UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


VENCOR INC

v.

PHYSN MTL INS CO


99-7089a

D.C. Cir. 2000


*	*	*


Williams, Circuit Judge: Vencor, Inc., a provider of long- term
hospital care, filed a diversity action1 against Physicians  Mutual
Insurance Company, seeking reimbursement for ex- penses incurred by 10
patients who stayed in six of its  hospitals beyond the period covered
by Medicare. Each of  the patients held "Medigap" insurance policies
issued by  Physicians Mutual; Vencor sues as third party beneficiary. 
Among other defenses, Physicians Mutual claimed that cer- tain
provisions of the Medicare Act and associated regulations  barred
Vencor from charging patients more than the maxi- mum rate for
Medicare-covered hospital days--a rate at  which Physicians Mutual had
already reimbursed Vencor.  The district court granted Physicians
Mutual's motion for  summary judgment on that limited ground. Vencor,
Inc. v.  Physicians Mutual Insurance Co., 39 F. Supp. 2d 1 (D.D.C. 
1999). Finding no such limitation in the cited provisions, we 


* * *


Medicare, like most health insurance plans, provides bene- fits of
limited duration. For instance, it covers the first 90  days of
hospital care for every "spell of illness," plus an  additional,
non-renewable reserve of 60 days of coverage  (which, until it is
exhausted, can be added to any "spell of  illness"). 42 U.S.C. s
1395d(a)-(b), (g). Once Medicare pa-




__________

n 1 Vencor also claimed the district court had federal question 
jurisdiction, which Physicians Mutual disputed. Given the presence  of
diversity jurisdiction, we need not reach the issue.


tients fully exhaust their government-provided hospital bene- fits, see
id. ss 1395c, 1395d, many rely on privately- purchased "Medigap"
policies for extended coverage. These  policies vary in their terms,
but (as a result of a federal  regulatory process that we will soon
describe) all offer at  least 365 days of post-Medicare hospital
benefits. See Medi- care Program; HHS' Recognition of NAIC Model
Standards  for Regulation of Medigap Policies, 57 Fed. Reg. 37,980, 


While the Medicare reimbursement rates of most hospitals  are governed
by the so-called Prospective Payment System,  see 42 U.S.C. s
1395ww(d)(1)(B)(iv), Vencor, as an operator  of long-term care
hospitals, can secure reimbursement for the  "reasonable cost" of
providing its services. Id.  ss 1395f(b)(1), 1395x(v). For
Medicare-covered services, it  must generally accept this amount as
payment in full. See  id. s 1395cc(a)(1)(A).


Vencor and Physicians Mutual filed cross motions for par- tial summary
judgment on the limited question of whether  the Medicare statute or
associated federal regulations prohib- ited it from charging patients
for post-Medicare services at  more than the Medicare-approved rates.
We emphasize the  word "patients" because much of the legislative and
regulato- ry materials that the parties dispute speak only to
insurers'  obligations. Of course for a third-party beneficiary's
breach  of contract action, the patient's liability is the bedrock--
without patient responsibility, there is no insurer responsibili- ty.
But insurer liability is often less than all of the primary 
obligor's; provisions for deductibles and co-insurance are  common,
and some items and services may not be covered at  all. Such
insurer-specific limitations may affect Physicians  Mutual's liability
on these 10 contracts, but no such limita- tions are before us. The
cross-motions for summary judg- ment frame the issue only in terms of


* * *


Physicians Mutual first argues that the Medicare Act itself  prohibits
Vencor from charging its patients more than the 


Medicare-approved rate. It relies initially on 42 U.S.C.  s
1395cc(a)(1)(A), under which providers are eligible for  Medicare
reimbursement only if they execute a contract with  the Secretary of
Health and Human Services agreeing,  among other things,


not to charge ... any individual or any other person for  items or
services for which such individual is entitled to  have payment made
under this subchapter.


Id.


The most obvious difficulty with this provision as support  for
Physicians Mutual is that it appears to have nothing to do  with
charges for post-Medicare services. The "subchapter"  (Subchapter
XVIII, 42 U.S.C. ss 1395-1395ccc) contains pro- visions under which
providers are "entitled" to be paid by  Medicare when their provision
of services meets the many  statutory qualifications. These appear to
exhaust its provi- sion of entitlements. Certainly Physicians Mutual
points us  to nothing in the subchapter that "entitles" providers to
be  paid for services provided after the lapse of Medicare entitle-
ment. For such entitlements, presumably, they must rely on  contract,
or perhaps in some cases quasi-contract, under state  law.


