Procurement Created

Dialysis Monopoly Pricing ......................... 19

A. The Creation of the Medicare Dialysis

Benefit: Emerging Technology Meets

Social Welfare Ambition ...................... 19

B. Medicare Dialysis Benefit Cost Containment: Legislative Strategies........... 22

C. Medicare Dialysis Procurement and the

Noncompetitive Private Market ........... 24

D. The Creation and Results of a Noncompetitive Dialysis Market........................ 29

TABLE OF CONTENTS—Continued

Page

E. Specific Impacts on Provider Prices to

Self-Insured EGHPs .............................. 34

CONCLUSION..................................................... 38

iii

TABLE OF AUTHORITIES

Page

CASES

Bio-Medical Applications of Tennessee, Inc. v.

Central States Southeast and Southwest

Areas Health and Welfare Fund,

656 F.3d 277 (6th Cir. 2011) ....................................23

DaVita Inc. v. Amy’s Kitchen, Inc.,

981 F.3d 664 (9th Cir. 2020) ....................................18

DaVita Inc. v. Va. Mason Mem’l Hosp.,

981 F.3d 679 (9th Cir. 2020) ....................................23

DaVita v. Amy’s Kitchen,

U.S.D.Ct. No. 4:18-cv-6975 (N.D. Cal.)....................31

DaVita v. Marietta Memorial Hospital,

U.S.D.Ct. No. 2:18-cv-1739 (S.D. Ohio) ...................31

DaVita v. Smithfield Foods,

U.S.D.Ct. No. 2:18-cv-653 (E.D. Va.) .......................31

DaVita v. Virginia Mason Memorial Hospital,

U.S.D.Ct. No. 2:19-cv-302 (W.D. Wa.) ......................31

DaVita v. WinCo,

U.S.D.Ct. No. 1:18-cv-00482 (D. Idaho)...................31

Dialysis Newco, Inc. v.

Cmty. Health Sys. Grp. Health Plan,

938 F.3d 246 (5th Cir. 2019) ....................................36

Fiscus v. Wal-Mart Stores, Inc.,

385 F.3d 378 (3d Cir. 2004) .....................................13

Hughes Aircraft Co. v. Jacobson, 525 U.S. 432

(1999) .......................................................................10

TABLE OF AUTHORITIES—Continued

Page

Lockheed Corp. v. Spink,

517 U.S. 882 (1996) ........................................... 10, 11

Lubbock County Hospital District v.

Specialty Care Management,

No. 5:16-CV-037-C (U.S. N.D. Tex.) .........................36

Metro. Life Ins. Co. v. Massachusetts,

471 U.S. 724, 105 S. Ct. 2380 (1985) .........................7

N.Y. State Conference of Blue Cross &

Blue Shield Plans v. Travelers Ins. Co.,

514 U.S. 645, 115 S. Ct. 1671 (1995) .......................10

Owens v. Storehouse, Inc.,

984 F.2d 394 (11th Cir. 1993) ..................................11

Pegram v. Herdrich,

530 U.S. 211 (2000) .................................................15

UnitedHealthcare of Florida v.

American Renal Associates,

U.S.D.Ct. No. 9:16-cv-81180-KAM (S.D. Fla.) ........36

Varity Corp. v. Howe,

516 U.S. 489 (1996) ...................................................9

STATUTES

26 U.S.C. § 5000(b)(1) ...................................................3

26 U.S.C. § 9832(a) ........................................................3

26 U.S.C. § 9832(b)(2) ...................................................4

29 U.S.C. § 1002(1) ........................................................9

29 U.S.C. § 1002(16)(B) ...............................................10

TABLE OF AUTHORITIES—Continued

Page

29 U.S.C. § 1002(21)(A) ...............................................10

29 U.S.C. § 1104(a)(1) .................................................15

29 U.S.C. § 1161 ..........................................................11

29 U.S.C. § 1169 ..........................................................11

29 U.S.C. § 1182(a)(1) .................................................12

42 U.S.C. § 12101 ........................................................13

Pub.L. 104-191 ............................................................11

Pub.L. 111-148 ............................................................12

Pub.L. 92–603 .............................................................21

Pub.L. 93–406 ...............................................................7

RULES

Sup. Ct. R. 37.3 .............................................................1

Sup. Ct. R. 37.6 .............................................................1

REGULATIONS

29 C.F.R. § 1630.16(f )(3) .............................................13

29 C.F.R. § 1630.4(a)(vi)..............................................13

42 C.F.R. § 413.231 .....................................................25

OTHER AUTHORITIES

American Renal Associates Annual Report

(2018) .......................................................................30

TABLE OF AUTHORITIES—Continued

Page

Baker, Health Insurance, Risk, and Responsibility after the Patient Protection and Affordable

Care Act, 159 U. Penn. L. Rev. 1577 (June

2011) ........................................................................13

Ball, Social Security Amendments and Legislative History, Social Security Bulletin (March

1973) .................................................................. 21, 22

Blagg, The Early History of Dialysis for Chronic

Renal Failure in the United States: A View

from Seattle, 49 Am. J. Kidney Diseases 482

(March 2007) ..................................................... 20, 21

Blumenthal, Employer-Sponsored Health Insurance in the United States—Origins and Implications, 355 N. Engl. J. Med. 82 (2006) .....................7

Bonventre et al., A Technology Roadmap for Innovative Approaches to Kidney Replacement

Therapies: A Catalyst for Change, 14 Clin. J.

Am. Soc. Nephrol. 1539 (October 2019) ..................27

CMS Medicare-Medicaid Coordination Office,

Data Analysis Brief: Medicare-Medicaid Dual

Enrollment 2006 through 2018 (September

2019) ..........................................................................4

Craig et al., How Important is Price Variation

Between Health Insurers? (National Bureau of

Economic Research Working Paper 25190, October 2018)...............................................................16

DaVita, Inc. Annual Report (2018) ....................... 30, 35

DaVita, Inc. Annual Report (2020) .............................26

vii

TABLE OF AUTHORITIES—Continued

Page

Eggers, Medicare’s End Stage Renal Disease

Program, 22 Health Care Financing Review

55 (Fall 2000)...........................................................24

Eliason et al., Consolidation in the Dialysis Industry, Patient Choice, and Local Market Competition, 12 Clin. J. Am. Soc. Nephrol. 1536

(March, 2017) ..........................................................28

Eliason et al., How Acquisitions Affect Firm Behavior and Performance: Evidence from the

Dialysis Industry (June 18, 2018)...........................28

Enthoven and Fuchs, Employment-Based Health

Insurance: Past, Present, And Future, 25 Health

Affairs 1538 (November/December 2006) ..............19

Equal Employment Opportunity Commission

(EEOC), Interim Enforcement Guidance on

the Application of the ADA to Disability-Based

Distinctions in Employer-Provided Health Insurance (June 8, 1993) ............................................13

Erickson et al., Market Competition and Health

Outcomes in Hemodialysis, 53 Health Services Research 3680 (October 2018) .......................28

Erickson et al., Safety-Net Care for Maintenance

Dialysis in the United States, 31 J. Am. Soc.

Nephrol. 424 (2020) ...................................................4

Fresenius Medical Care Annual Report (2018) ... 30, 35

viii

TABLE OF AUTHORITIES—Continued

Page

Fronstin and Werntz, The “Business Case” For

Investing in Employee Health: A Review of the

Literature and Employer Self-Assessments,

EBRI Issue Brief, No. 267 (Employee Benefits

Research Institute, March 2004) ..............................6

Fronstin, What Does the Future Hold for the

Employment-Based Health Benefits System?

