Vencor Hospitals v. Blue Cross Blue Shield of Rhode Island, 96-5105

• Citation: 169 F.3d 677
• Decision Date: 08 March 1999
• Docket Number: No. 96-5105,96-5105
• Parties: 12 Fla. L. Weekly Fed. C 613 VENCOR HOSPITALS d.b.a. Vencor Hospital, Plaintiff-Appellant-Cross-Appellee, v. BLUE CROSS BLUE SHIELD OF RHODE ISLAND, Defendant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 677

169 F.3d 677

12 Fla. L. Weekly Fed. C 613

VENCOR HOSPITALS d.b.a. Vencor Hospital, Plaintiff-Appellant-Cross-Appellee, v. BLUE CROSS BLUE SHIELD OF RHODE ISLAND,

Defendant-Appellee-Cross-Appellant.

No. 96-5105.

United States Court of Appeals, Eleventh Circuit.

March 8, 1999.

Richard Benjamin Wilkes, Richard W. Candelora, Anthony Leon, Tampa, FL, Bradley L. Kelly, Laura J. Oberbroeckling, Proskauer, Rose, Goetz & Mendelsohn LLP, Washington, DC, for Plaintiff-Appellant-Cross-Appellee.

John E. Bulman, Little, Bulman & Reardon, P.C., Providence, RI, for Defendant-Appellee-Cross-Appellant.

Appeals from the United States District Court for the Southern District of Florida.

Before TJOFLAT and BIRCH, Circuit Judges, and RONEY, Senior Circuit Judge.

TJOFLAT, Circuit Judge:

This case hinges on the interpretation of certain terms in an insurance contract. Because we are uncertain exactly which documents comprise the contract, we remand the case for further proceedings in the district court.

I.

Medicare Part A, part of the federally-provided health care insurance program for older adults, pays for up to ninety days per benefit period ¹ of medically necessary inpatient hospital care. If a patient requires more than ninety days of hospitalization during a benefit period, he may use some of his sixty "lifetime reserve days" (which, as the name suggests, are not renewed each benefit period). Once a patient has been hospitalized for over ninety days and has exhausted his supply of reserve days, he is not eligible for Medicare hospitalization benefits until the beginning of a new benefit period.

In response to this and other limits on Medicare coverage, insurance companies began issuing Medicare supplement insurance, commonly known as "Medigap" policies. These policies provide coverage for, inter alia, the portion of an extended hospital stay not covered by Medicare.

Blue Cross/Blue Shield of Rhode Island ("BCBS") issued Medigap policies to Martha Butler and Aniello Esposito. Butler and Esposito were both admitted to Vencor Hospital in Ft. Lauderdale, Florida, and required care for a period exceeding their Medicare coverage. During the period of Medicare coverage, Vencor charged Butler and Esposito only the copayment or deductible required under Medicare (which, in turn, was paid for by BCBS under the Medigap policy). Vencor's costs during this period were reimbursed by Medicare. After Medicare coverage expired, Vencor began charging Butler and Esposito its ordinary rates. These rates included a substantial amount of profit, and were therefore greatly in excess of the amount Vencor had previously been receiving as cost reimbursement from Medicare.

After Butler and Esposito finished their hospital stays, Vencor sought payment from BCBS. Butler's and Esposito's Medigap policy provided for coverage as follows: "Upon exhaustion of all Medicare hospital inpatient coverage ... we will cover up to ninety percent (90%) of all Medicare Part A Eligible Expenses for hospitalization not covered by Medicare...." BCBS claimed that the policy covered ninety percent of what Medicare would have paid (i.e., cost reimbursement) for any necessary treatment; thus, Vencor was entitled only to that amount and not to ninety percent of its ordinary charges. BCBS consequently paid Vencor $240,582.13 as full payment under the policies. ² Vencor interpreted the policy somewhat differently--it claimed that the policy covered ninety percent of the ordinary amount charged for any Medicare-approved treatment. Vencor therefore brought suit in the United States District Court for the Southern District of Florida to recover the remaining $710,725.71 it believed was due. ³

The district court granted summary judgment for BCBS on the ground that the policy unambiguously limits payment to ninety percent of what Medicare would have paid. Vencor appeals.

II.

BCBS, as an initial matter, challenges Vencor's standing to raise a claim. BCBS' contracts were with Butler and Esposito--not Vencor--and therefore, according to BCBS, only Butler and Esposito have standing to sue for any breach.

