Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Star Dialysis, LLC v. Winco Foods Employee Benefit Plan

United States District Court, D. Idaho

July 12, 2019

STAR DIALYSIS, LLC; ORDUST DIALYSIS, LLC; ROUTT DIALYSIS, LLC; PANTHER DIALYSIS, LLC; DAVITA INC., Plaintiffs,
v.
WINCO FOODS EMPLOYEE BENEFIT PLAN; WINCO FOODS, LLC; and WINCO HOLDINGS, INC., Defendants.

          MEMORANDUM DECISION AND ORDER

          Honorable Candy W. Dale, United States Magistrate Judge

         INTRODUCTION

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

         BACKGROUND[2]

         1. Allegations and Factual Background

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

         DaVita provides dialysis treatment to beneficiaries of the Plan who suffer from end-stage renal disease (“ESRD”). Id. ¶ 1. ESRD is another term for kidney failure, and is the last stage of chronic kidney disease. Id. ¶ 24. Dialysis is a procedure that substitutes for many of the normal functions of the kidneys, such as removing waste products that the body produces, and allows patients with ESRD to survive. Id. ¶ 25.

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

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

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

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

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

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

         In addition, DaVita alleges that, since January 1, 2017, the Plan has paid DaVita for treatment rendered to Plan beneficiaries at a Medicare-based rate, which has “nothing to do with” the usual and customary rates for DaVita's services. Id. ¶¶ 53-54. DaVita alleges also that the “Medicare-based rate represents a small fraction of the usual and customary amounts DaVita charges and receives for its services, ” and is also much lower than the rates DaVita previously negotiated with Blue Cross of Idaho and other Blue Cross and Blue Shield companies. Id. ¶ 55. Further, DaVita alleges that the WinCo Plan continues to pay out-of-network providers of services other than dialysis at more favorable rates than rates based on Medicare. Id. ¶ 56.[4]

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

a. Prior to treatment, [5] DaVita representatives followed standard procedures for the intake of patients and the receipt of payment for services rendered, which procedures included contacting WinCo Plan representatives to verify coverage and to authorize treatment;
b. During the course of these communications, and based on past practice, “the Plan led DaVita to believe it would pay for dialysis” for the six patients at the contracted rate between DaVita and Blue Cross. DaVita alleges that, with regard to Patient 1, DaVita was told in March of 2017 specifically that coverage and benefits “would stay the same.”[6]
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 ‘authorized representative.'[7]
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.

         2. Causes of Action

         DaVita brings suit against WinCo alleging five causes of action.

         Count 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.

         Count 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).

         Count 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. § 1132(g).

         Count 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.

         Count 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.

         WinCo 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).

         ANALYSIS

         1. Legal Standard under Fed.R.Civ.P. 12(b)(6)

         Federal 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.

         The 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).

         Dismissal 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) (citations omitted).

         As a 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).

         However, 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)).

         Here, 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 Fed.R.Civ.P. 12(b)(6).

         2. Count One - Claim Brought Under the MSPA

         A. Statutory Scheme of the MSPA

         Medicare 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.

         In 1980, Congress enacted the MSPA to counteract rising health care costs. See 42 U.S.C. § 1395y(b); Stalley, 517 F.3d at 915.[8] 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).

         42 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:

         (C) Individuals with end stage renal disease

         A group 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….

         Essentially, 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[9] 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. § 411.162(a).

         The 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) read:

(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 account.”

(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 ยง 411.162(b) and (c). Examples of actions that constitute taking into ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.