Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-10-05163/USCOURTS-caDC-10-05163-0/pdf.json

Parties Involved:
HCA, Inc.
Amicus Curiae for Appellee
Northeast Hospital Corporation
Appellee
Kathleen Sebelius
Appellant

Document Text:

United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 11, 2011 Decided September 13, 2011 

No. 10-5163 

NORTHEAST HOSPITAL CORPORATION, 

APPELLEE

v. 

KATHLEEN SEBELIUS, SECRETARY, UNITED STATES 

DEPARTMENT OF HEALTH AND HUMAN SERVICES, 

APPELLANT

Appeal from the United States District Court 

for the District of Columbia 

(No. 1:09-cv-00180) 

Stephanie R. Marcus, Attorney, U.S. Department of 

Justice, argued the cause for appellant. On the briefs were 

Ronald C. Machen Jr., U.S. Attorney, Anthony J. Steinmeyer, 

Assistant Director, and Jeffrica Jenkins Lee, Attorney. 

Christopher L. Keough argued the cause for appellee. 

With him on the brief were J. Harold Richards and John M. 

Faust. 

 

John R. Jacob was on the brief for amicus curiae HCA, 

Inc., in support of appellee. 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 1 of 47
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Before: GARLAND, GRIFFITH, and KAVANAUGH, Circuit 

Judges. 

Opinion for the Court filed by Circuit Judge GRIFFITH. 

Opinion concurring in the judgment filed by Circuit 

Judge KAVANAUGH. 

GRIFFITH, Circuit Judge: In a 2008 administrative appeal, 

the Secretary of Health and Human Services ruled that a 

Medicare beneficiary enrolled in Medicare Part C still 

qualifies as a person “entitled to benefits” under Medicare 

Part A. As a result, Beverly Hospital in Beverly, 

Massachusetts, received a smaller reimbursement from the 

Secretary for services it provided to low-income Medicare 

beneficiaries during fiscal years 1999-2002. The district court 

granted summary judgment for Beverly on the ground that the 

Secretary’s interpretation violates the plain language of the 

Medicare statute. We conclude that the statute does not 

unambiguously foreclose the Secretary’s interpretation. We 

nonetheless affirm the district court on the alternative ground 

that the Secretary must be held to the interpretation that 

guided her approach to reimbursement calculations during 

fiscal years 1999-2002, an interpretation that differs from the 

view she now advances. Under her previous approach, the 

hospital would have prevailed on its claim for a larger 

reimbursement. 

I 

A 

 The federal Medicare program reimburses medical 

providers for services they supply to eligible patients. See 

generally 42 U.S.C. § 1395 et seq. The Medicare statute is 

divided into five “Parts,” four of which are relevant here. Part 

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A covers medical services furnished by hospitals and other 

institutional care providers. See id. §§ 1395c to 1395i-5. The 

Secretary makes payments under Part A directly to “providers 

of services,” such as hospitals, rather than to managed care 

organizations, such as health maintenance organizations 

(HMOs). See id. §§ 1395f(a)-(b), 1395x(u). Part B is an 

optional supplemental insurance program that pays for 

medical items and services not covered by Part A, including 

outpatient physician services, clinical laboratory tests, and 

durable medical equipment. See id. §§ 1395j to 1395w-4. 

Anyone covered by Part A may purchase Part B insurance by 

paying a monthly premium. See id. §§ 1395j, 1395o. 

Part C governs the “Medicare + Choice” (M+C) program, 

which gives Medicare beneficiaries an alternative to the 

traditional Part A fee-for-service system. See id. §§ 1395w-21 

to 1395w-29. Under M+C, an individual may enroll with an 

HMO, preferred provider organization, or other private 

“managed care” plan. If a person enrolls in an M+C plan, the 

Secretary makes payments to the plan “instead of the amounts 

which (in the absence of the [M+C] contract) would otherwise 

be payable [to the provider] under [P]arts A and B,” id.

§ 1395w-21(i)(1), and the plan in turn negotiates payment 

with the provider. Because M+C enrollees must purchase Part 

B coverage, see id. § 1395w-21(a)(3)(A), they tend to be 

wealthier than individuals who receive care under Part A. Part 

D, which is not relevant to this case, provides a prescription 

drug benefit program. See id. §§ 1395w-101 to 1395w-152. 

Part E sets out various “Miscellaneous Provisions,” one 

of which is the Prospective Payment System (PPS) for 

reimbursing Part A inpatient hospital services. See id.

§ 1395ww(d). Under the PPS, Medicare reimburses a hospital 

for services based on prospectively determined national and 

regional rates rather than on the actual amount the hospital 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 3 of 47
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spends. See id. § 1395ww(d)(1)-(4). The PPS also provides 

for payment adjustments based on various hospital-specific 

factors. One such adjustment is the “disproportionate share 

hospital” (DSH) adjustment, under which the Secretary pays 

more for services provided by hospitals that “serve[] a 

significantly disproportionate number of low-income 

patients.” Id. § 1395ww(d)(5)(F)(i)(I). 

 Whether a hospital qualifies for a Medicare DSH 

adjustment, and the amount of the adjustment the hospital 

receives, depends on the hospital’s “disproportionate patient 

percentage.” Id. § 1395ww(d)(5)(F)(v)-(vii). This percentage 

is a “proxy measure” for the number of low-income patients a 

hospital serves, H.R. REP. NO. 99-241, pt. 1, at 17 (1985), and 

represents the sum of two fractions, commonly called the 

“Medicare fraction” and the “Medicaid fraction.” The 

Medicare fraction is: 

[T]he fraction (expressed as a percentage), the numerator 

of which is the number of such hospital’s patient days for 

such period which were made up of patients who (for 

such days) were entitled to benefits under [Medicare] 

Part A . . . and were entitled to supplementary security 

income [SSI] benefits . . . and the denominator of which 

is the number of such hospital’s patient days for such 

fiscal year which were made up of patients who (for such 

days) were entitled to benefits under [Medicare] Part 

A . . . . 

Id. § 1395ww(d)(5)(F)(vi)(I). The Medicaid fraction is: 

[T]he fraction (expressed as a percentage), the numerator 

of which is the number of the hospital’s patient days for 

such period which consist of patients who (for such days) 

were eligible for medical assistance under a State 

[Medicaid] plan . . . but who were not entitled to benefits 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 4 of 47
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under [Medicare] Part A . . . and the denominator of 

which is the total number of the hospital’s patient days 

for such period. 

Id. § 1395ww(d)(5)(F)(vi)(II). Here is a visual representation 

of the two fractions: 

 Medicare Fraction Medicaid Fraction 

Numerator Patient days for patients 

“entitled to benefits 

under Part A” and

“entitled to SSI 

benefits” 

Patient days for patients 

“eligible for 

[Medicaid]” but not

“entitled to benefits 

under Part A” 

Denominator Patient days for patients 

“entitled to benefits 

under Part A” 

“Total number of 

patient days” 

 A “fiscal intermediary,” typically a private insurance 

company acting as the Secretary’s agent, calculates DSH 

adjustments. See 42 C.F.R. §§ 421.1, 421.3, 421.100-.128. If a 

hospital is dissatisfied with the intermediary’s determination, 

it may appeal to the Provider Reimbursement Review Board 

(PRRB), an administrative body appointed by the Secretary. 

See 42 U.S.C. § 1395oo(a), (h). The PRRB may affirm, 

modify, or reverse the fiscal intermediary’s award; the 

Secretary in turn may affirm, modify, or reverse the PRRB’s 

decision. See id. § 1395oo(d)-(f). 

B 

 Northeast Hospital Corporation owns and operates 

Beverly Hospital, a Medicare provider in Beverly, 

Massachusetts. For fiscal years 1999-2002, the fiscal 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 5 of 47
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intermediary excluded Beverly’s M+C patient days from the 

numerator of the Medicaid fraction. 

 Northeast appealed to the PRRB, arguing that M+C 

patients eligible for Medicaid should be counted in the 

numerator of the Medicaid fraction because they are not 

“entitled to benefits” under Part A. Northeast claimed it was 

owed an additional $737,419 in Medicare payments as a result 

of the intermediary’s improper calculation. The PRRB ruled 

against Northeast, holding that under the statute and 

implementing regulations, M+C patient days should not be 

counted in the Medicaid fraction because M+C beneficiaries 

remain “entitled to benefits under Part A” even after electing 

Part C. Beverly Hosp. v. BlueCross BlueShield Ass’n, PRRB 

Dec. No. 2008-D37, 2008 WL 7256679, at *4 (Sept. 23, 

2008), reprinted in Medicare & Medicaid Guide (CCH) 

¶ 82,112. The Secretary affirmed the PRRB’s ruling. Beverly 

Hosp. v. BlueCross BlueShield Ass’n, Review of PRRB Dec. 

No. 2008-D37, 2008 WL 6468518 (Nov. 21, 2008), reprinted 

in Medicare & Medicaid Guide (CCH) ¶ 82,207. 

Northeast filed suit in the district court challenging the 

Secretary’s decision. In an opinion issued on March 30, 2010, 

the district court granted summary judgment for Northeast.1

Ne. Hosp. Corp. v. Sebelius, 699 F. Supp. 2d 81 (D.D.C. 

2010). In the district court’s view, under the plain language of 

the statute, M+C patients eligible for Medicaid must be 

counted in the Medicaid fraction because M+C beneficiaries 

are no longer “entitled to benefits under Part A” once they 

elect Part C. Id. at 93. Counting M+C patients in the Medicaid 

fraction increases the size of the fraction and, in Northeast’s 

case, the amount of the reimbursement to which it is entitled 

 1

 The district court also granted summary judgment for the 

Secretary on several issues not relevant to the present appeal. 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 6 of 47
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for its care of low-income patients. We have jurisdiction over 

the Secretary’s appeal under 28 U.S.C. § 1291. 

II 

We review a grant of summary judgment de novo, 

viewing the evidence in the light most favorable to the 

nonmoving party and drawing all reasonable inferences in the 

nonmoving party’s favor. Geleta v. Gray, 645 F.3d 408, 410 

(D.C. Cir. 2011). We review the Secretary’s interpretation of 

the DSH provision, 42 U.S.C. § 1395ww(d)(5)(F)(vi), under 

Chevron U.S.A. Inc. v. Natural Resources Defense Council, 

Inc., 467 U.S. 837 (1984). The Chevron inquiry has two steps. 

