Phoenix Memorial Hospital v. Sebelius

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

PHOENIX MEMORIAL HOSPITAL; CASA 
GRANDE REGIONAL MEDICAL
CENTER; UNIVERSITY MEDICAL
CENTER; JOHN C. LINCOLN
HOSPITAL-NORTH MOUNTAIN; ST.
JOSEPH’S HOSPITAL & MEDICAL
CENTER; MARICOPA COUNTY
No. 09-15506
MEDICAL CENTER; CHANDLER
REGIONAL HOSPITAL; PHOENIX
BAPTIST HOSPITAL,
 D.C. No.
2:07-cv-01720-HRH
Plaintiffs-Appellants, OPINION
v.
KATHLEEN SEBELIUS, in her official
capacity as Secretary, U.S.
Department of Health and Human
Services,
Defendant-Appellee.

Appeal from the United States District Court
for the District of Arizona
H. Russel Holland, Senior District Judge, Presiding

Argued and Submitted
March 9, 2010—San Francisco, California

Filed September 21, 2010

Before: Betty B. Fletcher, Richard R. Clifton, and
Carlos T. Bea, Circuit Judges.

Opinion by Judge B. Fletcher

15977
15980 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
COUNSEL

Roger N. Morris, Melody Ann Emmert, Lisa E. Davis,
Quarles & Brady LLP, Phoenix, Arizona, for the plaintiffs-
appellants.

Tony West, John J. Tuchi, Anthony J. Steinmeyer, August E.
Flentje, Department of Justice, Washington, D.C., for the
defendant-appellee.

OPINION

B. FLETCHER, Circuit Judge:

Eight Arizona hospitals that all receive federal reimburse-
ment for treating Medicare patients appeal the district court’s
grant of summary judgment in favor of the Secretary of
Health and Human Services. The hospitals argue that the
adjustment they receive for serving disproportionately high
numbers of low-income patients should be increased because
the reimbursement does not account for all low-income
patients included under the Arizona Health Care Cost Con-
tainment System. We have jurisdiction under 28 U.S.C.
§ 1291 and we affirm.

BACKGROUND

A. Statutory Framework

Under Part A of the Medicare program, the federal govern-
ment reimburses providers for covered medical services for
elderly and disabled individuals. 42 U.S.C. §§ 1395 et seq.
Since 1983, hospitals have received Medicare reimbursement
for inpatient hospital services through the Prospective Pay-
ment System (PPS). 42 U.S.C. § 1395ww(d); Legacy Eman-
uel Hosp. & Health Ctr. v. Shalala, 97 F.3d 1261, 1262 (9th
 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15981
Cir. 1996). Under PPS, individual hospitals receive reim-
bursement “based on a predetermined amount that an effi-
ciently run hospital should incur for inpatient services
depending on the patient’s diagnosis at time of discharge.”
Legacy Emanuel Hosp. & Health Ctr., 97 F.3d at 1262. The
PPS then can be adjusted in several ways to account for
hospital-specific factors. 42 U.S.C. §§ 1395ww(d)(5). The
adjustment at issue in this case gives additional reimburse-
ment to hospitals that serve a “significantly disproportionate
number of low-income patients.” 42 U.S.C. § 1395ww(d)(5)
(F)(i)(I). This adjustment, known as the Medicare dispropor-
tionate share hospital (DSH) adjustment, seeks to compensate
hospitals for the additional expense per patient associated
with serving high numbers of low-income patients. See, e.g.,
H.R. Rep. No. 99- 241 at 16 (1986), reprinted in 1986
U.S.C.C.A.N. 579, 594.

