Source: https://law.justia.com/cases/federal/appellate-courts/cadc/99-7089/99-7089a-2011-03-24.html
Timestamp: 2019-04-22 15:09:10+00:00

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Williams, Circuit Judge: Vencor, Inc., a provider of long- term hospital care, filed a diversity action1 against Physicians Mutual Insurance Company, seeking reimbursement for ex- penses incurred by 10 patients who stayed in six of its hospitals beyond the period covered by Medicare. Each of the patients held "Medigap" insurance policies issued by Physicians Mutual; Vencor sues as third party beneficiary. Among other defenses, Physicians Mutual claimed that cer- tain provisions of the Medicare Act and associated regulations barred Vencor from charging patients more than the maxi- mum rate for Medicare-covered hospital days--a rate at which Physicians Mutual had already reimbursed Vencor. The district court granted Physicians Mutual's motion for summary judgment on that limited ground. Vencor, Inc. v. Physicians Mutual Insurance Co., 39 F. Supp. 2d 1 (D.D.C. 1999). Finding no such limitation in the cited provisions, we reverse.
__________ 1 Vencor also claimed the district court had federal question jurisdiction, which Physicians Mutual disputed. Given the presence of diversity jurisdiction, we need not reach the issue.
tients fully exhaust their government-provided hospital bene- fits, see id. ss 1395c, 1395d, many rely on privately- purchased "Medigap" policies for extended coverage. These policies vary in their terms, but (as a result of a federal regulatory process that we will soon describe) all offer at least 365 days of post-Medicare hospital benefits. See Medi- care Program; HHS' Recognition of NAIC Model Standards for Regulation of Medigap Policies, 57 Fed. Reg. 37,980, 37,991/1 (1992).
While the Medicare reimbursement rates of most hospitals are governed by the so-called Prospective Payment System, see 42 U.S.C. s 1395ww(d)(1)(B)(iv), Vencor, as an operator of long-term care hospitals, can secure reimbursement for the "reasonable cost" of providing its services. Id. ss 1395f(b)(1), 1395x(v). For Medicare-covered services, it must generally accept this amount as payment in full. See id. s 1395cc(a)(1)(A).
Vencor and Physicians Mutual filed cross motions for par- tial summary judgment on the limited question of whether the Medicare statute or associated federal regulations prohib- ited it from charging patients for post-Medicare services at more than the Medicare-approved rates. We emphasize the word "patients" because much of the legislative and regulato- ry materials that the parties dispute speak only to insurers' obligations. Of course for a third-party beneficiary's breach of contract action, the patient's liability is the bedrock-- without patient responsibility, there is no insurer responsibili- ty. But insurer liability is often less than all of the primary obligor's; provisions for deductibles and co-insurance are common, and some items and services may not be covered at all. Such insurer-specific limitations may affect Physicians Mutual's liability on these 10 contracts, but no such limita- tions are before us. The cross-motions for summary judg- ment frame the issue only in terms of patient liability.
not to charge ... any individual or any other person for items or services for which such individual is entitled to have payment made under this subchapter. Id.
The most obvious difficulty with this provision as support for Physicians Mutual is that it appears to have nothing to do with charges for post-Medicare services. The "subchapter" (Subchapter XVIII, 42 U.S.C. ss 1395-1395ccc) contains pro- visions under which providers are "entitled" to be paid by Medicare when their provision of services meets the many statutory qualifications. These appear to exhaust its provi- sion of entitlements. Certainly Physicians Mutual points us to nothing in the subchapter that "entitles" providers to be paid for services provided after the lapse of Medicare entitle- ment. For such entitlements, presumably, they must rely on contract, or perhaps in some cases quasi-contract, under state law.
Physicians Mutual seeks to get around this impediment by claiming that because provisions in the subchapter establish conditions under which the National Association of Insurance Commissioners ("NAIC") may promulgate standardized Me- digap insurance contracts, which under certain conditions become the exclusive form of lawful Medigap insurance con- tract, see id. s 1395ss(p), the subchapter "entitles" providers to be paid for services falling in the Medicare gap. But, skipping over the distinction between the liabilities of insur- ers and of patients (recall that it is the latter that the parties' motions for summary judgment have put in play; insurers' obligations follow only as a corollary), there is all the differ- ence in the world between the contractual obligations of the common law, which create the entitlements of providers to be paid, and federal limitations on those entitlements. Section 1395ss does not entitle anyone to payment.