First, “we ask if the statute unambiguously forecloses the 

agency’s interpretation.” Nat’l Cable & Telecomm. Ass’n v. 

FCC, 567 F.3d 659, 663 (D.C. Cir. 2009). If it does, we 

“disregard the agency’s view and ‘give effect to the 

unambiguously expressed intent of Congress.’” Id. (quoting 

Chevron, 467 U.S. at 843). If, however, “the statute is 

ambiguous enough to permit the agency’s reading,” we defer 

to the agency’s interpretation “so long as it is reasonable.” Id.

 The key interpretive question in this case is whether a 

person enrolled in an M+C plan is still “entitled to benefits 

under Part A.” The Secretary says yes. Northeast argues that 

this interpretation is contrary to the plain language of the 

statute, is unreasonable, and in any case cannot be applied to 

Beverly’s 1999-2002 DSH adjustments because during those 

years the Secretary took the position that M+C enrollees are 

not “entitled to benefits under Part A.” 

 Before proceeding, it may be helpful to explain how the 

Secretary’s interpretation results in lower DSH payments. If 

an M+C patient is entitled to benefits under Part A (the 

Secretary’s interpretation), then his hospital days are counted 

in both the numerator of the Medicare fraction, if he is 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 7 of 47
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entitled to SSI, and the denominator of that fraction. At the 

same time, the patient’s days are not counted in the numerator 

of the Medicaid fraction, but are counted in the denominator 

of that fraction. If, on the other hand, an M+C patient is not

entitled to benefits under Part A (Northeast’s interpretation), 

then the patient’s hospital days are not counted in either the 

numerator or the denominator of the Medicare fraction, but 

are counted in both the numerator of the Medicaid fraction, if 

he is eligible for Medicaid, and the denominator of that 

fraction. 

 Consider first the Medicare fraction. Including M+C 

patient days in the numerator and denominator of the fraction 

(the Secretary’s interpretation) dilutes the fraction because 

M+C enrollees are less likely to qualify for SSI benefits than 

non–M+C enrollees. This is because to qualify for Part C a 

person must first purchase Part B coverage. See 42 U.S.C. 

§ 1395w-21(a)(3)(A). That is, to qualify for Part C a person 

must have the means to afford Part B premiums. If M+C 

enrollees are less likely to qualify for SSI benefits than non–

M+C enrollees, adopting the Secretary’s interpretation and 

counting M+C patients among patients “entitled to benefits 

under Part A” reduces the percentage of patients entitled to 

benefits under Part A who also qualify for SSI. Northeast’s 

interpretation has the opposite effect. 

 Consider now the Medicaid fraction. Adopting the 

Secretary’s interpretation and counting M+C patients among 

patients “entitled to benefits under Part A” decreases the 

numerator of the fraction (all patients “eligible for 

[Medicaid]” but not “entitled to benefits under Part A”) and 

has no effect on the denominator (“total number of 

patient[s]”), diluting the fraction. Northeast’s interpretation 

again has the opposite effect. In sum, then, the Secretary’s 

interpretation decreases the DSH adjustment that hospitals 

receive, while Northeast’s interpretation has the opposite 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 8 of 47
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effect. Nationwide, the practical consequences of this dispute 

number in the hundreds of millions of dollars. 

A 

At Chevron step one we ask whether Congress has 

unambiguously foreclosed the Secretary’s interpretation that 

M+C enrollees are “entitled to benefits under Part A.” We 

conclude Congress has not, because numerous provisions in 

the Balanced Budget Act of 1997, Pub. L. No. 105-33, 111 

Stat. 251, which enacted M+C, as well as subsequent 

amendments to Part C, assume that a person enrolled in M+C 

remains entitled to benefits under Part A, and nothing in the 

text or structure of the DSH fractions compels a different 

result.2

The Secretary argues that the phrase “entitled to benefits 

under Part A” applies to all individuals who meet the statutory 

criteria in 42 U.S.C. § 426(a) and (b) for receiving “hospital 

insurance benefits under Part A.” Under § 426(a), “[e]very 

individual who . . . has attained age 65” and “is entitled to 

monthly [Social Security benefits]” is “entitled to hospital 

insurance benefits under Part A.” Under § 426(b), every 

 2

 Our concurring colleague thinks our criticism of the district 

court’s reasoning unnecessary in light of our conclusion that the 

Secretary cannot retroactively apply her interpretation to pre-2004 

DSH calculations, Concurring Op. 7 n.3, but we commonly say 

why the district court erred before affirming on other grounds, see, 

e.g., Ginger v. District of Columbia, 527 F.3d 1340, 1344-45 (D.C. 

Cir. 2008); Kingman Park Civic Ass’n v. Williams, 348 F.3d 1033, 

1041 (D.C. Cir. 2003); Gatewood v. Wash. Healthcare Corp., 933 

F.2d 1037, 1040-41 (D.C. Cir. 1991). And considerations of 

judicial economy counsel strongly in favor of doing so here, where 

the district court is likely to confront the same difficult statutory 

interpretation question again in the near future. 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 9 of 47
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individual under the age of 65 who meets certain disability, 

marital, or other criteria is similarly “entitled to hospital 

insurance benefits under Part A.” According to the Secretary, 

M+C enrollees are a subset of these two groups, because to be 

eligible for Part C a person must first be entitled to benefits 

under Part A, see 42 U.S.C. § 1395w-21(a)(3)(A), and 

enrolling in Part C does not affect one’s age, marital status, or 

ability to work. Thus, by definition M+C enrollees must be 

entitled to benefits under Part A. 

Northeast counters that M+C enrollees cannot be 

“entitled” to benefits under Part A, because once a person 

enrolls in M+C, payments on his behalf are made under Part 

C, not Part A. Northeast points to three provisions. First, 

§ 426(c)(1) states that “entitlement of an individual to hospital 

insurance benefits for a month [under Part A] shall consist of 

entitlement to have payment made under, and subject to the 

limitations in, [P]art A . . . on his behalf for inpatient hospital 

services” (emphasis added). See also id. § 1395d(a) (“The 

benefits provided to an individual by the insurance program 

under [Part A] shall consist of entitlement to have payment

made on his behalf . . . for . . . inpatient hospital 

services . . . .” (emphasis added)). Second, § 1395w-21(a)(1), 

which was enacted as part of the original 1997 Act, states that 

persons eligible for Part C are “entitled to elect to receive 

benefits” either “through the original [M]edicare fee-forservice program under [P]arts A and B . . . or . . . through 

enrollment in a Medicare + Choice plan under [Part C]” 

(emphasis added). Third, § 1395w-21(i)(1), another 1997 Act 

provision, specifies that once a person enrolls in an M+C 

plan, Medicare payments to the plan “shall be instead of the 

amounts which (in the absence of the [M+C] contract) would 

otherwise be payable [to the provider] under [P]arts A and B” 

(emphasis added). 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 10 of 47
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Northeast’s logic is straightforward: “there is only one 

benefit provided under [P]art A,” and that benefit is “the right 

to have payment made under [P]art A.” Appellee’s Br. 21. But 

individuals who enroll in an M+C plan do not receive benefits 

under Part A; rather, they receive benefits under Part C. 

According to Northeast, then, M+C enrollees cannot possibly 

be “entitled” to benefits under Part A, because they can no 

longer even receive benefits under Part A. Rather, they can 

only receive benefits under Part C. See 42 U.S.C. § 1395w21(a)(1), (i)(1). Northeast’s argument rests on the statute’s 

plain meaning: a hospital patient is not “entitled” to benefits 

that the law denies him. 

The trouble with Northeast’s reasoning, however, is that 

elsewhere the 1997 Act assumes that a person who enrolls in 

an M+C plan is still “entitled to benefits under Part A.” See 

FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 

133 (2000) (“It is a ‘fundamental canon of statutory 

construction that the words of a statute must be read in their 

context and with a view to their place in the overall statutory 

scheme.’” (quoting Davis v. Mich. Dep’t of Treasury, 489 

U.S. 803, 809 (1989))). Section 1395w-21(a)(3)(A) states that 

a “Medicare + Choice eligible individual” is a person “who is 

entitled to benefits under [P]art A” and “enrolled under [P]art 

B.” Under Northeast’s reasoning, once a person elects Part C 

he is no longer “eligible” for Part C, because he is no longer 

“entitled to benefits under Part A” (because payments on his 

behalf are no longer made under Part A). Aside from the 

textual incongruity that would result from saying that once a 

person enrolls in Part C he is no longer “eligible” for it, 

neighboring Part C provisions make clear that a person 

remains a “Medicare + Choice eligible individual” even after 

enrolling in Part C. 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 11 of 47
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Section 1395w-21(d)(2)(A), for instance, requires the 

Secretary to mail “each Medicare + Choice eligible 

individual” information about available Part C plans, 

including “[a] list identifying the Medicare + Choice plans 

that are (or will be) available to residents of the area,” before 

the start of each annual open enrollment period. If M+C 

enrollees are no longer “eligible” for Part C once they enroll, 

this means the Secretary is not required to mail them this 

information, even though the purpose of the open enrollment 

period is to allow beneficiaries to change plans. 

Our concurring colleague suggests it would not be 

strange at all if the Secretary did not have to mail Part C plan 

information to M+C enrollees, presumably because M+C 

enrollees already know about their Part C options. Concurring 

Op. 8. But Part C options change every year, which is 

undoubtedly why the Act requires the Secretary to update the 

information she sends out annually “to reflect changes in the 

availability of [M+C] plans and the benefits and . . . 

premiums for such plans.” 42 U.S.C. § 1395w-21(d)(2)(D). 

Contrary to the concurrence’s suggestion, then, it would be 

odd indeed if the Secretary were required to mail information 

to individuals not enrolled in Part C but not required to mail 

such information to persons who are enrolled in Part C. After 

all, M+C enrollees are the people most likely to be interested 

in annual changes to benefits and plan availability. That a 

neighboring provision also requires the Secretary to “provide 

for activities [that] broadly disseminate” information about 

Part C coverage options to Medicare beneficiaries, id.

