2008 WI App 58
court of appeals of
published opinion
Case No.: |
2007AP934 |
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Complete Title of Case: |
†Petition for Review filed |
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Froedtert Memorial Lutheran Hospital, Inc., Plaintiff-Respondent, v. National States Insurance Company, Defendant-Appellant,† The Loren Ledger Trust, Defendant-Respondent. |
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Opinion Filed: |
March 18, 2008 |
Submitted on Briefs: |
January 02, 2008 |
Oral Argument: |
——— |
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JUDGES: |
Curley, P.J., Kessler, J. |
Concurred: |
——— |
Dissented: |
Fine, J. |
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Appellant |
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ATTORNEYS: |
On behalf of the defendant-appellant, the cause was
submitted on the briefs of Norman D. Farnam and John J. Laubmeier of Stroud, Willink & Howard, LLC
of |
Respondent |
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ATTORNEYS: |
On behalf of the plaintiff-respondent, the cause was
submitted on the brief of Susan E. Lovern and Rachel N. Schepp of von Briesen & Roper, |
Defendant |
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ATTORNEYS: |
On behalf of the defendant, the cause was submitted on
the brief of Thomas M. Devine of Hostak, |
2008 WI APP 58
COURT OF APPEALS DECISION DATED AND FILED March 18, 2008 David R. Schanker Clerk of Court of Appeals |
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NOTICE |
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This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports. A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See Wis. Stat. § 808.10 and Rule 809.62. |
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APPEAL
from a judgment of the circuit court for
Before Curley, P.J., Fine and Kessler, JJ.
¶1 KESSLER, J. National States Insurance Company (National States) appeals the award of summary judgment to Froedtert Memorial Lutheran Hospital, Inc. (Froedtert) and The Loren Ledger Trust, holding that the National States contract required it to pay the actual charges billed by Froedtert for inpatient hospital care of Kathleen Ledger after all of her Medicare Part A benefits had been exhausted, and to pay interest on the unpaid amount pursuant to Wis. Stat. § 628.46(1) (1999-2000).[1] We conclude that summary judgment was proper because there were no material facts in dispute, and that National States’ insurance contract required it to pay all of the hospital charges incurred by its insured for Medicare-eligible services after Medicare Part A benefits were exhausted, and affirm.
BACKGROUND
¶2 Kathleen Ledger received a kidney transplant in May 2000.[2] From October 26, 2000, until her death on February 12, 2001, Kathleen received inpatient medical care and treatment at Froedtert. Before she was admitted to Froedtert on October 26, 2000, Kathleen’s Medicare Part A coverage was exhausted, including her maximum lifetime benefits. However, on October 26, 2000, she was covered by the terms of a medical supplemental policy purchased from National States, entitled “Medicare Supplement Insurance.”[3] The policy was issued in 1998. Policy language, which Froedtert and Ledger contend requires payment of all charges, and which National States contends requires payment only of what Medicare would have paid for these services if Medicare benefits had not been exhausted, states:
BENEFITS AFTER MEDICARE STOPS – If maximum benefits have been paid under Medicare for in-patient hospital expense, including the lifetime reserve days, we will pay all further expense incurred for hospital confinement that would have been covered by Medicare Part A.
(Capitalization
in original; italics added.)
¶3 Upon admission to Froedtert, Kathleen signed a Conditions of Admission form which covered the treatment at issue here. The relevant language, entitled “Financial Agreement and Assignment,” is undisputed.
I, the undersigned agree, whether signing as agent or
as patient, that I am financially responsible for all charges incurred. Assignment
of commercial insurance benefits to the Hospital does not reduce the
responsibility for payment.… Further, by
signing below, I authorize payment to be made directly to
(Capitalization in
original; italics added.)
¶4 National States argues that the language of this clause does not give Froedtert standing to sue for the balance due on Ledger’s bill because there was never a proper assignment to Froedtert of Ledger’s right to any insurance proceeds, and because Ledger never specifically assigned her Medicare supplement insurance benefits to Froedtert.
¶5 The bill for Kathleen’s medical care at Froedtert from October 26, 2000 through February 12, 2001, was $267,074.93. Of this amount, $60,240.05 related to charges associated with services covered by Medicare Part B[4] for which Ledger made a co-payment of $2,800.00. National States paid $73,309.25, which represents the amount Medicare would have paid Froedtert for the services to Kathleen had Medicare Part A not been exhausted. The remaining balance of Froedtert’s charges is $130,725.63.
