                                                                       [PUBLISH]

                    IN THE UNITED STATES COURT OF APPEALS

                            FOR THE ELEVENTH CIRCUIT
                                                                        FILED
                                                                 U.S. COURT OF APPEALS
                                                                   ELEVENTH CIRCUIT
                                       No. 96-5105                      03/08/99
                                                                    THOMAS K. KAHN
                                                                         CLERK

                           D. C. Docket No. 94-6881-CV-JAG


      VENCOR HOSPITALS d.b.a.
      Vencor Hospital,

                                                          Plantiff-Appellant-Cross-Appellee,

                                          versus

      BLUE CROSS BLUE SHIELD OF RHODE ISLAND,

                                                       Defendant-Appellee-Cross-Appellant.



                       Appeals from the United States District Court
                           for the Southern District of Florida

                                     (March 8, 1999)




Before TJOFLAT and BIRCH, Circuit Judges, and RONEY, Senior Circuit Judge.
TJOFLAT, Circuit Judge:

       This case hinges on the interpretation of certain terms in an insurance contract. Because

we are uncertain exactly which documents comprise the contract, we remand the case for further

proceedings in the district court.



                                                 I.

       Medicare Part A, part of the federally-provided health care insurance program for older

adults, pays for up to ninety days per benefit period1 of medically necessary inpatient hospital

care. If a patient requires more than ninety days of hospitalization during a benefit period, he

may use some of his sixty “lifetime reserve days” (which, as the name suggests, are not renewed

each benefit period). Once a patient has been hospitalized for over ninety days and has

exhausted his supply of reserve days, he is not eligible for Medicare hospitalization benefits until

the beginning of a new benefit period.

       In response to this and other limits on Medicare coverage, insurance companies began

issuing Medicare supplement insurance, commonly known as “Medigap” policies. These

policies provide coverage for, inter alia, the portion of an extended hospital stay not covered by

Medicare.

       Blue Cross/Blue Shield of Rhode Island (“BCBS”) issued Medigap policies to Martha

Butler and Aniello Esposito. Butler and Esposito were both admitted to Vencor Hospital in Ft.



       1
         A Medicare “benefit period” begins on the first day a beneficiary is hospitalized and
ends when the beneficiary has not been an inpatient in a hospital or nursing home for 60
consecutive days. See 42 U.S.C. § 1395x (1994) (using “spell of illness” instead of “benefit
period”).

                                                 2
Lauderdale, Florida, and required care for a period exceeding their Medicare coverage. During

the period of Medicare coverage, Vencor charged Butler and Esposito only the copayment or

deductible required under Medicare (which, in turn, was paid for by BCBS under the Medigap

policy). Vencor’s costs during this period were reimbursed by Medicare. After Medicare

coverage expired, Vencor began charging Butler and Esposito its ordinary rates. These rates

included a substantial amount of profit, and were therefore greatly in excess of the amount

Vencor had previously been receiving as cost reimbursement from Medicare.

       After Butler and Esposito finished their hospital stays, Vencor sought payment from

BCBS. Butler’s and Esposito’s Medigap policy provided for coverage as follows: “Upon

exhaustion of all Medicare hospital inpatient coverage . . . we will cover up to ninety percent

(90%) of all Medicare Part A Eligible Expenses for hospitalization not covered by Medicare . . .

.” BCBS claimed that the policy covered ninety percent of what Medicare would have paid (i.e.,

cost reimbursement) for any necessary treatment; thus, Vencor was entitled only to that amount

and not to ninety percent of its ordinary charges. BCBS consequently paid Vencor $240,582.13

as full payment under the policies.2 Vencor interpreted the policy somewhat differently – it

claimed that the policy covered ninety percent of the ordinary amount charged for any Medicare-

approved treatment. Vencor therefore brought suit in the United States District Court for the

Southern District of Florida to recover the remaining $710,725.71 it believed was due.3




       2
         BCBS paid Vencor $40,921.19 for Esposito’s claim and $199,660.94 for Butler’s claim.
Esposito’s claim was paid directly to Vencor; Butler’s claim was paid to Butler in a series of
checks that were given unendorsed to Vencor.
       3
           Vencor sought $157,419.36 on the Esposito claim and $553,306.35 on the Butler claim.

                                                 3
       The district court granted summary judgment for BCBS on the ground that the policy

unambiguously limits payment to ninety percent of what Medicare would have paid. Vencor

appeals.



                                                  II.

       BCBS, as an initial matter, challenges Vencor’s standing to raise a claim. BCBS’

contracts were with Butler and Esposito – not Vencor – and therefore, according to BCBS, only

Butler and Esposito have standing to sue for any breach.

