*1 allowing ques- error in There was no go jury.
tion to
AFFIRMED. INC., Plaintiff-Appellant,
VENCOR
v.
NATIONAL STATES INSURANCE
COMPANY, Defendant-
Appellee.
No. 99-17148. Appeals,
United Court of States
Ninth Circuit. July
Argued and Submitted Sept.
Filed *2 Levin, Cohn, Mintz,
Brаdley Kelly, L. P.C., Ferris, Glovsky Popeo, Washing- DC, ton, plaintiff-appellant. for the Brooks, Mesa, AR, P. David defendant-appellee. SNEED, WARDLAW,
Before BERZON, Judges. Circuit BERZON; Opinion by Judge by Judge SNEED. Concurrence OPINION BERZON, Judge. Circuit pri- concerns a glance This case at first but, see, we shall dispute vate national implicates important questions of Vencor, citizens. health for senior (“Vencor”), several hos- operator Inc. facilities, nursing home pital and supple- of a Medicare subrogee/assignee Nation- insurance contract between mental (“NSIC”) Company al Insurance States Rollins, Medicare-eligible and Clarence case, diversity In individual. (“Vencor coverage, including coverage ization Hospital-Phoenix paid Vencor care, patient after the ex- $38,760 hospitalization costs for Rollins’ Hospital”) paid. hospitalization days Medi- have hausts all the that Medicare would amount pay 1395ss(g)(l), §§ it that NSIC did care will for. See id. argues Vencor, According to Rоl- nearly enough. 1395d. *3 policy obligated NSIC supplemental
lins’ in program After the Medicare had been have full amount Vencor would pay while, con- Congress effect for a became patient, non-Medicare charged ex- being older citizens were cerned that $171,197.78, failure to so NSIC’s policies that ploited by Medigap the sale of a breach of charges constituted full-billed provide coverage buyers did not court, on sum- The district the contract. thought they purchasing. were See Social was no held there mary judgment, 1980, Disability Amendments of Security We affirm. breach of contract. 507(a) (June 9,1980) 96-265, § Pub. L. No. 1395ss(f)(l)) (re- (codified § 42 at U.S.C. I. BACKGROUND evaluation of the effectiveness quiring Coverage Medigap In- A. Medicare policies lim- regulation Medigap state surance as- iting marketing agent abuse and of sufficient informa- suring dissemination provides inpa- limited Part A Medicare choice). Congress informed tion to enable citizens. eligible benefits tient Security the Social Act therefore amended days hospitalization, During first 90 voluntary pro- certification to establish ex- pays for all covered services policies. Through that gram Medigap coinsurance and certain deduct- cept for private insurers could receive program, 1395e(a). patient § A 42 ibles. U.S.C. Medigap policies federal certification days may than for more 90 hospitalized specific that met federal Id. standards. re- upon a non-renewable lifetime draw (codified at 42 as amended U.S.C. days of additional Medicare of 60 serve 1395ss). Congress’s request, § At the Na- 1395d; § 42 42 C.F.R. coverage. U.S.C. tional Association of Insurance Commis- 409.61(a)(l)-(2). § In for receiv- exchange (“NAIC”), organization an of state sioners Medicare, providers payments from ing commissioners, developed the insurance accept payment, along agree to standards. federal deductible, as any coinsurance or ^ceCald).1 § 42 U.S.C. full. 1990, pro- Congress In went further in Medigap In- tecting insurance consumers. beneficiаries who desire medi- voluntary program, stead of its former coverage in addition to the cal Medigap Congress mandated insurers purchase Medi- provided by Medicare can model plans conform their to one of ten policies, supplemental care developed by the Medigap policies, to be Medigap polices. See id. as known Budget Reconciliation policies provide § NAIC.2 Omnibus 1395ss(g)(l). These 1990, 101-508, § 4351 supplementary hospital- Act of Pub.L. No. purchasers with 1395cc(a)(l) payment made § is entitled to have U.S.C. stales: individual 42 sub-chapter under ... this quali- Any provider of services ... shall be subchapter participate fied to under this 1992, Financing the Health Care In Admin- eligible payments and shall be under ("HCFA”) promulgated regulations istration Secretary subchapter it if files with adopting Regulations as NAIC Model re- agreement— 403.200; § 57 Fed. (A) (i) vised in 1991. 42 C.F.R. charge, except provided in not to as 21, 37,980 1992); (Aug. (2), Reg. see also 63 Fed. any paragraph individual 67,078 4, 1998) (Dec. (adopting Reg. person which such for items or services for (codified (Nov. 1990) provided of core benefits for in the amended at set “A.”4 Regulation, package Model known as As amended in 1395ss(p)). § U.S.C. R20-6-1105(C); § also 57 Fed. that no Id. see provides now Medigap statute 37,991. Reg. at in a may be issued state Medigap policy provided “for unless that state has Key language to this case is the insurers of the 1991 application and enforcement” required describing are to use the core (“Model Regula- Regulation Model NAIC provided. In benefits tion”). Security Act Amendments Social Regulation, identical to the