FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

PHOENIX MEMORIAL HOSPITAL; CASA 

GRANDE REGIONAL MEDICAL

CENTER; UNIVERSITY MEDICAL

CENTER; JOHN C. LINCOLN

HOSPITAL-NORTH MOUNTAIN; ST.

JOSEPH’S HOSPITAL & MEDICAL

CENTER; MARICOPA COUNTY No. 09-15506 MEDICAL CENTER; CHANDLER

REGIONAL D.C. No. HOSPITAL; PHOENIX  BAPTIST HOSPITAL, 2:07-cv-01720-HRH

Plaintiffs-Appellants, OPINION

v.

KATHLEEN SEBELIUS, in her official

capacity as Secretary, U.S.

Department of Health and Human

Services,

Defendant-Appellee. 

Appeal from the United States District Court

for the District of Arizona

H. Russel Holland, Senior District Judge, Presiding

Argued and Submitted

March 9, 2010—San Francisco, California

Filed September 21, 2010

Before: Betty B. Fletcher, Richard R. Clifton, and

Carlos T. Bea, Circuit Judges.

Opinion by Judge B. Fletcher

15977
COUNSEL

Roger N. Morris, Melody Ann Emmert, Lisa E. Davis,

Quarles & Brady LLP, Phoenix, Arizona, for the plaintiffsappellants. 

Tony West, John J. Tuchi, Anthony J. Steinmeyer, August E.

Flentje, Department of Justice, Washington, D.C., for the

defendant-appellee.

OPINION

B. FLETCHER, Circuit Judge:

Eight Arizona hospitals that all receive federal reimbursement for treating Medicare patients appeal the district court’s

grant of summary judgment in favor of the Secretary of

Health and Human Services. The hospitals argue that the

adjustment they receive for serving disproportionately high

numbers of low-income patients should be increased because

the reimbursement does not account for all low-income

patients included under the Arizona Health Care Cost Containment System. We have jurisdiction under 28 U.S.C.

§ 1291 and we affirm.

BACKGROUND

A. Statutory Framework

Under Part A of the Medicare program, the federal government reimburses providers for covered medical services for

elderly and disabled individuals. 42 U.S.C. §§ 1395 et seq.

Since 1983, hospitals have received Medicare reimbursement

for inpatient hospital services through the Prospective Payment System (PPS). 42 U.S.C. § 1395ww(d); Legacy Emanuel Hosp. & Health Ctr. v. Shalala, 97 F.3d 1261, 1262 (9th

15980 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
Cir. 1996). Under PPS, individual hospitals receive reimbursement “based on a predetermined amount that an efficiently run hospital should incur for inpatient services

depending on the patient’s diagnosis at time of discharge.”

Legacy Emanuel Hosp. & Health Ctr., 97 F.3d at 1262. The

PPS then can be adjusted in several ways to account for

hospital-specific factors. 42 U.S.C. §§ 1395ww(d)(5). The

adjustment at issue in this case gives additional reimbursement to hospitals that serve a “significantly disproportionate

number of low-income patients.” 42 U.S.C. § 1395ww(d)(5)

(F)(i)(I). This adjustment, known as the Medicare disproportionate share hospital (DSH) adjustment, seeks to compensate

hospitals for the additional expense per patient associated

with serving high numbers of low-income patients. See, e.g.,

H.R. Rep. No. 99- 241 at 16 (1986), reprinted in 1986

U.S.C.C.A.N. 579, 594.

Whether a hospital qualifies for the DSH adjustment, and

how much that adjustment will be, depends on the hospital’s

“disproportionate patient percentage.” See 42 U.S.C.

§ 1395ww(d)(5)(F)(v). The disproportionate patient percentage is a mathematical calculation that “serves as a ‘proxy’ for

all low-income patients.” Legacy Emanuel Hosp. & Health

Ctr., 97 F.3d at 1263 (quotation omitted). One part of this calculation, known as the “Medicare Low Income Proxy,”

accounts for low-income Medicare patients and relates to the

number of Medicare patients who qualify for Supplemental

Security Income. 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). The

second part of this calculation relates to the number of nonMedicare low-income patients served by a hospital, expressed

as a percentage of the hospital’s entire patient population. It

is commonly referred to as the “Medicaid Fraction” or “Medicaid Low Income Proxy.” Congress has defined the formula

for calculating the Medicaid Low Income Proxy as:

the 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

PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15981
(for such days) were eligible for medical assistance

under a State plan approved under subchapter XIX

of this chapter, but who were not entitled to benefits

under part A of this subchapter, and the denominator

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

days for such period. 