§ 1395w-21(d)(1), does not eliminate the oddity Northeast’s 

interpretation produces. “Broadly disseminating” information 

about Part C options is not the same as mailing plan 

information to every M+C enrollee, and if it were, § 1395wUSCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 12 of 47
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21(d)(2)’s mail-notification requirement would be 

superfluous.3

Northeast’s interpretation would also produce the 

anomalous result that an M+C plan must provide general plan 

information “upon request” to non–M+C enrollees, but need 

not provide such information upon request to persons enrolled 

with a different M+C plan. See id. § 1395w-22(c)(2) 

(requiring “Medicare + Choice organization[s]” to provide 

“general coverage information and general comparative plan 

information” to “Medicare + Choice eligible individual[s]” 

upon request). But an M+C enrollee looking to change plans 

is likely to be just as interested in learning about his options 

as someone looking to join an M+C plan for the first time. It 

would make no sense for Congress to require plans to provide 

information upon request to the one but not the other, but that 

is the result Northeast’s interpretation produces. 

The concurrence says we claim that under Northeast’s 

interpretation M+C enrollees “would not be able to obtain 

plan information from their Part C plans,” and then points out 

a separate provision that requires plans to provide information 

 3

 The concurrence also argues that relying on the open-season 

notice provision to interpret the term “entitled to benefits under Part 

A” amounts to “using a very small tail to wag a very large dog.” 

Concurring Op. 8. But as discussed infra, that is not the only 

provision that assumes a person who enrolls in Part C remains 

entitled to benefits under Part A. See also 42 U.S.C. § 1395w21(a)(3)(A), (e)(2)(D), (h)(1); id. § 1395w-22(a)(7), (c)(2); id.

§ 1395w-23(o)(3)(B)(ii); id. § 1395w-24(e)(1)(B), (e)(4)(B); id.

§ 1395w-27(e); id. § 1395w-27a(f)(4)(A). And in any event, given 

that this case requires us to determine the relationship between 

enrollment in Part C and entitlement to Part A benefits, it makes 

sense to consider how that relationship plays out in other 

provisions. 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 13 of 47
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to their own enrollees. Concurring Op. 9 (citing 42 U.S.C. 

§ 1395w-22(c)(1)). This is a straw man. The problem with 

Northeast’s interpretation is not that it would excuse M+C 

plans from providing information to their own enrollees. 

Rather, the problem is that it would require plans to provide 

information upon request to individuals not enrolled in M+C 

at all but not require plans to provide this information to 

individuals enrolled in M+C with a different plan. There is no 

reason why Congress would require plans to provide 

information to the former but not the latter. 

Another provision that becomes odd under Northeast’s 

interpretation is § 1395w-21(h)(1), which prohibits M+C 

plans from distributing marketing materials to “Medicare + 

Choice eligible individuals” unless the plans first submit the 

materials to the Secretary for review. Under Northeast’s 

reading of the statute, plans would be unable to send 

unreviewed marketing materials to non–M+C enrollees but 

free to send such materials to individuals already in an M+C 

plan, because those individuals would no longer be 

“Medicare + Choice eligible individuals.” This would make 

little sense: M+C enrollees are no less vulnerable to 

misleading marketing campaigns than individuals not enrolled 

in Part C. 

Our concurring colleague says he finds nothing odd with 

requiring M+C plans to submit marketing materials to the 

Secretary for review before sending such materials to 

Medicare beneficiaries not enrolled in Part C. Concurring Op. 

9. Nor do we: § 1395w-21(h)(1) requires as much. What we 

do find odd, however, is a provision that prohibits plans from 

sending unreviewed marketing materials to individuals not 

enrolled in M+C but permits them to send those same 

materials to M+C enrollees. The concurrence does not offer 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 14 of 47
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any reason why Congress would treat enrollees and nonenrollees differently here, and we can think of none. 

Last but not least are 42 U.S.C. § 1395w-24(e)(1)(B) and 

(e)(4)(B).4 These provisions limit the average premiums, 

deductibles, and copayments M+C enrollees pay for certain 

benefits to the average amounts “individuals entitled to 

benefits under [P]art A . . . and enrolled under [P]art B” 

would pay for those same benefits “if they were not members 

of a Medicare + Choice organization for the year.” These 

provisions assume it is possible to be both entitled to benefits 

under Part A and enrolled in an M+C plan. 

Other Part C provisions enacted after the original 1997 

Act also assume that a person who enrolls in an M+C plan is 

still “entitled to benefits under Part A.” Although “[l]ater laws 

that do not seek to clarify an earlier enacted general term and 

do not depend for their effectiveness [on] . . . a change in the 

meaning of the earlier statute” are normally “beside the 

point,” United States v. Monzel, 641 F.3d 528, 536 (D.C. Cir. 

2011) (quoting Gutierrez v. Ada, 528 U.S. 250, 257-58 

(2000)) (internal quotation marks omitted), we find 

subsequently enacted Part C provisions relevant in this case 

because they inform the relationship between Part C 

 4

 Our concurring colleague makes much of the fact that we 

mention several provisions the Secretary did not cite in her briefs. 

See Concurring Op. 9-11. “Under Chevron’s first step, however, we 

have a duty to conduct an ‘independent examination’ of the statute 

in question, looking not only ‘to the particular statutory language at 

issue,’ but also to ‘the language and design of the statute as a 

whole,’” including provisions “not relied on” by the parties. 

Martini v. Fed. Nat’l Mortg. Ass’n, 178 F.3d 1336, 1345-46 (D.C. 

Cir. 1999) (quoting N.Y. Shipping Ass’n v. Fed. Maritime Comm’n, 

854 F.2d 1338, 1355 (D.C. Cir. 1988); K Mart Corp. v. Cartier, 

Inc., 486 U.S. 281, 291 (1988)) (internal citations omitted). 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 15 of 47
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enrollment and Part A entitlement, see Branch v. Smith, 538 

U.S. 254, 281 (2003) (plurality opinion) (“[I]t is, of course, 

the most rudimentary rule of statutory construction . . . that 

courts do not interpret statutes in isolation, but in the context 

of the corpus juris of which they are a part, including laterenacted statutes . . . .”); see also Almendarez-Torres v. United 

States, 523 U.S. 224, 269-70 (1998) (Scalia, J., dissenting) 

(arguing that Congress’s “expressed understanding” of what a 

phrase means “is surely evidence that it is fairly possible to 

read the provision that way” (internal quotation marks 

omitted)); Griffith v. Lanier, 521 F.3d 398, 402 (D.C. Cir. 

2008) (“[W]e read a body of statutes addressing the same 

subject matter in pari materia . . . including later-enacted 

statutes as well.”). And these subsequently enacted provisions 

confirm that “entitled to benefits under Part A” is a term of art 

that can encompass M+C enrollees.

Section 1395w-21(e)(2)(D), for example, provides that an 

institutionalized “Medicare + Choice eligible individual” may 

“change the Medicare + Choice plan in which the individual 

is enrolled.” The provision assumes that a person may enroll 

in an M+C plan and yet still remain a “Medicare + Choice 

eligible individual.” But under Northeast’s reasoning an M+C 

enrollee could never be a “Medicare + Choice eligible 

individual,” because he is no longer entitled to benefits under 

Part A. 

Our concurring colleague responds by arguing that 

Northeast’s interpretation would still allow institutionalized 

M+C enrollees to switch plans. Concurring Op. 10. But this 

response misses the point. The problem is not that Northeast’s 

interpretation would prevent institutionalized M+C enrollees 

from changing plans, but rather that § 1395w-21(e)(2)(D) 

describes a person who is both “enrolled” in an M+C plan and 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 16 of 47
17 

a “Medicare + Choice eligible individual,” a combination the 

concurrence says is impossible. 

Another provision that assumes an individual who enrolls 

in Part C may remain a “Medicare + Choice eligible 

individual” is § 1395w-23(o)(3)(B)(ii), which defines the term 

“qualifying county” for purposes of an annual benchmark 

computation as, inter alia, a county in which “at least 25 

percent” of “[Medicare + Choice] eligible individuals” were 

“enrolled in [M+C] plans” for the year. Like § 1395w21(e)(2)(D), this provision clearly contemplates that a person 

may be both “eligible” for and “enrolled” in Part C, but under 

Northeast’s interpretation that could never be the case. 

Two more provisions relevant to this point are 

§§ 1396d(p)(1) and 1395w-22(a)(7).5

 Section 1396d(p)(1) 

provides that a person “entitled to hospital insurance benefits 

under [P]art A” who meets certain income requirements is a 

“qualified [M]edicare beneficiary,” while § 1395w-22(a)(7) 

instructs that a “qualified [M]edicare beneficiary . . . who is 

enrolled in a specialized [M+C] plan for special needs 

individuals” may not be charged costs above a certain 

amount. Read together, these provisions expressly 

contemplate a person who is both “entitled to benefits under 

Part A” and enrolled in Part C, something Northeast says is 

impossible. 

The concurrence’s response to this analysis again misses 

the point. The problem is not, as the concurrence suggests, 

that Northeast’s interpretation would cause Medicare rather 

than Medicaid to pay for low-income M+C enrollees. See

 5

 Section 1396d(p)(1) is not located in Part C of the Medicare 

statute, but is relevant here because it defines a key term in 

§ 1395w-22(a)(7), which is located in Part C of the Medicare 

statute. 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 17 of 47
18 

Concurring Op. 10. Rather, the problem is that these two 

provisions, when read together, describe a person who is 

simultaneously enrolled in an M+C plan and entitled to 

benefits under Part A, something Northeast’s interpretation 

does not allow. 

Yet another provision that makes no sense under 

Northeast’s interpretation is § 1395w-27(e), which authorizes 

the Secretary to charge fees to M+C plans to help recoup the 

costs of distributing information about Part C options, among 

other things. See 42 U.S.C. § 1395w-27(e)(2)(B). For fiscal 

years 2001-2005, such fees could not exceed “the Medicare + 

Choice portion (as defined in [§ 1395w-27(e)(2)(E)]) of 

$100,000,000.” Id. § 1395w-27(e)(2)(D)(ii)(IV). That 

paragraph, in turn, defines “Medicare + Choice portion” as 

“(i) the average number of individuals enrolled in Medicare + 

Choice plans during the fiscal year,” divided by “(ii) the 

average number of individuals entitled to benefits under [P]art 

A . . . and enrolled under [P]art B . . . during the fiscal year.” 

