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Nature of Suit Code: 151
Nature of Suit: Overpayments under the Medicare Act
Cause of Action: 

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United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 3, 2015 Decided April 29, 2016 

No. 15-5089 

VIA CHRISTI HOSPITALS WICHITA, INC., AS SUCCESSOR TO ST.

FRANCIS REGIONAL MEDICAL CENTER, 

APPELLANT

v. 

SYLVIA MATHEWS BURWELL, AS SECRETARY OF HEALTH AND 

HUMAN SERVICES, 

APPELLEE

Appeal from the United States District Court 

for the District of Columbia 

(No. 1:09-cv-02060) 

Robert E. Mazer argued the cause for appellant. With 

him on the briefs was James P. Holloway. 

Debra Michelle Laboschin, Attorney, U.S. Department of 

Health & Human Services, argued the cause for appellee. 

With her on the brief were Benjamin C. Mizer, Principal 

Deputy Assistant Attorney General, Vincent H. Cohen Jr., 

Acting U.S. Attorney, Joel McElvain, Attorney, William B. 

Schultz, General Counsel, U.S. Department and Health and 

Human Services, Janice L. Hoffman, Associate General 

Counsel, Susan Maxson Lyons, Deputy Associate General 

Counsel for Litigation, and David L. Hoskins, Attorney. R. 

USCA Case #15-5089 Document #1611046 Filed: 04/29/2016 Page 1 of 13
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Craig Lawrence, Assistant U.S. Attorney, entered an 

appearance. 

Before: ROGERS and PILLARD, Circuit Judges, and 

WILLIAMS, Senior Circuit Judge. 

 Opinion for the Court filed by Circuit Judge PILLARD. 

PILLARD, Circuit Judge: Via Christi Health Center seeks 

an upward adjustment of the capital-asset depreciation 

reimbursement paid to its predecessor hospitals under a sincecurtailed Medicare regulation. As a general matter, the 

Secretary of the Department of Health and Human Services 

reimburses Medicare providers for their reasonable costs 

actually incurred, including an appropriate share of 

depreciation on buildings or equipment used to supply 

Medicare services. See 42 U.S.C. §§ 1395f(b)(1), 

1395x(v)(1)(A); 42 C.F.R. §§ 413.130, 413.134(a). The 

depreciation allowance is ordinarily based on the Secretary’s 

estimates of assets’ useful life, see 42 C.F.R. § 413.134(a), 

but certain providers may claim a Medicare-reimbursable 

share of supplemental losses (or be liable for repayment of 

gains) incurred in qualifying pre-December 1997 transactions, 

see id. § 413.134(f), (l); see generally St. Luke’s Hosp. v. 

Sebelius, 611 F.3d 900, 901-02 (D.C. Cir. 2010).1

 Via Christi 

contends that the transaction that led to its formation—the 

1995 consolidation of St. Francis and St. Joseph Hospitals—is 

a qualifying sale. See 42 C.F.R. § 413.134(f)(2), (l)(3)(1). 

Via Christi argues that it received St. Francis’s and St. 

Joseph’s assets at a lower value, i.e., more depreciated, than 

 

1

 In 2000, 42 C.F.R. § 413.134(l) was designated, without 

substantive change, as subsection (k). See St. Luke’s Hosp. v. 

Sebelius, 611 F.3d 900, 901 n.2 (D.C. Cir. 2010) (citing 65 Fed. 

Reg. 8660, 8662 (Feb. 22, 2000)). We refer to it as subsection (l) 

throughout this opinion. 

USCA Case #15-5089 Document #1611046 Filed: 04/29/2016 Page 2 of 13
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was reflected in the Secretary’s earlier depreciation 

reimbursements. As the hospitals’ successor-in-interest, Via 

Christi thus seeks additional reimbursements to cover the 

proportional Medicare share of the depreciation. 

Via Christi sought reimbursements relating to each of its 

predecessor hospitals, and the Secretary denied both claims 

on the ground that the 1995 consolidation was not a bona fide 

sale qualifying for adjusted depreciation under the 

regulations. The Secretary concluded that: (1) The parties 

neither engaged in arm’s-length bargaining nor exchanged 

reasonable consideration, so the loss did not arise from a bona 

fide sale, see id. § 413.134(f); and (2) the transaction was 

between related parties, see id. § 413.134(l)(3)(i). The Tenth 

Circuit sustained the Secretary’s denial of Via Christi’s claim 

for $9.7 million relating to St. Joseph’s assets. See Via 

Christi Reg’l Med. Ctr. v. Leavitt, 509 F.3d 1259, 1261 (10th 

Cir. 2007). In this case, relating to St. Francis’s assets, the 

district court sustained the Secretary’s denial of Via Christi’s 

claim for a $59 million depreciation adjustment.