       We hold that Vencor is a third-party beneficiary of the contracts between BCBS and

Butler and Esposito, and therefore has the right to sue for breach of the insurance contract. A

party has a cause of action as a third-party beneficiary to a contract if the contracting parties

express an intent primarily and directly to benefit that third party (or a class of persons to which

that third party belongs). See Daniel v. Florida Residential Property & Cas. Joint Underwriting

Ass’n, 718 So.2d 936, 937 (Fla. 3d DCA 1998).4 It would be hard to imagine a more direct

benefit under a contract than the receipt of large sums of money. That is exactly the benefit

intended for Vencor – as the hospital providing services to the insured – under the contracts

between BCBS and Butler and Esposito. The Medigap policy held by Butler and Esposito states,

“Benefit payments may be paid to the doctor, hospital or to you directly at our discretion.” By



       4
         BCBS argues that the law of Rhode Island should apply to this suit. The district court,
however, held that the law of Florida applies. The district court also held that there are no
material differences between the relevant Rhode Island and Florida precedent – a holding with
which BCBS does not disagree. We therefore apply Florida law, confident that the basic
principles of contract law on which this opinion rests are equally applicable in Rhode Island or
any other common law jurisdiction.

                                                  4
providing for payment directly to the hospital, the contracting parties showed a clear intent to

provide a direct benefit to Vencor (or any other service-providing hospital), and thus Vencor has

standing to bring this suit.5 See United States v. Automobile Club Ins. Co., 522 F.2d 1, 3 (5th

Cir. 1975) (interpreting similar contract language);6 Orion Ins. Co. v. Magnetic Imaging Sys. I,

696 So.2d 475, 478 (Fla. 3d DCA 1997) (“Medical service providers . . . have been recognized

as third party beneficiaries of insurance contracts.”).



                                                 III.

       Having determined that Vencor has standing to bring a claim, we must now determine

whether there is a genuine issue of material fact regarding whether Vencor is entitled to payment

based on its ordinary charges. We hold that there is, and therefore remand the case to the district

court for further proceedings.

       Under the policy, Vencor is entitled to ninety percent of “all Medicare Part A Eligible

Expenses for hospitalization not covered by Medicare.” Eligible expenses are defined as “the

health care expenses covered under Medicare which Medicare has determined are reasonable and

medically necessary.” The debate between Vencor and BCBS centers on whether the phrase


       5
         The fact that Vencor was not identified specifically at the time of contract formation is
irrelevant to whether Vencor is a third-party beneficiary. See 4 Arthur Linton Corbin, Corbin on
Contracts § 781 (1951) (“[I]t is not necessary that [the third-party beneficiary] be identified or
identifiable at the time the contract is made. It is enough that he be identified at the time
performance is due.” (footnote omitted)). Also, the fact that BCBS has discretion to pay either
Vencor or the insured does not deprive Vencor of standing. If an absolute right to payment were
required for standing, no one (including the insured) would have standing to enforce the policy.
       6
        In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), this court
adopted as binding precedent all decisions of the former Fifth Circuit handed down prior to
October 1, 1981.

                                                  5
“health care expenses” in this definition refers exclusively to types of expenses – in other words,

forms of treatment – or also includes amounts of expenses.

       It is unclear, however, whether the insurance policy is the only document comprising the

contract between BCBS and each of the insureds. The record also contains an “Outline of

Coverage” that is highly ambiguous regarding the scope of the policy’s coverage.7 If this outline

is considered part of the contract, then the contract is ambiguous regarding the contested issue,

and that ambiguity must be resolved in favor of Vencor. See Epstein v. Hartford Cas. Ins. Co.,

566 So.2d 331, 333 (Fla. 1st DCA 1990).

       One reason for considering the outline to be part of the contract is that BCBS was

required to provide such an outline to Butler and Esposito under state law. See Fla. Admin.

Code Ann. r. 4-51.006(3) (1990); R.I. Ins. Admin. Code r. XLVI, § 13 (1990).8 The policy

behind the state law regulatory scheme presumably is to provide the insured with a document




       7
         The Outline of Coverage states that upon exhaustion of Medicare benefits, the policy
pays “90% of Part A expenses for an additional 365 days.” The outline then states that the
insured pays “$0.00.” Read in context, these statements suggest that the insured will at most be
required to pay 10% of the hospital’s charges after Medicare benefits have expired, and can
easily be read to mean that the insured pays nothing. Under BCBS’ interpretation of the policy,
the insured may ultimately be held responsible for well over half of the hospital bill. For
instance, if the hospital bill were $100, of which $50 represents costs that would be reimbursed
by Medicare, BCBS would pay $45 (90% of $50), leaving $55 to be paid by the insured.
        The record also contains a promotional brochure for the policy that makes certain
representations regarding the policy’s scope of coverage. On remand, the district court should
consider the significance (if any) to be accorded this brochure in interpreting the policy.
       8
         In addition to state law regulations, there are also presently federal regulations
governing Medigap policies. See HHS’ Recognition of NAIC Model Standards for Regulation
of Medigap Policies, 57 Fed. Reg. 37980 (1992); see also Vencor, Inc., v. Physicians Mut. Ins.
Co., No. Civ.A. 98-00443 (D.D.C. Jan. 21, 1999) (relying on federal regulations to interpret a
Medigap policy). These regulations, however, were promulgated after the policies in this case
were issued. See id. at 37980 (noting effective date of July 30, 1992).