¶6 When National States refused to pay the outstanding balance of the Froedtert bill, Loren complained to the Wisconsin Office of the Commissioner of Insurance (OCI). National States consistently claimed that it had paid all it owed under its policy. Twice, the OCI informed National States that its interpretation of its policy was wrong. On July 1, 2003, the OCI wrote to National States saying:
In your response to Mr.
Ledger[’]s complaint you stated payment was made based on hospital confinement
that would have been covered by Medicare Part A. That is not what you did. You made payment on what Medicare would have
paid had the service been approved by Medicare.
The language in the policy says something quite different. The language in the policy does not mention
how claims are paid, it mentions hospital confinement that would have been covered
by Medicare Part A. This claim should be
paid at the actual charge.
(Underlining in original.)
¶7 National States refused to change its position. It continued to insist, as it does here, that
it owes only what Medicare would have paid, and that its analysis is supported
in current federal regulations which direct states to follow the National
Association of Insurance Commissioners’ (NAIC) Model Regulations for Medigap
coverage. National
States asserts that
¶8 However,
It does not appear that language in the NAIC model is
valid in this scenario. OIC did not
incorporate into its rule at the time of this claim that a provider was not
permitted to bill the Medicare recipient at a higher rate than Medicare was
paying at the time Medicare’s’ [sic] benefits were exhausted. Because this language is in the model
regulation, does not mean it has to be incorporated into
¶9 National States, in January 5, 2005 correspondence, repeating its already rejected analysis of its policy obligation, but acknowledging that Wisconsin was exempted from the federal regulations on which National States relied, advised Froedtert:
[W]e have already paid the maximum under our policy for the claim in question. The policy language specifies that we will pay all further expense that would have been covered by Medicare following the exhaustion of Medicare benefits. We have performed in accordance with the contract by paying the expenses that would have been covered by Medicare.
….
We do not believe that the waiver granted to
Froedtert thereafter commenced this action.
¶10 The trial court rejected National States’ argument that Froedtert had no standing to sue, found that National States had not raised material facts which dispute Froedtert’s bill, and awarded summary judgment to Froedtert for the balance due, rejecting National States’ claim that Froedtert could not legally charge more than what Medicare would have paid if its benefits had not been exhausted[5] and further rejecting National States’ claim that the language of its insurance policy limited National States’ liability to the amount Medicare would have paid for the services provided if the benefits had not been exhausted. Judgment was entered for the amount due. The trial court also awarded statutory interest at twelve percent, pursuant to Wis. Stat. § 628.46(1) (1999-2000). National States appeals.
STANDARD OF REVIEW
¶11 In reviewing the grant
or denial of a summary judgment, we apply the same methodology as the trial
court and review de novo the grant or denial of summary judgment. Green Spring Farms v. Kersten,
136
¶12 Contract interpretation is a question of law we review de
novo. Edwards v. Petrone, 160
¶13 To the extent an insurance contract is ambiguous, the ambiguity
is to be construed against the insurer and in favor of coverage. Kaun v. Industrial Fire & Cas. Ins. Co.,
148
¶14 We interpret administrative rules independent of the circuit
court. State ex rel. Sprewell v.
McCaughtry, 226
ANALYSIS
I. Standing
¶15 “In order to have standing to sue, a party must have a personal
stake in the outcome, and must be directly affected by the issues in
controversy.” Village of Slinger v. City of
Hartford, 2002 WI App 187, ¶9, 256 Wis. 2d 859, 650 N.W.2d 81
(citation omitted). “
¶16 No particular words are required to effect a valid
assignment. Citizens’ State Bank of Sheboygan
v. City of
¶17 As we have seen, see
¶3 supra, the “Conditions of
Admission” document Kathleen signed included a clause entitled “Financial
Agreement and Assignment.” The text of the
document noted that an “[a]ssignment of commercial insurance
benefits to the Hospital” did not eliminate Kathleen’s responsibility for
payment for services she received. Kathleen
specifically authorized “payment to be made directly to
¶18 Were we to adopt National States’ analysis, Froedtert’s Conditions of Admission agreement would be effective if, and only if, the insurance company voluntarily paid the amount due. Perversely, were we to adopt National States’ approach, an insurance company might perceive an advantage in simply refusing to pay, expecting that their insured might be unwilling to engage in (or finance) litigation to obtain the payment to which they were entitled, or might perceive that health care providers would be reluctant to sue their insured patients in order to force the patients to interplead the recalcitrant insurance company. It is unreasonable to interpret the Conditions of Admission document to require such cumbersome, expensive and unnecessary litigation to resolve a dispute about how much the insurance company owes, where there is no serious dispute as to whom it is owed. We decline National States’ invitation to open the courts to an unnecessary tsunami of litigation between health care providers, their insured patients and insurance companies in order to resolve disputes between only the insurance company and the health care provider as to the amount due. Froedtert has standing to enforce the assignment of benefits by Ledger.