We review de novo the district court’s grant of summary 

judgment, “as though on direct appeal from the agency,” 

Catholic Healthcare W. v. Sebelius, 748 F.3d 351, 353 (D.C. 

Cir. 2014), and we affirm. The Secretary reasonably 

interpreted the bona fide sale requirement as limited to arm’slength transactions between economically self-interested 

parties. The Secretary concluded that St. Francis’s transfer of 

its assets to Via Christi was not an arm’s-length transaction in 

which each party sought to maximize its economic benefit. 

Her determination was supported by substantial evidence, and 

was not arbitrary, capricious or otherwise unlawful. See

Forsyth Mem’l Hosp., Inc. v. Sebelius, 639 F.3d 534, 537 

(D.C. Cir. 2011). In the absence of a qualifying transaction, 

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Via Christi is not entitled to additional depreciation 

reimbursement. 

I. 

A. 

As just noted, federal law requires the Secretary to 

compensate medical-care providers for the actual, reasonable 

costs of supplying Medicare services, see 42 U.S.C. §§ 

1395f(b)(1), 1395x(v)(1)(A), and reasonable costs include an 

appropriate allowance for depreciation, see 42 C.F.R. §§ 

413.130, 413.134(a). The Secretary calculates depreciation 

by prorating the asset’s purchase price over its anticipated 

useful life and reimburses a share of the depreciation to cover 

the use of assets in providing Medicare services. Id. 

§ 413.134(a), (b)(1). At any given time, purchase price minus 

cumulative depreciation reflects the asset’s “net book value.” 

Id. § 413.134(b)(9). That value is only an estimate of the 

asset’s fair market value. “[I]f an asset is sold for less than its 

net book value, the Secretary makes an additional payment to 

the provider, reflecting an understanding that the previous 

depreciation payments fell short of reflecting true cost.” 

Catholic Healthcare W., 748 F.3d at 352-53. 

The Secretary, consistent with the relevant Medicare 

regulations, makes that payment only when the loss results 

from a bona fide sale.2 See Medicare Provider 

 

2

 As noted above, the Secretary amended the relevant regulations 

after Congress eliminated the statutory basis for adjustments of 

reimbursements based on transactions occurring after December 1, 

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

§ 4404, 111 Stat. 251, 400 (1997). Because St. Francis 

consolidated with St. Joseph to form Via Christi in 1995, the 

transaction remains subject to the regulation.

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Reimbursement Manual § 104.24 (Manual or PRM) (May 

2000), J.A. 1020; see also Pinnacle Health Hosps. v. Sebelius, 

681 F.3d 424, 426 (D.C. Cir. 2012). The provider bears the 

burden of showing that a bona fide sale has occurred. 

Forsyth, 639 F.3d at 539. 

Nonprofit entities are, by design, driven by purposes 

other than profit. The Secretary in 2000 issued Program 

Memorandum A-00-76 to guide application of section 

413.134(f)(1) to mergers and consolidations of nonprofit 

Medicare providers, specifying that, “[a]s with transactions 

involving for-profit entities,” nonprofits’ transactions support 

depreciation reimbursement adjustments only if they are 

between unrelated parties and “involve one of the events 

described in 42 C.F.R. [§] 413.134(f) as triggering a gain or 

loss recognition by Medicare.” See Clarification of the 

Application of the Regulations at 42 C.F.R. [§] 413.134(l) to 

Mergers and Consolidations Involving Non-profit Providers, 

Program Memorandum A-00-76 (Oct. 19, 2000), at 2, J.A. 

1031. The type of qualifying event that Via Christi asserts 

occurred in this case is a consolidation, amounting to a type of 

“sale,” which the Secretary treats as a qualifying event only if 

it is a “bona fide sale” between unrelated parties. Id.

(emphasis omitted). 

 

Any number of valid reasons may motivate a medical 

care provider to consolidate through a transaction that is not 

arm’s length or economically self-interested, and a provider 

that does so receives reimbursement of capital costs as part of 

the reasonable costs of the services it provides. It is also, 

however, “perfectly reasonable” for the Secretary to decline 

to provide additional, adjusted compensation to non-profit 

providers that dispose of depreciable assets at a relative loss 

in a consolidation when that loss does not result from a bona 

fide sale. Pinnacle, 681 F.3d at 426. We thus reject Via 

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Christi’s contention that St. Francis’s sale of its assets did not 

need to be bona fide to trigger a loss adjustment.3

 

B. 

