In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 13-3285

RUSH UNIVERSITY MEDICAL CENTER,

Plaintiff-Appellee,

v.

SYLVIA MATHEWS BURWELL,

Secretary of Health and

Human Services,

Defendant-Appellant.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

Nos. 12 C 4672 & 12 C 4673 — Joan H. Lefkow, Judge.

____________________

ARGUED APRIL 14, 2014 — DECIDED AUGUST 18, 2014

____________________

Before WOOD, Chief Judge, and POSNER and FLAUM, Circuit 

Judges.

WOOD, Chief Judge. Teaching hospitals provide a valuable 

service to the public by training the next generation of doctors and medical professionals, but that benefit comes at a 

price: such hospitals experience significantly higher perpatient care costs than their non-teaching counterparts. To 
2 No. 13-3285

compensate them for taking on this extra financial burden, 

the federal Medicare program provides additional reimbursement for expenses beyond the immediate costs of patient care. One such adjustment is for “indirect medical education” (IME) costs. It is designed to account for the time 

medical interns and residents (collectively “residents”)

spend in ways that enhance their ability to provide patient 

care but that are not connected to the treatment of any particular patient. The question before us is whether residents’ 

time spent in research activities wholly unrelated to the diagnosis or treatment of patients may be counted as part of 

this indirect-education time. (We refer to that as “pure research” time.) Rush University Medical Center, the plaintiff

in this case, asserts that the answer is yes, and it seeks Medicare reimbursements for these activities between the years 

1983 and 2001.

Importantly, we do not write on a blank slate. The Secretary of Health and Human Services (Secretary) has interpreted the Medicare Act consistently since 1983 to exclude pure 

research activities from compensable IME costs. Congress 

codified this exclusion for Fiscal Years 2001 onward in the 

Patient Protection and Affordable Care Act of 2010 (the Affordable Care Act or ACA), but it explicitly declined to lay 

down a rule for the years 1983 to 2001. The Secretary has

now promulgated a regulation excluding pure research from 

the IME cost calculation for all years since 1983. Before that 

regulation was on the books but after the passage of the 

ACA, the question whether pure research was compensable

reached our court. We held that the relevant portion of the 

statute should be interpreted to include pure research in

compensable IME costs for the 1983 to 2001 period. See Univ. 

of Chi. Med. Ctr. v. Sebelius, 618 F.3d 739 (7th Cir. 2010).
No. 13-3285 3

Rush operates a teaching hospital in Chicago. It sought to 

include its residents’ pure research time in its IME cost calculation for Fiscal Years 1993, 1994, and 1996. The fiscal intermediary charged with administering Rush’s Medicare reimbursements denied its request because of the regulation, and 

that denial was affirmed on administrative appeal. Rush

then filed suit challenging that decision in the district court, 

and the court held that our University of Chicago decision 

compelled reimbursement of residents’ time spent in pure 

research during the years at issue. It thus granted summary 

judgment in Rush’s favor. We must now decide whether 

University of Chicago continues to control in light of the 

changed regulatory landscape.

I

In 1983 the Medicare program shifted from using a reimbursement system to a prospective payment system, under 

which hospitals are paid for patient care based on specified 

rates and formulae for activities and procedures, regardless 

of the actual dollars and cents involved in the care. IME costs 

are calculated pursuant to a formula, under which one important input is the number of “full-time equivalent interns 

and residents” at the hospital. 42 U.S.C. 

§ 1395ww(d)(5)(B)(ii). The latter figure is computed based on 

the number of hours residents spend conducting both “patient care activities” and qualifying “non-patient care activities.” Id. § 1395ww(d)(5)(B)(iv), (d)(5)(B)(x).

The IME regulation in place when the switch in reimbursement methodologies occurred was silent about whether pure research time was included within the definition of 

“non-patient care activities.” Before any statute or regulation 

spoke directly to the issue, the Secretary interpreted the stat-
4 No. 13-3285

ute in administrative adjudication to exclude pure research 

time from the IME formula. See R.I. Hosp. v. Leavitt, 548 F.3d 

29, 34, 38 (1st Cir. 2008) (upholding that interpretation).

In 2001 the Department of Health and Human Services 

amended the relevant regulation. In its new form, the regulation provided that “[t]he time spent by a resident in research 

that is not associated with the treatment or diagnosis of a 

particular patient is not countable.” 42 C.F.R. 

