United States District Court, D. Idaho
STAR DIALYSIS, LLC; ORDUST DIALYSIS, LLC; ROUTT DIALYSIS, LLC; PANTHER DIALYSIS, LLC; DAVITA INC., Plaintiffs,
WINCO FOODS EMPLOYEE BENEFIT PLAN; WINCO FOODS, LLC; and WINCO HOLDINGS, INC., Defendants.
MEMORANDUM DECISION AND ORDER
Honorable Candy W. Dale, United States Magistrate Judge
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.
Allegations and Factual Background
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.
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.
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.)
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.
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.
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, coinsurance or deductible.
Id. ¶ 34.
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.
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.
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.
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,  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 “would
stay the same.”
c. In connection with receiving treatment, Patients 1 - 6
executed a valid assignment to DaVita, which:
gives DaVita the right to be paid directly for any services
rendered to [Patient], and also entitles DaVita to assert
[Patient]'s legal rights under ERISA and other applicable
law. These legal rights include the right to recover
benefits, to file claims and appeals, to request and obtain
information and documents relating to the plan, and to bring
suit for violations of ERISA and other applicable law. The
Assignment also appointed DaVita as the patient's
d. After providing treatment to Patients 1 - 6, DaVita sought
payment from the WinCo Plan by submitting the necessary
information via a standard form, which form indicated that
DaVita had obtained an assignment from each patient.
e. In response to the claims submitted by DaVita after
January of 2017, the Plan paid DaVita at a Medicare-based
rate that was far less than either its contracted rate with
Blue Cross or its usual and customary rate.
Causes of Action
brings suit against WinCo alleging five causes of action.
One alleges that the WinCo Plan violates two MSPA provisions:
one that prohibits an insurer from “tak[ing] into
account that an individual is entitled to or eligible
for” Medicare based on ESRD; Compl. ¶¶ 71 -
76 (quoting 42 U.S.C. § 1395y(b)(1)(C)(i)); and a second
provision that prohibits an insurer from
“differentiat[ing] in the benefits it provides between
individuals having end stage renal disease and other
individuals covered by such plan on the basis of . . . the
need for renal dialysis, or in any other manner.”
Compl. ¶ 77 (quoting 42 U.S.C. §
1395y(b)(1)(C)(ii)). DaVita claims these violations entitle
it to double damages under the MSPA's enforcement
provision, 42 U.S.C. § 1395y(b)(3)(A), both in its own
right and as the beneficiaries' assignee. Id.
¶¶ 81 - 85.
Two seeks injunctive and other equitable relief under 29
U.S.C. § 1132(a)(3) of ERISA to address allegedly
illegal plan terms, including reformation to conform the Plan
to the requirements of federal law, as well as attorney fees
under 29 U.S.C. § 1132(g).
Three seeks relief under 29 U.S.C. § 1132(a)(1)(B), an
ERISA provision allowing recovery of benefits promised under
the terms of the Plan, and attorney fees under 29 U.S.C.
Four alleges that WinCo's Plan failed to adequately
disclose to beneficiaries that there would be no in-network
treatment providers for dialysis, and that payment rates for
dialysis would be significantly lower than for all other
care. Id. ¶ 99. DaVita argues that ERISA
entitles misled beneficiaries and their assignees to recover
under theories of surcharge, reformation, and estoppel.
Id. ¶ 101.
Five alleges claims under Idaho state law for negligent
misrepresentation, promissory estoppel, and quantum meruit.
Id. ¶¶ 103 - 108. DaVita claims it is
entitled to recover damages in its own right as a healthcare
provider. Id. ¶ 109.
moves to dismiss DaVita's complaint in its entirety.
(Dkt. 20.) WinCo argues that: (1) DaVita does not have
standing to bring ERISA claims on its own behalf (re: Counts
Two, Three, and Four); (2) DaVita lacks derivative standing
to bring ERISA claims because the Plan contains an
anti-assignment provision (re: Counts Two, Three and Four);
(3) the alleged bases of recovery under Counts Two, Four, and
Five for equitable relief reach beyond the recovery of
benefits; (4) DaVita has not alleged any actual expenses paid
by Medicare, as required to state a claim under the MSPA, and
DaVita has in fact been paid for services (Count One); (5)
DaVita has not alleged discrimination between Plan members as
required to state a claim under the MSPA, because there are
no facts to support the allegation that the Plan
impermissibly differentiated between the benefits provided
individuals with ESRD and other individuals requiring
dialysis; (Count One); (6) DaVita fails to state a claim for
injunctive relief under ERISA (Count Two); (7) DaVita does
not allege sufficient facts to state a claim for denial of
benefits under ERISA (Count Three); (8) DaVita fails to state
a claim for breach of fiduciary duty under ERISA (Count
Four); and (9) DaVita's claims under state law should be
dismissed because ERISA preempts them, and they are
inadequately pled in the Complaint (Count Five).
