our first case for this morning is st vincent randolph hospital against the secretary of health and human services thomas pri smith please the court this case involves claim to medicaid members meant for interest expense that st vincent randolph incurred on the construction of a new hospital facility in winchester indiana there are two issues presented this morning your hon in two thousand and three the second issue presented is whether any defects in the original two thousand and two loan precluded the interesting expenses from the refinance debt through perception health in other words the second issue is basically a once tainted always tainted it is the government's position on that issue that at the your original two thousand and three loan was insufficiently documented and is related to related parties and therefore that was tainted immediately maybe we should separate the idea of taint from documentation because if the documents aren't sufficiently detailed to see what that two thousand and two loan laws what words terms what was the interest vote was that we painted record then and then if in at the later time when the bond issue that dissension apparently floats  is is issued and ascension according to you gives the fifteen and a half million or so to st vincent randolph and they somehow transfer that amount and these numbers i'm actually having a lot of trouble with since with the amortization table you're looking at it's not clear why that's the right amount of money but basically as i read the district court's opinion it doesn't preclude the theoretical possibility that something like this would have been reimbursable but it does say you just didn't present the documents that correct your honor they're claiming a defect if you i agree i saw the words you're not saying they're so some eternal once changed always tainted rule or anything so it's more modest claim right yeah i think that's true i think basically they're claiming that the document was incorrectly or inadequately documented in the text so tell us about the documents then tell us about what in the in the two thousand and two transaction documents the loan from the indianapolis i guess they were calling these things all different names but st vincent in indianapolis what documents that loan but basically it was it was an image as a sheet table and some other journal entries but it but tell me why and amortization table documents alone why is that something that's something that memorializes the loan well it shows the interest payments down to a zero balance is what it does and right i think i mean the just the situation that they are related in a and they are jointly controlled by which it was a problem in two thousand to be fair so you agree with that too and i guess that's why you dropped your interest that's correct so your entire documentation for the two thousand and two loan is the amortization table yes and i believe there may be some other journal entries in the record but essentially that's that's documentation that was put in so when i read the regulation it looked as though the government wasn't being rigid they weren't saying you know you had to have a piece of paper that said the loan agreement at the top of it they they recognize that as is often the case in the business world there might be exchanges of correspondence that would say we're proposing this that's ok with us you know we're going to do that work or even e mails but there's nothing like that in this record there was not your honor that's that is in fact why that cl for two thousand two was dropped so tell me about the documentation then for the proposition that after ascension floats the bond issue they collect the money then they give fifteen million and a half and for so to the st vincent randolph people who then give it to the st vincent indianapolis people you've given us some little excerpts from tax returns and stuff but there's a lot of inference that has to go on there why does the government why is the secretary being unreasonable in saying that he wants more why i don't know that the secretary is being unreasonable by documentation has to be documentation satisfactory to the secretary that's true but i don't think ok and so in response to the chief justice question you said the secretary the secretary was not acting on reasonably well if you put those two things together there's something of a problem for your appeal i think i think what i'm trying to say is that there is nothing unreasonable for asking for additional documentation and that's just exactly what they did before the p w r beat what i think is unreasonable here is the quality of the documentation that they are demanding there's nothing in the regulations that require that a written satisfaction or written release of the loan be presented in order to establish that th e loan was repaid or that it was somehow not what why is there a fight over that if that's what this is about and i'm i'm going to ask that secretaries lawyer as well why isn't why is there a fight st vincent indianapolis can create that on the back of a novel open in less than thirty seconds do we really have a full set piece of litigation about something that's so easy to create well i think i think the problem here you honor is that what the secretary actually didn't this case this is not this is not something that grew out of a full blown properly promulgated regulation this is something that grew out of the fact that the the there was never any issue about a rate now now i'm lost you said this does not grow out of a properly promulgated regulation are you making a procedural challenge to the validity of the regulation well there is i don't think there is any regulation that requires a written release or satis mel shift also require a particular document requires documents satisfactory to the secretary are you are you saying that that regulation is invalid for some reason i've heard you say it was improperly promulgated no correct i'm not saying that regulation was improperly