Physicians Mutual seeks to get around this impediment by  claiming that
because provisions in the subchapter establish  conditions under which
the National Association of Insurance  Commissioners ("NAIC") may
promulgate standardized Me- digap insurance contracts, which under
certain conditions  become the exclusive form of lawful Medigap
insurance con- tract, see id. s 1395ss(p), the subchapter "entitles"
providers  to be paid for services falling in the Medicare gap. But, 
skipping over the distinction between the liabilities of insur- ers
and of patients (recall that it is the latter that the parties' 
motions for summary judgment have put in play; insurers'  obligations
follow only as a corollary), there is all the differ- ence in the
world between the contractual obligations of the  common law, which
create the entitlements of providers to be  paid, and federal
limitations on those entitlements. Section  1395ss does not entitle


In an attempt to sidestep these difficulties, Physicians  Mutual argues
that Medicare's general purpose of providing  "basic protection
against the costs of hospital ... services,"  id. s 1395c,
demonstrates a congressional intent to allow  Medicare recipients to
"extend the benefits and protections  under the Medicare Act through
the purchase of Medigap  insurance." Appellee's Br. at 15. Even if
Physicians Mutual  were correct about the thrust of the statute's
purpose, the  Supreme Court has instructed that:


[a]pplication of 'broad purposes' of legislation at the  expense of
specific provisions ignores the complexity of  the problems Congress
is called upon to address and the  dynamics of legislative action.
Congress may be unani- mous in its intent to stamp out some vague
social or  economic evil; however, because its Members may differ 
sharply on the means for effectuating that intent, the  final language
of the legislation may reflect hard-fought  compromises. Invocation of
the 'plain purpose' of legis- lation at the expense of the terms of
the statute itself  takes no account of the processes of compromise
and, in  the end, prevents the effectuation of congressional intent.


Board of Governors of the Fed. Reserve Sys. v. Dimension  Financial
Corp., 474 U.S. 361, 373-74 (1986). See also  Rodriguez v. United
States, 480 U.S. 522, 525-26 (1987)  (noting that "no legislation
pursues its purposes at all costs"  and therefore "it frustrates
rather than effectuates legislative  intent simplistically to assume
that whatever furthers the  statute's primary objective must be the
law"). So radical a  scheme as imposition of price controls on medical
services not  covered by Medicare requires explicit language, not mere
 brooding purposes (which, we should add, are in any event  not
discernible in s 1395ss).


Physicians Mutual also points to a specific provision of the  Medicare
statute governing "items or services ... in excess  of or more
expensive than" a covered service:


Where a provider of services has furnished, at the re- quest of such
individual, items or services which are in  excess of or more
expensive than the items or services 


with respect to which payment may be made under this  subchapter, such
provider of services may also charge  such individual or other person
for such more expensive  items or services to the extent that the
amount custom- arily charged by it for the items or services furnished
at  such request exceeds the amount customarily charged by  it for the
items or services with respect to which pay- ment may be made under
this subchapter.


42 U.S.C. s 1395cc(a)(2)(B).


The parties curiously agree on the idea that this provision  governs
post-Medicare hospital days, differing only as to its  effect. We, by
contrast, regard it as altogether inapplica- ble--because confined to
superior versions of covered ser- vices. (The parties' de facto
stipulation of law does not  require us to analyze a statute on a
premise we regard as  false. See United States Nat'l Bank of Oregon v.
Indepen- dent Ins. Agents of Am., 508 U.S. 439, 446 (1993).)


