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What’s at Stake in High Court’s CVS Disability Bias Case

The U.S. Supreme Court recently decided to review the U.S. Court of Appeals for the Ninth Circuit's decision in CVS Pharmacy Inc. v. Doe.

With the grant of certiorari, the Supreme Court has agreed to consider the scope of disability discrimination claims available not only under the Affordable Care Act, but also under Section 504 of the Rehabilitation Act, which is incorporated into the ACA's anti-discrimination provision.

Notably at stake is whether Section 504, and thus the ACA, provides a disparate-impact cause of action for plaintiffs alleging disability discrimination.

According to both the U.S. District Court for the Northern District of California and the defendants, petitioners here, the logic of the plaintiffs' arguments if successful could have wide-ranging and deep impacts on the economics of the U.S. health care system and the U.S. insurance industry model for prescription drug benefits.

In the CVS decision under review, the Ninth Circuit held that, under the anti-discrimination provision of the ACA, HIV and AIDS patients could bring claims of disparate-impact discrimination to challenge the terms of prescription drug benefits under their health plans.1

Though several similar class actions by other HIV and AIDS patients have settled with accommodations, one culminated in the U.S. Court of Appeals for the Sixth Circuit's decision in Doe v. BlueCross BlueShield of Tennessee Inc.,2 which held that the ACA's anti-discrimination provision does not permit disparate-impact discrimination claims based on disability.

The Ninth Circuit's decision conflicted with BlueCross by finding based on substantially similar allegations that disparate-impact disability claims are cognizable under the ACA.

The ACA's Anti-Discrimination Provision

Section 1557 of the ACA prohibits discrimination under any health program or activity that receives federal funds on grounds prohibited under four statutes, including disability under the Rehabilitation Act. Section 504 of the Rehabilitation Act, in particular, provides that "[n]o otherwise qualified individual with a disability ... shall, solely by reason of her or his disability" be discriminated against in programs or activities that receive federal financial assistance.

The Plaintiffs' ACA Anti-Discrimination Claim

The plaintiffs in the CVS case, HIV and AIDS patients, alleged that defendants CVS Pharmacy Inc., Caremark LLC and Caremark Specialty Pharmacy LLC, collectively referred to by the plaintiffs as CVS Caremark, discriminated against them in violation of the ACA by charging out-of-network pricing for specialty medications dispensed at non-CVS pharmacies.3

CVS Caremark maintained that the program reflected the cost and complexity of specialty medications, not any disability status.

The District Court's Findings and Dismissal

In CVS, the district court dismissed the plaintiffs' complaint, finding that the program did not discriminate and rather applied to all specialty medications, regardless of disability.4

The district court also found that the plaintiffs failed to sufficiently allege a disproportionate impact on HIV and AIDS patients or a requisite denial of meaningful access under Supreme Court precedent in Alexander v. Choate, in 1985.5

Rather, the district court reasoned that the ACA did not require providers to tailor a benefit to the medical needs of the plaintiffs,6 and that "[i]f enrollees could avail themselves of out-of-network providers at in-network rates by contending that in-network care is inferior for any particular disability, then the basis of the HMO/PPO model would be undermined."7

The Ninth Circuit Vacates and Remands the ACA Discrimination Claim

On the plaintiffs' appeal, the Ninth Circuit vacated the district court's dismissal.

The Ninth Circuit explained that it would apply the Supreme Court's two-step test for Section 504 claims by first examining the nature of the benefit and then determining whether meaningful access had been denied.

The Ninth Circuit found that the district court unduly narrowed the benefit's definition to cost-related differences because plaintiffs included in the benefit "aspects of pharmaceutical care that they deem[ed] critical to their health."8

The Ninth Circuit then found that the district court misevaluated meaningful access under the Medicaid Act instead of under the ACA and that plaintiffs had adequately alleged denial of meaningful access under the ACA by claiming the program prevented effective treatment with HIV and AIDS medication.

