Northeast Hospital Corp. v. Sebelius

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 11, 2011 Decided September 13, 2011

No. 10-5163

NORTHEAST HOSPITAL CORPORATION,

APPELLEE

v.

KATHLEEN SEBELIUS, SECRETARY, UNITED STATES

DEPARTMENT OF HEALTH AND HUMAN SERVICES,

APPELLANT

Appeal from the United States District Court

for the District of Columbia

(No. 1:09-cv-00180)

Stephanie R. Marcus, Attorney, U.S. Department of

Justice, argued the cause for appellant. On the briefs were

Ronald C. Machen Jr., U.S. Attorney, Anthony J. Steinmeyer,

Assistant Director, and Jeffrica Jenkins Lee, Attorney.

Christopher L. Keough argued the cause for appellee.

With him on the brief were J. Harold Richards and John M.

Faust.

John R. Jacob was on the brief for amicus curiae HCA,

Inc., in support of appellee.

2

Before: GARLAND, GRIFFITH, and KAVANAUGH, Circuit

Judges.

Opinion for the Court filed by Circuit Judge GRIFFITH.

Opinion concurring in the judgment filed by Circuit

Judge KAVANAUGH.

GRIFFITH, Circuit Judge: In a 2008 administrative appeal,

the Secretary of Health and Human Services ruled that a

Medicare beneficiary enrolled in Medicare Part C still

qualifies as a person “entitled to benefits” under Medicare

Part A. As a result, Beverly Hospital in Beverly,

Massachusetts, received a smaller reimbursement from the

Secretary for services it provided to low-income Medicare

beneficiaries during fiscal years 1999-2002. The district court

granted summary judgment for Beverly on the ground that the

Secretary’s interpretation violates the plain language of the

Medicare statute. We conclude that the statute does not

unambiguously foreclose the Secretary’s interpretation. We

nonetheless affirm the district court on the alternative ground

that the Secretary must be held to the interpretation that

guided her approach to reimbursement calculations during

fiscal years 1999-2002, an interpretation that differs from the

view she now advances. Under her previous approach, the

hospital would have prevailed on its claim for a larger

reimbursement.

I

A

The federal Medicare program reimburses medical

providers for services they supply to eligible patients. See

generally 42 U.S.C. § 1395 et seq. The Medicare statute is

divided into five “Parts,” four of which are relevant here. Part

3

A covers medical services furnished by hospitals and other

institutional care providers. See id. §§ 1395c to 1395i-5. The

Secretary makes payments under Part A directly to “providers

of services,” such as hospitals, rather than to managed care

organizations, such as health maintenance organizations

(HMOs). See id. §§ 1395f(a)-(b), 1395x(u). Part B is an

optional supplemental insurance program that pays for

medical items and services not covered by Part A, including

outpatient physician services, clinical laboratory tests, and

durable medical equipment. See id. §§ 1395j to 1395w-4.

Anyone covered by Part A may purchase Part B insurance by

paying a monthly premium. See id. §§ 1395j, 1395o.

Part C governs the “Medicare + Choice” (M+C) program,

which gives Medicare beneficiaries an alternative to the

traditional Part A fee-for-service system. See id. §§ 1395w-21

to 1395w-29. Under M+C, an individual may enroll with an

HMO, preferred provider organization, or other private

“managed care” plan. If a person enrolls in an M+C plan, the

Secretary makes payments to the plan “instead of the amounts

which (in the absence of the [M+C] contract) would otherwise

be payable [to the provider] under [P]arts A and B,” id.

§ 1395w-21(i)(1), and the plan in turn negotiates payment

with the provider. Because M+C enrollees must purchase Part

B coverage, see id. § 1395w-21(a)(3)(A), they tend to be

wealthier than individuals who receive care under Part A. Part

D, which is not relevant to this case, provides a prescription

drug benefit program. See id. §§ 1395w-101 to 1395w-152.

Part E sets out various “Miscellaneous Provisions,” one

of which is the Prospective Payment System (PPS) for

reimbursing Part A inpatient hospital services. See id.

§ 1395ww(d). Under the PPS, Medicare reimburses a hospital

for services based on prospectively determined national and

regional rates rather than on the actual amount the hospital

4

spends. See id. § 1395ww(d)(1)-(4). The PPS also provides

for payment adjustments based on various hospital-specific

factors. One such adjustment is the “disproportionate share

hospital” (DSH) adjustment, under which the Secretary pays

more for services provided by hospitals that “serve[] a

significantly disproportionate number of low-income

patients.” Id. § 1395ww(d)(5)(F)(i)(I).

Whether a hospital qualifies for a Medicare DSH

adjustment, and the amount of the adjustment the hospital

receives, depends on the hospital’s “disproportionate patient

percentage.” Id. § 1395ww(d)(5)(F)(v)-(vii). This percentage

is a “proxy measure” for the number of low-income patients a

hospital serves, H.R. REP. NO. 99-241, pt. 1, at 17 (1985), and

represents the sum of two fractions, commonly called the

“Medicare fraction” and the “Medicaid fraction.” The

Medicare fraction is:

[T]he fraction (expressed as a percentage), the numerator

of which is the number of such hospital’s patient days for

such period which were made up of patients who (for

such days) were entitled to benefits under [Medicare]

Part A . . . and were entitled to supplementary security

income [SSI] benefits . . . and the denominator of which

is the number of such hospital’s patient days for such

fiscal year which were made up of patients who (for such

days) were entitled to benefits under [Medicare] Part

A....

Id. § 1395ww(d)(5)(F)(vi)(I). The Medicaid fraction is:

[T]he fraction (expressed as a percentage), the numerator

of which is the number of the hospital’s patient days for

such period which consist of patients who (for such days)

were eligible for medical assistance under a State

[Medicaid] plan . . . but who were not entitled to benefits

5

under [Medicare] Part A . . . and the denominator of

which is the total number of the hospital’s patient days

for such period.

Id. § 1395ww(d)(5)(F)(vi)(II). Here is a visual representation

of the two fractions:

Medicare Fraction Medicaid Fraction

Numerator Patient days for patients Patient days for patients

“entitled to benefits “eligible for

under Part A” and [Medicaid]” but not

“entitled to SSI “entitled to benefits

benefits” under Part A”

Denominator Patient days for patients “Total number of

“entitled to benefits patient days”

under Part A”

A “fiscal intermediary,” typically a private insurance

company acting as the Secretary’s agent, calculates DSH

adjustments. See 42 C.F.R. §§ 421.1, 421.3, 421.100-.128. If a

hospital is dissatisfied with the intermediary’s determination,

it may appeal to the Provider Reimbursement Review Board

(PRRB), an administrative body appointed by the Secretary.

See 42 U.S.C. § 1395oo(a), (h). The PRRB may affirm,

modify, or reverse the fiscal intermediary’s award; the

Secretary in turn may affirm, modify, or reverse the PRRB’s

decision. See id. § 1395oo(d)-(f).

B

Northeast Hospital Corporation owns and operates

Beverly Hospital, a Medicare provider in Beverly,

Massachusetts. For fiscal years 1999-2002, the fiscal

6

intermediary excluded Beverly’s M+C patient days from the

numerator of the Medicaid fraction.

Northeast appealed to the PRRB, arguing that M+C

patients eligible for Medicaid should be counted in the

numerator of the Medicaid fraction because they are not

“entitled to benefits” under Part A. Northeast claimed it was

owed an additional $737,419 in Medicare payments as a result

of the intermediary’s improper calculation. The PRRB ruled

against Northeast, holding that under the statute and

implementing regulations, M+C patient days should not be

counted in the Medicaid fraction because M+C beneficiaries

remain “entitled to benefits under Part A” even after electing

Part C. Beverly Hosp. v. BlueCross BlueShield Ass’n, PRRB

Dec. No. 2008-D37, 2008 WL 7256679, at *4 (Sept. 23,

2008), reprinted in Medicare & Medicaid Guide (CCH)

¶ 82,112. The Secretary affirmed the PRRB’s ruling. Beverly

Hosp. v. BlueCross BlueShield Ass’n, Review of PRRB Dec.

No. 2008-D37, 2008 WL 6468518 (Nov. 21, 2008), reprinted

in Medicare & Medicaid Guide (CCH) ¶ 82,207.

Northeast filed suit in the district court challenging the

Secretary’s decision. In an opinion issued on March 30, 2010,

the district court granted summary judgment for Northeast.1

Ne. Hosp. Corp. v. Sebelius, 699 F. Supp. 2d 81 (D.D.C.

2010). In the district court’s view, under the plain language of

the statute, M+C patients eligible for Medicaid must be

counted in the Medicaid fraction because M+C beneficiaries

are no longer “entitled to benefits under Part A” once they

elect Part C. Id. at 93. Counting M+C patients in the Medicaid

fraction increases the size of the fraction and, in Northeast’s

case, the amount of the reimbursement to which it is entitled

1

The district court also granted summary judgment for the

Secretary on several issues not relevant to the present appeal.

7

for its care of low-income patients. We have jurisdiction over

the Secretary’s appeal under 28 U.S.C. § 1291.

II

We review a grant of summary judgment de novo,

viewing the evidence in the light most favorable to the

nonmoving party and drawing all reasonable inferences in the

nonmoving party’s favor. Geleta v. Gray, 645 F.3d 408, 410

(D.C. Cir. 2011). We review the Secretary’s interpretation of

the DSH provision, 42 U.S.C. § 1395ww(d)(5)(F)(vi), under

Chevron U.S.A. Inc. v. Natural Resources Defense Council,

Inc., 467 U.S. 837 (1984). The Chevron inquiry has two steps.

First, “we ask if the statute unambiguously forecloses the

agency’s interpretation.” Nat’l Cable & Telecomm. Ass’n v.