Model Arizona (Oct. 103-432, § 171 Pub.L. No. requires package law that the core benefit 1994) (codified U.S.C. following coverage: include the 1395ss(a)(2)(A)).3 also U.S.C. See Upon hospi- exhaustion of the Medicare (“[T]he Secretary may 1395ss(p)(4)(A)(ii) *4 inpatient coverage including tal the life- grouping of provide permit for or not days, coverage time reserve (or or format with re- benefits A-eligible expenses Medicare Part benefits) a medicare spect to under such hospitalization paid Diagnostic at approval by supplemental policy seeking (DRG) Group per day Related outlier meets Secretary grouping unless such appropriate diem or other standard of Regula- ... Model 1991 NAIC subject payment, to a lifetime maximum ...”). tion. days.... benefit of an additional 365 Arizona, required, adopted the Model R20-6-1105(C)(3); § Ariz. Admin. Code § Ann. 20- Regulation. 37,991.5 Ariz.Rev.Stat. An Ari- Reg. see also 57 Fed. at 1133(A); § R20-6-1101 Ariz. Admin. Code in regulation, language pre- zona also pro- regulation An Arizona now seq. et by Regulation, requires scribed the Model policies issued in the Medigap policies vides that that all or Medigap solicited issued a of uniform comply delivery must with set in Arizona contain certain defi- state identical to those the NAIC nitions terms. Ariz. Admin. Code standards R20-6-1103(A). § Ariz. Admin. Code One of those defini- Regulation. Model tions, case, provides: all to this regulation, § R20-6-1105. Under that central “ de- eligible expenses’ ‘Medicare shall be policies must contain the basic Medigap addition, Regula- In under both the Model Regulations, "as corrected and NAIC Model regula- implementing "applicable tion and the Arizona clarified HCFA" to be the choose, tions, may, they if offer Regulation” purposes of so NAIC Model insurers insurance). form of other uni- Medigap None clarifi- additional in the of HCFA's §§ packages of benefits. Id. R20-6- changes here. form cations or are relevant 1105(D); R20-6-1106(E). 3.This statute states: A, (2) providers supplemental policy may Medicare Part most Under No medicare pursuant inpatient hospital stays paid to a date are be issued in a State on or after the ("PPS”). Prospective Payment System (p)(l)(C) specified subsection of this sec- tion, 1395ww(d); pt. § U.S.C. 42 C.F.R. 412. PPS unless— (A) regulatory program providers payments from Medicare at collect the State’s under (b)(1) "diag- predetermined upon rate provides for a based subsection of this section ("DRG”) group” classification apрlication nostic related and enforcement of illness, patient’s as determined at the requirements set forth in standards providers may re- PPS (including the 1991 NAIC time of admission. such subsection hospital- Regula- reimbursement for Regulation or 1991 Federal ceive additional Model be)) lengths (as unusually long may speci- izations that result in tion the case the date stay unusually high is "outli- (p)(l)(C) sec- costs—that fied in subsection of this 1395ww(d)(5)(A)(i); § er” 42 U.S.C. cases. tion .... 1395ss(a)(2)(A). seq. § et § C.F.R. 412.80
42 U.S.C. describing your the kinds covered This expenses fined as an.outline recognized as rea- important to the extent policy’s most features. The medically necessary by Medi- sonable and your insurance contract. You R20-6-1103(A)(7); § Id. see also care.” must read itself understand 37,988. Reg. 57 Fed. at rights you all of the duties both Further, compliance with federal law your company. insurance law Regulation, and the Model Arizona R20-6-1113(C) § Ariz. Admin. Code & provide appli- all requires that insurers B; 37,998. app. Reg. 57 Fed. The state guide with a cants for also require the Outline prоvided. Ariz. that outlines the benefits poli- contain the additional warning: “This R20-6-1113(C) B; app. § & Admin. Code cy may fully your cover all of medical 1395ss(p)(9)(B) (requiring Me- U.S.C. costs.”7 Ariz. Admin. R20-6- Code individuals, provide “be- digap insurers 1113(C) app.& B. policy,, an outline of fore the sale of the Policy B. Rollins’ Insurance un- coverage which describes the benefits policy ... on a standard form der the regulatory approved by program the State patient Hospital, Rollins was at Vencor be) (as may the case Secretary or the long-term hospital, intensive-care from *5 Reg- with the 1991 NAIC Model consistent 6, 1993, until April November his death on ”); 37,997-98.6 Reg. ulation ... 57 Fed. at Medigap policy pur- 1994. The Rollins (“Outline”) Coverage” This “Outline hospi- chased from NSIC covered Rollins’ that, explaining must contain a chart for 3, 1994, stay tal after March when his days hospitalization additional 365 ran coverage out. used, days are after all lifetime reserve During the time Medicare covered Rol- $0, pays Medigap insurer lins, Vencor billed Medicаre directly for pays Medicare-Eligible ex- “100% of (except his care for a coinsurance and de- pays penses,” and the insured Ariz. $0. ductible, paid). which NSIC The bills list- R20-6-1113(C) B; § app.
