Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-98-05164/USCOURTS-caDC-98-05164-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 8, 1999 Decided April 27, 1999

No. 98-5164

North Broward Hospital District, et al.,

Appellees

v.

Donna E. Shalala, Secretary,

U.S. Department of Health and Human Services,

Appellant

Appeal from the United States District Court

for the District of Columbia

(No. 96cv00076)

Anne M. Lobell, Attorney, U.S. Department of Justice,

argued the cause for appellant. With her on the briefs were

Frank W. Hunger, Assistant Attorney General, Wilma A.

Lewis, U.S. Attorney, and Anthony J. Steinmeyer, Attorney,

U.S. Department of Justice.

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Ronald N. Sutter argued the cause and filed the brief for

appellees.

Before Silberman, Sentelle, and Randolph, Circuit

Judges.

Opinion for the court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge: Congress has authorized Medicare reimbursement at a higher than usual rate to certain

large urban hospitals that receive significant state and local

funding apart from Medicaid and Medicare revenues. The

Secretary of Health and Human Services ("HHS") appeals a

decision of the district court rejecting her interpretation of

the qualifications for eligibility under this provision. See

North Broward Hosp. Dist. v. Shalala, 997 F. Supp. 41

(D.D.C. 1998). Finding the statute ambiguous and the Secretary's interpretation reasonable, we reverse.

I.

In 1983, Congress began to phase out the existing costbased Medicare reimbursement system, see 42 U.S.C.

s 1395f(b)(1); Methodist Hosp. of Sacramento v. Shalala, 38

F.3d 1225, 1227 (D.C. Cir. 1994), and to phase in a "prospective payment" system providing reimbursement according to

pre-determined rates based on diagnosis and geographic location. See Social Security Amendments of 1983, Pub. L. No.

98-21, s 601, 97 Stat. 65, 149 (1983) (codified as amended at

42 U.S.C. s 1395ww). In 1986, recognizing that special adjustments might be needed for hospitals serving an unusually

large number of low-income individuals, Congress crafted

provisions implementing "disproportionate share" adjustments for such hospitals. See The Consolidated Omnibus

Budget Reconciliation Act of 1985 (COBRA), Pub. L. No.

99-272, s 9105, 100 Stat. 82, 158 (1986). These disproportionate share adjustments provide for additional Medicare payments for hospitals that qualify on either of two grounds.

Hospitals typically qualify for an adjustment by showing that

they serve a disproportionate number of low-income patients

based on the proportion of inpatient days attributable to

Medicaid patients and to Medicare patients qualifying for

Supplemental Security Income benefits.1 See 42 U.S.C.

s 1395ww(d)(5)(F)(i)(I), (v), (vi). Alternatively, under the

provision at issue in this case, large urban hospitals can

qualify by demonstrating that they receive state and local

funding which exceeds a statutory threshold. Specifically,

the statute provides for a disproportionate share adjustment

for any hospital that

is located in an urban area, has 100 or more beds, and

can demonstrate that its net inpatient care revenues

(excluding any of such revenues attributable to [Medicare

or Medicaid]), during the cost reporting period in which

the discharges occur, for indigent care from State and

local government sources exceed 30 percent of its total of

such net inpatient care revenues during the period.

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Id. s 1395ww(d)(5)(F)(i)(II). As originally enacted in 1986,

this provision read just as it does now, except that the phrase

"total of such net inpatient care revenues" read "total of such

revenues." See COBRA s 9105(a)(F)(i)(II), 100 Stat. 82, 158.

The change to the present wording was made by a 1987

amendment. See The Omnibus Budget Reconciliation Act of

1987 (OBRA), Pub. L. No. 100-203, s 4009(j)(3)(A), 101 Stat.

1330, 1330-59 (1987).

The controversy in this case centers on the proper interpretation of the ratio specified in this provision. The single

issue is whether the 30% set forth in the provision is a

percentage of all net inpatient care revenues or whether it is

a percentage of net inpatient revenues excluding revenues

from Medicare and Medicaid. In other words, the question is

whether the antecedent of "total of such net inpatient care

revenues" is "net inpatient care revenues" or "net inpatient

care revenues (excluding any of such revenues attributable to

[Medicare or Medicaid])."

