regional hospital in lakes regional health care but three hospitals in these appeals are so community or medicare dependent hospitals as designated by the secretary they are all role hospitals located in iowa the appeals that  before you are appeals of decisions of the secretary of h h s health and human services which were made by the c m s centers for medicare and medicaid services administrator this case involves medicare payment for a volume decrease adjustment which i will refer as a v g a it's an add on payment for certain qualifying hospitals there are two issues in these appeals the first is the vdare calculation methodology or the equation and the second is the classification of certain cost as a variable or fixed in my limited time before you i am going to focus on the first of those issues before i get started with any of the substantive matters i would like to address deference other cases such as these where the court is reviewing an agency action are generally entitled to deference deference should not be afforded to the agency's position here for two very important reasons and i don't mean to cut you off but i do want to focus you on what concerns me most i would love to and that is that there's no way to look at that statute and say there's an equation or something we can really put into the practical practice so how then do we put in the bounds on the department here the department has interpreted this statute through regulation which also does not have a clear equation in it but also in its manual the provider reimbursement manual the p r ran and in that manual it is set forth a very clear indication of how the should be interpreted and how it has so the reasons that that deference should not be afforded here because the secretary's position contradicts the underlying statute and because the secretary's position is contrary to his longstanding interpretation and practice for calculating the use of contradict the secretary does because the secretary's calculation the secretary's calculation says that the full payments that the that are attributed in the calculation are both  necessarily relate to the hospital's actual costs by definition they do not they are not actual costs but they are intended and they are set to replicate reasonable operating costs fixed and variable for the kind of an  average they are they're set based on a particular diagnosis but they are an average but they are intended and calculated based on fixed and variable costs so if the secretary allocates that for payment to fixed costs in determining if fixed costs are fully paid for then that's contrary to the d r g statute which says this is for recent the reasonable amount we're going to give you for fixed and variable so there is a case here that i believe is very similar to our case and that's a case decided by the circa one thousand nine hundred five should layoff versus st paul ramsey medical center in that case it was also a medicare case where the secretary was trying to add a requirement to the medicare provider reimbursement manual that just wasn't there it involved medicare bad debt and requirements for reimbursement of certain medicare bad debt to providers the p r m requirement said that the provider the hospital not the patient must determine a patient's indigency for purposes of determining whether the provider gets the medicare bad debt payment the secretary in that case asserted that this requirement meant that the provider had independently verify the information supplied by patients used to determine the patients and to see the court found there was no provision requiring the provider to independently verify the information from the period from the patients the question to the court there was whether the secretary's interpretation would control and the court there acknowledged generally that substantial deference is given to the secretary in these types of cases but it said and i quote even applying these exceptionally deferential standards we nevertheless conclude that the secretary's interpretation of section three twelve of the p r m to contain an unwritten but implied independent verification requirement is plainly erroneous and in consider inconsistent with the text in our case it's quite similar the secretary is reading in a requirement to the p r m that doesn't exists they want you to say that the starting point for the calculation the operating costs equals fixed cost that's that's not what operating costs it means and in fact in the p r m there are pages and pages where the secretary the agency is very particular about talking about variable costs and talking about fixed costs when it got to the calculation point it's that operating costs it did not say fixed cost was the starting it please the court my name is angela dryly and i represent lakes regional health care and st anthony regional hospital in this appeal i think it's important for us to realize that in this case somewhat of a different procedural posture we're not trying to invalidate the interpretation of the secretary that was set forth in the p r m that was used for twenty years before these cases were decided and the hospitals are not challenging the new calculation method that the secretary adopted you notice a comment roll making in two thousand seventeen instead we're challenging the ad hoc interim decisions of the secretary that were substantive changes to the agency's prior longstanding interpretation of the vdare calculation method and those changes were not the result of any change in the media statute or the vdare regulations and they were not supported by any other substantial justification i think these cases are also somewhat unique because we have two other interpretations of the same statute and  regulation by the same agency one before the decisions in this case and one after to which we can actually compare the secretary's decisions in this case and test the reasonableness of the outcome and the results of both of those other interpretations the p r m and the two thousand and seventeen regulation clearly show that the secretary's decisions in these cases are not reasonable and therefore not afforded deference but you like the fiscal intermediaries they're not called max right you like their calculation right we either need to use the max calculation that followed the p r m the secretary's written guideline the prototypical example it's been called of an interpretive rule which the max did or we have another reason w two thousand and seventeen regulation both of those fit within the statutory mandate to fully compensate the hospitals for their fixed costs the secretaries calculation does not and here's why but your mac hang on here here's why but your mac the way they calculate it is a lot like the new regulation right proportional sort of the p r be used the exact same method in st anthony that the new regulation has thank you taxing the reason that we have this