hospital gets a share of those funds only if it has uncompensated costs the final rule tries to direct these funds to the hospitals the need them the most and it does this by recognizing that payments by private insurance and medicare are compensation when plaintiffs are fully compensated by these sources they have incurred no costs and they don't need some mental payments to fill a shorten rebel including something then that means they didn't mean to include them to know that this court has that it's a weekend in any administrative context that particularly so when paired with an expressed allegation of authority and if you look to the immediately preceding congress is concerned about federal money what's going to happen to leaks so what are the limits on the secretary's discretion on you or you but certainly must i mean it has to be reasonable and congress's you must do this and you say but it doesn't mean we can't do anything else we want to payments that are for inpatient and outpatient hospital services provided to medicaid patients directly compensate hospitals for their gross costs of treatment and asia coming back to that but the bequest is just like insurance i mean the hospital gets money coverage i'm just trying to understand what is the limit of the secretary's authority so your view is that congress would have had to say you may deduct this and only this medicaid patients it's the most natural source of humor for medicaid patients and congress wanted to make sure that those payments were at a minimum deducted in calculating the medicaid short on them at a minimum and number two over the ca uncompensated care costs would be included in this calculation it also the second sentence of paragraph the provision that we've been looking at speaks about state and local payments for indigent patients and says that those shall not be treated as a source of third party payment showing that congress presumed that the secretary made the accounting for other types of third party payments and in addition the canon is very she would be completely sorry the purpose of the dish payment program would be completely undermined by applying the express the oh yes canon in this context and courts have recognized that you should not apply to canon in that situation if i could give an example of of two hypothetical hospitals to help illustrate the consequences of the district courts approach hospital hypothetical hospital a treats only privately insured medicaid patients spends a million dollars on treating them and is reimbursed one million dollars so it has full been fully compensated and suffered no shortfall meanwhile hospital b treats medicaid only patients and it really is reimbursed at a lower rate so it gets only six hundred thousand dollars for those same expenses now hospital b unlike hospital a has suffered a shortfall and you would think that it would be the hospital that would be eligible for more supplemental payments but the shortfall the final rule is not aiming to get more money back for the federal government it's about making sure that these limited funds go to the right hospitals let me ask you secretary used to have a different  and that's what the secretary did here but that doesn't mean the secretary's the litigation was because the secretary had that veto and and hospitals challenge that so the secretary has now promulgated that that final letter that  we don't know exactly what was happening in two thousand and fourteen was the first year when audits were submitted for the two thousand and eleven services state we're near that we that actually have financial consequences for the hospitals so that's  and you can see in the comments to the two thousand and eight rule commentors some said that medicaid eligible patients that had additional insurance like like medicare just shouldn't be counted at all in the calculation and they said if there's no if there's been no payments by medicaid then you should just exclude that patient completely so do you agree that these hospitals pay they bring we are not dealing with some of the concerns that the secretary previously had about how this money was being doled out by the  states right now and you might be referring to the legislative history where congress identified a couple of concerns yet and so those particular concerns are not as far as i know present here right but congress i this data and short on the secretary you if you're going to go beyond those costs that are considered in the statute such as considering ancillary services research things that aren't in patient  outpatient hospital services then you could increase inflate the actual hostin it might look like there's been a shortfall if you look at the actual costs and you look at them for the right patients some of the plaintiffs also i believe have tried to separate out the costs and give a number for the costs of treating medicaid only patients and and emphasize that shortfall and then treat the cost of treating medicaid eligible patients that have additional insurance as some kind of separate costs but the statute considers all of this in the aggregate in an overpayment for one type of patient for medicaid patients who has insurance and medicaid only deficit with respect to treating another set of patients so if i'm a hospital that no money on private insurance why should i continue to do so because if i don't have that compensation in this calculation of uncompensated costs and so if a hospital is receiving yet third party private insurance payments that are going to exceed its relevant costs here and those need to be accounted for the final rule recognizes that in that situation of a hospital has a net gain from treating a patient then that's compensation significant compensation and the hospital doesn't have a need for supplemental  what i'm thinking of as a real experience where hospitals don't want to treat low income all the people all right what