EBRI Issue Brief, No. 476 (Employee Benefits

Research Institute, March 14, 2019) .................... 6, 7

Giles, Demystifying Stop Loss Lasers (QBE

2017) ........................................................................16

Kaiser Family Foundation, Employer Health

Benefits 2021 Annual Survey ....................................3

Keisler-Starker and Bunch, Health Insurance

Coverage in the United States: 2020 (U.S. Bureau of the Census September 2021) .......................3

Kidney Health Initiative, Technology Roadmap

for Innovative Approaches to Kidney Health

(2018) .......................................................................27

Kirchhoff, Medicare Coverage of End-Stage Renal Disease (ESRD) (Congressional Research

Service August 16, 2018) .................................. 24, 25

McDonnell et al., Self-Insured Health Plans, 8

Health Care Financ. Rev. 1 (Winter 1986) ...............7

Medill, HIPAA and Its Related Legislation: A

New Role for ERISA in the Regulation of Private Health Care Plans? 65 Tenn. L. Rev. 485

(Winter 1998) ..........................................................12

TABLE OF AUTHORITIES—Continued

Page

MedPac Payment Basics, Outpatient Dialysis

Services Payment System (October 2017) ...............25

MedPac Report to the Congress: Medicare Payment Policy (March 2021) .......................................26

Muir and Stein, Two Hats, One Head, No Heart:

The Anatomy of the ERISA Settlor/Fiduciary

Distinction, 93 N.C. L. Rev. 459 (2015) .....................9

Oberlander, The Political Life of Medicare

(2003) ........................................................... 20, 21, 22

Rettig, Origins of the Medicare Kidney Disease

Entitlement: The Social Security Amendments

of 1972, Biomedical Politics (National Academies Press 1991) ......................................... 20, 21, 22

Sanford, What Scribner Hath Wrought: How the

Invention of Modern Dialysis Shaped Health

Law and Policy, XIII Richmond J. Law & Pub.

Interest 337 (2010) ...................................... 20, 21, 22

Shpigel et al., A Comparison of Payments to a

For-profit Dialysis Firm from Government and

Commercial Insurers, 179 J. Am. Med. Assoc.

1136 (August 2019) .................................................35

Starr, The Social Transformation of American

Medicine (1982) ..................................................... 6, 7

Study Panel on Medicare Management and Governance, Reflections on Implementing Medicare National Academy of Social Insurance,

January 2001...........................................................19

TABLE OF AUTHORITIES—Continued

Page

Thamer et al., Major Declines in Epoetin Dosing

After Prospective Payment System Based on

Dialysis Facility Organizational Status, 40

Am. J. Nephrol. 554 (2014) .....................................28

U.S. Department of Health and Human Services, Health Care Financing Administration

Proposed Rule, Medicare Programs; EndStage Renal Disease Program; Prospective

Reimbursement for Dialysis Services, 47 Fed.

Reg. 6556 (February 12, 1982) .......................... 22, 24

U.S. Department of Health and Human Services, Medicare and Medicaid Programs;

Conditions for Coverage for End-Stage Renal

Disease Facilities; Final Rule, 73 Fed. Reg.

20,370 (February 15, 2008) .....................................26

U.S. Department of Health and Human Services, Medicare Program; End-Stage Renal

Disease Prospective Payment System, Payment

for Renal Dialysis Services Furnished to Individuals with Acute Kidney Injury, and EndStage Renal Disease Quality Incentive Program, 82 Fed. Reg. 50,738 (November 1, 2017) .......25

U.S. Department of Health and Human Services, Medicare Program; End-Stage Renal

Disease Prospective Payment System, Quality

Incentive Program, and Bad Debt Reductions

for All Medicare Providers, 77 Fed. Reg. 67,450

(November 9, 2012) .................................................37

TABLE OF AUTHORITIES—Continued

Page

U.S. Department of Health and Human Services, Medicare Program; Medicare Secondary

Payer for Individuals Entitled to Medicare

and Also Covered Under Group Health Plans,

60 Fed. Reg. 45344 (August 31, 1995) ....................23

U.S. Department of Labor Employee Benefits

Services Administration, Information Letter

02-19-1998 ...............................................................15

U.S. Department of Labor Report to Congress,

Annual Report on Self-Insured Group Health

Plans (March 2021) ...................................................8

U.S. Federal Trade Commission/U.S. Department

of Justice, Commentary on the Horizontal

Merger Guidelines (2006) ........................................31

U.S. Federal Trade Commission/U.S. Department

of Justice, Horizontal Merger Guidelines

(August 19, 2010) ....................................................33

U.S. Government Accountability Office, Private

Health Insurance: Enrollment Remains Concentrated among Few Issuers, Including in Exchanges (March 2019) ........................................... 4, 8

U.S. Renal Data System, 2003 Annual Data

Report ................................................................ 21, 33

U.S. Renal Data System, 2006 Annual Data

Report ......................................................................33

U.S. Renal Data System, 2007 Annual Data

Report ................................................................ 22, 34

xii

TABLE OF AUTHORITIES—Continued

Page

U.S. Renal Data System, 2008 Annual Data

Report ................................................................ 29, 34

U.S. Renal Data System, 2009 Annual Data

Report ........................................................................5

U.S. Renal Data System, 2020 Annual Data

Report ................................................................ 21, 22

Wilson, For-Profit Status & Industry Evolution

in Health Care Market: Evidence from the Dialysis Industry, Federal Trade Commission

Working Paper No. 314 (February 2013) ................28

OTHER

DCIInc.org website, About Us, https://www.

dciinc.org/about-dci/ (last visited December 7,

2019) ........................................................................30

Medicare.gov, https://www.medicare.gov/carecompare/ (visited December 11, 2021) ....................31

U.S. Renal Care, U.S. Renal Care to Be Acquired by Investor Group (March 13, 2019),

https://www.usrenalcare.com/media/pressrelease/investor-group.html (last visited

December 7, 2019) ...................................................30

INTEREST OF AMICUS CURIAE1

Amicus Health Care Cost Management Corporation of Alaska d/b/a Pacific Health Coalition represents

45 members including Taft-Hartley funds, governmental health plans, public sector health benefits trust

funds and single employer plans. Groups range from

100 to more than 8,000 employees, providing coverage

to approximately 250,000 members combined.

The National Labor Alliance of Health Care Cost

Coalitions, Inc. is a national alliance of over 20 coalitions of Taft-Hartley funds and labor management coalitions, serving plans including over 6 million covered

lives combined.

ASEA/AFSCME Local 52 Health Benefits Trust is

a self-funded, non-federal governmental plan which covers approximately 18,000 State of Alaska governmental employees and dependents.

Public Employees Local 71 Trust Fund is a selffunded, non-federal governmental plan which covers

approximately 3,000 State of Alaska and Alaska municipality employees and dependents.

APEA-AFT Health and Welfare Trust is a selffunded, non-federal governmental plan which covers

Pursuant to Supreme Court Rule 37.6, amicus curiae states

that no counsel for any party authored this brief in whole or in

part and that no entity or person, aside from amicus curiae, its

members, or its counsel, made any monetary contribution intended to fund the preparation or submission of this brief. Pursuant to Supreme Court Rule 37.3, counsel of record for all parties

have consented to this filing.

approximately 500 school district employees and dependents.

Alaska Pipe Trades U.A. Local 367 Health and Security Trust is a Taft-Hartley, multi-employer Trust

Fund which covers approximately 1,200 local union

members and dependents.

---------------------------------♦---------------------------------

SUMMARY OF THE ARGUMENT

The Sixth Circuit’s holding is a drastic departure

from long-settled principles of deference to benefits design in self-insured employment-based group health

plans (“Self-Insured EGHPs”) which creates an unprecedented dialysis benefits mandate by a novel reinterpretation of the Medicare Secondary Payer Act

(“MSPA”).