FCC, 567 F.3d 659, 663 (D.C. Cir. 2009). If it does, we

“disregard the agency’s view and ‘give effect to the

unambiguously expressed intent of Congress.’” Id. (quoting

Chevron, 467 U.S. at 843). If, however, “the statute is

ambiguous enough to permit the agency’s reading,” we defer

to the agency’s interpretation “so long as it is reasonable.” Id.

The key interpretive question in this case is whether a

person enrolled in an M+C plan is still “entitled to benefits

under Part A.” The Secretary says yes. Northeast argues that

this interpretation is contrary to the plain language of the

statute, is unreasonable, and in any case cannot be applied to

Beverly’s 1999-2002 DSH adjustments because during those

years the Secretary took the position that M+C enrollees are

not “entitled to benefits under Part A.”

Before proceeding, it may be helpful to explain how the

Secretary’s interpretation results in lower DSH payments. If

an M+C patient is entitled to benefits under Part A (the

Secretary’s interpretation), then his hospital days are counted

in both the numerator of the Medicare fraction, if he is

8

entitled to SSI, and the denominator of that fraction. At the

same time, the patient’s days are not counted in the numerator

of the Medicaid fraction, but are counted in the denominator

of that fraction. If, on the other hand, an M+C patient is not

entitled to benefits under Part A (Northeast’s interpretation),

then the patient’s hospital days are not counted in either the

numerator or the denominator of the Medicare fraction, but

are counted in both the numerator of the Medicaid fraction, if

he is eligible for Medicaid, and the denominator of that

fraction.

Consider first the Medicare fraction. Including M+C

patient days in the numerator and denominator of the fraction

(the Secretary’s interpretation) dilutes the fraction because

M+C enrollees are less likely to qualify for SSI benefits than

non–M+C enrollees. This is because to qualify for Part C a

person must first purchase Part B coverage. See 42 U.S.C.

§ 1395w-21(a)(3)(A). That is, to qualify for Part C a person

must have the means to afford Part B premiums. If M+C

enrollees are less likely to qualify for SSI benefits than non–

M+C enrollees, adopting the Secretary’s interpretation and

counting M+C patients among patients “entitled to benefits

under Part A” reduces the percentage of patients entitled to

benefits under Part A who also qualify for SSI. Northeast’s

interpretation has the opposite effect.

Consider now the Medicaid fraction. Adopting the

Secretary’s interpretation and counting M+C patients among

patients “entitled to benefits under Part A” decreases the

numerator of the fraction (all patients “eligible for

[Medicaid]” but not “entitled to benefits under Part A”) and

has no effect on the denominator (“total number of

patient[s]”), diluting the fraction. Northeast’s interpretation

again has the opposite effect. In sum, then, the Secretary’s

interpretation decreases the DSH adjustment that hospitals

receive, while Northeast’s interpretation has the opposite

9

effect. Nationwide, the practical consequences of this dispute

number in the hundreds of millions of dollars.

A

At Chevron step one we ask whether Congress has

unambiguously foreclosed the Secretary’s interpretation that

M+C enrollees are “entitled to benefits under Part A.” We

conclude Congress has not, because numerous provisions in

the Balanced Budget Act of 1997, Pub. L. No. 105-33, 111

Stat. 251, which enacted M+C, as well as subsequent

amendments to Part C, assume that a person enrolled in M+C

remains entitled to benefits under Part A, and nothing in the

text or structure of the DSH fractions compels a different

result.2

The Secretary argues that the phrase “entitled to benefits

under Part A” applies to all individuals who meet the statutory

criteria in 42 U.S.C. § 426(a) and (b) for receiving “hospital

insurance benefits under Part A.” Under § 426(a), “[e]very

individual who . . . has attained age 65” and “is entitled to

monthly [Social Security benefits]” is “entitled to hospital

insurance benefits under Part A.” Under § 426(b), every

2

Our concurring colleague thinks our criticism of the district

court’s reasoning unnecessary in light of our conclusion that the

Secretary cannot retroactively apply her interpretation to pre-2004

DSH calculations, Concurring Op. 7 n.3, but we commonly say

why the district court erred before affirming on other grounds, see,

e.g., Ginger v. District of Columbia, 527 F.3d 1340, 1344-45 (D.C.

Cir. 2008); Kingman Park Civic Ass’n v. Williams, 348 F.3d 1033,

1041 (D.C. Cir. 2003); Gatewood v. Wash. Healthcare Corp., 933

F.2d 1037, 1040-41 (D.C. Cir. 1991). And considerations of

judicial economy counsel strongly in favor of doing so here, where

the district court is likely to confront the same difficult statutory

interpretation question again in the near future.

10

individual under the age of 65 who meets certain disability,

marital, or other criteria is similarly “entitled to hospital

insurance benefits under Part A.” According to the Secretary,

M+C enrollees are a subset of these two groups, because to be

eligible for Part C a person must first be entitled to benefits

under Part A, see 42 U.S.C. § 1395w-21(a)(3)(A), and

enrolling in Part C does not affect one’s age, marital status, or

ability to work. Thus, by definition M+C enrollees must be

entitled to benefits under Part A.

Northeast counters that M+C enrollees cannot be

“entitled” to benefits under Part A, because once a person

enrolls in M+C, payments on his behalf are made under Part

C, not Part A. Northeast points to three provisions. First,

§ 426(c)(1) states that “entitlement of an individual to hospital

insurance benefits for a month [under Part A] shall consist of

entitlement to have payment made under, and subject to the

limitations in, [P]art A . . . on his behalf for inpatient hospital

services” (emphasis added). See also id. § 1395d(a) (“The

benefits provided to an individual by the insurance program

under [Part A] shall consist of entitlement to have payment

made on his behalf . . . for . . . inpatient hospital

services . . . .” (emphasis added)). Second, § 1395w-21(a)(1),

which was enacted as part of the original 1997 Act, states that

persons eligible for Part C are “entitled to elect to receive

benefits” either “through the original [M]edicare fee-for-

service program under [P]arts A and B . . . or . . . through

enrollment in a Medicare + Choice plan under [Part C]”

(emphasis added). Third, § 1395w-21(i)(1), another 1997 Act

provision, specifies that once a person enrolls in an M+C

plan, Medicare payments to the plan “shall be instead of the

amounts which (in the absence of the [M+C] contract) would

otherwise be payable [to the provider] under [P]arts A and B”

(emphasis added).

11

Northeast’s logic is straightforward: “there is only one

benefit provided under [P]art A,” and that benefit is “the right

to have payment made under [P]art A.” Appellee’s Br. 21. But

individuals who enroll in an M+C plan do not receive benefits

under Part A; rather, they receive benefits under Part C.

According to Northeast, then, M+C enrollees cannot possibly

be “entitled” to benefits under Part A, because they can no

longer even receive benefits under Part A. Rather, they can

only receive benefits under Part C. See 42 U.S.C. § 1395w-

21(a)(1), (i)(1). Northeast’s argument rests on the statute’s

plain meaning: a hospital patient is not “entitled” to benefits

that the law denies him.

The trouble with Northeast’s reasoning, however, is that

elsewhere the 1997 Act assumes that a person who enrolls in

an M+C plan is still “entitled to benefits under Part A.” See

FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120,

133 (2000) (“It is a ‘fundamental canon of statutory

construction that the words of a statute must be read in their

context and with a view to their place in the overall statutory

scheme.’” (quoting Davis v. Mich. Dep’t of Treasury, 489

U.S. 803, 809 (1989))). Section 1395w-21(a)(3)(A) states that

a “Medicare + Choice eligible individual” is a person “who is

entitled to benefits under [P]art A” and “enrolled under [P]art

B.” Under Northeast’s reasoning, once a person elects Part C

he is no longer “eligible” for Part C, because he is no longer

“entitled to benefits under Part A” (because payments on his

behalf are no longer made under Part A). Aside from the

textual incongruity that would result from saying that once a

person enrolls in Part C he is no longer “eligible” for it,

neighboring Part C provisions make clear that a person

remains a “Medicare + Choice eligible individual” even after

enrolling in Part C.

12

Section 1395w-21(d)(2)(A), for instance, requires the

Secretary to mail “each Medicare + Choice eligible

individual” information about available Part C plans,

including “[a] list identifying the Medicare + Choice plans

that are (or will be) available to residents of the area,” before

the start of each annual open enrollment period. If M+C

enrollees are no longer “eligible” for Part C once they enroll,

this means the Secretary is not required to mail them this

information, even though the purpose of the open enrollment

period is to allow beneficiaries to change plans.

Our concurring colleague suggests it would not be

strange at all if the Secretary did not have to mail Part C plan

information to M+C enrollees, presumably because M+C

enrollees already know about their Part C options. Concurring

Op. 8. But Part C options change every year, which is

undoubtedly why the Act requires the Secretary to update the

information she sends out annually “to reflect changes in the

availability of [M+C] plans and the benefits and . . .

premiums for such plans.” 42 U.S.C. § 1395w-21(d)(2)(D).

Contrary to the concurrence’s suggestion, then, it would be

odd indeed if the Secretary were required to mail information

to individuals not enrolled in Part C but not required to mail

such information to persons who are enrolled in Part C. After

all, M+C enrollees are the people most likely to be interested

in annual changes to benefits and plan availability. That a

neighboring provision also requires the Secretary to “provide

for activities [that] broadly disseminate” information about

Part C coverage options to Medicare beneficiaries, id.