Under Northeast’s interpretation, if more than 50 percent of 

individuals eligible to enroll in Part C do so, then this fraction 

exceeds a value of 1, because Northeast’s interpretation 

deletes M+C enrollees from the denominator (because under 

Northeast’s interpretation M+C enrollees are no longer 

entitled to benefits under Part A). Let’s plug in some 

numbers. Suppose there are 50 million people entitled to 

benefits under Part A and enrolled in Part B (and thus eligible 

to enroll in Part C), and 30 million of them enroll in Part C. 

The fraction would then equal: 30 million / (50 million – 30 

million) = 30 million / 20 million = 1.5. That would in turn 

make the “Medicare + Choice portion of $100,000,000” 

equal: $100,000,000 * 1.5 = $150,000,000. Obviously the 

“Medicare + Choice portion” of a dollar amount cannot equal 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 18 of 47
19 

a sum greater than the original dollar amount. Here again, 

Northeast’s interpretation leads to a nonsensical result.6

Rather than attempting to show why the fraction still 

works under Northeast’s interpretation, our concurring 

colleague instead raises a red herring. How can we say 

Northeast’s interpretation produces a nonsensical result for 

this fraction for fiscal years 2001-2005, he asks, when we also 

hold that the Secretary must apply Northeast’s interpretation 

to pre-2004 DSH calculations to avoid retroactivity problems? 

See Concurring Op. 11. But the issue before us is not whether 

the Secretary acted reasonably before 2004, when she may 

have interpreted “entitled to benefits under Part A” to include 

M+C enrollees under § 1395w-27(e)(2)(E) but to exclude 

those enrollees in the DSH calculations, and we express no 

opinion as to whether interpreting that phrase inconsistently 

would be permissible. Compare IBP, Inc. v. Alvarez, 546 U.S. 

21, 34 (2005) (“[I]dentical words used in different parts of the 

same statute are generally presumed to have the same 

meaning.”), with Envtl. Def. v. Duke Energy Corp., 549 U.S. 

561, 574 (2007) (“[T]he ‘natural presumption that identical 

words used in different parts of the same act are intended to 

have the same meaning . . . is not rigid and readily yields 

whenever there is such variation in the connection in which 

the words are used as reasonably to warrant the conclusion 

that they were employed in different parts of the act with 

 6

 Under the Secretary’s interpretation, however, the fraction 

works perfectly because a person entitled to benefits under Part A 

does not lose that entitlement when he enrolls in Part C. That is, the 

denominator of the fraction is unaffected by enrollments in Part C. 

Suppose again that there are 50 million people eligible to enroll in 

Part C and 30 million of them do. The fraction would then equal: 30 

million / 50 million = .6. That would in turn make the “Medicare + 

Choice” portion of $100,000,000 equal: $100,000,00 * .6 = 

$60,000,000. 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 19 of 47
20 

different intent.’” (quoting Atl. Cleaners & Dyers, Inc. v. 

United States, 286 U.S. 427, 433 (1932))). Here, we need 

only say that § 1395w-27(e)(2)(E) shows that the Medicare 

statute sometimes uses the phrase “entitled to benefits under 

Part A” in a way that encompasses M+C enrollees, which 

supports our conclusion that the statute does not 

unambiguously foreclose the Secretary’s current 

interpretation. Whether the Secretary can enforce that 

interpretation against Northeast for the period before 2004 is a 

separate question that we address below. 

Finally, § 1395w-27a(f)(4)(A) instructs the Secretary to 

determine annually a “statutory national market share 

percentage” that equals “the proportion of [Medicare + 

Choice] eligible individuals nationally who were not enrolled 

in an [M+C] plan.” If M+C enrollees are not entitled to 

benefits under Part A and thus not “Medicare + Choice 

eligible individuals,” then the proportion of “Medicare + 

Choice eligible individuals” not enrolled in an M+C plan is 

always 100 percent. Surely Congress did not mean to tell the 

Secretary to annually calculate a number that is always equal 

to 1. Northeast’s interpretation makes this provision nonsense. 

We are thus faced with two inconsistent sets of statutory 

provisions. Northeast points us to provisions that tie 

entitlement to payment and state that once a person enrolls in 

Part C, payments are no longer made under Part A. The 

Secretary points us to other provisions that assume it is 

possible to be both entitled to benefits under Part A and 

enrolled in Part C. Under these circumstances, we conclude 

that the Medicare statute does not unambiguously foreclose 

the Secretary’s interpretation. 

Nothing about the DSH provision itself compels a 

different result. Our concurring colleague emphasizes that the 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 20 of 47
21 

DSH fractions “require[] HHS to focus retrospectively on 

specific patient days.” Concurring Op. 3; see 42 U.S.C. 

§ 1395ww(d)(5)(F)(vi)(I) (counting “patient days . . . which 

were made up of patients who (for such days) were entitled to 

benefits under [P]art A”); id. § 1395ww(d)(5)(F)(vi)(II) 

(counting “patient days . . . which consist of patients who (for 

such days) were eligible for medical assistance under a State 

[Medicaid] plan . . . but who were not entitled to benefits 

under [P]art A”). But this does not prove that Congress 

unambiguously intended “entitled” to mean “paid.” Moreover, 

the fractions’ focus on specific patient days works perfectly 

well under the Secretary’s view that “entitled” means 

“meeting the statutory criteria in § 426(a) and (b).” Not every 

patient who meets the criteria in those paragraphs during 

some portion of his hospital stay will meet those criteria for 

all of the stay. For instance, a person who collects Social 

Security and who turns 65 during his hospital stay will 

become “entitled” to benefits under Part A on his sixty-fifth 

birthday. See 42 U.S.C. § 426(a). Or, a person under age 65 

who reaches his twenty-fifth calendar month of entitlement to 

disability benefits under § 423 during his hospital stay will 

become “entitled” to benefits under Part A upon reaching his 

twenty-fifth month of disability entitlement. See id. § 426(b). 

That Congress tied the DSH calculation to individual days of 

entitlement does not foreclose the Secretary’s interpretation. 

Nor is the fact that the DSH fractions speak of 

“eligibility” for Medicaid but “entitlement” to Medicare 

enlightening. See id. § 1395ww(d)(5)(F)(vi)(II) (stating that 

the numerator of the Medicaid fraction “consist[s] of” patients 

“eligible” for Medicaid but not “entitled” to benefits under 

Part A). Northeast argues that Congress’s disparate use of 

these two words indicates it intended “entitled” to mean 

something different from “eligible” and that the Secretary’s 

interpretation of “entitled” as “meeting the statutory criteria 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 21 of 47
22 

for entitlement” conflates the terms. See Pillsbury v. United 

Eng’g Co., 342 U.S. 197, 199 (1952) (identifying 

presumption that Congress means different things when it 

uses different words, especially when “the two words are used 

in the same sentence”). 

But the Secretary’s interpretation does not actually 

collapse the terms. Section 1395i-2(a) provides that 

individuals who have reached age 65, are enrolled in Part B, 

and are lawful U.S. residents but are “not otherwise entitled to 

benefits” under Part A, “shall be eligible to enroll in the 

insurance program established by [Part A].” Similarly, 

§ 1395i-2a(a) provides that individuals who have not reached 

age 65 and are not “otherwise entitled to benefits” under Part 

A but who meet certain other criteria “shall be eligible to 

enroll” in Part A. Both provisions further specify that after 

such persons enroll in Part A they become “entitled to 

benefits” under Part A during their period of enrollment. See

42 U.S.C. §§ 1395i-2(a), 1395i-2a(c)(1). Thus, even under the 

Secretary’s view that “entitled to benefits” means “meeting 

the statutory criteria for entitlement to benefits,” it is possible 

to be “eligible” for, but not “entitled” to, Part A benefits 

because one has not yet “enrolled” in the program. 

Moreover, the usual rule that Congress intends different 

meanings when it uses different words has little weight here. 

As Judges Luttig and Batchelder both recognized in an earlier 

line of DSH cases, “Congress has, throughout the various 

Medicare and Medicaid statutory provisions, consistently 

used the words ‘eligible’ to refer to potential Medicaid 

beneficiaries and ‘entitled’ to refer to potential Medicare 

beneficiaries for no reason whatever that anyone (including 

the Secretary, who is intimately familiar with the statutes . . .) 

has been able to divine.” Cabell Huntington Hosp., Inc. v. 

Shalala, 101 F.3d 984, 992 (4th Cir. 1996) (Luttig, J., 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 22 of 47
23 

dissenting); see also Jewish Hosp., Inc. v. Sec’y of Health & 

Human Servs., 19 F.3d 270, 278 (6th Cir. 1994) (Batchelder, 

J., dissenting).7

 To the extent Congress was merely borrowing 

 7

 In this earlier line of DSH cases, four circuits concluded that 

the terms “eligible” and “entitled” as used in the DSH provision 

carry different meanings. See Cabell Huntington Hosp., 101 F.3d at 

988 (majority opinion) (“Congress chose the word entitled for the 

Medicare proxy and the word eligible for the Medicaid proxy. 

Congress’ use of separate words demonstrates it intended for each 

to have a separate meaning.”); see also Legacy Emanuel Hosp. & 

Health Ctr. v. Shalala, 97 F.3d 1261, 1265 (9th Cir. 1996); 

Deaconess Health Servs. Corp. v. Shalala, 83 F.3d 1041, 1041 (8th 

Cir. 1996) (per curiam); Jewish Hosp., 19 F.3d at 275 (majority 

opinion). Indeed, not only did these circuits conclude that the terms 

carry different meanings, but they also interpreted “entitled to 

benefits” to mean that a person has a right to have payment made. 

