P.I.A. Michigan City Inc. v. Thompson

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 5, 2001 Decided June 14, 2002

No. 00-5455

P.I.A. Michigan City Incorporated,

d/b/a Kingwood Hospital,

Appellant

v.

Tommy G. Thompson, Secretary of the United States

Department of Health and Human Services,

Appellee

Appeal from the United States District Court

for the District of Columbia

(No. 98cv02386)

Jonathan P. Neustadter argued the cause for appellant.

With him on the briefs was Patric Hooper.

Marcus H. Christ, Jr., Attorney, U.S. Department of

Health & Human Services, argued the cause for appellee.

With him on the brief were David S. Cade, Acting General

Counsel, Henry R. Goldberg, Deputy Associate General Coun-

sel, David W. Ogden, Assistant Attorney General, U.S. De-

partment of Justice, Wilma A. Lewis, U.S. Attorney at the

time the brief was filed, and Anthony J. Steinmeyer, Attor-

ney, U.S. Department of Justice.

Before: Ginsburg, Chief Judge; Sentelle and Garland,

Circuit Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge: P.I.A. Michigan City, Inc.,

brought this action pursuant to 42 U.S.C. s 1395oo(f)(1) for

review of the Secretary's decision in a Medicare reimburse-

ment matter. The hospital contended that the Secretary

erred in denying it an exemption from the Medicare payment

limitations imposed under the Tax Equity and Fiscal Respon-

sibility Act of 1982. The district court denied the motion of

the hospital for summary judgment, granted the cross-motion

for summary judgment of the Secretary, and dismissed the

action. Because we agree with the district court that the

Secretary's application of regulations was reasonable and the

Secretary's decision was supported by the record, we affirm

the grant of summary judgment in favor of the Secretary.

I. Background

A. Statutory and Regulatory Background

This case involves proper calculation of a hospital's compen-

sation or reimbursement under Part A of Medicare, the

federally funded and administered health insurance program

for the eligible elderly and disabled established by title XVIII

of the Social Security Act and codified as amended at 42

U.S.C. ss 1395-1395i-s (1994 & Supp. 1999). The program

can make direct payment to providers of inpatient hospital

services, 42 U.S.C. s 1395d(a)(1), including psychiatric hospi-

tals. Id. s 1395d(c). The statute describes hospitals eligible

to participate, including psychiatric hospitals, 42 U.S.C.

s 1395x(e)-(f), and permits a "distinct part" of an institution

to qualify as a psychiatric hospital. Id. s 1395x(f). The

statute also defines, and limits payment to, "reasonable

costs." 42 U.S.C. ss 1395x(v), 1395f(b)(1). The statutory

distinction between a generic hospital ("general hospital"

hereinafter) and a psychiatric or other special purpose hospi-

tal is material to the controversy before us because Congress

has chosen different means to attempt to limit the rise in

"reasonable costs" allowed for general hospitals than for

specialty hospitals.

Congress enacted a limitation on the extent to which Medi-

care Part A hospital insurance could recognize an increase in

a hospital's otherwise "reasonable costs" in the Tax Equity

and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248,

s 101(a)(1) (codified at 42 U.S.C. s 1395ww(b)(1994 & Supp.

1999)) ("TEFRA"). This approach allowed a percentage in-

crease in reasonable costs each year. The percentage was

specified in the statute; the base of costs to which the

percentage applied, or "target amount," was a hospital-

specific figure equal, for the hospital's first cost year under

the statute, to its actual operating costs in the preceding cost

year. Each year thereafter, the target amount for that

hospital increased from its base year target amount by the

percentage specified in the statute, even if the hospital's

actual cost experience differed. The target amount used in

the statutory formula for a particular hospital for a particular

subsequent year, in effect, was simply the product of that

hospital's base year costs and the cumulative statutory per-

centages. The next year, Congress partially replaced the

TEFRA limitation with a "prospective payment system"

(PPS) applicable to general hospitals but not to psychiatric

hospitals, distinct part psychiatric units, and other specialty

hospitals and distinct part units. See 42 U.S.C.

s 1395ww(d)(1)(A)-(B).

