Court Opinion

ID: 3165934
Source: CourtListenerOpinion
Date Created: 2015-12-29 16:01:55.967232+00
Date Added: 2024-06-11T12:03:07.197457
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 7, 2015            Decided December 29, 2015

                         No. 14-5330

  WASHINGTON REGIONAL MEDICORP, DOING BUSINESS AS
           FAYETTEVILLE CITY HOSPITAL,
                   APPELLANT

                             v.

SYLVIA MATHEWS BURWELL, SECRETARY, U.S. DEPARTMENT
          OF HEALTH AND HUMAN SERVICES,
                     APPELLEE

        Appeal from the United States District Court
                for the District of Columbia
                    (No. 1:13-cv-00622)

    Dan M. Peterson argued the cause and filed the briefs for
appellant.

    Karen A. Schoen, Attorney, U.S. Department of Justice,
argued the cause for appellee. With her on the brief were
Benjamin C. Mizer, Principal Deputy Assistant Attorney
General, Vincent H. Cohen, Jr., Acting U.S. Attorney
General, Michael S. Raab, Attorney, William B. Schultz,
General, Counsel, U.S. Department of Health and Human
                               2
Services, Janice L. Hoffman, Associate General Counsel,
Susan Maxson Lyons, Deputy Associate General Counsel for
Litigation, and Bridgette Kaiser, Attorney.       R. Craig
Lawrence and Peter C. Pfaffenroth, Assistant U.S. Attorneys,
entered appearances.

    Before: GARLAND, Chief Judge, GRIFFITH, Circuit Judge,
and SENTELLE, Senior Circuit Judge.

   Opinion for the Court filed by Senior Circuit Judge
SENTELLE.

     SENTELLE, Senior Circuit Judge: Appellant Fayetteville
City Hospital is an inpatient psychiatric hospital that provides
services to Medicare patients. Fayetteville challenges the
method used by the Secretary of Health and Human Services
(HHS) to calculate the hospital’s reimbursement for services
it provided during 2003 and 2004—the two years after
statutory caps on reimbursements for psychiatric hospitals
expired but before psychiatric hospitals were moved to a
prospective-payment system. Because we conclude that
HHS’s interpretation was not only reasonable but also the best
interpretation of the controlling statute, 42 U.S.C. § 1395ww,
and regulation, 42 C.F.R. § 413.40, we affirm the decision of
the district court denying Fayetteville’s motion for summary
judgment and granting HHS’s cross-motion for summary
judgment.

                     I. BACKGROUND

A. Statutory Background

   The Center for Medicare and Medicaid Services
(CMS)—the component of HHS that administers the
Medicare Program—reimburses hospitals for services
                              3
provided to Medicare patients. Initially, reimbursement was
based on a hospital’s reasonable, actual costs. In 1982,
concern regarding the rapidly rising costs of Medicare
reimbursements prompted Congress to direct the Secretary of
HHS to develop a legislative proposal for a prospective-
payment system (PPS), whereby hospitals would receive a
fixed amount for services rendered. See Tax Equity and
Fiscal Responsibility Act (TEFRA) of 1982, Pub. L. No. 97-
248, § 101(b)(3), 96 Stat. 324, 335; see S. Rep. No. 97-494,
pt. 1, at 24 (1982) (“Hospital spending has been increasing at
double-digit rates for over a decade and much faster than the
rates of inflation in the economy as a whole. Hospital
spending accounts for over 70 percent of Medicare program
expenditures . . . .”). In the interim, Congress established
limits on the annual rates of increase of a hospital’s
reimbursable reasonable costs. See TEFRA, § 101(a)(1), 96
Stat. at 331-35 (codified at 42 U.S.C. § 1395ww(b)).
Pursuant to TEFRA, hospitals were reimbursed for their
reasonable costs not exceeding a ceiling based on the
hospital’s “target amount” for the relevant cost year. 42
U.S.C. § 1395ww(b)(1)(A). For the first year that a hospital
reported its costs under TEFRA, the hospital’s target amount
was equal to “the allowable operating costs of inpatient
hospital services . . . for such hospital for the preceding 12-
month cost reporting period” plus an applicable percentage
increase. Id. § 1395ww(b)(3)(A)(i). For all subsequent fiscal
years, the target amount was “the target amount for the
preceding 12-month cost reporting period” plus an applicable
percentage increase. Id. § 1395ww(b)(3)(A)(ii).