We hold that Vencor is a third-party beneficiary of the contracts between BCBS and Butler and Esposito, and therefore has the right to sue for breach of the insurance contract. A party has a cause of action as a third-party beneficiary to a contract if the contracting parties express an intent primarily and directly to benefit that third party (or a class of persons to which that third party belongs). See Daniel v. Florida Residential Property & Cas. Joint Underwriting Ass'n, 718 So.2d 936, 937 (Fla. 3d DCA 1998). ⁴ It would be hard to imagine a more direct benefit under a contract than the receipt of large sums of money. That is exactly the benefit intended for Vencor--as the hospital providing services to the insured--under the contracts between BCBS and Butler and Esposito. The Medigap policy held by Butler and Esposito states, "Benefit payments may be paid to the doctor, hospital or to you directly at our discretion." By providing for payment directly to the hospital, the contracting parties showed a clear intent to provide a direct benefit to Vencor (or any other service-providing hospital), and thus Vencor has standing to bring this suit. ⁵ See United States v. Automobile Club Ins. Co., 522 F.2d 1, 3 (5th Cir.1975) (interpreting similar contract language); ⁶ Orion Ins. Co. v. Magnetic Imaging Sys. I, 696 So.2d 475, 478 (Fla. 3d DCA 1997) ("Medical service providers ... have been recognized as third party beneficiaries of insurance contracts.").

III.

Having determined that Vencor has standing to bring a claim, we must now determine whether there is a genuine issue of material fact regarding whether Vencor is entitled to payment based on its ordinary charges. We hold that there is, and therefore remand the case to the district court for further proceedings.

Under the policy, Vencor is entitled to ninety percent of "all Medicare Part A Eligible Expenses for hospitalization not covered by Medicare." Eligible expenses are defined as "the health care expenses covered under Medicare which Medicare has determined are reasonable and medically necessary." The debate between Vencor and BCBS centers on whether the phrase "health care expenses" in this definition refers exclusively to types of expenses--in other words, forms of treatment--or also includes amounts of expenses.

It is unclear, however, whether the insurance policy is the only document comprising the contract between BCBS and each of the insureds. The record also contains an "Outline of Coverage" that is highly ambiguous regarding the scope of the policy's coverage. ⁷ If this outline is considered part of the contract, then the contract is ambiguous regarding the contested issue, and that ambiguity must be resolved in favor of Vencor. See Epstein v. Hartford Cas. Ins. Co., 566 So.2d 331, 333 (Fla. 1st DCA 1990).

One reason for considering the outline to be part of the contract is that BCBS was required to provide such an outline to Butler and Esposito under state law. See Fla. Admin. Code Ann. r. 4-51.006(3) (1990); R.I. Ins. Admin. Code r. XLVI, § 13 (1990). ⁸ The policy behind the state law regulatory scheme presumably is to provide the insured with a document setting forth the insured's contractual rights with more clarity than is present in the ordinary insurance policy, thereby making it more difficult for the insurance company to defraud purchasers regarding the scope of coverage. It is possible that the legislature's intent in this regard would be frustrated if the outline were not considered part of the contract. ⁹ If the outline is merely another promotional document, and not part of the contract, then the regulatory scheme would do nothing more than create additional evidence of the fraud that the legislature intended to prevent. This determination, however, requires an analysis of legislative intent that is best undertaken in the first instance by the district court. ¹⁰

We also note that even if BCBS' interpretation of the policy is correct, it is nevertheless unclear what amount Vencor is due. BCBS claims that it owes Vencor the amount Medicare would have paid for Butler's and Esposito's treatment. The amount Medicare would have paid, however, varies according to the stage of the reimbursement process. Throughout the year, Medicare (through an intermediary) advances payment to Vencor based on an approximation of Vencor's costs. At the end of the year, Vencor submits a cost report to Medicare; Vencor then either receives more payment or returns some of the previous payments depending on how the actual year-end costs compare with the estimated amounts previously advanced. In addition, Medicare sets a target amount for annual costs; Vencor is forced to absorb costs that exceed this amount but receives a bonus if its costs are below the target amount. Thus, when BCBS claims that it owes Vencor only the amount that Medicare would have paid, it is unclear whether that amount is based on the preliminary advance, the final accounting, or the final accounting plus or minus some amount related to Vencor's deviance from its annual target. ¹¹

IV.

BCBS argues that, even if Vencor would otherwise be entitled to payment of its ordinary charges, each of Vencor's claims is barred by the affirmative defense of accord and satisfaction. ¹² "An accord and satisfaction occurs where (1) the parties intended to effect a settlement or resolve an existing dispute by entering into an agreement; and (2) ...