                                                 6
setting forth the insured’s contractual rights with more clarity than is present in the ordinary

insurance policy, thereby making it more difficult for the insurance company to defraud

purchasers regarding the scope of coverage. It is possible that the legislature’s intent in this

regard would be frustrated if the outline were not considered part of the contract.9 If the outline

is merely another promotional document, and not part of the contract, then the regulatory scheme

would do nothing more than create additional evidence of the fraud that the legislature intended

to prevent. This determination, however, requires an analysis of legislative intent that is best

undertaken in the first instance by the district court.10

        We also note that even if BCBS’ interpretation of the policy is correct, it is nevertheless

unclear what amount Vencor is due. BCBS claims that it owes Vencor the amount Medicare

would have paid for Butler’s and Esposito’s treatment. The amount Medicare would have paid,

however, varies according to the stage of the reimbursement process. Throughout the year,

Medicare (through an intermediary) advances payment to Vencor based on an approximation of

Vencor’s costs. At the end of the year, Vencor submits a cost report to Medicare; Vencor then

either receives more payment or returns some of the previous payments depending on how the

actual year-end costs compare with the estimated amounts previously advanced. In addition,

Medicare sets a target amount for annual costs; Vencor is forced to absorb costs that exceed this




        9
         The policy contains a merger clause stating, “The entire contract consists of the
application, this agreement and any attached amendments.” Such a clause would, on its face,
prevent the court from considering the Outline of Coverage as part of the contract. If the state
regulatory scheme requires the Outline of Coverage to be read into the contract, however, the
merger clause is irrelevant.
        10
          We reserve the question whether, if the Outline of Coverage is not part of the contract,
the policy standing alone would support Vencor’s position.

                                                   7
amount but receives a bonus if its costs are below the target amount. Thus, when BCBS claims

that it owes Vencor only the amount that Medicare would have paid, it is unclear whether that

amount is based on the preliminary advance, the final accounting, or the final accounting plus or

minus some amount related to Vencor’s deviance from its annual target.11



                                                IV.

       BCBS argues that, even if Vencor would otherwise be entitled to payment of its ordinary

charges, each of Vencor’s claims is barred by the affirmative defense of accord and

satisfaction.12 “An accord and satisfaction occurs where (1) the parties intended to effect a

settlement or resolve an existing dispute by entering into an agreement; and (2) the parties have

engaged in actual performance in relation to the new agreement in order to resolve or settle the

dispute.” Pogge v. Department of Revenue, 703 So.2d 523, 526 (Fla. 1st DCA 1997).

       In regard to the Butler claim, BCBS sent a check directly to Butler in the amount BCBS

considered itself obliged to pay under the policy. The check was accompanied by a cover letter

stating that it represented full payment of Butler’s claim. Butler then gave the check to Vencor

(without the cover letter), which endorsed and deposited it. This evidence shows, at most, that


       11
          The amount actually paid by BCBS appears to have been based on the first of these
options (the preliminary advance).
       12
           The district court, without explanation, rejected this defense in its order granting
summary judgment for BCBS. BCBS, by raising the defense on appeal presents us with an
alternative ground on which to affirm the district court’s grant of summary judgment – even if
the district court erred in interpreting the policy in BCBS’ favor, BCBS has established the
accord and satisfaction defense as a matter of law. Because we have the authority to affirm a
district court’s summary judgment on a ground not relied upon by the district court, see Johnson
Enters. of Jacksonville v. FPL Group, 162 F.3d 1290, – n.50 (11th Cir. 1998), we consider the
merits of BCBS’ argument.

                                                 8
BCBS reached an accord and satisfaction with Butler. Such an agreement would have no effect

on Vencor’s rights under the policy;13 BCBS’ accord and satisfaction defense therefore fails in

regard to the Butler claim.

       In regard to the Esposito claim, payment was made directly to Vencor. According to

BCBS’ Director of Provider Reimbursement, Henry Lourenco, BCBS negotiated an agreement

with Carolyn Giskin of Vencor under which BCBS would pay $37,535.45 as full payment of

Esposito’s claim. A check in this amount was issued by BCBS and deposited by Vencor.

Genuine issues of material fact exist regarding whether there was an accord and satisfaction on

this claim. If Lourenco and Giskin in fact reached a settlement agreement, and if Giskin had the

actual or apparent authority to act on behalf of Vencor, then such an agreement (combined with

Vencor’s acceptance of the check issued by BCBS) would constitute an accord and satisfaction.



                                               V.

       For the foregoing reasons, the judgment of the district court is VACATED and the case is

REMANDED for further proceedings consistent with this opinion.14



       SO ORDERED.


       13
          A third-party beneficiary contract creates a contractual relationship between the
beneficiary and the promisor. See 4 Corbin, supra, § 779J. Thus, for any accord and satisfaction
to affect Vencor’s rights, Vencor would have to be a party to the accord.
       14
          Vencor, in its complaint, sought relief under a promissory estoppel theory as an
alternative to breach of contract. BCBS moved for summary judgment on this claim; the motion
was denied. BCBS cross-appeals. Because Vencor’s promissory estoppel claim was merely an
alternative avenue of relief, this issue is not ripe for review until such time as the breach of
contract claim is decided.

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