§ 1395w-21(d)(1), does not eliminate the oddity Northeast’s

interpretation produces. “Broadly disseminating” information

about Part C options is not the same as mailing plan

information to every M+C enrollee, and if it were, § 1395w-

13

21(d)(2)’s mail-notification requirement would be

superfluous.3

Northeast’s interpretation would also produce the

anomalous result that an M+C plan must provide general plan

information “upon request” to non–M+C enrollees, but need

not provide such information upon request to persons enrolled

with a different M+C plan. See id. § 1395w-22(c)(2)

(requiring “Medicare + Choice organization[s]” to provide

“general coverage information and general comparative plan

information” to “Medicare + Choice eligible individual[s]”

upon request). But an M+C enrollee looking to change plans

is likely to be just as interested in learning about his options

as someone looking to join an M+C plan for the first time. It

would make no sense for Congress to require plans to provide

information upon request to the one but not the other, but that

is the result Northeast’s interpretation produces.

The concurrence says we claim that under Northeast’s

interpretation M+C enrollees “would not be able to obtain

plan information from their Part C plans,” and then points out

a separate provision that requires plans to provide information

3

The concurrence also argues that relying on the open-season

notice provision to interpret the term “entitled to benefits under Part

A” amounts to “using a very small tail to wag a very large dog.”

Concurring Op. 8. But as discussed infra, that is not the only

provision that assumes a person who enrolls in Part C remains

entitled to benefits under Part A. See also 42 U.S.C. § 1395w-

21(a)(3)(A), (e)(2)(D), (h)(1); id. § 1395w-22(a)(7), (c)(2); id.

§ 1395w-23(o)(3)(B)(ii); id. § 1395w-24(e)(1)(B), (e)(4)(B); id.

§ 1395w-27(e); id. § 1395w-27a(f)(4)(A). And in any event, given

that this case requires us to determine the relationship between

enrollment in Part C and entitlement to Part A benefits, it makes

sense to consider how that relationship plays out in other

provisions.

14

to their own enrollees. Concurring Op. 9 (citing 42 U.S.C.

§ 1395w-22(c)(1)). This is a straw man. The problem with

Northeast’s interpretation is not that it would excuse M+C

plans from providing information to their own enrollees.

Rather, the problem is that it would require plans to provide

information upon request to individuals not enrolled in M+C

at all but not require plans to provide this information to

individuals enrolled in M+C with a different plan. There is no

reason why Congress would require plans to provide

information to the former but not the latter.

Another provision that becomes odd under Northeast’s

interpretation is § 1395w-21(h)(1), which prohibits M+C

plans from distributing marketing materials to “Medicare +

Choice eligible individuals” unless the plans first submit the

materials to the Secretary for review. Under Northeast’s

reading of the statute, plans would be unable to send

unreviewed marketing materials to non–M+C enrollees but

free to send such materials to individuals already in an M+C

plan, because those individuals would no longer be

“Medicare + Choice eligible individuals.” This would make

little sense: M+C enrollees are no less vulnerable to

misleading marketing campaigns than individuals not enrolled

in Part C.

Our concurring colleague says he finds nothing odd with

requiring M+C plans to submit marketing materials to the

Secretary for review before sending such materials to

Medicare beneficiaries not enrolled in Part C. Concurring Op.

9. Nor do we: § 1395w-21(h)(1) requires as much. What we

do find odd, however, is a provision that prohibits plans from

sending unreviewed marketing materials to individuals not

enrolled in M+C but permits them to send those same

materials to M+C enrollees. The concurrence does not offer

15

any reason why Congress would treat enrollees and non-

enrollees differently here, and we can think of none.

Last but not least are 42 U.S.C. § 1395w-24(e)(1)(B) and

(e)(4)(B).4 These provisions limit the average premiums,

deductibles, and copayments M+C enrollees pay for certain

benefits to the average amounts “individuals entitled to

benefits under [P]art A . . . and enrolled under [P]art B”

would pay for those same benefits “if they were not members

of a Medicare + Choice organization for the year.” These

provisions assume it is possible to be both entitled to benefits

under Part A and enrolled in an M+C plan.

Other Part C provisions enacted after the original 1997

Act also assume that a person who enrolls in an M+C plan is

still “entitled to benefits under Part A.” Although “[l]ater laws

that do not seek to clarify an earlier enacted general term and

do not depend for their effectiveness [on] . . . a change in the

meaning of the earlier statute” are normally “beside the

point,” United States v. Monzel, 641 F.3d 528, 536 (D.C. Cir.

2011) (quoting Gutierrez v. Ada, 528 U.S. 250, 257-58

(2000)) (internal quotation marks omitted), we find

subsequently enacted Part C provisions relevant in this case

because they inform the relationship between Part C

4

Our concurring colleague makes much of the fact that we

mention several provisions the Secretary did not cite in her briefs.

See Concurring Op. 9-11. “Under Chevron’s first step, however, we

have a duty to conduct an ‘independent examination’ of the statute

in question, looking not only ‘to the particular statutory language at

issue,’ but also to ‘the language and design of the statute as a

whole,’” including provisions “not relied on” by the parties.

Martini v. Fed. Nat’l Mortg. Ass’n, 178 F.3d 1336, 1345-46 (D.C.

Cir. 1999) (quoting N.Y. Shipping Ass’n v. Fed. Maritime Comm’n,

854 F.2d 1338, 1355 (D.C. Cir. 1988); K Mart Corp. v. Cartier,

Inc., 486 U.S. 281, 291 (1988)) (internal citations omitted).

16

enrollment and Part A entitlement, see Branch v. Smith, 538

U.S. 254, 281 (2003) (plurality opinion) (“[I]t is, of course,

the most rudimentary rule of statutory construction . . . that

courts do not interpret statutes in isolation, but in the context

of the corpus juris of which they are a part, including later-

enacted statutes . . . .”); see also Almendarez-Torres v. United

States, 523 U.S. 224, 269-70 (1998) (Scalia, J., dissenting)

(arguing that Congress’s “expressed understanding” of what a

phrase means “is surely evidence that it is fairly possible to

read the provision that way” (internal quotation marks

omitted)); Griffith v. Lanier, 521 F.3d 398, 402 (D.C. Cir.

2008) (“[W]e read a body of statutes addressing the same

subject matter in pari materia . . . including later-enacted

statutes as well.”). And these subsequently enacted provisions

confirm that “entitled to benefits under Part A” is a term of art

that can encompass M+C enrollees.

Section 1395w-21(e)(2)(D), for example, provides that an

institutionalized “Medicare + Choice eligible individual” may

“change the Medicare + Choice plan in which the individual

is enrolled.” The provision assumes that a person may enroll

in an M+C plan and yet still remain a “Medicare + Choice

eligible individual.” But under Northeast’s reasoning an M+C

enrollee could never be a “Medicare + Choice eligible

individual,” because he is no longer entitled to benefits under

Part A.

Our concurring colleague responds by arguing that

Northeast’s interpretation would still allow institutionalized

M+C enrollees to switch plans. Concurring Op. 10. But this

response misses the point. The problem is not that Northeast’s

interpretation would prevent institutionalized M+C enrollees

from changing plans, but rather that § 1395w-21(e)(2)(D)

describes a person who is both “enrolled” in an M+C plan and

17

a “Medicare + Choice eligible individual,” a combination the

concurrence says is impossible.

Another provision that assumes an individual who enrolls

in Part C may remain a “Medicare + Choice eligible

individual” is § 1395w-23(o)(3)(B)(ii), which defines the term

“qualifying county” for purposes of an annual benchmark

computation as, inter alia, a county in which “at least 25

percent” of “[Medicare + Choice] eligible individuals” were

“enrolled in [M+C] plans” for the year. Like § 1395w-

21(e)(2)(D), this provision clearly contemplates that a person

may be both “eligible” for and “enrolled” in Part C, but under

Northeast’s interpretation that could never be the case.

Two more provisions relevant to this point are

§§ 1396d(p)(1) and 1395w-22(a)(7).5 Section 1396d(p)(1)

provides that a person “entitled to hospital insurance benefits

under [P]art A” who meets certain income requirements is a

“qualified [M]edicare beneficiary,” while § 1395w-22(a)(7)

instructs that a “qualified [M]edicare beneficiary . . . who is

enrolled in a specialized [M+C] plan for special needs

individuals” may not be charged costs above a certain

amount. Read together, these provisions expressly

contemplate a person who is both “entitled to benefits under

Part A” and enrolled in Part C, something Northeast says is

impossible.

The concurrence’s response to this analysis again misses

the point. The problem is not, as the concurrence suggests,

that Northeast’s interpretation would cause Medicare rather

than Medicaid to pay for low-income M+C enrollees. See

5

Section 1396d(p)(1) is not located in Part C of the Medicare

statute, but is relevant here because it defines a key term in

§ 1395w-22(a)(7), which is located in Part C of the Medicare

statute.

18

Concurring Op. 10. Rather, the problem is that these two

provisions, when read together, describe a person who is

simultaneously enrolled in an M+C plan and entitled to

benefits under Part A, something Northeast’s interpretation

does not allow.

Yet another provision that makes no sense under

Northeast’s interpretation is § 1395w-27(e), which authorizes

the Secretary to charge fees to M+C plans to help recoup the

costs of distributing information about Part C options, among

other things. See 42 U.S.C. § 1395w-27(e)(2)(B). For fiscal

years 2001-2005, such fees could not exceed “the Medicare +

Choice portion (as defined in [§ 1395w-27(e)(2)(E)]) of

$100,000,000.” Id. § 1395w-27(e)(2)(D)(ii)(IV). That

paragraph, in turn, defines “Medicare + Choice portion” as

“(i) the average number of individuals enrolled in Medicare +

Choice plans during the fiscal year,” divided by “(ii) the

average number of individuals entitled to benefits under [P]art

A . . . and enrolled under [P]art B . . . during the fiscal year.”