Whether a hospital qualifies for the DSH adjustment, and
how much that adjustment will be, depends on the hospital’s
“disproportionate patient percentage.” See 42 U.S.C.
§ 1395ww(d)(5)(F)(v). The disproportionate patient percent-
age is a mathematical calculation that “serves as a ‘proxy’ for
all low-income patients.” Legacy Emanuel Hosp. & Health
Ctr., 97 F.3d at 1263 (quotation omitted). One part of this cal-
culation, known as the “Medicare Low Income Proxy,”
accounts for low-income Medicare patients and relates to the
number of Medicare patients who qualify for Supplemental
Security Income. 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). The
second part of this calculation relates to the number of non-
Medicare low-income patients served by a hospital, expressed
as a percentage of the hospital’s entire patient population. It
is commonly referred to as the “Medicaid Fraction” or “Med-
icaid Low Income Proxy.” Congress has defined the formula
for calculating the Medicaid Low Income Proxy as:

the fraction (expressed as a percentage), the numera-
tor of which is the number of the hospital’s patient
days for such period which consist of patients who
15982 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
(for such days) were eligible for medical assistance
under a State plan approved under subchapter XIX
of this chapter, but who were not entitled to benefits
under part A of this subchapter, and the denominator
of which is the total number of the hospital’s patient
days for such period.

42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). Thus, the amount of
additional reimbursement a hospital receives for each Medi-
care patient it serves depends in part on the number of
patients “eligible for medical assistance under a State plan
approved under [Title] XIX.” Id.

Although this case concerns reimbursement for Medicare
patients, the heart of the dispute centers on which patients are
included in the Medicaid Low Income Proxy. The more
patients included, the greater the amount of the additional
reimbursement. Medicaid, Title XIX of the Social Security
Act, 42 U.S.C. § 1396 et seq., is a cooperative federal-state
program that provides health care to indigent individuals who
are elderly, blind, or disabled, or members of families with
dependent children. Under the Medicaid program, the federal
government provides funds to states to offset some of the
expense of furnishing medical services to low-income per-
sons. Id.; 42 C.F.R. § 430.0. The program is jointly financed
by the federal and state governments, and states administer
the program according to federal guidelines. 42 U.S.C.
§§ 1396 et seq.; 42 C.F.R. § 430.0. To participate in Medic-
aid, a state must submit a plan that the Secretary approves. 42
U.S.C. § 1396a(a). A plan specifies certain categories of indi-
viduals and types of medical services that will be covered. See
42 U.S.C. § 1396a. State plans must cover the “categorically
needy,” those individuals who qualify because they are eligi-
ble for assistance under either the Aid to Families with
Dependent Children program or the Supplemental Security
Income program. See Spry v. Thompson, 487 F.3d 1272, 1274
(9th Cir. 2007). Participating states also can provide coverage
to the “medically needy,” those individuals who have incomes
 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15983
above the poverty line, but who lack the means to pay for
medical care. See id. “Within those broad requirements, how-
ever, states are given discretion to determine the type and
range of services covered, the rules for eligibility, and the
payment levels for services.” Legacy Emanuel Hosp. &
Health Ctr., 97 F.3d at 1262 (citing 42 C.F.R. § 430.0.). If the
Secretary approves a states’s plan, the state will be eligible for
federal payments. 42 U.S.C. §§ 1315, 1396, 1396c.

Section 1115 of the Social Security Act authorizes the Sec-
retary to approve experimental or demonstration projects with
the goal of encouraging states to adopt innovative programs
that promote the objectives of Medicaid. Portland Adventist
Medical Ctr. v. Thompson, 399 F.3d 1091, 1093 (9th Cir.
2005); 42 U.S.C. § 1315(a). “For these experimental projects,
the Secretary is authorized to waive compliance with the gen-
eral federal requirements for Medicaid state plans set out in
§ 1396a.” Portland Adventist Medical Ctr., 399 F.3d at 1093.
Experimental projects may cover medical assistance costs for
individuals who could be eligible for Medicaid even without
a waiver as well as to individuals who would not be eligible.
Id. (citing Interim Final Rule, Medicare Program; Medicare
Inpatient Disproportionate Share Hospital (DSH) Adjustment
Calculation, 65 Fed.Reg. 3136, 3136-37 (Jan. 20, 2000)).
Patients who are eligible for services by way of the Secre-
tary’s waiver of particular requirements under section 1115
are known as “expansion populations” or “expanded eligibil-
ity populations.” Id. Expansion and expanded eligibility popu-
lations are included in the calculation of the Medicaid Low
Income Proxy. Id. at 1099.