Medicare’s extension of coverage to individuals

with end-stage renal disease (“ESRD”) in 1972 required a Medicare dialysis procurement system which

in turn created a noncompetitive private dialysis market. This market is controlled by two very large dialysis organizations (“LDOs”) which use Self-Insured

EGHPs as a major profit center. The profits taken by

the LDOs already impose unaffordable charges on

Self-Insured EGHPs unless they can use one of a very

few cost containment strategies.

One of these strategies is plan benefits design, but

the Sixth Circuit has prohibited Self-Insured EGHPs

from using it to limit dialysis payments. This unique

prohibition means that plans facing unaffordable dialysis costs are left with the alternatives of excluding

dialysis from coverage or terminating the plan altogether. The perhaps ironic result would be to shift

many more individuals needing dialysis from EGHP to

Medicare coverage.

---------------------------------♦---------------------------------

ARGUMENT

The Structure of the U.S. Dialysis Financing System.

Understanding these issues requires some understanding of U.S. healthcare financing, which uses a mix

of private and governmental payers:2

•

Employment-based plans (“EGHPs”)3 cover

54.4 percent of the population, covering employees and their dependents. EGHPs include

Self-Insured EGHPs covering 34.8% of the

population, and fully-insured EGHPs which

make up the rest of the EGHP sector.4

Except where otherwise specified data is from KeislerStarker and Bunch, Health Insurance Coverage in the United

States: 2020 (U.S. Bureau of the Census September 2021).

Plans are “group health plans,” which are fully- or selfinsured plans established by a plan sponsor to provide health care

to the employees, former employees and others associated with

the employer in a business relationship, or their family members.

See 26 U.S.C. §§ 5000(b)(1) and 9832(a).

Kaiser Family Foundation, Employer Health Benefits 2021

Annual Survey at 151–52.

•

Medicare covering 18.4 percent, aged and disabled individuals.

•

Medicaid covering 17.8 percent, low-income

individuals state-by-state. Most are also covered by Medicare.5

•

Direct-purchase individual coverage for 10.5

percent.

•

TRICARE, Department of Veterans Affairs or

Civilian Health and Medical Program of the

Department of Veterans Affairs covering 3.7

percent.

The dominant payer is Medicare, followed by the major

commercial issuers6 covering both the fully-insured

EGHP and individual markets,7 followed by SelfInsured EGHPs.

See Erickson et al., Safety-Net Care for Maintenance Dialysis in the United States, 31 J. Am. Soc. Nephrol. 424 (2020) and

CMS Medicare-Medicaid Coordination Office, Data Analysis

Brief: Medicare-Medicaid Dual Enrollment 2006 through 2018

(September 2019).

“The term ‘health insurance issuer’ means an insurance

company, insurance service, or insurance organization (including

a health maintenance organization . . . which is licensed to engage

in the business of insurance in a State and which is subject to

State law which regulates insurance. . . . Such term does not include a group health plan.” 26 U.S.C. § 9832(b)(2).

See U.S. Government Accountability Office, Private Health

Insurance: Enrollment Remains Concentrated among Few Issuers, Including in Exchanges (March 2019).

Medicare and EGHPs act as a “system” to cover

dialysis across the population.8 Within this system the

Medicare dialysis procurement process created a noncompetitive provider side while enabling inflated private sector charges, especially to Self-Insured EGHPs,

at prices far beyond cost. Excessive dialysis provider

profit-taking imbalances this system by imposing unaffordable dialysis costs on the plans.

Benefits design is one of the few dialysis cost containment options for Self-Insured EGHPs. The Sixth

Circuit prohibition means that Self-Insured EGHPs

which cannot obtain affordable dialysis prices have to

exclude dialysis or terminate the plan altogether. At

the same time this prohibition is contrary to established deference to benefit design decisions for SelfInsured EGHPs.

II.

Mandatory Dialysis Benefit Terms Are

Contrary to Established Principles of Benefit Design Deference.

The Self-Insured EGHP is the most flexible and

individual-oriented of the payers in U.S. healthcare financing. Medicare and other governmental programs

are bureaucratic, while commercial issuers provide

highly standardized benefits across large populations.

Plan sponsors offer health benefits to attract and

retain employees, and try to design benefits that suit

See, e.g., U.S. Renal Data System, 2009 Annual Data Report at 336.

their employees’ needs and preferences.9 Plans cover

all occupations from pipeline workers, to hospital staff,

to food processing workers, to Indian tribal casino staff,

to school employees, to retail workers, to law firm and

bank personnel, in rural and metropolitan areas and

all points in between. Some covered populations skew

younger and need more prenatal and pediatric care;

some skew older and need more cardiac and chronic

condition care; in some regions different health conditions are more prevalent than others. Self-Insured

EGHPs need flexibility to design plans to meet all

these variables and more, so U.S. health policy gives

great deference to benefits design.

A. ERISA and the Invention of the EGHP.

Employers have long been the major payer in U.S.

healthcare.10 After the Second World War employmentbased health coverage became a central feature of most

employees’ compensation.

The most-cited reason for this was to increase

compensation for union members, and as an alternative to national health insurance.11 Other key factors

See e.g., Fronstin and Werntz, The “Business Case” For Investing in Employee Health: A Review of the Literature and Employer Self-Assessments, EBRI Issue Brief, No. 267 (Employee

Benefits Research Institute, March 2004).

See Starr, The Social Transformation of American Medicine (1982) at 311–12, 321–22.

See Fronstin, What Does the Future Hold for the Employment-Based Health Benefits System? EBRI Issue Brief, No. 476

were new rules allowing collective bargaining for

health benefits and excluding health benefits from taxation.12 Unlike some national health systems, in the

U.S. “the federal government, having decided not to

provide health insurance to most of its citizens, privatized the job by default, delegating it to private employers and insurance companies.”13

At first all EGHPs were fully-insured. “Private

health insurance plans [were] traditionally . . . fully

insured indemnity or service plans and . . . commonly referred to as ‘purchased’ insurance. Either

Blue Cross/Blue Shield or commercial insurance companies assume the immediate financial risk, and the

employer is only responsible for paying premiums.”14

This changed with ERISA in 1974.15 ERISA exempts self-insured but not fully-insured EGHPs from

state insurance laws,16 which encouraged many more

employers to establish self-insured plans.17

(Employee Benefits Research Institute, March 14, 2019) at 5 and

Starr, supra at 311–12.

See Fronstin, supra note 11, at 5 and Blumenthal, Employer-Sponsored Health Insurance in the United States—Origins

and Implications, 355 N. Engl. J. Med. 82, 83 (2006).

Blumenthal, supra at 83.

McDonnell et al., Self-Insured Health Plans, 8 Health Care

Financ. Rev. 1 (Winter 1986).

Employee Retirement Income Security Act of 1974, Pub.L.

93–406, 88 Stat. 829 (September 2, 1974).

See Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 747,

105 S. Ct. 2380, 2393 (1985).

McDonnell et al., Self-Insured Health Plans supra.

The distinction between fully-insured and selfinsured EGHPs18 may be summarized as follows:19

Sponsors of self-insured plans pay covered health expenses directly (either from

their general assets or from a trust), as the

plans incur claims. In contrast, sponsors of

fully insured plans generally pay premiums to

insurers [issuers], which, in turn, assume the

responsibility of paying claims. . . .

Self-insured and fully insured group

health plans are governed by somewhat different rules. For example, state insurance

laws generally do not apply to self-insured,

ERISA-covered plans. Likewise, some Affordable Care Act provisions apply to group health

insurance but not to self-insured plans.

Thus, in fully-insured EGHPs benefits are determined

by a few dominant issuers under federal and state benefits requirements.20 This model is unavoidably standardized and not responsive to individual needs and

preferences.

Since ERISA enabled the growth of Self-Insured

EGHPs by allowing them the flexibility to design

Some EGHPs are “mixed insured,” meaning they contract

for insurance for some benefits, and self-insure others. For purposes of this analysis mixed-insured EGHPs will be included with

Self-Insured.