Under Northeast’s interpretation, if more than 50 percent of

individuals eligible to enroll in Part C do so, then this fraction

exceeds a value of 1, because Northeast’s interpretation

deletes M+C enrollees from the denominator (because under

Northeast’s interpretation M+C enrollees are no longer

entitled to benefits under Part A). Let’s plug in some

numbers. Suppose there are 50 million people entitled to

benefits under Part A and enrolled in Part B (and thus eligible

to enroll in Part C), and 30 million of them enroll in Part C.

The fraction would then equal: 30 million / (50 million – 30

million) = 30 million / 20 million = 1.5. That would in turn

make the “Medicare + Choice portion of $100,000,000”

equal: $100,000,000 * 1.5 = $150,000,000. Obviously the

“Medicare + Choice portion” of a dollar amount cannot equal

19

a sum greater than the original dollar amount. Here again,

Northeast’s interpretation leads to a nonsensical result.6

Rather than attempting to show why the fraction still

works under Northeast’s interpretation, our concurring

colleague instead raises a red herring. How can we say

Northeast’s interpretation produces a nonsensical result for

this fraction for fiscal years 2001-2005, he asks, when we also

hold that the Secretary must apply Northeast’s interpretation

to pre-2004 DSH calculations to avoid retroactivity problems?

See Concurring Op. 11. But the issue before us is not whether

the Secretary acted reasonably before 2004, when she may

have interpreted “entitled to benefits under Part A” to include

M+C enrollees under § 1395w-27(e)(2)(E) but to exclude

those enrollees in the DSH calculations, and we express no

opinion as to whether interpreting that phrase inconsistently

would be permissible. Compare IBP, Inc. v. Alvarez, 546 U.S.

21, 34 (2005) (“[I]dentical words used in different parts of the

same statute are generally presumed to have the same

meaning.”), with Envtl. Def. v. Duke Energy Corp., 549 U.S.

561, 574 (2007) (“[T]he ‘natural presumption that identical

words used in different parts of the same act are intended to

have the same meaning . . . is not rigid and readily yields

whenever there is such variation in the connection in which

the words are used as reasonably to warrant the conclusion

that they were employed in different parts of the act with

6

Under the Secretary’s interpretation, however, the fraction

works perfectly because a person entitled to benefits under Part A

does not lose that entitlement when he enrolls in Part C. That is, the

denominator of the fraction is unaffected by enrollments in Part C.

Suppose again that there are 50 million people eligible to enroll in

Part C and 30 million of them do. The fraction would then equal: 30

million / 50 million = .6. That would in turn make the “Medicare +

Choice” portion of $100,000,000 equal: $100,000,00 * .6 =

$60,000,000.

20

different intent.’” (quoting Atl. Cleaners & Dyers, Inc. v.

United States, 286 U.S. 427, 433 (1932))). Here, we need

only say that § 1395w-27(e)(2)(E) shows that the Medicare

statute sometimes uses the phrase “entitled to benefits under

Part A” in a way that encompasses M+C enrollees, which

supports our conclusion that the statute does not

unambiguously foreclose the Secretary’s current

interpretation. Whether the Secretary can enforce that

interpretation against Northeast for the period before 2004 is a

separate question that we address below.

Finally, § 1395w-27a(f)(4)(A) instructs the Secretary to

determine annually a “statutory national market share

percentage” that equals “the proportion of [Medicare +

Choice] eligible individuals nationally who were not enrolled

in an [M+C] plan.” If M+C enrollees are not entitled to

benefits under Part A and thus not “Medicare + Choice

eligible individuals,” then the proportion of “Medicare +

Choice eligible individuals” not enrolled in an M+C plan is

always 100 percent. Surely Congress did not mean to tell the

Secretary to annually calculate a number that is always equal

to 1. Northeast’s interpretation makes this provision nonsense.

We are thus faced with two inconsistent sets of statutory

provisions. Northeast points us to provisions that tie

entitlement to payment and state that once a person enrolls in

Part C, payments are no longer made under Part A. The

Secretary points us to other provisions that assume it is

possible to be both entitled to benefits under Part A and

enrolled in Part C. Under these circumstances, we conclude

that the Medicare statute does not unambiguously foreclose

the Secretary’s interpretation.

Nothing about the DSH provision itself compels a

different result. Our concurring colleague emphasizes that the

21

DSH fractions “require[] HHS to focus retrospectively on

specific patient days.” Concurring Op. 3; see 42 U.S.C.

§ 1395ww(d)(5)(F)(vi)(I) (counting “patient days . . . which

were made up of patients who (for such days) were entitled to

benefits under [P]art A”); id. § 1395ww(d)(5)(F)(vi)(II)

(counting “patient days . . . which consist of patients who (for

such days) were eligible for medical assistance under a State

[Medicaid] plan . . . but who were not entitled to benefits

under [P]art A”). But this does not prove that Congress

unambiguously intended “entitled” to mean “paid.” Moreover,

the fractions’ focus on specific patient days works perfectly

well under the Secretary’s view that “entitled” means

“meeting the statutory criteria in § 426(a) and (b).” Not every

patient who meets the criteria in those paragraphs during

some portion of his hospital stay will meet those criteria for

all of the stay. For instance, a person who collects Social

Security and who turns 65 during his hospital stay will

become “entitled” to benefits under Part A on his sixty-fifth

birthday. See 42 U.S.C. § 426(a). Or, a person under age 65

who reaches his twenty-fifth calendar month of entitlement to

disability benefits under § 423 during his hospital stay will

become “entitled” to benefits under Part A upon reaching his

twenty-fifth month of disability entitlement. See id. § 426(b).

That Congress tied the DSH calculation to individual days of

entitlement does not foreclose the Secretary’s interpretation.

Nor is the fact that the DSH fractions speak of

“eligibility” for Medicaid but “entitlement” to Medicare

enlightening. See id. § 1395ww(d)(5)(F)(vi)(II) (stating that

the numerator of the Medicaid fraction “consist[s] of” patients

“eligible” for Medicaid but not “entitled” to benefits under

Part A). Northeast argues that Congress’s disparate use of

these two words indicates it intended “entitled” to mean

something different from “eligible” and that the Secretary’s

interpretation of “entitled” as “meeting the statutory criteria

22

for entitlement” conflates the terms. See Pillsbury v. United

Eng’g Co., 342 U.S. 197, 199 (1952) (identifying

presumption that Congress means different things when it

uses different words, especially when “the two words are used

in the same sentence”).

But the Secretary’s interpretation does not actually

collapse the terms. Section 1395i-2(a) provides that

individuals who have reached age 65, are enrolled in Part B,

and are lawful U.S. residents but are “not otherwise entitled to

benefits” under Part A, “shall be eligible to enroll in the

insurance program established by [Part A].” Similarly,

§ 1395i-2a(a) provides that individuals who have not reached

age 65 and are not “otherwise entitled to benefits” under Part

A but who meet certain other criteria “shall be eligible to

enroll” in Part A. Both provisions further specify that after

such persons enroll in Part A they become “entitled to

benefits” under Part A during their period of enrollment. See

42 U.S.C. §§ 1395i-2(a), 1395i-2a(c)(1). Thus, even under the

Secretary’s view that “entitled to benefits” means “meeting

the statutory criteria for entitlement to benefits,” it is possible

to be “eligible” for, but not “entitled” to, Part A benefits

because one has not yet “enrolled” in the program.

Moreover, the usual rule that Congress intends different

meanings when it uses different words has little weight here.

As Judges Luttig and Batchelder both recognized in an earlier

line of DSH cases, “Congress has, throughout the various

Medicare and Medicaid statutory provisions, consistently

used the words ‘eligible’ to refer to potential Medicaid

beneficiaries and ‘entitled’ to refer to potential Medicare

beneficiaries for no reason whatever that anyone (including

the Secretary, who is intimately familiar with the statutes . . .)

has been able to divine.” Cabell Huntington Hosp., Inc. v.

Shalala, 101 F.3d 984, 992 (4th Cir. 1996) (Luttig, J.,

23

dissenting); see also Jewish Hosp., Inc. v. Sec’y of Health &

Human Servs., 19 F.3d 270, 278 (6th Cir. 1994) (Batchelder,

J., dissenting).7 To the extent Congress was merely borrowing

7

In this earlier line of DSH cases, four circuits concluded that

the terms “eligible” and “entitled” as used in the DSH provision

carry different meanings. See Cabell Huntington Hosp., 101 F.3d at

988 (majority opinion) (“Congress chose the word entitled for the

Medicare proxy and the word eligible for the Medicaid proxy.

Congress’ use of separate words demonstrates it intended for each

to have a separate meaning.”); see also Legacy Emanuel Hosp. &

Health Ctr. v. Shalala, 97 F.3d 1261, 1265 (9th Cir. 1996);

Deaconess Health Servs. Corp. v. Shalala, 83 F.3d 1041, 1041 (8th

Cir. 1996) (per curiam); Jewish Hosp., 19 F.3d at 275 (majority

opinion). Indeed, not only did these circuits conclude that the terms

carry different meanings, but they also interpreted “entitled to

benefits” to mean that a person has a right to have payment made.

See Jewish Hosp., 19 F.3d at 275 (“To be entitled to some benefit

means that one possesses the right or title to that benefit. Thus, the

Medicare [fraction] fixes the calculation upon the absolute right to

receive an independent and readily defined payment.”); see also

Legacy Emanuel Hosp., 97 F.3d at 1265; cf. Cabell Huntington

Hosp., 101 F.3d at 988. We decline to follow these cases for three

reasons. First, the meaning of the phrase “entitled to benefits under

Part A” was not directly at issue in any of the cases. Rather, the

issue was whether the Secretary had properly interpreted the phrase

“eligible for [Medicaid]” to include only patient days that were

actually paid by a state Medicaid plan, an interpretation the

Secretary abandoned in 1997. Health Care Fin. Admin. Ruling 97-2

(Feb. 27, 1997). The interpretations of “entitled to benefits” in these

cases were therefore dicta. Second, the cases were all decided

before Part C was enacted and so spoke of entitlement to payment

under Medicare generally without reference to the particular “Part”

under which payment would occur. Third, the cases failed to

grapple with Judge Luttig’s and Judge Batchelder’s observations

that Congress has, for no readily apparent reason, chosen to use the

word “eligible” for Medicaid beneficiaries and “entitled” for

Medicare beneficiaries.