Admin. & Code charges ed based on Vencor’s standard 38,001-31. Reg. see also 57 Fed. In rates, but Medicare reimbursed Vencor for Regulation, accordance with the Model hospitalization greatly Rollins’ at a dis- that, regulation requires Arizona beneath rate, per accept- counted diem and Vencor “READ heading YOUR POLICY CAREFULLY,” ed this amount as full.8 Id. the Outline cau- VERY 1395ec(a)(l)(A). § tion: requirement, paid If the insurer violates this it is benefit is either at the rate Medicare subject monetary penalty up pays hospitals to a civil Prospective Pay- under its $25,000. 1395ss(p)(9)(C). § 42 U.S.C. System appropriate ment or another stan- payment. dard of also The Arizona command that HCFA, & NAIC 1993 Guide to Health Insur- the “Guide to In- insurers distribute Health (1993) People ance at 11 People surance for with Medicare in the form NSIC). (reprinted by developed jointly by the [NAIC HCFA].” R20-6-1113(A)(6). § Ariz. Admin. Code This pay- 8.Vencor is excluded from the PPS/DRG “Buyer's policy’s Guide” lists the insurance system long-term it ment because acute benefits, including following description 412.23(e). hospital. § care See 42 C.F.R. Medigap package's hospi- core benefit reimbursing Rather than Vencor and other coverage: talization PPS-exempt hospitals upon based DRG classi- fications, hospital are ex- After all Medicare benefits Medicare reimburses them the "rea- hausted, coverage of Medicare sonable cost” of services for Medicare benefi- 100% ciaries, expenses eligible hospital per day Part A ... at a rate This diem for each inpatient reserve Medicare lifetime each his Medicare exhausted Rollins After benefits, paid day used. NSIC hospitalization death until his expenses Rollins’ exhaustion of the Medicare (c)Upon billed later. weeks seven coverage including the hospital inpatient care, on its stan- $171,197.78 based for this days, coverage of the lifetime reserve $38,760, bas- paid rates.9 NSIC dard eligible expenses for Medicare Part A much lower on the same payments ing its hospital confinement same extent had been rate that Medicare per diem by Medi- have been covered as would $132,437.78 result, of Ven- aAs paying. care, subject a lifetime maximum ben- re- care for Rollins’ charges cor’s billed days.10 of an additional 365 efit claim central unpaid. Vencor’s mains law, by Arizona required as Again policy be- Medigap this case is “Medicare-eligible Expense” defines obligated NSIC Rollins NSIC tween by Medi- of the kind covered “expense as that difference. care, recognized as reason- to the extent therefore turns Medi- medically necessary by in this case question able and The Medigap in the provided coverage care.” on the from NSIC. purchased that Rollins the mandat- provided Rollins NSIC also provision of the core benefits Only Ariz. Admin. Code Covеrage, ed Outline policies, Medigap all common to policy, Guide, R20-6-1113(C), Buyer’s Admin. Code See Ariz. here relevant. R20-6-1113(A)(6), of which both de- id.
§ R20-6-1105. pre- hospitalization benefit scribed the explained above. by the laws scribed policy describes in lan- hospitalization present rise to the These materials give Arizona in the to that used similar guage com- maintains that its controversy: NSIC *6 the federal- incorporates which Regulation, documents'—'the under mitment these standards: ly-mandated state by federal and required commitment pro- will BENEFIT-We HOSPITAL to regulation pay Medigap insurance —was vide: would have Rollins whatever (a) Medicare-eligi- APart in- Coverage hospitalization. paid for his to confinement hospital promise for expense sists, contrary, that ble by covered full-billed pay the extent not to Vencor’s been must have day the 90th through express- day the 61st do not as the charges, from period. man- yet Medicare benefit can charge ly limit what Vencor pа- that the covered representation date a Medicare-eligi- (b) Part A Coverage of end, course, In the pay tient will to hospital “$0.” confinement expense for ble family the insurance patient’s either the by Medicare not covered the extent may be ordinary standard rates supposed A benefits. See Part patient has Medicare minority patients. 1395x(v); 13951(b)(1), paid a small 42 C.F.R. §§ U.S.C. 412.22(b) Medicare-covered pt. & 413. For Reg- services, accept regulation and the generally Model providers 10. The Arizona such must language de- to identical payment in full. U.S.C. use almost ulation amount (b). (a) 1395cc(a)(l)(A)(i). provisions scribe (c) phrase “to provision uses the used covered have been extent as would same noting in a world in which that is worth It day "paid [DRG] at the instead Medicare” and various patients are covered Medicare appropriate stan- other per diem or outlier schemes kinds of medical payment.” providers’ dard of negotiate providers, rates with company pay will have to the billed intend to hospitals restrict what could amount, hospital accept or the will have to charge under Medigap policies.11 lower Medicare much rate. As will noted, however, The court that even if it appear, however, it is not in this necessary incorrectly had ruled original its deci- fully case aspects to determine all of this sion that Vencor could charge not more tripartite relationship. financial than the discounted Medicare rate under Rollins’ Medigap policy, a on this reversal Proceedings C. Prior point would not alter final judgment: its it Maintaining is not the providers [WJhether or not are allowed that should be left to absorb the difference to charge rates above those established between its non-Medicare billing rate and by the Medicare does not change [Act] the amount Medicare paid, would have disposition Court’s of the ultimate NSIC, Vencor sued alleging breach of con- question whether the Medigap at tract subrogation seeking pay- issue obligated Defendant pay to Plain- $132,437.78, ment of the difference be- tiff at higher the rates than tween the Medi- charges Vencor’s billed and the it care rates.... amount collected from Whether NSIC. After dis- federal and/or covery, parties filed cross-motions for state legislative history support lends summary judgment. finding Court’s legislative intent was to limit the rates to those