U.S. Department of Labor Report to Congress, Annual Report on Self-Insured Group Health Plans (March 2021) at 4.

In 2016 the three largest healthcare insurers held 80 percent or more of their market in at least 37 states. See U.S. Government Accountability Office, supra at 7.

benefits which meet their employees’ needs and preferences, this brief now turns to the ways in which

ERISA (and subsequent laws) defer to their discretion.

B. Legislative Deference to Plan Benefit

Design.

ERISA regulates all types of employment-based

benefit plans, including EGHPs as “welfare plans.”21

ERISA struck a difficult balance between “Congress’

desire to offer employees enhanced protection for their

benefits, on the one hand, and, on the other, its desire

not to create a system that is so complex that administrative costs, or litigation expenses, unduly discourage employers from offering . . . benefit plans in the

first place.”22 Accordingly, welfare plans are not subject

to the substantive standards applicable to pension

plans.23

“Welfare plans” include “any plan, fund, or program which

was heretofore or is hereafter established or maintained by an

employer or by an employee organization, or by both . . . for the

purpose of providing for its participants or their beneficiaries,

through the purchase of insurance or otherwise . . . medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation

benefits, apprenticeship or other training programs, or day care

centers, scholarship funds, or prepaid legal services. . . .” 29

U.S.C. § 1002(1).

Varity Corp. v. Howe, 516 U.S. 489, 497 (1996).

See Muir and Stein, Two Hats, One Head, No Heart: The

Anatomy of the ERISA Settlor/Fiduciary Distinction, 93 N.C. L.

Rev. 459 (2015) at 472.

[ERISA] does not go about protecting plan

participants and their beneficiaries by requiring employers to provide any given set of minimum benefits, but instead controls the

administration of [EGHPs] . . . as by imposing

reporting and disclosure mandates . . . participation and vesting requirements, . . . funding

standards . . . and fiduciary responsibilities

for plan administrators[.][24]

Instead of benefits required by law, the “set of benefits” provided by a Self-Insured EGHP is determined

as a “settlor” function of the plan sponsor.25 “Settlor”

are distinguished from “fiduciary” functions. “Fiduciaries” are identified by their performance of actions

included with the ERISA definition.26 Since this definition does not include the actions of creating, amending

or terminating a plan, these are “settlor” acts.

ERISA’s fiduciary duty requirement simply is

not implicated where [a plan sponsor], acting

as the Plan’s settlor, makes a decision regarding the form or structure of the Plan such as

who is entitled to receive Plan benefits and in

N.Y. State Conference of Blue Cross & Blue Shield Plans v.

Travelers Ins. Co., 514 U.S. 645, 650–51, 115 S. Ct. 1671, 1674–

75 (1995) (citations omitted, emphasis added).

A “plan sponsor” is (i) an employer, an (ii) employee organization (labor union), (iii) two or more employers or jointly one or

more employers and one or more employee organizations through

a group of representatives, or (iv) a pooled plan provider. 29

U.S.C. § 1002(16)(B).

See 29 U.S.C. § 1002(21)(A) and Lockheed Corp. v. Spink,

517 U.S. 882, 890 (1996). Accord Hughes Aircraft Co. v. Jacobson,

525 U.S. 432 (1999).

what amounts, or how such benefits are calculated.[27]

Consistently ERISA itself did not require any

specific benefits, though it has a limited antidiscrimination provision which does not apply to

benefits.28 Subsequent amendments cautiously added

a few requirements not relevant here.29

Deference continued with the next major enactment affecting EGHPs, HIPAA.30 As material, HIPAA

prohibits EGHP discrimination in plan eligibility determinations, which expressly did not create substantive benefits obligations:

[This provision] . . . shall not be construed (A)

to require [an EGHP], or [EGHP] coverage, to

provide particular benefits other than those

provided under the terms of such plan or

coverage, or (B) to prevent such a plan or

coverage from establishing limitations or restrictions on the amount, level, extent, or

Lockheed Corp. v. Spink, supra, 517 U.S. at 890.

“[ERISA] Section 510 prohibits discrimination driven by a

desire to retaliate against an employee or to deprive an employee

of a right to which he or she may become entitled. It does not prohibit an employer from crafting its medical plan to meet economic

imperatives.” Owens v. Storehouse, Inc., 984 F.2d 394, 400 (11th

Cir. 1993).

The Consolidated Omnibus Budget Reconciliation Act, 29

U.S.C. § 1161–1168 (“COBRA”) added requirements for continuation of EGHP coverage with no benefits requirements, and the

Omnibus Budget Reconciliation Act, 29 U.S.C. § 1169, added a

few specific requirements for children’s coverage.

The Health Insurance Portability and Accountability Act

of 1996, Pub.L. 104-191 (August 21, 1996).

nature of the benefits or coverage for similarly

situated individuals enrolled in the plan or

coverage.[31]

In general, “HIPAA does not prohibit a plan design or

terms which are generally applicable to all plan participants, but which may have a disparate impact on individual enrollees due to the individual’s need for more

or specific benefits under the plan.”32

Deference continued again with the Affordable

Care Act (“ACA”).33 The ACA requires issuers to provide specified “essential health benefits” but does not

extend this requirement to “large” Self-Insured EGHPs (more than 100 employees).

The Act [ACA] makes few changes to the

large-group market, consistent with the belief

that the market has been functioning acceptably well in providing health care access to

most people working for large organizations. . . .

...

For large employers that already provide

health care benefits . . . the new mandate

will not impose much in the way of new obligations because . . . the [ACA] exempts the

29 U.S.C. § 1182(a)(1).

Medill, HIPAA and Its Related Legislation: A New Role for

ERISA in the Regulation of Private Health Care Plans? 65 Tenn.

L. Rev. 485, 502 (Winter 1998) (footnotes omitted).

Affordable Care Act of 2010, Pub.L. 111-148, 124 Stat. 199

(2010).

large-group market from the “essential health

benefits” requirements. . . .[34]

The ACA did establish a few limited benefit requirements for large EGHPs (e.g., preventive services) but

otherwise deferred benefits design to sponsors.

Finally, while not in the direct line of EGHP statutory authorities the Americans with Disabilities Act

(“ADA”)35 also defers to Self-Insured EGHPs in benefits

design. The ADA prohibits employers from discriminating against individuals with disabilities in health

coverage36 but specifically allows risk-based benefits

design, permitting benefits which might otherwise be

discriminatory as long as the design is not a “subterfuge.”37 “ ‘Subterfuge’ refers to disability-based disparate treatment that is not justified by the risks or costs

associated with the disability.”38 A sponsor may therefore design benefits which have a disparate impact on

Baker, Health Insurance, Risk, and Responsibility after the

Patient Protection and Affordable Care Act, 159 U. Penn. L. Rev.

1577, 1592 (June 2011) (footnotes omitted). Due to the inability of

most smaller organizations to procure or reserve sufficient funds

to self-insure there are very few groups below the ACA threshold.

42 U.S.C. § 12101

29 C.F.R. § 1630.4(a)(vi). See Equal Employment Opportunity Commission (EEOC), Interim Enforcement Guidance on

the Application of the ADA to Disability-Based Distinctions in Employer-Provided Health Insurance (June 8, 1993). ESRD and the

need for dialysis are “disabilities” under the ADA. See Fiscus v.

Wal-Mart Stores, Inc., 385 F.3d 378, 384 (3d Cir. 2004).

29 C.F.R. § 1630.16(f )(3), (4).

EEOC, supra at 10–11.

members with particular disabilities, if justified by

costs of the benefit without differentiation.

Federal law therefore provides only a few marginal requirements for Self-Insured EGHP benefit

design, and exempts them from state requirements.