§ 412.105(f)(1)(iii)(B) (2001). The regulation was further 

amended in 2006 to clarify that “[i]n order to be counted, a 

resident must be spending time in patient care activities ... .” 

42 C.F.R. § 412.105(f)(1)(iii)(C) (2006). A separate regulation 

defined “patient care activities” as “the care and treatment of 

particular patients, including services for which a physician 

or other practitioner may bill.” 42 C.F.R. § 413.75(b) (2006).

In 2010 Congress passed the Affordable Care Act. Part of 

that complex statute addressed whether pure research costs 

were within the scope of the IME calculation. It provided, in 

relevant part:

In determining the hospital’s number of full-time 

equivalent residents for purposes of this subparagraph, all the time spent by an intern or resident in an 

approved medical residency training program in research activities that are not associated with the 

treatment or diagnosis of a particular patient, as such 

time and activities are defined by the Secretary, shall 

not be counted toward the determination of full-time 

equivalency.
No. 13-3285 5

42 U.S.C. § 1395ww(d)(5)(B)(x)(III). In contrast, Congress 

provided that certain didactic activities (such as conferences 

and seminars) would be included:

In determining the hospital’s number of full-time 

equivalent residents for purposes of this subparagraph, all the time spent by an intern or resident in an 

approved medical residency training program in nonpatient care activities, such as didactic conferences 

and seminars, as such time and activities are defined 

by the Secretary, that occurs in the hospital shall be 

counted toward the determination of full-time equivalency ... .

Id. § 1395ww(d)(5)(B)(x)(II). The statute also speaks to the 

extent to which these provisions are retroactive. On a general level, it states that “[e]xcept as otherwise provided, the 

Secretary of Health and Human Services shall implement the 

amendment made by this section in a manner so as to apply 

to cost reporting periods beginning on or after January 1, 

1983.” See Patient Protection and Affordable Care Act, Pub. 

L. No. 111-148, § 5505(c)(1), 124 Stat. 119, 661 (2010). A more 

targeted provision provides that “[the IME amendments] 

shall apply to cost reporting periods beginning on or after 

October 1, 2001. Such section, as so added, shall not give rise 

to any inference as to how the law in effect prior to such date 

should be interpreted.” Id. § 5505(c)(3), 124 Stat. 119, 661.

On November 24, 2010, after notice and comment, the 

Secretary promulgated a rule amending her previous IME 

regulation in light of the Affordable Care Act. The new regulation provides, in relevant part:
6 No. 13-3285

Effective for cost reporting periods beginning on or 

after January 1, 1983, except for research activities described in paragraph (f)(1)(iii)(B) of this section, the 

time a resident is training in an approved medical residency program in a hospital setting ... must be spent 

in either patient care activities, as defined in 

§ 413.75(b) of this subchapter, or in nonpatient care 

activities, such as didactic conferences and seminars, 

to be counted.

42 C.F.R. § 412.105(f)(1)(iii)(C). The research activities referred to in the first line are described in the 2001 amendment to the regulation, which said that “[t]he time spent by a 

resident in research that is not associated with the treatment 

or diagnosis of a particular patient is not countable.” 42 

C.F.R. § 412.105(f)(1)(iii)(B).

We decided University of Chicago in the brief period between the enactment of the Affordable Care Act and the Secretary’s promulgation of the amended regulation. See 618 

F.3d 739 (7th Cir. 2010). Without a regulation authoritatively 

interpreting the Affordable Care Act’s retroactivity provisions, we held that “[t]he hospital has the stronger position 

regarding the effect of the [ACA] on the present appeal because Congress spoke clearly when it retroactively allowed 

reimbursement for non-patient care activities starting in 

1983.” Id. at 745. We found the provision of the Affordable 

Care Act directing that no inference should be drawn regarding the retroactivity for the period between 1983 and 

2001 to be “unclear at best” and insufficient to “contradict 

the clear meaning of the earlier language allowing reimbursement for non-patient care activities during the [relevant] time period.” Id.
No. 13-3285 7

This was our most recent word on the subject when Rush 

filed for IME cost reimbursements that included its residents’ pure research time. If that time was properly included, the number of full-time equivalent residents for the purpose of calculating Rush’s non-patient care activities would 

increase by 17.05 in Fiscal Year 1993, 19.29 in Fiscal Year 

1994, and 18.47 in Fiscal Year 1996. All of the residents’ research took place either on-site at the portion of the hospital 

covered by Medicare’s prospective payment system, or in 

one of Rush’s outpatient departments. The fiscal intermediary’s sole reason for denying reimbursement of these costs 

was that residents’ time spent in pure research activities 

could not be counted. Rush took an administrative appeal to 

the Provider Reimbursement Review Board, which affirmed 

the intermediary’s decision. The Administrator of the Centers for Medicare & Medicaid Services, to whom the Secretary has delegated her authority to review the Board’s decisions, affirmed.