i'm trying to understand in those circumstances are those hospital therefore because they're not getting is getting a higher federal medica s refused to treat uninsured people period they will deny the facts are there so i'm just trying to understand that put them in a better position otherwise why are they insurance is and it's going to be making calculations at that level of detail i mean you cite when you come in the front door problem do you have insurance no sorry we don't have any room for you all hospitals are getting medicaid is it generally pain at a lower rate for medicaid patients so in theory all hospitals could have an incentive as you as you've described but hospitals are treating medicaid patients and congress and congress in addition to regular medicaid payments set up this program so that hospitals would get a supplemental payment to help meet the cost because it did recognize the hospitals that treat a disproportionate share of medicaid in uninsured patients do tend to suffer a shortfall and it wanted to help hospitals meet that gap to fill that shortfall so you understand my question to you that if i'm a hospital and i decide i'm going to treat more on the insured people insurance that i'm going to be going to only treat uninsured people right i mean the hospital would have to weigh i can't say how much the hospital gets and from and how the system works because but there is the federal government makes this finite pool of funds available to each state to share among hospitals in the state to help them meet whatever their uncompensated costs are and this final rule is simply trying to ensure that the funds are distributed to the hospitals that he actually have uncompensated costs and that accounts for compensation by private insurance and medicare that are real significant compensation there really are hospitals that under the final rule have uncompensated costs and would be eligible to receive more funds under the final under the final rule still in question about when a which is what we're talking about i thought the first sentence was clear in that the parents of the coal as determined by the secretary is one condition in determining costs incurred the second is that it must be in there are two types of payments medicaid and whatever the indigent patient can pay himself now would you agree that the secretary in his discretion could not go counter to the lopping off the medicaid and indigent payment yes i think emergent patient payments  ok and i thought actually i thought what the second did condition was that is the net of those two paper types of payments sets a floor and does not bind the secretary the source of third party coverage then he switches to source of third party payment but i guess my question is this the whole intent was to stop the double dipping for lack of a better  sentence it seems to me does allow a certain amount of double dipping if i'm reading it correctly that is that when a hospital says ok for my costs incurred i cannot include medicare medicaid i cannot include with the engine pays him self under the rule i cannot include medicare or private third party insurance but payment and there is a state component to the dish payment so it's not just in front of my state and local governments for meeting those those sorts of payments and not going to come against the hospital if the state has decided that also pays makes payments for indigent care separate and apart from medicaid is that what this is a sentences direct to the yes that's my and that's just from state taxes i'm sorry sure they make hospitals whole as much as possible but not allow the double dipping that's exactly what the final roll is is trying to do  the morning of thank you your honor i'm david summons on behalf of the children's hospitals congress has provided a clear formula in subsection g wanted a built around three distinct and unimpeded with statutory concepts costs which has the ordinary meaning of outlays or liability for an expense payments which means amounts received and net which is what's left over after you net out the designated payments from the cost congress gave the secretary discretion only to determine the allowable costs for the first component of that formula congress itself specified the rest of the formula the secretary must take the allowable costs and then that out two sets of payments those for medicaid and those from uninsured patients the remainder is the hospitals uncompensated costs which caps the dish payment so for medicaid for the medicaid portion of this calculation judge henderson uncompensated means uncompensated by the medicaid program so medicaid costs are uncompensated under the specific formula congress provided to the extent they exceed medicaid payments nothing in the tax permits the secretary to change the formula by adding another category of payment that must being that it out that complete lack of reference to third party  payments and netting of those payments is not near silence or a gap that the secretary can fill and congress intended the emission we know for a fact that congress was aware of third party payments so it's it express excluded patients with third party coverage from the uninsured portion of the calculation it defines obviously uninsured to mean there are no third party payments that's the sit ins that you were referencing  ins that follows for purposes of the proceeding since payments to a hospital for services provided to injured patients made by a state or unit of local government in the states will not be considered to be a source of third party payment the third party payment is a reference to the uninsured portion of the calculation only that's the only portion where third party coverage is relevant and contrary to the suggested made by my colleague on the other side the indigent patient category is a subset of uninsured so if you have if your medicaid eligible you are not an indigent patient