North Broward Hospital District ("North Broward"), doing

business as Broward General Medical Center, North Broward

__________

1 Supplemental Security Income furnishes financial assistance

to indigent persons who are aged, blind, or disabled. See 42 U.S.C.

s 1381 et seq.

Medical Center, and Imperial Point Medical Center, believed

that the latter interpretation was correct, and that its facilities therefore qualified for the disproportionate share adjustment for fiscal years 1989-1991. However, the Medicare

fiscal intermediary adhered to the former interpretation, and

accordingly refused to make the more generous reimbursements to North Broward. North Broward appealed to the

Provider Reimbursement Review Board ("PRRB") as specified in 42 U.S.C. s 1395oo(a), (h). The PRRB adopted the

latter interpretation of the ratio, reversed the intermediary's

decision, and held that the North Broward facilities qualified

for the disproportionate share adjustment. Next, at the

urging of the intermediary and HHS's Bureau of Policy

Development ("BPD"), the Administrator of the Health Care

Financing Administration ("HCFA"), acting as the Secretary's delegate, reversed the Board's decision, as permitted

by 42 U.S.C. s 1395oo(f)(1) and 42 C.F.R. s 405.1875. The

Administrator held that the provision contained "incontrovertible referential ambiguity" and that the former interpretation, adopted by the BPD and the intermediary, was reasonable. Pursuant to 42 U.S.C. s 1395oo(f)(1), the hospitals

sought review in the district court, which in turn reversed the

Administrator's decision and granted summary judgment for

North Broward. The district court held that the language of

the provision is clear and unambiguous and that it requires

the latter interpretation, urged by North Broward. 997

F. Supp. at 45, 48. The Secretary appeals from this ruling of

the district court.

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II.

The practical differences between the Secretary's interpretation and that advanced by North Broward and accepted by

the district court are significant. As an illustration of the

implications of the two interpretations, consider an example

of a hospital whose total net inpatient care revenues are

$100,000,000, of which $40,000,000 are Medicare and Medicaid

revenues. Under North Broward's interpretation, which excludes Medicare and Medicaid revenues from the denominator of the ratio, the hospital would qualify for a disproportionUSCA Case #98-5164 Document #431565 Filed: 04/27/1999 Page 4 of 19
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ate share adjustment under the provision at issue as long as it

received more than $18,000,000 in state and local funding not

attributable to Medicaid or Medicare, as illustrated by the

following calculations:

North Broward's interpretation

Numerator = (State and local funding other than

Medicare & Medicaid)

= $18,000,000

Denominator = (Net inpatient revenues, excluding

Medicare & Medicaid)

= $100,000,000 - $40,000,000

= $60,000,000

The ratio is thus 18/60, or 30%.

Under the Secretary's interpretation, which does not exclude

Medicare and Medicaid revenues from the denominator, the

hospital would need to receive more than $30,000,000 of state

and local funding not attributable to Medicaid or Medicare to

qualify:

Secretary's interpretation

Numerator = (State and local funding other than

Medicare & Medicaid) = $30,000,000

Denominator = (Total net inpatient revenues)

= $100,000,000

The ratio is thus 30/100, or 30%.

Given the sizable difference in the amount of state and local

funding required to qualify under the two interpretations,

adopting North Broward's interpretation would likely increase the number of providers qualifying for the disproportionate share adjustment under the provision.2

Whether such an increase in the provision's applicability

would be appropriate or desirable is a matter of policy, not of

statutory construction, and within the bounds of congressional

directive, it is primarily a question for HHS, not the courts.

Because an agency's policy choices are necessarily constrained by the statute pursuant to which it acts, when an

agency has interpreted a statute it administers, we first

consider whether Congress has "directly addressed the pre-

__________

2 According to HHS, fewer than a dozen facilities or hospital

districts in the nation qualified under this provision in 1995. Secretary's Brief at 42; J.A. at 65.

cise question at issue." Chevron U.S.A. Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837, 843 (1984). If

the intent of Congress is clear, it must be given effect. Id.

