Maak v. IHC Health Services, Inc

This opinion is subject to revision before
publication in the Pacific Reporter.

IN THE UTAH COURT OF APPEALS

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OPINION
(For Official Publication)

Case No. 20060124-CA

F I L E D
(July 12, 2007)

2007 UT App 244

Ann V. Maak, an individual, on
behalf of herself and others
similarly situated,

Plaintiff and Appellant,

IHC Health Services, Inc., a
Utah corporation ; and John
Does 1-20,

Defendants, Third-party
Plaintiffs, and Appellees,

Regence Blue Cross Blue Shield
of Utah, a Utah corporation;
Healthwise, a Utah
corporation; and John Does 21-
40,

Third-party Defendants.

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Third District, Salt Lake Department, 030911869
The Honorable Timothy R. Hanson

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Attorneys: James L. Ahlstrom and Terry E. Welch, Salt Lake City,
for Appellant
Steven C. Bednar, Tyson B. Snow, Timothy C. Houpt,
and Marci B. Rechtenbach, Salt Lake City, for
Appellees

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Before Judges Bench, Greenwood, and Davis.

GREENWOOD, Associate Presiding Judge:

¶1
Plaintiff Ann V. Maak appeals the trial court’s grant of
summary judgment in favor of Defendant IHC Health Services, Inc.
We affirm in part, and reverse and remand in part.

BACKGROUND

¶2
Maak received emergency medical care at LDS Hospital, owned
by IHC Health Services, Inc. (IHC), from April 2 to April 5,
2002. When Maak arrived at the hospital, her husband signed, on
her behalf, a form titled Consent and Conditions of Admission
(the IHC contract). After her treatment, Maak received a
statement from LDS Hospital that itemized the services she had
received and the charges for each service. Utah Code section 26-
21-20 requires hospitals to send this statement of itemized
charges to patients. See Utah Code Ann. § 26-21-20 (2000). The
total charges for Maak’s medical care at LDS Hospital were
$11,396.11.

¶3
At the time Maak was treated at LDS Hospital, she and her
husband were insured through Regence Blue Cross Blue Shield
(Regence). Regence contracts with participating health care
providers, such as LDS Hospital, to provide health services to
its insureds. Pursuant to a contract between IHC and Regence,
all medical procedures performed at LDS Hospital are classified
in a Diagnostic Related Group (DRG), which Regence agrees to
reimburse, at a predetermined fixed rate, without regard to the
actual costs LDS Hospital incurs for the services. In Maak’s
case, this meant that although LDS Hospital’s charges for
services rendered to Maak were $11,396.11, Regence reimbursed IHC
$12,310.36. That reimbursement was determined by the applicable
DRG. As a result, IHC received $914.25 more from Regence than it
actually charged for the services rendered. IHC asserts that in
the vast majority of cases, the DRG reimbursement amount is less
than the actual charges, and that only in a minority of cases,
including Maak’s, is the reimbursement amount greater than the
itemized charges. According to IHC, the DRG reimbursement amount
is calculated to approximate average total costs for each medical
procedure.

¶4
In addition to the $12,310.36 that IHC collected from
Regence, IHC billed Maak $986.63. This bill was based on Maak’s
twenty percent coinsurance obligation under her Regence plan. 1
Maak disputed the IHC bill, arguing that IHC already had been
more than fully compensated by Regence for the hospital charges
incurred on her behalf. Maak did not dispute the DRG
reimbursement approach as used between IHC and Regence, but
protested IHC’s ability to bill her for additional monies after
LDS Hospital’s entire bill had been satisfied by her insurance
company. After paying the bill under protest, Maak sued IHC,
alleging breach of contract, breach of the implied covenant of

1Because Maak’s coinsurance obligation was capped annually,
and she had previously applied a coinsurance payment, the amount
she is appealing is less than twenty percent of the hospital
bill.

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good faith and fair dealing, violation of the Utah Insurance
Fraud Act, common law fraud and misrepresentation, and deceptive
trade practices. She also sought punitive damages and class
action status. IHC filed a third party claim against Regence.