The district court granted NSIC’s mo- approved by Medicare does change tion summary judgment, holding that interpretation Court’s no breach of contract occurred. The court at ruled, issue under the first, Arizona law. that as a matter of Arizona’s law, state and Medigap contract Rollins’ appeal, On Vencor challenges the dis- Medigap policy obligated pay NSIC. trict interpretation court’s of Rollins’ Me- hospitalization charges same digap policy. It also maintains that we rate thаt Medicare have would been re- cannot decide this case without determin- quired to cover those charges had ing whether the Arizona regula- Medigap Rollins not exhausted his Medicare cover- tion what limits Vencor can charge for Second, age. the district court indicated patients services to who have exhausted that the Arizona state regulation govern- their and challenges ing insurance, see Ariz. Admin. *7 the district court’s original that conclusion § R20-6-1105(C), Code limits what a hos- Arizona incorporate law does a such limit. pital collect patients can from who are by privately Medigap covered issued insur- II. DISCUSSION policies. ance As is many puzzles, time of how one Following appeal an to this court and a solves presented the conundrum by the remand, subsequent the district court en- intersection state and federal Medigap tertained Vencor’s motion for relief from regulation, hand, on the one and com- judgment the pursuant to Fedеral Rule of Civ- peting NSIC, Vencor, il interests of Procedure 60. The district and court denied motion, customers, consider, other, the Vencor’s declining to on the may as not de- evidence, new pend documents by largely on offered Ven- where one starts. As cor as demonstrating that however, Arizona did not judges, we are not free to choose 60(b)(2) 11. Fed.R.Civ.P. states the court that by diligence discovered evidence which due may party relieve a judgment, from a final could have not been discovered time to order, "(2) proceeding newly based on: 59(b).” move for newa trial under Rule
1031 days, coverage of the lifetime reserve place. ending starting our our either for eligible expenses Part A precise the start with Rather, must we to the same extent hospital in- confinement dispute between us—a before case by been covered Medi- as would have beneficiary’s as- company and its surance care, a maximum subject to lifetime ben- poliсy what benefits regarding signee days. of an additional 365 we efit pay. Once insurer to obligates completed have dispute, we resolve provi- coverage these Reading all three of so we can do appear, will As oui’ task. must, together, as we demonstrates sions re- and rights out all the setting without ... covered” lan- that the “to extent parties and affected sponsibilities refers to the dollar in the contract guage regula- of this full solution leave therefore for the same pays that Medicare amount day. for another puzzle legislative and tory Farm Mutual Auto- See services. State 255, Ariz. Arrington, v. 192 mobile Ins. Co. Policy A. The 334, v. (1998)(citing Nichols P.2d 338 963 overlay feder heavy Despite Co., Ariz. 175 Farm Fire & Cas. State regulation, insurance Medigap (1993) al and state (requiring P.2d courts the insur interpret to job here is our basic a give as a whole to to read the contract scope of that established policy ance all effect to and harmonious reasonаble conclude coverage. We provisions)). whole, policy that, the insurance read as (a) provisions Hospitalization coverage unambiguously states by NSIC provided (b) A “Part Medicare- and use term post- cover the costs will that NSIC case, provi- expense.” In each eligible expenses at the same hospital exhaustion say coverage goes then on to sion these would have covered rate as Medicare,” by not covered “to the extent v. Security Ins. Co. See costs. Hartford money an amount of referring to plainly Andersen, Ariz. 763 P.2d that Medicare eligible will for the service clear, (1988) (when policy is an insurance will pay not ambiguity). may not invent court as “to the extent not pay instead. Just (b) (a) cov- hospitalization repeat, by the entire refers Medicare” To covered by reads: provision of reimbursed Medi- erage to cost—amounts not care, the extent as would too must “to so pro- will BENEFIT-We HOSPITAL Medicare” rеfer by covered have been vide: if Medicare would amount the dollar Medicare-eligi- A (a) of Part Coverage exhausted.12 had not been confinement hospital expense ble covered the extent supported further This conclusion is day the 90th day through the 61st (c) from parts: into two breaking coverage grant period. benefit in Medicare (1) expenses eligible Part A “Medicare (2) Medicare-eligi- (b) confinement;” Part A the same Coverage of “to hospital confinement covered expense would have been ble extent as *8 Medicare for the by maintains that sec- extent not covered the Medicare.” reserve the inpatient means “sort” provision Medicare lifetime the part ond of each But Medicare. day by covered used. of services law, by defines “Medi- required policy, (c) of the Medicare exhaustion Upon “expense of mean expense” to care-eligible including the coverage hospital inpatient Instead, probably the difference penses.” any meaningful differ- imagine We 12. cannot proofreader's failure attributed to a Medicare-eligible best ex- A "Part ence between inconsistency. eligible catch the A ex- “Medicare Part pense” and 1032 covered by kind to the ex- that Vencor require maintains us to inter- recognized
tent as reasonable and medical- pret policy otherwise: ly necessary by phrase Medicare.”13 This by
directly
expenses
Provisions Mandated
refers to the sort of
that
Law
Thus,
Medicare would
if
cover.
