this policy is an interpretive rule because it explains how to comply with the existing legal duty to calculate uncompensated costs for a particular subset of medicaid patients it's also the only interpretation of the regulation that furthers the purpose of the dish program and that makes sense as a matter of policy the legal mormon issue here as outlined at page twenty six of our opening brief it describes the medicaid shortfall or as of the two thousand and eight total medicaid uncompensated care so we know at the outset that we're calculating an uncompensated amount and that's the shortfall between two things incurred of treating medicaid eligible patients and the medicaid payments received on their behalf and the purpose of that is to determine how far medicaid falls short of covering the hospitals otherwise now when you're dealing with pure medicaid patients it's very simple you plug in the costs and then you plug in the medicaid payments but what's not clear is how do states comply with this reporting obligation when hospitals treat medicaid patients who have third party insurance now point us prior to this litigation did not count those patients at all but they have recognized that they didn't count them at all as long as there was no medicaid payment they've recognized now that those are medicaid eligible patients so the cost of those patients have to be considered so starting from that premise the question is does it make sense to anyone calculation of uncompensated costs to count all of the costs and none of the payments these i think use will effect affect services rendered through two thousand and seventeen so even those audits won't for two for two thousand and sixteen for example will not be conducted until twenty one thousand so there's still a substantial you know a real issue here for payments on revenues that have occurred prior to that time and c m s has positioned it said so in the preamble to this very rule in the context of dealing they're drawing negative implications from silence in the regulation they're looking at the regulation and saying it's very detailed it must have meant to exclude these types of payments but as it is you can see from the outline in our brief th medicaid shortfall calculation which it which is what's at issue at issue here is not terribly complicated it's just heard of treating the patients minus medicaid payments and we know from this court's decision in kindred hospitals and from other decisions that cost incurred is readily so stop double to an interpretation that nets out offsetting payments this quarter interpreted the term incurred in kindred hospitals and said of course if payments are offsetting revenues received that's not a cost that's incurred within the meaning of the medicare statu and that's just not a justifiable inference when first we're in the administrative context and we know that that sort of express argument is weak there but also there's just no basis to assume that the agency thought that that calculation would exclude the substantial third party payments that specified medicaid payments because we're talking about a medicaid shortfall and so of course it would deduct medicaid payments to see how far short just medicaid fall and compare that that amount in paragraphs nine against the cost incurred by the hospitals to treat those patients or they're otherwise on reimbursed costs to figure out how far short medicaid fall and we know that the negative inference also doesn't make sense because we already know what the agency thought in the preamble to the two thousand and eight rule in the context of medicare patients which was the question that was addressing there as here to draw negative implications from a regulatory silence it's quite appropriate to look at the preamble to see if that negative inference was was justified here the regulation does not explicitly say anything about meet the costs of treating medicaid and uninsured patients without exceeding their net costs and i wanted to help hospitals that don't have large numbers of privately insured patients plaintiffs approach does exactly the opposite that it allows them to exceed them that cost ignoring these third party payments that help them meet their costs and under only advantage of hospitals that treat a large number of privately insured patients at the expense of hospitals that treat more medicaid only patients who surplus that they received that's just not how congress congress imposed this limitation to ensure that the dish payments would be as a federal matter allocated appropriately to hospitals that really do have that the rule is required to go through notice and comment i did what like to underscore though that it agreed with a critical aspect of our analysis which we think is dispositive under this court's precedent which is that it held  we think the first circuit analysis was otherwise based on two primary flaws first it probably relied on the assumption that any agency decision that reflects a policy judgment at some level must go through notice and comment that's not what the supre court morial hospital that's not what this court has that in iowa league of cities it also misunderstood i think the explanation provided by the agency in the f a q s and said that it didn't purport to interpret the statute or the regulation and the f a q is quite clearly begin from the statute and say that the statute does not contain an exclusion for medicaid patients who have third party insurance and it went on from there to say so of course you statute and in the regulation so we think on the whole the first circuit analysis is actually quite helpful when looking at the question that this court posed is there a new legal norm or is this