then then what is it in your view that was improperly promised the secretary is attempting to right room that regulation the requirement for written release i don't think that's quite right i think that what the secretary ultimately decides on this goes through all the regular steps of the adjudicatory procedure that the department makes available the secretary saying something different what you gave me isn't enough this i don't see the secretary actually saying and only you know the following formal documents will be enough i'm not sure the secretary ever had to get there in this case but the secretary is quite unsatisfied as it seems from this case with what you did proffer and i don't think you necessarily had to play a game of twenty questions to figure out you know well is this enough is that enough you gave them your word documentation i see where you're coming from you know i can see where these moneys shift back and forth are these you know very similar amounts shifted back and forth but the secretary didn't think that i guess the secretary's posture is there's some distance between i take it you from your answers to judge easterbrook you're not saying that a regulation that says documentation has to be acceptable to the secretary is somehow so vague that you don't understand it it's an invalid in  that sense and valid you recognize you have to give the secretary enough i do and that i think we did your honor that's that's the real issue here i think we gave you would like us to override the secretary's judgment that that's where i'm bumping into there's no doubt that there's deference that's quoted the secretary's decisions there's no doubt about that but that doesn't preclude a probing and verrall review of that decision in the basis for the decision that that completely those me  standard of review a substantial evidence which is about as far from probing and thorough review as one could imagine it why could you just explain short compass why the secretar supported by substantial evidence well i think the secretary's decision was not weird by substantial evidence because the only evidence presented in this case is number one that the loan was always intended to be a short term loan between us secondly that the only evidence presented in that what's in the testimony of mr warden and mr ellison was that this loan was paid off now that's not just testimony without any documentary support the the evidence that in the documents that we did put in evidence were contin pursued contemporaneously prepared at the time of the transactions and this was just testimony that was put forth by mr warden and mr ellison indicating that that is in fact what those documents did and that's what what in fact occurred the secretary didn't you know step your brief your brief sets out of pages seventeen to nineteen of the documents that you think supports your position is it your view that as a matter of law the secretary must take that as adequate despite the regulations saying the secretary gets to determine what documents are adequate well i don't think that i'm saying they must accept it but i think i think that doesn't preclude a challenge of some not saying that i don't see how you have any like to stand out as i see it unless those things at seventeen to nineteen are adequate as a matter of law to override any discretion the secretary has asses then there's nothing here to argue with and you just answered my question by saying you're not contending that and that leaves me  attard so if you ignore the taint argument what extra documents does the secretary think are needed i do think that the two thousand and agreement setting forth the terms of the two thousand and two no that's the change of argument put that to one side what extra documents are needed for the proposition that the bond issue is being used to finance the hospital now that's to me just to just underscore that point is there any way you can read the evidence in this record that would shake your confidence t bond issue money that ascension raised and then gave to st vincent randolph was being used for an appropriate purpose under the medicare program for the construction of the hospital and whatever ancillary equipment there or the like goes along with constructing a hospital is there is there anything to make you think you know that people were you know off building shopping centers with with that money or are doing something inappropriate there's nothing in the administrative record that would suggest that your honor but there and you'll agree it is understood match up quite well although i mean it's a little bit difficult to see you know if they they really were amortizing the loan you know they got a gave to st vincent randolph was in fact money for medicare approved purposes not not to the extent that he can get that agreement signed by all parties etc that plays out you know here's the amount of the loan and here's what the interest rate is going to be and here's all the rest of the stuff only that will do and nothing less i think that  document would allow us to make the proper link between the two thousand and two loan and what they contend the two thousand and three bond fund that they contend was where you need that link only to correlate the the later money with the hospital otherwise the earlier loan doesn't make any difference right you need to show that the whatever it is you know fifteen and a half million is for the construction of the new hospital facility there's also it's also the case that if you if you take the two thousand and three bond standing alone right without any bill a rate if we could do that without without any relation earlier earlier loan then there's also question is whether whether it would be political necessary under the under the regulations that the two thousand and three loan or bond  then it isn't an issue in this case we can affirm an administrative decision only on the ground given by the agency operation maintenance or acquisition of the facility that's what is