42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). Thus, the amount of

additional reimbursement a hospital receives for each Medicare patient it serves depends in part on the number of

patients “eligible for medical assistance under a State plan

approved under [Title] XIX.” Id.

Although this case concerns reimbursement for Medicare

patients, the heart of the dispute centers on which patients are

included in the Medicaid Low Income Proxy. The more

patients included, the greater the amount of the additional

reimbursement. Medicaid, Title XIX of the Social Security

Act, 42 U.S.C. § 1396 et seq., is a cooperative federal-state

program that provides health care to indigent individuals who

are elderly, blind, or disabled, or members of families with

dependent children. Under the Medicaid program, the federal

government provides funds to states to offset some of the

expense of furnishing medical services to low-income persons. Id.; 42 C.F.R. § 430.0. The program is jointly financed

by the federal and state governments, and states administer

the program according to federal guidelines. 42 U.S.C.

§§ 1396 et seq.; 42 C.F.R. § 430.0. To participate in Medicaid, a state must submit a plan that the Secretary approves. 42

U.S.C. § 1396a(a). A plan specifies certain categories of individuals and types of medical services that will be covered. See

42 U.S.C. § 1396a. State plans must cover the “categorically

needy,” those individuals who qualify because they are eligible for assistance under either the Aid to Families with

Dependent Children program or the Supplemental Security

Income program. See Spry v. Thompson, 487 F.3d 1272, 1274

(9th Cir. 2007). Participating states also can provide coverage

to the “medically needy,” those individuals who have incomes

15982 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
above the poverty line, but who lack the means to pay for

medical care. See id. “Within those broad requirements, however, states are given discretion to determine the type and

range of services covered, the rules for eligibility, and the

payment levels for services.” Legacy Emanuel Hosp. &

Health Ctr., 97 F.3d at 1262 (citing 42 C.F.R. § 430.0.). If the

Secretary approves a states’s plan, the state will be eligible for

federal payments. 42 U.S.C. §§ 1315, 1396, 1396c.

Section 1115 of the Social Security Act authorizes the Secretary to approve experimental or demonstration projects with

the goal of encouraging states to adopt innovative programs

that promote the objectives of Medicaid. Portland Adventist

Medical Ctr. v. Thompson, 399 F.3d 1091, 1093 (9th Cir.

2005); 42 U.S.C. § 1315(a). “For these experimental projects,

the Secretary is authorized to waive compliance with the general federal requirements for Medicaid state plans set out in

§ 1396a.” Portland Adventist Medical Ctr., 399 F.3d at 1093.

Experimental projects may cover medical assistance costs for

individuals who could be eligible for Medicaid even without

a waiver as well as to individuals who would not be eligible.

Id. (citing Interim Final Rule, Medicare Program; Medicare

Inpatient Disproportionate Share Hospital (DSH) Adjustment

Calculation, 65 Fed.Reg. 3136, 3136-37 (Jan. 20, 2000)).

Patients who are eligible for services by way of the Secretary’s waiver of particular requirements under section 1115

are known as “expansion populations” or “expanded eligibility populations.” Id. Expansion and expanded eligibility populations are included in the calculation of the Medicaid Low

Income Proxy. Id. at 1099. 

B. The Arizona Hospitals’ Challenge

The dispute here centers on the Secretary’s attempt to clarify federal reimbursement policies for certain groups of

patients. Arizona participates in Medicaid pursuant to a section 1115 demonstration project waiver. The state program,

Arizona Health Care Cost Containment System

PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15983
(“AHCCCS”), provides acute care services to four eligibility

categories relevant here: (1) the Title XIX Categorically

Needy (Mandatory Medicaid); (2) the Medically

Needy/Medically Indigent (MN/MI); (3) Eligible Low Income

Children (ELIC); and (4) Eligible Assistance Children (EAC).

Up until 1990, plaintiffs received DSH adjustment payments that were calculated by including MN/MI, ELIC, and

EAC (collectively “MN/MI”) patient days in the DSH reimbursement formula. Although the Secretary administers DSH

payments, it is a fiscal intermediary, typically a health insurance company authorized to act on the Secretary’s behalf,

who reviews the hospital’s end-of-year cost reports.1 42

U.S.C. § 1395g; 42 C.F.R. §§ 405.1801(b)(1), 413.24(f),

413.64(f). In early 1992, the plaintiff hospitals were advised

that the intermediary would not include these patient days in

the DSH formula for fiscal years after 1990. From 1990

onward, therefore, Arizona’s intermediary had a practice of

excluding patient days attributable to these categories of

recipients. 