See Jewish Hosp., 19 F.3d at 275 (“To be entitled to some benefit 

means that one possesses the right or title to that benefit. Thus, the 

Medicare [fraction] fixes the calculation upon the absolute right to 

receive an independent and readily defined payment.”); see also

Legacy Emanuel Hosp., 97 F.3d at 1265; cf. Cabell Huntington 

Hosp., 101 F.3d at 988. We decline to follow these cases for three 

reasons. First, the meaning of the phrase “entitled to benefits under 

Part A” was not directly at issue in any of the cases. Rather, the 

issue was whether the Secretary had properly interpreted the phrase 

“eligible for [Medicaid]” to include only patient days that were 

actually paid by a state Medicaid plan, an interpretation the 

Secretary abandoned in 1997. Health Care Fin. Admin. Ruling 97-2 

(Feb. 27, 1997). The interpretations of “entitled to benefits” in these 

cases were therefore dicta. Second, the cases were all decided 

before Part C was enacted and so spoke of entitlement to payment 

under Medicare generally without reference to the particular “Part” 

under which payment would occur. Third, the cases failed to 

grapple with Judge Luttig’s and Judge Batchelder’s observations 

that Congress has, for no readily apparent reason, chosen to use the 

word “eligible” for Medicaid beneficiaries and “entitled” for 

Medicare beneficiaries. 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 23 of 47
24 

these terms from elsewhere in the statute, it would be a 

mistake to read too much into the difference in nomenclature. 

The terms might carry different meanings here, but the 

inference is weak. 

Given the Medicare statute’s inconsistent and specialized 

use of the phrase “entitled to benefits under Part A,” the 

concurrence’s appeal to “[c]ommon parlance” has little force. 

Concurring Op. 7. Although a typical M+C enrollee might not 

describe himself as “entitled to benefits under Part A,” a 

person familiar with the Medicare statute’s varying and 

inconsistent uses of that phrase might. Statutes “addressed to 

specialists . . . must be read by judges with the minds of 

specialists,” Felix Frankfurter, Some Reflections on the 

Reading of Statutes, 47 COLUM. L. REV. 527, 536 (1947), and 

few provisions are more specialized than the ones at issue 

here, which the Fourth Circuit once described as “among the 

most completely impenetrable texts within human 

experience,” Rehab. Ass’n of Va. v. Kozlowski, 42 F.3d 1444, 

1450 (4th Cir. 1994). 

In sum, Congress has not clearly foreclosed the 

Secretary’s interpretation that M+C enrollees are entitled to 

benefits under Part A. Rather, it has left a statutory gap, and it 

is for the Secretary, not the court, to fill that gap. See 

Catawba Cnty., N.C. v. EPA, 571 F.3d 20, 35 (D.C. Cir. 2009) 

(per curiam). 

B 

 At Chevron step two we ask whether the agency’s 

interpretation of the statute is “reasonable.” Abington Crest 

Nursing & Rehab. Ctr. v. Sebelius, 575 F.3d 717, 719 (D.C. 

Cir. 2009). In this case, however, we do not reach that 

question, because even if the Secretary’s present 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 24 of 47
25 

interpretation is reasonable, it cannot be applied retroactively 

to fiscal years 1999-2002. 

It is well settled that an agency may not promulgate a 

retroactive rule absent express congressional authorization. 

See Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 

(1988). Rulemaking, moreover, “includes not only the 

agency’s process of formulating a rule, but also the agency’s 

process of modifying a rule.” Alaska Prof’l Hunters Ass’n v. 

FAA, 177 F.3d 1030, 1034 (D.C. Cir. 1999); see also 5 U.S.C. 

§ 551(5) (“‘[R]ule making’ means agency process for 

formulating, amending, or repealing a rule[.]”); Paralyzed 

Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579, 586 (D.C. 

Cir. 1997) (“Under the APA, agencies are obliged to engage 

in notice and comment before formulating regulations, which 

applies as well to ‘repeals’ or ‘amendments.’” (emphasis 

omitted)). Thus, the rule against retroactive rulemaking 

applies just as much to amendments to rules as to original 

rules themselves. 

To determine whether a rule is impermissibly retroactive, 

“we first look to see whether it effects a substantive change 

from the agency’s prior regulation or practice.” Nat’l Mining 

Ass’n v. Dep’t of Labor, 292 F.3d 849, 860 (D.C. Cir. 2002). 

If the rule departs from established practice, we then examine 

its impact, if any, on the legal consequences of prior conduct. 

A rule that “alter[s] the past legal consequences of past 

actions” is retroactive; a rule that alters only the “future 

effect” of past actions, in contrast, is not. Mobile Relay 

Assocs. v. FCC, 457 F.3d 1, 11 (D.C. Cir. 2006) (quoting 

Bowen, 488 U.S. at 219 (Scalia, J., concurring)) (internal 

quotation marks omitted). Put differently, “[i]f a new rule is 

‘substantively inconsistent’ with a prior agency practice and 

attaches new legal consequences to events completed before 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 25 of 47
26 

its enactment, it operates retroactively.” Arkema Inc. v. EPA, 

618 F.3d 1, 7 (D.C. Cir. 2010). 

The Secretary’s present interpretation stems from a 2004 

rulemaking in which she said she was “adopting a policy” of 

counting M+C days in the Medicare fraction because M+C 

enrollees “are still, in some sense, entitled to benefits 

under . . . Part A.” 69 Fed. Reg. 48,916, 49,099 (Aug. 11, 

2004). Accordingly, the Secretary revised 42 C.F.R. 

§ 412.106, the HHS regulation that governs calculation of 

DSH fractions, to state expressly that M+C patient days 

should be counted in the Medicare fraction.8 See 42 C.F.R. 

§ 412.106(b)(2) (2007) (providing that a hospital’s Medicare 

fraction is determined by dividing “the number of patient 

days . . . furnished to patients who . . . were entitled to both 

Medicare Part A (or Medicare Advantage (Part C)) and SSI” 

by “the total number of days . . . furnished to patients entitled 

to Medicare Part A (or Medicare Advantage (Part C))”). Prior 

to 2004, the regulation did not specify where M+C enrollees 

should be counted. See id. § 412.106(b)(2) (2003) (providing 

that a hospital’s Medicare fraction is determined by dividing 

“the number of covered patient days . . . furnished to patients 

who . . . were entitled to both Medicare Part A and SSI” by 

“the total number of patient days . . . furnished to patients 

entitled to Medicare Part A”). 

The Secretary argues that just because she amended 

§ 412.106 to state explicitly that M+C days should be counted 

in the Medicare fraction does not mean she omitted M+C 

days prior to the amendment. See Baptist Mem’l Hosp.–

Golden Triangle v. Sebelius, 566 F.3d 226, 229 (D.C. Cir. 

 8

 Because of a clerical error, the text of § 412.106 was not 

actually revised until 2007. See 72 Fed. Reg. 47,130, 47,384 (Aug. 

22, 2007) (explaining that the failure to change the text in 2004 was 

“inadvertent[]”). 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 26 of 47
27 

2009) (“[W]hen a legislative or executive body adopts a new 

clarifying law or rule, it does not necessarily follow that an 

earlier version did not have the same meaning.”). Rather, she 

says, the amendment merely confirmed her longstanding view 

that M+C days should be included in the Medicare fraction 

because M+C enrollees are still “entitled to benefits under 

Part A.” 

A brief look at the Secretary’s treatment of M+C days 

prior to 2004, however, belies her claim that the revision to 

§ 412.106 codified a longstanding policy. In two recent PRRB 

hearings, providers submitted evidence based on hundreds of 

cost reports from numerous hospitals that between 1999 and 

2004, the Secretary routinely excluded M+C days from the 

Medicare fraction. See Sw. Consulting DSH Medicare + 

Choice Days Grps. v. BlueCross BlueShield Ass’n, PRRB 

Dec. No. 2010-D52, 2010 WL 4211391, at *12 (Sept. 30, 

2010), reprinted in Medicare & Medicaid Guide (CCH) 

¶ 82,679 (reviewing evidence that from 1999 to 2004, the 

Secretary “never count[ed] M+C days in the [Medicare] 

fraction except rarely, and then by mistake”), rev’d, Review 

of PRRB Dec. No. 2010-D52, 2010 WL 5571037 (Nov. 22, 

2010), reprinted in Medicare & Medicaid Guide (CCH) 

¶ 82,703; see also Sw. Consulting DSH SSI Grp. Appeals v. 

BlueCross BlueShield Ass’n, PRRB Dec. No. 2010-D48, 2010 

WL 4211376, at *9 (Sept. 24, 2010), reprinted in Medicare & 

Medicaid Guide (CCH) ¶ 82,675. The intermediary did not 

challenge the evidence in either hearing, see Sw. Consulting 

DSH Medicare + Choice, 2010 WL 4211391, at *12; Sw. 

Consulting DSH SSI, 2010 WL 4211376, at *10, and the 

PRRB expressly stated in its decision on the second hearing 

that it “[found] the evidence persuasive that [the Secretary’s] 

actual practice was to not count the M+C days in the 

[Medicare] fraction prior to 2004,” Sw. Consulting DSH 

Medicare + Choice, 2010 WL 4211391, at *12. 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 27 of 47
28 

Moreover, in 1998, the year after Congress enacted M+C, 

the Secretary instructed non-teaching hospitals not to file “nopay” bills for services furnished to M+C patients. See

Program Memorandum (Intermediaries), HCFA Pub. 60A, 

Transmittal No. A-98-21 (July 1, 1998). According to 

Northeast, the Secretary needs these bills to count M+C days 

in the Medicare fraction, and the Secretary does not claim 

otherwise. Perhaps for this reason, in 2007 the Secretary 

reversed course and directed all hospitals to begin submitting 

“no-pay” bills for M+C patients. Change Request 5647, CMS 

Pub. 100-04, Transmittal No. 1331 (July 20, 2007). It further 

appears that prior to 2004, the Secretary was not even using

the data field for managed care days in the program file for 

calculating Medicare fractions. See Baystate Med. Ctr. v. Mut. 

of Omaha Ins. Co., PRRB Dec. No. 2006-D20, 2006 WL 

752453, at *31 (Mar. 17, 2006), reprinted in Medicare & 

Medicaid Guide (CCH) ¶ 81,468 (“[HHS’s hospital inpatient 

database] programmer . . . testified that the field on [the 

database] for HMO days ‘hasn’t been used since the time that 

I started running the [database in 1995].’”). According to the 

PRRB, this means such days “could not have been included in 

the [Medicare] fraction in any case, even if a no-pay bill had 

been submitted.” Id.