The Ninth Circuit also rejected CVS Caremark's argument that the health insurance plan's facial neutrality precluded a disparate-impact claim and instead found that the program burdened HIV and AIDS patients differently due to their unique medical needs.

CVS Caremark Defendants' Cert Petition Granted in Part

CVS Caremark petitioned for certiorari on the basis that the Ninth Circuit decision reflected two circuit splits, captured in two questions presented: (1) whether Section 504 of the Rehabilitation Act, and accordingly the ACA, provides a disparate-impact cause of action for plaintiffs alleging disability discrimination, and (2) if Section 504 and the ACA create disparate-impact claims, whether such claims extend to facially neutral terms and conditions of health insurance plans.9

CVS Caremark claimed that the Ninth Circuit "staked out an extreme new position ... that disparate-impact claims are available to invalidate facially neutral health and pharmacy benefit plans that purportedly fail to satisfy the unique medical needs of individuals with disabilities."

CVS Caremark further alleged that "[t]his holding poses 'a direct and existential threat to the continued viability of prescription drug coverage'" and that the "'enormous economic burdens' from the decision ... alone warrant certiorari."10 The court granted a writ limited to question 1.

Multiple Splits Potentially Under Review

In their cert petition briefing, CVS Caremark and the plaintiffs disputed whether the Ninth Circuit decision reflected two circuit splits, thus warranting review.

CVS Caremark contended that the first question, which the Supreme Court has agreed to hear, manifested a 4-1 circuit split: whether disparate-impact liability for disability discrimination contradicts the Rehabilitation Act and the ACA.

CVS Caremark argued that the Sixth Circuit, in Doe v. BlueCross BlueShield of Tennessee Inc., held that the Rehabilitation Act and the ACA preclude disparate-impact liability for disability discrimination, whereas four other circuits had found facially neutral policies susceptible to disparate-impact claims.

The plaintiffs disagreed that the CVS decision presented any conflict, contending that the Ninth Circuit's holding did not impose any new legal obligations and noted that the Ninth Circuit explicitly agreed with the Sixth Circuit that the ACA's anti-discrimination provision did not create a new health care-specific standard.

The plaintiffs also asserted that the Ninth Circuit's decision was "consistent with the consensus of the circuits" that denial of meaningful access is actionable absent intentional discrimination.11

CVS Caremark, however, cited the plaintiffs' admission that the Ninth Circuit's decision "was the first to allow ... [a] disparate-impact claim under the ACA," and replied that the Ninth Circuit's decision conflicted with the Sixth Circuit's holding that Section 504 precludes even claims that "clear the meaningful-access threshold."12

Despite agreeing to hear the first question presented, the Supreme Court nonetheless declined to review the second question: whether, if Section 504 of the Rehabilitation Act authorizes disparate-impact claims, such claims can apply to facially neutral health benefit plans.

CVS Caremark asserted that the Ninth Circuit was the first to answer that question affirmatively, whereas the plaintiffs characterized the Ninth Circuit decision as merely endorsing the availability of a meaningful-access claim consistent with prior case law.

Review of Ninth Circuit Decision

CVS Caremark also sparred with the plaintiffs in cert briefing over whether the Ninth Circuit erred in its statutory interpretation.

CVS Caremark contended that disparate-impact claims were not available because Section 504 expressly limits liability to discrimination "solely by reason of ... disability."13

CVS Caremark also argued that Section 504 precludes disparate-impact liability because Section 504 was based on Title VI, which provides a private right of action only for intentional race discrimination.14 The plaintiffs responded that CVS Caremark could not rely on precedent that addressed reasons that Title VI's standard should not be incorporated into Section 504.15

CVS Caremark further argued that the Ninth Circuit erred to find that Section 504 would authorize disparate impact liability for disability discrimination because disparate impact liability is not available to remedy other forms of discrimination under the other statutes incorporated by the ACA anti-discrimination provision.