Congress directed the Secretary to provide exemption from

the TEFRA limit for events beyond a hospital's control, and

authorized such other relief from the TEFRA limit as the

Secretary deemed appropriate. 42 U.S.C. s 1395ww(b)(4)(A).

Pursuant to that discretionary authority, the Secretary pro-

mulgated the predecessor to 42 C.F.R s 413.40 in 1982 and

subsequently amended relevant portions of those regulations.

The present controversy relates to these regulations and

amendments as in effect for 1989-1990.

The Secretary's regulations provided a short term exemp-

tion for a "new hospital," which the regulations defined at the

pertinent time as

a provider of inpatient hospital services that has operat-

ed as the type of hospital for which HCFA granted it

approval to participate in the Medicare program * * *

for less than three full years.

42 C.F.R. s 413.40(f)(1)(i)(1989). ("HCFA" stands for Health

Care Financing Administration, an agency under the Secre-

tary. In the context of this opinion, distinctions between the

Secretary and HCFA are immaterial and not observed.) The

regulation tethered this paragraph (f) exemption period to

admission of the hospital's first patient. Id. Paragraph (b)

of the same regulation provided that the base year of a

hospital or a distinct unit continued in effect "unless the

hospital * * * qualifies as a new hospital." 42 C.F.R.

s 413.40(b)(1)(1989) (rebase provision).

In 1992, the Secretary amended these paragraph (f) exemp-

tion and paragraph (b) rebase provisions. Changes to the

Hospital Inpatient Prospective Payment Systems, 57 Fed.

Reg. 39746 (Sept. 1, 1992). The paragraph (f) new hospital

exemption provision was changed by shortening the three-

year period and, more relevant to this controversy, by adding

a second, "has provided" criterion to the existing "has operat-

ed" criterion:

For purposes of this section, a new hospital is a

provider of hospital inpatient services that--

(A) Has operated as the type of hospital for which

HCFA granted it approval to participate in the Medicare

program, under present or previous ownership (or both),

for less than 2 full years; and

(B) Has provided the type of hospital inpatient ser-

vices for which HCFA granted it approval to participate

in the Medicare program, for less than 2 years.

42 C.F.R. s 413.40(f)(1992). The amendment also added the

following sentence to the existing rebase provision:

When the operational structure of a hospital or distinct

unit changes (that is, a freestanding hospital becomes a

distinct part unit or vice versa) the base period would be

the first full 12-month cost reporting period effective

with the revised Medicare certification classification.

42 C.F.R. s 413.40(b)(1) (1992). With subsequent minor

changes in wording and format not material to this dispute,

these provisions persist to the present. See 42 C.F.R.

s 413.40 (2001).

B. Factual Background

Plaintiff P.I.A. Michigan City, Inc., formerly known as

Kingwood Hospital, of Michigan City, Indiana ("Kingwood"

hereinafter), was an existing hospital that began participating

in Medicare in 1968 as a general, short-term acute care

hospital of 89 beds. By 1984, Kingwood converted 36 of its 89

beds to psychiatric use and Medicare certified Kingwood as a

general acute-care hospital (subject to PPS payment regula-

tion) with a distinct part psychiatric unit (subject to TEFRA

limit payment regulation). By September 1985, Kingwood

had expanded its psychiatric unit to 58 of its 89 beds. By

May 31, 1989, Kingwood's psychiatric unit engulfed the gen-

eral-hospital remainder of its 89 beds. Medicare recognized

Kingwood as a free-standing psychiatric hospital effective

June 1, 1989.

Accordingly, when the Secretary applied Kingwood's 1984

base-year TEFRA limit to its 1989-90 cost year to deny

Kingwood full recovery of its costs, Kingwood applied timely

for recognition of exempt "new hospital" status under para-

graph (f) of 42 C.F.R. s 413.40, or at least a change in its

TEFRA limit base year from 1984 to 1989-90 under

s 413.40(b). The Provider Reimbursement Review Board

rejected both requests. See 42 U.S.C. s 1395oo(a); Hearing

Decision, Kingwood Hospital, No. 93-0054 (Provider Reim-

bursement Rev. Bd. Aug. 7, 1998), reprinted in Medicare &

Medicaid Guide (CCH) p 80,046 ("Board Decision" hereafter).

