Vencor, Inc. v. Physicians Mut. Ins. Co.

• Decision Date: 21 January 1999
• Docket Number: Civil Action No. 98-00443 (HHK).
• Citation: 39 F.Supp.2d 1
• Parties: VENCOR, INC., Plaintiff, v. PHYSICIANS MUTUAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Columbia

Page 1

39 F.Supp.2d 1

VENCOR, INC., Plaintiff, v. PHYSICIANS MUTUAL INSURANCE COMPANY, Defendant.

Civil Action No. 98-00443 (HHK).

United States District Court District of Columbia.

January 21, 1999.

Bradley L. Kelly, Laura J. Oberbroeckling, Matthew C. Hurley, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Washington, DC, for plaintiff.

Stephen A. Fennell, K. Lee Blalack, II, Steptoe & Johnson, LLP, Washington, DC, James J. Frost, Terrence D. O'Hare, McGrath, North, Mullin Kratz, P.C., Omaha, NE, for defendant.

MEMORANDUM

KENNEDY, District Judge.

Plaintiff, Vencor, Inc. (Vencor), is a Delaware corporation that owns and operates long-term intensive care hospitals throughout the United States. Defendant, Physicians Mutual Insurance Company (Physicians Mutual), is an insurance company that sells insurance policies which supplement the health care benefits provided to persons eligible for Medicare.

In this action, Vencor seeks to recover sums from Physicians Mutual for care that Vencor provided to individuals insured under Physicians Mutual policies after those persons had exhausted their Medicare Part A benefits.¹ Vencor asserts that in the absence of a clear regulatory or statutory prohibition, there is no limit on the daily rate it can charge for such services. Physicians Mutual disagrees, maintaining that for those patients who have supplemental insurance the regulations governing the certification of supplemental insurers require Vencor to accept payment at the Medicare rate. Because Physicians Mutual has already paid Vencor for the services provided to its insureds at the Medicare rate, Physicians Mutual asserts that it does not owe Vencor any additional amounts and, therefore, is entitled to judgment as a matter of law. The court agrees with Physicians Mutual and, accordingly, will deny Vencor's motion for partial summary judgment and grant Physicians Mutual's motion for summary judgment.²

I. BACKGROUND

Medicare supplemental insurance policies, also known as "Medigap" policies, are offered by private insurers such as Physicians Mutual to supplement the health care benefits provided by Medicare. Medicare Part A provides limited coverage for, inter alia, inpatient hospital stays such as those involved in this case. 42 U.S.C. § 1395c. Medicare Part A provides coverage for up to 90 days for a hospitalization, which is defined more technically as a "benefit period" in 42 C.F.R. § 409.61. During the first 90 days of hospitalization, Medicare pays for all covered services except for certain deductibles and co-insurances, which are the responsibility of the beneficiary. A patient hospitalized for more than 90 days may draw upon a "lifetime" reserve of 60 days of additional Medicare coverage (again excluding a co-insurance amount). 42 U.S.C. § 1395d; 42 C.F.R. § 409.61.

Under Medicare Part A, most providers of inpatient hospital stays are paid pursuant to a "Prospective Payment System" (PPS). 42 U.S.C. § 1395ww(d); 42 C.F.R. pt. 412. PPS providers are paid at a predetermined rate based upon the "diagnostic related group" (DRG) classification of the patient's illness at the time of admission. PPS providers are able to recover additional reimbursement for hospitalizations with unusually long lengths of stay or high costs. These cases are referred to as "outliers." 42 C.F.R. § 412.80 et seq.

Vencor is excluded from the PPS/DRG payment system because it is a long-term care hospital. 42 C.F.R. § 412.23(e). Instead, PPS-exempt providers such as Vencor are paid the "reasonable cost" of services for Medicare beneficiaries. Thus, unlike PPS providers who are paid a set amount for all cases but outliers, PPS-exempt providers are reimbursed by Medicare Part A at a per diem rate for each day that a patient has Medicare Part A benefits.

In 1980, Congress established a voluntary program under which a Medigap policy could be certified as meeting the Model Standards adopted by the National Association of Insurance Commissioners ("NAIC"). Social Security Disability Amendments of 1980, Pub.L. No. 96-285 (1980) (codified as amended at 42 U.S.C. § 1395ss (1992 & Supp.1998)). The NAIC is comprised of 55 members who are the "chief insurance regulatory officials of the 50 states, the District of Columbia, and four U.S. territories." See NAIC letter to HCFA 1 (July 8, 1998). Def.Exh. A. In 1990, Congress passed a law that required the NAIC to standardize the Medigap policies that could be offered by supplemental insurers. Omnibus Budget Reconciliation Act of 1990 Pub.L. No. 101-508 (1990) (codified as amended at 42 U.S.C. § 1395ss(p) (1992 & Supp.1998)). In contrast to the earlier, voluntary certification system, the 1990 law was a mandatory system that required states to adopt the same standardization requirements as those in the revised NAIC Model Regulations. In 1992, the Health Care Financing Administration (HCFA) promulgated regulations adopting the NAIC Model Regulations. 42 C.F.R. § 403.200; 57 Fed.Reg. 37,980 et seq. (August 21, 1992).