for purposes of the discussion leash or otherwise because you have thirty you have insurance medicaid is a form of insurance it's you're both uninsured and indigent that these state and local programs come in so it doesn't affect the medicaid shortfall or the medicaid calculation of this program but what console congress again just to recap specifically excludes patients with third party coverage from the uninsured portion and with regard to the medicaid portion this is what congress says it says you have to base the calculation on patients all patients that are medicaid eligible now that is very important and we think the government doesn't give it the justice it requires medicaid eligible all patients that are medicaid eligible congress could have said it's that it's based on patients that receive medicaid benefits what's the difference just i read eligible for medical assistance under the state program is that what you're exactly right that means medicaid eligible and it's exactly the same way your honor that the the qualification to become a disproportionate share hospital in the first instance is provided for in subsection b and it's based on medicaid eligibility the government agrees with that that's actually the textual justification they have at the end of their analysis to include private insurance payments for things that are not even within the allowable posture medicaid's if this program works from their perspective only because they are there is tremendous mitch matt mismatch excuse me in their regulation between the costs for serving medicaid eligible patients which are limited to allowable costs and then the payments that are coming that they say that in the corporate into that from third party insurers which cover services that are covered by medicaid and it rates far higher than medicaid and that is just a grab of private resources to supplement the medicaid program that congress clearly did not intend so let me go back your owners to this concept of medicaid eligible congress directs that the dish cap this limit on the dish payment that the limit is set with regard to medicaid based on all patients that are medicaid eligible congress knows that it could have said receive medicaid benefits and the difference between patients that are medicaid eligible with don't receive medicaid benefits are specifically patients with third party coverage because it's unlawful for a hospital to bil medicaid if there's third party payer so congress made a specific and intentional choice to base this calculation on all patients that are medicaid eligible even those that have private insurance coverage and and so for the government to come back down say well as part of our discretion to determine cost we're going to back out those costs and then also payments from insurance third party insurance that far exceed any of those costs that cover things are even related to those because we don't think congress intended medicaid eligible patients with third party coverage to be part of this cup the reason well there are their purposes at war with the statute congress was very clear and intentional in saying that calculation includes medicaid eligible patients that have third party coverage that's why it's medicaid eligible not receive medicaid benefits and congress had good reasons for doing that  first of all congress made the determination that all patients with medicaid eligibility and specifically children with serious conditions which congress independently made a policy choice about to to provide these very sick children with medicaid eligibility without regard to their parents resources or third party coverage that's a policy choice that congress made and congress wanted the dish payment to provide financial support specifically to hospitals that serve a disproportionate share of medicaid patients and low income patients and in fact let me take a moment  you that the main policy point i think the government has they stated in a couple of ways one sometimes they refer to it as double counting well there's no double counting with regard to medicate these services were never built to medica what happens is they're included in the costs for determining the cap on the dish payment and so there are some additional payments that can be received because these hospitals provide these services but that's exactly what congress intend paid for them there that there is private insurance that covers those services but congress intended this is my point congress intended the dish program to provide a supplemental payment not based on specific services that are provided but based on the identity of the patient population that hospital serve and this is why i was referring your honour's to subsection b which defines the dishwasher and there are two ways congress says you become eligible for this supplemental payment as a hospital and you're entitled to some additional funds and one and this is subsection b one day and it's on page thirteen again of the addendum says hospitals and medicaid inpatient utilization is for hospitals that have a low income utilization rate that's higher and it's at least twenty five percent so congress was obviously focused on patients or to hospitals that serve a disproportionate share of just and lower in of in the first instance medicaid is never billed for those costs so they're not they're not within the medicaid payment program that's the direct payment for services but congress said in addition to the payments that states have to include for specific services we have this disproportionate share supplemental payment that's required and those services are relevant and are important to be included in that calculation and we know that because again congress based it on medicaid eligible congress created is that you have to reconcile that with the way congress to find this hospital this hospitals use me and subsection b and and congress provided in b one b