Vencor’s
The first such consideration we are
argument
phrase
regarding
second
asked to examine is the principle Ari
of
correct,
part
provision
then each
of the
zona
specifying
law
that even if an insur
means
thing:
policy
the same
The
would ance policy does not contain a certain cov
cover
of
the sort
services Medicare covеrs
provision,
erage
that provision is added to
to the extent
they
that
are the sort of
policy
if it is
mandated
law.15 In
services
Medicare covers. On the
surance Co. North America v. Superior
of
hand,
if
part
the second
of
provi-
Court,
585,
166 Ariz.
800 P.2d
588
refers,
contends,
sion
as NSIC
(1990). Vencor’s contention is that part of
rate,
Medicare
then the coverage grant
the Arizona Medigap regulation requires
makes sense: it covers the sort of services
amount the
choos
covered
up
Medicare
to the amount
es to bill.
paid
Medicare would have
for them.
The
regulation
Arizona
to which Vencor
that,
We therefore conclude
reading only
ascribes this meaning is the one that re-
of the NSIC
policy,
quires insurers to offer the following post-
provisions
the coverage
obligated NSIC to
hospitalization
exhaustion
core benefit:
reimburse Vencor
at the rate Medi-
Upon exhaustion
paid.14
care would have
hospi-
tal inpatient coverage including the life-
B. Considerations External
to the Poli-
time
days,
reserve
coverage of the
cy
Medicare Part A-eligible expenses for
are, however,
There
hospitalization
two
paid
considerations
at the
day
[DRG]
external to the four corners of the policy
per
outlier
diem
other appropriate
policy
13. The
also
a
includes
"definition” for
refers
expenses,
to amounts of
just types
"Expense”
"expense you
services,
as an
incur for nec-
eligible
would be
essary
supplies prescribed
medical
Medicare); Vencor,
services
under
Inc. v. Standard
parties dispute
a doctor.”
Co.,
whether
and Accident Ins.
F.Supp.2d
Life
"expense”
definition uses the term
(W.D.Ky.1999)
(policy
provides
reim
mean a "cost” or a "service.” The
rate).
"defini-
bursement at
per
the Medicare
diem
not, however,
tion” does
South,
illuminate
Hospitals
which
But see Vencor
Inc. v. Na
meaning
"expense”
Co.,
94-CV-894,
was intended in the
tional Stаtes Ins.
No.
Instead,
policy as a whole.
purported
*11-13,
U.S. Dist. LEXIS
1995 WL
tautologically
definition
"expense”
(M.D.
defines
1995)
Fla.
(finding
June
such,
"expense.”