Under the Model Regulations, as adopted by HCFA, every certified Medigap insurer shall make available upon a beneficiary's exhaustion of Medicare Part A hospital inpatient coverage: "coverage of the Medicare Part A eligible expenses for hospitalization paid at the Diagnostic Related Group (DRG) day outlier per diem or other appropriate standard of payment, subject to a lifetime maximum benefit of an additional 365 days." Model Regulation § 8(B)(3); 57 Fed.Reg. 37,980, 37,991 (Aug. 21, 1992) (emphasis supplied).³

The Model Regulations as adopted by HCFA require that all applicants for Medicare supplemental insurance be given a guide that outlines the benefits provided. Id. at 37,998. The outline for each plan contains a chart that explains that for an additional 365 days "once lifetime reserve days are used," Medicare pays $0, the supplemental insurer pays "100% of Medicare eligible expenses," and the beneficiary pays $0. Id. at 38001-31. "Medicare eligible expenses" are expenses "of the kinds covered by Medicare, to the extent recognized as reasonable by Medicare." Id. at 37,988.

II. ANALYSIS

Under Fed.R.Civ.P. 56, summary judgment shall be granted if the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits show that there is no genuine issue of material fact in dispute and that the moving party is entitled to judgment as a matter of law. Material facts are those "that might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In considering a motion for summary judgment, the "evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255, 106 S.Ct. 2505. But the non-moving party's opposition must consist of more than mere unsupported allegations or denials and must be supported by affidavits or other competent evidence setting forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The non-moving party is "required to provide evidence that would permit a reasonable jury to find" in its favor. Laningham v. United States Navy, 813 F.2d 1236, 1242 (D.C.Cir.1987). If the evidence is "merely colorable" or "not significantly probative," summary judgment may be granted. Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505.

A. Federal Regulations

The NAIC Model Regulations, as adopted by HCFA, require providers to accept reimbursement at the Medicare approved rate as reimbursement in full. First, the Model Regulations require supplemental insurers to reimburse PPS-exempt providers at the Medicare rate. Section 8(B)(3) of the Model Regulations requires supplemental insurers to provide coverage for hospitalization at the "diagnostic related group (DRG) day outlier per diem or other appropriate standard of payment." 57 Fed.Reg. 37,980, 37,991. From the text of this regulation alone, one can infer that the term "appropriate standard" imposes a limit on what PPS-exempt providers may collect from Medigap insurers.

The requirements of Model Regulation § 8(B)(3) should be viewed in the context of the Model Regulations as a whole and the interpretation of them by HCFA. Under the Model Regulations, a Medigap insurer pays 100% of "Medicare eligible expenses" to the "extent recognized as reasonable and medically necessary by Medicare." Id. at 38,001-31, 37,988. After these regulations were adopted by HCFA in 1992, HCFA stated that the "other appropriate standard of payment" refers to the "amount Medicare would have paid if Medicare were covering the stay." Letter from HCFA to the South Carolina Department of Insurance (Feb. 12, 1992). Def's Exh. A. This is the official interpretation of the regulation, according to an affidavit prepared by the author of the letter, the then-director of the Division of Provider Services of HCFA. Hoyer Aff., Def.Exh. A. Vencor has not provided any evidence that HCFA's official position is different than what is stated in this letter.⁴ Thus, the court's resolution of this issue is guided by HCFA's interpretation of its own regulations. See Auer v. Robbins, 519 U.S. 452, 117 S.Ct. 905, 909-912, 137 L.Ed.2d 79 (1997) (deferring to an agency's resolution of ambiguities in its own regulations where that resolution was "based upon a permissible construction of the statute") (citing Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-843, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984)).

Second, the Model Regulations as adopted by HCFA require PPS-exempt providers such as Vencor to accept the payment from a Medigap insurer as complete reimbursement for services rendered. The plan description adopted by HCFA states that once Medicare A benefits have been exhausted, the supplemental insurer pays "100% of Medicare eligible expenses" and a Medicare beneficiary...