for low income hospitals hospitals to serve a disproportionate share of low income patients to receive these documented payments but then apart from that it says if you serve a disproportionate share of medicaid eligible again not receipt of benefits that includes cost for services that are third party coverage situations not many of those by the way it's a small subset and we'll get to that the moment but that is what congress intended why because congress wants hospitals to run to these  patient categories run towards them instead of run away from them and so drug use i think this gets to some of the questions you were asking about hospitals that refuse to provide services or find opportunities to decline this works our hospitals do not turn away those patients and they have additional restrictions that blew them from doing so and congress recognized that it said the purpose of these supplemental payments was to assure that these  rates that the states have discretion to pay lower than medicaid costs that they meet the needs of those facilities which because they are they do not discriminate in admission against patients based on source of payment or ability to pay serve a large number of medicaid eligible and uninsured patients who other providers view is financially undesirable and it's simply not true that our hospitals are in some financial position they lose money on on the medicaid patients that they serve they are never fully never fully recover their costs and because congress intended children's hospital specifically to be included in this dish payment system they serve all covers they incur tremendous expenses providing state of the art care in nicu units in cutting edge research and in training of future pediatricians that are never fully recovered through the medicaid program or otherwise and they are exactly the types of hospitals congress wanted to receive the supplemental payment these hospitals are the highest proportion have a high proportion of medicaid eligible patients in their states and as the record shows the they rely very significantly on these dish payments and without and they will be in serious financial trouble some more than others to be sure but they will be faced with the prospect of cutting back services especially those kinds of services congress want to make sure we're sustainable for social services and other kinds of services that are inherent in serving a large portion of medicaid eligible patients your honor i would also just point out that there's a lot of rhetoric about what congress intended here with regard to the concept of cost incurred and that some cost incurred refers to the entire formula or the end result of the formula and i think it's important to note that the secretary's own regulation doesn't treat it that way in fact if you look at  five of their brief you will see that the regulation specifically refers to the total annual cost incurred by each hospital for furnishing inpatient hospitals and outpatient hospital services to medicaid eligible individuals they start the same place we do gross cost total cost and then they back out in a separate part of the analysis not just part of the fin cost but in subsection eleven of the regulation they say you know take this section that defines all of the medicaid payments and subtract it from this section that defines cost and allows us to back out private insurers and then they what they determine costs in that way then they according to struggle ation paragraph eleven then they back out medicaid payments so it's not even it's not even the case that they treat the payments the same as cos they only do that for private insurance payments there's no justification in the statute that gives them authority to do that and in fact doing so significantly undermines in fact it's inconsistent with the expressed terms of the statute with congress's policies which were to provide supplemental payments that these hundred ninety four guidance that's provided in its fine to j five fifteen it provides a formula that's very clear and the only thing that's backed out is medicaid payments with regard to the medicaid portion of of the dish calculation keep in mind these are this is only the cap be entitlement to the payment comes out of another section eight which is not changed the definition of dish hospitals comes in b that's not changed and the floor that's required the minimum payment is required that hasn't changed that's still there that's it subsection c and then states have discretion between the floor in the ceiling to determine all kinds of factors in deciding how to do all of this money and what the sector h crash the ceiling on the floor with regard to patients receiving with regard to hospitals like children's hospitals in particular that serve a disproportionate share of medicaid eligible patients in direct conflict with the statute tha and ignore the compensation by third party insurers i think counsel suggested that the government's excluding these patients from the calculation entirely and that's absolutely not correct the calculation considers all patients who are medicaid eligible both sides agree that the costs of treating these patients should be included we depart where plaintiffs argue that you should ignore the third party humans for those patients in a calculation of uncompensated costs the final rule provides that if you count the costs of these patients you should also count the compensation that reimburses the hospitals for those patients who  is not specifically addressed that now it provides that the secretary has authority to determine the meaning of costs incurred and as we've said the medicaid payments certainly not the only type of compensation that should be accounted for in  incentivizing hospitals to treat uninsured patients and medicaid patients that's the purpose of the program and the final rule is attempting to ensure that the limited pool of funds are