However, if the intent of Congress is not clear, we do not

impose our own construction of the statute, but instead

examine only whether "the agency's answer is based on a

permissible construction of the statute." Id. Thus, absent

clear congressional intent to the contrary, we will defer to the

Secretary's interpretation " 'if it is reasonable and consistent

with the statute's purpose.' " National Med. Enters., Inc. v.

Shalala, 43 F.3d 691, 695 (D.C. Cir. 1995) (quoting Chemical

Mfrs. Ass'n v. EPA, 919 F.2d 158, 162-63 (D.C. Cir. 1990)).

See also HCA Health Servs. of Oklahoma, Inc. v. Shalala, 27

F.3d 614, 616-17 (D.C. Cir. 1994); Marymount Hosp., Inc. v.

Shalala, 19 F.3d 658, 661 (D.C. Cir. 1994).

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North Broward advances two arguments that the usual

Chevron analysis is inapplicable, neither of which we find

convincing. First, North Broward argues that the Secretary's interpretation of the statute creating the ratio is not

entitled to deference because it is not longstanding, noting

that even the Administrator's decision characterized the regulations as silent with respect to the issue. We are somewhat

puzzled by North Broward's argument, since the statutory

interpretations of the agency's adjudicatory decision in this

case would be entitled to deference even if the matter had

never been addressed in regulations at all. See Appalachian

Regional Healthcare, Inc. v. Shalala, 131 F.3d 1050, 1054

(D.C. Cir. 1997). There is certainly no argument that the

Administrator's decision in this case is actually incompatible

with the regulations. While perhaps not entirely unambiguous, the regulations describe the required ratio as 30 percent

of "net inpatient care revenues" and are thus more consistent

with the Secretary's interpretation of the statute than with

the contrary position urged by North Broward. See 42

C.F.R. s 412.106(c)(2) (providing that the adjustment is available if a hospital "can demonstrate that, during its cost

reporting period, more than 30 percent of its net inpatient

care revenues are derived from State and local government

payments for care furnished to indigent patients"). See also

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51 Fed. Reg. 16,772, 16,776 (1986) (explaining that a qualifying hospital must show "that more than 30 percent of its total

inpatient care revenues are from State and local government

sources and that these revenues are specifically earmarked

for the care of indigents").

Second, and even less convincingly, North Broward argues

that the Secretary is not entitled to deference because of her

"unremitting hostility" to disproportionate share adjustments

in general. As evidence of this hostility, North Broward

notes that Congress's 1986 enactment of statutory disproportionate share adjustments arose in response to HHS's failure

to implement acceptable adjustments by regulation, and that

the House and Senate reports expressed dissatisfaction with

the Secretary's nonresponsiveness. See H.R. Rep. No.

99-241, pt. 1, at 15-16 (1985); S. Rep. No. 99-146, at 291

(1985). As further evidence of the Secretary's alleged hostility to disproportionate share adjustments, North Broward

points to cases rejecting the Secretary's interpretation of the

statutory provisions governing disproportionate share adjustments based on a high proportion of low-income "patient

days." See, e.g., Cabell Huntington Hosp., Inc. v. Shalala,

101 F.3d 984 (4th Cir. 1996); Jewish Hosp., Inc. v. Secretary

of HHS, 19 F.3d 270 (6th Cir. 1994). Not surprisingly, North

Broward cites no support for its suggestion that we should

deny an agency Chevron deference because of our judicial

assessment that it has been "hostile" to certain ideas. If an

agency's "hostility" leads it to adopt an unreasonable interpretation of a statute, the interpretation will, if challenged, be

rejected by the courts, as is perhaps illustrated by the cases

cited by North Broward in which courts have rejected the

Secretary's interpretation of the "patient-day" based disproportionate share mechanism. It is a far different thing to

suggest that a court withhold deference to an agency's interpretation of a statute it administers on the basis of some sort

of judicial "vote of no confidence" regarding the agency's

actions on related matters. If Congress views HHS as

"unremittingly hostile" to disproportionate share adjustments, it is free to decrease the agency's discretion in administering them or remove them from the agency's purview

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entirely. Absent such congressional intervention, administration of the provision at issue is entrusted to HHS, and our

review is that prescribed by Chevron.