24

these terms from elsewhere in the statute, it would be a

mistake to read too much into the difference in nomenclature.

The terms might carry different meanings here, but the

inference is weak.

Given the Medicare statute’s inconsistent and specialized

use of the phrase “entitled to benefits under Part A,” the

concurrence’s appeal to “[c]ommon parlance” has little force.

Concurring Op. 7. Although a typical M+C enrollee might not

describe himself as “entitled to benefits under Part A,” a

person familiar with the Medicare statute’s varying and

inconsistent uses of that phrase might. Statutes “addressed to

specialists . . . must be read by judges with the minds of

specialists,” Felix Frankfurter, Some Reflections on the

Reading of Statutes, 47 COLUM. L. REV. 527, 536 (1947), and

few provisions are more specialized than the ones at issue

here, which the Fourth Circuit once described as “among the

most completely impenetrable texts within human

experience,” Rehab. Ass’n of Va. v. Kozlowski, 42 F.3d 1444,

1450 (4th Cir. 1994).

In sum, Congress has not clearly foreclosed the

Secretary’s interpretation that M+C enrollees are entitled to

benefits under Part A. Rather, it has left a statutory gap, and it

is for the Secretary, not the court, to fill that gap. See

Catawba Cnty., N.C. v. EPA, 571 F.3d 20, 35 (D.C. Cir. 2009)

(per curiam).

B

At Chevron step two we ask whether the agency’s

interpretation of the statute is “reasonable.” Abington Crest

Nursing & Rehab. Ctr. v. Sebelius, 575 F.3d 717, 719 (D.C.

Cir. 2009). In this case, however, we do not reach that

question, because even if the Secretary’s present

25

interpretation is reasonable, it cannot be applied retroactively

to fiscal years 1999-2002.

It is well settled that an agency may not promulgate a

retroactive rule absent express congressional authorization.

See Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208

(1988). Rulemaking, moreover, “includes not only the

agency’s process of formulating a rule, but also the agency’s

process of modifying a rule.” Alaska Prof’l Hunters Ass’n v.

FAA, 177 F.3d 1030, 1034 (D.C. Cir. 1999); see also 5 U.S.C.

§ 551(5) (“‘[R]ule making’ means agency process for

formulating, amending, or repealing a rule[.]”); Paralyzed

Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579, 586 (D.C.

Cir. 1997) (“Under the APA, agencies are obliged to engage

in notice and comment before formulating regulations, which

applies as well to ‘repeals’ or ‘amendments.’” (emphasis

omitted)). Thus, the rule against retroactive rulemaking

applies just as much to amendments to rules as to original

rules themselves.

To determine whether a rule is impermissibly retroactive,

“we first look to see whether it effects a substantive change

from the agency’s prior regulation or practice.” Nat’l Mining

Ass’n v. Dep’t of Labor, 292 F.3d 849, 860 (D.C. Cir. 2002).

If the rule departs from established practice, we then examine

its impact, if any, on the legal consequences of prior conduct.

A rule that “alter[s] the past legal consequences of past

actions” is retroactive; a rule that alters only the “future

effect” of past actions, in contrast, is not. Mobile Relay

Assocs. v. FCC, 457 F.3d 1, 11 (D.C. Cir. 2006) (quoting

Bowen, 488 U.S. at 219 (Scalia, J., concurring)) (internal

quotation marks omitted). Put differently, “[i]f a new rule is

‘substantively inconsistent’ with a prior agency practice and

attaches new legal consequences to events completed before

26

its enactment, it operates retroactively.” Arkema Inc. v. EPA,

618 F.3d 1, 7 (D.C. Cir. 2010).

The Secretary’s present interpretation stems from a 2004

rulemaking in which she said she was “adopting a policy” of

counting M+C days in the Medicare fraction because M+C

enrollees “are still, in some sense, entitled to benefits

under . . . Part A.” 69 Fed. Reg. 48,916, 49,099 (Aug. 11,

2004). Accordingly, the Secretary revised 42 C.F.R.

§ 412.106, the HHS regulation that governs calculation of

DSH fractions, to state expressly that M+C patient days

should be counted in the Medicare fraction.8 See 42 C.F.R.

§ 412.106(b)(2) (2007) (providing that a hospital’s Medicare

fraction is determined by dividing “the number of patient

days . . . furnished to patients who . . . were entitled to both

Medicare Part A (or Medicare Advantage (Part C)) and SSI”

by “the total number of days . . . furnished to patients entitled

to Medicare Part A (or Medicare Advantage (Part C))”). Prior

to 2004, the regulation did not specify where M+C enrollees

should be counted. See id. § 412.106(b)(2) (2003) (providing

that a hospital’s Medicare fraction is determined by dividing

“the number of covered patient days . . . furnished to patients

who . . . were entitled to both Medicare Part A and SSI” by

“the total number of patient days . . . furnished to patients

entitled to Medicare Part A”).

The Secretary argues that just because she amended

§ 412.106 to state explicitly that M+C days should be counted

in the Medicare fraction does not mean she omitted M+C

days prior to the amendment. See Baptist Mem’l Hosp.–

Golden Triangle v. Sebelius, 566 F.3d 226, 229 (D.C. Cir.

8

Because of a clerical error, the text of § 412.106 was not

actually revised until 2007. See 72 Fed. Reg. 47,130, 47,384 (Aug.

22, 2007) (explaining that the failure to change the text in 2004 was

“inadvertent[]”).

27

2009) (“[W]hen a legislative or executive body adopts a new

clarifying law or rule, it does not necessarily follow that an

earlier version did not have the same meaning.”). Rather, she

says, the amendment merely confirmed her longstanding view

that M+C days should be included in the Medicare fraction

because M+C enrollees are still “entitled to benefits under

Part A.”

A brief look at the Secretary’s treatment of M+C days

prior to 2004, however, belies her claim that the revision to

§ 412.106 codified a longstanding policy. In two recent PRRB

hearings, providers submitted evidence based on hundreds of

cost reports from numerous hospitals that between 1999 and

2004, the Secretary routinely excluded M+C days from the

Medicare fraction. See Sw. Consulting DSH Medicare +

Choice Days Grps. v. BlueCross BlueShield Ass’n, PRRB

Dec. No. 2010-D52, 2010 WL 4211391, at *12 (Sept. 30,

2010), reprinted in Medicare & Medicaid Guide (CCH)

¶ 82,679 (reviewing evidence that from 1999 to 2004, the

Secretary “never count[ed] M+C days in the [Medicare]

fraction except rarely, and then by mistake”), rev’d, Review

of PRRB Dec. No. 2010-D52, 2010 WL 5571037 (Nov. 22,

2010), reprinted in Medicare & Medicaid Guide (CCH)

¶ 82,703; see also Sw. Consulting DSH SSI Grp. Appeals v.

BlueCross BlueShield Ass’n, PRRB Dec. No. 2010-D48, 2010

WL 4211376, at *9 (Sept. 24, 2010), reprinted in Medicare &

Medicaid Guide (CCH) ¶ 82,675. The intermediary did not

challenge the evidence in either hearing, see Sw. Consulting

DSH Medicare + Choice, 2010 WL 4211391, at *12; Sw.

Consulting DSH SSI, 2010 WL 4211376, at *10, and the

PRRB expressly stated in its decision on the second hearing

that it “[found] the evidence persuasive that [the Secretary’s]

actual practice was to not count the M+C days in the

[Medicare] fraction prior to 2004,” Sw. Consulting DSH

Medicare + Choice, 2010 WL 4211391, at *12.

28

Moreover, in 1998, the year after Congress enacted M+C,

the Secretary instructed non-teaching hospitals not to file “no-

pay” bills for services furnished to M+C patients. See

Program Memorandum (Intermediaries), HCFA Pub. 60A,

Transmittal No. A-98-21 (July 1, 1998). According to

Northeast, the Secretary needs these bills to count M+C days

in the Medicare fraction, and the Secretary does not claim

otherwise. Perhaps for this reason, in 2007 the Secretary

reversed course and directed all hospitals to begin submitting

“no-pay” bills for M+C patients. Change Request 5647, CMS

Pub. 100-04, Transmittal No. 1331 (July 20, 2007). It further

appears that prior to 2004, the Secretary was not even using

the data field for managed care days in the program file for

calculating Medicare fractions. See Baystate Med. Ctr. v. Mut.

of Omaha Ins. Co., PRRB Dec. No. 2006-D20, 2006 WL

752453, at *31 (Mar. 17, 2006), reprinted in Medicare &

Medicaid Guide (CCH) ¶ 81,468 (“[HHS’s hospital inpatient

database] programmer . . . testified that the field on [the

database] for HMO days ‘hasn’t been used since the time that

I started running the [database in 1995].’”). According to the

PRRB, this means such days “could not have been included in

the [Medicare] fraction in any case, even if a no-pay bill had

been submitted.” Id.