Intermediaries in other states, however, historically had

allowed hospitals to include days for patients who qualified

for general assistance and other state-only funded programs in

their DSH calculation. In the mid-1990s, several of the intermediaries who previously had included state-only program

days in the DSH calculation notified hospitals that they no

longer would include these days and would seek to recoup

erroneously paid funds. In December 1999, the Secretary

issued Program Memorandum 99-62 (“Program Memorandum”), a “clarification of allowable Medicaid days in the

Medicare [DSH] adjustment calculation.” This Program

Memorandum explained that states with both state-only and

1After the intermediary reviews the year-end cost reports, the intermediary issues a “Notice of Program Reimbursement” identifying the amount

the hospital will be paid by Medicare for that hospital cost year. 42 C.F.R.

§ 405.1803. 

15984 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
federal-state eligibility groups in one program would not be

allowed to include state-funded beneficiaries who were not

eligible for Medicaid under a Title XIX federal-state cooperative program. The Program Memorandum also provided guidance on the “hold harmless” policy that the Secretary had

announced on October 15, 1999. It instructed intermediaries

that hospitals that had received erroneous payments and hospitals that had not received such payments, but had appealed

that determination before October 15, 1999, would be allowed

to include state-funded general-assistance days in the Medicaid Low Income Proxy calculation.2

 In all other circumstances, such days would not be included in the calculation:

If a hospital did not receive any payment based on

the erroneous inclusion of general assistance or other

State-only health program, charity care, Medicaid

DSH, and/or waiver or demonstration population

days for cost reports that were settled before October

15, 1999, and the hospital never filed a jurisdictionally proper appeal to the Provider Reimbursement

Review Board on this issue, you are not to pay the

hospital based on the inclusion of these types of days

for any open cost reports for cost reporting periods

beginning before January 1, 2000.

Four of the hospitals that are parties here filed an appeal

with the Provider Reimbursement Review Board (PRRB) on

December 12, 2001. In a May 4, 2007 decision, the PRRB

allowed the inclusion of the MN/MI population in the Medicaid Low Income Proxy, reversing the intermediary and finding that the intermediary had, in fact, included MN/MI days

2A hospital that disagrees with the intermediary’s determination can

request an administrative hearing before the Provider Reimbursement

Review Board. 42 U.S.C. § 1395oo(a). A hospital has the right under the

statute to seek judicial review in federal court of a final determination —

that of the Board or of the Secretary, depending on whether the Secretary

chose to conduct a review. Id. § 1395oo(f)(1). 

PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15985
in the DSH Medicare calculation. The PRRB also found that

the MN/MI population fell under the state’s plan, as approved

in the 1982 waiver “irrespective of how the programs and

sub-programs were funded.” The PRRB did not consider the

effect of the Program Memorandum. 

On July 6, 2007, the Centers for Medicare and Medicaid

Services administrator reversed the decision of the PRRB on

its own motion.3 The CMS administrator found that “the days

involved in this case are related to individuals that are not eligible for medical assistance as that term is used under Title

XIX and thus, are not properly included in the Medicaid

patient percentage of Medicare DSH calculation.” The administrator also found that the hospitals were not entitled to protection under the “hold harmless” provision. 

The hospitals here filed a complaint in federal district court

on September 7, 2007, alleging the Secretary’s decision was

arbitrary, capricious, an abuse of discretion, and otherwise not

in accordance with law for three reasons: (1) the Ninth Circuit

had determined that section 1115 waiver populations must be

included in the DSH calculation, (2) the Secretary’s “action

ignores and is inconsistent with the reasoned decision issued

by the PRRB,” and (3) the Secretary’s “action is inconsistent

with decisions of the PRRB reached in many other similar

cases.” The district court decided dual motions for summary

judgment on January 12, 2009, granting the Secretary’s

motion for summary judgment and denying the hospitals’

motion. The district court found that “AHCCCS has two separate and distinct components, one of which is Arizona’s section 1115 demonstration project and one of which is the statefunded health care program for indigent persons.” The

MN/MI populations were part of the state-funded program.