    A PPS was put in place for most hospitals in 1983. See
Social Security Amendments of 1983, Pub L. No. 98-21,
§ 601, 97 Stat. 65, 153-62 (codified as amended at 42 U.S.C.
§ 1395ww(d)). However, Congress chose to exclude certain
types of hospitals, including psychiatric hospitals, from the
                              4
PPS. See Pub L. No. 98-21, § 601(e), 97 Stat. at 153
(codified as amended at 42 U.S.C. § 1395ww(d)(1)(B)).
Instead, HHS continued to reimburse these hospitals for their
reasonable costs as long as those costs did not exceed the
limits set by TEFRA. The calculation of TEFRA limits
resulted in “significant variation” in the amount of
reimbursement across PPS-exempt hospitals. H.R. Rep. No.
105-149, at 1336 (1997). In an effort to reduce this variation,
Congress imposed an additional cap on target amounts for
PPS-exempt hospitals for fiscal years 1998-2002. See
Balanced Budget Act (BBA) of 1997, Pub. L. No. 105-33,
§ 4414, 111 Stat. 251, 405 (codified as amended at 42 U.S.C.
§ 1395ww(b)(3)(H)). Under the BBA, target amounts for
fiscal years 1998-2002 could not exceed the 75th percentile of
target amounts for all hospitals in the same class for cost
reporting periods ending during fiscal year 1996, adjusted as
applicable for each year of the five year period. See 42
U.S.C. § 1395ww(b)(3)(H).

    Finally, in 1999, Congress directed the Secretary to
develop a PPS for psychiatric hospitals and move the
hospitals to that system beginning on or after October 1, 2002.
See Medicare, Medicaid, and SCHIP Balanced Budget
Refinement Act (BBRA) of 1999, Pub. L. No. 106-113,
Appendix F, § 124, 113 Stat. 1501, 1501A-332.

B. Regulatory Background

    After Congress enacted TEFRA in 1982, the Secretary
promulgated regulations to implement the act. These
regulations mirrored the statutory provisions. Under the
regulations, a hospital’s target amount for the first cost
reporting period after TEFRA’s enactment was equal to “the
hospital’s allowable net inpatient operating costs per case for
the hospital’s base period increased by the update factor for
                                 5
the subject period.” 42 C.F.R. § 405.463(c)(4)(i) (1982). For
all subsequent cost reporting periods, a hospital’s target
amount was equal to “the hospital’s target amount for the
previous cost reporting period increased by the update factor
for the subject cost reporting period.” Id. § 405.463(c)(4)(ii);
see also 47 Fed. Reg. 43,282, 43,292 (Sept. 30, 1982). In
1986, HHS redesignated the relevant sections of 42 C.F.R.
Part 405 into new Part 413. See 51 Fed. Reg. 34,790 (Sept.
30, 1986).

     Following the passage of the BBA, the Secretary
amended 42 C.F.R. Part 413 to reflect the new cap scheme.
The Secretary made paragraphs (c)(4)(i) and (c)(4)(ii) subject
to newly added paragraph (c)(4)(iii).           See 42 C.F.R.
§ 413.40(c)(4)(i)-(ii) (2003). Under paragraph (c)(4)(iii), the
hospital’s target amount was to be “the lower of the amounts
specified in paragraph (c)(4)(iii)(A) or (c)(4)(iii)(B) . . . .” Id.
§ 413.40(c)(4)(iii). Paragraph (c)(4)(iii)(A) was a “hospital-
specific target amount,” which equaled “the net allowable
costs in a base period increased by the applicable update
factors.” Id. § 413.40(c)(4)(iii)(A)(I). Paragraph (c)(4)(iii)(B)
outlined the BBA cap amount for each year 1998-2002. Id.
§ 413.40(c)(4)(iii)(B).