B. The Arizona Hospitals’ Challenge

The dispute here centers on the Secretary’s attempt to clar-
ify federal reimbursement policies for certain groups of
patients. Arizona participates in Medicaid pursuant to a sec-
tion 1115 demonstration project waiver. The state program,
Arizona Health Care Cost Containment System
15984 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
(“AHCCCS”), provides acute care services to four eligibility
categories relevant here: (1) the Title XIX Categorically
Needy (Mandatory Medicaid); (2) the Medically
Needy/Medically Indigent (MN/MI); (3) Eligible Low Income
Children (ELIC); and (4) Eligible Assistance Children (EAC).

Up until 1990, plaintiffs received DSH adjustment pay-
ments that were calculated by including MN/MI, ELIC, and
EAC (collectively “MN/MI”) patient days in the DSH reim-
bursement formula. Although the Secretary administers DSH
payments, it is a fiscal intermediary, typically a health insur-
ance company authorized to act on the Secretary’s behalf,
who reviews the hospital’s end-of-year cost reports.1 42
U.S.C. § 1395g; 42 C.F.R. §§ 405.1801(b)(1), 413.24(f),
413.64(f). In early 1992, the plaintiff hospitals were advised
that the intermediary would not include these patient days in
the DSH formula for fiscal years after 1990. From 1990
onward, therefore, Arizona’s intermediary had a practice of
excluding patient days attributable to these categories of
recipients.

Intermediaries in other states, however, historically had
allowed hospitals to include days for patients who qualified
for general assistance and other state-only funded programs in
their DSH calculation. In the mid-1990s, several of the inter-
mediaries who previously had included state-only program
days in the DSH calculation notified hospitals that they no
longer would include these days and would seek to recoup
erroneously paid funds. In December 1999, the Secretary
issued Program Memorandum 99-62 (“Program Memoran-
dum”), a “clarification of allowable Medicaid days in the
Medicare [DSH] adjustment calculation.” This Program
Memorandum explained that states with both state-only and
1
After the intermediary reviews the year-end cost reports, the intermedi-
ary issues a “Notice of Program Reimbursement” identifying the amount
the hospital will be paid by Medicare for that hospital cost year. 42 C.F.R.
§ 405.1803.
 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15985
federal-state eligibility groups in one program would not be
allowed to include state-funded beneficiaries who were not
eligible for Medicaid under a Title XIX federal-state coopera-
tive program. The Program Memorandum also provided guid-
ance on the “hold harmless” policy that the Secretary had
announced on October 15, 1999. It instructed intermediaries
that hospitals that had received erroneous payments and hos-
pitals that had not received such payments, but had appealed
that determination before October 15, 1999, would be allowed
to include state-funded general-assistance days in the Medic-
aid Low Income Proxy calculation.2 In all other circum-
stances, such days would not be included in the calculation:

If a hospital did not receive any payment based on
the erroneous inclusion of general assistance or other
State-only health program, charity care, Medicaid
DSH, and/or waiver or demonstration population
days for cost reports that were settled before October
15, 1999, and the hospital never filed a jurisdiction-
ally proper appeal to the Provider Reimbursement
Review Board on this issue, you are not to pay the
hospital based on the inclusion of these types of days
for any open cost reports for cost reporting periods
beginning before January 1, 2000.