as a certain kind of
As
contract
ambiguous
terms
interpreting
limitation,
really just
"definition” is
indicat-
them in favor of the
pay
insured to include
ing
expenses
that some
kinds
are intended
provider's
ment
charges),
full-billed
not,
to be included and others
and is of little
opinion,
(11th
without
1033 Stores, Adams, Inc. v. 532 City a life- See Circuit subject to payment, of standard 1302, 105, 114-15, 149 121 an additional S.Ct. of U.S. time maximum benefit (“Under (2001) of this rule L.Ed.2d 234 days.... 365 be the residual should clause construction R20-6-1105(C)(3) § Admin. Code Ariz. [preceding effect give read to This regulation”). standard (“appropriate terms], controlled and should itself be and provi- the from differs to the enumerated by reference which, defined again, once policy, in NSIC’s sion just be- ... which are recited provide categories “cover- will that the insurer states it....”); Rwy. ex- & Western Co. A-eligible Part fore of the Medicare. age Norfolk Ass’n, the to 499 Dispatchers confinement Train for v. American penses have been covered as would 113 L.Ed.2d extent 111 S.Ct. same U.S. the requiring rule (“Under the (1991) But principle ejusdem Medicare.” 95 provi- mandatory coverage importation of a a term follows general when generis, appli- has no policies into insurance sions one, be general term should specific here, the substance because cation subjects akin as a referеnce to understood and of the requirement regulation’s enumeration.”). specific to the one the same. provision is is an Arizona Bolstering this conclusion mentioned standard payment The DRG prohibits Medigap insurers regulation re- regulation standard appropriate payment “for the of bene- providing from re- in which Medicare the manner fers described as ‘usual on standards fits based at a namely hospitals, some imburses and customary,’ custom- and ‘reasonable “diag- upon based predetermined rate import.” Ariz. of similar ary’ or words of classification group” related nostic n § R20-6-1113(A)(3). For Admin. Code of the time admis- illness at patient’s PPS- of reimbursement purposes 42 supra; n. U.S.C. See sion.16 Medigap regula- hospitals, federal exempt 1395ww(d). coverage stan- DRG § “the “customary charges” as tions define provided by to care apply dard does charge both providers regular rates hospitals. PPS-exempt other Veneor paying patients for and othеr beneficiaries 412.23(e). Instead, Ven- § 42 C.F.R. See them.” furnished to the services hospi- care acute long-term other eor 413.43(a). regula- The federal § C.F.R. “rea- according are reimbursed tals determining criteria for provide tions also system at a reimbursement cost” sonable is “reasonable.” charge whether day that a patient each diem rate for per includ- (listing § 405.502 standards C.F.R. 1395f(b)(l), §§ 42 U.S.C. hospitalized. similar ser- customary charges for “the ing 412.22(b) pt. § & 1395x(v); 42 C.F.R. physician made generally vices services” furnishing such person standard Because DRG locality charges in prevailing “the typical two to one of the refers services”). similar un- hospitals, formulas reimbursement Medi- on what restriction This additional generis, it fol- ejusdem the maxim der that “oth- provide can affirms gap policies appropriate standard that “other lows payment” standard of appropriate er the other Medicare refers to payment” a Medicare amount cannot refer case, the formula—in reimbursement vague billing to bill. If chooses hospitals. provider exempt rate for per diem PPS — U.S.C. cases. re- "outlier” may receive providers additional PPS seq. 1395ww(d)(5)(A)(i); et 412.80 hospitalizations with unusu- C.F.R. imbursement stay high costs—that is ally long lengths *10 “customary” terms like be dbys cannot used to post-exhaustion of hospital care and rates, provider’s the signify self-defined no that would pay “100% of Medicare provided, other terms are Eligible and the lan- Expenses.” That provision of the guage Outline, indicates that there does exist an argues, Vencor should be under- standard,” “appropriate (emphasis added), incorporated stood as into the policy and implication then necessary the is that some necessitates that policy proper the cannot standard, governing just external the be read to plain mean what its terms bill, provider’s size the delimits the import. obli- would otherwise gations policy. of the The applica- obvious insurer, true, An it is prom- cannot both standard, parallel ble to the DRG rate pay ise that it will only part anof insured’s mentioned, specifically appropriate is the promise billed costs and still that the in- case, per Medicare rate —in this the diem will pay nothing, sured provider unless the rate paying was before Rollins has agreed accept partial the insurer’s hospitalization his exhausted coverage. payment in full—and Vencor rate, multiplied by And that the number of insists that there is no agreement, such days stayed Rollins in the after explicit implicit. Whether this riddle his coverage expired, had is exact posed by the Outline Coverage is rele- amount which already paid NSIC has Ven- problem vant to narrow before us de- cor. pends on whether the modify Outline could upshot is that the regula- Arizona otherwise clear of the insur- tions require Medigap coverage at policy. Instead, ance It cannot. poli- same reimbursement rate that Medicare cy must be read independently of the Out- exactly uses. That poli- what the NSIC line for three reasons: the Outline itself cy provides. Medigap Arizona supports conclusion; that the regulations therefore the unambiguous do not alter distribution of mandating sup- Outline terms of NSIC’s insurance contract with port conclusion; that and the reasonable Rollins. expectations doctrine does not apply in this context hold NSIC liable for the Coverage 2. Outline of representations of the Outline.17 suggests, that the con- however First, the Outline itself makes clear that tents of the insurance and the Ari- it should not be part construed as zona regulations are not the end of the policy. On the page second story and asks prescribed us to take the Outline, a message in type large of Coverage Outline into account as well. warns: “READ YOUR POLICY VERY
Although the actual insurance CAREFULLY.” Beneath warning contract does not contain promises message in standard type sized states: regarding possible expenses, the outline, “This is an describing your does: Outline The Outline informed policy’s Rol important most pol- features. The lins he that would up to 365 icy your “$0” insurance contract. You must cases, Accident, In two similar dard courts have deter & F.Supp.2d at 578-79 Life Coverage mined the Outline of (finding was not part Outline not to be insur part policy. Blue Cross & ance contract where the Outline itself states Shield, Blue F.Supp.2d 1159-60(finding governs, the contract and Tennessee law part Outline requires statement). is not of the insurance such Neither case ad regulatory contract because Florida’s scheme dressed expectations the discrete reasonable requires doctrine, explicit statement to that effect as neither Florida nor Tennessee same); and the Outline itself states the Stan recognizes the doctrine.
