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
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.
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.*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
(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 with
supplemental insurance "pays 0" for the first 365 days of
hospitalization. 57 Fed. Reg. 37980, 38001-31. Therefore,
providers are not able to recover from beneficiaries the
difference between their charges and the Medicare per diem rate
paid by the Medigap insurer.
The NAIC, the organization that initially drafted the Model
Regulations adopted by HCFA, agrees with this interpretation of
the Model Regulations. The NAIC has stated that "HCFA can and has
interpreted existing federal laws and regulations to prohibit any
provider from billing above the Medicare-approved amount after
the beneficiary has exhausted hospital stay benefits, and require
the provider to accept reimbursement from the insurer at the
Medicare rate as payment in full." NAIC letter to HCFA (July 8,
Vencor has not offered an alternative interpretation for Model
Regulation 8(B)(3). Indeed, Vencor does not address the Model
Regulations and points to other federal regulations that
purportedly allow it to charge whatever it believes appropriate.
Under Vencor's theory, 42 C.F.R. § 489.21(c) is a relevant
regulation, because it states that a provider may not charge a
beneficiary for "inpatient hospital services furnished to a
beneficiary who exhausted his or her Part A benefits, if HCFA
reimburses the provider for those services. It is immediately
apparent, however, that this provision is inapplicable here
because Vencor is seeking reimbursement from a Medigap insurer,
Vencor's reliance on 42 C.F.R. § 412.42(e) is also
misplaced. Section 412.42(e), in pertinent part provides,
[t]he hospital may charge the beneficiary its
customary charges for noncovered items and services
furnished on outlier days . . . for which payment is
denied because the beneficiary is not entitled to
Medicare Part A or his or her Medicare Part A benefits
Even if this provision were construed to allow PPS providers to
charge a beneficiary the providers' "customary charges" when
Medicare Part A benefits are exhausted — construction that would
be at odds with the requirement in the Model Regulations that a
beneficiary with supplemental insurance pays "0" for 365 days of
hospitalization after Medicare Part A benefits are exhausted — the
regulation does not apply to PPS-exempt providers such as Vencor.
Analysis bottomed on extrapolation from regulations governing PPS
providers is unhelpful when there are Model Regulations that
govern a PPS-exempt provider's charges.