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UPDATE 1-U.S. Supreme Court rules against DaVita over dialysis coverage

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(Adds comment from Fresenius, updates stock price)

By Nate Raymond

June 21 (Reuters) - The U.S. Supreme Court on Tuesday rejected dialysis provider DaVita Inc's claims that an Ohio hospital's employee health plan discriminates against patients with end-stage kidney disease by reimbursing them at low rates in hopes they would switch to Medicare.

In a 7-2 decision https://fingfx.thomsonreuters.com/gfx/legaldocs/byvrjaqorve/06212022davita.pdf authored by conservative Justice Brett Kavanaugh, the court ruled that Marietta Memorial Hospital's employee health plan did not violate federal law by limiting benefits for outpatient dialysis because it did so without regard to whether patients had end-stage renal disease. A lower court had ruled in favor of Denver-based DaVita.

DaVita, which provides kidney dialysis services through a network of outpatient clinics, sued in 2018 arguing that the hospital's plan violated the Medicare Secondary Payer statute, under which the government healthcare program for those ages 65 and older pays only after a patient's existing insurance plan does.

Given the high cost of care for end-stage renal disease, the law bars health plans from differentiating benefits it provides people with the disease and those without it.

End-stage renal disease is a condition in which a person's kidneys cease functioning and can only be treated with a transplant or dialysis.

Kavanaugh wrote that while Congress could mandate that health plans provide particular benefits, the Medicare Secondary Payer statute does not dictate any particular level of dialysis coverage by a health plan.

"Neither the statute nor DaVita offers a basis for determining when coverage for outpatient dialysis could be considered inadequate," Kavanaugh wrote.

Following the ruling, shares of DaVita, one of the nation's two largest dialysis providers, closed 15% lower. Shares of German rival Fresenius Medical Care dropped 9%.

"Alongside the kidney care community, we are deeply disappointed by today's Supreme Court decision to upend an important protection for Americans with chronic kidney failure," Javier Rodriguez, DaVita's chief executive, said in a statement.

DaVita's lawyers had said a ruling against the company could open the door to other private health plans adopting terms to limit coverage for expensive dialysis treatments, forcing patients with end-stage renal disease to switch to Medicare.

Fresenius in a statement said it does not "expect that this case triggers a major change in the relationship between providers and health insurers as the vast majority of those in the industry are interested in the well-being of patients."

John Kulewicz, a lawyer for Marietta's plan, thanked the court "for the close reading that it has given to the Medicare Secondary Payer Act."

Justice Elena Kagan, in a dissenting opinion joined by fellow liberal Justice Sonia Sotomayor, said the ruling created a "massive and inexplicable workaround" to a prohibition aimed at preventing health plans from "foisting" the cost of dialysis onto Medicare.

"Now Congress will have to fix a statute this Court has broken," Kagan wrote. (Reporting by Nate Raymond in Boston; Editing by Will Dunham and Bill Berkrot)