## United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 97-4389

___________ HealthEast Bethesda Lutheran * Hospital and Rehabilitation Center, * A Minnesota Nonprofit Corporation, * * Appellee, * * Appeal from the United States
v. * District Court for the * District of Minnesota. Donna E. Shalala, Secretary of * Health and Human Services, * * Appellant. *

___________ Submitted: November 18, 1998 Filed: December 23, 1998

___________ Before BEAM, MAGILL, and MORRIS SHEPPARD ARNOLD, Circuit Judges.

___________ MORRIS SHEPPARD ARNOLD, Circuit Judge. The Medicare program reimburses hospitals for interest pay ments on "necessary" loans to the extent that such payments exceed income on the hospitals' investments

. See42 C .F.R. § 413.153(a)(1). When deciding how much to reimburse a hospital for

a pa rticular year, therefore, the Department of Health and Human Services mus t de termine whether a loan is necessary and what the hospital's investment income is

. Each year, hospitals submit cost reports to "fiscal intermediaries," who are under-2-

contract with the Department of Health and Human Services and who determine how much to reimb urse the hospitals and issue written Notices of Program Reimbursement (NPRs). See42 U.S.C. § 1395h; see also 42 C.F.R. § 405.18 03, § 405.1835(c). These determinations are subject to administrative review and may be reopened for up to three years after a relevant NPR is issued. See 42 C.F.R. § 405.1885(a).
HealthEast, a St. Paul, Minnesota, hospi tal, borrowed money in 1980, 1982, and 1984 and included interest payments on the loans in its annual cost reports. The fiscal interme diary reimbursed HealthEast for the interest payments until it audite d HealthEast's cost reports for 1985. The intermediary reported that its audit showed that portions of each of the 1980, 1982, and 1984 loans were unnecessary. It then reopened Hea lthEast's cost reports for 1984 through 1987 pursuant to the three-year reopenin g regulation and exclud ed from reimbursement any payments for interest on the portions of the loans that it had determined were unnecessary.

HealthEa stclaimed interest payments on these same loans for 1988. Th e intermediary again found that portions of each of the 1980, 1982, and 1984 loans were unnecessary and excluded from reimbursement th e interest payments on those portions. Health East

appealed to the Provider Reimbursement Review Board (PRRB), whic h
reverse d the intermediary's determination and held that the intermediary had violate d the three-year l imit on reopening by considering in its evaluation for 1988 whether the 1980, 1982, and 1984 loans were necessary.

The intermediary appealed the PRRB's decision to the Secretary of Health and Human Services, who reversed and remanded the case to the PRRB on the ground that there was no reopening because the reimbursement amounts for the interest payments in 1980, 1982, and 1984 were not disturbed. When the PRRB reaffirmed its earlie r determination that the intermediary's decisio n with respect to the interest payments was improper, the Secretary reversed the PRRB again. (In practice, the Administrator o f the Health Care Financing Administration acts for the Secretary, see 42 C.F.R.-3-

§ 405.1877(a), but, for purposes of simplicity in this opinion, and consistent with th e terms of the relevant statute, see 42 U. S.C. § 1395oo(f)(1), we consider the decision to be that of the Secretary.)
HealthEast sought judicial review in the district court , claiming that the Secretary had erred in interpreti ng the reopening regulation, that the loans were necessary in any event, and thus that the relevant interest payments should be reimbursed. HealthEast and the Secretary then filed cross-motions for summary judgment.

The district court ruled for the Secretary with respect to the 1984 loan, finding the portion at issue to be unnecessary an d holding that the associated interest payments shoul d not be reimbursed. HealthEast did not appeal this ruling, and we are therefore no longer concerned with the 1984 loan.
With respect to the 1980 and 1982 loans, the Secretar y argued that the reopening regul ation did not apply, because the regulation limits reopening only with respect t o "interm ediary determinations," which are defined as the final determinations of th e amounta hospital will be reimbursed. See 42 C.F.R. § 405.1801(a)(1); see also 4 2 C.F. R. § 405.1801(a)(3), § 413.153(a)(1), and 42 U.S.C. § 1395x(v)(1)(A) , § 1395o o(a)(1)(A)(ii), § 1395oo(a)(3). Since the amounts of the reimbursements fo r the 1980 and 1982 interest payments were not disturbed, the Secretary argued, th e "interm ediary determination" was not improperly reopened. The district court rule d that the Secretary was precluded from relying on the regulatory definition o f "intermediary determin ation" because she did not rely on it in her decision interpreting the re opening provision, and that, in any event, the Secretary's interpretation wa s contrary to the plain language of the regulation, which prohibited reopening of th e intermediary's earlier decisions that the 1980 and 1982 loans were necessary.

The S ecretary appeals, and we reverse in part the judgment of the district court and remand the case for further proceedings.-4- I. An agency's interpretation of its own regulation must be given "controllin g weight unless it is plainly erroneous or inconsistent with the regulation." Bowles v

. Semino le Rock and Sand Co ., 325 U.S. 410, 414 (1945); see also Stinson v. Unite d States , 508 U .S. 36, 45 (1993), and Gardebring v. Jenkins , 485 U.S. 415, 430 (1988). HealthEast

contends, however, that no such deference is warranted here, because the interpr etation of the reopening regulation in question does not require technica l expertise. In support of this propositi on, HealthEast cites Thomas Jefferson University v. Shalala , 512 U.S. 504, 512 (1994), which states that "broad deference is all the more warranted when, as here, t he regulation ... 'require[s] significant expertise and entail[s] the exercise of judgment ground ed in policy concerns,' " quoting Pauley v. BethEnergy Mines, Inc. , 501 U.S. 680, 697 (1991). Although deference may be "all the mor e
warran ted," Thomas Jefferson University , 512 U.S. at 512, in highly technical cases , it doe s not follow that it is not warranted in other cases where an agency interprets its
own re gulation. The Secretary's interpretation of the reopening provision is thu s entitled to "controlling weight u nless it is plainly erroneous," Seminole Rock , 325 U.S. at 414.
The reopeni ng regulation states that a "determination of an intermediary ... may be reopened with respect to findings on mat ters at issue in such determination ... within 3 years." See42 C.F.R. § 405.1885(a). HealthEast argues that the phrase "findings on matte rs at issue" includes all questions involved in the determination, thus subjectin g to the three-year limitation a finding that a loan was necessary. HealthEast contends, therefore, and th e district court evidently agreed, that an intermediary's decisions as to predicate facts germane to the calculation of the appropriate amount of tota l reimbu rsement

are "intermediary determinations" that cannot be disturbed after thre e years. The Secretary maintains, however, that the regulation simply means that a reimb ursement

determination can be reopened with respect to individual cost item s wit hout reconsidering all such items. In our view, the Secretary's propose d interpretation more plausibly parses the regulatory language.-5-

An "intermediary determinati on" is defined as "a determination of the amount of total reimbursement due the provider ... f or the period covered by the cost report." See 42 C.F.R. § 405.1801(a)(1). It is the "determination" that is subject to the regulation. The language of the regulation therefore specifies, in our view, that the three-year limitati on on reopening applies solely to the amount of total reimbursement. Th e reconsid eration of predicate factual issues (such as the necessity of a loan), with n o intentionof changing the total reimbursement amount applicable to a year, thus doe s not fall within the definition of an "int ermediary determination" and, accordingly, is not subject to the three-year limitation.
It would make no sense to say that an intermediary determination, as the relevant regul ation defines that term, could be reopened "with respect to" predicate factua l questions t hat do not alter the total reimbursement amount. If, however, "matters a t issue" are understood to be individual cost items, the alteration of which woul d

necessa rily change the total reimbursement determination, it would make sense to say that a determination could be reopened "with respect to" them. We therefore hold that the Secret ary's interpretation of the reopening regulation is not "plainly erroneous o r inconsistent with regulation," Seminole Rock , 325 U.S. at 414. W e believe, in fact, that the Secretary's interpretation is the only interpretation logically consistent with th e regulatory language.

II. The district court ruled, and HealthEast contends on appeal, that the Secretar y is prec luded from making an argument based on the definition of "intermediary determination" contained in 42 C.F.R. § 405.1801(a)(1) because she did not rely on that

re gulationin her decision below. In support of this proposition, both HealthEast an d the district court cite Mayo v. Schiltgen , 921 F.2d 177, 179 (8th Cir. 1990), whic h states that "a reviewing court may not up hold an agency decision based on reasons not articulated by the agency itself in its decision."-6-

Mayo and other cases that adhere to this proposition rely principallyon Securities and Exchange Commi ssion v. Chenery Corp. , 318 U.S. 80 (1943), which involved the review of an administrative decision in which an agency failed to make necessary factual fi ndings. Although the Court did state that "[t]he grounds upon which a n administrat

ive order must be judged are those upon which the record discloses that its action was based," id. at 87, the Court also explicitly limited that ruling to cases i n which an agency fails to make a necessary determination of fact or policy. Id. at 88

. We hav e recognized this aspect of Chenery since Mayo was decided. See , e.g. , Arkansas AFL-CIO v. Federal Com munications Commission , 11 F.3d 1430, 1440 (8th Cir. 1 993), ( en banc ) (plurality opinion, with two additional judges concurrin g implicitly o n this point). The case before us does not involve an alleged failure on the part of the Secretary to make a necessary finding of fact or policy.

Even if the Secretary were precluded from making legal arguments differen t from those relied on earlier, the Secretary has not done so here. Both of the Secretary's earlier decisions in this case clearly stated that no reopening had occurred because the intermediary did not seek to alter its final determinations for 1980, 1982, or 1984. The dist rict court seems to have been concerned with whether the Secretary cited th e regulatory d efinition of "intermediary determination" in reaching that result, but this is not t he relevant inquiry. The reopening regulation applies only to "determinations o f inter mediaries," and the Secretary reasoned that there was no reopening of such a determination because the total reimbursement amount was not altered. There would have been no change in the substance or logic o f the reasoning of the Secretary's earlier decisions if they had specifically noted that a releva nt regulation defined "determination of an intermediary" as t

he final reimbursement decision. In short, the Secretary makes

no new argument on appeal; the Secretary simply directs our attention to mor e particular legal support for the decisions made below.-7- III. Fina lly, HealthEast argues that the Secretary is collaterally estopped fro m challen ging the necessity of HealthEast's 1980 and 1982 loans by the intermediary' s initial decisions to reimburse HealthEast. Collateral estoppel applies, HealthEas t asserts, b ecause the Secretary had "an adequate opportunity to litigate," United States

v. Utah Construction and Mining Co. , 384 U.S. 394, 422 (1966), the necessity of the loans in the three years after the intermediary's initial decisions.

The S upreme Court, in its many cases on this issue, has never ruled that th e passage of time triggers collateral estoppel. Inste ad, it has consistently required "actual and adversa rial litigation." Regions Hospital v. Shalala , 118 S. Ct. 909, 918 (1998)

. The C ourt in Regions Hospital made it clear that "an intermediary's determination i n
an [NPR], without a hearing before the PRRB on the reasonableness of the costs," i s not suffici ent "actual ... litigation" for collateral estoppel to apply. Id. Here, the issue of the necessity of HealthEast's loans was not litigated prior to the litigation before us wit h respect to 1988. The district court therefore erred in ruling that the Secretary i s collaterally estopped from finding the 1980 and 1982 loans unnecessary.

IV. For the reasons stated, we reverse in part the judgment of the district court and remand the case for consideration of the necessity for the 1980 and 1982 loans.
A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.