Court Opinion

ID: 7016565
Source: CourtListenerOpinion
Date Created: 2022-07-24 04:22:53.298433+00
Date Added: 2024-06-11T16:10:24.577170
License: Public Domain

MOORE, Circuit Judge,
dissenting.
The majority concludes that the term “Medicare eligible expense,” as used in Mac Weaks’s and Mildred Hollow’s Medi-gap insurance policies, unambiguously limits Standard Life’s liability for Weaks’s and Hollow’s inpatient hospitalization following the exhaustion of their Medicare benefits to the per diem rate Medicare paid for their inpatient hospitalization pri- or to the exhaustion of their Medicare benefits. Because I believe that the term “Medicare eligible expense” is ambiguous in the policies, I respectfully dissent.
The Weaks and Hollow insurance policies provide:
PART A BENEFIT.... 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 your 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.
J.A. at 132 (Weaks Policy); 136 (Hollow Policy). As the majority explains, the policies state that “ ‘Medicare Eligible Expense’ means health care expense of the kind covered by Medicare to the extent recognized as reasonable by Medicare.” J.A. at 132; 136. According to Standard Life, this language unambiguously means that, following the insured’s exhaustion of his or her Medicare benefits, Standard Life is only required to pay the hospital the per diem rate that Medicare would have paid the hospital. Vencor contends, however, that this language instead could mean that Standard Life is only required to pay the hospital for the types of expenses for which Medicare would have paid — but at the standard rate. Under Tennessee law, “[wjhere language in an insurance policy is susceptible of more than one reasonable interpretation ... it is ambiguous.” American Justice Ins. Reciprocal v. Hutchison, 15 S.W.3d 811, 815 (Tenn.2000).
*644On its face, the term “Medicare eligible expense” as defined by the Weaks and Hollow policies is susceptible of more than one reasonable interpretation. See also J.A. at 525 (9/13/99 Op.) (“[v]iewed in isolation, Vencor’s analysis offers a plausible interpretation of ‘Medicare eligible expenses’ ”). In the sentence “ ‘Medicare-Eligible Expense’ means health care expense of the kind covered by Medicare to the extent recognized as reasonable by Medicare,” J.A. at 132; 136, “to the extent recognized as reasonable” could either modify “expense” or “kind.” If it modifies the latter, it could be referring to the circumstances in which Medicare would pay for a particular kind of expense. ' For instance, Vencor states that “[a] semi-private room is the kind of hospital expense that Part A recognizes as being reasonable in the case of an acutely-ill, bed-bound patient. A semi-private room, while the kind of expense that Part A often will pay, is not a reasonable expense for a patient who can be treated on an out-patient basis and sent home.” Appellant’s Br. at 32-33.1 Therefore, “Medicare eligible expense” could mean a kind of expense Medicare could pay for that was incurred in circumstances in which Medicare would have paid for it.
Moreover, the ambiguity of “Medicare eligible expense” is not resolved in the context of the rest of the policy. The district court posited that because the use of “Medicare eligible expense” in Standard Life’s explanation of its coverage referred to the amount of money Standard Life would pay prior to the insureds’ exhaustion of their Medicare benefits, “Medicare eligible expense” must also refer to the amount of money Standard Life would pay after the insureds had exhausted their Medicare benefits. J.A. at 525-26 (9/13/99 Op.). In regard to pre-exhaustion coverage, the polices state that:
PART A BENEFIT.... 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; b) the Part A hospital coinsurance amounts beginning with your 61st day of hospital confinement. ...
J.A. at 132; 136. Although it is true that, pursuant to this clause, Standard Life was only required to pay specific, limited amounts for its insureds’ deductibles and coinsurance payments, those amounts were limited because the insureds could not statutorily incur more than a certain amount for the deductible and coinsurance *645payments. See 42 U.S.C. § 1395e. Nothing in the policies themselves limits the amount Standard Life would need to pay for the deductibles and coinsurance payments.
Other parts of the policy also support Vencor’s reading of “Medicare eligible expense.” In regard to coverage for benefit “gaps” in Part B of the Medicare Act, the policies state in pertinent part that:
PART B BENEFIT.... The benefit will be equal to the difference between the Medicare eligible expense you incur and what Medicare pays.... If you are not covered under Part B of Medicare, Standard Life will determine Medicare eligible expense and what Medicare would have paid as if you were covered under Part B of Medicare.
J.A. at 132, 136. Thus, at least one clause in the policies does distinguish between a “Medicare eligible expense” and the amount Medicare actually pays. Also, in regard to coverage for “Additional Nursing Facility Benefits,” the policies state that: “the daily benefit will be equal to the expense you incur not to exceed an amount equal to the daily benefit that would have been paid under this policy for the 21st through the 100th days of a Medicare approved stay.” J.A. at 132, 136. This clause suggests that had Standard Life intended to limit its payment for inpatient hospitalization expenses incurred after the insureds’ exhaustion of Medicare benefits, it would have so specified. Therefore, I do not believe that reading “Medicare eligible expense” in the context of the entire contract resolves its inherent ambiguity.
Finally, neither the Medicare Act nor its accompanying regulations support a single interpretation of “Medicare eligible expense.” As I note above, see infra note 1, the Medicare Act in at least one instance describes items and services as “reasonable and necessary,” 42 U.S.C. § 1395y(a)(l)(A), although the regulations consistently refer to “costs recognized as reasonable.” See, e.g., 42 C.F.R. § 413.30(a)(1) (“This section implements section 1861(v)(l)(A) [codified at 42 U.S.C. § 1395x(v)] of the Act by setting forth the general rules under which CMS may establish limits on SNF and HHA costs recognized as reasonable in determining Medicare program payments.”). And the definition of “Medicare Eligible Expenses” in the Medigap insurance regulations promulgated by the Tennessee Department of Commerce and Insurance suffers from the same inherent ambiguity as the definition of “Medicare Eligible Expense” in the Weaks and Hollow policies. See Tenn. Comp. R. & Regs. tit. 0780, ch. 1-58.05(l)(g) (2001) (“Medicare Eligible Expenses shall mean expenses of the kinds covered by Medicare, to the extent recognized as reasonable and medically necessary by Medicare.”).
I recognize that other courts have addressed this issue and concluded that the term “Medicare eligible expense” unambiguously refers to the rate Medicare pays. In particular, the Eleventh Circuit assessed a similar Medigap insurance contract in a similar case and concluded that the term “Medicare Eligible Expenses” unambiguously limited the insurance company’s coverage to the per diem rate Medicare had paid prior to the exhaustion of the insured’s Medicare benefits. See Vencor Hosps. v. Blue Cross Blue Shield (“BCBS”) of Rhode Island, 284 F.3d 1174 (11th Cir.2002). The contract in that case defined “Medicare Eligible Expenses” as “the health care expenses covered under Medicare which Medicare has determined are reasonable and medically necessary.” Id. at 1176. The court reasoned that “[t]he crucial word in the disputed term is ‘expense.’ Vencor contends that this word refers to types of services only. BCBS argues that ‘expense’ refers to cost amounts for services. The dictionaries *646that the Court has reviewed are consistent in their collectively defining ‘expense’ to refer to cost.” Id. at 1181. Therefore, the court held that “ ‘Medicare] Eligible Expenses’ can only refer to costs that would be eligible for payment under Medicare.” Id. at 1181-82. The court also noted that if “reasonable” did not refer to costs, it would be redundant with “medically necessary.” Id. at 1182. I find this reasoning unpersuasive. Even if the word “cost” were substituted for the word “expense,” “reasonable health care cost” could still refer either to a type of cost or to an amount of cost. Although there does appear to be some redundancy or contradiction in the use of both “reasonable” and “medically necessary,” the combined usage of these terms appears in the Medicare Act as well — in reference to items and services. 42 U.S.C. § 1395y(a)(l)(A).2
I believe that the contract term “Medicare eligible expense” as used in the Weaks and Hollow Medigap insurance policies is ambiguous. If contract language is ambiguous and “the ambiguous language limits the coverage of an insurance policy, that language must be construed against the insurance company and in favor of the insured.” American Justice, 15 S.W.3d at 815. To construe “Medicare eligible expense” to refer to the rate Medicare pays would limit the coverage of the Weaks and Hollow Medigap insurance policies. Therefore, I also believe that this court must construe the term “Medicare eligible expense” to refer to the kind of expense Medicare pays for, and I respectfully dissent.

