Opinion ID: 780622
Heading Depth: 3
Heading Rank: 3

Heading: medicare eligible expenses

Text: 19 The central issue in this case is whether the Medigap insurance policies issued by Standard Life to Mr. Weaks and Mrs. Hollow unambiguously provide coverage only at the rate provided by Medicare after Medicare Part A coverage expired. This issue turns on the meaning of the phrase Medicare eligible expenses. 20 As indicated, both the Weaks and Hollow policies contain the following definition of Medicare eligible expenses: 21 `Medicare Eligible Expense' means health care expense of the kind covered by Medicare to the extent recognized as reasonable by Medicare. 22 [J.A. 132, 136.] 23 The District Court found that, when the contract is considered as a whole, this definition is unambiguous and should be read as containing two separate parts. As explained by the District Court: 24 [T]he first prong of the definition of the kind covered by Medicare must refer to expenses for the type or quantity of care medically necessary under the circumstances. The second prong of the definition, to the extent recognized as reasonable by Medicare must refer to charges that are reasonable for the medically necessary care. 25 See Standard Life, 65 F.Supp.2d at 577 (emphasis added). 26 At the heart of Vencor's appeal is the District Court's determination that the phrase to the extent recognized as reasonable by Medicare refers to the reasonableness of costs. Standard Life agrees with the District Court's determination and maintains that the phrase Medicare eligible expenses clearly and unambiguously refers to the cost of services or more specifically, to the per diem amount set by Medicare. It is undisputed that Standard Life has already paid Vencor this amount. Accordingly, if this is the clear and unambiguous definition, then Standard Life is not in breach of its contract with Vencor. 27 Conversely, Vencor believes that the definition of Medicare eligible expenses is ambiguous and should be construed to encompass all care provided that is reasonable and necessary. In other words, Vencor believes that the insurance policies issued by Standard Life to Mr. Weaks and Mrs. Hollow do not limit Standard Life's post-exhaustion liability to the rates set by Medicare. Vencor claims that the phrase to the extent recognized as reasonable by Medicare relates only to the reasonableness of services, not the dollar amount charged for those services. Therefore, Vencor maintains that it is not limited to charging only the per diem amount allowed by Medicare post-exhaustion. Relying on this definition, Vencor seeks to recover the balance between its regular rates and the per diem amount set by Medicare (which Standard Life has already paid to Vencor) from Standard Life. 28 The District Court noted that, viewed in isolation, Vencor's construction of Medicare eligible expenses might have some appeal. However, when the contract is considered as a whole, Vencor's interpretation becomes implausible. 29 As the District Court observed, Both the Weaks and the Hollow policies use the term Medicare eligible expenses in the Part A Benefit provisions of the Benefits section of the contract to refer to the amount of money Standard Life will pay. The first paragraph of the Part A Benefit section provides: 30 Standard Life will pay a benefit to supplement Part A of Medicare when you incur expenses as a result of injury or sickness. The benefit for each benefit period will be equal to the Medicare eligible expense you incur for a) the Part A inpatient hospital deductible if the application shows Plan 1 or Plan 2 was selected [and] b) the Part A hospital coinsurance amounts beginning with your 61st day of hospital confinement.... 31 It is clear that in this section Medicare eligible expense could mean nothing other than the per diem amount. As indicated above, Medicare Part A provides that Medicare pays to provider hospitals the per diem amount less a deductible and less a co-insurance payment. See 42 U.S.C. §§ 1395e(a)(1), 1395f(b)(1). 7 The deductible or coinsurance is deducted from the per diem amount, not from the Vencor's standard charge. The references to Medicare eligible expense, thus, would make little sense if construed as anything other than the Medicare-allowed amount. 32 In the second paragraph of the Part A Benefit section of the policy, the term Medicare eligible expense again appears: 33 If you are confined in a hospital for at least 90 days in a benefit period and have used all your lifetime reserve days, Standard Life will pay a benefit for each day of the continued confinement, subject to a lifetime maximum of 365 days. The daily benefit will be equal to 100% of the Medicare eligible expense you incur. 34 This paragraph describes Standard Life's obligations after Medicare benefits are exhausted. This is the paragraph at issue in Plaintiff's breach of contract claim. As the District Court observed, the term Medical eligible expense in this paragraph must also limit the amount Standard Life will pay. Otherwise the meaning of Medicare eligible expense would vary from paragraph to paragraph within the policy. In order to keep the definition of Medicare eligible expenses consistent throughout the insurance policy, in this section the phrase must not refer solely to the type of expense covered by Medicare, as Vencor contends, but must also limit Standard Life's payment obligation as it does in the previous paragraph. Furthermore, as Standard Life points out, there is no logical explanation as to why the Medicare eligible expense could be the per diem amount during the first 150 days (i.e., while it is subject to the deductions for the hospital deductible and co-insurance amounts as provided in the first paragraph of the Part A Benefit section of the policy) and an amount two to three times the per diem rate commencing on day 151, when coverage is triggered under the second paragraph of the Part A Benefit section. 