disparate impact when we look at the regulations and we look at the different calculation methods is because in the p r m and in the two thousand and seventeen regulation there's a balanced equation the p r m takes total cost minus total revenue and that the two thousand and seventeen regulation takes fixed costs minus fixed revenue but the secretary has an imbalance equation secretary did not subtract apples from apples the secretary took the total just like in st st paul ramsey did exactly what was required and under the new regulation so the answer would be entitled to at least one point six million but under the secretary's ad hoc method that was used in this case of approximately five hundred thousand dollars that's an almost one point five million dollars difference in the three interpretations of the secretary over time for the same statute and same regulation the secretary's interpretation  lakes regional they were entitled to over a million dollars under the p r m but under the secretary's method they resulted in a negative number both the p r and the two thousand and seventeen methods demonstrate that the d r g payments did not fully compensate lakes regional by at least eight hundred fifty thousand dollars or a million dollars but the secretary's calculation indicated that blake's regional was overpaid by a hundred seventy five thousand it's not reasonable for the agency or for this court to determine the three different methods advanced by the secretary over time could all be reasonable interpretations of the b d a statute or the regulations especially when they have these wide ranging results is disparity in results enough to find something on reasonable well it certainly shows that the secretary's calculation there's something that is not right about it it doesn't get deference when you have inconsistent results in the secretary has used inconsistent methodology used that is one factor that shows that the weight of the g payments when we're looking at the v a the d r g payments are prospect of an average and then this is an add on payment for certain vulnerable hospitals that can't operate an efficient manner dear g is based on the average hospital operating efficient manner but congress has recognized that these vulnerable hospitals can't do so when they have a decline in patient volume of five percent so it's provided this additional help this additional add on payment to help congress only cared about their fixed cost right congress didn't care about the hospitals variable additional reimbursement for their variable costs and under the method proposed by plaintiffs they would receive dollar for dollar reimbursement not only of their fixed costs but of all their variable costs as well but there's nothing in the statute that compels that result what do you and that's where they ended up here there was no adjustment for like excess personnel costs for example i think all their semi fixed costs were actually treated as fixed costs in this case i would like to address a few things that the counsel for plaintiffs mentioned they spent a lot of time talking about the provider reimbursement manual and saying that the secretary's calculation was inconsistent with that and with with the secretary's longstanding interpretation but i think it's important to note that they point to no decision of the secretary actually adopting the method that they are advocating here and as the board recognized i think the reimbursement manual is ambiguous it's not entirely clear and in its interest the method used by the secretary here and that that board decision was not reviewed by the administrator so that became the final decision of the secretary and so we know at least and that was actually in that greenwood county  excuse me hospital decision the contractor there had used the same method that the secretary used here so we know that there were at least some contractors using that method the board upheld that method back in two thousand and six and plaintiffs have pointed to no decision of the secretary using the method that they advocate their real complaint about you is you change the rules every ten or fifteen years while you know it's not uncommon for agencies to revisit and refine their rules but that doesn't make a prior rule unreasonable or unlawful i think there's you know this is it we're dealing with an ambiguous statute and lots of different ways you can imagine to to wait for it if you think the statute ambiguous i think it is in the sense that it doesn't  seventeen and we think both are reasonable and so that suggests there is some ambiguity in the statute because we have two different interpretations both of which are reasonable and so i mean the fact that the secretary issued new rules in two thousand and seventeen doesn't make the method used here and the less reasonable i think the secretary and we continued to believe that the method used in these cases was was reasonable and fully consistent with the statute as is the new method in the in the two thousand and seventeen rules if you  in their communities yes your honor i mean what the statute requires is that there are fixed costs to be fully compensated and they received payments to contending secretaries analysis provoke approach doesn't do that right and so it's a payment made under the perspective payment system whereby hospitals are a fixed amount for treating a patient depending on that patient's diagnosis so someone for example who's in the hospital for heart surgery the hospital gets higher exactly and it was based you know when when the prospective payment system was first implemented the basically the agency took an average of cost per patient across hospitals across the country  that that's the agency does that each year the agency does that and there are just the d r g takes into account the sort of the complexity of with a diagnosis so the starting point is average costs dating back to sometime in the eighty's when the prospective payment system was first implemented those average cost per patient are so of inflation adjusted each year and then there are additional adjustments of waiting factors depending on the severity of the diagnosis so that you get more payment for a more serious diagnosis and less payment for something like a simple broken arm there are also an additional adjustments for labor costs and in a particular market so there are a whole bunch of adjustments it's a very complex calculation and determination that year but i think the key point for purposes of our case is that it is a fixed amount determined independently of a particular hospital to fix caught our actual costs in treating a patient so this is just a set amount that each that congress has determined hospitals will get a fixed amount for treating patients there are no longer reimbursed for their actual congress wasn't completely happy with that because they said it really her rule of community hospital