The plaintiffs responded that at issue was "not the direct application of Section 504 ... but the application of Section 1557 of the ACA."16 The plaintiffs asserted that Section 1557's interpretation needed to be informed by the ACA as a whole, which prohibits companies from charging more based on disability, bars certain plans from discriminating for preexisting conditions, and requires applying benefit restrictions consistently to all individuals similarly situated.17

Section 1557, the plaintiffs insisted, presents a separate basis for discrimination liability.18 CVS Caremark attacked plaintiffs' suggestion "that section 504 ... means something different ... in the ACA context," contending that the Ninth Circuit had rejected this notion by holding that the ACA incorporates Section 504's anti-discrimination standard.19

Alleged Potential Impact

CVS Caremark, joined by amici, claimed in their cert petition briefs that the Ninth Circuit's decision posed an existential threat to U.S. health care, and that the potential enormous economic burdens alone warranted review, quoting the district court's findings that "the basis of the HMO/PPO model would be undermined."20

CVS Caremark and amici contended that the Ninth Circuit decision would fundamentally alter the health insurance industry, hamstring companies operating nationally, enable plaintiffs to rewrite common terms for facially neutral health plans, increase costs, reduce choice, impose uncertainty on prescription distribution and jeopardize tools on which benefits managers rely.21

CVS Caremark and amicus America's Health Insurance Plans particularly asserted that allowing disparate-impact claims would be incompatible with plan benefits that inherently differentiate based on characteristics that indicate risk, and that the Ninth Circuit's decision would upend plan design and destabilize the health care system.

CVS Caremark claimed that was why Congress had, under the ADA, exempted employers from disparate-impact liability for providing health insurance.22

In the face of these claims, plaintiffs maintained that the Ninth Circuit's decision reaffirmed network-based health care by ensuring equal access, and assured that, in related suits, settlements had reached accommodations.

CVS Caremark, however, inveighed that the plaintiffs' response ignored a cascade of litigation — against entities Congress never intended — that would "threaten the basic operation of U.S. healthcare markets ... around the country."23

A Decision to Watch

The Supreme Court has chosen to wrestle with the availability of disparate-impact claims under Section 504 of the Rehabilitation Act, and potentially to further specify liability under the ACA.

Based on the arguments and claims asserted by the defendants and plaintiffs above, health insurer and benefits manager stakeholders, individuals with disabilities, and their legal counsel, should all be especially eager to follow the Supreme Court's upcoming decision.

Takeaways to Bear in Mind

Practitioners and insurer stakeholders should take note that the U.S. Supreme Court is set to hear a challenge to a recent Ninth Circuit decision that permitted disability discrimination claims to be based on an alleged disparate impact of facially neutral health insurance plans on HIV and AIDS patient plan enrollees.

Specifically, the Supreme Court agreed to hear argument whether Section 504 of the Rehabilitation Act, and accordingly the ACA, provides a disparate-impact cause of action for plaintiffs alleging disability discrimination.

Worth watching closely is whether the decision from the Supreme Court rules on the availability of disparate-impact claims of disability discrimination under both the ACA and the Rehabilitation Act more broadly.

Likewise, stakeholders will want to follow whether, and if so how, the Supreme Court addresses the reasoning of the Sixth Circuit's BlueCross decision.

The Sixth Circuit decision itself is not on review before the Supreme Court. However, practitioners and stakeholders should watch to see what role the Sixth Circuit's reasoning plays, if any, given its different outcome from the Ninth Circuit's.

The Sixth Circuit in BlueCross expressly determined to resolve what Choate did not, by concluding that "[Section] 504 does not prohibit disparate-impact discrimination,"24 but also did not explicitly invoke the Supreme Court's language of "[denial of] meaningful access" to benefits from Alexander v. Choate.

Health insurer and benefits manager stakeholders, and also health plan enrollees, may want to pay special attention in light of the defendants' claims that allowing the Ninth Circuit decision to stand would pose an existential threat to U.S. health care with enormous economic burdens that would undermine the health maintenance organization/preferred provider organization model.

This article was first published by Law360 on September 10, 2021.