¶5
IHC filed a motion for summary judgment on all of Maak’s
claims, which the trial court granted. The trial court’s minute
entry stated, “While it is surely unusual for [LDS] hospital to
be seeking payment above and beyond the amount that it billed, it
is entitled to bill for the co-insurance amounts for which the
plaintiff is responsible, even where that will result in an
excess payment to the hospital.” Further, the trial court
advised that any problems Maak had with her coinsurance
requirement should be addressed to her insurance carrier,
Regence, and not IHC. Maak appeals. 2

ISSUE AND STANDARDS OF REVIEW

¶6
Maak argues that the trial court erred by granting summary
judgment in favor of IHC. “In the context of a summary judgment
motion, we . . . employ a correctness standard and ‘view the
facts and all reasonable inferences drawn therefrom in the light
most favorable to the non-moving party.'” R.A. McKell
Excavating, Inc. v. Wells Fargo Bank , 2004 UT 48,¶7, 100 P.3d
1159 (quoting Hermansen v. Tasulis , 2002 UT 52,¶10, 48 P.3d 235).
“We review questions of statutory interpretation for correctness,
affording no deference to the district court’s legal
conclusions.” Id. “[Q]uestions of contract interpretation not
requiring resort to extrinsic evidence are matters of law, which
we review for correctness.” Fairbourn Commercial, Inc. v.
American Hous. Partners, Inc. , 2004 UT 54,¶6, 94 P.3d 292
(quotations omitted).

ANALYSIS

I. Breach of Contract

¶7
Maak argues that the trial court improperly granted summary
judgment because the trial court erred in determining that Maak
was bound by IHC’s billing procedures by virtue of the contracts
she signed with IHC and Regence. “[U]nless the language of an
insurance contract is ambiguous or unclear, the court must
construe it according to its plain and ordinary meaning.” First
Am. Title Ins. Co. v. J.B. Ranch, Inc. , 966 P.2d 834, 836 (Utah
1998). “A contract is ambiguous if it is unclear, omits terms,
has multiple meanings, or is not plain to a person of ordinary
intelligence and understanding. Ambiguities are construed

2Regence is not a party to this appeal.

20060124-CA

against the drafter–the insurance company.” Utah Farm Bureau
Ins. Co. v. Crook , 1999 UT 47,¶6, 980 P.2d 685 (citations
omitted).

¶8
With this in mind, we consider the contract language of the
three contracts at issue here: (1) Maak’s contract with IHC,
signed by her husband when she entered LDS Hospital; (2) the
insurance contract between Maak and Regence; and (3) the contract
between IHC and Regence.

A. Maak’s Contract with IHC

¶9
Maak’s contract with IHC, signed as part of her admission
process to LDS Hospital, states, inter alia:

Patient and the undersigned, if other than
the Patient, each jointly and severally agree
to pay for all the health care services
rendered to Patient in the Facility including
but not limited to any amounts not paid by
any insurance company or other third party
payor. Patient and the undersigned, if other
than the Patient, remains responsible for all
co-payments, deductibles, co-insurance,
and/or non-covered services regardless of
amount paid by insurance or third party
payor.

(Emphasis added.)

¶10 Maak argues that her agreement to pay for “all the health
care services rendered” obligates her to pay for the services she
received, as established by the hospital’s statement of charges.
She claims that when IHC received full payment, from any source,
of the cost of her medical services, Maak had no further
financial obligation to IHC under the IHC contract. Maak’s claim
relies in part on the Utah statute requiring hospitals to
disclose to patients a comprehensive list of itemized charges
incurred during each hospital stay. See Utah Code Ann. § 26-21-
20.3 This statute requires that hospitals “shall itemize each of
the charges actually provided by the hospital to the patient.”
Id. § 26-21-20(3). Further, the statute states: “A statement of
charges to be paid by a third party and related information
provided to a patient pursuant to this section shall be marked in
bold: ‘DUPLICATE: DO NOT PAY’ or other appropriate language.”
Id. § 26-21-20(6).

3This requirement does not apply to patients qualifying for
title XIX of the Social Security Act. See Utah Code Ann. § 26-
21-20(5).

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¶11 Maak claims that the statute aims to require hospitals to
inform patients such as herself of the maximum amount the
hospital is entitled to receive for “services rendered.” Maak
further contends that it would create an absurd result to require
hospitals to provide an itemized list of charges to patients, but
then allow hospitals to avoid adhering to the amount in those
itemized statements by contracting around the rates in
undisclosed negotiations with insurers.

¶12 Maak further argues that the clause in her contract with IHC
requiring patients to pay coinsurance “regardless of amount paid
by insurance” means she is required to pay coinsurance only up to
the hospital’s total bill, regardless of the amount reimbursed by
her insurance carrier. In other words, Maak contends that IHC is
entitled to receive $11,396.11 from some payor, whether it be
from her, the insurance company, a third party, or some
combination thereof. The fact that her insurance company
satisfied her obligation to pay for “all the health care services
rendered” obliterated any further obligation by her to IHC.
Reading the IHC contract together with Utah Code section 26-21-20
makes it clear, she argues, that IHC is entitled to receive
$11,396.11 through some combination of insurance and patient
payments.