Finally, North Broward urges that even if Chevron applies,

we need not conduct a Chevron analysis, because regardless

of our view of the statute, the final decision by the HCFA

Administrator was arbitrary and capricious and therefore

violated the Administrative Procedure Act ("APA"). 5 U.S.C.

s 706(2)(A); see also 42 U.S.C. s 1395oo(d) & (f)(1). In

particular, North Broward relies on the fact that the Administrator's decision made reference to the fact that the phrase

"such revenues" appears twice in the relevant sentence of the

statute. North Broward accurately points out that while

"such revenues" appeared twice in the statute before the 1987

amendment, it no longer does so--"such revenues" appears

once, and "such net inpatient care revenues" appears once.

Thus, appellees argue, the Administrator "did not even get

the words of the statute right." North Broward Brief at 33.

We find this argument hypertechnical. The Administrator's

decision quoted the entire relevant statutory passage in two

places, one immediately above the complained-of references

to "such revenues." The statute was set forth correctly, with

"such revenues" in one place and "such net inpatient care

revenues" in the other. In light of this, it seems clear that

the Administrator's reference to the two occurrences of "such

revenues" was simply a shortening of the latter phrase by

omitting the modifiers for ease of reference. Such shorthand

may offend certain attorneys and copyeditors, but does not

offend the APA. We therefore proceed to a Chevron analysis.

III.

Under the first step of Chevron, our task is to consider

whether "the intent of Congress is clear" with respect to the

interpretation of the state and local funding provision. Chevron, 467 U.S. at 842. As we noted above, the statute provides

for enhanced reimbursement if a hospital

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is located in an urban area, has 100 or more beds, and

can demonstrate that its net inpatient care revenues

(excluding any of such revenues attributable to [Medicare

or Medicaid]), during the cost reporting period in which

the discharges occur, for indigent care from State and

local government sources exceed 30 percent of its total of

such net inpatient care revenues during the period.

42 U.S.C. s 1395ww(d)(5)(F)(i)(II). The Secretary argues

that the statute is inherently ambiguous, in that "total of such

net inpatient care revenues" might refer back to simply the

entire category of "net inpatient care revenues" or might

instead include the modifying parenthetical "(excluding any of

such revenues attributable to [Medicare or Medicaid])." In

contrast, North Broward argues that the statute is unambiguous, and that the Secretary's interpretation conflicts with the

text of the statute. According to North Broward, by interpreting "total of such net inpatient care revenues" as identical

with "net inpatient care revenues," the Secretary's interpretation fails to give effect to the words "of such."

North Broward's argument implicitly assumes that "such"

is surplusage if it is not serving some limiting or particularizing role. The district court adopted a similar view. Relying

on a portion of the definition of "such" from Black's Law

Dictionary, which notes that "such" "represents the object as

already particularized in terms which are not mentioned, and

is a descriptive and relative word, referring to the last

antecedent," Black's Law Dictionary 1432 (6th ed. 1990), the

court concluded that "net inpatient care revenues (excluding

any of such revenues attributable to [Medicare] or [Medicaid])" was the last antecedent, since the parenthetical phrase

"particularizes" the object. North Broward, 997 F. Supp. at

45. In our view, this analysis takes too narrow a view of the

uses of the word "such." While it often serves the particularizing role envisioned by North Broward and the district court,

the word "such" can also be used simply to refer back to

something previously mentioned but not "particularized." As

the Secretary notes, this use of "such" does not render the

word surplusage--it still serves a role in "helping the reader

to identify concepts that have already been employed in a

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long or complicated piece of writing." Secretary's Reply

Brief at 18.

Where both a "particularizing" and a "non-particularizing"

interpretation of "such" are possible, it need not be the case

that the particularizing interpretation prevails. For example,

in Hogar Agua y Vida en el Desierto, Inc. v. Suarez-Medina,

36 F.3d 177 (1st Cir. 1994), the court encountered a provision

whose prefatory clause made the provision applicable to any

"single-family house sold or rented by an owner," and whose

following provisos referred to "such single-family houses."