[a]pplication of 'broad purposes' of legislation at the expense of specific provisions ignores the complexity of the problems Congress is called upon to address and the dynamics of legislative action. Congress may be unani- mous in its intent to stamp out some vague social or economic evil; however, because its Members may differ sharply on the means for effectuating that intent, the final language of the legislation may reflect hard-fought compromises. Invocation of the 'plain purpose' of legis- lation at the expense of the terms of the statute itself takes no account of the processes of compromise and, in the end, prevents the effectuation of congressional intent. Board of Governors of the Fed. Reserve Sys. v. Dimension Financial Corp., 474 U.S. 361, 373-74 (1986). See also Rodriguez v. United States, 480 U.S. 522, 525-26 (1987) (noting that "no legislation pursues its purposes at all costs" and therefore "it frustrates rather than effectuates legislative intent simplistically to assume that whatever furthers the statute's primary objective must be the law"). So radical a scheme as imposition of price controls on medical services not covered by Medicare requires explicit language, not mere brooding purposes (which, we should add, are in any event not discernible in s 1395ss).
Where a provider of services has furnished, at the re- quest of such individual, items or services which are in excess of or more expensive than the items or services with respect to which payment may be made under this subchapter, such provider of services may also charge such individual or other person for such more expensive items or services to the extent that the amount custom- arily charged by it for the items or services furnished at such request exceeds the amount customarily charged by it for the items or services with respect to which pay- ment may be made under this subchapter. 42 U.S.C. s 1395cc(a)(2)(B).
Moreover, the triggering fact, the furnishing of such a service "at the request" of the recipient, seems to confirm our reading; the risk that services would be provided long past the Medicare limit, without a request, seems very limited (though not zero). The Secretary's implementing regulation not only requires patient request, see 42 CFR s 489.32(a)(2), but also requires the provider to inform the beneficiary that there will be a charge for the service "[t]o avoid misunder- standing," id. s 489.32(a)(3). It is hard to imagine that an extended hospital stay of several months' duration (which is the amount that would be "in excess of" Medicare benefits for most of the patients here) is the type of items or services for which a patient might fail to understand that "there will be a specified charge for that service." Id.
balancing the objectives of simplifying the market for Medi- gap insurance, avoiding adverse selection, providing consumer choice, providing market stability, and promoting competition. See id. s 1395ss(p)(2)-(3). As a result of the statutory pro- gram, no Medigap policy may issue unless either the relevant state insurance regulator, or in some circumstances the Sec- retary, has a mechanism for ensuring that the policy meets the 1991 NAIC Model Regulation.2 See id. s 1395ss(a)(2), (g)(2)(A), (k)(1)(A), (m), (p)(1). Physicians Mutual identifies nothing in the authorizing statute governing provider-patient charges, and we see no such grant of power to NAIC. If the Model Regulation purported to cover such charges, it would be ultra vires.
Section 8. Benefit Standards for Policies or Certificates ... B. Standards for Basic ("Core") Benefits Common to All Benefit Plans. Every issuer shall make available a policy or certificate including only the following basic "core" package of benefits to each prospective in- sured.... (3). Upon exhaustion of the Medicare hospital inpa- tient coverage including the lifetime reserve days, cov- erage of the Medicare Part A eligible expenses for hospitalization paid at [rates consistent with the ordi- nary hospital payment scheme] or other appropriate standard of payment, subject to a lifetime maximum benefit of an additional 365 days. 57 Fed. Reg. at 37,990-91.
Someone at NAIC has argued that this precludes provider charges above the Medicare rate because such charges are __________ 2 Three states, Massachusetts, Minnesota, and Wisconsin, took advantage of a waiver provision available to states with an alterna- tive simplification program in place as of November 5, 1990, see 42 U.S.C. s 1395ss(p)(6), and therefore need not implement NAIC's Model Regulation.
not "an appropriate standard of payment," Letter from Guen- ther Ruch, Chair, NAIC Senior Issues Task Force to Nancy- Ann Min DeParle, HCFA Administrator at 4, 5 (July 8, 1998) ("1998 NAIC Letter"), reprinted in Joint Appendix ("J.A.") 123, 127. But s 8(B)(3), like s 1395ss(p), makes no mention of limits on provider charges.
