Vencor, Inc. v. Standard Life and Acc. Ins. Co., 01-5435.
| Decision Date | 21 January 2003 |
| Docket Number | No. 01-5435.,01-5435. |
| Citation | 317 F.3d 629 |
| Parties | VENCOR, INC., d/b/a Vencor Kentucky, Inc., d/b/a Vencor Hospital-Louisville and d/b/a Vencor Hospital-Chattanooga, Plaintiff-Appellant, v. STANDARD LIFE AND ACCIDENT INSURANCE COMPANY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Bradley L. Kelly (argued and briefed), Laura J. Oberbroeckling (briefed), Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, Washington, D.C., K. Gregory Haynes (briefed), Wyatt, Tarrant & Combs, Louisville, Kentucky, for Appellant.
Richard J. Kilmartin (argued and briefed), Samuel G. Ware (briefed), Knight, Boland & Riordan, San Francisco, California, for Appellee.
Before MOORE and GILMAN, Circuit Judges; ROSEN, District Judge.*
MOORE, Judge (pp. 643-646), delivered a separate dissenting opinion.
OPINION
Plaintiff/Appellant, Vencor, Inc., d/b/a Vencor Kentucky, Inc., d/b/a Vencor Hospital-Louisville and d/b/a Vencor Hospital-Chattanooga ("Vencor"), appeals two orders of the District Court for the Western District of Kentucky granting summary judgment to Defendant/Appellee Standard Life and Accident Insurance Company ("Standard Life") in this breach of contract/promissory estoppel action. Specifically, Vencor seeks to recover the balances it claims it is owed by Standard Life for hospital services provided to two patients, Mac Weaks and Mildred Hollow. Both Mr. Weaks and Mrs. Hollow were covered by Medicare supplement ("Medigap") insurance policies issued by Standard Life.
At issue in this appeal is the amount Standard Life was required to pay Vencor for Mr. Weaks's and Mrs. Hollow's medical care after their Medicare Part A benefits were exhausted. Vencor claims that, under the terms of the insurance policies, after Mr. Weaks's and Mrs. Hollow's Medicare Part A benefits were exhausted, Standard Life was required to pay Vencor its standard rates. Standard Life, on the other hand, contends that it is obligated to pay Vencor only the per diem rates allowed by Medicare, even after Medicare coverage has been exhausted.
The District Court agreed with Standard Life and, accordingly, entered summary judgment in its favor on both the breach of contract and promissory estoppel claims. Vencor timely appealed. For the reasons set forth below, we affirm the judgment of the District Court.
The Medicare Act, 42 U.S.C. § 1395 et seq., provides health insurance for the aged and disabled. The Medicare program consists of two parts. Medicare Part A — the relevant program in this case-covers services provided to hospitalized patients.1 Medicare Part A covers expenses for ninety days for each "spell of illness." See 42 U.S.C. § 1395d(a)(1). When a "spell of illness" is broken by a period of sixty days during which a patient is not hospitalized, a new period of ninety days commences. Id.; see also 42 U.S.C. § 1395x(a). Medicare also allows for coverage of sixty additional life-time reserve days. See 42 C.F.R. § 409.61(a)(2). These reserve days are non-renewable. Id. The life-time reserve days can be used at any time; however, once they are used they are gone.
In addition to limiting the time of coverage, Part A also limits the types of services that are covered. The services that are covered include room and board, nursing services, drugs, supplies, and other diagnostic and therapeutic items or services furnished to inpatients. See 42 U.S.C. § 1395x(b); see also 42 C.F.R. § 412.23(c). Of these covered expenses, Medicare is further limited in that expenses will be covered only if they are reasonable and medically necessary. See 42 U.S.C. § 1395y(a)(1)(A).
Vencor, an operator of long-term hospital care facilities,2 accepts assignment of Part A Medicare benefits from its patients. Medicare pays Vencor the lesser of the reasonable cost of its services or its customary charges, see 42 U.S.C. § 1395f(b)(1), pursuant to the Reasonable Cost Reimbursement System ("RCRS"). See 42 C.F.R. § 413. Under the RCRS, Medicare makes interim payments to Vencor subject to a year-end adjustment. 42 C.F.R. § 413.1(a)(1)(A). These interim payments are calculated on the basis of a per diem rate for each Medicare patient/beneficiary, which is derived by dividing the hospital's "allowable net Medicare inpatient operating costs" in a base year by the number of Medicare beneficiaries in that year. See 42 C.F.R. § 413.40(a)(3)(D).
