DaVita Inc v. Virginia Mason Memorial Hospital, 2:19-cv-00302-BJR

Background

DaVita, a dialysis services provider, sued an employer-sponsored ERISA health plan (offered by Virginia Mason Memorial Hospital) under the Medicare Secondary Payer Act (MSPA), alleging the Plan reimbursed ESRD Medicare-eligible patients at a lower, Medicare-based rate (125% of Medicare) instead of the contractual fee schedule.
DaVita alleges it was underpaid for services to a particular ESRD patient (Patient 1) by at least $1.7 million during a 20‑month period after Patient 1 became Medicare‑eligible but while the Plan remained the primary payer.
Plaintiff seeks double damages under MSPA’s private cause of action, 42 U.S.C. § 1395y(b)(3)(A), claiming the Plan impermissibly “took into account” ESRD status and “differentiated” benefits.
Defendants moved to dismiss under Rule 12(b)(6), arguing (1) MSPA’s private cause of action requires that Medicare actually make conditional payments when a primary plan fails to pay, which did not occur here; (2) administrative remedies existed under the Plan that DaVita did not pursue; and (3) the claim is effectively an ERISA benefits claim requiring exhaustion.
The Court granted the motion to dismiss, holding DaVita failed to state a MSPA private‑cause‑of‑action claim because Medicare never paid as a secondary payer when the Plan was allegedly responsible.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether MSPA private cause of action applies when a primary plan pays at a reduced rate (billing dispute)	MSPA allows suit when a private plan “fails to meet its payment obligations” and discriminatory payment terms forced premature shift to Medicare	MSPA requires Medicare to have actually made payments as a secondary payer (i.e., primary plan failed to pay)	Held for Defendants: MSPA private cause of action requires Medicare to have paid as secondary payer; mere underpayment by primary plan is a billing dispute not actionable under §1395y(b)(3)
Whether premature switch to Medicare (by patient) converts Medicare conditional payments into recoverable MSPA payments	DaVita: Plan’s conduct forced patient to switch early, causing Medicare to bear costs earlier and thus Medicare paid due to Plan’s violation	Defendants: Once patient switched, Medicare became primary; payments made then are primary payments, not Medicare conditional payments caused by Plan’s failure	Held for Defendants: Payments made after patient switched are Medicare primary payments and not recoverable under MSPA private cause of action
Whether failure to pursue Plan’s contractual administrative remedies bars suit	DaVita argued MSPA claim independent of Plan remedies	Defendants contended DaVita could contract for higher rates and failed to pursue those remedies	Court did not reach this argument because dismissal was required as a matter of law on MSPA pleading grounds
Whether claim is precluded by ERISA exhaustion/assignment issues	DaVita relied on MSPA private right, not pure ERISA benefits claim	Defendants argued claim is effectively an ERISA claim requiring exhaustion	Court did not reach this argument after dismissing MSPA claim on the merits

Key Cases Cited

Ashcroft v. Iqbal, 129 S. Ct. 1937 (plausibility standard for Federal Rule of Civil Procedure 12(b)(6))
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading must state a plausible claim)
Parra v. PacifiCare of Arizona, Inc., 715 F.3d 1146 (9th Cir.) (MSPA private cause of action targets situations where Medicare paid because the primary plan failed to pay)
Woods v. Empire Health Choice, Inc., 574 F.3d 92 (2d Cir.) (private plaintiffs may recover double damages for bills improperly paid by Medicare)
Humana Med. Plan, Inc. v. W. Heritage Ins. Co., 832 F.3d 1229 (11th Cir.) (MSPA private cause allows double damages where primary plan fails to provide primary payment)