II. The “Medicare Supplement Insurance” policy
A. Medicare background
¶19 The Medicare Act provides limited health insurance for the aged and disabled. 42 U.S.C. §§ 1395-1395b-9. Part A provides for services to hospitalized patients.[6] Part A covers hospital expenses at specific reimbursement rates for a specific length of time for each “spell of illness,” § 1395d(a)(1), and allows an additional number of lifetime days which can be used at any time, see 42 C.F.R. § 409.61(a)(2). Medicare does not determine what a hospital can charge; however, Medicare will pay only the lower of the charge or the “reasonable cost” of the service, as determined by Medicare under its regulations. See 42 C.F.R. § 413.1(a)(1)(i)(B). Medicare also requires the patient to pay a deductible during the first sixty days of hospitalization, and a co-payment during the sixty-first to ninetieth day period. Sec. 1395e(a)(1). The government agency that administers Medicare[7] enters into contracts with hospitals to provide inpatient services; the contracts require the hospital not to charge patients additionally for the services for which Medicare pays other than applicable deductibles and co-payments. Sec. 1395cc. Specifically, as to agreements with health care providers, § 1395cc specifies:
Agreements with
providers of services; enrollment processes
(a) Filing
of agreements; eligibility for payment; charges with respect to items and
services
(1) Any provider
of services … shall be qualified to participate under this subchapter and shall
be eligible for payments under this subchapter if it files with the Secretary
an agreement—
(A) (i) not to charge, except as provided in paragraph (2), any
individual or any other person for items or services for which such individual is entitled to have payment made under this
subchapter….
(Emphasis
added.)
B.
¶20 Insurance is available from commercial companies to fill in the
“gaps” in Medicare payments such as deductibles, co-payments and expenses when
Part A benefits have been exhausted.
These policies are often referred to as “Medigap” insurance. The Wisconsin Commissioner of Insurance issued
regulations for policies marketed to Medicare-eligible individuals describing
these as Medicare “supplement” and “replacement” policies, and setting the
minimum requirements for such policies in
(3) Definitions.
….
(d) “Medicare eligible expenses” means health care expenses which are covered by Medicare, recognized as medically necessary and reasonable by Medicare, and which may or may not be fully reimbursed by Medicare.
….
(5) Authorized medicare supplement policy and certificate designation, captions, required coverages, and permissible additional benefits….
(a) The designation: MEDICARE SUPPLEMENT INSURANCE.
….
(c) The following required coverages, to be referred to as “Basic Medicare Supplement coverage” for a policy issued after December 31, 1990:
….
10. Coverage of Part A Medicare eligible expenses for hospitalization to the extent not covered by Medicare from the 61st day through the 90th day in any Medicare benefit period;
11. Coverage of Part A Medicare eligible expenses incurred as daily hospital charges during use of Medicare’s lifetime hospital inpatient reserve days;
12. Upon exhaustion of all Medicare hospital inpatient coverage including the lifetime reserve days, coverage of all Medicare Part A eligible expenses for hospitalization not covered by Medicare.
(Italicization added; capitalization as in original.)
C. This policy
¶21 At the time National States sold its policy to Ledger in 1998, Wisconsin
law had already established core benefit packages required to be included in
all Medicare supplement policies marketed in
¶22 The 1997 definition of Medicare eligible expenses protects
Wisconsin consumers by defining terms so that Medigap supplement insurance in
(d) “Medicare eligible expenses” means health care expenses which are covered by Medicare, recognized as medically necessary and reasonable by Medicare, and which may or may not be fully reimbursed by Medicare.