Although it was argued that the phrase in the provisos

unambiguously related back to the complete phrase--"singlefamily house sold or rented by an owner," rather than to

single-family houses generally, the court found the language

ambiguous. Id. at 185-86. Accordingly, the court construed

the statute in accordance with its remedial goals, and held

that the references to "such single-family houses" did not

incorporate the phrase "sold or rented by an owner," but

rather simply referred to any single-family houses. Id. at

186.

United States v. Bowen, 100 U.S. 508 (1879), upon which

North Broward relies, is not to the contrary. In that case,

the Supreme Court read the statutory phrase "all such pensioners" not to refer to all pensioners, but to a subset of

pensioners previously described, noting that the alternate

interpretation would render "such" useless. Id. at 512.

However, Bowen differs from the present situation in important respects. First, the provision considered in Bowen had

not previously referred to the class of pensioners generally,

but had only referred to a certain subset. Thus, the Court

noted that "[t]here is no antecedent use of the word 'pensioners' in the [relevant] chapter ... to which the word such can

refer, but the immediately preceding sentence in the same

section." Id. Accordingly, "such" either had to refer back to

the subset, or to nothing. That is not the case here. Second,

the Bowen Court's task was not the same as ours. The

Bowen Court had simply to choose between two interpretations of the statute. We must decide whether there is a clear

congressional intent which precludes the Secretary's view.

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Bowen did not involve the rejection of the interpretation of

those charged with administering the statute. Not only did

Bowen long predate Chevron, but, as the pensioners there

pointed out, the interpretation of the provision ultimately

chosen by the Court had apparently been "uniformly given to

it by the Commissioner of Pensions," who was charged with

the duty of executing the statute. Id. at 511.

Given a choice between attributing to "such" the simple

referential function described by the Secretary or a particularizing function, we might ordinarily be inclined to choose

the latter, which arguably gives "such" a more meaningful

role. However, the provision at issue does not unambiguously

require such an interpretation, and indeed, other features of

the provision make the Secretary's interpretation of "such"

seem more than reasonable. First, the denominator refers

not simply to "such net inpatient care revenues" but to the

"total of such net inpatient care revenues." North Broward

correctly observes that if "such net inpatient care revenues"

incorporated the exclusion of Medicare and Medicaid revenues, then "total of such net inpatient care revenues" would

as well. Nonetheless, we find the presence of the phrase

"total of" at least suggestive that the phrase following is to be

all-encompassing, without exclusions. Indeed, this seems the

only way to give any real function to the phrase "total of."

In addition, the syntactical structure of the phrase describing the numerator makes it unusually difficult to isolate the

antecedent of "such net inpatient care revenues" in the

denominator. Even if we were intent on interpreting this

phrase as referring to "net inpatient care revenues" as previously particularized, it would not be a simple task. This is so

because the reference to "net inpatient care revenues" in the

numerator is particularized not only by the parenthetical

excluding Medicare and Medicaid revenues, but by two additional phrases as well. The numerator consists of "net inpatient care revenues (excluding any of such revenues attributable to [Medicare or Medicaid]), during the cost reporting

period in which the discharges occur, for indigent care from

State and local government sources." 42 U.S.C.

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guments explaining why the last two phrases cannot reasonably be read as being within the particularization incorporated by the "such" in the denominator, and we do not suggest

that they are. But this reasoning necessarily departs from a

simple rule that "such" always incorporates previous particularizations, and illustrates that the unwieldy formulation of

the numerator makes blanket application of such a rule

unworkable here. Given this, it is impossible to conclude that

Congress clearly intended that "such" serve the specific

particularizing role advanced by North Broward.

The Secretary argues that her interpretation is also bolstered by consideration of the provision's original wording

and the change made by the 1987 amendment. The sole

modification to the provision made by the 1987 Act was to

replace the requirement that the numerator "exceed 30 percent of [the hospital's] total of such revenues" with a requirement that the numerator "exceed 30 percent of [the hospital's] total of such net inpatient care revenues." See OBRA

s 4009(j)(3)(A), 101 Stat. 1330, 1330-59. According to the

Secretary, the 1987 change was merely intended to clarify

that the phrase "total of such revenues" was not meant to

indicate gross revenues rather than net. In the Secretary's

view, this is supported by a string of words from the Conference Report accompanying the 1987 amendment (calling it a

sentence would be too kind):

[T]here has been controversy over the interpretation of

current statutory language which refers to inpatient care

revenues as "net inpatient care revenues" in one location,

but refers to "such revenues" has been interpreted to

mean either gross inpatient revenues (revenues the hospital would receive if all patients paid the hospital's full

charges) or net inpatient revenues (gross revenues minus

bad debts, contractual allowances, and charity care).