Rush filed this suit under 42 U.S.C. § 1395oo(f)(1), which 

gives providers the right to obtain judicial review of the 

agency’s reimbursement decisions. Though the initial challenge involved several aspects of the Secretary’s reimbursement decision, this appeal is limited to the denial of reimbursement for pure research in the IME cost calculation. On 

that question, the district court held that it was bound by our 

decision in University of Chicago even though it proved inconsistent with the Secretary’s later-promulgated regulation, 

because it understood our holding to be based on the unambiguous terms of the statute—terms that could not be disturbed by a contrary regulation. 
8 No. 13-3285

II

The problem of deciding whether a subsequent administrative regulation should be applied in spite of a contrary 

earlier judicial interpretation of a statute is not new. In National Cable & Telecommunications Ass’n v. Brand X Internet 

Services, the Supreme Court explained that “[a] court’s prior 

judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior 

court decision holds that its construction follows from the 

unambiguous terms of the statute and thus leaves no room 

for agency discretion.” 545 U.S. 967, 982 (2005). This leaves 

considerable leeway for the agency: “Only a judicial precedent holding that the statute unambiguously forecloses the 

agency’s interpretation, and therefore contains no gap for the 

agency to fill, displaces a conflicting agency construction.” 

Id. at 982–83 (emphasis added).

Brand X reflects one application of the traditional analysis 

used to evaluate agency interpretations of ambiguous statutes under Chevron U.S.A., Inc. v. Natural Resources Defense 

Council, Inc., 467 U.S. 837 (1984). As the Supreme Court said

there, “First, always, is the question whether Congress has 

directly spoken to the precise question at issue. If the intent 

of Congress is clear, that is the end of the matter; for the 

court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 842–43. Under Brand X, a court must review its earlier interpretation of 

the statute at issue to see if its holding was compelled by unambiguous statutory language. If it was, then it would not 

have mattered if the agency interpretation were already in 

place because that interpretation would not have been enti-
No. 13-3285 9

tled to deference under the first step of Chevron. Presumably, 

a court evaluating its earlier opinion under Brand X should 

reach the same conclusion as it would if it were conducting a 

Chevron step-one analysis in the first instance.

Brand X thus directs us to return to our University of Chicago decision to determine whether it was, in essence, a Chevron step-one decision. In University of Chicago, we held that 

the IME cost calculation could include residents’ pure research time based on our interpretation of the Affordable 

Care Act. After recognizing that the regulation in place before the Act’s passage created a “muddle” surrounding the 

adjustment, we said that the Act “provided us with a clear, 

statutory answer.” 618 F.3d at 744. 

We contrasted the 1983 start date for counting “all the 

time spent by an intern or resident in an approved medical 

residency training program in non-patient care activities” 

with the portion of the statute providing that pure research 

would not be counted beginning with fiscal year 2001. Id. at 

745. We also compared Congress’s treatment of these expenses with its provision governing the teaching-hospital 

adjustment for “direct graduate medical expenses.” The Affordable Care Act provides that such expenses are reimbursable for residents who engage in “non-patient care activities, 

such as didactic conferences and seminars, but not including

research not associated with the treatment or diagnosis of a 

particular patient.” Id. at 744 (quoting 42 U.S.C. 

§ 1395ww(h)(4)(J)). We reasoned that Congress would have 

included the explicit exclusion for pure research without 

qualification if it had wanted pure research excluded from 

the IME calculation before 2001. We found ambiguous the 

statement that the decision to require the exclusion only 
10 No. 13-3285

post-2001 “shall not give rise to any inference as to how the 

law in effect prior to such date should be interpreted.” Id. at 

745. Finally, we explained that “ordinary parlance” would 

put research activities within the category of non-patient 

care activities, making them reimbursable. Id. We therefore 

held that the pure research time must be reimbursed.

