Vencor v. Physicians Mutual Ins., 99-7089

Decision Date23 May 2000
Docket NumberNo. 99-7089,99-7089
Citation211 F.3d 1323
Parties(D.C. Cir. 2000) Vencor, Inc. d/b/a Vencor Hospitals Texas, LTD., d/b/a Vencor Hospital-Houston Northwest, d/b/a THC of Texas, Inc., d/b/a Vencor Hospital-New Orleans, d/b/a THC of Louisianna, Inc., d/b/a Vencor Hospital-Sycamore, d/b/a Vencor Hospital-Sacramento, d/b/a Vencor Hospitals California, Inc., d/b/a Vencor Hospital-Houston, d/b/a Vencor Hospital-Dallas, Appellant v. Physicians Mutual Insurance Co., Appellee
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeal from the United States District Court for the District of Columbia(No. 98cv00443)

Bradley L. Kelly argued the cause for appellant. With him on the briefs was Laura J. Oberbroeckling.

James J. Frost argued the cause for appellee. With him on the brief were Stephen A. Fennell and Terrence D. O'Hare. Roger E. Warin entered an appearance.

Before: Silberman, Williams and Sentelle, Circuit Judges.

Opinion for the Court filed by Circuit Judge Williams.

Williams, Circuit Judge:

Vencor, Inc., a provider of longterm hospital care, filed a diversity action1 against Physicians Mutual Insurance Company, seeking reimbursement for expenses 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 certain provisions of the Medicare Act and associated regulations barred Vencor from charging patients more than the maximum 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.

Medicare, like most health insurance plans, provides benefits of limited duration. For instance, it covers the first 90 days of hospital care for every "spell of illness," plus an additional, non-renewable reserve of 60 days of coverage (which, until it is exhausted, can be added to any "spell of illness"). 42 U.S.C. S 1395d(a)-(b), (g). Once Medicare patients fully exhaust their government-provided hospital benefits, 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 Medicare 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 partial summary judgment on the limited question of whether the Medicare statute or associated federal regulations prohibited 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 regulatory 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 responsibility. 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 limitations are before us. The cross-motions for summary judgment frame the issue only in terms of patient liability.

* * *

Physicians Mutual first argues that the Medicare Act itself prohibits Vencor from charging its patients more than the Medicare-approved rate. It relies initially on 42 U.S.C. S 1395cc(a)(1)(A), under which providers are eligible for Medicare reimbursement only if they execute a contract with the Secretary of Health and Human Services agreeing, among other things,

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 provisions 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 provision 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 entitlement. 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 Medigap insurance contracts, which under certain conditions become the exclusive form of lawful Medigap insurance contract, 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 insurers 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 difference 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 1395 SS does not entitle anyone to payment.

In an attempt to sidestep these difficulties, Physicians Mutual argues that Medicare's general purpose of providing "basic protection against the costs of hospital ... services," id. S 1395c, demonstrates a congressional intent to allow Medicare recipients to "extend the benefits and protections under the Medicare Act through the purchase of Medigap insurance." Appellee's Br. at 15. Even if Physicians Mutual were correct about the thrust of the statute's purpose, the Supreme Court has instructed that:

[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 unanimous 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 legislation at the expense of the terms of the statute it self 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 § 1395 SS).

Physicians Mutual also points to a specific provision of the Medicare statute governing "items or services ... in excess of or more expensive than" a covered service:

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 customarily 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).

The parties curiously agree on the idea that this provision governs post-Medicare hospital days, differing only as to its effect. We, by contrast, regard it as altogether inapplicable--because confined to superior versions of covered services. (The parties' de facto stipulation of law does not require us to analyze a statute on a premise we regard as false. See United States Nat'l Bank of Oregon v. Independent Ins. Agents of Am., 508 U.S. 439, 446 (1993).)

The archetypal example of a service that falls within the ambit of this provision is a medically-unnecessary private room requested by the patient instead of the semi-private room covered by Medicare. In such cases, "the provider may bill the beneficiary for the difference between the private room and semi-private room charges." Medicare Program; Elimination of Medicare Indirect Subsidy for Private Rooms, 47 Fed. Reg. 42,676, 42,676 (1982). More generally, HCFA has referred...

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