H.R. Conf. Rep. No. 100-495, at 543 (1987). While impossible to parse grammatically, this is the only passage in the

legislative history to which we have been referred which

meaningfully attempts to explain the motivation for the 1987

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amendment. It provides at least minimal support for the

Secretary's view of the purpose of that amendment.

Whether or not the 1987 amendment was made only to

clarify the net versus gross issue, it was styled a "technical

correction," see OBRA s 4009(j)(3)(A), 101 Stat. 1330, 1330-

59, suggesting that only clarification and not substantive

change was intended. Thus our concern is the meaning of

the phrase "such revenues" as used in describing the denominator of the ratio in the original 1986 enactment, and as

"clarified" in 1987 to read "such net inpatient care revenues."

As originally enacted, the provision provided an adjustment

for any hospital that could

demonstrate that its net inpatient care revenues (excluding any of such revenues attributable to [Medicare or

Medicaid]), during the cost reporting period in which the

discharges occur, for indigent care from State and local

government sources exceed 30 percent of its total of such

revenues during the period.

COBRA s 9105(a)(F)(i)(II), 100 Stat. 82, 158 (emphasis added). The first occurrence of "such revenues" in this passage

unambiguously referred back to "net inpatient care revenues." In the Secretary's view, the second occurrence of

"such revenues" had the same meaning as the first, referring

back simply to "net inpatient care revenues," and since the

1987 amendment did not implement any substantive change,

the current "such net inpatient care revenues" language in

the denominator has the same meaning. While we cannot

assume that the antecedent of the second occurrence of "such

revenues" would necessarily have to be the same as that of

the first, we agree that the previous occurrence of "such

revenues" with a clear antecedent does seem to provide at

least some support for construing the latter occurrence of

"such revenues" (and thus the amended "such net inpatient

care revenues") as referring to the same antecedent.

The Secretary also asserts that her interpretation of the

statute is the only one compatible with the legislative history

of the original act, which indicated that the adjustment applied to a hospital if "at least 30% of its net inpatient care

revenue is provided by local or state governments for inpatient care for low-income patients not otherwise reimbursed

by medicaid." H.R. Rep. No. 99-241, pt. 1, at 16. The House

Report also states that "[t]he Committee further intends that

the denominator of this equation, net inpatient care revenue,

be defined according to the generally accepted accounting

principles in the hospital industry; i.e., this factor should

represent gross patient care revenues less deductions from

revenue (other than contractual allowances), as those terms

are generally used." Id. at 18-19 (emphasis added). We

agree that these passages are consistent with the Secretary's

view that the relevant state and local funding was required to

be 30% or more of total net inpatient care revenues. The

Conference Report further supports the Secretary's view,

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describing hospitals qualifying under this provision as "those

which can demonstrate that more than 30 percent of their

revenues are derived from State and local government payments for indigent care provided to patients not covered by

medicare or medicaid." H.R. Conf. Rep. No. 99-453, at 461-

62 (1985).

However, North Broward argues that since the present

wording of the provision dates only from the 1987 amendment, the legislative history of that amendment, and not that

of the original enactment, is the better source for determining

Congress's intent. North Broward notes that in discussing

"present law," the 1987 Conference Report noted that a

hospital qualified under the provision at issue if "it can

demonstrate that more than 30 percent of its inpatient care

revenues (excluding any Medicare or Medicaid revenues) are

provided by State and local government payments for indigent care." H.R. Conf. Rep. No. 100-495, at 543. The

Conference Report further noted that the amendment "[c]larifies that a hospital would qualify if more than 30 percent of

its net inpatient care revenues (excluding any Medicare or

medicaid revenues) are provided by State and local government payments for indigent care." Id. at 545. The Secretary argues, and we agree, that the 1987 Conference Report's

characterization of existing law is entitled to little weight. As

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the Supreme Court has observed, subsequent legislative history is "an unreliable guide to legislative intent." Chapman

v. United States, 500 U.S. 453, 464 n.4 (1991). See also

Wright v. West, 505 U.S. 277, 295 n.9 (1992); Pierce v.