35 The District Court's determination that the phrase Medicare eligible expenses is not ambiguous is consistent with the decisions of virtually every other court which has faced this precise issue. In both published and unpublished opinions, courts in the Fifth, Ninth and Eleventh Circuits have uniformly ruled that a Medigap insurer's liability post-exhaustion is limited to the Medicare rate or a percentage of the Medicare rate, whichever is specified in the contract. 36 For example, in Vencor Hosp. South, Inc. v. Blue Cross and Blue Shield of Rhode Island, 86 F.Supp.2d 1155 (S.D.Fla. 2000), aff'd, 284 F.3d 1174 (11th Cir.2002) ( Blue Cross ), Vencor sued the insurer, Blue Cross Blue Shield (BCBS) to recover the insured's benefits as a third party beneficiary. The Medigap policy at issue there provided that BCBS would pay 90% of all Medicare Part A Eligible Expenses for hospitalization not covered by Medicare subject to a lifetime maximum benefit of an additional 365 days after Medicare coverage had been exhausted. Id. at 1157. The term Medicare eligible expenses was defined in the policy as the health care expenses covered under Medicare which Medicare has determined are reasonable and medically necessary. Id. As it does in the current case, in Blue Cross, Vencor argued that the phrase referred to types of services provided, not to the expenses. The district court rejected Vencor's argument and concluded that 37 Medicare Eligible Expenses can only refer to costs that would be eligible for payment under Medicare. Such a conclusion is mandated by the policy's very own definition of the term. 38 Id. at 1162. 39 In reaching this conclusion, the court looked to the ordinary meaning of the word expenses and noted that [e]very definition of `expense' whether in a new dictionary or old, or even on-line, makes clear that the word `expense' refers to a cost or outlay. Id. at 1161. 40 Similarly, in Vencor Hospitals, Inc. v. Standard Life and Accident Ins. Co., No. 97-1976-CIV-T-26E, 1998 WL 34069467 (M.D.Fla., Sept. 22, 1998) (unpublished decision), aff'd, 279 F.3d 1306 (11th Cir.2002) ( Standard Life Florida ), Vencor sued Standard Life on the same grounds as it has in the current case, namely, breach of contract, subrogation, and promissory estoppel. The Medigap policy in Standard Life Florida provided for post-exhaustion coverage of 90% of the Medicare eligible expense incurred by the patients. The definition of Medicare eligible expense was identical to the definition presently before this Court. The Standard Life Florida court found that this term was unambiguous, reasoning: 41 The phrase Medicare eligible expenses clearly refers to the actual amount allowable under Medicare. This plain meaning is supported by the use of the word Medicare in conjunction with the words expense and eligible. 8 The plain meaning of the policy provision is further supported by the fact that the insured's benefit under this policy is described as equal to 90% of the Medicare eligible expense, and the language preceding the above-quoted provision: Your PART A BENEFIT under your policy will be equal to the Medicare eligible expense you incur for 1) the Part A inpatient hospital deductible; 2) the Part A hospital coinsurance amounts beginning with your 61st day of hospital confinement; the Part A blood deductible; and 4) the skilled nursing care facility coinsurance amounts. When read in its entirety, this paragraph clearly uses the phrase Medicare eligible expense as the quantifiable expense allowed by Medicare. 42 Standard Life Florida 9/22/98 Op. at pp. 5-6. [Brief of Appellee, Ex. 1.] 43 In Vencor Hospitals Texas, Ltd. v. Standard Life and Accident Ins. Co., No. A-97-CA-606JN (W.D.Tex., Oct. 7, 1999) (unpublished decision), aff'd, 205 F.3d 1337 (5th Cir.1999) ( Standard Life Texas ) the court was confronted with the issue of whether a Medigap insurance policy unambiguously provided coverage only at the Medicare per diem rate. As in the instant case, in Standard Life Texas, the benefit provided after exhaustion of Medicare Part A coverage was to be equal to 100% of the Medicare eligible expenses incurred by the patient. The definition of Medicare eligible expense in the Texas case was identical to the definition now before this Court. The Standard Life Texas court found the policy language unambiguous, stating that when read in its entirety, the Policy clearly uses the phrase `Medicare eligible expenses' as the quantifiable expense allowed by Medicare. Standard Life Texas, 10/7/98 Op. pp. 3-4. [Brief of Appellee, Ex. 2.] The court accordingly found that the Defendant was entitled to summary judgment on the breach of contract claim. 44 The Ninth Circuit recently reached the same conclusion in Vencor, Inc. v. National States Insurance Company, 303 F.3d 1024 (9th Cir.2002). The policy at issue in that case provided as follows: HOSPITAL BENEFIT — We will provide: 45 (a) Coverage of Part A Medicare-eligible expense for hospital confinement to the extent not covered by Medicare, from the 61st day through the 90th day in any Medicare benefit period. 