California law limiting dialysis providers' profits voided by US appeals court

By Jonathan Stempel

April 7 (Reuters) - A federal appeals court on Tuesday struck down as unconstitutional parts of a California law that limited the ability of dialysis providers to profit from patients who receive health insurance premium assistance from nonprofit charities.

The 9th U.S. Circuit Court of Appeals in Pasadena, California, ruled in favor of Fresenius FREG.DE and DaVita DVA.N, as well as the American Kidney Fund, which receives most of its funding from those dialysis providers. They had objected to the law, known as Assembly Bill 290, saying that it violated the First Amendment of the U.S. Constitution by impeding their right to associate with each other and with others.

In a 2-0 decision, the appeals court found three of the law's provisions unconstitutional: a cap on the rate at which providers who donate to charities can be reimbursed by insurers, a requirement that charities offering premium assistance disclose their patients to insurers, and a prohibition on charities from conditioning assistance on various patient eligibility factors.

The court also said these provisions could not be severed from a constitutional provision requiring charities that receive donations from providers to disclose coverage options to patients.

Governor Gavin Newsom, a Democrat, signed the law in October 2019, in an effort to address rising health care costs.

According to the appeals court, about 35.5 million American adults suffer from chronic kidney disease, and about 800,000 suffer from end-stage renal disease, which can be fatal if untreated. A disproportionate number of the latter group comes from underserved minority communities, the court said.

The office of Democratic California Attorney General Rob Bonta, which defended the law, did not immediately respond to requests for comment. Lawyers for Fresenius did not immediately respond to similar requests.

"This decision is a critical protection for patients, defending their access to uninterrupted care," DaVita said in a statement. "We’re encouraged that the Ninth Circuit found AB 290 unconstitutional and unenforceable."

NEWSOM SOUGHT TO REIN IN HEALTH CARE COSTS

Newsom said the law would remove financial incentives to steer patients to specific health care coverage by reimbursing dialysis clinics at Medicare rates for treating patients who receive premium assistance. Opponents countered that the law would hurt thousands of lower-income patients.

In Tuesday's decision, Circuit Judge Ryan Nelson, joined by Circuit Judge Lawrence VanDyke, said the unconstitutional provisions burdened the American Kidney Fund's right to associate with Fresenius, DaVita and patients.

Nelson said the provisions were not narrowly tailored to address California's interests in preventing distortion to insurance risk pools from end-stage renal disease patients, and protecting vulnerable populations from alleged abusive practices.

"The text eliminates AKF’s ability to determine who its patients will be," Nelson wrote. "This burdens AKF’s right to associate far more than would be required to fix the narrow problem of the abusive practices California cites."

In deeming the coverage disclosure provision unenforceable without the unconstitutional provisions, Nelson found no compelling reason to believe the provision "would do much to prevent steering from public to private insurance. And since 90% of the at-issue patients already have public insurance, the opposite might result from letting this provision stand on its own."

A district court judge had found the law's reimbursement provision constitutional, and deemed the unconstitutional provisions severable.

Oral arguments were held last October. Another judge who heard those arguments, Sandra Ikuta, died in December.

The cases are: Fresenius Medical Care Orange County LLC v Bonta; Doe v Bonta; Doe v Bonta, 9th U.S. Circuit Court of Appeals, Nos. 24-3654, 24-3655 and 24-3700.

For Fresenius: Ari Holtzblatt of Wilmer, Cutler, Pickering, Hale and Dorr

For DaVita: Rachel Shalev of Orrick Herrington & Sutcliffe

For California: California Attorney General's Office