     Finally, in 2005, in response to inquiries from provider
hospitals, HHS amended § 413.40(c)(4)(iii) by adding an
introductory clause specifying that the paragraph applied only
“[f]or cost reporting periods beginning on or after October 1,
1997 through September 30, 2002 . . . .” 70 Fed. Reg. 47,278,
47,464-65, 47,487 (Aug. 12, 2005); see also 42 C.F.R.
§ 413.40(c)(4)(iii) (2005).
                               6
C. Factual and Procedural Background

     Although Congress directed HHS to move psychiatric
hospitals to a PPS beginning in 2002, HHS was not able to
begin the transition until January 1, 2005. See 69 Fed. Reg.
66,922, 66,922-24 (Nov. 15, 2004) (explaining that
developing a PPS for psychiatric hospitals was more complex
and time consuming than for other types of hospitals). In the
interim, the Secretary calculated psychiatric hospital target
amounts under 42 U.S.C. § 1395ww(b)(3)(A)(ii) and 42
C.F.R. § 413.40(c)(4)(ii). See 67 Fed. Reg. 49,982, 50,103
(Aug. 1, 2002). Thus, the 2003 target amount was calculated
by adding an applicable percentage increase to the 2002 target
amount, which had been subject to the BBA caps, and by
extension, the 2004 target amount was calculated by adding
an applicable percentage increase to the 2003 target amount.
Id.

     As a psychiatric hospital that provided inpatient services
to Medicare patients in 2003 and 2004, Fayetteville’s
reimbursement depended on how the Secretary calculated its
target amounts for those years. Initially, a fiscal intermediary
informed Fayetteville that it would be reimbursed based on its
hospital-specific target amount under 42 C.F.R.
§ 413.40(c)(4)(iii)(A).       However, the intermediary
subsequently revised its calculation and informed Fayetteville
that its 2003 and 2004 target amounts would be calculated
under 42 C.F.R. § 413.40(c)(4)(ii). The revised calculation
resulted in Fayetteville receiving significantly reduced
reimbursement for both years. Fayetteville appealed its
reimbursements for 2003 and 2004 to the Provider
Reimbursement Review Board (PRRB), arguing that the
Secretary’s method for calculating the 2003 and 2004 target
amounts improperly extended the BBA caps past their
expiration. The PRRB found that it lacked the authority to
                              7
decide the appeal because it involved a challenge to the
validity of HHS’s regulations, but certified the dispute for
expedited judicial review in accordance with 42 U.S.C.
§ 1395oo(f)(1).

     Fayetteville subsequently filed this action in the U.S.
District Court for the District of Columbia. Both Fayetteville
and HHS filed motions for summary judgment with the
district court. Fayetteville argued that HHS’s decision to
calculate the hospital’s 2003 and 2004 target amounts under
42 U.S.C. § 1395ww(b)(3)(A)(ii)—updating its 2002 target
amount, which was subject to the BBA cap scheme, by an
adjustment factor—impermissibly extended the BBA caps
beyond 2002, contrary to the plain language of
§ 1395ww(b)(3)(H). Pl.’s Mot. Summ. J. at 12. According to
Fayetteville, HHS should have calculated its 2003 and 2004
target amounts under 42 C.F.R. § 413.40(c)(4)(iii) and
reimbursed Fayetteville based on the hospital-specific target
amount, which relies on the net allowable costs for the
hospital’s base period, not the previous year’s target amount.
Id. at 16. Fayetteville went on to contend that when the
Secretary amended paragraph (c)(4)(iii) in 2005 by adding
language that explicitly limited the provision’s application to
October 1, 1997 through September 30, 2002, the Secretary
made a substantive change to the regulatory text that
amounted to a retroactive revision. Id. at 26-29. HHS argued
the Secretary’s amendment was not a retroactive rule because
42 C.F.R. § 413.40(c)(4)(iii) had never applied beyond 2002,
and, therefore, it was inapplicable when calculating the target
amounts for 2003 and 2004. Def.’s Mot. Summ. J. at 14, 16.
Instead, according to HHS, 42 U.S.C. § 1395ww(b)(3)(A)(ii)
unambiguously required HHS to calculate Fayetteville’s 2003
target amount by updating the hospital’s capped 2002 target
amount and, by extension, to calculate the hospital’s 2004
                               8
target amount by updating the hospital’s 2003 target amount.
Id. at 10-11.

     The district court denied Fayetteville’s motion for
summary judgment and granted HHS’s cross-motion for
summary judgment. See Wash. Reg’l Medicorp v. Burwell,
72 F. Supp. 3d 159, 160 (D.D.C. 2014). Applying Chevron,
the court found that the relevant provisions of the Medicare
statute unambiguously required the Secretary to calculate the
reimbursement as she had. Id. at 164-65. In the alternative,
the court found that, even if the statute was ambiguous, the
Secretary’s method was a reasonable interpretation of the
statute and its implementing regulations. Id. at 165-67. The
district court also found that the 2005 amendment to 42
C.F.R. § 413.40(c)(4)(iii) was not an improper retroactive
change because HHS did not alter its method of calculating
target amounts when it made the amendment. Id. at 167-68.