Underwood, 487 U.S. 552, 566-67 (1988). However, North

Broward argues that because the 1987 legislative history

accompanied an amendment to the provision at issue, its view

of existing law deserves credit. While a discussion of existing

law in subsequent legislative history may be more valuable

where it accompanies a related amendment to the provision,

see Mackey v. Lanier Collection Agency & Serv., Inc., 486

U.S. 825, 840 (1988); United States v. General Motors Corp.,

518 F.2d 420, 436-37 (D.C. Cir. 1975), here there is no

evidence that the exclusion of Medicare and Medicaid funds

from the denominator of the ratio was the focus of attention

of Congress, the Conference Committee, or even the author

of the report. Hence the passages in the Conference Report

on which North Broward relies as evidencing whether Medicare and Medicaid were intended to be excluded from the

denominator are mere "legislative dicta," Dunn v. Commodity Futures Trading Comm'n, 519 U.S. 465, 478 (1997), and we

do not view these remarks as speaking meaningfully to this

issue.

Furthermore, even if we were inclined to give weight to the

1987 Conference Report, which we are not, it is not at all

clear that the report, taken as a whole, supports North

Broward's position. To be sure, in the passage cited by

North Broward, the Conference Report characterizes existing

law as providing an adjustment if a hospital can demonstrate

"that more than 30 percent of its inpatient care revenues

(excluding any Medicare or Medicaid revenues) are provided

by State and local government payments for indigent care."

Because of the placement of the parenthetical after "revenues" rather than at the end of the sentence, this portion of

the history is consistent with North Broward's interpretation.

However, elsewhere in the same Conference Report, there is

language encouraging the Secretary "expeditiously to implement the disproportionate share adjustment for hospitals

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nues from State and local governmental sources," H.R. Conf.

Rep. No. 100-495, at 525 (1987), and setting the amount of the

adjustment at 15% for hospitals "which receive at least 30

percent of their net inpatient care revenues from State and

local payments for indigent care," id. at 521. Because these

portions of the report refer to the required ratio as 30% of

net revenues with no reference to excluding Medicare and

Medicaid, they do not support North Broward's interpretation. Thus, in our view, the only lesson to be drawn from the

1987 legislative history is that the individuals who wrote it

had not carefully considered, or at least didn't quite agree on,

what the original provision meant.

In sum, the provision's textual unwieldiness is not illuminated by this jumbled legislative history, and we cannot

discern any clear congressional intent regarding the meaning

of the provision. Accordingly, we agree with the Secretary

that the provision is ambiguous, and proceed to the second

step of the Chevron analysis.

IV.

We have little difficulty concluding that the Secretary's

interpretation is a permissible construction of the provision.

Indeed, the ambiguity of the provision described above arises

largely because the provision is reasonably amenable to both

the Secretary's and North Broward's readings. Nonetheless,

North Broward argues that even if the Secretary's interpretation is a possible parsing of the provision's text, it is

unreasonable in that it effectively penalizes hospitals for

treating Medicare and Medicaid patients. This is so, the

argument goes, because under the Secretary's interpretation,

the more services a hospital furnishes to Medicare and Medicaid patients, the lower its ratio will be, since revenues for

those services will be included in the denominator, but not the

numerator. In contrast, North Broward suggests that under

its interpretation, services to Medicare and Medicaid patients

"do not help a hospital qualify for a disproportionate share

adjustment ... but neither do they hurt the hospital." North

Broward Brief at 39.

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We find North Broward's argument unconvincing. First,

even if increased Medicare and Medicaid funding adversely

affected a hospital's ratio under this provision, hospitals

treating an unusually large number of Medicaid and lowincome Medicare patients are entitled to the disproportionate

share adjustment under the alternate mechanism of 42 U.S.C.

s 1395ww(d)(5)(F)(i)(I), (v), (vi). The provision at issue in

this case seeks to identify and appropriately compensate

hospitals receiving significant state and local funding for

indigent care apart from Medicaid and Medicare spending.