The Secretary admits that she routinely failed to count 

M+C patient days in the Medicare fraction prior to 2004, but 

attributes this failure to “errors in [HHS’s] data systems” that 

she says have now been resolved. Reply Br. 26. Thus, she 

claims, “the failure to count the days was not intentional, and 

[hence] not consistent with any alleged prior policy.” Id. at 

27. The Secretary’s explanation is not convincing. As just 

described, in 1998 she instructed non-teaching hospitals not to 

submit information that she needed to count M+C days in the 

Medicare fraction, and between at least 1995 and 2004 she 

did not even use the managed care field in the hospital 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 28 of 47
29 

inpatient database. The failure to count M+C days in the 

Medicare fraction was not the result of data system errors. 

Aside from the Secretary’s actual treatment of M+C days, 

her statements in the 2004 rulemaking and in a subsequent 

2007 technical revision confirm that she changed her 

interpretation of the DSH provision in 2004. As noted above, 

in the 2004 rulemaking she announced that she was “adopting 

a policy” of counting M+C days in the Medicare fraction. 69 

Fed. Reg. at 49,099. And in a 2007 technical revision to 

§ 412.106 that made changes she had inadvertently omitted 

three years earlier, she called her 2004 decision to include 

M+C days in the Medicare fraction a “policy change.” 72 Fed. 

Reg. 47,130, 47,384 (Aug. 22, 2007). 

The Secretary does not even attempt to reconcile these 

statements with her claim that her present position is 

“longstanding.” Rather, she points to a 1990 rulemaking in 

which she stated that “HMO” days should be counted in the 

Medicare fraction. See 55 Fed. Reg. 35,990, 35,994 (Sept. 4, 

1990) (“Based on the language of [§ 1395ww(d)(5)(F)(vi)], 

which states that the disproportionate share adjustment 

computation should include ‘patients who were entitled to 

benefits under Part A,’ we believe it is appropriate to include 

the days associated with Medicare patients who receive care 

at a qualified HMO. . . . Therefore, since [December 1987], 

we have been including HMO days in [the Medicare] 

percentage.”). Prior to enactment of M+C in 1997, Medicare 

payments to HMOs were governed under § 1395mm, which 

provided for two types of contracts: (1) “cost” contracts, 

under which the Secretary reimbursed an HMO for its 

reasonable costs; and (2) “risk” contracts, under which the 

Secretary made fixed monthly payments to the HMO. 42 

U.S.C. § 1395mm(a), (g), (h); see also 42 C.F.R. §§ 417.530-

.576 (cost contracts), 417.580-.598 (risk contracts). As with 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 29 of 47
30 

M+C, Medicare payments for HMO patients went to the 

managed care plan, which then paid the provider, rather than 

to the provider directly. See 42 U.S.C. § 1395mm(a)(6) 

(“Subject to [certain exceptions] . . . if an individual is 

enrolled under this section with an eligible organization 

having a risk-sharing contract, only the eligible organization 

shall be entitled to receive payments from the Secretary under 

this subchapter for services furnished to the individual.”). 

The Secretary argues that the 1990 rulemaking shows she 

has long interpreted the Medicare fraction to include managed 

care days and has never limited the calculation to 

reimbursements paid directly to hospitals under Part A. 

Again, however, her actual practice belies this claim. At least 

as early as 1995, she was not using the managed care field in 

the program file for calculating Medicare fractions, making it 

impossible to count HMO days in the Medicare fraction. See 

Baystate Med. Ctr., 2006 WL 752453, at *31. Moreover, even 

if the 1990 rulemaking accurately reflected the Secretary’s 

policy regarding § 1395mm HMO days, M+C was not 

enacted until 1997. See Balanced Budget Act § 4001, 111 

Stat. at 275-327 (codified at 42 U.S.C. § 1395w-21 et seq.). 

Any support the 1990 rulemaking provides the Secretary’s 

argument is thus indirect at best. This contrasts with the 

evidence about the Secretary’s treatment of M+C days during 

the fiscal years in dispute. 

In light of the foregoing, it is apparent that the 

Secretary’s decision to apply her present interpretation of the 

DSH statute to fiscal years 1999-2002 violates the rule against 

retroactive rulemaking. The Secretary’s interpretation, as set 

forth in the 2004 rulemaking and resulting amendment to 

§ 412.106, contradicts her former practice of excluding M+C 

days from the Medicare fraction. Moreover, the amendment 

attaches new legal consequences to hospitals’ treatment of 

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31 

low-income patients during the relevant time period. 

Hospitals that serve a disproportionately large number of such 

patients receive a statutorily mandated “additional payment” 

from the Secretary, 42 U.S.C. § 1395ww(d)(5)(F)(i), and 

whether a particular hospital qualifies for this payment, and 

the size of the payment the hospital receives, depends on the 

hospital’s DSH fractions. Any rule that alters the method for 

calculating those fractions, therefore, changes the legal 

consequences of treating low-income patients. 

We are aware of no statute that authorizes the Secretary 

to promulgate retroactive rules for DSH calculations. Absent 

such authorization, the Secretary’s present interpretation, 

which marks a substantive departure from her prior practice 

of excluding M+C days from the Medicare fraction, may not 

be retroactively applied to fiscal years 1999-2002. 

C 

We are puzzled by the concurrence’s suggestion that we 

have “twisted [ourselves] into a knot” by holding, on the one 

hand, that the DSH provision does not unambiguously 

foreclose the Secretary’s interpretation that M+C enrollees are 

entitled to benefits under Part A, while also holding, on the 

other hand, that the Secretary cannot retroactively apply her 

interpretation to pre-2004 DSH calculations. Concurring Op. 

13. The concurrence points out that none of the problems we 

identify above surfaced while the Secretary took the view 

Northeast now urges. But the Secretary avoided those 

problems by reading the phrase “entitled to benefits under 

Part A” to mean different things in different places. See 63 

Fed. Reg. 34,968, 34,979 (June 26, 1998) (describing 

Secretary’s practice of interpreting “entitled” to mean 

different things in different provisions). How the Secretary 

read other provisions before 2004 is not before us, and is 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 31 of 47
32 

irrelevant to the disposition in this case. We express no 

opinion as to whether the Secretary must read the phrase 

“entitled to benefits under Part A” to always mean the same 

thing throughout the Medicare statute. For present purposes, it 

is enough to conclude that other provisions of the Medicare 

statute make clear that the phrase sometimes includes M+C 

enrollees and that nothing in the DSH provision compels a 

different result. 

III 

As we conclude our analysis, a passage from Learned 

Hand lamenting the complexity of another regulatory 

behemoth—the Internal Revenue Code—comes to mind: 

I know that these [provisions] are the result of fabulous 

industry and ingenuity . . . yet at times I cannot help 

recalling a saying of William James about certain 

passages of Hegel: that they were no doubt written with a 

passion of rationality; but that one cannot help wondering 

whether to the reader they have any significance save that 

the words are strung together with syntactical 

correctness. Much of the law is now as difficult to 

fathom, and more and more of it is likely to be so; for 

there is little doubt that we are entering a period of 

increasingly detailed regulation, and it will be the duty of 

judges to thread the path . . . through these fantastic 

labyrinths. 

Learned Hand, In Memoriam: Thomas Walter Swan, 57 YALE 

L.J. 167, 169 (1947). Having wound our way through the 

intricate tangle of DSH fractions, Medicare + Choice 

requirements, and more, we hold that Congress has not 

unambiguously foreclosed the Secretary’s interpretation that 

M+C enrollees are entitled to benefits under Part A. But we 

also hold that the Secretary’s present interpretation, even if it 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 32 of 47
33 

would pass Chevron step two (an issue upon which we do not 

opine), may not be retroactively applied to Beverly’s 1999-

2002 DSH adjustments. We affirm the district court’s grant of 

summary judgment for Northeast for this second reason. 

So ordered.

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 33 of 47
KAVANAUGH, Circuit Judge, concurring in the judgment:

Although the legal question presented here is embedded 

within a very complex legal scheme and has significant 

financial ramifications, the question itself is straightforward: 

If a hospital patient receives Medicare benefits under 

Medicare Part C for a particular “patient day,” is that patient 

also “entitled” for that same “patient day” to Medicare 

benefits under Medicare Part A? In my view, the text of the 

Medicare statute tells us the answer is no. I agree with the

careful analysis by Judge Bates in the District Court: 

Medicare beneficiaries must choose between governmentsubsidized private insurance plans under Part C and 

government-administered insurance under Part A, and after

they choose, they are obviously not entitled on the same 

“patient day” to benefits from both kinds of plans. HHS 

rejected that interpretation of the text and, as a result, 

significantly undercompensated Beverly Hospital (and many 

other hospitals) for the costs of treating Medicare patients. 

Because HHS misapplied the statute, I would rule for Beverly 

Hospital and affirm the judgment of the District Court on that 

ground.

I

Through the Medicare program, the Federal Government 

provides health insurance to, among others, Americans who 

are 65 or older. Medicare has several “parts,” two of which 

are central to this case: Part A provides hospitalization 

benefits through government-administered fee-for-service

hospital insurance, and Part C (previously called 

“Medicare+Choice” and now called “Medicare Advantage”) 

provides government-subsidized enrollment in private 

insurance plans. 

The Department of Health and Human Services manages

Medicare Part A by paying hospitals a pre-determined sum for 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 34 of 47
2

each covered inpatient hospitalization service, without regard 

to the actual cost incurred by the hospitals. HHS is required 

by statute to disburse extra Part A funds to hospitals that serve 

a “significantly disproportionate number of low-income 

patients.” 42 U.S.C. § 1395ww(d)(5)(F)(i)(I). The theory is 

that, for a variety of reasons, it costs hospitals more to treat 

significant numbers of low-income patients, and hospitals that 

do so should therefore receive higher reimbursements. A

statutory provision known as the “disproportionate share 

hospital adjustment” provides a convoluted (to put it 

charitably) formula for calculating how much extra money 

HHS must pay to hospitals that disproportionately serve the 

poor. The formula is designed to measure the proportion of 

low-income patients at a given hospital for a particular costreporting period. 

Without delving into too much numbing detail, it suffices

here to say that the statutory calculation relevant to this case

requires a determination for each hospital of the number of 

patient days “made up of patients who (for such days) were 

entitled to benefits under part A of [Medicare].” 42 U.S.C. 

§ 1395ww(d)(5)(F)(vi)(I).