Substantive decisions about benefit design are deferred to the sponsor to meet employee needs and preferences.

C. Benefits Design and the Financial Realities of Self-Insured EGHPs.

While they do have legal discretion over benefit

design, Self-Insured EGHPs must fund the wide range

of services their Members expect. This includes everything from catastrophic cases such as traumatic injury

and cancer; to costly chronic conditions such as diabetes and hemophilia; to prenatal, wellness and preventive care; and more. Expensive ancillary services such

as air ambulances may be needed. Even if not legally

required dialysis is part of the preferred benefits set.

Once established a Self-Insured EGHP is required

to fund all benefits. In doing so it must be administered

“for the exclusive purpose of (i) providing benefits to

participants and their beneficiaries; and (ii) defraying

reasonable expenses of administering the plan[,]” using the “care, skill, prudence, and diligence under the

circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters

would use in the conduct of an enterprise of a like character and with like aim[.]”39

This obligation extends to selection of healthcare

providers:40

In selecting a health care provider in this

context, as with the selection of any service

provider under ERISA, the responsible plan

fiduciary must engage in an objective process

designed to elicit information necessary to assess the qualifications of the provider, the

quality of services covered, and the reasonableness of the fees charged in light of the services provided. . . .

. . . it should be noted that, because numerous factors necessarily will be considered

by a fiduciary when selecting health care service providers, the fiduciary need not select

the lowest bidder when soliciting bids, although the fiduciary must ensure that the

compensation paid to a service provider is reasonable in light of the services provided to the

plan.

Prudent plan administration therefore requires cost

containment if charges may be unaffordable.

Provider networks, usually associated with an issuer, are common but prices for Self-Insured EGHPs

are not as favorable as those issuers negotiate for

Pegram v. Herdrich, 530 U.S. 211 (2000) at 227; see 29

U.S.C. § 1104(a)(1).

U.S. Department of Labor Employee Benefits Services Administration, Information Letter 02-19-1998.

their fully-insured plans41 and may not provide a reasonable reduction from otherwise uncontrolled charges.

A second common strategy is stop-loss insurance,

but expensive cases are usually “lasered”:

Within self-funded medical programs, individuals having serious ongoing medical conditions that are likely to incur large expenses

related to those conditions, are “known” risks

that are frequently isolated by a stop loss carrier to receive a higher specific deductible in

relation to the rest of the insured population.

Isolating specific individuals for a higher stop

loss deductible is known as “lasering” and has

always been a common practice in the medical

stop loss industry.

Here’s an over-simplified illustration: Assume that a 500-life employer group has a

$100,000 specific stop loss deductible. An individual in the group is currently being

treated for cancer with an expected treatment

cost of $500,000 during the plan year. Medical

stop loss coverage with a $100,000 specific deductible is issued to the employer for each covered individual except for the cancer patient

who will be “lasered” with a $500,000 specific

deductible. . . .[42]

Dialysis cases are usually lasered.

Craig et al., How Important is Price Variation Between

Health Insurers? National Bureau of Economic Research Working

Paper 25190, October 2018).

Giles, Demystifying Stop Loss Lasers (QBE 2017) at 1.

If network prices are not affordable and stop-loss

has an unaffordable laser a sponsor has only four options to control dialysis costs:

•

Terminate the plan.

•

Exclude dialysis from benefits.

•

Increase employee cost shares (premiums, deductibles and copayments).

•

Establish targeted treatment or dollar amount

limitations.

Cost-share increases may be unaffordable for Members. A 500-Member plan may need to increase each

Member’s premium by $1,800 annually to cover a single dialysis case at $900,000 per year. Members may

drop the plan for the individual market or go uninsured, further increasing costs for those who remain,

who in turn may drop the plan, and so on. This phenomenon is called a ‘death spiral’ and can cause a

plan’s financial collapse.

If a sponsor terminates the plan or excludes dialysis, members needing dialysis will have no coverage

choice but Medicare or the individual market. Since individuals needing dialysis due to ESRD are automatically eligible for Medicare, if benefits limitations are

prohibited dialysis coverage may ultimately collapse

into Medicare alone.

Benefits design using targeted treatment or dollar

amount limitations are the option which preserves the

Medicare/EGHP dialysis coverage system. It is also the

strategy adopted by the Self-Insured EGHP sponsored

by Amy’s Kitchen:43

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 noncommercial 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 reason for the Amy’s Kitchen strategy was precisely the need to control unaffordably high dialysis

costs, to preserve funding for all types of benefits for

all Members. While the record in this case does not include this kind of specific documentation, it must be

inferred that the same issues motivated the cost containment strategy used by petitioners.

Benefits-design based cost containment strategies to limit dialysis costs and protect the interests of

all Members in all types of care is well within the

DaVita Inc. v. Amy’s Kitchen, Inc., 981 F.3d 664, 668 (9th

Cir. 2020).

deference accorded Self-Insured EGHPs, and helps preserve the Medicare/EGHP dialysis coverage system.

II.

Medicare Dialysis Procurement Created

Dialysis Monopoly Pricing.

Medicare was created because EGHPs, while

“the nation’s principal source of health care coverage

. . . could never come close to covering the entire population[,]” in particular the elderly.44 Medicare was

therefore enacted in 1965 to “provide health care coverage to 19 million elderly Americans.”45 Medicare’s extension to dialysis had unanticipated consequences for

the Medicare fisc, and created the noncompetitive dialysis marketplace.

A. The Creation of the Medicare Dialysis

Benefit: Emerging Technology Meets

Social Welfare Ambition.

The Medicare Dialysis Benefit was enacted almost

accidentally at the high-water mark of Medicare expansion.

. . . the enactment of ESRD coverage was

not anticipated at all during the Medicare debate. Instead, its addition to Medicare in 1972

was a product of ‘serendipity. . . . [rather] than

Enthoven and Fuchs, Employment-Based Health Insurance: Past, Present, And Future, 25 Health Affairs 1538 (November/

December 2006) at 1540.

Study Panel on Medicare Management and Governance,

Reflections on Implementing Medicare (National Academy of

Social Insurance, January 2001) at 7.

the result of a grand design.’ And the passage

of ESRD coverage was more than a little peculiar, since it represented the first and only

extension of Medicare to a specific disease category.[46]

The serendipity was that dialysis emerged as a

charismatic technology as Medicare hit its furthest expansion, just before cost considerations curtailed further growth.

The technology for effective dialysis were principally developed through the early 1960s.47 A few pioneering centers demonstrated that the technology

could save lives but only had funding for a few patients, stirring vigorous public debate about the ethics

of deciding who should get the treatment and live, and

who should not.48 Media coverage led to recommendations for Medicare coverage.49

Despite a dramatic “live” dialysis demonstration

at a Congressional hearing actual debate on the

Oberlander, The Political Life of Medicare (2003) at 41.

See Sanford, What Scribner Hath Wrought: How the Invention of Modern Dialysis Shaped Health Law and Policy, XIII Richmond J. Law & Pub. Interest 337 (2010) at 338–39; Blagg, The

Early History of Dialysis for Chronic Renal Failure in the United

States: A View from Seattle, 49 Am. J. Kidney Diseases 482

(March 2007).

See Sanford, supra.

See Sanford, supra, at 341; Blagg, supra, at 490; and Rettig, Origins of the Medicare Kidney Disease Entitlement: The Social Security Amendments of 1972, Biomedical Politics (National

Academies Press 1991) 176, at 177–82.