We already have upheld part of the Secretary’s definition 

of bona fide sale: “A bona fide sale requires the exchange of 

‘reasonable consideration’ for the depreciable assets.” 

Pinnacle, 681 F.3d at 427; see St. Luke’s, 611 F.3d at 905-06. 

We now sustain the remaining elements of the definition: The 

Secretary reasonably concluded that a bona fide sale requires 

an arm’s-length transaction between economically selfinterested parties. The arms-length transaction prong of the 

rule requires that the seller aim to maximize return for the 

assets, while the reasonable consideration prong looks to 

whether the seller in fact received fair market value. The 

absence of either reasonable consideration or an arm’s-length 

transaction dooms a claim for supplemental reimbursement. 

In the Program Memorandum regarding nonprofit 

mergers and consolidations, the Secretary defined bona fide 

sale by incorporating the definition set forth in the Medicare 

Provider Reimbursement Manual. Program Memorandum A00-76 at 3, J.A. 1032. The Manual defines a bona fide sale as 

“an arm’s length transaction between a willing and well 

informed buyer and seller, neither being under coercion, for 

reasonable consideration.” PRM § 104.24, J.A. 1020. 

According to the Manual, “[a]n arm’s-length transaction is a 

transaction negotiated by unrelated parties, each acting in his 

own self interest.” Id. The Secretary’s Program 

Memorandum further explained that, in such a transaction, 

 

3

 Accordingly, we need not address the Secretary’s assertion that 

the Tenth Circuit’s decision relating to St. Joseph collaterally 

estopped Via Christi from challenging the applicability of the bona 

fide sales rule to this transaction involving St. Francis. 

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“objective value is defined after selfish bargaining.” Program 

Memorandum A-00-76 at 3, J.A. 1032. 

In her decision in this case, the Secretary found that St. 

Francis did not negotiate at arm’s length. When St. Francis 

and St. Joseph hospitals consolidated to form Via Christi 

Health Center, each hospital was a nonprofit corporation 

organized under Kansas law, and each had as a sponsor a 

religious order associated with the Catholic Church. When 

the hospitals consolidated, all their assets transferred to Via 

Christi, which, in exchange, assumed responsibility for all the 

hospitals’ existing liabilities. St. Francis and St. Joseph 

ceased to exist, and the religious orders that had separately 

sponsored St. Francis and St. Joseph became the joint 

sponsors of Via Christi.

The Secretary found that St. Francis did not negotiate at 

arm’s length because it “never pursued any efforts to 

maximize gains upon the consolidation or ‘sale’ of [its] 

assets.” Ctr. for Medicare and Medicaid Servs., Decision of 

the Administrator (Sept. 1, 2009) at 27, J.A. 167. Instead of 

aiming to “maximize the proceeds received from selling its 

assets,” the hospital sought to “advance [its] ministry.” Id. at 

27-28, J.A. 167-68. The transaction thus plainly served 

values important to the parties, but the Secretary determined 

that it was not the kind of self-interested market transaction 

that yields asset-valuation information warranting 

depreciation adjustment under the regulation. 

Via Christi does not challenge the Secretary’s conclusion 

that a bona fide sale requires arm’s-length bargaining, but 

contends that transactions need not be motivated by financial 

gain maximization to qualify as arm’s length under the 

regulation. The Secretary’s contrary view, says Via Christi, is 

inconsistent with the definition of bona fide sale in Program 

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Memorandum A-00-76 and the Manual. Those materials 

speak of “self-interest,” but do not specify the type of selfinterest parties must pursue. St. Francis bargained at arm’s 

length, Via Christi asserts, even though it did not seek the 

highest price for its assets. 

We disagree. Because the bona fide sales rule “is a 

creature of the Secretary’s own regulations, [her] 

interpretation of it is . . . controlling unless plainly erroneous 

or inconsistent with the regulation.” Auer v. Robbins, 519 

U.S. 452, 461 (1997) (internal quotation marks omitted); see 

St. Luke’s, 611 F.3d at 906. We owe “heightened deference 

to the Secretary’s interpretation of a ‘complex and highly 

technical regulatory program’ such as Medicare.” Methodist 

Hosp. of Sacramento v. Shalala, 38 F.3d 1225, 1229 (D.C. 