The Secretary admits that she routinely failed to count

M+C patient days in the Medicare fraction prior to 2004, but

attributes this failure to “errors in [HHS’s] data systems” that

she says have now been resolved. Reply Br. 26. Thus, she

claims, “the failure to count the days was not intentional, and

[hence] not consistent with any alleged prior policy.” Id. at

27. The Secretary’s explanation is not convincing. As just

described, in 1998 she instructed non-teaching hospitals not to

submit information that she needed to count M+C days in the

Medicare fraction, and between at least 1995 and 2004 she

did not even use the managed care field in the hospital

29

inpatient database. The failure to count M+C days in the

Medicare fraction was not the result of data system errors.

Aside from the Secretary’s actual treatment of M+C days,

her statements in the 2004 rulemaking and in a subsequent

2007 technical revision confirm that she changed her

interpretation of the DSH provision in 2004. As noted above,

in the 2004 rulemaking she announced that she was “adopting

a policy” of counting M+C days in the Medicare fraction. 69

Fed. Reg. at 49,099. And in a 2007 technical revision to

§ 412.106 that made changes she had inadvertently omitted

three years earlier, she called her 2004 decision to include

M+C days in the Medicare fraction a “policy change.” 72 Fed.

Reg. 47,130, 47,384 (Aug. 22, 2007).

The Secretary does not even attempt to reconcile these

statements with her claim that her present position is

“longstanding.” Rather, she points to a 1990 rulemaking in

which she stated that “HMO” days should be counted in the

Medicare fraction. See 55 Fed. Reg. 35,990, 35,994 (Sept. 4,

1990) (“Based on the language of [§ 1395ww(d)(5)(F)(vi)],

which states that the disproportionate share adjustment

computation should include ‘patients who were entitled to

benefits under Part A,’ we believe it is appropriate to include

the days associated with Medicare patients who receive care

at a qualified HMO. . . . Therefore, since [December 1987],

we have been including HMO days in [the Medicare]

percentage.”). Prior to enactment of M+C in 1997, Medicare

payments to HMOs were governed under § 1395mm, which

provided for two types of contracts: (1) “cost” contracts,

under which the Secretary reimbursed an HMO for its

reasonable costs; and (2) “risk” contracts, under which the

Secretary made fixed monthly payments to the HMO. 42

U.S.C. § 1395mm(a), (g), (h); see also 42 C.F.R. §§ 417.530-

.576 (cost contracts), 417.580-.598 (risk contracts). As with

30

M+C, Medicare payments for HMO patients went to the

managed care plan, which then paid the provider, rather than

to the provider directly. See 42 U.S.C. § 1395mm(a)(6)

(“Subject to [certain exceptions] . . . if an individual is

enrolled under this section with an eligible organization

having a risk-sharing contract, only the eligible organization

shall be entitled to receive payments from the Secretary under

this subchapter for services furnished to the individual.”).

The Secretary argues that the 1990 rulemaking shows she

has long interpreted the Medicare fraction to include managed

care days and has never limited the calculation to

reimbursements paid directly to hospitals under Part A.

Again, however, her actual practice belies this claim. At least

as early as 1995, she was not using the managed care field in

the program file for calculating Medicare fractions, making it

impossible to count HMO days in the Medicare fraction. See

Baystate Med. Ctr., 2006 WL 752453, at *31. Moreover, even

if the 1990 rulemaking accurately reflected the Secretary’s

policy regarding § 1395mm HMO days, M+C was not

enacted until 1997. See Balanced Budget Act § 4001, 111

Stat. at 275-327 (codified at 42 U.S.C. § 1395w-21 et seq.).

Any support the 1990 rulemaking provides the Secretary’s

argument is thus indirect at best. This contrasts with the

evidence about the Secretary’s treatment of M+C days during

the fiscal years in dispute.

In light of the foregoing, it is apparent that the

Secretary’s decision to apply her present interpretation of the

DSH statute to fiscal years 1999-2002 violates the rule against

retroactive rulemaking. The Secretary’s interpretation, as set

forth in the 2004 rulemaking and resulting amendment to

§ 412.106, contradicts her former practice of excluding M+C

days from the Medicare fraction. Moreover, the amendment

attaches new legal consequences to hospitals’ treatment of

31

low-income patients during the relevant time period.

Hospitals that serve a disproportionately large number of such

patients receive a statutorily mandated “additional payment”

from the Secretary, 42 U.S.C. § 1395ww(d)(5)(F)(i), and

whether a particular hospital qualifies for this payment, and

the size of the payment the hospital receives, depends on the

hospital’s DSH fractions. Any rule that alters the method for

calculating those fractions, therefore, changes the legal

consequences of treating low-income patients.

We are aware of no statute that authorizes the Secretary

to promulgate retroactive rules for DSH calculations. Absent

such authorization, the Secretary’s present interpretation,

which marks a substantive departure from her prior practice

of excluding M+C days from the Medicare fraction, may not

be retroactively applied to fiscal years 1999-2002.

C

We are puzzled by the concurrence’s suggestion that we

have “twisted [ourselves] into a knot” by holding, on the one

hand, that the DSH provision does not unambiguously

foreclose the Secretary’s interpretation that M+C enrollees are

entitled to benefits under Part A, while also holding, on the

other hand, that the Secretary cannot retroactively apply her

interpretation to pre-2004 DSH calculations. Concurring Op.

13. The concurrence points out that none of the problems we

identify above surfaced while the Secretary took the view

Northeast now urges. But the Secretary avoided those

problems by reading the phrase “entitled to benefits under

Part A” to mean different things in different places. See 63

Fed. Reg. 34,968, 34,979 (June 26, 1998) (describing

Secretary’s practice of interpreting “entitled” to mean

different things in different provisions). How the Secretary

read other provisions before 2004 is not before us, and is

32

irrelevant to the disposition in this case. We express no

opinion as to whether the Secretary must read the phrase

“entitled to benefits under Part A” to always mean the same

thing throughout the Medicare statute. For present purposes, it

is enough to conclude that other provisions of the Medicare

statute make clear that the phrase sometimes includes M+C

enrollees and that nothing in the DSH provision compels a

different result.

III

As we conclude our analysis, a passage from Learned

Hand lamenting the complexity of another regulatory

behemoth—the Internal Revenue Code—comes to mind:

I know that these [provisions] are the result of fabulous

industry and ingenuity . . . yet at times I cannot help

recalling a saying of William James about certain

passages of Hegel: that they were no doubt written with a

passion of rationality; but that one cannot help wondering

whether to the reader they have any significance save that

the words are strung together with syntactical

correctness. Much of the law is now as difficult to

fathom, and more and more of it is likely to be so; for

there is little doubt that we are entering a period of

increasingly detailed regulation, and it will be the duty of

judges to thread the path . . . through these fantastic

labyrinths.

Learned Hand, In Memoriam: Thomas Walter Swan, 57 YALE

L.J. 167, 169 (1947). Having wound our way through the

intricate tangle of DSH fractions, Medicare + Choice

requirements, and more, we hold that Congress has not

unambiguously foreclosed the Secretary’s interpretation that

M+C enrollees are entitled to benefits under Part A. But we

also hold that the Secretary’s present interpretation, even if it

33

would pass Chevron step two (an issue upon which we do not

opine), may not be retroactively applied to Beverly’s 1999-

2002 DSH adjustments. We affirm the district court’s grant of

summary judgment for Northeast for this second reason.

So ordered.

KAVANAUGH, Circuit Judge, concurring in the judgment:

Although the legal question presented here is embedded

within a very complex legal scheme and has significant

financial ramifications, the question itself is straightforward:

If a hospital patient receives Medicare benefits under

Medicare Part C for a particular “patient day,” is that patient

also “entitled” for that same “patient day” to Medicare

benefits under Medicare Part A? In my view, the text of the

Medicare statute tells us the answer is no. I agree with the

careful analysis by Judge Bates in the District Court:

Medicare beneficiaries must choose between government-

subsidized private insurance plans under Part C and

government-administered insurance under Part A, and after

they choose, they are obviously not entitled on the same

“patient day” to benefits from both kinds of plans. HHS

rejected that interpretation of the text and, as a result,

significantly undercompensated Beverly Hospital (and many

other hospitals) for the costs of treating Medicare patients.

Because HHS misapplied the statute, I would rule for Beverly

Hospital and affirm the judgment of the District Court on that

ground.

I

Through the Medicare program, the Federal Government

provides health insurance to, among others, Americans who

are 65 or older. Medicare has several “parts,” two of which

are central to this case: Part A provides hospitalization

benefits through government-administered fee-for-service

hospital insurance, and Part C (previously called

“Medicare+Choice” and now called “Medicare Advantage”)

provides government-subsidized enrollment in private

insurance plans.

The Department of Health and Human Services manages

Medicare Part A by paying hospitals a pre-determined sum for

2

each covered inpatient hospitalization service, without regard

to the actual cost incurred by the hospitals. HHS is required

by statute to disburse extra Part A funds to hospitals that serve

a “significantly disproportionate number of low-income

patients.” 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). The theory is

that, for a variety of reasons, it costs hospitals more to treat

significant numbers of low-income patients, and hospitals that

do so should therefore receive higher reimbursements. A

statutory provision known as the “disproportionate share

hospital adjustment” provides a convoluted (to put it

charitably) formula for calculating how much extra money

HHS must pay to hospitals that disproportionately serve the

poor. The formula is designed to measure the proportion of

low-income patients at a given hospital for a particular cost-

reporting period.

Without delving into too much numbing detail, it suffices

here to say that the statutory calculation relevant to this case

requires a determination for each hospital of the number of

patient days “made up of patients who (for such days) were

entitled to benefits under part A of [Medicare].” 42 U.S.C.

§ 1395ww(d)(5)(F)(vi)(I).