¶13 In contrast, IHC argues that the language “regardless of
amount paid by insurance” means that no matter how much the
insurer pays, the patient is nevertheless obligated to pay the
coinsurance amount as determined by her insurance plan with
Regence. However, Maak’s contract with IHC does not define
Maak’s coinsurance obligation, nor does it specifically refer to
its own contract with Regence or to Maak’s insurance plan.

¶14 We agree with Maak that the IHC contract language is
ambiguous because of the conflict between its provisions. On one
hand, Maak is required to pay for “all the health care services
rendered,” reasonably meaning only the amount LDS Hospital
charged for its services. On the other hand, Maak is required to
pay coinsurance, unspecified in the IHC contract and with no
explicit agreement to pay more than the total charges incurred by
IHC. Because precedent dictates that “ambiguities are construed
against the drafter,” Utah Farm Bureau Ins. Co. v. Crook , 1999
UT 47,¶6, 980 P.2d 685, we conclude that the IHC contract, by
itself, does not obligate Maak to pay IHC more than the actual
charges incurred.

B. Maak’s Contract with Regence

¶15 IHC claims that Maak’s contract with Regence also required
her to pay the coinsurance amount to IHC. Maak’s health
insurance policy with Regence states:

20060124-CA

[Regence] will pay the Participating Provider
directly for Covered Services. . . .
Participating Hospitals, Participating
Skilled Nursing Facilities, and other
facilities that are Participating Providers
have agreed to accept [Regence’s] payment in
accordance with contractual payment
schedules. Contractual payment schedules can
be greater than or less than the facility’s
actual charges for Covered Services. The
Member’s obligation for payment to a
Participating Provider is the Deductible
and/or Copayment and the Coinsurance as
applied to charges for Covered Services in
excess of Deductible and/or Copayment .

(Emphasis added.) Another section of Maak’s health plan states
that the “Member pays only Deductible and Coinsurance for Covered
Services.” In addition, “After Deductible, [Regence] pays 80%
and Member pays 20% of Eligible Medical Expenses.”

¶16 Coinsurance is defined in the contract as “an amount,
expressed as a percentage, that the Member must pay for Covered
Services.” Covered services are defined as “the services,
supplies, or accommodations listed below in Part III for which
[Regence] makes payments.” In Part III, there are four pages of
covered services, including items such as hospital
accommodations, surgical services, and transplants. The contract
does not mention DRGs but refers only to contractual payment
schedules between Regence and health care providers. Like the
IHC contract, the relationship between Maak’s payment obligation
and the contractual payment schedule is not clear. While the
contractual payment schedule can be greater or less than actual
hospital charges, the contract does not address the impact, if
any, on the patient’s payment of coinsurance.

¶17 Maak’s argument about the Regence contract is similar to the
one she made regarding the IHC contract. Maak contends that her
payment obligation “as applied to charges for covered services”
is based on IHC’s actual charges for covered services, not on
contractual schedules negotiated between IHC and Regence to which
she was not a party. Maak does not contest the ability of IHC
and Regence to set reimbursement schedules between themselves.
What she does contest, however, is the ability of IHC and Regence
to determine and collect her coinsurance payment obligation
through contracts to which she was not a party.

¶18 IHC argues that pursuant to the Regence contract, Maak
agreed to an allocation of health care costs, split between Maak
and Regence, according to Regence’s arrangement with Maak’s
health care providers. IHC further states that the hospital’s
billing for actual services is relevant only for those who pay

20060124-CA

the entire bill themselves. In those instances, there is no
application of DRG schedules and the maximum patient payment is
the actual charge. However, for those insured under the Regence
plan, the contract discloses that Regence may pay more or less
than the actual costs of service, pursuant to agreements with the
insured’s health care providers. IHC also asserts that the
Regence contract further requires the insured to pay the
coinsurance amount notwithstanding the possibility that the
health care provider has already been fully reimbursed by
Regence.

¶19 We conclude that the coinsurance liability is based on the
“charges for covered services.” In this instance, the
coinsurance was calculated based on IHC’s actual charges, not the
higher DRG reimbursement amount. Therefore, Maak was not
overcharged on that basis. The remaining question is whether IHC
could bill and collect the coinsurance amount from Maak.