The archetypal example of a service that falls within the  ambit of
this provision is a medically-unnecessary private  room requested by
the patient instead of the semi-private  room covered by Medicare. In
such cases, "the provider may  bill the beneficiary for the difference
between the private  room and semi-private room charges." Medicare
Program;  Elimination of Medicare Indirect Subsidy for Private Rooms, 
47 Fed. Reg. 42,676, 42,676 (1982). More generally, HCFA  has referred
to items in services subject to s 1395cc(a)(2)(B),  as "luxury items
and services," see Medicare Program; Pro- spective Payments for
Medicare Inpatient Hospital Services;  Interim Final Rule with Comment
Period, 48 Fed. Reg.  39,752, 39,786/3 (1983), or as "partially
covered" items and  services, see Medicare as Secondary Payer and
Medicare  Recovery Against Third Parties, 54 Fed. Reg. 41,716, 41,740,
 41,743 (1989). The additional days of hospital coverage at  issue
here do not fit these descriptions. Indeed, in search of  its desired
result, Physicians Mutual is driven to offer a  thoroughly confusing
and improbable view of  s 1395cc(a)(2)(B). Physicians Mutual assumes
that hospital  services for pre-and post-exhaustion days are identical
and  that the "amount customarily charged" is the Medicare rate 


because that rate is paid by the majority of Vencor's patients.  But
after fitting these assumptions into the statutory lan- guage, the
upshot is that providers would have to offer free  hospital stays to
post-exhaustion patients, as the difference  between the two "amounts
customarily charged" is zero.  (Insurance would be no help to the
provider, as insurers are  obligated to pay only to the extent that
the patient is.)


By contrast, applying the statute is simple in the case of a 
patient-requested luxury good or service. For example, if a  provider
offers a "standard appendectomy" at a customary  charge of $400 (for
which Medicare reimbursement is limited  to $300), and a "super
appendectomy" at a customary charge  of $600, it would be entitled to
charge only $500 (the basic  $300 Medicare rate, plus the $200
premium) for the superior  procedure.


Moreover, the triggering fact, the furnishing of such a  service "at
the request" of the recipient, seems to confirm our  reading; the risk
that services would be provided long past  the Medicare limit, without
a request, seems very limited  (though not zero). The Secretary's
implementing regulation  not only requires patient request, see 42 CFR
s 489.32(a)(2),  but also requires the provider to inform the
beneficiary that  there will be a charge for the service "[t]o avoid
misunder- standing," id. s 489.32(a)(3). It is hard to imagine that an
 extended hospital stay of several months' duration (which is  the
amount that would be "in excess of" Medicare benefits for  most of the
patients here) is the type of items or services for  which a patient
might fail to understand that "there will be a  specified charge for
that service." Id.


The statutes being rather unpromising material for Physi- cians Mutual,
it turns to a "Model Regulation" written by  NAIC. Again Physicians
Mutual encounters a statutory diffi- culty: the authorizing
legislation calls for regulation only of  insurance contracts, not
providers' services or compensation.  See 42 U.S.C. s 1395ss(p). NAIC
was to amend its existing  Model Regulation to include no more than
ten standardized  Medigap insurance plans. See id. s 1395ss(p)(1)(A).
Each  plan was to include a minimum common core of benefits and  offer
benefits widely available in then-existing policies, while 


balancing the objectives of simplifying the market for Medi- gap
insurance, avoiding adverse selection, providing consumer  choice,
providing market stability, and promoting competition.  See id. s
1395ss(p)(2)-(3). As a result of the statutory pro- gram, no Medigap
policy may issue unless either the relevant  state insurance
regulator, or in some circumstances the Sec- retary, has a mechanism
for ensuring that the policy meets  the 1991 NAIC Model Regulation.2
See id. s 1395ss(a)(2),  (g)(2)(A), (k)(1)(A), (m), (p)(1). Physicians
Mutual identifies  nothing in the authorizing statute governing
provider-patient  charges, and we see no such grant of power to NAIC.
If the  Model Regulation purported to cover such charges, it would  be


Unsurprisingly then, the text of NAIC's Model Regulation  does not
purport to cover such charges. The section relied  on by Physicians
Mutual reads as follows:


Section 8. Benefit Standards for Policies or Certificates  ...


B. Standards for Basic ("Core") Benefits Common to  All Benefit Plans.
Every issuer shall make available a  policy or certificate including
only the following basic  "core" package of benefits to each
prospective in- sured....


(3). Upon exhaustion of the Medicare hospital inpa- tient coverage
including the lifetime reserve days, cov- erage of the Medicare Part A
eligible expenses for  hospitalization paid at [rates consistent with
the ordi- nary hospital payment scheme] or other appropriate  standard
of payment, subject to a lifetime maximum  benefit of an additional
365 days.