1035 require NSIC to cover representations the still understand all to policy the read you your charges hospital- and for Rollins’ of both the full-billed duties rights and non- “It would bе company.” disagree. ization. We insurance to be the Outline to consider sensical matter, we note that the As an initial and in on its face contract when part of the expectations doc- only way reasonable the manner it declares very conspicuous the terms of the is trine could alter Shield, 86 & Blue Blue Cross it is not.” at a permitted if is to bill Rollins Vencor F.Supp.2d at rate. If higher than the Medicare rate Second, that man- very regulation the pa- legally charge cannot Medicare Vencor requires the Outline dates distribution exhausted their tients who have this contain clear the Outline of the coverage a rate excess it is not stating that conspicuous language rate, expectation cre- then reasonable are dic- policy, that the terms part of the con- by entirely the Outline would be ated and that the insured policy, the by tated unambiguous the sistent with carefully. policy very the should read policy: NSIC’s covers tеrms of the Thus, estab- regulation of the as expenses to the same extent of the distribution requiring lishes that $0, owing left Rollins is to the Out- not intended make was Outline hand, If, the other states. on Outline policy. part line of the to charge can its actual-billed rates Vencor Third, expecta reasonable pa- Medigap-insured and other Rollins hold require us to does not tions doctrine their Medicare have exhausted tients who in the full costs Vencor NSIC liable is then our conclusion coverage, This Rollins’ care. providing curred have for what Medicare would liable doctrine of consumer-protection important contrary to seemingly paid creates a result (and the insurance law Arizona insurance regu- by Medigap the Outline dictated states, Ostrager & see many law of “balance lations: Vencor could bill” Newman, on Insurance Cover Handbook difference, leaving Rollins patients for the (9th 1.03(b)(2)(B) ed. age Disputes, patients with substan- and other Medicare 1998)) over individuals from protects costs. tial uninsured companies by insurance reaching billing understanding of its Vencor’s good faith the drafter “hold[ing] Medigap regulations rights under Darner are conscionable.” terms which Ap Another Court of quite debatable. Sales, Inc. v. Universal Underwrit Motor as one of the issue peals has characterized Co., P.2d Ariz. 682 Ins. ers con impose “price whether (1984). doctrine, a re essentially Vencor, Physicians v. Mutual Inc. trols.” barring parol evidence of the rule laxation (D.C.Cir. Co., 1323, 1325-26 211 F.3d intent Ins. to discern the being admitted from 2000). But, properly contract, 400- is more the issue to a see id. parties understood, con as one of whether unambiguous perhaps, can override even reason when an insured provisions providers tract care make medical promise dif provision operate expected the under ably by Medicare order be reimbursed Casualty & v. Aetna ferently. 1395cc(a)(l)(A)(i) Gordinier bill not to 42 U.S.C. Co., 266, 742 154 Ariz. P.2d Surety to “items regard individuals coverеd (1987). individual for which such services made under entitled to have that, reason- under the argues carries over to reimbursement subchapter” doctrine, even if the Out- expectations able under Medi- or services items policy, its same part of line is considered gap policies, whose terms are charge the Medicare rates with regard to dictated the 1991 NAIC Model Regula- items and services covered that insur- directly incorporated tion in the same ance. sub-
chapter.18 Id. time, At the same it is curious indeed important
That the
such an
regulations
matter as the bill-
ing
were
rate of
against background
providers
drafted
under-
medical
for medical
services
standings
by Medigap
that there is such a
covered
continuing
policies
left
is
interpretation,
agreement,
implication,
inference,
that Medigap insurance
in-
is
inference,
even informed
provide
patients
tended to
covered
rather than made
explicit.
that,
One is left with the sense
protection they enjoyed
the same
as
under
case,
is sometimes the
aspect
critical
providers
and that medical
the contractual
regulatory
scheme was
may
therefore
not
patients
balance bill
left
precisely
unstated
because it was so
policies,
covered Medigap
quite
seems
much
premise
a bedrock
of the involved
Otherwise,
possible.
representations
parties that the need for articulation es-
in
made
the Outline would make little
caped drafters.19
lapses
Such
of attention
So,
sense.
way
another
of looking at the
unfortunate,
are
parties
as affected
question
same
would be to ask whether the
courts are then left to trace the interpre-
state and federal Medigap statutes and
tive threads left behind.
regulations, including
it
explic-
is
—because
itly incorporated into those statutes and We need not trace those threads to their
Regu-
1991 NAIC Model
case,
ultimatе destination in this
however.