jack was so that's what they did this system exactly and the point is make necessarily to make hospitals whole and to reimburse all their costs the point is just to partially mitigate the effect of the prospective payment system and give give these hospitals a little extra cushion by making sure that at a minimum they're fixed costs are fully right that's right i want to go back to your ambiguity of the statute statement is it in fact your contention that the statute is ambiguous because it fails to set forth with precision a formula or methodology for determination of the b d a that's i think that's right your honor all right now if that's true and if in fact at that point now it's ambiguous and now the hallmark of the entire analysis is reasonable those and the purpose of the statute the purpose of the act is to afford sort of a leveling of of of losses for hospitals when they find themselves in this instance and these are high schools primarily in under served rural areas and it frankly these hospitals may not be representative of all the hospitals that may actually be at issue here because there may be very small community hospitals with one doctor that they lose their doctor and all of the sudden they have no revenue for some period of time right and those those places still exist in rural places in our circuit appropriate under the circumstances well i think your honor you know just in terms of reasonableness here what the statute does require is that fixed cost be fully compensated and here the hospitals received payments totaling their fix cost so i think that is reasonable the fact that there may be some other methods that provide more compensation doesn't make this any less reasonable because they're fixed costs have have been fully compensated you know i  mean one of the things the counsel for the hospitals noted is that under the two thousand and seventeen rules for example the method used by the board insane and any that hospital would have received additional reimbursement and again obviously we think the two thousand and seventeen rules are reasonable but i think the point that the issue there is the fact that the secretary chose a more generous method arc or a compensation method that may be more generous in certain circumstances doesn't mean that the method used here is not reasonable because again i think it's important to keep in mind that all of their fixed costs were fully compensated here and that is what the statute requires to fix fixed cost not necessarily take that into consideration i don't know your honor again because the statute doesn't speak to that all the statute requires is that in this particular circumstance where hospitals have have experienced in a decrease in a significant decrease in patient volume all th of the of the pay whether it treats actually treats any patients even if they had no patients you're supposed to reimburse them for the fixed costs right that's right that's right with it exactly and they were reimbursed for their fixed costs here think the perspective payment system is perspective in the sense that it's a fixed amount regardless of your actual cost but reimbursement decisions are still made for a particular year for a cost period so i think you know it all we're looking at it for example this is two thousand  even talking about no your honor i don't think so no no i thought you told us the statute ambiguous well i think it's ambiguous in the sense that there can be more than one reasonable way of calculating the volume decrease adjustment but there were dealing with here was an ambiguous statute rather than a statute that simply delegates to the secretary right i mean the statute itself may be plain but it delegates the decisional authority to the secretary and the people that the secretary designates in the process to establish the d d a right is that really ambiguous i mean it seems to me the statute on face may be plain but the ambiguity that you're describing is really a methodology which is part of the delegation unlawful depending on whether the statute itself provides sufficient guidance and i think that's one of the arguments being made here is that there is insufficient guidance and therefore the secretary has adopted a wide spectrum ambiguous was not the best choice of words i think the point is i think the point is and what i was really trying to say is that the statute leaves a lot of this up to the secretary's discretion as you said and leaves that it doesn't set forth a method for calculating the volume decrease adjustment but leaves that to the secretary to determine and i think the point that i'd like to emphasize is that the way the secretary calculated the volume decrease adjustment that additional payment in these cases was reasonable and can fully in a consistent manner across the country it's not something that's binding on the secretary and i think so by the example of how to do it they follow the example and you directing your contractors to doing it most people will do it that way and yet you say it's not the way to do it well i think even as the board recognize i think i think it was ambiguous right that because you know you have the calculation the example that set forth the numerical example but then when you read the text they talk about variable cost and semi fixed cost and they say the a cap or a ceiling beyond which payments can exceed but it doesn't actually step forth a formula that regulation says you're supposed to consider hospitals individual needs and circumstances do you do that in any way the way you've got it set up well they do and i think part of that for example is considering whether tell me what part considers that looks pretty formulate to me go it well i'm not sure i hope this is addressing your question or i fully understand it but i think one of the ways in which that's taken into account for example is with staffing needs and excuse me a contractor will look to see whether there is excess staffing or whether their staffing for example even in the face of lower patients a hospital may not really be able to reduce the staffing because there may be a minimum a man can call of course staff amount a fixed cost exactly exactly and i think that takes into account a particular hospitals are there is there any way that these current interpretations is an example of the secretary responding to pressure by congress to cut the budget to hold the budget down any aspect of that involved in this dispute i don't think so your honor i mean i think all the secretary was doing was in interpreting the the language of the statute rick which requires that fix on his own and decided to proceed with the i'm sorry i'm not sure i understand your question your honor well you you said there was no outside reasons that we are dealing with these modifications of the hospitals are screaming you're taking our livelihood away from us because you've got to cut the money that we