Judge rules DaVita, Star Dialysis cannot sue Amy's Kitchen with federal claims over dialysis coverage

By Scott Holland | Apr 23, 2019

SAN FRANCISCO – A federal judge ruled in favor of Amy’s Kitchen Inc. in a lawsuit about changes to its employee health insurance plan.

In an opinion issued April 5, Judge Jon Tigar of the U.S. District Court for the Northern District of California dismissed a complaint from plaintiffs DaVita Inc. and Star Dialysis LLC, which sued the organic food seller after it eliminated network coverage for dialysis treatment and reduced reimbursement for the procedure.

DaVita said the change violated both the Employee Retirement Income Security Act, the Medicare as Secondary Payer Act (MSPA) and a variety of California state laws. Tigar explained one of the reasons Congress enacted the MSPA was to remove the incentive for private insurers to push people with kidney failure onto Medicare, because people with end-stage renal disease automatically qualify for Medicare regardless of age or financial status.

Under the MSPA, Medicare would be only a second payer for the first 30 months of eligibility under kidney failure. DaVita said Amy’s violated that “foundational principle” by eliminating in-network coverage for dialysis as it gives people incentive to drop their primary coverage to enroll in Medicare.

Amy’s said a highly concentrated market for dialysis providers allows such companies to “discriminatorily charge plans . . . much higher rates for dialysis than they charge government and commercial payers in order to subsidize those larger payers,” the ruling states.

Tigar agreed with Amy’s position that DaVita and Star Dialysis don’t have standing to bring an ERISA claim on their own behalf as health care providers or solely as a patient’s assignee and dismissed those claims with prejudice. He did the same for the defendants’ ERISA and MSPA claims as assignees, saying they lacked Article III standing.

The providers argued their patients signed forms assigning them their claims for equitable relief. But Tiger agreed with Amy’s argument that the form doesn’t specifically assign the right to pursue a claim for breach of fiduciary duty or claims for equitable relief. He said the broader context of the form focuses on the patient’s responsibility to pay for treatment.

Tigar similarly agreed with Amy’s that a patient who assigned a claim for benefits to DaVita didn’t suffer an injury — DaVita continued to provide dialysis and Amy’s continued to pay, albeit at a lower level.

“There was no properly ‘claimed benefit’ that was denied, reduced, terminated or failed to have been provided or made payment for,” Tigar wrote. “Under the terms of the plan, the claimed benefit was dialysis treatment at a ‘usual and reasonable’ rate, the rate at which DaVita was reimbursed.”

Tigar dismissed the MSPA claims on similar grounds. He said Amy’s health plan does cover patients with kidney failure, and it does so at the same level for any dialysis patients who aren’t eligible for Medicare. Although DaVita invoked regulations that bar chances that effectively deny, restrict or terminate benefits for such patients, it “omits the portion of the regulation clarifying that this prohibition applies only when plan provisions have such an effect for individuals with ESRD, ‘but not for similarly situated individuals.’ ”

After dismissing all the federal claims with prejudice, Tigar said he wouldn’t do the same for the state law claims. He dismissed those without prejudice, allowing leave for DaVita to bring them again in a state court.

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