Beverly Hospital treated a disproportionately high

number of low-income patients during fiscal years 1999

through 2002, and therefore was due to receive extra

payments for doing so. The Hospital challenges HHS’s

calculation of those payments. The Hospital contends that

HHS, when applying the formula, improperly counted patients

enrolled in Medicare Part C as patients “entitled to benefits

under part A,” even though Medicare Part C recipients do not

receive benefits under Part A. According to the Hospital,

HHS’s misinterpretation of that component of the statutory

formula caused the agency to undercompensate the Hospital.

3

This case boils down to a straightforward question of

statutory interpretation: If a person is enrolled in and receives

hospitalization benefits for a particular “patient day” through a

Medicare+Choice plan pursuant to Part C of Medicare, is that

person also “entitled” for that same “patient day” to

hospitalization “benefits under part A” of Medicare? In other

words, can a patient be both enrolled in Part C and entitled to

Part A benefits for the same day? The answer is no.

Four mutually reinforcing textual points support that

conclusion.

First, the language of the key statutory provision requires

HHS to focus retrospectively on specific patient days. To

reiterate, the statute requires HHS to calculate the number of

patient days “made up of patients who (for such days) were

entitled to benefits under part A.” 42 U.S.C.

§ 1395ww(d)(5)(F)(vi)(I) (emphasis added). The words “for

such days” in the statute make clear that HHS must count

specific hospital days for patients who, on those specific days,

were entitled to Part A benefits. The word “were” makes

clear that this is a backward-looking calculation designed to

determine what kind of benefits a specific patient received on

a specific day. The statute requires HHS to isolate hospital

days attributable to patients who were, on those days,

receiving benefit payments through Part A of Medicare. A

patient who is receiving benefits under Part A for a given day

cannot also receive benefits under Part C for that day.

Therefore, in calculating the formula, HHS is required to

differentiate Part-C-attributable patient days from Part-A-

attributable patient days.

Second, the Medicare statute establishes that “each

Medicare+Choice eligible individual . . . is entitled to elect to

receive benefits . . . through the original [M]edicare fee-for-

4

service program under parts A and B . . . , or . . . through

enrollment in a Medicare+Choice plan under [part C].” 42

U.S.C. § 1395w-21(a)(1) (emphasis added). In other words, a

Medicare recipient makes a choice between the different parts

of Medicare for purposes of obtaining Medicare coverage.

The statute indicates that a patient cannot be enrolled in Part

A and Part C at the same time. Once the Medicare recipient

chooses a part and enrolls, he or she becomes entitled to

benefits under that part, and only under that part. Even

though a Part-C-enrolled patient maintains the right to cancel

enrollment in Part C and switch to Part A (or vice versa) in a

future open enrollment period, on any given day the patient is

entitled to hospitalization benefits under only the part of

Medicare in which he or she is currently enrolled. A

Medicare patient enrolled in Part C on a particular day is

therefore entitled to receive benefits under Part C, and not

under Part A, for that day. Similarly, a Medicare patient

enrolled in Part A on a particular day is entitled to receive

benefits under Part A, and not under Part C, for that day.

Third, the Medicare statute provides that “payments

under a contract with a Medicare+Choice organization . . .

with respect to an individual electing a Medicare+Choice plan

offered by the organization shall be instead of the amounts

which (in the absence of the contract) would otherwise be

payable under [Medicare] parts A and B.” 42 U.S.C.

§ 1395w-21(i)(1) (emphasis added). All Part C enrollees

could, if they chose, be enrolled in Part A instead. Section

1395w-21(i)(1) establishes that HHS makes benefit payments

under Part C instead of payments the agency would otherwise

make under Part A, and that Part C enrollees receive Part C

benefit payments instead of Part A benefit payments. As a

result, a patient enrolled in Part C on a particular day does not

receive benefit payments under Part A for that day.

5

Fourth, the Medicare statute defines “entitlement” to Part

A benefits as follows: “entitlement of an individual to

[Medicare part A] benefits for a month shall consist of

entitlement to have payment made under, and subject to the

limitations in, [Medicare] part A . . . during such month.” 42

U.S.C. § 426(c)(1). In other words, “entitlement” is not just

an abstract ability to sign up for Part A or Part C. Rather, it is

entitlement to have payment made, and a patient at any given

time can have payment made under Part A or Part C but not

both. Put another way, a Medicare patient enrolled in a Part C

plan does not have the right “to have payment made under,

and subject to the limitations in, [Medicare] part A.” 1

That interpretation of “entitlement” as meaning

entitlement to be paid is consistent, moreover, with the

decisions of the four courts of appeals that have previously

interpreted that term in this formula. See Cabell Huntington

Hosp. v. Shalala, 101 F.3d 984 (4th Cir. 1996); Legacy

Emanuel Hosp. & Health Ctr. v. Shalala, 97 F.3d 1261 (9th

Cir. 1996); Deaconess Health Svcs. Corp. v. Shalala, 83 F.3d

1041 (8th Cir. 1996); Jewish Hosp. v. Sec’y of HHS, 19 F.3d

1

HHS rejects this interpretation of the word “entitled” in the

phrase “entitled to benefits under part A,” but accepts the same

interpretation in the phrase “entitled to supplemental security

income benefits,” even though both phrases are found in the same

sentence of the statute. See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I)

(“patients who (for such days) were entitled to benefits under part

A . . . and were entitled to supplemental security income benefits”);

75 Fed. Reg. 50,042, 50,280-81 (Aug. 16, 2010) (patients are

“entitled” to SSI benefits only when they actually receive SSI

payments). HHS thus interprets the word “entitled” differently

within the same sentence of the statute. The only thing that unifies

the Government’s inconsistent definitions of this term is its

apparent policy of paying out as little money as possible. I

appreciate the desire for frugality, but not in derogation of law.

6

270 (6th Cir. 1994). 2 As the Sixth Circuit explained in the

first of this line of cases, to be “entitled” to some benefit

means that “one possesses the right or title to that benefit.”

Jewish Hosp., 19 F.3d at 275 (emphasis omitted). The phrase

“entitled to benefits under part A” thus “fixes the calculation

upon the absolute right to receive an independent and readily

defined payment.” Id. (emphasis omitted); see also Legacy

Emanuel, 97 F.3d at 1265 (“Both parties agree that the

Medicare proxy only counts patient days paid by Medicare.”);

cf. Cabell Huntington, 101 F.3d at 988 (“a patient who is

‘eligible’ for Medicaid becomes ‘entitled’ to payment only

after using one of the covered medical services”).

Although it’s not binding on HHS, a recent decision of

HHS’s own Provider Reimbursement Review Board also

persuasively supports the Hospital’s interpretation here. In a

straightforward opinion, the Board reasoned that “once an

individual has enrolled in a Medicare+Choice plan under part

C, he or she is no longer ‘entitled to benefits under part A,’

because he or she is no longer entitled to have payment made

under part A for the days at issue.” Southwest Consulting

DSH Medicare+Choice Day Groups v. BlueCross BlueShield

Ass’n NHIC Corp., PRRB Dec. No. 2010-D52 at 12, reprinted

in Medicare & Medicaid Guide (CCH) ¶ 82,679 (Sept. 30,

2010), rev’d, CMS Adm’r Dec. (Nov. 22, 2010).

And of course, it is quite telling that, until 2004, HHS

itself interpreted the statute as the Hospital does here. In

2004, HHS abruptly changed course, apparently because of an

overriding desire to squeeze the amount of money paid to

2

Those courts were focused on a different phrase in the statute

– “eligible for” Medicaid rather than “entitled to” Medicare – but

had occasion to discuss the meaning of “entitled to” Medicare as

contrasted with “eligible for” Medicaid.

7

Medicare providers (and beneficiaries) in light of the

country’s increasingly precarious fiscal situation. But this

statute does not permit HHS to pursue fiscal balance on the

backs of Medicare providers and beneficiaries in this way.

Common parlance and common sense also are consistent

with the Hospital’s interpretation of the text. For example, an

active-duty member of the military is not permitted to speak at

a political rally. You might be entitled to serve in the military,

and you might be entitled to speak at political rallies. But you

are not entitled to do both at the same time. When a retiree

elects a pension benefit when retiring, the retiree is entitled to

choose an annuity or a lump sum, but not both. Or consider

the NFL’s rules on the coin toss: If you win the toss, you are

entitled to choose possession or which goal to defend, but not

both. So it is with Part A and Part C of Medicare.

II

The majority opinion does not directly take issue with any

of the above textual analysis showing that, for purposes of

§ 1395ww(d)(5)(f)(vi), a Part C beneficiary is not “entitled” to

Part A benefits for a specific patient day. 3 According to the

majority opinion, the Hospital’s interpretation of “entitled”

nonetheless cannot be accepted because it would cause

problems for or anomalies in the implementation of certain

other statutory provisions. And those problems or anomalies

show, the majority opinion says, that the Hospital’s

interpretation of § 1395ww(d)(5)(f)(vi) is not correct. I

3

Part II.A of the majority opinion rejects the Hospital’s

Chevron step one argument, but then Part II.B of the majority

opinion rules for the Hospital anyway because HHS had a different

position back before 2004. Part II.A of the majority opinion thus is

unnecessary given the majority opinion’s conclusion.

8

disagree with the majority opinion’s bank-shot approach to

interpreting § 1395ww(d)(5)(f)(vi).

A

The majority opinion cites § 1395w-21(d)(2)(A), a

provision that requires annual notice to Part A beneficiaries

(those “entitled” to benefits under Part A) of their option to

enroll in Part C. See Maj. Op. at 12. The majority opinion

expresses concern that, under the Hospital’s approach, this

provision might not require notice to Part C enrollees. That

concern is misplaced because HHS puts all of the relevant

information on its website and in practice notifies both Part A

and Part C beneficiaries of their available options. That’s

presumably because a different subsection of this provision

requires that HHS “broadly disseminate information to

medicare beneficiaries (and prospective medicare

beneficiaries) on the coverage options provided under this

section in order to promote an active, informed selection.” 42

U.S.C. § 1395w-21(d)(1). The apparent point of the precise

statutory notice requirement in subsection (d)(2)(A) is simply

to ensure that non-Part C individuals learn about Part C

options, which is precisely what would still be required under

the Hospital’s interpretation. In short, contrary to the majority

opinion’s suggestion, subsection (d)(2)(A) creates no barrier

to the Hospital’s interpretation.