_____________________________________________________________________________ SERVICES MEDICARE PLAN PAYS YOU PAY PAYS ______________________________________________________________________________ Hospitalization ... --Once life- time reserve days are used: ---Additional $0 100% of $0 365 days Medicare eligible expenses ---Beyond the $0 $0 All costs additional 365 days _____________________________________________________________________________ 57 Fed. Reg. at 37,997, 37,998, 38,000, 38,001.
Thomas Hoyer, a HCFA official, interpreted the "day outlier" language in s 8(B)(3) of the Model Regulation. Letter from Thomas E. Hoyer, Jr., Director, Division of Provider Services Coverage Policy, HCFA, to F. David Wythe, Insurance Ana- lyst, Forms and Rates Section, Life, Accident and Health Division, South Carolina Department of Insurance at 3 (Feb. 12, 1992), J.A. at 136. Vencor, however, notes that just seven months earlier, NAIC had quite candidly admitted that it "cannot control what providers charge for their services" and asked HCFA to take action to ensure that providers accept the Medicare approved rates as payment in full for post- exhaustion hospital expenses. Letter from Glenn Pomeroy, Chair, NAIC Senior Issues Task Force to Nancy-Ann Min DeParle, HCFA Administrator at 3 (Dec. 3, 1997), J.A. at 129, 131. Vencor also offers a more recent letter from HCFA in which the Deputy Administrator stated that neither Mr. Hoyer nor anyone else at HCFA has taken a position as to the 1991 NAIC Model Regulation's effects on providers' charges for post-exhaustion hospital care. See Letter from Michael Hash, HCFA Deputy Administrator to Bradley L. Kelly, Mintz, Levin, Cohen, Ferris, Glovsky & Popeo at 2-3 (Sept. 14, 1999).
In theory the following question remains: If a state adopts the Model Regulation in order to make the sale of Medigap policies lawful under federal law within its borders, could the text of s 16(C) have the effect asserted by Physicians Mutu- al? Recall that s 16(C) is simply a mandatory disclosure provision in a contract between patient and insurer. As such, it would seem a weak basis for a claim of a binding restraint on contracts between patients and providers.
Further, the language required by s 16(C)(4) itself explains that its purpose is simply to enable the insured to compare premiums and benefits (which are plainly independent of providers' rates), and warns patients (1) that the policy rather than the outline determines coverage, and (2) that the policy may not cover all of the patient's medical costs. Compare Vencor Hosps. South v. Blue Cross and Blue Shield of R.I., 86 F. Supp. 2d 1155, 1159-60 (S.D. Fla. 2000) (concluding that under Florida Law the outline is not part of the insurance policy); Vencor, Inc. v. Standard Life & Accident Ins. Co., 65 F. Supp. 2d 573, 578 (W.D. Ky. 1999) (same for Tennessee law). As Physicians Mutual has invoked the Model Regula- tion solely as a matter of federal law, however, disputes as to its meaning under state law are not before us.
Finally, we note that in denying Vencor's motion under Fed. R. Civ. P. 59(e) to alter or amend the judgment, the district court said that Vencor had waived its claim that the 1991 NAIC Model Regulation is inapplicable to the six pa- tients whose policies took effect before August 21, 1992. It is not clear whether the district court would reach the same conclusion in light of our decision that the authorities invoked by Physicians Mutual do not bar Vencor from charging patients its standard rates for post-exhaustion hospital care.
__________ provides interpretations of an ambiguous statute in documents that lack the force of law (such as opinion letters and policy statements), such intepretations "do not warrant Chevron-style deference," id. at 10, but are " 'entitled to respect' under ... Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944), but only to the extent that those intepreta- tions have the 'power to persuade,' " id. at 11.
To avoid confusion, we emphasize that the claim remains live. If the district court on remand is called upon to interpret the individual insurance contracts, and if it concludes that any version of NAIC's Model Regulation has any impact on the outcome, it must determine which version was in effect in each relevant state at the time that each contract took effect.

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