Medicare, however, does not cover the full per diem rate.3 During the first sixty days of hospitalization, Medicare covers all allowable costs, excluding a deductible. From the 61st to 90th days of hospitalization, Medicare pays the full amount of allowable costs, less a coinsurance amount for which the patient is responsible. During the sixty reserve days, Medicare pays the full amount of allowable costs, less a higher coinsurance amount, for which the patient is also responsible. 42 U.S.C. § 1395e(a)(1). After Part A benefits have expired, hospital patients can no longer rely on Medicare to cover their hospitalization expenses.
Because Medicare does not cover all of the health care costs of its beneficiaries, Medicare beneficiaries can obtain supplemental insurance to fill in the "gaps," commonly known as "Medigap" insurance. Medigap insurance policies typically cover the initial deductible and coinsurance rates, as well as expenses after Part A benefits have been exhausted. Standard Life provides various forms of insurance in Kentucky and Tennessee, including Medigap insurance policies as described above.
Standard Life issued Mac Weaks a Medigap insurance policy on January 25, 1991, and, on June 28, 1991, Standard Life issued an identical policy to Mildred Hollow. Both policies were issued in the State of Tennessee. Both the Weaks and Hollow policies contain the following language and definition of "Medicare eligible expenses":
`Medicare Eligible Expense' means health care expense of the kind covered by Medicare to the extent recognized as reasonable by Medicare.
[See Standard Life's Weaks and Hollow policies, § 3, J.A. pp. 132, 136].
Hospitalization coverage is set forth in the following policy provisions:
PART A BENEFIT. 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 the Part A hospital coinsurance amounts beginning with your 61st day of hospital confinement....
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.
If you are not covered under Part A of Medicare, Standard Life will pay a benefit as if you were covered under Part A of Medicare.
Mr. Weaks was hospitalized at Vencor Hospital-Louisville beginning on March 21, 1996 until his death on August 6, 1996. Pursuant to Medicare guidelines, Mr. Weaks's Part A Medicare benefits expired on June 15, 1996. As of June 1, 1996, the allowable per diem rate was $800 at Vencor Hospital Louisville. From March 21, 1996 to June 15, 1996, Medicare paid a portion of the per diem rate and Standard Life paid the remaining amount, pursuant to Mr. Weaks's Medigap insurance policy with Standard Life. From June 16, 1996 to August 6, 1996 (the hospitalization period post-Medicare Part A exhaustion), Standard Life paid the entire per diem rate of $800.
Mrs. Hollow was hospitalized at Vencor Hospital-Chattanooga beginning on January 3, 1996 until her death on September 18, 1996. Mrs. Hollow's Medicare Part A benefits expired on March 31, 1996. While Mrs. Hollow was covered under Medicare Part A, the allowable per diem rate at Vencor's Chattanooga facility was $900. From January 3, 1996 to March 31, 1996, Medicare paid a portion of the per diem amount and Standard Life paid the remaining amount pursuant to Mrs. Hollow's Medigap insurance policy. From April 1, 1996 to September 18, 1996 (the hospitalization period post-Medicare Part A exhaustion), Standard Life paid the entire per diem rate of $900.
Post-exhaustion, Vencor billed Standard Life $122,929 for hospitalization costs for Mr. Weaks. However, Standard Life paid only $48,213 based on the $800 per diem rate set by Medicare. Post-exhaustion, Vencor billed Standard Life $381,093.99 for hospitalization costs for Mrs. Hollow, but Standard Life paid only $179,084 based on the $900 per diem rate set by Medicare. [See Affidavit of Standard Life Claims Manager Darlene Primm, J.A. pp. 128-130; Brief of Appellee, p. 11.]4
On January 13, 1998, Vencor filed suit in the United States District Court for the Western District of Kentucky, alleging breach of contract, subrogation, and promissory estoppel. According to Vencor, Standard Life breached its insurance contracts with Mr. Weaks and Mrs. Hollow by failing to pay Vencor its standard rates for Weaks's and Hollow's inpatient hospitalization following the exhaustion of their Medicare benefits. Vencor claimed direct damage as a result of the alleged breach, and further claimed that its provision of services to Mr. Weaks and Mrs. Hollow entitled it to be subrogated to their claims of breach, as well. Vencor also claimed that it had relied to its detriment on Standard Life's promise to cover Mr. Weaks's and Mrs. Hollow's medical expenses.
On December 11, 1998, Vencor moved for partial summary judgment on its Count I breach of contract claim, and on January 25, 1999, Standard Life cross-moved for partial summary judgment on that claim. On September...
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