As the Secretary declined to review the matter further,

Kingwood's recourse was to the courts. 42 U.S.C.

s 1395oo(f).

Kingwood filed a civil action in the district court seeking

recognition of exempt new hospital status or alternatively a

new base year. Both Kingwood and the Secretary moved for

summary judgment. The district court denied Kingwood's

motion, granted the Secretary's, and dismissed Kingwood's

complaint. Order, P.I.A. Michigan City, Inc. v. Shalala, No.

98-2386 (D.D.C. Oct. 27, 2000). The district court held that

the Secretary's interpretations of the applicable regulations

were reasonable and her decisions supported by substantial

evidence.

II. Analysis

Plaintiff's appeal presents the same alternative issues as

were before the Secretary and the district court: First,

whether Kingwood was entitled to a new TEFRA base cost

reporting period beginning June 1, 1989 under 42 C.F.R.

s 413.40(b)(1) as in effect June 1, 1989, taking into account

any retroactive amendments thereto, if any, and evidence of

the Secretary's interpretation thereof. Alternatively, wheth-

er Kingwood was entitled to a new-hospital exemption as of

June 1, 1989 under 42 C.F.R. s 413.40(f)(1) as in effect June

1, 1989.

The standards for our review are well known. We review

the district court's application of law de novo. As did the

district court, we review the Secretary's interpretation and

application of her regulations for reasonableness and the

Secretary's findings for substantial support in the record.

See, e.g., Allentown Mack Sales & Service, Inc. v. NLRB, 522

U.S. 359, 377 (1998).

A. New Base Period

Kingwood argues that it is entitled to a more or less

automatic change of its base period, under authority of

s 413.40(b), from calendar year 1984 to the fiscal year June 1,

1989 through May 31, 1990 by reason of operational changes

that led to its June 1, 1989 change in Medicare certification

from a general hospital (subject to PPS) with a distinct-part

psychiatric unit (subject to TEFRA) to an exclusively psychi-

atric, all-TEFRA hospital. According to Kingwood, granting

such a change of base year following such a change in

operations and certification was the then-existing policy of the

Secretary, as evidenced, first, by the Secretary's 1992 amend-

ment to "clarify" paragraph (b)(1), see 57 Fed. Reg. 23618,

23660 (June 4, 1992), by adding the language quoted in Part

I.A, supra, and second, by the Secretary's slightly earlier

May 1992 letter decision allegedly granting just such a new

base year to Dallas Rehabilitation Institute ("DRI").

The Review Board rejected Kingwood's argument. The

Review Board began by searching the then-applicable regula-

tions for language that supported an automatic change in

base year, but it found none in effect for a cost year begin-

ning when Kingwood's did. That decision evidences a reason-

able interpretation by the Board, because the language of

paragraph (b) as it existed in 1989, prior to the 1992 and later

revisions, appears to refer only to change of base year in

paragraph (f) "new hospital" circumstances. (Kingwood, of

course, seeks that paragraph (f) exemption as well, but as-

serts in this argument that it has a right to paragraph (b)

relief as of 1989 independently of whether it obtains para-

graph (f) relief.) Nor does Kingwood appear fundamentally

to disagree with the Review Board's conclusion on this partic-

ular point, as Kingwood's counsel conceded at oral argument

that Kingwood did not rely on the plain language of the pre-

1992 text.

The Review Board did note, further, that the Secretary had

added a provision relating to changing base years in para-

graph (j), 42 C.F.R. s 431.40(j) (now paragraph (i)), but that

provision became effective too late to benefit Kingwood, a

point Kingwood concedes. The Review Board noted, finally,

Kingwood's argument that the 1992 amendment to paragraph

(b) was intended to "clarify" the existing paragraph (b). The

preamble language upon which Kingwood relies states:

Therefore, to preclude hospitals from qualifying for a

new hospital exemption based solely on such operational

reorganizations, we are proposing to revise s 413.40(f) to

specify that a hospital will qualify as a new hospital only

if it has not previously provided the type of hospital

inpatient services for which HCFA granted it approval to

participate in the Medicare program.