¶20 IHC asserts that Maak should have sued Regence, not IHC,
because Regence determined Maak’s coinsurance obligation. IHC
emphasizes that Maak’s coinsurance obligation is established in
the Regence contract. This is corroborated, in part, because
Regence sent Maak a statement indicating that her twenty percent
coinsurance amount was based on the lesser amount of LDS
Hospital’s itemized costs, not the higher DRG reimbursement
amount. Therefore, IHC claims that it cannot be held responsible
for pursuing collection efforts.

¶21 This argument is not persuasive. Nothing in the Regence
contract obligates IHC to pursue collection efforts against Maak
after IHC has been fully compensated for its hospital bill. We
agree with Maak that “IHC has not, and cannot, show evidence from
the Record that it would be in breach of contract with Regence by
failing to collect the amounts it sought to collect, and
ultimately did forcibly collect, from Maak.” IHC conceded this
point in oral argument. The claim that Maak sued the wrong party
is similarly unavailing. IHC, not Regence, billed Maak and
threatened collection efforts based on her hospital bill. Maak
eventually paid IHC, not Regence, and IHC received the benefit of
the payment. Therefore IHC is the correct party in this lawsuit.

C. IHC’s Contract with Regence

¶22 The contract between IHC and Regence, as relevant to this
case, establishes the method by which Regence provides insurance
reimbursement for its insureds who receive medical services from
IHC. As stated earlier, the contract refers to DRG schedules,
setting reimbursements for specified medical procedures. The
Regence-IHC contract is subject to a protective order pursuant to
a confidentiality agreement among the parties.

D. Discussion

20060124-CA

¶23 IHC claims that the payment arrangement it established with
Regence, which utilizes DRGs, should be ratified in this case
because it conforms to what has become a national standard in the
healthcare system. For example, federal legislation governing
Medicare mandates a “Prospective Payment System” to encourage an
efficient use of resources and cost maintenance. See Sisters of
Charity Hosp. v. Riley , 661 N.Y.S.2d 352, 355 (N.Y. App. Div.
1997). In conformance with Medicare,

every medical diagnosis is categorized in a
“diagnostic related group” (DRG) established
by the Secretary of Health and Human Services
(Secretary). The Secretary also has
established a fixed reimbursement rate for
each DRG based upon the average length of
stay of patients with that DRG . . .
irrespective of the actual length of the
hospital stay or its cost.

Id.

¶24 Under Medicare’s DRG reimbursement approach, if a hospital’s
actual costs are higher than the reimbursement rate, the hospital
absorbs the excess cost. See id. at 355. However, if the
hospital’s actual costs are less than the DRG amount, the
hospital retains the Medicare overpayment. See id.

¶25 In Utah, the DRG reimbursement approach has been
legislatively authorized explicitly in the context of state
administration of Medicaid. See Utah Admin. Code R414-2A-9(1).

DRG weights are established to recognize the
relative amount of resources consumed to
treat a particular type of patient. The DRG
classification scheme assigns each hospital
patient to one of over 500 categories or DRGs
based on the patient’s diagnosis, age and
sex, surgical procedures performed,
complicating conditions, and discharge
status. . . . A preset reimbursement is
assigned to each DRG.

Id.; see also Utah Code Ann. § 26-18-3 (1998). 4

¶26 Although no Utah cases discuss DRGs, a New Jersey court
addressed a situation with similar facts; however, that case
provides only minimal guidance because of the court’s reliance on

4IHC states that Utah Children’s Health Insurance Act also
incorporates similar cost-sharing methods. See Utah Code Ann.
§§ 26-40-102 to -110 (Supp. 2006).

20060124-CA

state legislation in reaching its decision. In Russell v.
Rutgers Casualty Insurance Co. , 560 A.2d 708 (N.J. 1989), a
hospital’s actual charges for the plaintiff’s medical services
amounted to almost $2000, while the applicable DRG was about
$5500. See id. at 709. The insurance company paid the
plaintiff’s actual charges, not the DRG amount, arguing that the
term “hospital expenses” in the controlling legislation meant the
actual cost of the services, not the DRG amount. Id. The court
disagreed, stating that the insurance company’s argument “cannot
withstand scrutiny in the face of the legislative enactments and
the administrative regulations.” Id. at 710. Notably, New
Jersey had enacted comprehensive health care legislation, The
Health Care Facilities Planning Act, and other administrative
rules pertaining to DRGs. See id. at 709. The court ruled that
this legislation was determinative. See id. There is no claim
by IHC that Utah has enacted any legislation affecting the
resolution of the issues in this case.

¶27 It is undisputed that the IHC-Regence contract incorporates
DRG schedules; however, neither the IHC-Regence contract nor the
DRG schedules were provided to Maak when she signed her contracts
with Regence and IHC, and they were not specifically referred to
or incorporated by reference in those contracts.