Four of the hospitals that are parties here filed an appeal
with the Provider Reimbursement Review Board (PRRB) on
December 12, 2001. In a May 4, 2007 decision, the PRRB
allowed the inclusion of the MN/MI population in the Medic-
aid Low Income Proxy, reversing the intermediary and find-
ing that the intermediary had, in fact, included MN/MI days
2
A hospital that disagrees with the intermediary’s determination can
request an administrative hearing before the Provider Reimbursement
Review Board. 42 U.S.C. § 1395oo(a). A hospital has the right under the
statute to seek judicial review in federal court of a final determination —
that of the Board or of the Secretary, depending on whether the Secretary
chose to conduct a review. Id. § 1395oo(f)(1).
15986 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
in the DSH Medicare calculation. The PRRB also found that
the MN/MI population fell under the state’s plan, as approved
in the 1982 waiver “irrespective of how the programs and
sub-programs were funded.” The PRRB did not consider the
effect of the Program Memorandum.

On July 6, 2007, the Centers for Medicare and Medicaid
Services administrator reversed the decision of the PRRB on
its own motion.3 The CMS administrator found that “the days
involved in this case are related to individuals that are not eli-
gible for medical assistance as that term is used under Title
XIX and thus, are not properly included in the Medicaid
patient percentage of Medicare DSH calculation.” The admin-
istrator also found that the hospitals were not entitled to pro-
tection under the “hold harmless” provision.

The hospitals here filed a complaint in federal district court
on September 7, 2007, alleging the Secretary’s decision was
arbitrary, capricious, an abuse of discretion, and otherwise not
in accordance with law for three reasons: (1) the Ninth Circuit
had determined that section 1115 waiver populations must be
included in the DSH calculation, (2) the Secretary’s “action
ignores and is inconsistent with the reasoned decision issued
by the PRRB,” and (3) the Secretary’s “action is inconsistent
with decisions of the PRRB reached in many other similar
cases.” The district court decided dual motions for summary
judgment on January 12, 2009, granting the Secretary’s
motion for summary judgment and denying the hospitals’
motion. The district court found that “AHCCCS has two sepa-
rate and distinct components, one of which is Arizona’s sec-
tion 1115 demonstration project and one of which is the state-
funded health care program for indigent persons.” The
MN/MI populations were part of the state-funded program.
Thus, MN/MI patients were not eligible for medical assis-
3
In general, the Board’s decision serves as the final agency decision
unless the Secretary exercises her authority to review it. 42 U.S.C.
§ 1395oo(d), (f)(1).
 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15987
tance under Arizona’s Medicaid plan. Not only did Arizona
describe AHCCCS as composed of two distinct plans, but the
district court found persuasive on this point evidence that Ari-
zona applied to include the MN/MI patients in its Medicaid
plan in 1997.

With regard to the hold-harmless provision, the district
court found that “[t]he evidence in the record shows that the
practice for plaintiffs from 1990 onward was to not include
MN/MI days in their DSH adjustments.” The district court
further found that even those plaintiff hospitals that had filed
appeals by October 15, 1999 had not raised the specific issue,
as required for hold-harmless relief. Therefore, the hospitals
did not qualify for such relief.

The plaintiff hospitals timely appealed.

DISCUSSION

We review de novo both the district court’s grant of sum-
mary judgment and its holdings on questions of statutory
interpretation. Portland Adventist Medical Ctr., 399 F.3d at
1095. We “construe the DSH statute and assess the Secre-
tary’s interpretation of it following the standards set forth in
Chevron U.S.A., Inc. v. Natural Resources Defense Council,
Inc., 467 U.S. 837, 842-43 (1984).” Id. We first determine
“whether Congress has directly spoken to the precise question
at issue.” Chevron, 467 U.S. at 842. If the answer is yes, then
we “must give effect to the unambiguously expressed intent
of Congress” and the agency’s interpretation receives no def-
erence. Id. at 842-43. If the statute is either silent or ambigu-
ous, we determine “whether the agency’s answer is based on
a permissible construction of the statute.” Id. at 843.