                      II. DISCUSSION

     Fayetteville has timely appealed the district court’s
decision granting HHS’s cross-motion for summary
judgment. See 42 U.S.C. § 1395oo(f)(1) (“Providers shall . . .
have the right to obtain judicial review of any action of the
fiscal intermediary which involves a question of law or
regulations relevant to the matters in controversy whenever
the Board determines . . . that it is without authority to decide
the question, by a civil action commenced within sixty days
of the date on which notification of such determination is
received.”). We review a district court’s grant of summary
judgment de novo. Defs. of Wildlife v. Gutierrez, 532 F.3d
913, 918 (D.C. Cir. 2008). Here, the material facts are not in
dispute. Therefore, we proceed to determine whether HHS
was “entitled to [summary] judgment as a matter of law.”
Fed. R. Civ. P. 56(a). Under de novo review, we “may affirm
                               9
on a different theory than that relied upon by the district
court.” McCormick v. District of Columbia, 752 F.3d 980,
986 (D.C. Cir. 2014).

A. The Statute

     In examining HHS’s interpretation of the statute, this
Court applies the familiar two-pronged test set forth in
Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S.
837 (1984). “When a court reviews an agency’s construction
of the statute which it administers, it is confronted with two
questions.” Id. at 842. First, the court must determine
“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. But “if the statute is silent or ambiguous with
respect to the specific issue, the question for the court is
whether the agency’s answer is based on a permissible
construction of the statute.” Id. at 843. We also note that
“[t]he Supreme Court has made clear that courts must give
heightened deference to [an agency’s] interpretation of a
‘complex and highly technical regulatory program’ such as
Medicare.” Methodist Hosp. of Sacramento v. Shalala, 38
F.3d 1225, 1229 (D.C. Cir. 1994) (quoting Thomas Jefferson
Univ. v. Shalala, 512 U.S. 504, 512 (1994)). We agree with
HHS that Fayetteville’s 2003 and 2004 target amounts are
properly calculated under 42 U.S.C. § 1395ww(b)(3)(A)(ii).
Insofar as there is any ambiguity in the statute, we would
uphold HHS’s interpretation with or without Chevron
deference because HHS’s interpretation is not only reasonable
but also the best interpretation of the statute.

   When Congress passed the BBRA, it provided that the
PPS for psychiatric hospitals would be implemented
                               10
immediately after the expiration of the BBA caps. See 42
U.S.C. § 1395ww(b)(3)(H)(i) (imposing caps for fiscal years
1998-2002); BBRA, Pub. L. No. 106-113, Appendix F,
§ 124(c), 113 Stat. at 1501A-332 (directing the Secretary to
move psychiatric hospitals to a PPS “beginning on or after
October 1, 2002”). Congress did not anticipate the gap
between the two systems of reimbursement and, therefore, did
not directly speak to how HHS should calculate target
amounts during that gap. Thus, HHS was left to interpret
§ 1395ww with little direction. We agree with HHS that,
under the best interpretation of the statute, Fayetteville’s 2003
target amount is properly calculated under 42 U.S.C.
§ 1395ww(b)(3)(A)(ii) by adding an applicable percentage
increase to the hospital’s 2002 target amount, even if that
target amount was capped by § 1395ww(b)(3)(H). By
extension, we also agree that Fayetteville’s 2004 target
amount was properly calculated by adding an applicable
percentage increase to the 2003 target amount.

     Two provisions of § 1395ww are relevant for calculating
Fayetteville’s 2003 target amount: paragraph (b)(3)(A) and
paragraph (b)(3)(H). Paragraph (b)(3)(A) sets out how to
calculate a psychiatric hospital’s target amount for its first
cost reporting period, see 42 U.S.C. § 1395ww(b)(3)(A)(i),
and for all subsequent cost reporting periods, see id.
§ 1395ww(b)(3)(A)(ii). Only the latter method applies here
because 2003 was not Fayetteville’s first cost reporting
period. Under § 1395ww(b)(3)(A)(ii), a psychiatric hospital’s
target amount equals “the target amount for the preceding 12-
month cost reporting period, increased by the applicable
percentage increase . . . .” For 2003, the preceding 12-month
cost reporting period is 2002. Pursuant to § 1395ww(b)(3)(H),
the target amount for 2002 “may not exceed” the “75th
percentile of the target amounts for such hospitals within such
class for cost reporting periods during fiscal year 1996,” as
                               11
updated by “a factor equal to the market basket percentage
increase.” Id. § 1395ww(b)(3)(H)(i), (ii)(I), (III). The most
straightforward reading of these provisions instructs HHS to
use the capped 2002 target amount to calculate the 2003 target
amount under § 1395ww(b)(3)(A)(ii).