Beverly Hospital treated a disproportionately high

number of low-income patients during fiscal years 1999 

through 2002, and therefore was due to receive extra 

payments for doing so. The Hospital challenges HHS’s 

calculation of those payments. The Hospital contends that 

HHS, when applying the formula, improperly counted patients 

enrolled in Medicare Part C as patients “entitled to benefits 

under part A,” even though Medicare Part C recipients do not

receive benefits under Part A. According to the Hospital,

HHS’s misinterpretation of that component of the statutory 

formula caused the agency to undercompensate the Hospital.

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 35 of 47
3

This case boils down to a straightforward question of 

statutory interpretation: If a person is enrolled in and receives 

hospitalization benefits for a particular “patient day” through a 

Medicare+Choice plan pursuant to Part C of Medicare, is that 

person also “entitled” for that same “patient day” to 

hospitalization “benefits under part A” of Medicare? In other 

words, can a patient be both enrolled in Part C and entitled to 

Part A benefits for the same day? The answer is no. 

Four mutually reinforcing textual points support that 

conclusion.

First, the language of the key statutory provision requires 

HHS to focus retrospectively on specific patient days. To 

reiterate, the statute requires HHS to calculate the number of 

patient days “made up of patients who (for such days) were 

entitled to benefits under part A.” 42 U.S.C. 

§ 1395ww(d)(5)(F)(vi)(I) (emphasis added). The words “for 

such days” in the statute make clear that HHS must count 

specific hospital days for patients who, on those specific days, 

were entitled to Part A benefits. The word “were” makes 

clear that this is a backward-looking calculation designed to 

determine what kind of benefits a specific patient received on 

a specific day. The statute requires HHS to isolate hospital 

days attributable to patients who were, on those days, 

receiving benefit payments through Part A of Medicare. A 

patient who is receiving benefits under Part A for a given day 

cannot also receive benefits under Part C for that day. 

Therefore, in calculating the formula, HHS is required to 

differentiate Part-C-attributable patient days from Part-Aattributable patient days.

Second, the Medicare statute establishes that “each 

Medicare+Choice eligible individual . . . is entitled to elect to 

receive benefits . . . through the original [M]edicare fee-forUSCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 36 of 47
4

service program under parts A and B . . . , or . . . through 

enrollment in a Medicare+Choice plan under [part C].” 42 

U.S.C. § 1395w-21(a)(1) (emphasis added). In other words, a 

Medicare recipient makes a choice between the different parts 

of Medicare for purposes of obtaining Medicare coverage. 

The statute indicates that a patient cannot be enrolled in Part 

A and Part C at the same time. Once the Medicare recipient 

chooses a part and enrolls, he or she becomes entitled to 

benefits under that part, and only under that part. Even 

though a Part-C-enrolled patient maintains the right to cancel 

enrollment in Part C and switch to Part A (or vice versa) in a 

future open enrollment period, on any given day the patient is 

entitled to hospitalization benefits under only the part of 

Medicare in which he or she is currently enrolled. A 

Medicare patient enrolled in Part C on a particular day is

therefore entitled to receive benefits under Part C, and not

under Part A, for that day. Similarly, a Medicare patient 

enrolled in Part A on a particular day is entitled to receive 

benefits under Part A, and not under Part C, for that day. 

Third, the Medicare statute provides that “payments 

under a contract with a Medicare+Choice organization . . . 

with respect to an individual electing a Medicare+Choice plan 

offered by the organization shall be instead of the amounts 

which (in the absence of the contract) would otherwise be 

payable under [Medicare] parts A and B.” 42 U.S.C. 

§ 1395w-21(i)(1) (emphasis added). All Part C enrollees 

could, if they chose, be enrolled in Part A instead. Section 

1395w-21(i)(1) establishes that HHS makes benefit payments 

under Part C instead of payments the agency would otherwise 

make under Part A, and that Part C enrollees receive Part C

benefit payments instead of Part A benefit payments. As a 

result, a patient enrolled in Part C on a particular day does not 

receive benefit payments under Part A for that day. 

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5

Fourth, the Medicare statute defines “entitlement” to Part 

A benefits as follows: “entitlement of an individual to 

[Medicare part A] benefits for a month shall consist of 

entitlement to have payment made under, and subject to the 

limitations in, [Medicare] part A . . . during such month.” 42 

U.S.C. § 426(c)(1). In other words, “entitlement” is not just 

an abstract ability to sign up for Part A or Part C. Rather, it is

entitlement to have payment made, and a patient at any given 

time can have payment made under Part A or Part C but not 

both. Put another way, a Medicare patient enrolled in a Part C

plan does not have the right “to have payment made under, 

and subject to the limitations in, [Medicare] part A.”1

That interpretation of “entitlement” as meaning 

entitlement to be paid is consistent, moreover, with the 

decisions of the four courts of appeals that have previously 

interpreted that term in this formula. See Cabell Huntington 

Hosp. v. Shalala, 101 F.3d 984 (4th Cir. 1996); Legacy 

Emanuel Hosp. & Health Ctr. v. Shalala, 97 F.3d 1261 (9th 

Cir. 1996); Deaconess Health Svcs. Corp. v. Shalala, 83 F.3d 

1041 (8th Cir. 1996); Jewish Hosp. v. Sec’y of HHS, 19 F.3d 

 1 HHS rejects this interpretation of the word “entitled” in the 

phrase “entitled to benefits under part A,” but accepts the same 

interpretation in the phrase “entitled to supplemental security 

income benefits,” even though both phrases are found in the same

sentence of the statute. See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I) 

(“patients who (for such days) were entitled to benefits under part 

A . . . and were entitled to supplemental security income benefits”);

75 Fed. Reg. 50,042, 50,280-81 (Aug. 16, 2010) (patients are 

“entitled” to SSI benefits only when they actually receive SSI 

payments). HHS thus interprets the word “entitled” differently 

within the same sentence of the statute. The only thing that unifies 

the Government’s inconsistent definitions of this term is its 

apparent policy of paying out as little money as possible. I 

appreciate the desire for frugality, but not in derogation of law. 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 38 of 47
6

270 (6th Cir. 1994).2 As the Sixth Circuit explained in the 

first of this line of cases, to be “entitled” to some benefit 

means that “one possesses the right or title to that benefit.” 

Jewish Hosp., 19 F.3d at 275 (emphasis omitted). The phrase 

“entitled to benefits under part A” thus “fixes the calculation 

upon the absolute right to receive an independent and readily 

defined payment.” Id. (emphasis omitted); see also Legacy 

Emanuel, 97 F.3d at 1265 (“Both parties agree that the 

Medicare proxy only counts patient days paid by Medicare.”); 

cf. Cabell Huntington, 101 F.3d at 988 (“a patient who is 

‘eligible’ for Medicaid becomes ‘entitled’ to payment only 

after using one of the covered medical services”). 

Although it’s not binding on HHS, a recent decision of

HHS’s own Provider Reimbursement Review Board also 

persuasively supports the Hospital’s interpretation here. In a 

straightforward opinion, the Board reasoned that “once an 

individual has enrolled in a Medicare+Choice plan under part 

C, he or she is no longer ‘entitled to benefits under part A,’ 

because he or she is no longer entitled to have payment made 

under part A for the days at issue.” Southwest Consulting 

DSH Medicare+Choice Day Groups v. BlueCross BlueShield 

Ass’n NHIC Corp., PRRB Dec. No. 2010-D52 at 12, reprinted 

in Medicare & Medicaid Guide (CCH) ¶ 82,679 (Sept. 30, 

2010), rev’d, CMS Adm’r Dec. (Nov. 22, 2010). 

And of course, it is quite telling that, until 2004, HHS 

itself interpreted the statute as the Hospital does here. In 

2004, HHS abruptly changed course, apparently because of an 

overriding desire to squeeze the amount of money paid to 

 2 Those courts were focused on a different phrase in the statute 

– “eligible for” Medicaid rather than “entitled to” Medicare – but 

had occasion to discuss the meaning of “entitled to” Medicare as 

contrasted with “eligible for” Medicaid. 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 39 of 47
7

Medicare providers (and beneficiaries) in light of the 

country’s increasingly precarious fiscal situation. But this 

statute does not permit HHS to pursue fiscal balance on the 

backs of Medicare providers and beneficiaries in this way.

Common parlance and common sense also are consistent 

with the Hospital’s interpretation of the text. For example, an 

active-duty member of the military is not permitted to speak at 

a political rally. You might be entitled to serve in the military, 

and you might be entitled to speak at political rallies. But you 

are not entitled to do both at the same time. When a retiree 

elects a pension benefit when retiring, the retiree is entitled to 

choose an annuity or a lump sum, but not both. Or consider 

the NFL’s rules on the coin toss: If you win the toss, you are 

entitled to choose possession or which goal to defend, but not 

both. So it is with Part A and Part C of Medicare.

II

The majority opinion does not directly take issue with any 

of the above textual analysis showing that, for purposes of 

§ 1395ww(d)(5)(f)(vi), a Part C beneficiary is not “entitled” to 

Part A benefits for a specific patient day.3

 3 Part II.A of the majority opinion rejects the Hospital’s 

Chevron step one argument, but then Part II.B of the majority 

opinion rules for the Hospital anyway because HHS had a different 

position back before 2004. Part II.A of the majority opinion thus is

unnecessary given the majority opinion’s conclusion.

 According to the 

majority opinion, the Hospital’s interpretation of “entitled” 

nonetheless cannot be accepted because it would cause 

problems for or anomalies in the implementation of certain 

other statutory provisions. And those problems or anomalies 

show, the majority opinion says, that the Hospital’s 

interpretation of § 1395ww(d)(5)(f)(vi) is not correct. I 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 40 of 47
8

disagree with the majority opinion’s bank-shot approach to 

interpreting § 1395ww(d)(5)(f)(vi).

A

The majority opinion cites § 1395w-21(d)(2)(A), a 

provision that requires annual notice to Part A beneficiaries

(those “entitled” to benefits under Part A) of their option to 

enroll in Part C. See Maj. Op. at 12. The majority opinion 

expresses concern that, under the Hospital’s approach, this 

provision might not require notice to Part C enrollees. That 

concern is misplaced because HHS puts all of the relevant 

information on its website and in practice notifies both Part A 

and Part C beneficiaries of their available options. That’s 

presumably because a different subsection of this provision

requires that HHS “broadly disseminate information to 

medicare beneficiaries (and prospective medicare 

beneficiaries) on the coverage options provided under this 

section in order to promote an active, informed selection.” 42 

U.S.C. § 1395w-21(d)(1). The apparent point of the precise 

statutory notice requirement in subsection (d)(2)(A) is simply 

to ensure that non-Part C individuals learn about Part C 

options, which is precisely what would still be required under 

the Hospital’s interpretation. In short, contrary to the majority 

opinion’s suggestion, subsection (d)(2)(A) creates no barrier 

to the Hospital’s interpretation. 

