U.S. v. Blue Cross & Blue Shield of Maryland, Inc.

• Decision Date: 22 March 1993
• Docket Number: No. 92-1781,92-1781
• Citation: 989 F.2d 718
• Parties: , Medicare & Medicaid Guide P 41,324 UNITED STATES of America, Plaintiff-Appellee, v. BLUE CROSS & BLUE SHIELD OF MARYLAND, INCORPORATED, Defendant-Appellant. Blue Cross and Blue Shield Association, Amicus Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 718

989 F.2d 718

61 USLW 2592, Medicare & Medicaid Guide P 41,324

UNITED STATES of America, Plaintiff-Appellee, v. BLUE CROSS & BLUE SHIELD OF MARYLAND, INCORPORATED Defendant-Appellant Blue Cross and Blue Shield Association, Amicus Curiae.

No. 92-1781.

United States Court of Appeals Fourth Circuit.

Argued Feb. 1, 1993.

Decided March 22, 1993.

Philip Vito Tamburello, Office of Corporate Counsel, Blue Cross & Blue Shield of Maryland, Inc., Owings Mills, MD, argued (Lawrence A. Richardson, Jr., Office of Corporate Counsel, Blue Cross & Blue Shield of Maryland, Inc., on the brief), for defendant-appellant.

Colette Jabes Winston, Civil Div., U.S. Dept. of Justice, Washington, DC, argued (Stuart M. Gerson, Asst. Atty. Gen., Jeffrey Axelrad, Roger D. Einerson, Civil Div., U.S. Dept. of Justice, Richard D. Bennett, U.S. Atty., Baltimore, MD, on the brief), for plaintiff-appellee.

Roger G. Wilson, Joel E. Gimpel, Blue Cross & Blue Shield Ass'n, Chicago, IL, Meryl D. Burgin, Owings Mills, MD, for amicus curiae.

Before ERVIN, Chief Judge, and WIDENER and WILKINSON, Circuit Judges.

OPINION

ERVIN, Chief Judge:

This case presents the question whether an insurance company offering gap-filling coverage to Medicare patients may construe its coverage to exclude reimbursement to VA hospitals because the hospitals do not derive benefits first from the Medicare system. We hold that it may not, and affirm the district court.

I

The facts of this case are straightforward and undisputed. Eleven veterans, who held Medicare supplemental ("medigap") policies issued in Maryland ¹ by Blue Cross & Blue Shield of Maryland, Inc. ("BCBS"), received medical care and treatment at the Department of Veterans Affairs Medical Center in Martinsburg, West Virginia for non-service-connected disabilities. The veterans all were over the age of sixty-five and were eligible to receive Social Security retirement benefits, thereby making them eligible to receive Medicare benefits. See 42 U.S.C. § 1395c. Because the veterans were treated at a Veterans' Administration ("VA") hospital however, they were not required to pay for the services they received and did not claim Medicare benefits. When the United States filed claims with BCBS for reimbursement on behalf of the veteran patients, BCBS responded that its medigap policies covered only those medical expenses incurred in a manner that would trigger Medicare coverage as well.

The United States brought this action in the district court for the District of Maryland to collect benefits under the BCBS medigap policies, asserting that a non-discrimination section of the Veterans' Benefits Act, 38 U.S.C. § 1729, prohibited BCBS's nonpayment. Because BCBS construed the Medicare system as the vehicle barring the government's recovery of benefits, it contended that its medigap policies do not involve prohibited discrimination. The district court disagreed, granting summary judgment for the United States. 790 F.Supp. 106. BCBS appealed.

II

BCBS's position in this case stems from its construction of the interaction between three distinct pieces of health care legislation--the Medicare system, 42 U.S.C. §§ 1395-1395ccc; the Baucus Amendment, which deals specifically with medigap policies, 42 U.S.C. § 1395ss; and the reimbursement and non-discrimination provision of the Veterans' Benefits Act, 38 U.S.C. § 1729. BCBS contends that Congress endorsed medigap policies as a part of the Medicare system, and that, when Congress excluded Medicare from section 1729's application, it similarly excluded medigap policies. A proper analysis of the validity of this contention rests necessarily upon a brief overview of the structure of the implicated statutes.

The Medicare system, although notably complex, may be summarized for the purpose of this case as a program triggered by a determination of participant entitlement. A patient's entitlement to benefits rests on the outcome of a two-part analysis. First, is the patient eligible for Medicare payments? The patient must be over the age of sixty-five and eligible for Social Security retirement benefits to claim benefits under Medicare. See 42 U.S.C. § 1395c. Second, are the claimed benefits covered by Medicare? The benefits claimed must be both recognized by Medicare as a covered expense and considered a reasonable amount for the service provided. See 42 C.F.R. parts 409 & 410.