The Medicare statute authorizes judicial review of a factual
finding by the Secretary, 42 U.S.C. § 1395oo(f)(1), in accor-
dance with the Administrative Procedure Act (“APA”), 5
U.S.C. § 706. See Alaska Dep’t of Health and Social Servs. v.
15988 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
Ctrs. for Medicare and Medicaid, 424 F.3d 931, 937 (9th Cir.
2005). Under the APA, we review an agency’s final decision
for substantial evidence based on the administrative record.
See 5 U.S.C. § 706(2)(E).

A. Arizona’s MN/MI Populations Are Not “Eligible
for Medical Assistance Under an Approved Plan”
As Contemplated in the Statute

We first address the Secretary’s determination that, under
the DSH statute, the hospitals were not entitled to include
MN/MI, EAC, and ELIC (collectively “MN/MI”) patient days
in the numerator of the Medicaid Low Income Proxy. In
essence, the challenge the hospitals raise here goes back to the
intermediary’s 1990 decision not to include MN/MI days in
the DSH calculation. The hospitals argue that the MN/MI
populations should be included in the DSH calculation
because, under the section 1115 waiver, such individuals are
“eligible for medical assistance under a State plan approved
under [Title XIX].” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).

[1] To analyze the validity of the hospitals’ claim, we turn
to the phrase describing the Medicaid Low Income Proxy:
“the number of the hospital’s patient days for such period
which consist of patients who (for such days) were eligible for
medical assistance under a State plan approved under [Title
XIX], but who were not entitled to benefits under [Medicare]
Part A.” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). We previously
have held that populations eligible for Medicaid should be
included in the calculation, regardless of whether the hospital
actually received payment for every day that particular patient
received care. Legacy Emanuel Hospital & Health Ctr., 97
F.3d at 1266. We also have held that low-income patients eli-
gible for medical services under a demonstration project
approved in a waiver were part of the calculation, and that the
Secretary must include expansion populations receiving medi-
cal assistance under a state plan approved under Medicaid in
the Medicaid Low Income Proxy calculation. Portland
 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15989
Adventist Medical Ctr., 399 F.3d at 1099. We now face the
task of determining whether the MN/MI populations, included
in the Arizona plan as a whole, are part of the populations
receiving “medical assistance under a State plan approved
under [Title XIX].”

The Secretary argues that AHCCCS has two components,
one of which is Arizona’s Medicaid plan and one of which is
the state’s program for providing health care to low-income
persons who are not eligible for Medicaid. If the term “eligi-
ble for medical assistance” means “eligible for Medicaid,”
then the populations covered under the state’s program would
not be included in the calculation. The hospitals contend that
“eligible for medical assistance” includes all patients eligible
for any type of medical assistance under a state plan. The hos-
pitals argue that the Secretary’s finding that “[t]he State’s
operation of [a] separate State-only funded program for cer-
tain indigent persons that did not meet the Medicaid program
was not referenced in the approval of the waiver” is not sup-
ported by the evidence and insist that the Secretary “ap-
proved” the entire AHCCCS program when granting
Arizona’s request for a section 1115 waiver.4

Arizona first sought approval from the Secretary for a sec-
tion 1115 demonstration project in 1982. Arizona submitted
an application for its demonstration project called “AHCCCS
— A Statewide Approach to Cost-Effective Health Care
Financing.” Various parts of the record reflect the fact that
Arizona treated AHCCCS as having two parts.
4
In the stipulated facts before the PRRB, the parties agreed that “[t]he
Secretary of Health and Human Services approved AHCCCS, and all of
its programs and sub-programs, as part of Arizona’s 1115 Waiver, irre-
spective of how the programs and sub-programs are funded.” The Secre-
tary was not a party to and did not participate in the hearing before the
PRRB and thus cannot be bound by the stipulations entered into between
plaintiffs and the intermediary. See Loma Linda Univ. Medical Ctr. v.
Leavitt, 492 F.3d 1065, 1074 (9th Cir. 2007) (“the Secretary is not neces-
sarily bound by stipulations entered into at the PRRB hearing by an inter-
mediary”).
15990 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
For the 1982 application, the Secretary granted fourteen
specific waivers that would allow Arizona to implement its
demonstration project, none of which related to providing
medical assistance to MN/MI patients. Subsequently, in 1997,
Arizona requested a specific waiver for approval to include
MN/MI populations in the Medicaid plan. AHCCCS noted in
the 1997 waiver application that the MN/MI program is
“100% state-funded” and that “[m]any of the individuals in
the state-funded programs could be eligible for Medicaid if
they applied for the current AHCCCS Medicaid program or
could be eligible to receive Medicaid services through a fed-
eral medically needy option.” Moreover, Arizona law has
classified the MN/MI populations as ineligible for Medicaid.
See Ariz. Rev. Stat. §§ 11-297, 36-2905, 36-2905.03
(expressly defining “medically indigent,” “medically needy,”
and “eligible child” as not eligible for Medicaid) (1999).