1  Doe v. CVS Pharmacy, Inc., 982 F.3d 1204, 12 (9th Cir. 2020) ("CVS").

2  Doe v. BlueCross BlueShield of Tennessee, Inc., 926 F.3d 235 (6th Cir. 2019).

3  Corrected First Amended Class Action Complaint, Doe v. CVS Pharmacy, Inc., Case No. 3:18-CV-1031-EMC, (N.D. Cal. June 18, 2018), ECF No. 75.

4  Doe One v. CVS Pharmacy, Inc., 348 F. Supp. 3d 967, 977 (N.D. Cal. 2018), aff'd in part, vacated in part, remanded sub nom. Doe v. CVS Pharmacy, Inc., 982 F.3d 1204 (9th Cir. 2020)

5  Id. at 983–86 (citing Alexander v. Choate, 469 U.S. 287, 289 (1985)).

6  Id. at 984–85 (quoting 469 U.S. at 303).

7  Id. at 985.

8  982 F.3d at 1210 (citing Choate, 469 U.S. at 303; 42 U.S.C. § 18022(b)(1)(F)).

9  Petition for a Writ of Certiorari, CVS Pharmacy Inc. v. Doe, granted, No. 20-1374 (U.S. Mar. 26, 2021) ("Petition")

10  Reply Brief of Petitioners at 1-2, CVS Pharmacy Inc. v. Doe, No. 20-1374 (U.S. June 8, 2021) ("Reply") (quoting Brief for the Chamber of Commerce of the United States of America as Amicus Curiae in Support of Petitioners at 18, CVS Pharmacy Inc. v. Doe, No. 20-1374 (U.S. Apr. 30, 2021) ("Chamber"); citing Brief of America's Health Insurance Plans as Amicus Curiae in Support of Petitioners at 23, CVS Pharmacy Inc. v. Doe, No. 20-1374 (U.S. Apr. 30, 2021) ("AHIP"), and Brief of Pharmaceutical Care Management Association as Amicus Curiae in Support of Petitioners at 13-14, CVS Pharmacy Inc. v. Doe, No. 20-1374 (U.S. Apr. 30, 2021) ("PCMA")).

11  Brief in Opposition to Petition for a Writ of Certiorari at 3, 13, 34, CVS Pharmacy Inc. v. Doe, No. 20-1374 (U.S. June 1, 2021) ("Opposition").

12  Reply at 4, 8.

13  Petition at 26 (quoting 29 U.S.C. §794(a), BlueCross, 926 F.3d at 242; citing Husted v. A. Philip Randolph Inst., 138 S. Ct. 1833, 1842 (2018) (interpreting 52 U.S.C. § 21083(a)(4)(A) for the proposition that "solely by reason of" means "for no reason other than").

14  Id. at 6–8 (citing 42 U.S.C. § 18116(a) and BlueCross, 926 F.3d at 240), 16-17 (citing Alexander v. Sandoval, 532 U.S. 275, 279–81 (2001) and BlueCross, 926 F.3d at 242–43), 26 (citing Choate, 469 U.S. at 299, Sandoval, 532 U.S. at 280, BlueCross, 926 F.3d at 243). Title VI, Section 601 of the Civil Rights Act of 1964, 42 U.S.C. § 2000d, provides:
"No person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance."

15  Opposition at 36–37 (citing Choate, 469 U.S. at 292–95 & n.7 and Consol. Rail Corp. v. Darrone, 465 U.S. 624 (1984)).

16  Opposition at 1-2.

17  Opposition at 35–36 (citing 42 U.S.C. § 300gg and Pet.App.14a).

18  Id. at 36.

19  Reply at 12.

20  Petition at 13-14 (citing Doe One v. CVS Pharmacy, Inc., 348 F. Supp. 3d at 985); Reply at 8.

21  Petition at 4; Chamber at 15; PCMA at 18; Reply at 5; AHIP at 2.

22  Petition at 27–28 (citing 42 U.S.C. § 12201 (c)).

23  Reply at 8; Chamber at 2, 13-15; PCMA at 12-14.

24  BlueCross, 926 F.3d at 241 (6th Cir. 2019).