Thus, MN/MI patients were not eligible for medical assis3

In general, the Board’s decision serves as the final agency decision

unless the Secretary exercises her authority to review it. 42 U.S.C.

§ 1395oo(d), (f)(1). 

15986 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
tance under Arizona’s Medicaid plan. Not only did Arizona

describe AHCCCS as composed of two distinct plans, but the

district court found persuasive on this point evidence that Arizona applied to include the MN/MI patients in its Medicaid

plan in 1997. 

With regard to the hold-harmless provision, the district

court found that “[t]he evidence in the record shows that the

practice for plaintiffs from 1990 onward was to not include

MN/MI days in their DSH adjustments.” The district court

further found that even those plaintiff hospitals that had filed

appeals by October 15, 1999 had not raised the specific issue,

as required for hold-harmless relief. Therefore, the hospitals

did not qualify for such relief. 

The plaintiff hospitals timely appealed.

DISCUSSION

We review de novo both the district court’s grant of summary judgment and its holdings on questions of statutory

interpretation. Portland Adventist Medical Ctr., 399 F.3d at

1095. We “construe the DSH statute and assess the Secretary’s interpretation of it following the standards set forth in

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

Inc., 467 U.S. 837, 842-43 (1984).” Id. We first determine

“whether Congress has directly spoken to the precise question

at issue.” Chevron, 467 U.S. at 842. If the answer is yes, then

we “must give effect to the unambiguously expressed intent

of Congress” and the agency’s interpretation receives no deference. Id. at 842-43. If the statute is either silent or ambiguous, we determine “whether the agency’s answer is based on

a permissible construction of the statute.” Id. at 843.

The Medicare statute authorizes judicial review of a factual

finding by the Secretary, 42 U.S.C. § 1395oo(f)(1), in accordance with the Administrative Procedure Act (“APA”), 5

U.S.C. § 706. See Alaska Dep’t of Health and Social Servs. v.

PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15987
Ctrs. for Medicare and Medicaid, 424 F.3d 931, 937 (9th Cir.

2005). Under the APA, we review an agency’s final decision

for substantial evidence based on the administrative record.

See 5 U.S.C. § 706(2)(E).

A. Arizona’s MN/MI Populations Are Not “Eligible

for Medical Assistance Under an Approved Plan”

As Contemplated in the Statute

We first address the Secretary’s determination that, under

the DSH statute, the hospitals were not entitled to include

MN/MI, EAC, and ELIC (collectively “MN/MI”) patient days

in the numerator of the Medicaid Low Income Proxy. In

essence, the challenge the hospitals raise here goes back to the

intermediary’s 1990 decision not to include MN/MI days in

the DSH calculation. The hospitals argue that the MN/MI

populations should be included in the DSH calculation

because, under the section 1115 waiver, such individuals are

“eligible for medical assistance under a State plan approved

under [Title XIX].” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). 

[1] To analyze the validity of the hospitals’ claim, we turn

to the phrase describing the Medicaid Low Income Proxy:

“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 plan approved under [Title

XIX], but who were not entitled to benefits under [Medicare]

Part A.” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). We previously

have held that populations eligible for Medicaid should be

included in the calculation, regardless of whether the hospital

actually received payment for every day that particular patient

received care. Legacy Emanuel Hospital & Health Ctr., 97

F.3d at 1266. We also have held that low-income patients eligible for medical services under a demonstration project

approved in a waiver were part of the calculation, and that the

Secretary must include expansion populations receiving medical assistance under a state plan approved under Medicaid in

the Medicaid Low Income Proxy calculation. Portland

15988 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
Adventist Medical Ctr., 399 F.3d at 1099. We now face the

task of determining whether the MN/MI populations, included

in the Arizona plan as a whole, are part of the populations

receiving “medical assistance under a State plan approved

under [Title XIX].” 

The Secretary argues that AHCCCS has two components,

one of which is Arizona’s Medicaid plan and one of which is

the state’s program for providing health care to low-income

persons who are not eligible for Medicaid. If the term “eligible for medical assistance” means “eligible for Medicaid,”

then the populations covered under the state’s program would

not be included in the calculation. The hospitals contend that

“eligible for medical assistance” includes all patients eligible

for any type of medical assistance under a state plan. The hospitals argue that the Secretary’s finding that “[t]he State’s

operation of [a] separate State-only funded program for certain indigent persons that did not meet the Medicaid program

was not referenced in the approval of the waiver” is not supported by the evidence and insist that the Secretary “approved” the entire AHCCCS program when granting

Arizona’s request for a section 1115 waiver.4

Arizona first sought approval from the Secretary for a section 1115 demonstration project in 1982. Arizona submitted

an application for its demonstration project called “AHCCCS

— A Statewide Approach to Cost-Effective Health Care

Financing.” Various parts of the record reflect the fact that

Arizona treated AHCCCS as having two parts. 