Probably more important in the bigger picture here, the 

majority opinion’s reliance on the relatively minor openseason notice provision to interpret the hugely significant

statutory reimbursement formula, which involves hundreds of 

millions of dollars annually, amounts to using a very small tail 

to wag a very large dog. Even if the Hospital’s interpretation 

would create an anomaly (as the majority opinion sees it) in 

the open-season notice provision, that anomaly would be 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 41 of 47
9

inconsequential, as explained above, and in any event would 

not be a good reason to rewrite the statutory text of the 

reimbursement formula and thereby shift responsibility for 

hundreds of millions of dollars in costs from the government 

to hospitals and Medicare beneficiaries.

Next, citing § 1395w-22(c)(2), the majority opinion 

suggests that Part C enrollees would not be able to obtain plan 

information from their Part C plans under the Hospital’s 

interpretation. See Maj. Op. at 13. HHS did not rely on this 

statutory provision in its brief, and for good reason. The 

preceding subsection, § 1395w-22(c)(1), requires Part C plans 

to give similar information to all of their Part C enrollees. 

The difference in language between §§ 1395w-22(c)(1) and

1395w-22(c)(2) actually supports the Hospital’s approach 

here.

Next, the majority opinion cites § 1395w-21(h)(1). See 

Maj. Op. at 14. This is another provision that HHS has not 

relied upon. In any event, this provision, too, does not cause 

any problems if applied only to non-Part C enrollees. Under 

the Hospital’s interpretation, the provision would require 

HHS’s approval before Part C plans send marketing materials 

to Medicare beneficiaries who are not yet signed up for such a 

Part C plan. Contrary to the majority opinion, I find nothing

odd about that.

The majority opinion then turns to § 1395w-24(e)(1)(B) 

and (e)(4)(B). See Maj. Op. at 15. Again, the majority 

opinion has dredged up statutory provisions that HHS has 

declined to rely on. (HHS was well-represented in this case, 

so the majority opinion is not making up for deficiencies of 

counsel. Rather, it is citing provisions that even HHS – which 

has been dealing with this issue for years – has not relied 

upon.) I frankly see no anomaly with respect to these 

USCA Case #10-5163 Document #1329102 Filed: 09/13/2011 Page 42 of 47
10

provisions that would result from the Hospital’s interpretation. 

What those provisions mean quite simply and quite obviously 

is that Part C enrollees cannot be forced to pay more than Part 

A and Part B beneficiaries for the same benefits. 

The majority opinion cites § 1395w-21(e)(2)(D) and 

claims that the Hospital’s interpretation would mean that an 

institutionalized Part C patient could not change plans. See 

Maj. Op. at 16. But an institutional patient who dropped his 

Part C plan would then be entitled to Part A benefits and thus 

eligible to sign up for a different Part C plan. So there’s no 

problem or anomaly there.

The majority opinion cites § 1395w-23(o)(3)(B)(ii), a 

provision about qualifying counties. See Maj. Op. at 17. 

This, too, is yet another provision that HHS has not cited. I 

again fail to see the confusion the majority opinion thinks 

would be created here if we accepted the Hospital’s 

interpretation. It is quite clear that the determination of 

qualifying counties examines whether 25% of those in a 

particular area who could sign up for Medicare Part C did sign 

up for Medicare Part C.

The majority opinion points to § 1396d(p)(1) and says 

that the Hospital’s interpretation would cause Medicare rather 

than Medicaid to pay for poor Part C patients. See Maj. Op. at 

17. (Medicaid typically pays for the hospital expenses of poor 

Medicare patients.) Putting aside the fact that there are 

relatively few poor Part C patients, a separate statutory 

provision, § 1395w-22(a)(7), makes abundantly clear that 

Medicaid and not Medicare will pick up the costs for such 

patients. So the majority opinion’s far-afield citation to 

§ 1396d(p)(1) does not pose any barrier to or inconsistency 

with the Hospital’s interpretation of the term “entitled” in the 

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11

statutory reimbursement formula contained in 42 U.S.C. 

§ 1395ww(d)(5)(F)(vi). 

The majority opinion also cites § 1395w-27(e). See Maj. 

Op. at 18-19. Here, the majority opinion is on particularly 

shaky ground. This statute sets forth a formula that allowed 

HHS to collect fees from Part C plans, subject to certain caps, 

for fiscal years 2001 to 2005. The problem is that the 

majority opinion here has accepted the Hospital’s

interpretation of this statute for the years before 2004. The 

majority opinion thus blesses the Hospital’s interpretation for 

fiscal years 2001, 2002, and 2003 and yet says simultaneously 

that the Hospital’s interpretation would create a “nonsensical 

result” with respect to § 1395w-27(e)(2)(B), which applies to 

those same years. Maj. Op. at 19. How can that be?

The majority opinion then cites § 1395w-27a(f)(4)(A). 

See Maj. Op. at 20. This is still another provision that the 

majority opinion cites but HHS did not. And this provision

likewise does not cause any problems under the Hospital’s 

interpretation. Indeed, the majority opinion’s attempt to 

create confusion about this provision appears severely strained 

in context (which is probably why HHS did not cite it). This 

provision in context asks a simple question: How many 

people in the area could have signed up for Part C but didn’t? 

B

To summarize the prior discussion: The majority opinion 

has cited a series of statutory provisions on the theory that the 

Hospital’s interpretation of § 1395ww(d)(5)(F)(vi) – that a 

Part C beneficiary is not entitled to Part A benefits for a 

particular patient day – would cause anomalies in other 

provisions of the statute. But there are no such anomalies. 

Neither in isolation nor in combination do those provisions

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12

undermine the straightforward interpretation of 

§ 1395ww(d)(5)(F)(vi) advanced by the Hospital and accepted 

by the District Court.4

 

Moreover, there is a serious overarching problem with the 

majority opinion’s approach that is perhaps easier to explain. 

The majority opinion confidently proclaims that the 

Hospital’s interpretation, if accepted, would apply to a host of 

other provisions and cause problems or “nonsensical” results 

with respect to everything from open-season notices to caps 

on hospitals’ payments for the costs of counseling programs. 

But then, the majority opinion turns around and says that the 

Hospital’s interpretation actually controls for the years up 

until 2004. How can both things be true? How can the 

majority opinion endorse – at least for all the years up until 

2004 – the same “nonsensical” results that it simultaneously 

decries?

I think the explanation is that the majority opinion has 

vastly overblown the supposed inconsistencies that the 

Hospital’s interpretation would cause with respect to other 

 4 In response to my opinion, the majority opinion raises doubt 

about the Hospital’s interpretation of the statute but declines to say 

whether HHS’s interpretation of the statute is permissible. See Maj. 

Op. at 24 (“we do not reach that question”). In D.C. Circuit 

parlance, the majority opinion leaves open the possibility that 

HHS’s interpretation might fail at Chevron step two. From my 

perspective, HHS’s interpretation violates the statute, whether at 

Chevron step one or Chevron step two. In any event, it’s important 

to underscore that this critical statutory question remains open, at 

least under Chevron step two analysis, for resolution in future cases 

that involve reimbursement for the years after 2004 – that is, for the 

years after the years at issue in this case and after HHS adopted its 

current interpretation of the statute.

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13

statutory provisions. Indeed, it is plain that the majority 

opinion’s concerns are misplaced because there is a historical 

record against which to check its dire predictions of 

“nonsensical” and “strange” and “odd” results. As the 

majority opinion says, HHS itself accepted the Hospital’s 

interpretation until 2004. Yet HHS, while accepting the 

Hospital’s interpretation of § 1395ww(d)(5)(F)(vi), managed 

to implement the rest of the statutory provisions cited by the 

majority opinion without any apparent confusion or 

meltdown. I am not aware of – and the majority opinion 

certainly cites no – “nonsensical” or “strange” or “odd” results 

that occurred before 2004 with respect to those other 

provisions. So it turns out that the majority opinion is wrong 

in saying that the Hospital’s interpretation, if accepted, would 

cause tumult in other parts of the statute. 

By attempting to say that the Hospital’s interpretation (i) 

was controlling until 2004 and (ii) cannot be right because of 

all the “nonsense” that would ensue, the majority opinion has 

twisted itself into a knot. The way to untie the knot, in my 

respectful view, is to recognize that the Hospital’s 

interpretation not only was controlling until 2004 but is 

correct even now. At a bare minimum, the majority opinion 

cannot plausibly rely on the supposed anomalies that the 

Hospital’s interpretation would cause for other provisions of 

the statute and simultaneously endorse the Hospital’s 

interpretation for the pre-2004 years.

* * *

The majority opinion says that the Medicare statute is 

complicated. True enough. But the question here concerns a 

specific provision, not the entire Medicare code. Complexity 

in the code as a whole does not mean ambiguity in a specific 

provision. No one can fault the majority opinion’s time and 

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14

effort in examining this statute. But the fact that it takes a 

while to figure out the meaning of a specific statutory

provision based on its text and context is not the same as 

ambiguity. What matters for the Chevron analysis is not how 

long it takes to climb the statutory mountain; what matters is 

whether the view is sufficiently clear at the top. Here, despite 

HHS’s effort to fog it up, § 1395ww(d)(5)(F)(vi) is 

sufficiently clear in establishing that a Part C beneficiary is 

not simultaneously entitled to benefits under Part A for any 

specific patient day.

The Medicare statute provides a very specific, carefully 

reticulated formula for calculating supplemental payments to 

hospitals that serve a disproportionate number of low-income 

Medicare patients. By counting patients enrolled in Part C 

plans as “entitled to benefits under part A” for specific patient 

days, HHS misapplied the statute and undercompensated 

Beverly Hospital. On that ground, I would affirm the District 

Court’s decision to vacate and remand this matter to HHS. 

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