However, we also recognize that it would not be appro-

priate to subject these types of hospitals or distinct-part

units to the [TEFRA Limit] that applied before the

hospital's reorganization. Therefore, when the opera-

tional structure of hospital or distinct unit changes (that

is, a freestanding rehabilitation hospital becomes a dis-

tinct part or vice versa), we are proposing to revise

s 413.40(b)(1) to clarify that the base period would be

the first full 12-month period effective with the revised

Medicare certification.

57 Fed. Reg. at 23,660 (emphasis supplied by Kingwood).

Kingwood argues that the Secretary's styling of the new

language as "clarification" must mean that the effect of the

amended regulation is the same as the prior language, and

that therefore, the pre-amendment language, applicable to

Kingwood, must reach the same result as would prevail after

the amendment. The Review Board rejected that retroactivi-

ty argument on the grounds that the same preamble express-

ly provided that the regulations proposed had an effective

date of October 1992. Accordingly, the Review Board dis-

missed Kingwood's view that the single use of the word

"clarify" in the regulation preamble mandated retroactive

application of that portion of the regulation, notwithstanding

the effective date clause. This final conclusion is not unrea-

sonable, particularly as the usage cited by Kingwood is in the

context of an integrated six-paragraph discussion of the rea-

sons for the third proposed change to the new hospital

exemption regulations, which Kingwood expressly argues is

not retroactive. See generally 57 Fed. Reg. at 23,659-60.

Finally, the Review Board observed that Kingwood was not

entirely without relief under the then-effective regulations

because the 1989 version of paragraph (h), 42 C.F.R.

s 413.40(h)(1989) (codified as revised at 42 C.F.R.

s 413.40(g)(2001)), provided a mechanism for adjustment to

cost period data, including data in the base year itself, and

that in fact Kingwood had received some relief under that

provision. Yet again the Review Board's interpretation of the

regulations is reasonable.

Unfortunately, the Review Board does not directly address

the DRI letter decision in this analysis. The Review Board

did discuss that letter as the last item in the immediately

preceding section of its opinion, but only in discussing the

paragraph (f)(1) exemption. The DRI letter decision in ques-

tion is a three-paragraph response to an equally short inquiry

by DRI's financial intermediary as to whether DRI might be

eligible for a new base period because of its June 1, 1989

change in certification from an exclusively rehabilitation spe-

cialty hospital to a general short-term hospital with a distinct

part rehabilitation unit. (A rehabilitation hospital or unit is

subject to TEFRA limits, but a general short-term hospital is

subject to the PPS regime.) The Director of the Office of

Payment Policy, a sub-subdivision of HCFA, replied that it

"would not be appropriate" to continue use of the TEFRA

base period formerly established for the free-standing reha-

bilitation hospital for the rehabilitation unit because of an

unspecified change in "methodology in determining Medi-

care's share of the costs of the different levels of patient care

services," and authorized a base period of June 1, 1989 to

May 31, 1990. Letter from Charles R. Booth, Director, Office

of Payment Policy, Health Care Financing Administration to

Gene Brock, Senior Audit/Reimbursement Representative,

Medicare Administration, Aetna Life Insurance Co. (May

1992), Administrative Record at 110. The short letter says

little else.

As noted above, the Review Board did not deal with this

letter at all in the portion of its opinion discussing this

paragraph (b) issue. The Board's entire treatment of the

DRI letter in the last two sentences of the preceding section,

dismissing Kingwood's request for a paragraph (f) new hospi-

tal exemption, is curt and cryptic. The Board disregards the

letter because "the facts in the Texas case can be distin-

guished from the facts in the current issue." Board Decision

at 14. At oral argument, neither counsel for Kingwood or for

the Secretary was able to provide content for this statement

with support in the record, and we have found none in the

record.