an interpretation of an underlying legislative rule which by the way is not binding on the agency and if a state were to disagree with it it would go up process and afaik use would not just made first their whole theory regarding uncompensated costs rests on a very incorrect premise they are assuming that medicaid eligible patients those who are simply eligible for medicaid are the same as medicaid beneficiaries they are not this court and many other circuits have recognized that there's a clear difference between being eligible for medicaid and actually receiving the benefits and what i think you thirty three here is doing effectively taking revenues earned outside of the medicaid program where medicaid is never built they never pay for a single dime of the patient's care and they're forcing those revenues  against the losses that these hospitals incur and the treating thousands and thousands of medicaid beneficiaries you can't turn as other courts have held you can't turn an uncompensated costs for one group of patients into a compensated cost by taking revenues from a set separate group of patients the whole notion that these hospitals somehow are getting more than their fair share  and that the government's theory the government's theory furthers the purpose of the dish program is just nonsensical to be honest the whole purpose here of this program was that it's a disproportionate share hospital program it is designed congress recognized that those hospitals like a pelleas who keep their doors open to all medicaid patients whether they're eligible or actually beneficiaries other hospitals view these patients as undesirable so congress was trying to ensure that these hospitals essentially run to these patients open their doors to these patients that these hospitals can  be financially stable and continue and can continue to provide the health care to medicaid beneficiaries to ensure that they have equal access to health care what the the facts of this case demonstrate how f a q thirty three is so harmful to these patients and i would draw the court's attention to the appendix the appellate appendix page one of seven which is  one of our declarations where for minnesota children's it very clearly shows that even when you take into consideration all medicaid paid payments all private insurance payments for these medicaid of the whole population of medicaid eligible so you take all the medicaid payments you take all of the private insurance payments and the dish supplemental payments minnesota children still in two thousand about the legal issues your honor it's it's a legislative for for very specific reasons first it has to force an effective law you have to remember that the hospital specific limit came auditing provisions came in that states began conducting their audits and it wasn't until the auditors were with the states for directing the auditors based on f a q thirty three to actually start including the private insurance payments in the calculation of the hospital specific limit so it was not until that occurred that even the hospitals were aware that suddenly there was a new requirement that nobody knew about for seventeen years nobody ever enforce for enforced and certainly the specific limit was enforced the office of inspector general conducted many audits over that seventeen year period of various hospitals the private insurance issue never came was never and washington and all other states must follow f a q thirty three otherwise as they risk the they risk losing their federal financial share remember this is a joint program so clearly it has legal force in effect but even more importantly what it's doing is that it's stripping the very hospitals that congress defined as dish hospitals of the supplemental medicaid funds that they were entitled to receive and i think other statutory question is not really before this court it's really important to understand the program as a whole the hospital specific limit is merely the cap it really sets the ceiling on the amount of payments a hospital may receive but you have to also look at the statute as a whole and the statute provides a mandate it says for those hospitals that have these very high medica entitled to get some form of fish payment and in fact the statute even provide how the states are to calculate the minimum payment that they are to  creates both both a floor and a ceiling what the government is doing by f a q thirty three is denying the very hospitals that have the they serve the largest medicaid population in the entire state of minnesota and they are essentially wiping out the all the rest of the program as congress intended it to operate the record shows that without douche funding a hospital like minnesota children's operating revenue drops down to something my one point three percent they can't operate with a one percent point three percent margin operating margin what does that mean that means they have to start laying off staff they have to close programs they are defeating the very purpose of the dish program which is to make sure that these very highly specialized services can be provided to the poor and the medically needy that is what this program is about and i think you thirty three essentially turns the whole thing on its head more importantly to your question judge arnold is the rule is very prescriptive very much detail out the the cost and the payments that are to be included in the in the calculation of the hospital specific lemma and you don't have to refer to the preamble to interpret that but even if you do want to look at the preamble like the district court you'll see from the preamble it says very clearly that it is not trying to modify in any way the calculation