receive from the taxpayers so i think that the method that the secretary used here was just interpreting statute requiring that hospitals receive payments campoli compensating them for their fixed costs which is what they did i think it's worth noting that the method that the secretary used here was actually a method that the board had upheld in a two thousand and six decision so this isn't like some brand new method that the secretary just pulled out of out of thin air i hope that ad so just very briefly i would like to make a comment on the greenwood case brought up by michelle and she said that the greenland case was evidence that the contractor had used this methodology which we are protesting in the past but that's not what happened in the greenwood case in the greenwood case the the contractor the mac had disallowed any payment so there was no calculation of the v d in that case intel the provider reimbursement review board implemented one i'd also like to address is the evidence that this is a change in the methodology by the secretary the secretary's interpretation was adopted by the secretary's agent the mack here in this case for the first time by this map when it determined unities vdare for the year and to repeal the mac made that very clear in its testimony and we've addressed that beginning on page thirty of our principle brief up until then it had consistently use the method that the hospitals are advocating in the subpoena all the back further testified that it adopted this change in methodology without any change in the statute regulation or p r m that it did not rely on the greenwood case but that it looked at the statute and said we need to interpret this differently and we're going to do it starting with unity or do you suppose that happened i mean secretary will go one day and said we've got to do some different things here the testimony of the mac representative was that it did that because had in it had received an increasing number of requests and so of course when something is taking more money you start focusing your your efforts on it there's additional evidence the czech secretary changed his interpretation of this methodology there is first there's a letter from c m s dated two thousand and four or c m s was asked which methodology do we use and it's basically the providers versus the methodology the secretary uses here and c m s wrote in that letter and it's in evidence it's in our principal prefer that these that the method to be used is the method that is being advocated by the hospitals in this case this is the method in the p m but it didn't mention the proportional proportional method right no it didn't get pushed the first time we see that is in the board's decision in the green with cancer drugs and the other example of the secretary using the old method up until the point here with unity was to two federal register discussions in two thousand and six and two thousand and eight which are in our brief where they clearly set forth the calculation the adjustment amount is determined by separate cept by subtracting the second  payment from the lesser of the second year costs minus any adjustment for excess staff or the previous year's cost multiplied by an update factor with that we would ask that you reverse the secretar made to remove any conceivable possibility that a hospital that qualifies for this volume decrease adjustment could ever be less than fully compensated for its fixed costs so that means under the secretary's decisions and the methodology used in this case that it was possible and in fact it was certain in these cases on appeal that the secretary's method did not ensure that the hospitals were compensated for their fixed costs and therefore the secretary's methodology does not meet the statutory mandate volume decrease adjustment basically is meant to help the small rural hospitals that are vulnerable and they can't operate in a cost efficient manner when they lose a five percent decrease in their inpatient volume so while the d r g payments act on all video mostly acts on small rural hospitals because those are the ones that are suffering declines in those are the ones that aren't able to compensate for that decline an act in an efficient manner like the d r g payments require them to do because they don't have enough volume to make up for that loss the secretary also wanted you to know that they thought that both the two thousand and seventeen regulation and the secretary's decision in this case were both reasonable but that just can't be possible given these disperse the old it is true that in the august fourteenth two thousand and seventeen federal register the secretary said it continues to believe that both are reasonable that is a completely self serving proclamation that this court is not required to accept because when the calculations are used are compared and we look at the result it's simply not reasonable according to the supreme court in baltimore versus aberdeen in one thousand nine hundred sixty eight if this court accepted an a gency finding simply because the agency said it was so the administrative expertise would then be on its way to becoming a model so that's pretty chevron right it's still the same in the how are you sure i don't know if you look at an agency finding just because it says so this court doesn't just rubber stamp the secretary's decision it's required to make even after chevron a searching in depth probing review and the secretary's decisions in these cases simply cannot withstand that searching in depth review and we also talked about the ambiguity about of the regulations and i think it's important to note that certain items in the secretary's own regulation have to be considered for the b d a and someone started to hit on this individual hospitals news and circumstances the hospital costs and the length of time that the hospital experienced a decrease and you know they claim and they're probably not right the government the government says though that that's mostly for core staff and it is mostly for course they have is it true that the hospitals here got  personnel cost as fixed cost i'm not sure that they got all of their fix personal cost us fixed but that wasn't an issue when we looked at the b b every glacier and they did not have to remove those for the in the vdare regulations i think you're telling me they did get all personnel some which is definitely variable but you're telling me that they did consider all personnel costs thanks got in the p r and there's a separate equation that you used to take out fixed cost and that was not at issue in this case so either the mac decided that none of those run reasonable or they got all their facts i think it could be either way in this case and i see my time is up so i ask this court to vacate the secretary's decision thank you all for your capable argument appreciated case number factor three case numbers eighteen