46 (b) Coverage of Part A Medicare-eligible expense for hospital confinement to the extent not covered by Medicare for each Medicare lifetime inpatient reserve day used. 47 (c) Upon exhaustion of the Medicare hospital inpatient coverage including the lifetime reserve days, coverage of the Medicare Part A eligible expenses for hospital confinement to the same extent as would have been covered by Medicare, subject to a lifetime maximum benefit of an additional 365 days. 48 Id. at 1031. 49 The Ninth Circuit found that [r]eading all three of these coverage provisions together, as we must, demonstrates that the `to the extent ... covered' language in the contract refers to the dollar amount that Medicare pays for the same services. Id. The court reasoned as follows: 50 Hospitalization coverage provisions (a) and (b) use the term Part A Medicare-eligible expense. In each case, the provision then goes on to say that coverage is to the extent not covered by Medicare, plainly referring to an amount of money for the eligible service that Medicare will not pay and that the insurance policy will pay instead. Just as to the extent not covered by Medicare in (a) and (b) refers to cost — amounts not reimbursed by Medicare, so too must to the extent as would have been covered by Medicare refer to the dollar amount Medicare would pay if coverage had not been exhausted. 51 This conclusion is further supported by breaking coverage grant (c) into two parts: (1) Medicare Part A eligible expenses for hospital confinement; and (2) to the same extent as would have been covered by Medicare. Vencor maintains that the second part of the provision means the sort of services covered by Medicare. But the policy, as required by law, defines Medicare-eligible expense to mean expense of the kind covered by Medicare, to the extent recognized as reasonable and medically necessary by Medicare. This phrase directly refers to the sort of expenses that Medicare would cover. Thus, if Vencor's argument regarding the second phrase is correct, then each part of the provision means the same thing: The policy would cover the sort of services Medicare covers to the extent that they are the sort of services that Medicare covers. On the other hand, if the second part of the provision refers, as NSIC contends, to the Medicare rate, then the coverage grant makes sense: it covers the sort of services covered by Medicare up to the amount that Medicare would have paid for them. 52 We therefore conclude that, reading only the language of the NSIC insurance policy, the coverage provisions obligated NSIC to reimburse Vencor only at the rate Medicare would have paid. 53 Id. at 1031-32 (footnotes omitted); see also, Vencor Hospitals, California, Inc. v. Millar, No. G023140 (Cal. Ct.App., June 28, 2001) (unpublished decision) (holding that the phrase to the extent recognized as reasonable by Medicare in a Medigap policy containing a definition of Medicare eligible expenses substantially similar to the definition in the present case was not ambiguous and referred to the cost of the service, not the type of service.) 9 54 The foregoing discussion of cases addressing the same or substantially similar definitions of Medicare eligible expense makes clear to us that the District Court did not err in finding that there is no ambiguity in the Weaks and Hollow Standard Life policies with respect to the definition of Medicare eligible expenses or the phrase within that definition to the extent recognized as reasonable by Medicare. The plain language of the definition and reading the policies as a whole establish that the definition refers to the cost, not the type, of services provided. 10 55 As noted, once it has determined that the policy language is unambiguous the court is not bound to look outside the four corners of the document to determine its meaning. Pierce v. Flynn, 656 S.W.2d 42, 45 (Tenn.Ct.App.1983); Bokor v. Holder, 722 S.W.2d 676, 679 (Tenn.Ct.App.1986). As a result, the Court is not obligated to look to other documents to determine the meaning of Medicare eligible expenses. However, as the District Court observed, added support for finding that Medicare eligible expense refers to the cost, as opposed to the type, of services provided is found in the structure of Medicare statutory and regulatory provisions that govern both Medicare and Medigap insurers. In terms of the structure of reimbursement, Medicare determines the reasonable cost and quantity of care that will be covered; an expense will not be covered unless it is both medically necessary and reasonable. See 42 U.S.C. § 1935y. The District Court also correctly pointed out that the only section of Medicare regulations where the phrase recognized as reasonable is used is the section governing the Reasonable Cost Reimbursement System (RCRS), and in that section, recognized as reasonable is used to refer to the reasonableness of costs. See 42 C.F.R. § 413.30. 56 The foregoing establishes that the District Court did not err in determining that the provisions of Standard Life insurance policies at issue are not ambiguous and that the insurer here is required to pay the hospital only for health care expenses of the insureds using the Medicare per diem rate allowed. Since Standard Life has already paid Vencor that amount, there has been no breach of the insurance contract. Therefore, the District Court properly granted summary judgment in favor of Standard Life on Counts I and II of Vencor's Complaint.