Wis. Admin. Code § INS 3.39(3)(d).
¶23 These regulations, whether read singularly or together, do not specifically limit the insurance coverage to only what Medicare would have paid, and, indeed, specify the opposite.
¶24 At the time Ledger incurred the charges at Froedtert in 2001, the
Wisconsin Insurance Regulations were unchanged.[9]
See
Wis. Admin. Code § INS 3.39(5)(c)12.
(July 2001,
¶25 Other sections of applicable
D. Resolving ambiguity
¶26 National States claims that “all further expenses incurred” is modified by “that would have been covered by Medicare Part A,” which would limit its obligation to paying only Medicare reimbursement amounts. Froedtert reads “covered by Medicare Part A” as modifying “hospital confinement,” which would require full payment for hospital confinement if that treatment would have been covered by Medicare Part A before it was exhausted.
¶27 Because the clause can be read to establish two different
obligations, it is ambiguous. Borchardt,
156
¶28 National States could not market this Medicare supplement
policy in
¶29 Against the background of
(1) [Y]ou must pay the Medicare Part A hospital deductible and then we will pay all hospital co-payment amounts applied by Medicare thereafter.
(2) … If you incur expense for hospital confinement as the result of psychiatric disorder, we will pay your hospital expense at Medicare’s reimbursement rate … after you have exhausted Medicare’s coverage for hospital inpatient psychiatric expense.
(3) … When you incur expense for skilled nursing facility confinement … eligible under Medicare, we will pay the co-payment amounts applied by Medicare ….
(4) … If maximum benefits have been paid under Medicare for in-patient hospital expense, including the lifetime reserve days, we will pay all further expense incurred for hospital confinement that would have been covered by Medicare Part A.
National States Ins. Co. Medicare Supplement Insurance Policy, Part B,
entitled “Benefits to Supplement Medicare Part A” (emphasis added).
¶30 In the policy exclusions section entitled, “Exceptions and Limitations,” National States specifically limits its expense liability for doctor charges by excluding “doctors’ charges above Medicare-approved amounts.” (Emphasis added.) The policy contains no such exclusion or limitation for hospital charges. Similarly, and in the same section of the policy describing the supplements to Medicare Part A that National States will pay, payment for hospital psychiatric treatment is limited to “hospital expense at Medicare’s reimbursement rate” while “all further expense incurred for hospital confinement” is to be paid for “hospital confinement that would have been covered by Medicare Part A.”
¶31 As we have seen, Wisconsin OCI regulations required the insurer
to pay in full for inpatient hospital charges once Medicare Part A was exhausted. The regulations also permitted exclusions and
exceptions not inconsistent with the
III. Usual and customary charges
¶32 As we have seen,
¶33 National States defines charges in its policy only in terms of “usual and customary” described as:
the usual fee charged by a medical provider for a given service to a private patient (i.e. the provider[’]s own usual fee). Customary means that the fee charged is within the range of usual fees charged by a provider of medical services in the same specific geographical area.
(Emphasis
added.)
¶34 The policy specifically limits this definition to chiropractic services and diabetic treatment and equipment. Thus, the very test National States sought to apply to Froedtert’s charges[13] is authorized neither by its own policy nor by applicable Wisconsin OCI regulations. See Wis. Admin. Code § INS 3.39(5)(c)5., 8. and 13. and 3.39(6).
IV. Statutory interest
¶35 National States knew what coverage the Wisconsin OCI required
when it obtained approval to market the policy it sold to Kathleen in
1998. As we have seen, language in the
policy in many instances mimics language in the 1997 Wis. Admin. Code § INS 3.39.
At the time the claim was made in 2001,
neither the language in the policy nor the language in the relevant
¶36
¶37 National States had a clear and obvious obligation under its policy and the applicable law. National States did not have “reasonable proof” that it “[wa]s not responsible for the payment” which Wis. Stat. § 628.46 requires to avoid the twelve percent interest penalty for refusing to pay a claim that is due. The trial court’s award of interest pursuant to § 628.46 is affirmed.