However, although it is incumbent on an agency to explain

itself, it is also incumbent on an appellant complaining of

inconsistency and capriciousness in the agency's explanation

of its treatment to bring before the reviewing court sufficient

particulars of how the appellant was situated, how the alleg-

edly favored party was situated, and how such similarities as

may exist dictate similar treatment and how such dissimilari-

ties as may exist are irrelevant or outweighed. Kingwood on

the sparse record before us "has failed to establish convincing

inconsistencies between [the Secretary's] treatment of [King-

wood] and other facilities." Lomak Petroleum, Inc. v. Feder-

al Energy Regulatory Commission, 206 F.3d 1193, 1198 (D.C.

Cir. 2000). The DRI letter does not come close to filling this

gap. The burden of proof lays the consequences on King-

wood. See id. In these circumstances, the treatment of the

DRI letter is not a fatal flaw in the Review Board's otherwise

adequate rejection of Kingwood's arguments on this issue.

B. New Hospital Exemption

We now turn to Kingwood's alternative argument, that, if

not entitled to a new base period, it must certainly be entitled

to a new-hospital exemption. As noted earlier, a new hospital

is one "that has operated as the type of hospital for which

HCFA granted it approval to participate in the Medicare

program * * * for less than three full years." 42 C.F.R.

s 413.40(f)(1)(i) (1989). Kingwood argues that, by this lan-

guage, the Secretary adopted a bright line test based on the

date of HCFA approval. In Kingwood's view, the regulation

is clear that an institution can not have operated as a psychi-

atric hospital until Medicare had recognized it as such. King-

wood supports this position by drawing to our attention the

additional operational standards for records and staff that

Medicare requires for its recognition, not just as a hospital,

but as a psychiatric hospital. 42 U.S.C. s 1395x(f)(3)-(4), 42

C.F.R. ss 482.60-482.62. Kingwood also relies upon the

preamble to the original exemption from 1982 in which the

Secretary offered as a reason for the exemption that new

hospitals "commonly have unusually high operating costs per

case in the first year of operation." 47 Fed. Reg. at 43,282,

43,288 (Sept. 30, 1982). Kingwood argues that an institution

like itself which changes its nature incurs costs in meeting the

additional requirements occasioned by the change so as to

come within the Secretary's rationale of increased operating

costs expressed in that preamble. Thus, Kingwood concludes

that the Secretary's concern supports a bright-line test based

on date of certification.

The Review Board did not accept this bright line test and

peremptorily rejected exemption based on "recertification and

licensure change in and of itself." Board Decision at 14. The

critical facts for the Review Board were instead that King-

wood "was primarily operating as a provider of psychiatric

services for over five years prior to its recertification as a free

standing psychiatric hospital" and "had used a majority of its

beds (eighty-nine percent) for psychiatric services during the

three years preceding its recertification on June 1, 1989." Id.

The Review Board cited substantial record evidence for these

findings, which Kingwood does not challenge. The only ques-

tion is the legal relevance of these findings.

We hold that the Review Board's interpretation is reason-

able and entitled to deference. Kingwood claims that its

bright-line reading of the regulation is "compell[ing]" and

therefore bars deference, citing Thomas Jefferson University

v. Shalala, 512 U.S. 504, 512 (1994). We do not agree.

Kingwood reminds us that neither the Review Board nor this

Court may focus on the phrase "has operated" and ignore the

balance of the regulatory sentence. Cf. Lexecon Inc. v.

Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 35-36

(1998) (courts must construe a statute as a whole). Kingwood

emphasizes that the regulation refers to a "new hospital" as

"hav[ing] operated as the type of hospital for which HCFA

granted it approval" for the requisite period. 42 C.F.R.

s 413.40(f). Unquestionably, the "for which" phrase King-

wood emphasizes modifies the "type of hospital" phrase, and

must be given effect. But the Review Board appears to have

given it effect when it determined that Kingwood had been

"primarily operating as a provider of psychiatric services."

Board Decision at 14 (emphasis added). The Review Board

clearly first determined that "psychiatric hospital" is the

"type of hospital for which HCFA granted [Kingwood] ap-

proval to participate in the Medicare program" and then

inquired whether Kingwood had operated as such for less

than three full years. 42 C.F.R. s 413.40(f)(1)(i) (1989). The

interpretation of the regulation embodied in that inquiry

takes into account the entire regulation.