of the hospital specific limit numerous courts district courts have looked at the preamble and reach the same conclusion the other thing that's really important to see from the preamble is that it refers to an auditing protocol and that audit protocol is something that c m s developed to give very precise directions to the states and to the auditors as to how they are to calculate the hospital specific limit fear is absolutely no mention of private insurance payments in that audit very precise auditing protocol and that the printer the the preamble says very specifically that the protocol defines all of the data elements party in fact the only the only remedy the hospitals here have is with the federal government because the states essentially say their hands are tied they are compelled to follow federal legislative rules obviously is not a bright line but here what you have is exactly what iowa city's cautioned against is you have guidance being basically solidified as if it has the force and effect of law because it's being very clearly directed and made clear that the states need to follow this or they're going to risk losing their financial share and if that this case is very very similar to the facts in iowa city because they're there you had a prior past the prior policy that was in place did not prohibit the use of certain technologies and then e p a suddenly issued a letter in two thousand and eleven that mandated that they couldn't use certain technologies and that's exactly what's happened here the prior policy never included private insurance payments there's no mention of private insurance payments anywhere even in the preamble it doesn't say private insurance payments they're talking about a different concept of dual eligible then to i think you thirty three comes on and says yes you do have to include private insurance payments the point is even if even if you want to assume give the government all the benefit of the doubt that you want as the first circuited even if you see him somehow in the preamble the government is the government is signaling their intent that private insurance payment somehow should be included in the calculation specific limit they still didn't do it in accordance with the a p a the preamble itself is not notice and comment rule making it it's a subsidy of change to actually but i think the most important point i'd like to leave the court with as my time is almost up is we just need to really understand the purpose of this program and when you have two hospitals that serve more medicaid beneficiaries than any other hospital in the state of florida a state i'm sorry the state of minnesota and that somehow the government believes that they're getting too minute to minute too much money from the dish program and that money somehow should be given to a hospital like abbott northwestern just doesn't make sense you can see and i would point the court again to our appendix on  paid eighty four where it contains a list of all the dish hospitals in the state of minnesota and it ranks them according to the way the kick the statute ask you to categorize them and what you see is children's a minnesota children's and children's is at the very top of the list because they have a medicaid utilization rate of sixty six percent abbott is the second to the last hospital on this list in order of ranking because they only have sixteen percent medicaid patients why they're an adult hospital or an adult hospital that relies mostly on medicare not medicaid they get medicare dish payments and something to the tune of thirteen million dollars but yet the government thinks you should take the money that from two children's hospitals that serve more medicaid patients than any other in the state and somehow that money should be did redistributed to a hospital like northwestern who has a sixteen percent medicaid utilization rate that simply is not the way congress intended this program to work i have two points to make on rebuttal to judge kelly's question about when did all of this become an issue of course you know that c m s was first asked about this in two thousand and eight in part of as part of the notice and comment rule making and then  thousand two thousand and three sorry ninety three and then the reporting requirement was not an act of by congress until two thousand and three so we see the audits coming in at a much later date and it wasn't until litigation based on the because certainly the government would not have been requiring any overpayments to be a recruit until it saw the audits for fiscal year two thousand and eleven which would have happened and twenty fourteen that's when the audits would have been released for two thousand and eleven so we don't actually have specific knowledge of what states were doing prior to when we started to receive the audits and you know we do know on this record do the first circuit and warder and other courts of i've recognized that you know every interpretation is designed to give public notice and that's going to have some practical effect but the real question is does it have an of an independent legal effect and here the answer is no if i wanted to you know if a state said we're not counting third party payments and say you take the f a q is completely off the books and the state said we have these third party payments we're not sure what to interpretation and the state could take that up through the administrative process and the department appeals board would have authority to decide whether or not that was an appropriate interpretation of a regulation that  reporting of uncompensated costs or whether compensated costs can actually be included in compensate on compensated costs plaintiffs have argue