Cir. 1994) (quoting Thomas Jefferson Univ. v. Shalala, 512 

U.S. 504, 512 (1994)). Just as it is not plainly wrong or 

contrary to law for the Secretary to conclude that a bona fide 

sale requires reasonable consideration, see Pinnacle, 681 F.3d 

at 427, it is by the same token permissible for the Secretary to 

conclude that a bona fide sale requires arm’s-length 

bargaining between economically self-interested parties, see 

Via Christi, 509 F.3d at 1275-76. 

The Secretary’s interpretation of the bona fide sales rule 

makes sense, and Via Christi cites no authority disallowing it. 

The point of the bona fide sales rule is that certain 

transactions involving providers’ assets yield data that are 

more reliable indicators than the Secretary’s depreciation 

estimates of the assets’ actual market value, and hence of 

actual depreciation. For depreciation-adjustment purposes, 

the Secretary defines fair market value as “the price that the 

asset would bring by bona fide bargaining between wellinformed buyers and sellers at the date of acquisition.” 42 

C.F.R. § 413.134(b)(2). The requirement that a Medicare 

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provider show an arm’s-length transaction, as the Secretary 

understands it, works in tandem with the requirement of 

reasonable consideration to “ensure[] that any depreciation 

adjustment will represent economic reality, rather than mere 

‘paper losses.’” Via Christi, 509 F.3d at 1275. The arm’slength criterion helps to identify those transactions likely to 

lead to the seller’s receipt of fair market value. The 

reasonable consideration inquiry asks whether the seller 

indeed received “the fair market value of the assets 

transferred.” St. Luke’s, 611 F.3d at 905. 

 

The Secretary permissibly reads the regulation to provide 

that, where parties to a transaction were not acting at arm’s 

length, motivated by gain maximization, they have not 

engaged in a bona fide sale. In such a case, it would not make 

sense for the Secretary to treat the price paid for the assets as 

accurately reflecting their market value. Consistent with our 

analysis, the Third Circuit in Albert Einstein Medical Center 

v. Sebelius, 566 F.3d 368, 378-79 (3d Cir. 2009), found a lack 

of arm’s-length transacting where the record showed that the 

pre-merger provider was not seeking “to maximize the 

consideration paid” for its assets, but rather bargained for 

benefits that would “only inure” to the entity that resulted 

from the merger. Similarly, in UPMC-Braddock Hospital v. 

Sebelius, 592 F.3d 427, 434 n.10 (3d Cir. 2010), that court 

noted that the lack of record evidence that “receiving the best 

possible price for the facilities was a major factor in the 

negotiations” was an indication that the transaction was not 

arm’s length. Without reliable criteria for identifying 

transactions that reflect fair market value, the Secretary could 

not gauge whether a provider had incurred a real loss 

warranting an augmented depreciation allowance. 

Via Christi counters that it could not have maximized 

gain because it could not actually bargain. Kansas law, Via 

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Christi explains, required all of St. Francis’s assets to transfer 

to Via Christi at the moment of consolidation. Via Christi has 

not, however, shown how the Kansas transfer-timing rule 

prevented St. Francis from negotiating a better price. State 

law does not appear to limit St. Francis’s selling price to Via 

Christi’s assumption of existing liabilities, see Kan. Stat. Ann. 

§ 17-6709(a); St. Francis presumably could have bargained 

for additional cash or other consideration for its assets. 

Analogous to the nonprofit consolidation in this case, the 

statutory merger in Forsyth proceeded under a state law 

requiring the simultaneous dissolution of one provider and the 

post-merger entity’s assumption of all the pre-merger entity’s 

liabilities. 639 F.3d at 535. Here, as in Forsyth, the Secretary 

permissibly applied the bona fide sales rule to disallow an 

adjustment based on the exchange. 

C. 

Via Christi further contends that, even accepting the 

Secretary’s interpretation of arm’s-length bargaining, the 

record does not contain substantial evidence that St. Francis 

sold its assets other than at arm’s length. We disagree. The 

evidence in several respects confirms that St. Francis was not 

seeking to extract from the transaction the best, or even fair, 

value for its assets. 

First, St. Francis did not attempt to discern the value of 

its assets before the sale. Via Christi sought an appraisal after 

the consolidation, and then only in order to calculate the 

amount of adjusted depreciation Via Christi, as successor, 

thought the government owed it. The record does not 

demonstrate that St. Francis sought in any other way to 

develop a sense of its assets’ value before the transaction. If 

St. Francis did not even have an estimate of the value of its 

assets at the time of the sale, it could hardly have been well 

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positioned to bargain for the best deal. See UPMC-Braddock, 

592 F.3d at 434 n.10 (lack of pre-transaction appraisal 

relevant to whether an arm’s-length transaction occurred); cf. 