57 Fed. Reg. at 37,990-91.


Someone at NAIC has argued that this precludes provider  charges above
the Medicare rate because such charges are  


__________

n 2 Three states, Massachusetts, Minnesota, and Wisconsin, took 
advantage of a waiver provision available to states with an alterna-
tive simplification program in place as of November 5, 1990, see 42 
U.S.C. s 1395ss(p)(6), and therefore need not implement NAIC's  Model
Regulation.


not "an appropriate standard of payment," Letter from Guen- ther Ruch,
Chair, NAIC Senior Issues Task Force to Nancy- Ann Min DeParle, HCFA
Administrator at 4, 5 (July 8, 1998)  ("1998 NAIC Letter"), reprinted
in Joint Appendix ("J.A.")  123, 127. But s 8(B)(3), like s 1395ss(p),
makes no mention  of limits on provider charges.


Perhaps recognizing that s 8(B)(3) applies only to insurers' 
obligations, Physicians Mutual turns to the Model Regula- tion's
mandatory disclosure provision to support its claim.  Section 16
states, in relevant part:


Section 16. Required Disclosure Provisions ...


C. Outline of Coverage Requirements for Medicare  Supplemental
Policies


(1) Issuers shall provide an outline of coverage to all  applicants at
the time application is presented to the  prospective applicant ...


...


(4) The following items shall be included in the outline  of coverage
in the order prescribed below. ... Disclosures


Use this outline to compare benefits and premiums  among policies.


Read Your Policy Very Carefully


This is only an outline describing your policy's most  important
features. The policy is your insurance con- tract. You must read the
policy itself to understand all  of the rights and duties of both you
and your insurance  company. ... Notice This policy may not fully
cover all of your medical  costs.


...




__________

n SERVICES MEDICARE PLAN PAYS YOU PAY PAYS  


__________

n  Hospitalization 


... 


--Once life- time reserve  days are used:  ---Additional $0 100% of $0
365 days Medicare eligible expenses ---Beyond the $0 $0 All costs
additional 365 days  


__________

n 57 Fed. Reg. at 37,997, 37,998, 38,000, 38,001.


Physicians Mutual points to the "YOU PAY" column of this  table, which
seems to say that the beneficiary pays "$0" for  an additional 365
days of post-exhaustion hospitalization. 57  Fed. Reg. at 38,001,
38,003, 38,005, 38,008, 38,011, 38,014,  38,017, 38,020, 38,023,
38,027. The question posed is whether  the table has any legal effect
on providers' charges. As a matter of federal law, the answer must be
No. As we  have seen, the authorization in s 1395ss(p) to NAIC (and to
 the Secretary as an alternative reviser of the Model Regula- tion) is
confined to insurance contracts. Authority to create a  class of
standardized insurance contracts does not carry some  implicit
authority to regulate transactions that give rise to the  potentially
covered obligations. The parties have nonetheless hotly disputed the
meaning of  various expressions of opinion by representatives of NAIC 
and the Secretary. Physicians Mutual relies heavily on the  1998 NAIC
letter in which a NAIC official claimed that  HCFA, "by adopting the
NAIC Model Act and Regulation as  the federal standard for Medicare
supplement insurance," has  embraced s 16 of the Model Regulation,
which "in substance  limits the providers to charging only the
Medicare-approved  amount for hospitalization when Medicare benefits
have been  exhausted." 1998 NAIC Letter at 4, 5, J.A. at 126, 127. The
 1998 NAIC Letter relies in part on a 1992 letter in which 