Medicare Dialysis Benefit was very brief.50 The Medicare Dialysis Benefit was enacted as part of the Social

Security Amendments of 1972 (“SSA Amendments”);

since their principal purpose was expansion of Medicare coverage to disabled individuals, the Medicare Dialysis Benefit was enacted by defining ESRD as a

“disability.”51

Subsequent decades were marked by Medicare retrenchment amid concerns about containing costs.52

This was especially true for the Medicare Dialysis Benefit, since “estimates of the of cost of the [benefit] were

wildly off.”53 “The [pre-enactment] ‘estimates’ . . . seriously underestimated the costs of the program. Neither the actuaries nor the congressional staff took

them seriously; yet no one challenged them[.]”54 One

estimate was that “once the program was in ‘steadystate,’ approximately 20,000-30,000 patients would be

receiving maintenance dialysis and that average annual costs of the ESRD program would equilibrate at

approximately $1B ($6B in 2018 dollars).”55

It didn’t work out that way. When the Medicare

Dialysis Benefit became effective on July 1, 1973 it

Social Security Amendments of 1972, Pub.L. 92–603 (October 30, 1972). See Blagg, supra, at 492 and Rettig, supra, at 187, 194.

See Ball, Social Security Amendments and Legislative History, Social Security Bulletin (March 1973).

See Oberlander, supra, at 43–53; Sanford, supra, at 354;

and U.S. Renal Data System, 2003 Annual Data Report at 162–63.

Blagg, supra, at 493.

See Rettig, supra, at 195–201.

U.S. Renal Data System, 2020 Annual Data Report at v. 2

ch. 9.

covered about 11,000 beneficiaries, increasing to

42,500 by 1979.56 This number grew to 135,000 in 1988,

437,000 as of 2007 and over 500,000 in 2018.57

The Medicare Dialysis Benefit was not the only

benefit whose costs had been underestimated and from

1972 onward Medicare policy focused on containing

costs.58 The Medicare Dialysis Benefit represents the

high-water mark of Medicare expansion.

B. Medicare Dialysis Benefit Cost Containment: Legislative Strategies

The only cost containment strategy initially applied to the Medicare Dialysis Benefit was a three

month “waiting period” from start of dialysis to eligibility for Medicare.59 A second cost containment strategy, mandatory coordination of benefits by EGHPs, was

enacted in the MSPA.

As originally enacted in 1965, the MSP

[sic] designated Medicare as the secondary

U.S. Department of Health and Human Services, Health

Care Financing Administration Proposed Rule, Medicare Programs; End-Stage Renal Disease Program; Prospective Reimbursement for Dialysis Services, 47 Fed. Reg. 6556 (February 12, 1982).

See Sanford, supra, at 352–53 and U.S. Renal Data System, 2020 Annual Data Report at v. 2 ch. 9.

See, e.g., Oberlander, supra at 47–49.

The reason for the waiting period is that medical costs associated with ESRD are highest in the first few months of onset

of kidney failure. See U.S. Renal Data System, 2007 Annual Data

Report at 227. Congress considered waiting periods of zero, three

or six months before settling on three. Rettig, supra at 199–200;

see Ball, supra, at 18–19.

payer solely with respect to state and federal

worker’s compensation laws and plans. All

other insurers, mainly tort-liability insurers

and [EGHPs], remained off the hook. If

Medicare and a private policy both covered

a healthcare expense, the private insurer

simply could decline to pay the expense until

Medicare had paid first. The private insurers

would pick up the tab for any remaining costs

(provided, of course, that those additional

costs were covered by the private insurance).

In 1980, Congress responded to that

costly arrangement. Congress expanded the

reach of the MSP by designating Medicare

as the secondary payer with respect to tortliability insurance of all stripes[.] . . . In 1981,

Congress next designated Medicare as the

secondary payer with respect to [EGHPs], but

only for persons eligible to enroll in Medicare

solely because of ESRD. . . . The next year,

Congress extended Medicare’s secondarypayer status with respect to [EGHPs] to encompass some persons enrolled in Medicare

due to age. . . . And in 1986, Congress added

the third category of Medicare eligibility: disability. . . .[60]

DaVita Inc. v. Va. Mason Mem’l Hosp., 981 F.3d 679, 684

(9th Cir. 2020) (citations omitted). See also Bio-Medical Applications of Tennessee, Inc. v. Central States Southeast and Southwest

Areas Health and Welfare Fund, 656 F.3d 277, 278 (6th Cir. 2011)

and U.S. Department of Health and Human Services, Medicare

Program; Medicare Secondary Payer for Individuals Entitled to

Medicare and Also Covered Under Group Health Plans, 60 Fed.

Reg. 45,344 (August 31, 1995) at 45,345.

The MSPA first established a twelve month “coordination period” for individuals covered by EGHPs,

from the date of Medicare eligibility (i.e., the end of the

“waiting period”) during which EGHP coverage was required to be primary to Medicare. The coordination period was lengthened to 18 months in 1990 and its

current period of 30 months in 1997.61

C. Medicare Dialysis Procurement and

the Noncompetitive Private Market.

The Medicare Dialysis Benefit created a noncompetitive private dialysis market because its implementation required a complex Medicare dialysis

procurement system.

Initially dialysis services were paid based on facility charges, but 1980 legislation directed the implementation of a cost-based “prospective reimbursement

method” including incentives for more efficient and

cost-effective services to be implemented by regulation.62 As of 2011 this Prospective Payment System

(“PPS”):63

See, e.g., Eggers, Medicare’s End Stage Renal Disease Program, 22 Health Care Financing Review 55 (Fall 2000) at 56.

See U.S. Department of Health and Human Services, Medicare Programs; End-Stage Renal Disease Program; Prospective

Reimbursement for Dialysis Services, 47 Fed. Reg. 6556 (February

12, 1982)

See Kirchhoff, Medicare Coverage of End-Stage Renal Disease (ESRD) (Congressional Research Service August 16, 2018),

at 6; see also 17–18.

. . . bundled Medicare’s payment for renal dialysis services together with separately billable ESRD-related supplies . . . into a single,

per treatment payment amount. The bundle

payment supports up to three dialysis treatments per individual per week, with additional treatments covered on the basis of

medical necessity. The reimbursement to facilities is the same regardless of dialysis modality, but is adjusted for case-mix, geographic

area health care wages, and facility size.

Dialysis payments are determined under a “Medicare Base Rate” (“MBR”) set annually through a report

to Congress and a public rule-making process.64 “The

[MBR] is intended to cover all operating and capital

costs that efficient providers would incur in furnishing

dialysis treatment episodes[.]”65 The MBR may be adjusted by patient- and facility-level factors affecting

treatment costs and “outlier” payments for particularly

high-cost patients.66 MBR rates are principally based

on recommendations by the Medicare Payment Advisory Commission (“MedPac”) on the adequacy of

See, e.g., U.S. Department of Health and Human Services,

Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to

Individuals with Acute Kidney Injury, and End-Stage Renal Disease Quality Incentive Program, 82 Fed. Reg. 50,738 (November

1, 2017).

MedPac Payment Basics, Outpatient Dialysis Services

Payment System (October 2017) (“MedPac Payment Basics”) at 2,

4. See also Kirchhoff, supra note 69, at 18–19.

MedPac Payment Basics at 3–4. See 42 C.F.R. §§ 413.231,

232, 233, 235.

Medicare payments to sustain beneficiaries’ access to

high-quality care and provider incentives to treat Medicare beneficiaries (i.e., marginal profits).67

The ability to provide and challenge data and to

lobby regulators is therefore key to capturing the

Medicare revenue stream. Medicare participation

also requires compliance with extensive regulatory requirements and reporting obligations.68 Such activities

most efficiently carried out by larger, standardized organizations. This procurement process thus caused a

standardization of dialysis care and provider consolidation.

For providers, while not as lucrative as it might be

the Medicare revenue stream is adequate and very reliable. “Although Medicare reimbursement limits the

allowable charge per treatment, it provides industry

participants with a relatively predictable and recurring revenue stream for dialysis services provided to

patients without commercial insurance.”69

Standardization and consolidation are also supported by the lack of major dialysis innovation.