    Fayetteville argues that this method of calculating a
psychiatric hospital’s 2003 and 2004 target amounts is
contrary to the statute because it effectively extends the BBA
caps beyond 2002, and Congress plainly did not intend for the
Secretary to take a cap that was explicitly limited to five years
and extend it to cover seven years. We disagree.

     A BBA cap was not imposed on the 2003 or 2004 target
amount. Only the 2002 target amount was capped. As the
district court noted, “[t]here is no doubt that reverting to the
pre-BBA method of calculating reimbursement perpetuated
the effect of the BBA caps.” Wash. Reg’l Medicorp, 72 F.
Supp. 3d at 164. But, as other circuits have noted, this “echo
effect” is not contrary to the statute. See Mich. Dep’t of Cmty.
Health v. Sec’y of Health & Human Servs., 496 F. App’x 526,
536 (6th Cir. 2012); Ancora Psychiatric Hosp. v. Sec’y of the
U.S. Dep’t of Health & Human Servs., 417 F. App’x 171,
175-76 (3d Cir. 2011). That a cap imposed on one cost
reporting period might affect the subsequent cost reporting
period is unsurprising given that TEFRA, which was neither
repealed nor replaced by the BBA or the BBRA, established a
system in which a psychiatric hospital’s target amount could
only increase by a certain percentage each cost reporting
period. See 42 U.S.C. § 1395ww(b)(3)(A); see also Ancora
Psychiatric Hosp., 417 F. App’x at 176.

     Moreover, using § 1395ww(b)(3)(A)(ii) to calculate the
target amounts for 2003 and 2004 is consistent with
Congress’s “progressive effort” to move hospitals from an
                               12
actual cost reimbursement system to a system “based on
objective patient characteristics and consistent national
standards, and to rein in disproportionately expensive
treatment provided by certain hospitals.” Mich. Dep’t of
Cmty. Health, 496 F. App’x at 534; see also Univ. of Tex.
M.D. Anderson Cancer Ctr. v. Sebelius, 650 F.3d 685, 687
(D.C. Cir. 2011) (“Congress has repeatedly attempted to slow
the increase in Medicare costs for hospitals’ inpatient
services.”). There is no indication that Congress intended to
reverse this trend and have HHS go back to calculating target
amounts by simply increasing the hospital’s reasonable, actual
costs from the base year.

     We conclude that the best interpretation of 42 U.S.C.
§ 1395ww, which is the interpretation adopted by HHS,
provides for the calculation of Fayetteville’s 2003 and 2004
target amounts using § 1395ww(b)(3)(A)(ii).

B. The Regulation

     According to Fayetteville, calculating the 2003 and 2004
target amounts based on the 2002 capped target amount also
ran afoul of the Secretary’s own regulations. Fayetteville
argues that 42 C.F.R. § 413.40(c)(4)(iii) was still in effect
during 2003 and 2004 and required HHS to reimburse
Fayetteville for both years using the hospital-specific target
amount under subparagraph (A). Nothing in § 413.40
compels this Court to adopt Fayetteville’s reading. With or
without deference, we conclude that HHS’s interpretation is
the better one, not least of all because it is consistent with the
best reading of the statute. See Auer v. Robbins, 519 U.S.
452, 461 (1997).