Kingwood's contrary position that the entire regulatory

sentence must be read to refer not simply to a period of

operation as a psychiatric hospital, but to a period of opera-

tion as a HCFA-approved psychiatric hospital is not com-

pelled by the language of the regulation. See Thomas Jeffer-

son University, 512 U.S. at 512. In fact, Kingwood's bright-

line interpretation arguably is the less reasonable reading

because it effectively reads the verb "operated" out of the

sentence. Kingwood might have had the necessarily "com-

pell[ing]" reading if the Secretary had, in 1982, defined a new

hospital as one that had been "certified as the type of hospital

for which HCFA granted it approval to participate in the

Medicare program for less than three years," but the verb the

Secretary chose was operated, not certified or approved. A

hospital can operate as a psychiatric hospital, that is, provide

psychiatric services, without Medicare approval. No hospital

is required, at least by Medicare itself, to meet Medicare

criteria as such if the hospital does not seek payment from

Medicare, see 42 U.S.C. ss 1395f(a), 1395cc(b)(2)(B) (incorpo-

rating section 1395x definitions), 1395cc(i), and we are not

aware of any other law or regulation, state or federal, that

requires a facility to have Medicare approval solely as a

requirement for providing psychiatric services to patients.

Indeed, quite the contrary. 42 U.S.C. s 1395. A hospital

could be licensed by its state to offer psychiatric services

primarily or exclusively without seeking Medicare certifica-

tion, and still be a psychiatric hospital.

Kingwood assumes that the term psychiatric hospital is a

term of Medicare art that necessarily entails satisfaction of all

the Medicare criteria, so that there is no meaningful distinc-

tion in this statutory and regulatory environment between the

terms psychiatric hospital and HCFA-approved psychiatric

hospital, making psychiatric hospital necessarily imply

HCFA approval. See 42 U.S.C. s 1395x(f) (defining psychiat-

ric hospital). Fundamentally, this is the same argument

raised in Memorial Rehabilitation Hospital of Santa Bar-

bara v. Secretary of Health and Human Services, 65 F.3d

134, 137 & n.3 (9th Cir. 1995), with respect to the expression

type of provider in an earlier version of this regulation.

There, the institution claiming a new-hospital exemption was

a rehabilitation hospital that had, under prior ownership,

been only a distinct-part unit of another hospital and thus did

not meet the statutory definition of provider, including the

statutory definition of a hospital as a separately licensed

entity. Thus, argued the institution, the Secretary was bound

by these definitions and the institution clearly was a new

provider because it never previously had met the definition of

provider at all. The court rejected that argument on the

grounds that the Secretary's interpretation need only be

reasonable in light of the wording and purpose of the regula-

tion, and the Secretary's generic interpretation of provider

satisfied that test because the plaintiff's predecessor had

offered and been certified for the same services. See id.

For substantially the same reasons, the Secretary's implicit

interpretation, that the regulation in its 1989 form does not

use the term hospital in the phrase type of hospital in the

technical sense of the statutory definition, is reasonable. The

essential fact distinguishing the Medicare definition of a

psychiatric hospital from any other type of hospital is the

type of services the institution primarily provides. The stat-

ute defines "hospital" for relevant purposes as an institution

which

(1) is primarily engaged in providing, by or under the

supervision of physicians, to inpatients (A) diagnostic

services and therapeutic services for medical diagnosis,

treatment, and care of injured, disabled, or sick persons,

or (B) rehabilitation services for the rehabilitation of

injured, disabled, or sick persons;

(2) maintains clinical records on all patients;

(3) has bylaws in effect with respect to its staff of

physicians;

(4) has a requirement that every patient with respect

to whom payment may be made under this subchapter

must be under the care of a physician;

(5) provides 24-hour nursing service rendered or su-

pervised by a registered professional nurse, and has a

licensed practical nurse or registered professional nurse

on duty at all times; except that until January 1, 1979,

the Secretary is authorized to waive the requirement of

this paragraph for any one-year period with respect to

any institution, insofar as such requirement relates to the

provision of twenty-four-hour nursing service rendered

or supervised by a registered professional nurse (except

that in any event a registered professional nurse must be

present on the premises to render or supervise the

nursing service provided, during at least the regular

daytime shift), where immediately preceding such one-

year period he finds that--....