See, e.g., MedPac Report to the Congress: Medicare Payment Policy (March 2021) at ch. 6: Outpatient Dialysis Services.

MedPac and CMS analyses also rely on detailed information reported by the U.S. Renal Data System in its Annual Data Reports.

See, e.g., U.S. Department of Health and Human Services,

Medicare and Medicaid Programs; Conditions for Coverage for

End-Stage Renal Disease Facilities; Final Rule, 73 Fed. Reg.

20,370 (February 15, 2008).

DaVita, Inc. Annual Report (2020) at 4.

Despite some refinements in dialytic devices, innovation has been modest, especially

when compared with the technological advancements in many other areas of medicine

and society in general. Although transformative communication technologies such as cell

phones and the internet have revolutionized

daily lives, dialysis for KRT [kidney replacement therapy, i.e., hemodialysis] has changed

little since it was introduced approximately

70 years ago. This stagnation has occurred despite unacceptably high morbidity and mortality rates, very high cardiovascular risk,

infectious and hematologic complications, hospitalizations, and poor quality of life.[70]

Standardized treatment does not, however, preclude

business innovations to capture greater revenues.

We find that acquired facilities alter their

treatments in ways that increase reimbursements and decrease costs. For instance, facilities capture higher payments from Medicare

by increasing the amount of drugs they administer to patients, for which Medicare paid

providers a fixed per-unit rate during our

study period. The most noteworthy of these is

Bonventre et al., A Technology Roadmap for Innovative

Approaches to Kidney Replacement Therapies: A Catalyst for

Change, 14 Clin. J. Am. Soc. Nephrol. 1539 (October 2019). See

also Kidney Health Initiative, Technology Roadmap for Innovative Approaches to Kidney Health (2018) at 5: The “high cost of

care and limited technology innovation in the renal replacement

therapy (RRT) [dialysis] landscape since the introduction of dialysis more than 60 years ago has left all Americans—especially

ESRD patients—paying a heavy price.”

Epogen (EPO), a drug used to treat anemia,

which represented the single largest prescription drug expenditure for Medicare in 2010,

totaling $2 billion. Perhaps reflecting the profits at stake, patients’ EPO doses increase

129% at independent facilities acquired by

large chains. Similarly, acquired facilities increase their use of the iron-deficiency drug

Venofer relative to Ferrlecit, a perfect substitute that offers lower reimbursements. On the

cost side, large chains replace high-skill

nurses with lower-skill technicians at the facilities they acquire, reducing labor expenses.

Facilities also increase the patient-load of

each employee by 11.7% and increase the

number of patients treated at each dialysis

station by 4.5%, stretching resources and potentially reducing the quality of care received

by patients.[71]

While it may be hard to specify exact causation72 there

is a clear correlation between the Medicare dialysis

Eliason et al., How Acquisitions Affect Firm Behavior and

Performance: Evidence from the Dialysis Industry (June 18, 2018)

at 1–2 (citation omitted). For additional insight into providers’

ability to alter and manage treatment protocols to maximize reimbursement see Thamer et al., Major Declines in Epoetin Dosing

After Prospective Payment System Based on Dialysis Facility Organizational Status, 40 Am. J. Nephrol. 554 (2014).

But see, e.g., Erickson et al., Market Competition and

Health Outcomes in Hemodialysis, 53 Health Services Research

3680 (October 2018); Eliason et al., Consolidation in the Dialysis

Industry, Patient Choice, and Local Market Competition, 12 Clin

J. Am. Soc. Nephrol. 1536 (March, 2017); and Wilson, For-Profit

Status & Industry Evolution in Health Care Market: Evidence

procurement system and the consolidation of the dialysis supply side.

D. The Creation and Results of a Noncompetitive Dialysis Market.

Medicare participation guarantees that a dialysis

provider will cover its costs, capital needs and if it is

efficient a reasonable profit, but making extraordinary

profits requires lots of facilities and buyers which pay

inflated prices.

When the Medicare Dialysis Benefit was enacted

there were only a few dialysis facilities, all either independent or hospital-based.73 The years since have seen

a steady increase in facilities in consolidated chains:

•

By 1982 there were over a thousand facilities,

and by 1996 there were over three thousand

and dialysis chains had begun to form.

•

Principally through a series of acquisitions, by

2005 Fresenius and DaVita (the “large dialysis organizations,” or “LDOs”) established

themselves as the dominant providers, with

Fresenius at 1,510 facilities and DaVita at

1,209.

from the Dialysis Industry, Federal Trade Commission Working

Paper No. 314 (February 2013).

The history in this section is principally derived from the

U.S. Renal Data System Annual Data Reports for 1994, 2008,

2010 and 2017.

•

By 2014, there were 6,757 dialysis units, 65%

of them controlled by the LDOs.

•

By 2018 the five largest dialysis providers collectively operated some 7,288 units, with the

two LDOs controlling more than nine times

the number controlled by the other three combined:

•

Fresenius had 3,928 units (53.3%, an increase of 176 over the previous year).74

•

DaVita had 2,664 units (36.2%, an increase of 154 over the previous year).75

•

American Renal Associates (“ARA”) had

241 units (3.3%).76

•

Dialysis Clinic, Inc. (“DCI”) had 230 units,

(3.1%).77

•

U.S. Renal Care had 225 units (3.1%).78

Fresenius Medical Care Annual Report (2018) at 21, 38–

39.

DaVita, Inc. Annual Report (2018) at 8.

American Renal Associates Annual Report (2018).

DCIInc.org website, About Us, https://www.dciinc.org/

about-dci/ (last visited December 7, 2019).

U.S. Renal Care, U.S. Renal Care to Be Acquired by Investor Group (March 13, 2019), https://www.usrenalcare.com/

media/press-release/investor-group.html (last visited December

7, 2019).

As of 2018 the LDOs thus controlled 89.5% of chain

units nationwide, and all units in many markets. For

example:79

Marietta, Ohio. Six dialysis facilities

within 25 miles. Four DaVita, two Fresenius.

Medford, Oregon. Three dialysis facilities

within 25 miles. All DaVita.

Yakima, Washington. Four dialysis facilities within 25 miles. All DaVita.

Fresno, California. Twenty dialysis facilities within 25 miles. Ten DaVita, six

Fresenius, two independents, one American Renal Associates, one pediatric hospital.

From an individual patient’s point of view the relevant geographic dialysis market is the area no more than 30 minutes or

30 miles from their residence. U.S. Federal Trade Commission/

U.S. Department of Justice, Commentary on the Horizontal Merger Guidelines (2006) at 6.

In this list, one through seven are the geographic locations of

the facilities identified in the complaints in the five recent cases

filed by DaVita seeking prohibition of dialysis benefits limitations

under the MSPA, including DaVita v. WinCo, U.S.D.Ct. No. 1:18cv-00482 (D. Idaho) (Fresno, Reno, Menifee); DaVita v. Virginia

Mason Memorial Hospital, U.S.D.Ct. No. 2:19-cv-302 (W.D. Wa.)

(Yakima); DaVita v. Marietta Memorial Hospital, U.S.D.Ct. No.

2:18-cv-1739 (S.D. Ohio) (Marietta); DaVita v. Smithfield Foods,

U.S.D.Ct. No. 2:18-cv-653 (E.D. Va.); and DaVita v. Amy’s Kitchen,

U.S.D.Ct. No. 4:18-cv-6975 (N.D. Cal.) (Medford). Eight through

twelve are provided to flesh out geographic scope.

Facility availability data is from Medicare.gov, https://www.

medicare.gov/care-compare/ (visited December 11, 2021).

Reno, Nevada. Ten dialysis facilities

within 25 miles. Five DaVita, four Fresenius, one DCI.