CONCLUSION
¶38 For all the reasons described above, we conclude that Froedtert
and Ledger are entitled to summary judgment on the National States Medicare
Supplement Insurance policy for the full charges by Froedtert for inpatient
treatment of Kathleen after her Medicare Part A benefits had been
exhausted. We further conclude that the
trial court properly awarded interest pursuant to Wis. Stat. § 628.46.
By the Court.—Judgment affirmed.
No. |
2007AP934(D) |
¶39 FINE,
J. (dissenting). Insurance companies write
policies to cover certain risks, and price their policies by charging premiums
to account for those risks. The
insurance industry (and, therefore, the ability of persons to protect themselves
against their risks) would vanish if insurance
companies were forced to pay more than they contracted to pay. The law in
¶40 In this case, National States Insurance Company issued a Medigap insurance policy covering Kathleen Ledger. The policy promised: “If maximum benefits have been paid under Medicare for in-patient hospital expense, including the lifetime reserve days, we will pay all further expense incurred for hospital confinement that would have been covered by Medicare Part A.” Contrary to the Majority’s assertion, Majority, ¶27, this clause is not ambiguous.
¶41 First, it is triggered when Medicare in-patient hospital-coverage is exhausted.
¶42 Second, when that happens, it promises that National States will pay:
● “further expense incurred for hospital
confinement” provided
● that “further expense” “would have been covered by Medicare Part A.”
There is no dispute here but
that Medicare Part A would not have
covered the charges for which
¶43 Making National States pay a risk that it did not insure not only robs it to pay Froedtert, it will have a cascade effect of forcing insurance companies issuing Medicare supplemental-coverage policies to increase their premiums. This is true for two reasons. First, the companies will be forced to pay more than Medicare would have paid. Second, those premiums will also have to account actuarially for the uncertainty of not being able to rely on a Medicare-negotiated cap; rather than the cap, the insurance companies will be faced with potentially unlimited liability flowing from health-care providers being able to bill them for, essentially, whatever a market unconstrained by Medicare’s bargaining power will bear. All of this will make it more difficult for many elderly in our state to buy Medigap insurance. I respectfully dissent.
[1] All references to the Wisconsin Statutes are to the 2005-06 version unless otherwise noted.
[2] Kathleen Ledger passed away in 2001. Her husband, Loren Ledger, passed away in October 2006. The Trust was then substituted as an additional party defendant. All references to “Ledger” apply to Kathleen, Loren and the Ledger Trust collectively unless otherwise specified.
[3] This policy is frequently referred to by the parties and relevant administrative agencies as Medigap coverage.
[4] Charges
related to Medicare Part B are not claimed to be due from National States and
are material to this matter only insofar as these items explain reduction of
the bill independent of payments made by
[5] National
States insisted at the trial court, and continues to insist before this court,
that this case is about “balance billing,” a practice under which, contrary to
applicable federal regulations, a patient covered by Medicare is billed for the
difference between what Medicare paid and what the hospital actually charged
for services. This is not a Medicare
case. This is an insurance policy
case. At the time the charges here were
incurred, Kathleen had exhausted all of her Medicare Part A lifetime benefits,
thus Medicare Part A had no obligation to pay anything. Under
[6] Medicare Part B covers other medical expenses such as doctor fees, therapy and supplies. Part B coverage is not involved in this case.
[7] The United States Department of Health and Human Services’ Health Care Financing Administration, now known as the Center for Medicare and Medicaid Services.
[8] All references to the Wisconsin Administrative Code are to the August 1997 version unless otherwise noted.
[9] National States argues its immunity from this 2001 claim based on changes in the federal and state law and regulations which occurred after these charges were incurred. It relies on provisions of the 2006 Wis. Admin. Code § INS 3.39(5), entitled Authorized Medicare Supplement Policy … Required Coverages….
12. Upon exhaustion of all Medicare hospital inpatient coverage including the lifetime reserve days, coverage of all Medicare Part A expenses for hospitalization not covered by Medicare to the extent the hospital is permitted to charge by federal law and regulation and subject to the Medicare reimbursement rate.
Sec. INS 3.39(5)(c)12. (emphasis added). The 2006 regulations, which were not in effect when the charges were incurred, have no impact on this 1998 policy and 2001 claim.