[2] The other compelling evidence that MN/MI patients
were not part of Arizona’s Medicaid plan is the fact that Ari-
zona, during the relevant time period, received federal reim-
bursement only for patients in the Title XIX Categorically
Needy (Mandatory Medicaid) category and that the funding
source for the MN/MI populations came from the state and
counties. In addition, it is undisputed that Arizona did not
receive such reimbursement for the MN/MI populations. The
Medicaid Act specifically defines “medical assistance” as
“payment of part or all of the cost of” enumerated services.
42 U.S.C. § 1396d(a). Because “medical assistance” means
the payment of federal funds toward certain services, Arizona
should have been receiving reimbursement for these popula-
tions if they were “eligible for medical assistance” as contem-
plated in the DSH calculation. See Adena Regional Medical
Ctr. v. Leavitt, 527 F.3d 176, 179-80 (D.C. Cir. 2008).

For these reasons, we agree with the district court that
AHCCCS has two separate and distinct components, one of
which is Arizona’s section 1115 demonstration project and
one of which is the state-funded health care program. During
 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15991
the relevant time period, the MN/MI populations were part of
the state-funded program and thus were not eligible for medi-
cal assistance under Arizona’s Medicaid plan, even though
they were eligible for medical assistance under AHCCCS.
Thus, we affirm the district court’s holding that the Secre-
tary’s decision that MN/MI patient days were properly
excluded from the Medicaid Low Income Proxy was not con-
trary to law, arbitrary or capricious, or unsupported by sub-
stantial evidence.

B. The Hospitals Are Not Eligible for “Hold
Harmless” Treatment

The hospitals argue that, in the event that we find the days
for MN/MI patients should not be included in the calculation
of the Medicaid Low Income Proxy, several hospitals specifi-
cally appealed the exclusion of these patient days and thus
should be eligible for “hold harmless” treatment. We agree
with the district court that these hospitals are not entitled to
“hold harmless” treatment.

[3] On this issue, we find helpful the Seventh Circuit’s
analysis of the “hold harmless” provision in Rush University
Medical Center v. Leavitt, 535 F.3d 735 (7th Cir. 2008). As
the Seventh Circuit explains, and as we explained earlier,
“[a]t the outset of this ‘disproportionate share’ program, it
was unclear how persons covered by states’ general-
assistance programs would be classified. Some hospitals (and
some of the Medicare program’s fiscal intermediaries)
equated general-assistance patients to Medicaid patients; oth-
ers did not.” Rush Univ. Med. Ctr., 535 F.3d at 738-39 (7th
Cir. 2008). The Program Memorandum clarified the rules,
explicitly excluding general-assistance patients from among
the low-income patients calculation, but explaining that if a
hospital’s intermediary had allowed reimbursement that
included non-eligible patients in the number of low-income
patient days, a grandfather clause prevented the Secretary
from seeking to recoup those dollars. Id. at 739. To qualify for
15992 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
this “hold harmless” treatment, hospitals must have either
included general-assistance patients with Medicaid patients in
cost reports filed before October 15, 1999, or have appealed
the non-inclusion of these patients by that date. Id. Hospitals
that did not include such patients and did not specifically
appeal the issue before October 15, 1999 could not seek to
add an appeal of the determination to an appeal filed before
that date. Id. In essence, “[t]he idea is that any hospital that
added a claim based on general-assistance patients must have
been trying to take advantage of the grandfather treatment,
which was first announced on October 15, 1999. Only claims
that predate the announcement of grandfather-clause treat-
ment are allowed.” Id.