that with thanks taking the position that it wasn't necessary because by this point the new hospital had been built yes so there is already a new hospital finance however it was financed they don't care and they're saying why do you need another fifteen and a half million correct year that's why it would not be and the answer is to pay back the money that we borrowed to build the suit hospital which was insufficiently documented in the first place and could you repeat that which was if it's officially documented in the first place so that's how you're trying to spite the rejection of the change argument to say we don't are you actually saying we don't know whether it cost you ten million dollars to build a new hospital or eight million dollars or twenty five million dollars or fifteen and a half or whatever it is that your position were as as of two thousand and three two thousand and four when we're talking about the as of two thousand and three through two thousand and four the bond with not being used to acquire the facility the hospital already had that facility and it was you saying that as a matter of law all interest on refinancing is disallowed right that's what it sounds like you're now arguing if the first loan had been documented to the nine s and had been not from an affiliate corp but from j p morgan chase right and had been a fifteen million dollar loan to build a hotel and then that loan is taken out by a second loan of equal size from a different source it sounds like you're now arguing that all interest on the second loan would be disallowed because it wasn't necessary to build the hospital it was only necessary to repay the first loan is that the secretary's position you know if there is a plan do you know if there is what is the argument you're making on your feet and it doesn't seem a very good one i must say if there is a proper link between that ladder refinance well into the earlier on no that's just back to the can you point to anything in the record that misled the secretary in this transaction because it isn't and face what you're concerned about is that the secretary in carrying out the policy of the department is is fully possessed of whatever he or she in this case he needs so is there anything to indicate they misled or misread what was presented amount want to get tied up with inadequate documentation look i think there's there's not i mean i do think there is it within this record for instance the increase in the loan amount for the two thousand and three bond financing from the earlier that was not document we do not know how that was spent we do not know whether that was for documentation from the first loan but that if if the first trash that you're now refinancing had been spent on building you know an elaborate country club you wouldn't of allowed interest on that refinanced loan to be deducted if the first loan was actually used to build a new hospital then you would allow the interest on the refinancing so it's not about whether it's refinancing or not it's about whether the first loan is for legitimate purposes yes you're and i mean actual not sure what in the record would suggest it wasn't but you know if if the if the refinancing of the refinancing was for a higher interest rate there would be no reason for the refinance and we would not you know in order to protect the medicare trust we would not you know hard hard to see  hospital facility nobody seems to be contesting that the facility that the hospital had when the st vincent people took it over was an eighty year old clunker of a hospital that needed replacement the ascension people is back up at the fifteen a half level with another million thrown in there yeah well that council it seems to me that that problem might justify disallowing interest on the extra one million why does it justify disallowing interest on the fourteen million that seems to be a refinancing of the original debt because your honor as this court decision and davies county hospital where you know a similar situation where there was a lack of documentation as required by you know the medicare regulations and the p r m where they're not able to establish and provide the documentation sufficient you know look let's let us assume that the documentation show that then refinancing was for fifteen and a half million which was one million more than the fourteen and a half million debt the question is what is the right thing for the secretary to do to disallow interest on the whole fifteen and a half million or to disallow interest on the extra one million which doesn't seem to have been used to take out the original loan which is the right thing to do and why that's what i'm asking i think that the right thing to do is to just allow them the full amount and why because because they're  again i understand the court is a verse that the team are going to the original fourteen million was also not properly documents and that is you're taking your name again as the other side of it can you can you answer my question without change or is it underlying substance i'll ask you because i mean you could answer the question as if the first loan is judge easterbrook suggest a few minutes ago was perfectly documented the no no no later parties or anything presumably the secretary would have looked at such a doll and wouldn't have had a documentation problem with it that might have had medical necessity problem with it might have had some other substantive problem under the medicare act yes but that that's that's correct your honor all right loaded with payments and indianapolis and as required by the medicare regulations to recover interest expense and also failed to document and establish the link between the two thousand and three bonds that in the original two thousand support the secretary's decision and respectfully reflect request that the panel uphold the district court's decision all right thank you very much anything for that mr smith all right thank you very much to both counsel then we will take the case