42 U.S.C. s 1395x(e)(1). The same statute defines "psychiat-

ric hospital" as

an institution which--

(1) is primarily engaged in providing, by or under the

supervision of a physician, psychiatric services for the

diagnosis and treatment of mentally ill persons;

(2) satisfies the requirements of paragraphs (3)

through (9) of subsection (e) of this section;

(3) maintains clinical records on all patients and main-

tains such records as the Secretary finds to be necessary

to determine the degree and intensity of the treatment

provided to individuals entitled to hospital insurance

benefits under part A of this subchapter; and

(4) meets such staffing requirements as the Secretary

finds necessary for the institution to carry out an active

program of treatment for individuals who are furnished

services in the institution.

42 U.S.C. s 1395x(f)(1). Other than the difference in services

provided, the only differences in definitions address require-

ments of clinical records and staffing, which do not go to the

type of provider in the direct manner that the nature of

services provided does. Accordingly, as did the Ninth Cir-

cuit, we hold that the "type for which" phrase in the regula-

tion does not compel technical Medicare usage rather than

customary, everyday usage.

Kingwood has relied on not just the plain language of the

1989 regulation, but the light shed on that language by both

the 1992 amendment of the regulation and the accompanying

preamble. Kingwood points to language in the preamble to

the 1992 Proposed Rule that characterizes this addition as a

substantive change intended to prevent results that had oc-

curred under the 1989 regulations. See Proposed Rule,

Changes to the Hospital Inpatient Prospective Payment Sys-

tems, 57 Fed. Reg. at 23,618, 23,659-60 (June 4, 1992). In

particular, Kingwood relies on the concluding six-paragraph

passage at the end of the preamble discussion of changes to

the new hospital, which states, in relevant part:

Our third proposed change in the new hospital exemp-

tion concerns the issue of whether a participating facility

that reorganizes and/or changes the basis of its partic-

ipation in the Medicare program is a new hospital....

Under our current regulations, [a described distinct part

unit that became a stand alone] rehabilitation hospital

would meet the criteria for a new hospital and, thus,

could qualify for a new hospital exemption.

Another example involved a rehabilitation hospital that

added an acute care distinct-part unit [that eventually

became the hospital, with the former rehabilitation hospi-

tal a distinct-part unit thereof]. Again, under the cur-

rent regulations, the distinct-part unit would qualify for

an exemption because the hospital technically meets the

criteria for a new hospital.

In both examples, the former distinct-part units quali-

fied for a new hospital exemption because they were in

existence for less than 3 years as the type of hospital for

which they were approved to participate in the Medicare

program. However, in a broader sense, these hospitals

were not new.... Therefore, to preclude hospitals from

qualifying for a new hospital exemption based solely on

such operational reorganizations, we are proposing to

revise s 413.40(f)....

...

We note that the proposed change would mean that

the new hospital exemption would not apply to hospitals

that change the basis of their certification but do not

experience a significant change in organizational struc-

ture or in the type of services provided.... Under

current policy, the exemption as a new hospital would

begin with the first date ... for which the hospital is

certified as a [PPS-exempt hospital after having been

under PPS]. Under the revised policy, the exemption

would begin [when the hospital began offering relevant

services], whether or not the certification is effective for

that period.

... The proposed policy would be effective for Medi-

care certifications occurring on or after October 1, 1992.

Id.

This preamble language, Kingwood submits, is more than

simply a retrospective interpretation of the prior regulation,

as another provider argued (unsuccessfully) in SSM Rehabili-

tation Institute v. Shalala, 68 F.3d 266, 270 (8th Cir. 1995),

but the very reason given by the Secretary for the need to

change that regulation by amendment to end the conse-

quences of that interpretation. Thus the weight accorded the

1992 preamble should not be the slight weight accorded a

mere after-the-fact commentary, but instead the full weight

due the Secretary's contemporaneous interpretation of his

1992 amendment as necessary to bar future exemptions simi-

lar to some actually obtained under the pre-amendment lan-

guage.