4

In the stipulated facts before the PRRB, the parties agreed that “[t]he

Secretary of Health and Human Services approved AHCCCS, and all of

its programs and sub-programs, as part of Arizona’s 1115 Waiver, irrespective of how the programs and sub-programs are funded.” The Secretary was not a party to and did not participate in the hearing before the

PRRB and thus cannot be bound by the stipulations entered into between

plaintiffs and the intermediary. See Loma Linda Univ. Medical Ctr. v.

Leavitt, 492 F.3d 1065, 1074 (9th Cir. 2007) (“the Secretary is not necessarily bound by stipulations entered into at the PRRB hearing by an intermediary”). 

PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15989
For the 1982 application, the Secretary granted fourteen

specific waivers that would allow Arizona to implement its

demonstration project, none of which related to providing

medical assistance to MN/MI patients. Subsequently, in 1997,

Arizona requested a specific waiver for approval to include

MN/MI populations in the Medicaid plan. AHCCCS noted in

the 1997 waiver application that the MN/MI program is

“100% state-funded” and that “[m]any of the individuals in

the state-funded programs could be eligible for Medicaid if

they applied for the current AHCCCS Medicaid program or

could be eligible to receive Medicaid services through a federal medically needy option.” Moreover, Arizona law has

classified the MN/MI populations as ineligible for Medicaid.

See Ariz. Rev. Stat. §§ 11-297, 36-2905, 36-2905.03

(expressly defining “medically indigent,” “medically needy,”

and “eligible child” as not eligible for Medicaid) (1999).

[2] The other compelling evidence that MN/MI patients

were not part of Arizona’s Medicaid plan is the fact that Arizona, during the relevant time period, received federal reimbursement only for patients in the Title XIX Categorically

Needy (Mandatory Medicaid) category and that the funding

source for the MN/MI populations came from the state and

counties. In addition, it is undisputed that Arizona did not

receive such reimbursement for the MN/MI populations. The

Medicaid Act specifically defines “medical assistance” as

“payment of part or all of the cost of” enumerated services.

42 U.S.C. § 1396d(a). Because “medical assistance” means

the payment of federal funds toward certain services, Arizona

should have been receiving reimbursement for these populations if they were “eligible for medical assistance” as contemplated in the DSH calculation. See Adena Regional Medical

Ctr. v. Leavitt, 527 F.3d 176, 179-80 (D.C. Cir. 2008). 

For these reasons, we agree with the district court that

AHCCCS has two separate and distinct components, one of

which is Arizona’s section 1115 demonstration project and

one of which is the state-funded health care program. During

15990 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
the relevant time period, the MN/MI populations were part of

the state-funded program and thus were not eligible for medical assistance under Arizona’s Medicaid plan, even though

they were eligible for medical assistance under AHCCCS.

Thus, we affirm the district court’s holding that the Secretary’s decision that MN/MI patient days were properly

excluded from the Medicaid Low Income Proxy was not contrary to law, arbitrary or capricious, or unsupported by substantial evidence.

B. The Hospitals Are Not Eligible for “Hold 

Harmless” Treatment

The hospitals argue that, in the event that we find the days

for MN/MI patients should not be included in the calculation

of the Medicaid Low Income Proxy, several hospitals specifically appealed the exclusion of these patient days and thus

should be eligible for “hold harmless” treatment. We agree

with the district court that these hospitals are not entitled to

“hold harmless” treatment.