Three hospitals here appealed the DSH calculation for three
separate years. Phoenix Memorial Hospital appealed its fiscal
year 1995 Notice of Program Reimbursement on March 20,
1998, stating that “the Intermediary reduced Disproportionate
Share payments based on Title XIX data obtained from
[AHCCCS].” Phoenix Memorial’s appeal stated that it “be-
lieve[d] this data to be incomplete, thus resulting in underpay-
ment of Disproportionate Share payments.” Casa Grande
Regional Medical Center appealed its fiscal year 1996 Notice
of Program Reimbursement on March 29, 1999, stating that
the DSH “adjustment does not properly reflect the provider’s
Medicaid days applicable to both in-state and out-of-state
patients.” On June 30, 1999, the hospital stated that “[n]ot all
Medicaid eligible days were included in the computation by
the fiscal intermediary.” St. Joseph’s Hospital and Medical
Center appealed its fiscal year 1994 Notice of Program Reim-
bursement on March 14, 1997, questioning “[w]hether the
intermediary’s adjustment of AHCCCS days to state data, and
related adjustment of Disproportionate Share, was appropri-
ate.”

[4] None of the timely filed appeals here indicate that the
hospitals were appealing the exclusion of general-assistance
patient days. Indeed, the intermediary had had a policy of
 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS 15993
excluding such days since 1990. And we agree with the Sev-
enth Circuit and the district court here that a blanket appeal
of the DSH calculation before October 15, 1999 is not suffi-
cient to preserve appellate rights on this issue. Although the
hospitals argue that this requirement imposes a higher plead-
ing standard, “[t]he problem is not the omission of magic
words but the fact that there were no synonyms for the right
words, or even similes or metaphors.” Id. at 740.

[5] This result makes sense. The hospitals knew from 1990
onward that MN/MI patient days were not being included in
the reimbursement calculation. The evidence in the record
shows that the DSH Medicaid Low Income Proxy calculation
excluded MN/MI days as a general rule. The hospitals stipu-
lated to this practice before the PRRB, and testimony from the
manager of Audit and Reimbursement for Blue Cross/Blue
Shield in Arizona confirmed that the intermediary’s practice
was to exclude MN/MI days during the relevant time period.5
These facts all support the Secretary’s conclusion that these
hospitals were not entitled to protection under the “prior prac-
tice” provision of the hold harmless policy. Therefore, we
affirm the district court’s holding that the hospitals were not
eligible for hold-harmless relief.

CONCLUSION

In other cases and under other circumstances, we have con-
cluded that the “Secretary has refused to implement the DSH
provision in conformity with the intent behind the statute.”
Portland Adventist Medical Ctr., 399 F.3d at 1099. That is not
the case here. Rather, the Secretary in this instance attempted
5
The hospitals point to testimony showing the intermediary included
some MN/MI days in the DSH calculation for cost reports from 1994 to
2000. Other testimony, however, shows that the inclusion of these MN/MI
days was probably the result of a clerical error. The hospitals do not allege
that they have had to return the funds received as a result of these errone-
ously included days and the inclusion of a few erroneous days does negate
the clear evidence that the intermediary’s practice excluded these days.
15994 PHOENIX MEMORIAL HOSPITAL v. SEBELIUS
to remedy disparate treatment among states and to prevent
unfair consequences from flowing from this clarification.
Hospitals like the hospitals that brought this action did not
benefit from the initial confusion, but they were not injured
by it either.

AFFIRMED.