The difficulty we have in accepting this argument is that

Kingwood has not in fact established that it is situated

similarly to the unidentified entities discussed in the 1992

preamble. It is true that Kingwood's psychiatric services

were formerly a distinct-part unit of the hospital, cf. 57 Fed.

Reg. at 23,659, but the present Kingwood hospital is not one

that "eventually split off" from its parent hospital, as did the

unnamed institution described in the preamble. In fact, that

language in the preamble more accurately describes the facts

in Memorial Rehabilitation Hospital than the facts here, and

that was a case in which the Secretary clearly did not grant

the exemption. 65 F.3d at 135-36, 139. Likewise, the

preamble refers to an acute care hospital that added a

distinct part rehabilitation unit that eventually expanded to

become the hospital, with the former hospital now a subordi-

nated acute-care unit. See 57 Fed. Reg. at 23,659. Again,

this does not precisely describe Kingwood's circumstances.

Finally, we note the absence of meaningful time references in

either of the Secretary's two preamble descriptions, or quan-

tified comparisons of the proportion of all services provided

by the hospitals and distinct part units, whereas the Review

Board made unchallenged findings that Kingwood had been

engaged "primarily" in providing psychiatric services for

more than three years prior to its HCFA approval as an

exclusively psychiatric hospital. As there is no basis for

comparison of Kingwood's situation with the anonymous,

stick-figure entities sketched in the 1992 regulation preamble,

and as the burden of fleshing out the alleged inconsistencies

of treatment falls on Kingwood, Lomak Petroleum, 206 F.3d

at 1198, Kingwood gains no ground from its reliance on the

1992 preamble. To the extent that the 1992 preamble may

have characterized the new regulation as a change in policy

that would be relevant to Kingwood and those similarly

situated, that characterization is outweighed by earlier and

more specific indications of the Secretary's intent. See SSM

Rehabilitation, 68 F.3d at 270.

Extending its argument based on the 1992 amendment,

Kingwood insists that the Review Board improperly applied

the 1992 amendment itself to Kingwood retroactively. King-

wood was certified as a psychiatric hospital in 1989, and by its

terms the 1992 amendment applies only to "Medicare certifi-

cations occurring on or after October 1, 1992." 57 Fed. Reg.

at 23,660. The 1992 amendment added to the existing re-

quirement that the provider must have "operated as the type

of hospital for which HCFA granted it approval to participate

in the Medicare program" for less than a specified period a

new, second requirement that the provider have "provided

the type of hospital inpatient services for which HCFA

granted it approval ... for less than two years." 42 C.F.R.

s 413.40(f)(1992) (emphasis added). Kingwood asserts that

the Review Board disqualified Kingwood simply because

Kingwood had provided psychiatric services for some time,

thereby applying, before its 1992 effective date, the new "type

of services" element of the 1992 test. Kingwood is mistaken

in its premise that the new element is necessary to explain

the Review Board's decision. It is true that the new "type of

services" element does not specify the level of services the

hospital must have offered for more than two years in order

to bar it from exemption, and that that bar could be set quite

low. In the case before us, however, the Review Board's

decision was not based simply on the fact that Kingwood had

previously provided psychiatric services. Instead, the Review

Board's decision was based on well-supported factual determi-

nations that Kingwood had been "primarily operating" as a

provider of psychiatric services and not "primarily providing

acute care inpatient services" during the look-back period.

This emphasis on Kingwood's "primary" level of activity

clearly relates to the pre-1992 "type of hospital" test and the

statutory definition of a psychiatric hospital. See Board

Decision at 14; cf. 42 U.S.C. s 1395x(e)(1), (f)(1). According-

ly, the second test, in which any level of services might be

disqualifying, clearly was not applied by the Review Board to

Kingwood, retroactively or otherwise, and this argument fails

as well.

III. Conclusion

The district court made no error in determining that the

decision of the Review Board, as the decision of the Secre-

tary, satisfied the standards of 5 U.S.C. s 706. The Secre-

tary has articulated reasonable interpretations of 42 C.F.R.

ss 413.40(b) and (f) as in effect at the relevant time, and

Kingwood Hospital has failed to establish a compelling alter-

native interpretation. The judgment of the district court is

affirmed.