The Medicare system identifies situations in which claims will not be paid despite the patient's eligibility and the benefits' coverage. Three such situations are relevant to this case: (1) when the health care provider is a federal department or agency, 42 U.S.C. §§ 1395f(c), 1395n(d); (2) when services are provided under circumstances in which the patient is under no obligation to pay, id. §§ 1395y(a)(2) & (3); and (3) when the health care provider is not a certified participant in the Medicare program, id. § 1395f(a). The first two exclusions operate to prevent VA hospitals from collecting Medicare reimbursements. The third exclusion prevents reimbursement for services provided by uncertified institutions, including both private hospitals which might choose not to certify themselves for Medicare payments and VA or other government-sponsored hospitals which by definition cannot seek Medicare certification.

The Medicare system was not designed to pay all incurred medical expenses; therefore, the system leaves the patient with the responsibility of paying various deductibles and coinsurance amounts. ² In response to these gaps in coverage, private insurers began offering medigap policies. In 1980 Congress enacted the Baucus Amendment, Pub.L. No. 96-265, § 507, 94 Stat. 441, 476 (codified as amended at 42 U.S.C. § 1395ss), to the Social Security Act, to sanction and officially define medigap policies. The statute describes a medigap policy as

a health insurance policy or other health benefit plan offered by a private entity to individuals who are entitled to have payment made under this subchapter [42 U.S.C. §§ 1395-1395ccc, Health Insurance for the Aged and Disabled], which provides reimbursement for expenses incurred for services and items for which payment may be made under this subchapter but which are not reimbursable by reason of the applicability of deductibles, coinsurance amounts, or other limitations imposed pursuant to this subchapter; but does not include any such policy or plan of one or more employers or labor organizations....

42 U.S.C. § 1395ss(g)(1).

The Baucus Amendment prevents the issuance of medigap policies in a state unless the state legislature requires the application and enforcement of standards set forth in the National Association of Insurance Commissioners Model Regulation to Implement the Individual Accident and Sickness Insurance Minimum Standards Act ("NAIC standards"). Id. §§ 1395ss(a)(2), (g)(2). Although the NAIC standards suggest that a medigap policy, in delineating coverage, may define the term "hospital" to exclude "any military or veterans hospital or soldiers home or any hospital contracted for or operated by any national government or agency thereof for the treatment of members or ex-members of the armed forces," the Maryland legislature opted not to include that definition in its codification of the NAIC standards. Md.Ann.Code art. 48A, §§ 468B-468GH (Supp.1992). Therefore, the language permitting exclusion of veterans hospitals from medigap coverage is not available to medigap insurers organized and operating under Maryland law. See id. § 1 (1991).

BCBS offers a series of medigap policies in Maryland designed to help pay those medical expenses not paid by Medicare. In some cases the BCBS medigap policies cover items excluded from an area generally covered by Medicare such as required deductibles and copayments, while in other cases the policies cover items excluded entirely from Medicare coverage such as expenses for prescription drugs or expenses incurred in a hospital outside the United States. In all instances, the policies indicate that payments will not be made for the following:

1. Expenses for services and items not eligible for coverage under Medicare, except as explicitly specified in this Contract;

....

4. Expenses for services which are provided for or received in any Federal hospital or facility, or through any Federal, State or local governmental agency or department....

The creation of new insurance products, such as BCBS's medigap policies, to cover mounting health care costs alerted Congress to the possibility that private insurers might be enjoying a windfall from the government's provision of free health care in certain circumstances. Congress recognized that the government's growing expenditures for legislatively mandated health care such as VA hospitals could be defrayed by drawing on these outside sources for reimbursement. ³ In 1986 Congress enacted legislation allowing recovery from private insurers and reinforcing its position that insurers or other third-party reimbursers not be allowed to discriminate against VA hospitals. Comprehensive Omnibus Budget Reconciliation Act of 1986, Pub.L. No. 99-272, § 19013, 100 Stat. 82, 382-85 (codified as amended at 38 U.S.C. § 1729). The legislative history documenting passage of the private insurance reimbursement provision details the intended scope of available reimbursements as follows:

[N]o third party payer would be required to reimburse the VA for a health care service that is not covered under the terms and conditions of its contracts, policies or other agreements with veterans. Of course, third party payers would no longer be able to refuse to reimburse based on a general exclusion of care provided by the VA.

....

The bill would effectively nullify any contract provision agreed to after the date of enactment of this measure which seeks to bar the United States from recovery in connection with care furnished in the circumstances described in the bill.

H.R.Rep....