    As relevant here, the regulation states that, “[s]ubject to
the provisions of paragraph (c)(4)(iii) of this section, for []
                               13
cost reporting periods [after the initial period], the target
amount equals the hospital’s target amount for the previous
cost reporting period increased by the update factor for the
subject cost reporting period . . . .”             42 C.F.R.
§§ 413.40(c)(4)(ii). We agree with HHS that paragraph
(c)(4)(iii) was added to implement the BBA caps and is best
read as only applying from 1998-2002, when the BBA caps
were in effect. See 62 Fed. Reg. 45,966, 45,969, 46,018-19
(Aug. 29, 1997) (rule is implementing, among other
provisions of the BBA, the caps on target amounts for
psychiatric hospitals by amending § 413.40(c)(4)); 63 Fed.
Reg. 26,318, 26,344, 26,358 (May 12, 1998) (opening
discussion of modifications to § 413.40(c) with an
explanation of the BBA caps). Therefore, the “subject to”
clause of paragraph (c)(4)(ii) had no effect in 2003 and 2004,
and the target amounts for those years are properly calculated
by updating the previous year’s target amount. 1

     The conclusion that paragraph (c)(4)(iii) does not apply
after 2002 is consistent with the fact that the regulatory
preambles cited by both parties, which discuss how target
amounts for 2003 and subsequent cost years would be
calculated under § 413.40, refer only to paragraph (c)(4)(ii)
and do not mention (c)(4)(iii) at all. See 67 Fed. Reg. 49,982,
50,103-04 (Aug. 1, 2002) (“In accordance with existing
§§ 413.40(c)(4)(ii) . . . [psychiatric hospitals will] continue to
be paid on a reasonable cost basis, and payments are based on
their Medicare inpatient operating costs, not to exceed the
ceiling. The ceiling will be computed using the hospital’s . . .
1
  We recognize that the 5th Circuit has reached the opposite
conclusion. See Hardy Wilson Mem’l Hosp. v. Sebelius, 616 F.3d
449, 457-61 (5th Cir. 2010) (42 C.F.R. § 413.40 unambiguously
required HHS to calculate target amounts in the gap period under
paragraph (c)(4)(iii)(A) because only subparagraph (B) no longer
applied after 2002).
                              14
target amount from the previous cost reporting period updated
by the [applicable] rate-of-increase . . . .”); 67 Fed. Reg.
31,404, 31,491 (May 9, 2002) (same).

     Fayetteville further contends that using § 413.40(c)(4)(ii)
to calculate the 2003 and 2004 target amounts is inconsistent
with the general and somewhat ambiguous definition of target
amount provided by § 413.40(a)(3): “Target amount is the
per discharge (case) limitation, derived from the hospital’s
allowable net Medicare inpatient operating costs in the
hospital’s base year, and updated for each subsequent hospital
cost reporting period by the appropriate annual rate-of-
increase percentage.” 42 C.F.R. § 413.40(a)(3). According to
Fayetteville, because HHS’s target amount for 2003 was
based on the capped 2002 target amount, the target amounts
for both 2003 and 2004 are not “derived from” the hospital’s
reasonable operating costs. Fayetteville’s position appears to
be that the regulatory definition requires a hospital’s target
amount to be its reasonable operating costs from its base year
plus an update factor. But, saying that the target amount is
“derived from” the hospital’s base year reasonable operating
costs is not the same as saying that the target amount “is” the
hospital’s base year reasonable operating costs. Even the
target amounts for a psychiatric hospital during the BBA
capped years were derived from the hospital’s reasonable
operating costs in the base year.             See 42 U.S.C.
§ 1395ww(b)(3)(A), (H) (target amount equals “allowable
operating costs” plus applicable increases unless that sum
exceeds the 75th percentile cap for the cost reporting year); 42
C.F.R. § 413.40(c)(4)(iii) (target amount equals “net
allowable costs in a base period” plus update factors unless
that sum exceeds the 75th percentile cap for the cost reporting
year). The cap simply meant that the hospital’s Medicare
reimbursements would not necessarily cover all the
reasonable operating costs the hospital incurred. Thus, there
                              15
is no conflict between the definition in § 413.40(a)(3) and the
method of calculation employed by HHS.

     Finally, because § 413.40(c)(4)(iii), as it existed in 2003
and 2004, is best read as applying only from 1998-2002 and
HHS has consistently adhered to this interpretation, we
conclude that the 2005 amendment, which simply clarifies
this temporal limit, was not a substantive change to the rule
and therefore does not present a retroactivity problem. See
Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1, 13-14 (D.C. Cir.
2011) (“To determine whether a rule is impermissibly
retroactive, we first look to see whether it effects a
substantive change from the agency’s prior regulation or
practice.” (citation and internal quotation marks omitted)).

                     III. CONCLUSION

    For the reasons set forth above, the district court’s
decision denying Fayetteville’s motion for summary
judgement and granting HHS’s cross-motion for summary
judgment is affirmed.

                                                    So ordered.