Thomas Hoyer, a HCFA official, interpreted the "day outlier"  language
in s 8(B)(3) of the Model Regulation. Letter from  Thomas E. Hoyer,
Jr., Director, Division of Provider Services  Coverage Policy, HCFA,
to F. David Wythe, Insurance Ana- lyst, Forms and Rates Section, Life,
Accident and Health  Division, South Carolina Department of Insurance
at 3 (Feb.  12, 1992), J.A. at 136. Vencor, however, notes that just
seven  months earlier, NAIC had quite candidly admitted that it 
"cannot control what providers charge for their services" and  asked
HCFA to take action to ensure that providers accept  the Medicare
approved rates as payment in full for post- exhaustion hospital
expenses. Letter from Glenn Pomeroy,  Chair, NAIC Senior Issues Task
Force to Nancy-Ann Min  DeParle, HCFA Administrator at 3 (Dec. 3,
1997), J.A. at 129,  131. Vencor also offers a more recent letter from
HCFA in  which the Deputy Administrator stated that neither Mr.  Hoyer
nor anyone else at HCFA has taken a position as to  the 1991 NAIC
Model Regulation's effects on providers'  charges for post-exhaustion
hospital care. See Letter from  Michael Hash, HCFA Deputy
Administrator to Bradley L.  Kelly, Mintz, Levin, Cohen, Ferris,


To the extent that any of these letters attributes to s 16 of  the
Model Regulation any limitation on provider charges to  patients, they
exceed the unambiguous limits in the statutory  sections relied upon.
Thus, even if we were to assume that  NAIC--a private entity--were
entitled to deference, or that  the Secretary were owed deference on
her interpretation of  regulations drafted not by her but by NAIC,
compare Thom- as Jefferson University v. Shalala, 512 U.S. 510, 512-13
 (1994), the complete absence of statutory authority, even  assuming
the full application of deference under Chevron  U.S.A. Inc. v. NRDC,
Inc., 467 U.S. 837, 842-843 (1984),  would fatally undercut the
interpretation claimed by Physi- cians Mutual.3




__________

n 3 Thus we have no occasion to consider the effect of the Su- preme
Court's recent decision in Christensen v. Harris County, No.  98-1167,
slip op. (U.S. May 1, 2000) , stating that when an agency 


In theory the following question remains: If a state adopts  the Model
Regulation in order to make the sale of Medigap  policies lawful under
federal law within its borders, could the  text of s 16(C) have the
effect asserted by Physicians Mutu- al? Recall that s 16(C) is simply
a mandatory disclosure  provision in a contract between patient and
insurer. As such,  it would seem a weak basis for a claim of a binding
restraint  on contracts between patients and providers.


Further, the language required by s 16(C)(4) itself explains  that its
purpose is simply to enable the insured to compare  premiums and
benefits (which are plainly independent of  providers' rates), and
warns patients (1) that the policy rather  than the outline determines
coverage, and (2) that the policy  may not cover all of the patient's
medical costs. Compare  Vencor Hosps. South v. Blue Cross and Blue
Shield of R.I.,  86 F. Supp. 2d 1155, 1159-60 (S.D. Fla. 2000)
(concluding that  under Florida Law the outline is not part of the
insurance  policy); Vencor, Inc. v. Standard Life & Accident Ins. Co.,
65  F. Supp. 2d 573, 578 (W.D. Ky. 1999) (same for Tennessee  law). As
Physicians Mutual has invoked the Model Regula- tion solely as a
matter of federal law, however, disputes as to  its meaning under
state law are not before us.


Finally, we note that in denying Vencor's motion under  Fed. R. Civ. P.
59(e) to alter or amend the judgment, the  district court said that
Vencor had waived its claim that the  1991 NAIC Model Regulation is
inapplicable to the six pa- tients whose policies took effect before
August 21, 1992. It is  not clear whether the district court would
reach the same  conclusion in light of our decision that the
authorities invoked  by Physicians Mutual do not bar Vencor from
charging  patients its standard rates for post-exhaustion hospital




__________

n provides interpretations of an ambiguous statute in documents that 
lack the force of law (such as opinion letters and policy statements),
 such intepretations "do not warrant Chevron-style deference," id. at 
10, but are " 'entitled to respect' under ... Skidmore v. Swift & Co.,
 323 U.S. 134, 140 (1944), but only to the extent that those
intepreta- tions have the 'power to persuade,' " id. at 11.


To avoid confusion, we emphasize that the claim remains live.  If the
district court on remand is called upon to interpret the  individual
insurance contracts, and if it concludes that any  version of NAIC's
Model Regulation has any impact on the  outcome, it must determine
which version was in effect in  each relevant state at the time that
each contract took effect.


* * *


Because we find no statute or regulation that prohibits  Vencor from
charging its standard rates to patients who have  exhausted their
Medicare hospital benefits, we reverse the  judgment of the district
court and remand the case.


So ordered.