Forsyth, 639 F.3d at 535, 539 (lack of pre-transaction 

appraisal relevant to whether bona fide transaction occurred). 

Second, St. Francis disavowed any interest in putting its 

assets up for sale on the open market. The objective of the 

hospitals’ religious sponsors, who made the decision to 

consolidate, was that the hospitals consolidate with each 

other—and no one else—because they shared the same 

religiously oriented vision of care. Via Christi’s chief 

financial officer, who previously had been St. Joseph’s chief 

financial officer, agreed that, “[b]ecause of their religious 

affiliation,” J.A. 291, the religious sponsors “would not have 

considered [a] public sale . . . in the marketplace,” J.A. 298-

99. That is not to say that St. Francis was generally 

uninterested in operating cost effectively or holding a strong 

market position. Indeed, those concerns apparently prompted 

St. Francis to consolidate with another hospital in the first 

place. But other, non-economic factors determined its choice 

of St. Joseph’s as its consolidation partner and its decision to 

transfer all of its assets to Via Christi. See Via Christi, 509 

F.3d at 1276 (“This was not an arm’s length transaction. St. 

Joseph admitted that it was not attempting to get the full value 

for its assets, but rather its primary goal was to make a 

decision that would advance its ministry.”); cf. Forsyth, 639 

F.3d at 539 (sustaining determination of no bona fide sale 

where appellants “did not put [the hospital’s] assets for sale 

on the open market”); St. Luke’s, 611 F.3d at 904 (sustaining 

determination of no bona fide sale where “factors other than 

receiving the best price for its assets were motivations in the 

transaction”); Robert F. Kennedy Med. Ctr. v. Leavitt, 526 

F.3d 557, 563 (9th Cir. 2008) (concluding that the provider 

did not attempt to obtain fair market value for its assets where 

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the provider “gave several reasons for seeking a merger, none 

of which involved the receipt of fair market value” and where 

“none of [the provider’s] criteria for selecting a merger 

partner involved receiving a fair price for its assets”). 

Because assets’ fair market value is what matters under the 

Secretary’s depreciation reimbursement regulations, and 

because St. Francis did not seek through the consolidation to 

maximize its financial return on the sale, the Secretary fairly 

concluded that St. Francis had not engaged in arm’s-length 

bargaining. 

D. 

The Secretary may condition depreciation adjustment on 

both the presence of an arm’s-length transaction and the 

receipt of reasonable consideration for depreciable assets. 

Because St. Francis did not bargain at arm’s length, we need 

not address Via Christi’s challenge to the Secretary’s 

determination that St. Francis also did not receive reasonable 

consideration. And because the lack of a bona fide sale 

justified the Secretary’s refusal to revalue St. Francis’s assets 

and issue a loss reimbursement, we also need not decide 

whether the Secretary was right that the sale was between 

related parties. See Forsyth, 639 F.3d at 539 (declining to 

address the Secretary’s related-party determination for this 

same reason). 

II. 

In addition to challenging the substance of the 

Secretary’s determination that St. Francis’s asset sale was not 

bona fide, Via Christi contends that the Secretary committed 

several procedural errors. This court in other Medicare 

reimbursement cases has already rejected such claims of 

error. In St. Luke’s, we sustained application of the 

Secretary’s interpretation of its regulations, as set forth in 

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Program Memorandum A-00-76, to a transaction that 

occurred before the memorandum was issued. 611 F.3d at 

907. We also rejected the argument that the bona fide sales 

rule is inconsistent with the agency’s prior interpretations and 

adjudications. See id. at 906. Finally, in both St. Luke’s and 

Forsyth, we summarily rejected challenges of the remaining 

types Via Christi raises, including that Program Memorandum 

A-00-76 was not timely published and that it required noticeand-comment rulemaking. See id. at 906 n.8 (endorsing the 

reasoning of the district court in St. Luke’s Hosp. v. Sebelius, 

662 F. Supp. 2d 99, 104-05 (D.D.C. 2009)); Forsyth, 639 

F.3d at 537. 

* * * 

The Secretary has reasonably required a bona fide sale to 

be an arm’s-length transaction, and has fairly interpreted the 

arm’s-length criterion to refer to gain-maximizing bargaining. 

Because substantial evidence supports the Secretary’s 

conclusion that St. Francis did not engage in that kind of 

bargaining, and because the Secretary’s decision is not 

arbitrary and capricious or otherwise unlawful, we affirm the 

district court’s grant of summary judgment to the Secretary. 

 

So ordered.

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