—the
lation, give
implicit
rise to an
agreement
The
issue before us is the amount
providers,
medical
when they accept Vencor,
assignee
benefits,
as the
of Rollins’
payment
insurance,
through Medigap
to may collect from
question
NSIC. As no
explicit
18. There is
question
no
answer to this
covering
Medicare was
hospitalization.
regulations.
in the federal
42 C.F.R.
appropriate
"or other
pay-
standard of
412.42(e)
hospital
does state that "[t]he
provision
ment”
means that
if Medicare
may charge
beneficiary
customary
its
cost-outlier, DRG,
would have made
charges for noncovered items and services
payments
or[non-PPS] reasonable cost
in-
days
furnished on outlier
...
pay-
for which
day
payments,
stead of
outlier
then that
ment
denied
beneficiary
because the
is not
type
payment
other
is the
appropri-
entitled to Medicare Part A or his or her
payment.
ate standard of
Medicare Part A benefits аre exhausted.” 42
Amendments to
Regulation
the Model
to Im-
412.42(e).
however,
regulation,
C.F.R.
This
plement the
Supplement
NAIC Medicare
In-
and,
pertains only
hospitals
to PPS
any
Act,
surance Minimum Standards Model
at 5
event,
question
does not address the
whether
(drafted
17, 1998).
Aug.
The amendment also
permission
carries over to items and ser-
requires
following
that the
statement be in-
by Medigap policy.
vices covered
cluded in the Outline:
your
When
hospital
Medicare Part A
bene-
19. The NAIC has drafted an amendment to
exhausted,
fits are
the insurer stands in the
Regulation
clarify
Model
that would
place of Medicare and
pay
will
whatever
issue. The
would
amendment
add a sentence
paid
amount Medicare would
up
have
description
to the end of the
of the core
days....
an additional
During
this time
package’s post-exhaustion hospitaliza-
benefit
prohibited
billing you
from
provision stating
tion
provider
that:
"The
for the balance
any
based on
difference
accept
payment
must
the issuer's
charges
its billed
between
and the amount
may
in full and
not bill the insured for
paid.
Medicare would have
proposed drafting
balance.”
following
A
note
Id. at 13. Neither HCFA nor its successor
provision
explain
would
that:
agency, the Center for Medicare and Medic-
Se'rvices,
required
the issuer is
whatever
aid
adopted
proposed
has
NAIC
amount
paid
Medicare would have
as if
Amendment.
terms, although
1. Where the contract
may
collect
the amount
concerning
court,
us,
ambiguous
cannot be
directly before
estate is
from
reasonably intelligent
understood
ques-
shy
answering
from
we should
might
consumer who
check on his or her
&
have to.20 Blue Cross
unless we
tion
rights,
interpret
the court will
them in
Shield,
1175(declining,
284 F.3d
Blue
light
objective,
expec-
reasonable
one, to address the
to this
a case similar
insured;
average
tations of the
it is “an issue
billing issue because
balance
2. Where the insured did not receive
resolved,
amicably
litiga-
either
to bе
adequate
full and
notice of the term in
tion,
respective
and the
between Vencor
provision
*13
and the
is either un-
question,
insureds”). And,
that fol-
for the reasons
or
unexpected,
usual or
one that emas-
that,
low,
even if Vencor were
we conclude
apparent coverage;
culates
option, the
billing
its balance
right about
activity
some
which can be
3. Where
not
expectations doctrine would
reasonable
attributed to the insurer
reasonably
situation—
apply in
unusual insurance
objective impression
would create an
tightly
so
overseen
unusual because
in the mind of a reasonable
coverage
leave the
regulation
state
as to
federal and
insured;
in
independent role
de-
with little
insurer
reasonably
activity
4. Where some
at-
policy’s
terms.
lineating
tributable to the insurer has induced a
expectations doc
The reasonable
particular
reasonably
insured
to believe
inception
largely
was intеnded
trine at its
coverage, although
that he has
such cov-
and
overreaching by vendors
regulate
to
erage
expressly
unambiguously
companies who make oral or
insurance
policy.
denied
po
that mislead
representations
written
(citations
quota
CONCLUSION Department as the Director of the unambiguous terms of According Human of the of Ha Services State Rollins, NSIC policy it issued waii; Hawaii, Defendants- State of the amount obligated Appellants. regu- paid. Arizona would have lations, regula- following parallel federal 98-16545, 99-15930, Nos. tions, an insurance to write required NSIC 98-16548, 99-15928. cov- hospitalization provided Appeals, United States Court of rates. erage at discounted Ninth Circuit. pre- its regulation, set followed by the accordingly, and abided
miums Nov. 1999. Argued and Submitted be held It cannot now policy. terms Jan. Submission Withdrawn contract. We its insurance breach of Aug. Resubmitted court’s AFFIRM the district therefore in favor of summary judgment grant of 5, 2002. Sept. Filed NSIC.
AFFIRMED.
SNEED, Concurring. Judge, Circuit in concurs the result
Judge Sneed 11(A) does opinion. He
parts I and opinion, concur the remainder unnecessary to the re- he considers
which
sult. LOVELL, K. Plaintiff-
Richard
Appellee,
v. CHANDLER, ca- in her official
Susan Depart-
pacity the Director of as Human State
ment of Services Hawaii, Hawaii; Defen- State
dants-Appellants. adjustments appropriate end-of-year are would have days, the amount that Medicare recognize paid We rate. for Rollins’ care. arrive at the Medicare case, figure subject to such the usual