[10] The language of Wis. Admin. Code § INS 3.39(5)(c)12. (July 2001, Wis. Reg. No. 547), which was the regulation in effect for the time of this claim, remained unchanged from the regulation in effect at the time National States began marketing its “Medigap” policy in Wisconsin which was purchased by Kathleen, i.e., “Upon exhaustion of all Medicare hospital inpatient coverage including the lifetime reserve days, coverage of all Medicare Part A eligible expenses for hospitalization not covered by Medicare.”
[11] 1997 Wis. Admin. Code § INS 3.39(8)(e) specifically stated: “A Medicare replacement policy and Medicare supplement policy may include other exclusions and limitations which are not otherwise prohibited and are not more restrictive than exclusions and limitations contained in Medicare.”
[12] See Wis. Admin. Code § INS 3.39(1)(b), which states in pertinent part:
This section is designed not only to improve the ability of the Medicare eligible consumer to make an informed choice when purchasing disability insurance, but also to assure the Medicare eligible persons of this state that the commissioner will not approve a policy or certificate as a “Medicare supplement” or as a “Medicare replacement” unless it meets the requirements of this section.
[13] If
National States’ definition was applicable to the charges Froedtert billed, the
record provides evidence to support those charges as usual and customary. Froedtert provided an affidavit by Barbara
Saliek-Shaffer, a medical auditor employed by Froedtert. She is a registered nurse and has been a
medical auditor for thirteen years. She
stated that she reviewed the charges and was familiar with the nature of
Kathleen’s medical condition and the kinds of care and treatment provided. She expressed the opinion that Froedtert’s
charges were “reasonable in light of the nature of the care and treatment … and
in light of the prevailing rates for such care and treatment in the
National
States failed to produce any evidence that Froedtert’s charges were not its
usual charges or that they were not “within the range of usual fees … in the
same specific geographical area.”
National States’ consultant did not claim to be familiar with hospital
charges in the
[14]
(1) Unless otherwise
provided by law, an insurer shall promptly pay every insurance claim. A claim
shall be overdue if not paid within 30 days after the insurer is furnished
written notice of the fact of a covered loss and of the amount of the
loss.… Any payment shall not be deemed
overdue when the insurer has reasonable proof to establish that the insurer is
not responsible for the payment …. All overdue payments shall bear simple
interest at the rate of 12% per year.
(Emphasis added.)
[15] The Wisconsin Administrative Code provisions, quoted by the Majority at ¶¶20, 22, and 24 n.10, are wholly consistent with the plain reading of National States’s obligations here. First, Wis. Admin. Code § INS 3.39(3)(d) (1997) defined “Medicare eligible expenses” to mean “health care expenses which are covered by Medicare, recognized as medically necessary and reasonable by Medicare, and which may or may not be fully reimbursed by Medicare.” (Emphasis added.) Thus, in order to be “Medicare eligible expenses,” the expenses must be “covered by Medicare” because those expenses are determined by Medicare to be “necessary and reasonable.” Medicare’s agreement with Froedtert promises to pay Froedtert, and Froedtert promises to accept, Medicare’s determination of what is “necessary and reasonable” irrespective of what Froedtert might bill others not protected by the Medicare umbrella. The appended clause, “which may or may not be fully reimbursed by Medicare” merely means that once Medicare coverage is exhausted, as is the case here, Medicare will no longer reimburse the healthcare provider for the whole of the Medicare-approved “necessary and reasonable” expense. To say that the clause, “which may or may not be fully reimbursed by Medicare” means what the Majority construes it to mean, ignores the “which are covered by Medicare” requirement, which is, as we have seen, congruent with the “that would have been covered by Medicare Part A” proviso in the National States policy.
Although Mrs. Ledger agreed upon her admittance to Froedtert to be “financially responsible for all charges incurred” by her during her stay at the hospital, her undertaking does not negate her contract with National States, nor could it. A simple example will make this clear. Assume a bonding company guarantees a contractor’s obligation to build a building, with a liability limit of $100,000. Assume further that the contractor’s contract with the owner obligates the contractor to complete the construction or be liable for all the costs of delay and remediation. Assume still further that those costs are $500,000. Could anyone seriously argue that the bonding company would be liable for the $500,000 rather that its $100,000-undertaking? Of course not. That is the situation we have here.