Both parties have been able to cull isolated language 

from University of Chicago to support their positions on 

whether that holding was based on the “unambiguous terms 

of the statute,” in the sense Brand X used that term. See 545 

U.S. at 982. On the one hand, we used terms such as “clear” 

and “dispositive” when describing the statute, and we said 

that our holding was based on the “plain language.” On the 

other hand, we said that the Hospital had “the stronger position” on the statute’s meaning, and that the statutory directive not to draw inferences about retroactivity was “unclear at best.” That back-and-forth language, and the acknowledgment that the directive on retroactivity was “unclear at best,” does not sound like the type of decision that 

Brand X contemplated.

A quote here and a quote there are ultimately less important than the core holding of the case. While the University of Chicago court took care to consider the statute in reaching its opinion, it did so at a time when it was without the

benefit of a regulation based on the statute that it could 

evaluate. A statutory answer was thus required. We explicitly recognized ambiguity in some of the statute’s terms, such 

as the no-inferences provision. In light of that analysis, we 

cannot say that the University of Chicago opinion held the 

statute to be sufficiently unambiguous as to divest the Secre-
No. 13-3285 11

tary of all power to promulgate regulations contrary to its 

holding.

Considering the regulation as if we were conducting the 

first step of the Chevron inquiry on a blank slate confirms this 

conclusion. Foremost in that analysis would be the statute’s 

express delegation to the Secretary of the power to define 

“research activities” that are not compensable:

[A]ll the time spent by an intern or resident in an approved medical residency training program in research activities that are not associated with the 

treatment or diagnosis of a particular patient, as such 

time and activities are defined by the Secretary, shall not 

be counted[.]

42 U.S.C. § 1395ww(d)(5)(B)(x)(III) (emphasis added). The 

statute also expressly delegates the power to define compensable “non-patient care activities”:

[A]ll the time spent by an intern or resident in an approved medical residency training program in nonpatient care activities, such as didactic conferences 

and seminars, as such time and activities are defined by 

the Secretary, that occurs in the hospital shall be 

counted toward the determination of full-time equivalency ... .

Id. § 1395ww(d)(5)(B)(x)(II) (emphasis added). When a statute specifically authorizes an agency to define a term, there 

is no need to consider whether the term is ambiguous and 

thus left to agency delegation. The logical assumption is that 

Congress thought there was work for the agency to do—

namely, to define the covered time and activities. See Women 

Involved in Farm Econ. v. U.S. Dep’t of Agric., 876 F.2d 994, 
12 No. 13-3285

1000–01 (D.C. Cir. 1989); see also Chevron, 467 U.S. at 843–44.

In the face of this explicit delegation of the power to define 

the term at the heart of this appeal, we cannot say that the 

Secretary’s regulation fails as a matter of Chevron’s first inquiry.

We also cannot ignore the ACA’s “no-inferences” provision. It would be perverse to say that this provision directs 

us to draw a clear inference that Congress meant to include 

pure research in such costs. It does no such thing. When 

Congress said “no inference” it meant exactly that; it did not 

need to bold-face and capitalize the word “no” to get the 

message across. 

Rush insists that the “plain language” of a law still controls the meaning of a term even when Congress expressly 

delegates authority to define the supposedly “plain” term to 

an agency. We cannot accept this argument. The plain language of the statute delegates definitional authority to the 

Secretary; to excise that portion would give the statute a new 

and unintended meaning. It would also undermine Congress’s ability to delegate the power to define terms and 

thrust the courts into a role that Congress meant to reserve 

for the agency. As the Supreme Court has said, once there is 

a delegation of authority, “a court may not substitute its own 

construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.” Chevron, 

467 U.S. at 844. This is true even if the court would have 

reached a different reading. Id. at 843 n.11.

Rush is essentially taking the position that even if Congress delegated authority to the Secretary, the Secretary’s interpretation fails under the second step of the Chevron inquiry: “whether the agency’s answer is based on a permissi-
No. 13-3285 13

ble construction of the statute.” Id. at 843. This is the question to which we now turn. 

III

Once we determine that Congress intended to delegate 

authority to define a statutory term to an agency, we will 

give the agency’s definition controlling weight unless it is 

based on an “impermissible construction of the statute.” Id. 

Rush contends that any definition of “non-patient care activities” that excludes pure research is impermissible on these 

grounds and that the Secretary’s regulation must therefore 

yield. 

As Rush sees it, the Affordable Care Act divides all 

activities into two and only two mutually exclusive 

categories: “patient care activities” and “non-patient care 

activities.” These categories, it continues, must encompass 

all activities a resident undertakes in the hospital. Since both 

are compensable in the IME cost formula, it concludes, the 

Secretary has exceeded her authority by placing “nonpatient care activities” into a non-existent third category of 

hospital-based activities that are non-compensable. We have 

a number of problems with this line of reasoning. First, if a 

hospital is entitled to be reimbursed for both “patient-care 

activities” and “non-patient care activities,” why bother with 

the adjectives? The statute would say just “activities.” 

Second, it is hard to square Rush’s position with Congress’s 

decision to place pure research outside the realm of 

compensable activities for the period beginning in 2001, 

when § 1395ww(d)(5)(B) goes into effect under § 5505(c)(3) 

of the Affordable Care Act. Third, the ACA did not foreclose 

the possibility of pure research’s falling outside the 

compensable categories of activity between 1983 and 2001. 
14 No. 13-3285

To the contrary, it directed that no inference should be 

drawn about that period based on its post-2001 directive. 

Affordable Care Act § 5505(c)(3), 124 Stat. 119, 661. 

In fact, there are good reasons to think that Congress affirmatively wanted to grant the Secretary the power to exclude pure research time from the IME costs calculation for 

periods before 2001. As the Secretary explained when promulgating the new regulations, her view on “non-patient care 

activities” is that the concept of “care” remains important; 

the activities must relate to the treatment of patients. For example, she explained, “didactic conferences and seminars” 

can include “administrative rotation[s], which would include resident training in the administrative aspects of medical care such as practice management,” and may also “involve presentations or discussions related to the treatment of 

current patients.” 75 Fed. Reg. 71,800, 72,144, 72,146 (Nov. 

24, 2010). Moreover, didactic non-patient care activities tend 

to take place “when an intern or resident is otherwise assigned to a rotation primarily requiring the provision of patient care,” whereas pure research is usually conducted in 

large blocks of time when a resident is not expected to render care to patients. Id. at 72,145–46. We can assume that this 

understanding of “non-patient care activities” is not required under the statute, but it is rational and consistent 

with the distinction Congress drew and the scope of its delegation to the Secretary.

Nor are we convinced that the distinction between the 

statutory definitions of Graduate Medical Expenses and IME 

costs compels the reading given in University of Chicago. Recall that the statute governing Graduate Medical Expenses 

explicitly excluded pure research from its definition of “non-
No. 13-3285 15

patient care activities.” See 42 U.S.C. § 1395ww(h)(4)(J) (“... 

non-patient care activities, such as didactic conferences and 

seminars, but not including research not associated with the 

treatment or diagnosis of a particular patient”). In University 

of Chicago we found this a meaningful variation from the 

IME provision, which did not contain an explicit exclusion of 

research from the definition of non-patient care activities. 

That observation may have supported a different outcome, 

but it does not require one. Congress’s silence on the matter 

in the IME provision is not enough to suggest that it was 

impermissible for the Secretary, exercising her statutory authority, to interpret the same term—non-patient care activities—consistently in the two different parts of the statute.

In short, this case is one in which the responsible agency’s interpretation of a statute should be afforded deference 

under Chevron. Confronted with an express delegation of authority to the agency over a question that has long occupied 

that agency’s attention, and an explicit disclaimer by Congress that it meant to send any signal about the correct interpretation of the matter, we are not willing to override the 

agency’s position. Our colleagues in the Sixth Circuit came to 

the same conclusion in Henry Ford Health Systems v. Department of Health and Human Services, 654 F.3d 660 (6th Cir. 

2011). They distinguished University of Chicago on the 

ground that the intervening regulation, 42 C.F.R. § 412.105,

“converted a run-of-the-mine statutory interpretation case 

into a Chevron case.” Id. at 666. We agree with them. 

IV

Congress delegated authority to the Secretary to determine whether residents’ pure research activities should be 

compensable as part of the IME cost formula for the period 
16 No. 13-3285

from 1983-2001. The Secretary’s determination that they 

should not is reasonable and entitled to deference. Our decision in University of Chicago, which at the time represented 

our best interpretation of the statute before the regulation 

was on the books, is no obstacle to affording the Secretary’s 

regulation the deference that it is due. We therefore REVERSE

the judgment of the district court. With no factual issues remaining to be decided, we REMAND for the entry of summary judgment in favor of the Secretary.