Probably more important in the bigger picture here, the

majority opinion’s reliance on the relatively minor open-

season notice provision to interpret the hugely significant

statutory reimbursement formula, which involves hundreds of

millions of dollars annually, amounts to using a very small tail

to wag a very large dog. Even if the Hospital’s interpretation

would create an anomaly (as the majority opinion sees it) in

the open-season notice provision, that anomaly would be

9

inconsequential, as explained above, and in any event would

not be a good reason to rewrite the statutory text of the

reimbursement formula and thereby shift responsibility for

hundreds of millions of dollars in costs from the government

to hospitals and Medicare beneficiaries.

Next, citing § 1395w-22(c)(2), the majority opinion

suggests that Part C enrollees would not be able to obtain plan

information from their Part C plans under the Hospital’s

interpretation. See Maj. Op. at 13. HHS did not rely on this

statutory provision in its brief, and for good reason. The

preceding subsection, § 1395w-22(c)(1), requires Part C plans

to give similar information to all of their Part C enrollees.

The difference in language between §§ 1395w-22(c)(1) and

1395w-22(c)(2) actually supports the Hospital’s approach

here.

Next, the majority opinion cites § 1395w-21(h)(1). See

Maj. Op. at 14. This is another provision that HHS has not

relied upon. In any event, this provision, too, does not cause

any problems if applied only to non-Part C enrollees. Under

the Hospital’s interpretation, the provision would require

HHS’s approval before Part C plans send marketing materials

to Medicare beneficiaries who are not yet signed up for such a

Part C plan. Contrary to the majority opinion, I find nothing

odd about that.

The majority opinion then turns to § 1395w-24(e)(1)(B)

and (e)(4)(B). See Maj. Op. at 15. Again, the majority

opinion has dredged up statutory provisions that HHS has

declined to rely on. (HHS was well-represented in this case,

so the majority opinion is not making up for deficiencies of

counsel. Rather, it is citing provisions that even HHS – which

has been dealing with this issue for years – has not relied

upon.) I frankly see no anomaly with respect to these

10

provisions that would result from the Hospital’s interpretation.

What those provisions mean quite simply and quite obviously

is that Part C enrollees cannot be forced to pay more than Part

A and Part B beneficiaries for the same benefits.

The majority opinion cites § 1395w-21(e)(2)(D) and

claims that the Hospital’s interpretation would mean that an

institutionalized Part C patient could not change plans. See

Maj. Op. at 16. But an institutional patient who dropped his

Part C plan would then be entitled to Part A benefits and thus

eligible to sign up for a different Part C plan. So there’s no

problem or anomaly there.

The majority opinion cites § 1395w-23(o)(3)(B)(ii), a

provision about qualifying counties. See Maj. Op. at 17.

This, too, is yet another provision that HHS has not cited. I

again fail to see the confusion the majority opinion thinks

would be created here if we accepted the Hospital’s

interpretation. It is quite clear that the determination of

qualifying counties examines whether 25% of those in a

particular area who could sign up for Medicare Part C did sign

up for Medicare Part C.

The majority opinion points to § 1396d(p)(1) and says

that the Hospital’s interpretation would cause Medicare rather

than Medicaid to pay for poor Part C patients. See Maj. Op. at

17. (Medicaid typically pays for the hospital expenses of poor

Medicare patients.) Putting aside the fact that there are

relatively few poor Part C patients, a separate statutory

provision, § 1395w-22(a)(7), makes abundantly clear that

Medicaid and not Medicare will pick up the costs for such

patients. So the majority opinion’s far-afield citation to

§ 1396d(p)(1) does not pose any barrier to or inconsistency

with the Hospital’s interpretation of the term “entitled” in the

11

statutory reimbursement formula contained in 42 U.S.C.

§ 1395ww(d)(5)(F)(vi).

The majority opinion also cites § 1395w-27(e). See Maj.

Op. at 18-19. Here, the majority opinion is on particularly

shaky ground. This statute sets forth a formula that allowed

HHS to collect fees from Part C plans, subject to certain caps,

for fiscal years 2001 to 2005. The problem is that the

majority opinion here has accepted the Hospital’s

interpretation of this statute for the years before 2004. The

majority opinion thus blesses the Hospital’s interpretation for

fiscal years 2001, 2002, and 2003 and yet says simultaneously

that the Hospital’s interpretation would create a “nonsensical

result” with respect to § 1395w-27(e)(2)(B), which applies to

those same years. Maj. Op. at 19. How can that be?

The majority opinion then cites § 1395w-27a(f)(4)(A).

See Maj. Op. at 20. This is still another provision that the

majority opinion cites but HHS did not. And this provision

likewise does not cause any problems under the Hospital’s

interpretation. Indeed, the majority opinion’s attempt to

create confusion about this provision appears severely strained

in context (which is probably why HHS did not cite it). This

provision in context asks a simple question: How many

people in the area could have signed up for Part C but didn’t?

B

To summarize the prior discussion: The majority opinion

has cited a series of statutory provisions on the theory that the

Hospital’s interpretation of § 1395ww(d)(5)(F)(vi) – that a

Part C beneficiary is not entitled to Part A benefits for a

particular patient day – would cause anomalies in other

provisions of the statute. But there are no such anomalies.

Neither in isolation nor in combination do those provisions

12

undermine the straightforward interpretation of

§ 1395ww(d)(5)(F)(vi) advanced by the Hospital and accepted

by the District Court. 4

Moreover, there is a serious overarching problem with the

majority opinion’s approach that is perhaps easier to explain.

The majority opinion confidently proclaims that the

Hospital’s interpretation, if accepted, would apply to a host of

other provisions and cause problems or “nonsensical” results

with respect to everything from open-season notices to caps

on hospitals’ payments for the costs of counseling programs.

But then, the majority opinion turns around and says that the

Hospital’s interpretation actually controls for the years up

until 2004. How can both things be true? How can the

majority opinion endorse – at least for all the years up until

2004 – the same “nonsensical” results that it simultaneously

decries?

I think the explanation is that the majority opinion has

vastly overblown the supposed inconsistencies that the

Hospital’s interpretation would cause with respect to other

4

In response to my opinion, the majority opinion raises doubt

about the Hospital’s interpretation of the statute but declines to say

whether HHS’s interpretation of the statute is permissible. See Maj.

Op. at 24 (“we do not reach that question”). In D.C. Circuit

parlance, the majority opinion leaves open the possibility that

HHS’s interpretation might fail at Chevron step two. From my

perspective, HHS’s interpretation violates the statute, whether at

Chevron step one or Chevron step two. In any event, it’s important

to underscore that this critical statutory question remains open, at

least under Chevron step two analysis, for resolution in future cases

that involve reimbursement for the years after 2004 – that is, for the

years after the years at issue in this case and after HHS adopted its

current interpretation of the statute.

13

statutory provisions. Indeed, it is plain that the majority

opinion’s concerns are misplaced because there is a historical

record against which to check its dire predictions of

“nonsensical” and “strange” and “odd” results. As the

majority opinion says, HHS itself accepted the Hospital’s

interpretation until 2004. Yet HHS, while accepting the

Hospital’s interpretation of § 1395ww(d)(5)(F)(vi), managed

to implement the rest of the statutory provisions cited by the

majority opinion without any apparent confusion or

meltdown. I am not aware of – and the majority opinion

certainly cites no – “nonsensical” or “strange” or “odd” results

that occurred before 2004 with respect to those other

provisions. So it turns out that the majority opinion is wrong

in saying that the Hospital’s interpretation, if accepted, would

cause tumult in other parts of the statute.

By attempting to say that the Hospital’s interpretation (i)

was controlling until 2004 and (ii) cannot be right because of

all the “nonsense” that would ensue, the majority opinion has

twisted itself into a knot. The way to untie the knot, in my

respectful view, is to recognize that the Hospital’s

interpretation not only was controlling until 2004 but is

correct even now. At a bare minimum, the majority opinion

cannot plausibly rely on the supposed anomalies that the

Hospital’s interpretation would cause for other provisions of

the statute and simultaneously endorse the Hospital’s

interpretation for the pre-2004 years.

* * *

The majority opinion says that the Medicare statute is

complicated. True enough. But the question here concerns a

specific provision, not the entire Medicare code. Complexity

in the code as a whole does not mean ambiguity in a specific

provision. No one can fault the majority opinion’s time and

14

effort in examining this statute. But the fact that it takes a

while to figure out the meaning of a specific statutory

provision based on its text and context is not the same as

ambiguity. What matters for the Chevron analysis is not how

long it takes to climb the statutory mountain; what matters is

whether the view is sufficiently clear at the top. Here, despite

HHS’s effort to fog it up, § 1395ww(d)(5)(F)(vi) is

sufficiently clear in establishing that a Part C beneficiary is

not simultaneously entitled to benefits under Part A for any

specific patient day.

The Medicare statute provides a very specific, carefully

reticulated formula for calculating supplemental payments to

hospitals that serve a disproportionate number of low-income

Medicare patients. By counting patients enrolled in Part C

plans as “entitled to benefits under part A” for specific patient

days, HHS misapplied the statute and undercompensated

Beverly Hospital. On that ground, I would affirm the District

Court’s decision to vacate and remand this matter to HHS.