[3] On this issue, we find helpful the Seventh Circuit’s

analysis of the “hold harmless” provision in Rush University

Medical Center v. Leavitt, 535 F.3d 735 (7th Cir. 2008). As

the Seventh Circuit explains, and as we explained earlier,

“[a]t the outset of this ‘disproportionate share’ program, it

was unclear how persons covered by states’ generalassistance programs would be classified. Some hospitals (and

some of the Medicare program’s fiscal intermediaries)

equated general-assistance patients to Medicaid patients; others did not.” Rush Univ. Med. Ctr., 535 F.3d at 738-39 (7th

Cir. 2008). The Program Memorandum clarified the rules,

explicitly excluding general-assistance patients from among

the low-income patients calculation, but explaining that if a

hospital’s intermediary had allowed reimbursement that

included non-eligible patients in the number of low-income

patient days, a grandfather clause prevented the Secretary

from seeking to recoup those dollars. Id. at 739. To qualify for

PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15991
this “hold harmless” treatment, hospitals must have either

included general-assistance patients with Medicaid patients in

cost reports filed before October 15, 1999, or have appealed

the non-inclusion of these patients by that date. Id. Hospitals

that did not include such patients and did not specifically

appeal the issue before October 15, 1999 could not seek to

add an appeal of the determination to an appeal filed before

that date. Id. In essence, “[t]he idea is that any hospital that

added a claim based on general-assistance patients must have

been trying to take advantage of the grandfather treatment,

which was first announced on October 15, 1999. Only claims

that predate the announcement of grandfather-clause treatment are allowed.” Id.

Three hospitals here appealed the DSH calculation for three

separate years. Phoenix Memorial Hospital appealed its fiscal

year 1995 Notice of Program Reimbursement on March 20,

1998, stating that “the Intermediary reduced Disproportionate

Share payments based on Title XIX data obtained from

[AHCCCS].” Phoenix Memorial’s appeal stated that it “believe[d] this data to be incomplete, thus resulting in underpayment of Disproportionate Share payments.” Casa Grande

Regional Medical Center appealed its fiscal year 1996 Notice

of Program Reimbursement on March 29, 1999, stating that

the DSH “adjustment does not properly reflect the provider’s

Medicaid days applicable to both in-state and out-of-state

patients.” On June 30, 1999, the hospital stated that “[n]ot all

Medicaid eligible days were included in the computation by

the fiscal intermediary.” St. Joseph’s Hospital and Medical

Center appealed its fiscal year 1994 Notice of Program Reimbursement on March 14, 1997, questioning “[w]hether the

intermediary’s adjustment of AHCCCS days to state data, and

related adjustment of Disproportionate Share, was appropriate.” 

[4] None of the timely filed appeals here indicate that the

hospitals were appealing the exclusion of general-assistance

patient days. Indeed, the intermediary had had a policy of

15992 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
excluding such days since 1990. And we agree with the Seventh Circuit and the district court here that a blanket appeal

of the DSH calculation before October 15, 1999 is not sufficient to preserve appellate rights on this issue. Although the

hospitals argue that this requirement imposes a higher pleading standard, “[t]he problem is not the omission of magic

words but the fact that there were no synonyms for the right

words, or even similes or metaphors.” Id. at 740.

[5] This result makes sense. The hospitals knew from 1990

onward that MN/MI patient days were not being included in

the reimbursement calculation. The evidence in the record

shows that the DSH Medicaid Low Income Proxy calculation

excluded MN/MI days as a general rule. The hospitals stipulated to this practice before the PRRB, and testimony from the

manager of Audit and Reimbursement for Blue Cross/Blue

Shield in Arizona confirmed that the intermediary’s practice

was to exclude MN/MI days during the relevant time period.5

These facts all support the Secretary’s conclusion that these

hospitals were not entitled to protection under the “prior practice” provision of the hold harmless policy. Therefore, we

affirm the district court’s holding that the hospitals were not

eligible for hold-harmless relief.

CONCLUSION

In other cases and under other circumstances, we have concluded that the “Secretary has refused to implement the DSH

provision in conformity with the intent behind the statute.”

Portland Adventist Medical Ctr., 399 F.3d at 1099. That is not

the case here. Rather, the Secretary in this instance attempted

5The hospitals point to testimony showing the intermediary included

some MN/MI days in the DSH calculation for cost reports from 1994 to

2000. Other testimony, however, shows that the inclusion of these MN/MI

days was probably the result of a clerical error. The hospitals do not allege

that they have had to return the funds received as a result of these erroneously included days and the inclusion of a few erroneous days does negate

the clear evidence that the intermediary’s practice excluded these days. 

PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15993
to remedy disparate treatment among states and to prevent

unfair consequences from flowing from this clarification.

Hospitals like the hospitals that brought this action did not

benefit from the initial confusion, but they were not injured

by it either. 

AFFIRMED.

15994 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS