United States Court of Appeals

For the First Circuit

No. 99-1085

MAINEGENERAL MEDICAL CENTER,

Plaintiff, Appellant,

v.

DONNA E. SHALALA, SECRETARY OF THE U.S. DEPARTMENT 

OF HEALTH AND HUMAN SERVICES,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MAINE

[Hon. D. Brock Hornby, U.S. District Judge]

Before

 Boudin, Circuit Judge,

Cyr, Senior Circuit Judge,

and Lynch, Circuit Judge.

William H. Stiles, with whom Skelton, Taintor & Abbott were on

brief, for appellant.

Douglas Hallward-Driemeier, Attorney, U.S. Department of Justice,

with whom David W. Ogden, Acting Assistant Attorney General, Jay P.

McCloskey, United States Attorney, and Barbara C. Biddle, Attorney,

U.S. Department of Justice, were on brief, for appellee.

March 8, 2000
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LYNCH, Circuit Judge. This case concerns what recourse

is available to a provider hospital that, although eligible to receive

Medicare reimbursement for certain expenses, mistakenly fails to ask

for that reimbursement in a timely manner. The Secretary of Health and

Human Services reimburses hospitals and other organizations for

services they provide to beneficiaries of the Medicare program, 42

U.S.C. § 1395 et seq. After the end of each fiscal year, a hospital

must submit a cost report to a "fiscal intermediary," a private firm

that processes claims for the Secretary. The intermediary reviews the

cost report and issues a Notice of Provider Reimbursement (NPR), which

indicates the reimbursement to which the provider is entitled. If a

provider is dissatisfied with an NPR, it can appeal to the Provider

Reimbursement Review Board (the Board). See 42 U.S.C. § 1395oo(a).

In its cost reports for 1993 and 1994, Kennebec Valley

Medical Center (Kennebec), a hospital in Augusta, Maine, listed zero as

its claim for bad debts reimbursable by Medicare. Reimbursable bad

debts are uncollectible debts resulting from the failure of Medicare

beneficiaries to pay deductible or coinsurance amounts. See 42 C.F.R.

§ 413.80(d). Mid-Maine Medical Center (Mid-Maine), a hospital in

Waterville, Maine, similarly listed zero for reimbursable bad debts in

its 1994 cost report. After the intermediary, Blue Cross and Blue

Shield of Maine, issued NPRs for these three cost reports in July and

September 1996, both Kennebec and Mid-Maine appealed to the Board. In

their appeals, Kennebec and Mid-Maine raised several objections to the

NPRs, including claims that they were entitled to reimbursement for

Medicare-related bad debts despite having listed zero for them in their
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cost reports. Kennebec and Mid-Maine asserted that the claims for zero

reimbursement were mistakes that they had discovered only after the

NPRs had been issued.

The Board dismissed the bad debts issue from all three

appeals for lack of statutory jurisdiction. The Board noted that

Kennebec and Mid-Maine had not included the bad debts in the cost

reports they had submitted to the intermediary. Therefore, the Board

reasoned, the debts were not "matter[s] covered by [a] cost report as

required by 42 U.S.C. § 1395oo(a), and the Board does not have

jurisdiction." Because the Secretary declined to review the Board's

decision, it became a final decision of the agency. See 42 U.S.C. §

1395oo(f)(1).

I

While their appeals were pending before the Board, Kennebec

and Mid-Maine merged to form MaineGeneral Medical Center

(MaineGeneral). After the Board dismissed the bad debts issue from the

appeals, MaineGeneral filed three suits in the United States District

Court for the District of Maine. The court consolidated the cases on

August 12, 1998. 

Both MaineGeneral and the Secretary filed motions for summary

judgment. On October 15, 1998, the Magistrate Judge issued a

Recommended Decision advising that the Secretary's motion be granted.

The Magistrate Judge based his recommendation on his interpretation of

42 U.S.C. § 1395oo(a). That section sets out three prerequisites for

an appeal to the Board: 1) the Medicare provider must be "dissatisfied

with a final determination of . . . its fiscal intermediary . . . as to
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the amount of total program reimbursement due the provider"; 2) the

amount in controversy must be $10,000 or more; and 3) the provider must

appeal within 180 days of the intermediary's final determination. 42

U.S.C. § 1395oo(a). There was no dispute that MaineGeneral had

satisfied the second and third requirements. The Magistrate Judge

determined that MaineGeneral had failed to fulfill the first

requirement, dissatisfaction with a final determination of the fiscal

intermediary.

The Magistrate Judge's decision relied on dictum in Bethesda

Hospital Ass'n v. Bowen, 485 U.S. 399 (1988). In Bethesda, the

hospitals had deliberately omitted certain costs from their cost

reports, knowing that they could not claim them under the existing

regulations (and that the intermediary had no authority to change the

regulations). See id. at 401. The hospitals later sought to challenge

the regulations and claim the costs in a hearing before the Board. See

id. The Secretary contended that the Board lacked jurisdiction over

the claims because the hospitals could not be "dissatisfied" as

required by § 1395oo(a) if the intermediary had simply awarded the

amounts the hospitals had requested in their cost reports. See id. at

404. The Supreme Court concluded, however, that the hospitals "could

claim dissatisfaction, within the meaning of the statute, without

incorporating their challenge in the cost reports filed with their

fiscal intermediaries." Id. at 405.

In discussing its holding, the Court observed:

[P]etitioners stand on different ground than do

providers who bypass a clearly prescribed

exhaustion requirement or who fail to request
1 The Magistrate Judge held alternatively that even if one

agreed with MaineGeneral's contention that the Board had jurisdiction

over the bad debts claims, the Board's decision to review the claims is

clearly discretionary under § 1395oo(d), and it was well within its

authority to refuse to hear the claims. 

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from the intermediary reimbursement for all costs

to which they are entitled under applicable

rules. While such defaults might well establish

that a provider was satisfied with the amounts

requested in its cost report and awarded by the

fiscal intermediary, those circumstances are not

presented here.

Id. at 404-05. The Magistrate Judge, agreeing with the Seventh Circuit

that the above language "strongly suggests that a hospital that does

not ask its intermediary to reimburse it for all of the costs for which

it is entitled to be reimbursed cannot, on appeal to the Board, first

ask for new costs," Little Co. of Mary Hosp. & Health Care Ctrs. v.

Shalala, 24 F.3d 984, 993 (7th Cir. 1994), found that MaineGeneral's

claim of zero for bad debts on its cost reports meant that it could not

be "dissatisfied" with the intermediary's determination of the bad

debts issue. Because MaineGeneral was not "dissatisfied," it failed to

meet the first requirement of Board jurisdiction under § 1395oo(a).1

The district court issued an order adopting the Magistrate Judge's

recommendation and entered judgment in favor of the Secretary on

December 9, 1998. This appeal followed.

II

Under the Medicare program, fiscal intermediaries make

estimated payments to hospitals and other service providers throughout

the year based on each institution's projected costs. See 42 U.S.C. §

1395g(a); 42 C.F.R. § 413.60(a), (c). Providers are required to submit
2 When Kennebec and Mid-Maine filed their cost reports,

Medicare regulations required hospitals to submit their reports

within three months of the end of the fiscal year. See

Redesignation of Reasonable Cost Regulations, 51 Fed. Reg.

34,790, 34,800 (1986). An intermediary could grant a one-month

extension for good cause, providing the Health Care Financing

Administration approved. See id. In 1995, the three-month

period was extended to five months, and the granting of

extensions was sharply curtailed. See Date for Filing Medicare

Cost Reports, 60 Fed. Reg. 33,137, 33,138 (1995).

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a cost report after the end of each fiscal year.2 See 42 U.S.C. §

1395g(a); 42 C.F.R. § 413.20(b). A cost report is a lengthy, complex

document, sometimes three-quarters of an inch thick when completed.

See Athens Community Hosp., Inc. v. Schweiker, 743 F.2d 1, 3 (D.C. Cir.

1984).

The intermediary reviews the cost report and requests further

information from the provider as necessary. See 42 C.F.R. §

413.20(d)(2). A provider may file an amended cost report to correct

material errors discovered after the filing of the original cost

report. See Health Care Fin. Admin., Provider Reimbursement Manual,

Part I § 2931.2(A) (1999). A provider may appeal to the Board an

intermediary's refusal to accept an amended cost report that was

submitted before the NPR was issued. See id. § 2926 app. A, ¶ B.3.

When the review of the cost report is complete, the

intermediary issues an NPR, which indicates the total reimbursement for

the year covered by the cost report and explains any adjustments the

intermediary has made to costs claimed by the provider. See 42 C.F.R.

§ 405.1803. If the total reimbursement is higher than the estimated

payments already made to the provider, the Secretary pays the
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deficiency; otherwise, the provider refunds any overpayment to the

Secretary. See 42 C.F.R. §§ 405.1803(c), 413.60(c). 

If a provider mistakenly omits something from its cost report

and discovers the mistake after the NPR has been issued, it is not left

without recourse. For up to three years after the intermediary has

issued an NPR, a provider can request that the intermediary reopen and

revise its determination. See 42 C.F.R. § 405.1885(a). Whether to

grant this request to reopen is a matter for the intermediary's sole

discretion; it is subject to neither administrative nor judicial

review. See Your Home Visiting Nurse Servs., Inc. v. Shalala, 119 S.

Ct. 930, 933-34 (1999). MaineGeneral did not request that the

intermediary reopen its NPRs; instead, it appealed to the Board.

III

In St. Luke's Hospital v. Secretary of Health and Human

Services, 810 F.2d 325 (1st Cir. 1987), this court addressed the

question of whether the Board has the power to decide an issue that was

not first raised before the intermediary. See id. at 326. We held

that it does, and that the power is discretionary. See id. at 330,

332. We are bound by the St. Luke's decision if it is on point, unless

it has been subsequently overruled or other exceptional circumstances

apply. See Williams v. Ashland Eng'g Co., 45 F.3d 588, 592 (1st Cir.

1995). We think that St. Luke's is on point and remains good law. We

hold, therefore, in accordance with St. Luke's, that the Board has

statutory jurisdiction to hear MaineGeneral's claim, but that it is not

required to hear it.
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St. Luke's involved a dispute between a hospital and an

intermediary over whether certain sick leave expenses were

reimbursable. See 810 F.2d at 327. After St. Luke's included the

expenses in its 1978 cost report and the intermediary denied

reimbursement, St. Luke's "self-disallowed" its 1979 sick leave

expenses on its 1979 cost report. See id. "Self-disallowed" costs are

entered on a worksheet in the cost report, but the provider does not

request reimbursement for them, and they are generally not considered

by the intermediary. See St. Luke's Hosp. v. Secretary of HHS, 632 F.

Supp. 1387, 1391 (D. Mass. 1986). When St. Luke's appealed its 1979

reimbursement to the Board, the Board "evidently took the position . .

. that it did not have jurisdiction to consider a self-disallowed cost,

there being no 'dispute' between the fiscal intermediary and the

provider." Id. The district court, analyzing § 1395oo(d) -- which it

termed "[t]he statutory section governing the jurisdiction of the

Board" -- held that the Board had jurisdiction to hear the appeal of

the self-disallowed costs. Id. at 1392-94. The Secretary appealed

this determination, and this court held that the Board had the legal

power to decide matters not raised below. See St. Luke's, 810 F.2d at

330.

In this circuit, panels "are, for the most part, bound by

prior panel decisions closely on point." Williams, 45 F.3d at 592.

There are two exceptions to this rule. The first is that "[a]n

existing panel decision may be undermined by controlling authority,

subsequently announced, such as an opinion of the Supreme Court, an en

banc opinion of the circuit court, or a statutory overruling." Id.
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The second exception covers "those relatively rare instances in which

authority that postdates the original decision, although not directly

controlling, nevertheless offers a sound reason for believing that the

former panel, in light of fresh developments, would change its

collective mind." Id. 

First, we must determine whether St. Luke's is closely on

point. The Magistrate Judge's opinion in this case, which was adopted

by the district court, distinguished St. Luke's on the ground that in

St. Luke's, the hospital's failure to ask for reimbursement of certain

expenses in its cost report was intentional rather than inadvertent.

Nothing in the St. Luke's opinion suggests that such a distinction

played a significant role in the court's interpretation of the Board's

statutory jurisdiction. See 810 F.2d at 327-29. Indeed, the only

point at which the St. Luke's court attaches any weight to the fact

that the hospital self-disallowed the costs at issue is at the very end

of the opinion, in its discussion of whether the Board should be

required to hear the hospital's claim. See id. at 332 (observing that

St. Luke's has "a strong equitable argument" based on selfdisallowance, but holding nonetheless that the Board has discretion

over whether it will hear an appeal).

Furthermore, the St. Luke's opinion does not distinguish

cases involving inadvertently omitted costs. The St. Luke's court

phrased its holding this way:

The question before us is whether this

statute grants the Board the power to order

reimbursement for costs identified in the cost

report, but as to which the hospital did not

specifically ask the intermediary for
3 We note that the Ninth Circuit has interpreted the holding

of St. Luke's the same way. See Adams House Health Care v. Bowen, 862

F.2d 1371, 1375 n.3 (9th Cir. 1988).

4 Neither the Magistrate Judge's opinion nor the Secretary's

brief in this case attempted to distinguish St. Luke's on this ground.

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reimbursement. Put more broadly, the question is

whether the statute gives the Board the power to

decide a new issue raised for the first time

before it. We believe that the statute does give

the Board this power. We also believe, however,

that the Board need not exercise that power. . .

. . Because the District of Columbia Circuit has

taken a contrary view of the matter, Athens

Community Hospital v. Schweiker, 743 F.2d 1 (D.C.

Cir. 1984) ( Athens II) . . ., we shall explain

our reasoning in some detail.

Id. at 326 (some citations omitted). In Athens II, the D.C. Circuit

held that the Board had no jurisdiction over costs for which a provider

inadvertently failed to request reimbursement. See 743 F.2d at 10 &

n.17. If the distinction between "self-disallowed" costs and

"mistakenly omitted" costs had been significant, the St. Luke's court

could have simply distinguished Athens II on that basis. Instead, the

court spent two pages explaining why it was unconvinced by the

reasoning of Athens II. See St. Luke's, 810 F.2d at 329-30. In light

of this, we regard the holding of St. Luke's as applicable to "matters

not raised" before the intermediary, id. at 330, whether the failure to

raise the matter was deliberate or inadvertent.3

A second possible ground for distinguishing St. Luke's here

would be that St. Luke's concerned only subsection § 1395oo(d), while

this case (like Bethesda) turns on the interpretation of § 1395oo(a).4

We believe that an examination of St. Luke's and Bethesda refutes this
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argument. First, the holding of St. Luke's is that "the Board has the

legal power to decide matters not raised below." See 810 F.2d at 330.

This holding is not a narrow one based on a parsing of § 1395oo(d)

alone: it relies on legislative history, see id. at 328; the nature of

judicial and administrative appellate bodies, see id. at 328-29; other

subsections of § 1395oo, see id. at 329 (§ 1395oo(f)); and the special

features of Board review, see id. To confine St. Luke's to § 1395oo(d)

alone would be to ignore its language and the analytic rationale for

its conclusion about the Board's jurisdiction.

Furthermore, Bethesda makes nothing of the possible

distinction between "subsection (a)" and "subsection (d)" cases.

Bethesda, which could be characterized as a subsection (a) case, states

that it is "resolv[ing] a conflict among the Courts of Appeals," and

lists eight circuit opinions, the majority of which could be classified

as subsection (d) cases. See 485 U.S. at 402-03 & n.1; St. Luke's, 810

F.2d at 327 (noting the Secretary's argument that "§ 1395oo(d) denies

the Board the power to decide any issues not first raised before the

intermediary"); North Broward Hosp. Dist. v. Bowen, 808 F.2d 1405,

1409 (11th Cir. 1987) (defining "the scope of jurisdiction conferred by

§ 1395oo(d)"); Community Hosp. v. HHS, 770 F.2d 1257, 1262 (4th Cir.

1985) (same); Athens II, 743 F.2d at 3 ("The [Board's] jurisdiction --

the crux of the dispute here -- is set out in section 1395oo(d) . . .

."); Saint Mary of Nazareth Hosp. Ctr. v. Department of HHS, 698 F.2d

1337, 1346 (7th Cir. 1983) (rejecting the Secretary's § 1395oo(d)

jurisdictional argument); see also Tallahassee Mem'l Reg'l Med. Ctr. v.

Bowen, 815 F.2d 1435, 1458-59 (11th Cir. 1987) (finding subsection (f)
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more relevant, even though the district courts and parties focused on

subsection (d)). If the possible distinction between subsection

(a) and subsection (d) cases mattered to the Bethesda Court, it

would not have announced that it was resolving a circuit split

involving subsection (d) cases in an opinion focused on

subsection (a).

A much more plausible interpretation of Bethesda and

the court of appeals cases that it cites (including the St.

Luke's opinion) is that they actually deal with the question of

the Board's jurisdiction under § 1395oo as a whole. For

example, the Bethesda Court found its understanding of the

express language of subsection (a) "supported by the language

and design of the statute as a whole," 485 U.S. at 405,

especially subsection (d), id. at 405-07. Athens II read

subsection (d) in light of the overall statutory scheme,

particularly subsection (a). See 743 F.2d at 6; see also Adams

House Health Care v. Heckler, 817 F.2d 587, 591 (9th Cir. 1987)

("The D.C. Circuit [in Athens II] correctly held that

subsections (a) and (d) must be read together."). And St.

Luke's confirmed its interpretation of the Board's powers under

subsection (d) by referring to subsection (f). See 810 F.2d at

329.

The interrelationship between the subsections of § 1395oo

can also be seen in the original reasoning the Board offered for its

dismissal of the bad debts issues here. In its letters informing

Kennebec and Mid-Maine of its dismissal of the bad debts issues from
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their appeals, the Board stated that it lacked jurisdiction over the

debts because they were not "matter[s] covered by [a] cost report as

required by 42 U.S.C. § 1395oo(a)." The only reference to "matters

covered by [a] cost report" in § 1395oo, however, is in subsection (d),

not (a). 42 U.S.C. § 1395oo(a), (d). 

In Bethesda, the Supreme Court defined a matter "covered by

[a] cost report" as "a cost or expense that was incurred within the

period for which the cost report was filed, even if such cost or

expense was not expressly claimed." 485 U.S. at 406 (internal

quotation marks omitted). Under this definition, the bad debts were

clearly a matter covered by a cost report, contrary to the Board's

assertion.

Having concluded that St. Luke's is on point, we still must

consider whether the exceptions to stare decisis detailed in Williams

apply. The first exception is not applicable here. The Supreme

Court's suggestion in Bethesda that a provider's failure to request

reimbursement from the intermediary for all costs to which it was

entitled "might well establish that a provider was satisfied with the

amounts requested in its cost report and awarded by the fiscal

intermediary," 485 U.S. at 405, is explicitly dictum -- "those

circumstances are not presented here," id. Nor has St. Luke's been

subsequently overruled by statute or First Circuit en banc opinion. 

The second "relatively rare" exception to stare decisis would

apply if we believed that subsequent non-controlling authority --

specifically the Bethesda dictum -- would have altered the holding of

St. Luke's. We do not think that is the case. As noted above, the St.
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Luke's holding rested on a number of grounds: the plain language of the

statute, its legislative history, the nature of appellate bodies in

general, and the specific features of Board review. See 810 F.2d at

327-29. 

As the St. Luke's court noted, § 1395oo(d) specifically

states that the Board has the power "to make . . . other revisions on

matters covered by [the] cost report . . . even though such matters

were not considered by the intermediary . . . ." Id. at 327 (quoting

§ 1395oo(d)) (alteration and omissions in original) (internal quotation

marks omitted). The St. Luke's court held that § 1395oo(d) is not

ambiguous, and therefore no deference is due the Secretary's view of

the statute under Chevron. See id. at 331 (citing Chevron U.S.A. Inc.

v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43

(1984)). The St. Luke's court also found confirmation of its reading

in the statute's legislative history, which, inter alia, describes the

provision in question as permitting the Board to make "revisions

involving matters not considered by the intermediary." Id. at 328

(quoting H.R. Rep. No. 92-231, reprinted in 1972 U.S.C.C.A.N. 4989,

5309). 

The practices of both judicial and administrative appellate

bodies provide further support. Even courts or agency bodies with

purely appellate functions have, as a rule, the power to review matters

not raised below, though they may choose to exercise such power

sparingly. See id. (citing cases); see also Singleton v. Wulff, 428

U.S. 106, 121 (1976) ("The matter of what questions may be taken up and

resolved for the first time on appeal is one left primarily to the
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discretion of the courts of appeals . . . ."); Portela-Gonzalez v.

Secretary of the Navy, 109 F.3d 74, 77 (1st Cir. 1997) (discussing the

rule of exhaustion of administrative remedies and its exceptions);

United States v. Mercedes-Amparo, 980 F.2d 17, 18 (1st Cir. 1992) ("An

appellate court . . . has the discretionary power, in an exceptional

case, to resolve an issue not passed on below.") The special features

of Board review here suggest that its reviewing powers are even broader

than those of the typical reviewing body. See St. Luke's, 810 F.2d at

329. "[T]he Board's procedure is a kind of 'hybrid,' exhibiting some

features of initial factfinding (witnesses, cross-examination, new

evidence) and some features of review." Id. at 328.

Finally, we do not believe that the Bethesda opinion, taken

as a whole, undermines the holding of St. Luke's. The Secretary's

position that § 1395oo(a) incorporates an unwaivable and unyielding

exhaustion requirement is essentially the same reading that the Court

rejected in Bethesda as a "strained interpretation . . . inconsistent

with the express language of the statute." 485 U.S. at 404. The

Bethesda court also described the requirement in § 1395oo(d) that a

matter have been "covered by such cost report" as the "only limitation"

on the Board's power to review matters not contested before the

intermediary, and defined a matter "covered by such cost report" as "a

cost or expense that was incurred within the period for which the

cost report was filed, even if such cost or expense was not

expressly claimed." Id. at 406. 

Although the dictum cited in the Magistrate Judge's

opinion suggests that providers who mistakenly omit claims from
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their cost reports may not be able to claim dissatisfaction

under § 1395oo(a)(1)(A)(i), we cannot say that the Bethesda

opinion in its entirety would have altered the holding of St.

Luke's. Notably, the Bethesda dictum that we have quoted above

(to the effect that a failure to request reimbursement "might

well establish that a provider was satisfied with the amounts .

. . awarded by the fiscal intermediary," 485 U.S. at 405) could

easily be taken to mean that this would be a reasonable factual

inference in many cases; the opinion does not say expressly that

this inference would be a binding rule of law. We therefore

reiterate the holding of St. Luke's: the Board has statutory

jurisdiction to hear claims not first raised before the

intermediary, but it may decline to do so as a matter of

discretion. 

IV

The dissent by our respected colleague makes reasoned

and reasonable arguments, but we view the issues differently

and respond briefly. The dissent says that this case is

different than St. Luke's because here the hospital did not list

the items in its cost report and that is the key fact. A cost

report includes both reimburseable and non-reimburseable costs.

See St. Luke's, 810 F.2d at 326. That a cost is listed in a

cost report says nothing about whether the provider is

"dissatisfied" with the later decision by the intermediary to

reimburse or not reimburse costs. That is established by

Bethesda, 485 U.S. at 1258-59. In fact, the intermediary does
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not usually even consider matters on the cost report for which

no reimbursement is sought. See St. Luke's, 632 F. Supp. at

1391. The key question is whether the hospital sought

reimbursement for the cost. In St. Luke's, the hospital did

not, and this court held that fact did not mean the Board lacked

statutory jurisdiction. See St. Luke's, 810 F.2d at 327, 331-

32. Contrary to the implications of the dissent's position,

nothing in St. Luke's suggests that the hospital would not have

been "dissatisfied" if it omitted to list the cost on a

worksheet in the cost report (whether through inadvertence, or

in reliance on the agency's earlier determination that the costs

were not recoverable). In fact, St. Luke's expressly disagreed

with Athens II, a case in which the provider had apparently

inadvertently failed to list certain stock option costs in its

cost report, and the D.C. Circuit had concluded there was no

Board jurisdiction. See id. at 329-30; Athens II, 743 F.2d at

10 & n.17. Under St. Luke's, the statutory word "dissatisfied"

is not limited to situations in which reimbursement was sought

by the hospital from the intermediary.

St. Luke's also found Chevron abdication to the views

of the agency inappropriate on the matter, and we are so bound.

See St. Luke's, 810 F.2d at 331-32. We also note that the Board

itself in this case did not clearly distinguish between its

powers under § 1395oo(a) and (d), as the dissent attempts to do,

either in its handling of this matter, or in its briefs. As we

have said, the very decision of the Board under review conflates
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the two sections, and so is at best an inconsistent statement of

agency position, entitled to less deference. See INS v.

Cardoza-Fonseca, 480 U.S. 421, 446-48 & n.30 (1987); Goncalves

v. Reno, 144 F.3d 110, 127 (1st Cir. 1998).

Finally, we agree with the dissent that it would be

entirely permissible for the Board to conclude, as a matter of

policy, not to hear this claim. On remand, the Board may well

reach this outcome. All we hold is that Congress did not, in

the statute, require the Board to reach this result by stripping

it of jurisdiction. This outcome preserves some flexibility for

the agency, which may be exactly what Congress intended. It is

not our job to exercise that flexibility for the agency.

V

Courts are generally not permitted to affirm agency

action on grounds implicating the agency's policy judgments or

discretion other than those advanced by the agency whose actions

are under review. See SEC v. Chenery Corp., 318 U.S. 80, 88

(1943). There is an exception to this rule where it is clear

what an agency's decision must be, see Thornburgh v. American

College of Obstetricians & Gynecologists, 476 U.S. 747, 756 n.7

(1986), but that exception does not apply here.

The Board decided that it would not hear MaineGeneral's

bad debts claims because it believed it lacked statutory

jurisdiction over them. In essence the Board held it could not

hear the claims even if it wanted to because § 1395oo precluded

jurisdiction. This reasoning was incorrect. The Board must now
5 At oral argument, counsel for MaineGeneral stated that

MaineGeneral had not requested that the intermediary reopen the

three cost reports in question because such requests seeking

additional reimbursement are seldom, if ever, granted in Maine.

The Secretary has recently reported, however, that

intermediaries nationwide grant 30 to 40 percent of requests to

reopen. See Your Home Visiting Nurse Servs., 119 S. Ct. at 935.

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decide again whether it will hear these claims mistakenly

omitted from MaineGeneral's cost reports, but as a matter of

discretion, not statutory jurisdiction. Congress specifically

granted the Board "full power and authority" to make rules

"necessary or appropriate" to carry out its statutory tasks. 42

U.S.C. § 1395oo(e). As the St. Luke's court noted, this gives

the Board "the power to limit by rule the extent to which it

will hear an issue not raised [before the intermediary]; it can

also do so on a case-by-case basis." 810 F.2d at 332.

The choice is up to the Board. It can adopt a policy

of hearing such claims or of refusing to hear them, or it can

opt to decide on a case-by-case basis. In light of the

statutory scheme here, a rule of consistently refusing to hear

inadvertently omitted claims would be rational, given the

ability of providers to request the intermediary to reopen an

NPR up to three years after it has been issued.5

"All we ask of the Board is to give clear indication

that it has exercised the discretion with which Congress has

empowered it." St. Luke's, 810 F.2d at 333 (quoting Chenery,

318 U.S. at 94-95) (internal quotation marks omitted). The

decision of the district court is vacated and the case remanded
-20-

to the Provider Reimbursement Review Board for further

proceedings consistent with this opinion.

- Dissent Follows -
-21-

CYR, Senior Circuit Judge (dissenting). The three rationales

for the panel opinion are (i) St. Luke’s constitutes controlling First

Circuit precedent, (ii) Bethesda is mere dicta, and (iii) no Chevron

deference is due the Secretary’s interpretation of the term

"dissatisfied," see 42 U.S.C. § 1395oo(a). As each rationale is

seriously flawed, I respectfully dissent.

First, the panel opinion interprets St. Luke’s too

expansively, as asserting that the Board may review any cost item,

whether or not mentioned in the cost report submitted by the healthcare

provider. Moreover, its interpretation undermines the important maxim

that judicial precedents must not be extrapolated beyond their

respective factual contexts. See Williams v. Ashland Eng'g Co., 45

F.3d 588, 592 (1st Cir. 1995) (noting that new panels are only "bound

by prior panel decisions closely on point") (emphasis added).

The healthcare provider in St. Luke’s plainly understood that

HHS regulations precluded any reimbursement for its 1979 sick leave

benefits. Consequently, it listed the sick leave benefits in its cost

report as "self-disallowed." At that point, the Board declined to

exercise jurisdiction over the claim, and the healthcare provider

appealed to the district court. See St. Luke’s Hosp. v. Secretary of

Health and Human Servs., 632 F. Supp. 1387, 1389-91 (D. Mass. 1986).

Reversing the Board decision, the district court identified

subsection 1395oo(d) as the sole provision "governing" the Board’s

jurisdiction. Id. at 1392. Subsection (d) explicitly states that the

Board "shall have the power to affirm, modify or reverse a final

determination of the fiscal intermediary with respect to a cost report,
-22-

and to make any other revisions on matters covered by such cost report

. . . even though such matters were not considered by the intermediary

in making such final determination." See id. (emphasis added).

The district court then identified two reasons for ruling

that the Board possessed jurisdiction over "self-disallowed" costs.

First, it noted that subsection ( d) plainly contemplates that some

"matters covered by [a] cost report" are not "considered by the fiscal

intermediary," and that self-disallowed costs fit into that category

because they are mentioned in the cost report but not "considered" when

the intermediary calculates the healthcare provider’s total

reimbursement. Id. at 1393. Second, the district court pointed to the

special administrative problem associated with self-disallowed costs,

in that the only way a healthcare provider can preserve its objection

to a current HHS regulation barring reimbursement for particular costs

is to list those costs as nonreimbursable in its cost report until such

time as the HHS regulation may be amended. Id.

After the Secretary appealed the district court decision,

this court pointedly framed the question before it no less narrowly

than the district court: "The question before us is whether this

statute grants the Board the power to order reimbursement for costs

identified in the cost report, but as to which the hospital did not

specifically ask the intermediary for reimbursement." St. Luke’s Hosp.

v. Secretary of Health and Human Servs., 810 F.2d 325, 326 (1st Cir.

1987) (Breyer, J.) (emphasis added). As a further precaution, this

court noted once again:
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The precise question before us is whether the

Secretary’s legal view of the relevant statute is

correct. Does the Board lack the legal power to

consider the hospital’s 1979 sick leave claim, a

claim (1) in respect to a cost item mentioned in

the cost report, (2) which cost report was

properly before the Board on review, but (3)

which claim was not specifically raised before

the intermediary?

Id. at 327 (emphasis added).

Like the district court, in St. Luke’s we focused exclusively

upon subsection 1395oo(d). See id. ("The Secretary of HHS now appeals

only this last determination, arguing that 42 U.S.C. § 1395oo(d) denies

the Board the power to decide any issues not first raised before the

intermediary.") (emphasis added). Thus, we addressed neither

subsection 1395oo(a) nor its "dissatisfaction" criterion, which is a

threshold jurisdictional provision. See Bethesda Hosp. Ass’n v. Bowen,

485 U.S. 399, 405 (1988) ("Section 1395oo(d) . . . sets forth the

powers and duties of the Board once its jurisdiction has been invoked

. . . pursuant to subsection (a) . . . .") (emphasis added).

The Secretary never asserted the alternative argument --

that the healthcare provider in St. Luke’s had failed to meet the

"dissatisfaction" requirement -- since the healthcare provider’s cost

report, unlike MaineGeneral’s in the present case, plausibly could not

have supported such an argument. See infra note 2. In listing the

disputed claim for sick-leave-benefits reimbursement on Worksheet A-8

of its 1979 cost report, St. Luke’s in no sense indicated its

satisfaction with the Notice of Provider Reimbursement (NPR), but

simply acknowledged that then-current HHS regulations granted neither

the intermediary nor the Board the power to reimburse for such costs.
1 The panel opinion suggests that St. Luke’s specifically

declined to acknowledge a jurisdictional distinction between selfdisallowed and omitted costs when it expressly disagreed with the

holding in Athens Community Hospital, Inc. v. Schweiker, 743 F.2d 1

(D.C. Cir. 1984). The Athens citation does not bear out the majority’s

point, however. In St. Luke’s, we found it necessary to reject Athens

simply because it ruled, arguendo, that the Board would have no

jurisdiction over both omitted and self-disallowed costs. See id. at

4-6 (holding that Board has jurisdiction to consider only costs

specifically claimed as reimburseable in cost report); id. at 10 ("At

best, HCA’s claim with respect to the [omitted] income tax costs can be

characterized as a ‘self-disallowance.’"). Thus, St. Luke’s took no

position on the discrete jurisdictional issue presently before us.

2 In the case at bar, the panel majority mistakenly

concludes that the contention -- that St. Luke’s is not binding

precedent because it construed subsection 1395oo(d) only, and

not subsection 1395oo(a) -- has been waived by the Secretary.

The Secretary distinguished St. Luke’s in the very same

section of the appellate brief in which she repeatedly focused

on MaineGeneral’s failure to meet the § 1395oo(a)

-24-

Moreover, normally one would expect that healthcare providers

indeed would be dissatisfied with HHS regulations which require them to

list their costs as nonreimbursable. In stark contrast, however, where

the healthcare provider itself omits a reimbursable cost item from its

report it is not unreasonable for the Secretary to presume that the

healthcare provider is not "dissatisfied," especially since the

healthcare provider has already been reimbursed by the intermediary for

all amounts requested.

1

For these reasons, I am unable to agree that St. Luke’s

either controls our decision or precludes Chevron deference to the

Secretary’s reasonable interpretation that the term "dissatisfied" does

not apply to a healthcare provider which omits a cost claim from its

report through its own inadvertence.2 Surely, it is not unreasonable
"dissatisfaction" criterion. Then, in a footnote, the Secretary

carefully distinguished the facts in Bethesda and St. Luke’s

from those in the case at bar. Later, the Secretary stated:

"[s]ection 1395oo(d) cannot be used to ‘bootstrap’ an appeal

that is otherwise deficient under § 1395(a)," then reiterated

her interpretation of the holding in St. Luke’s: "Because the

intermediary had, by an earlier determination, prevented the

provider from requesting reimbursement in its cost report, St.

Luke’s, 810 F.2d at 327, the provider satisfied the

‘dissatisfaction’ requirement of paragraph (a)." See also

Magistrate’s Opinion, at p. 7 n.5 ("In essence, like Bethesda,

the provider in St. Luke’s omitted the costs on the report not

through mere neglect, but because it intended to challenge an

administrative decision.").

Finally, even if it were possible to find a waiver in these

circumstances, the panel majority overlooks the fact that the

Secretary is an appellee, not an appellant. Normally, of

course, we affirm trial courts on any ground apparent from the

record in these circumstances. See Plymouth Svgs. Bank v.

United States Internal Revenue Serv., 187 F.3d 203, 209 (1st

Cir. 1999).

-25-

for the Secretary to regard a healthcare provider which has omitted an

item from its cost report as somewhat less deserving of agency sympathy

than one which, in good faith, challenges Medicare regulations ( viz.,

a provider which "self-disallows"), and otherwise would be deprived of

a forum in which to air its dispute should the Board disclaim

jurisdiction to review "self-disallowed" costs.

Furthermore, and no less significantly, at the very least the

interpretation proposed by the Secretary in the instant case arguably

fosters important administrative policies: (i) affording healthcare

providers an incentive to prepare their cost reports with care and (ii)

maximizing their use of the intermediary’s expertise in cost

assessment, as well as their utilization of the intermediary’s
-26-

investigatory resources. See St. Luke’s Hosp., 810 F.2d at 331 (noting

that Chevron deference normally is appropriate where "the question [of

statutory construction] is interstitial, involves the everyday

administration of the statute, implicates no special judicial

expertise, and is unlikely to affect broad areas of the law") (emphasis

added). Thus, the Secretary’s interpretation plainly falls well within

the broad universe of plausible interpretations which may be given the

term "dissatisfied," especially since Congress has afforded hospitals

an alternative mechanism for addressing these errors ( i.e., reopening

the NPR), see 42 C.F.R. § 405.1885(a), a mechanism MaineGeneral has yet

to utilize.

Finally, further support for the reasonableness of the

Secretary’s interpretation in this case may be found in Bethesda, where

Mr. Justice Kennedy specifically distinguished healthcare providers who

"self-disallow" from those "who fail to request from the intermediary

reimbursement for all costs to which they are entitled under the

rules." See Bethesda Hosp. Ass’n, 485 U.S. at 404. Ironically, the

quoted observation is dictum simply because, like St. Luke’s, Bethesda

did not involve a healthcare provider which inadvertently omitted

costs. The quoted obiter dictum by the Supreme Court thus serves the

Secretary well in the instant case, since it would seem -- at the very

least -- to make it inarguable that reasonable minds might determine to

treat these two categories of healthcare providers differently for

jurisdictional purposes.
-27-

For the foregoing reasons, Chevron plainly dictates deference

to the Secretary’s reasonable interpretation of the ambiguous statutory

term "dissatisfied." Accordingly, I respectfully dissent.