Menifee, California. Twenty dialysis facilities within 25 miles. Fourteen DaVita,

three Fresenius, one independent, one

hospital.

Des Moines, IA. Nine dialysis facilities

within 25 miles. Seven DaVita, two Fresenius.

Midland, Texas. Seven dialysis facilities

within 25 miles. Four DaVita, two Fresenius, one ARA.

Wilmington, NC. Eight dialysis facilities

within 25 miles. Six DaVita, two Fresenius.

10. Battle Creek, MI. 12 dialysis facilities

within 25 miles. Seven Fresenius, two

DaVita.

11. Winchester, VA. Seven dialysis facilities

within 25 miles. Four DaVita, three

Fresenius.

12. Dover, NH. Four dialysis facilities within

25 miles, all Fresenius.

The dialysis supply side has therefore for many

years been a “highly concentrated market” under Federal antitrust guidelines, which creates a presumption

the providers have substantial market power.80 Consistently, dialysis charges have inflated dramatically

over the years, especially since LDO consolidation in

2005, especially for EGHPs.

By 2002:

. . . [N]on-Medicare expenditures [for dialysis had] grown from $2.2 billion in 1991 to

$7.4 billion in 2001—a 237 percent increase. . . . The increased proportion of nonMedicare patients has been accompanied in

the last three years by an equally steep increase in expenditures [for such patients]. For

the Medicare program there was actually a

steady slowing in the total and per patient per

year expenditures from 1991 to 1998. . . .[81]

As of 2004 EGHPs paid on average, over 260 percent

of Medicare rates for dialysis, and their per-patient

costs increased 56 percent.[82]

Data contrasting per person per year

(PPPY) costs in the Medicare and employed

populations show considerably higher expenditures in the latter group, suggesting

that employed patients, though on average 20

years younger, are paying more for their

ESRD care, and may [sic] be supplementing provider income streams and potential

See U.S. Federal Trade Commission/U.S. Department of

Justice, Horizontal Merger Guidelines (August 19, 2010) at 18.

U.S. Renal Data System, 2003 Annual Data Report at

162–63.

U.S. Renal Data System, 2006 Annual Data Report at 206.

margins. From this standpoint, [EGHPs] may

want to assess the source of this difference to

determine the quality and value for these expenditures. . . .

Inflation-adjusted Medicare spending per patient

year actually fell over the next two years,83 while EGHPs continued to experience substantial increases:

Comparisons between Medicare per person per month (PPPM) expenditures and

those for EGHP patients show that hospital

and outpatient costs for dialysis services have

grown 24 and 39 percent [for EGHPs], respectively, between 2000 and 2006. Although

EGHP patients are younger, their costs for inpatient and outpatient services are higher. . . .[84]

Medicare thus gave the LDOs a platform to create a

highly concentrated, noncompetitive private market in

which they could charge highly inflated prices.

E. Specific Impacts on Provider Prices to

Self-Insured EGHPs.

Data about dialysis provider prices to EGHPs is

hard to come by but the LDOs are clear that private

payers are their principal profit center. “The payments

we receive from commercial payers generate nearly all

of our profit and all of our nonacute dialysis profits

U.S. Renal Data System, 2007 Annual Data Report at 217

U.S. Renal Data System, 2008 Annual Data Report at 176.

come from commercial [sic] payers.”85 The current

scale of these profits per-patient is shown by the following information gleaned from available public

records:

•

DaVita’s 2018 costs per treatment were

$247.86

•

DaVita’s 2018 average revenue per treatment

from all payers was $35087 ($54,600 annualized,88 $150,150 through end of coordination

period89).

•

Net profit,90 $103 per treatment; $3,750

per year; $44,187 coordination period.

DaVita’s 2017 average revenue per treatment

from “commercial payers” was $1,041 per

treatment;91 $162,396 per year; $446,589 coordination period.

DaVita, Inc. Annual Report (2018) at 14. See also Fresenius Medical Care Annual Report (2018) at 40. The LDO reports

distinguish only between “governmental” or “public” and “private” or “commercial” payers. The latter combines issuers and

EGHPs, and so reports a combined average for the category which

is lower than for Self-Insured EGHPs alone.

DaVita, Inc. Annual Report (2018) at 12.

Id. at 14.

156 treatments per year, i.e., three treatments per week

as covered by Medicare.

The end of the coordination period is 33 months from the

start of dialysis. At three treatments per week this means 429

treatments payable through the end of the coordination period.

Revenue minus 2018 costs.

Shpigel et al., A Comparison of Payments to a For-profit

Dialysis Firm from Government and Commercial Insurers, 179 J.

•

In 2016 the commercial (not EGHP) rate payable by the largest issuer, UnitedHealthcare, to the third-largest provider, ARA, was

$4,000 per treatment;92 $624,000 per year;

$1,716,000 coordination period.

•

Net profit, $3,753 per treatment; $585,468

per year; $1,610,037 coordination period.

From 2013 to 2014 the network rate payable

to Fresenius under a network agreement was

$5,200 per treatment;93 $811,200 per year;

$2,230,800 through coordination period.

•

Net profit, $794 per treatment; $123,864

per year; $340,626 coordination period.

Net profit, $4,953 per treatment; $772,668

per year; $2,124,837 coordination period.

In 2015 the out-of-network rate charged by

a small chain provider was approximately

$6,000 per treatment;94 $936,000 per year;

$2,574,000 coordination period.

Am. Med. Assoc. 1136 (August 2019). See comment on “commercial” payers in note 90, supra.

See UnitedHealthcare of Florida v. American Renal Associates, U.S.D.Ct. No. 9:16-cv-81180-KAM (S.D. Fla.), Complaint

filed July 1, 2016 at 2.

See Lubbock County Hospital District v. Specialty Care

Management, No. 5:16-CV-037-C (U.S. N.D. Tex.), Appendix in

Support of Plaintiff ’s Motion for Summary Judgment Exhibit A4, 6/18/14 Fresenius Letter to UMC (Document 15–7) at 2.

This rate is derived from Dialysis Newco, Inc. v. Cmty.

Health Sys. Grp. Health Plan, 938 F.3d 246, 249 (5th Cir. 2019),

•

Net profit, $5,753 per treatment; $897,468

per year; $2,468,037 coordination period.

Prices have only increased since then.

The Medicare Dialysis Benefit and dialysis procurement process have created a reliable platform for

a noncompetitive dialysis market which enables extraordinarily inflated provider profits which impose

unaffordable costs on Self-Insured EGHPs. And every

dollar paid to dialysis profits is a dollar not available

for any other benefits, for any Member, and any other

benefit.

---------------------------------♦---------------------------------

in which the payer limited dialysis benefits to 200% of Medicare

during the period December 2012 through November 2013, which

was “roughly 8%” of what the provider billed.

The MBR for 2013 was $240. U.S. Department of Health and

Human Services, Medicare Program; End-Stage Renal Disease

Prospective Payment System, Quality Incentive Program, and Bad

Debt Reductions for All Medicare Providers, 77 Fed. Reg. 67,450

(November 9, 2012). 200% of $240 is $480, which is eight percent

of $6,000.

CONCLUSION

For the foregoing reasons, this Court should reverse the decision of the Court of Appeals.

Respectfully submitted,

JOHN R. CHRISTIANSEN

Counsel of Record

CHRISTIANSEN IT LAW

2103 Harrison Ave. NW, Suite 2

PMB-885

Olympia, WA 98502

Email john@christiansenlaw.net

Telephone (360) 915-9895

MARY L. STOLL

STOLL LAW GROUP, PLLC

9725 SE 36th St., Suite 201

Mercer Island, WA 98040

Email marys@mlstoll-law.com

Telephone (206) 623-2855

Counsel for Amicus Curiae

December 22, 2021

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.