Legal Standard under Fed.R.Civ.P. 12(b)(6)
Rule of Civil Procedure 8(a)(2) requires only “a short
and plain statement of the claim showing that the pleader is
entitled to relief, ” to “give the defendant fair
notice of what the ... claim is and the grounds upon which it
rests.” Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 555 (2007). While a complaint attacked by a Rule
12(b)(6) motion to dismiss “does not need detailed
factual allegations, ” it must set forth “more
than labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.”
Id. at 555. To survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as
true, to “state a claim to relief that is plausible on
its face.” Id. at 570. A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. Id.
at 556. The plausibility standard is not akin to a
“probability requirement, ” but it asks for more
than a sheer possibility that a defendant has acted
unlawfully. Id. Where a complaint pleads facts that
are “merely consistent with” a defendant's
liability, it “stops short of the line between
possibility and plausibility of ‘entitlement to
relief.'” Id. at 557.
Supreme Court identified two “working principles”
that underlie Twombly in Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009). First, the court need not accept as
true, legal conclusions that are couched as factual
allegations. Id. Rule 8 does not “unlock the
doors of discovery for a plaintiff armed with nothing more
than conclusions.” Id. at 678-79. Second, to
survive a motion to dismiss, a complaint must state a
plausible claim for relief. Id. at 679.
“Determining whether a complaint states a plausible
claim for relief will ... be a context-specific task that
requires the reviewing court to draw on its judicial
experience and common sense.” Id.
“Dismissal under [Fed. R. Civ. P.] 12(b)(6) is
appropriate only where the complaint lacks a cognizable legal
theory or sufficient facts to support a cognizable legal
theory.” Mendiondo v. Centinela Hosp. Med.
Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). The Court
must accept all factual allegations in the complaint as true
and construe the pleadings in the light most favorable to the
nonmoving party. Knievel v. ESPN, 393 F.3d 1068,
1072 (9th Cir. 2005).
without leave to amend is improper unless it is beyond doubt
that the complaint “could not be saved by any
amendment.” Harris v. Amgen, Inc., 573 F.3d
728, 737 (9th Cir. 2009); Morningstar Holding Corp. v.
G2, LLC, No. CV-10-439-BLW, 2011 WL 864300, at *3 &
n.4 (D. Idaho Mar. 10, 2011). The Court of Appeals for the
Ninth Circuit has held that, “in dismissals for failure
to state a claim, a district court should grant leave to
amend even if no request to amend the pleading was made,
unless it determines that the pleading could not possibly be
cured by the allegation of other facts.” Cook,
Perkiss and Liehe, Inc. v. N. California Collection Serv.,
Inc., 911 F.2d 242, 247 (9th Cir. 1990). The issue is
not whether the plaintiff will prevail but whether he
“is entitled to offer evidence to support the
claims.” Diaz v. Int'l Longshore and Warehouse
Union, Local 13, 474 F.3d 1202, 1205 (9th Cir. 2007)
general rule, the Court may not consider any material beyond
the pleadings when ruling on a Rule 12(b)(6) motion. Lee
v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir.
2001). When matters outside the pleading are presented to and
not excluded by the Court, the motion must be treated as one
for summary judgment and disposed of as provided in Rule 56,
and all parties must be given reasonable opportunity to
present all material made pertinent to such a motion by Rule
56. Fed.R.Civ.P. 12(b)(6).
the Court may consider “material which is properly
submitted as part of the complaint” on a motion to
dismiss without converting the motion to dismiss into a
motion for summary judgment. Lee, 250 F.3d at 688.
If the documents are not physically attached to the
complaint, they may be considered if the document's
“authenticity ... is not contested” and
“the plaintiff's complaint necessarily
relies” on them. Id. (quoting Parrino v.
FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998)).
Defendants submitted a copy of the WinCo Holdings, Inc.
Employee Benefit Plan effective January 1, 2017, with other
support for thier motion to dismiss. (Dkt. 20-2 Ex. A.)
Neither party disputes the document's authenticity, and
DaVita's complaint necessarily relies upon the Plan
document. Therefore, the Court will consider the Plan
document in ruling on DaVita's motion to dismiss under
Count One - Claim Brought Under the MSPA
Statutory Scheme of the MSPA
is a federal health insurance program providing health
insurance benefits to individuals sixty-five years of age or
older, disabled individuals, and individuals with ESRD. 42
U.S.C. §§ 1395 to 1395kkk-1; Stalley v.
Methodist Healthcare, 517 F.3d 911, 915 (6th Cir. 2008).
Many Medicare recipients may also be covered by private
health care plans. Nat'l Renal Alliance, LLC v. Blue
Cross & Blue Shield of Ga., Inc., 598 F.Supp.2d
1344, 1351 (N. D. Ga. 2009). Until 1981, Medicare provided
primary payment for all services to Medicare beneficiaries
except for services covered under workers' compensation.
United States v. Blue Cross Blue Shield of Michigan,
859 F.Supp. 283, 286 (E.D. Mich. 1994); Stalley, 517
F.3d at 915.
1980, Congress enacted the MSPA to counteract rising health
care costs. See 42 U.S.C. § 1395y(b);
Stalley, 517 F.3d at 915. The MSPA makes Medicare
insurance secondary to any “primary plan”
obligated to pay a Medicare recipient's medical expenses.
42 U.S.C. § 1395y(b)(2)(A). In this manner, Congress
sought to reduce federal spending and to protect the
financial well-being of the Medicare program. United
States v. Travelers Ins. Co., 815 F.Supp. 521, 522 (D.
Conn. 1992); Bio-Med. Applications of Ga., Inc. v. City
of Dalton, Ga., 685 F.Supp.2d 1321, 1328 (N.D.Ga. 2009).
U.S.C. § 1395y(b)(1)(C) concerns the obligations of
private health care plans when dealing with persons suffering
from ESRD. Section 1395y(b)(1)(C) states:
Individuals with end stage renal disease
health plan (as defined in subparagraph (A)(v))-
(i) may not take into account that an individual is entitled
to or eligible for benefits under this subchapter under
section 426-115 of this title during the 12-month period
which begins with the first month in which the individual
becomes entitled to benefits under part A under the
provisions of section 426-1 of this title, or, if earlier,
the first month in which the individual would have been
entitled to benefits under such part under the provisions of
section 426-1 of this title if the individual had filed an
application for such benefits; and
(ii) may not differentiate in the benefits it provides
between individuals having end stage renal disease and other
individuals covered by such plan on the basis of the
existence of end stage renal disease, the need for renal
dialysis, or in any other manner….
the MSPA forbids a private group health plan from
“taking into account” an individual's ESRD
diagnosis, or “differentiating” in the benefits
offered to that individual, during the thirty
months after that individual becomes eligible,
and applies for, Medicare. City of Dalton, 685
F.Supp.2d at 1329. If an individual with ESRD is covered by
both Medicare and a private health plan, Medicare acts as a
“secondary” payer during the thirty-month
coordination of benefits period. See 42 C.F.R.
regulations implementing the MSPA describe in more detail
what “taking into account, ” and
“differentiating” in terms of benefits, means
under the statute. 42 C.F.R. § 411.108(a)(1) and (3)
(a) Examples of actions that constitute “taking into
account”. Actions by GHPs or LGHPs that constitute
taking into account that an individual is entitled to
Medicare on the basis of ESRD, age, or disability (or
eligible on the basis of ESRD) include, but are not limited
to, the following:
(1) Failure to pay primary benefits as required by subparts
F, G, and H of this part 411.
(3) Terminating coverage because the individual has become
entitled to Medicare, except as permitted under COBRA
continuation coverage provisions....
42 C.F.R. § 411.161 also discusses the terms
“differentiation” and “taking into
(a) Taking into account-
(1) Basic rule. A GHP may not take into account that an
individual is eligible for or entitled to Medicare benefits
on the basis of ESRD during the coordination period specified
in § 411.162(b) and (c). Examples of actions that
constitute taking into ...