The opinion of the court was delivered by: 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.*fn1 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
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.
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).*fn3
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.
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.
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.*fn4 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