¶28 We determine that the contract between IHC and Maak is
ambiguous and therefore cannot provide a basis for IHC to collect
coinsurance from Maak that will result in it receiving more than
the actual costs of “the health care services rendered.” The
contract between Regence and Maak requires Maak to pay her
coinsurance amount notwithstanding the possibility that Regence
has fully reimbursed IHC for services rendered. This contract
refers to “contractual payment schedules” agreed to by Regence
and “Participating Providers” but does not incorporate those
schedules nor describe how those schedules are determined. This
contract also does not purport to authorize a health provider or
anyone other than Regence to enforce payment of the coinsurance.
Of course, when a health provider has not been fully paid for its
services, it can collect the difference from a patient pursuant
to its contract with the patient. However, absent such a
shortfall, the contract between Regence and Maak does not provide
IHC a basis to collect from Maak a sum in excess of that already
received on her behalf from Regence. IHC’s arguments rely on
linking the two contracts in which Maak was a party. The problem
is that IHC cannot use Regence’s contract with Maak to create a
right to collect under its contract with Maak.

¶29 Federal and state legislation has established medical
payment systems utilizing DRGs for programs such as Medicare,
Medicaid, and the Utah Children’s Health Insurance Program.
These programs are administered by the government and utilize
public funds. The legislation furthers public policy concerns
about the cost and efficiency of those systems. No cases have

20060124-CA

validated a similar program in the private sector absent
legislative authorization. Public policy is the province of the
legislative branch of government, not the judicial branch.
Consequently, we hold that as a matter of contract law, IHC could
not bill Maak for medical services after it had collected the
full amount chargeable for those services from Maak’s insurer.
Therefore, we reverse the grant of summary judgment on Maak’s
breach of contract claim.

II. Other Issues on Summary Judgment

¶30 In addition to granting summary judgment on Maak’s contract
claim, the trial court granted summary judgment on Maak’s causes
of action for common law fraud and misrepresentation, and
deceptive trade practices. In her opening brief on appeal, Maak
addresses these claims in a footnote, stating:

The deceptive nature of this entry [in the
billing statement] is at the core of Maak’s
final three claims asserted in her case.
Each of these claims contains as a core
element such deception, and the cryptic,
inexplicable upward increase in the overall
bill under an entry description of “Regence
Blue Cross” satisfies the elements of these
claims.

These issues are not mentioned in the opening sections of Maak’s
brief setting forth the issues presented. See Utah R. App. P.
24(a)(5) (stating that an appellant’s brief shall contain a
“statement of the issues presented for review, including for each
issue: the standard of appellate review with supporting
authority”). Not surprisingly, IHC asserts in its brief that
Maak has waived these issues, as well as her claim for class
certification, by not arguing them in her opening brief. IHC
cites Brown v. Glover, 2000 UT 89, 16 P.3d 540, for the
proposition that failure to argue issues in the opening brief
constitutes waiver. See id. at ¶23. As stated in Brown, “[t]his
is to prevent the resulting unfairness to the respondent if an
argument or issue was first raised in the reply brief and the
respondent had no opportunity to respond.” Id. Maak counters in
her reply brief by arguing that the footnote in her opening brief
was sufficient to preserve the issues on appeal and proceeds to
set forth more fully arguments about the deceptive nature of
IHC’s billing statement. 5

5Maak does not address the trial court’s dismissal of her
claims for violation of the Utah Insurance Fraud Act or deceptive
trade practices. We therefore affirm summary judgment on those
claims.

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¶31 The footnote in Maak’s opening brief is inadequate to
preserve these issues. There is no meaningful analysis or
citation to authority. See Utah R. App. P. 24(a)(5), (9).
Development in the reply brief is not sufficient because IHC had
“no opportunity to respond.” Brown, 2000 UT 89 at ¶23. We
therefore affirm summary judgment on Maak’s claims other than
breach of contract. Also, because the trial court did not
address class certification that issue should be dealt with on
remand.

CONCLUSION

¶32 In sum, we reverse the grant of summary judgment on Maak’s
breach of contract claim and remand for further proceedings. We
affirm the trial court’s grant of summary judgment on Maak’s
other claims. We remand the issue of class certification.

______________________________
Pamela T. Greenwood,
Associate Presiding Judge

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¶33 I CONCUR:

______________________________
James Z. Davis, Judge

¶34 I CONCUR IN THE RESULT:

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______________________________
Russell W. Bench,
Presiding Judge

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