. In regard to this example, the district court noted that "Vencor is right — a semi-private room may be 'reasonable' in one circumstance and not in another. However, Ven-cor’s assertion that in all circumstances it would be the ‘kind of expense covered by Medicare' is simply not true. Section 1395y(a)(l)(A) would preclude it from coverage if it were not medically reasonable and necessary.” J.A. at 527 n. 10. 42 U.S.C. § 1395y(a)(l)(A) provides that no Medicare payment may be made "for any expenses incurred for items or services ... which ... are not reasonable and necessary for the diagnosis or treatment of illness or injury....”
This provision, however, does not specifically define the "kind” of expenses Medicare covers. In fact, the provision supports Ven-cor's reading of the definition of "Medicare eligible expense.” If "of the kind covered by Medicare” refers to the expenses generally covered in the Medicare Act, then "to the extent recognized as reasonable by Medicare” could actually refer to this exclusion provision. In other words, the term could be interpreted to mean that expenses for items or services covered by Medicare (of the kind covered by Medicare) are covered by the contract to the extent Medicare would view the items or services as reasonable and necessary for the diagnosis or treatment of illness or injury.

. The Eleventh Circuit read the "reasonable and necessary" portion of this provision to modify "expenses” as opposed to "items or services.” Vencor, 284 F.3d at 1182 n. 10. As I explained above, however, the "reasonable and necessary” portion of this provision modifies "items or services.”