To the extent that an increase in Medicaid and Medicare

revenues decreases the proportion of revenues attributable to

other state and local funding, a decrease in the hospital's ratio

could well be what Congress had in mind.

More importantly, we are unconvinced of North Broward's

factual premise--at least in some circumstances, it is the

Secretary's interpretation, and not North Broward's, that is

neutral with regard to services to Medicare and Medicaid

patients. For example, suppose that in a given year, Hospital

A and Hospital B each had total net inpatient care revenues

of $100,000,000, of which $20,000,000 was state and local

funding not attributable to Medicare or Medicaid. Suppose,

however, that Hospital A received $40,000,000 net inpatient

care revenues from Medicare and Medicaid, and $40,000,000

from other sources such as private insurance and individual

payments, while Hospital B received $50,000,000 from Medicare and Medicaid and $30,000,000 from other sources. Thus,

the only difference in the two hospitals' revenues is the

amount of funding from Medicare and Medicaid versus private sources. The ratios calculated under this provision

would be as follows:

Secretary's interpretation

Hospital A: Numerator = $20,000,000 state and local

funding

Denominator = $100,000,000 total

Ratio = 20/100

Hospital B: Numerator = $20,000,000 state and local

funding

Denominator = $100,000,000 total

Ratio = 20/100

North Broward's interpretation

Hospital A: Numerator = $20,000,000 state and

local funding

Denominator = $100,000,000 total

- $40,000,000 Medicare

& Medicaid

= $60,000,000

Ratio = 20/60

Hospital B: Numerator = $20,000,000 state and

local funding

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Denominator = $100,000,000 total

- $50,000,000 Medicare & Medicaid

= $50,000,000

Ratio = 20/50

Under the Secretary's method, the fact that Hospital B had

more services funded by Medicare and Medicaid than Hospital A leads to no difference in the ratios for the two hospitals.

Under North Broward's method, however, Hospital B's greater Medicare and Medicaid funding leads to a higher ratio.

We do not understand why North Broward views this as

"neutral."

Furthermore, in some situations, this feature of North

Broward's interpretation would lead to results which seem

less consistent with the apparent purpose of the provision

than would be the case under the Secretary's interpretation.

For example, consider two otherwise qualifying hospitals, C

and D, each of which has total net inpatient care revenues of

$100,000,000, of which $10,000,000 is from Medicaid. Suppose

that Hospital C receives heavy state and local funding not

attributable to Medicaid or Medicare, in the amount of

$23,000,000, while Hospital D receives $10,000,000 in such

funds. One would expect that if either hospital would qualify

for a disproportionate share adjustment under the provision

targeted at hospitals with unusually high state and local

funding, it would be Hospital C. However, under North

Broward's interpretation, as we understand it, this would not

necessarily be the case. In particular, suppose that Hospital

D is in an area with a large number of retirees, and therefore

has a large amount of Medicare revenues totaling $60,000,000,

while Hospital C has Medicare revenues of only $10,000,000.

The calculations under North Broward's method would proceed as follows:

HospitalC: Numerator = $23,000,000

Denominator = $100,000,000 - $10,000,000

Medicaid - $10,000,000

Medicare

= $80,000,000

The ratio is thus 23/80, which is less than 30%.

HospitalD: Numerator = $10,000,000

Denominator = $100,000,000 - $10,000,000

Medicaid - $60,000,000

Medicare

= $30,000,000

The ratio is thus

10/30 = 1/3, which is greater

than 30%.

Thus despite its far greater state and local funding, Hospital C would not qualify for the adjustment under North

Broward's interpretation, while Hospital D would. We note

that the difference in Medicare funding that tips the balance

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in favor of Hospital D need not be for indigent elderly at all,

but could equally as well be for wealthy seniors with Winnebagos and supplemental insurance. It is hard to see why

serving a high number of such patients should affect Hospital

D's ratio so favorably. We see little logic in this feature of

North Broward's interpretation, and cannot condemn the

Secretary's failure to adopt it.

For the foregoing reasons, the decision of the district court

is

Reversed.

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