United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 5, 2001 Decided June 14, 2002
No. 00-5455
P.I.A. Michigan City Incorporated,
d/b/a Kingwood Hospital,
Appellant
v.
Tommy G. Thompson, Secretary of the United States
Department of Health and Human Services,
Appellee
Appeal from the United States District Court
for the District of Columbia
(No. 98cv02386)
Jonathan P. Neustadter argued the cause for appellant.
With him on the briefs was Patric Hooper.
Marcus H. Christ, Jr., Attorney, U.S. Department of
Health & Human Services, argued the cause for appellee.
With him on the brief were David S. Cade, Acting General
Counsel, Henry R. Goldberg, Deputy Associate General Coun-
sel, David W. Ogden, Assistant Attorney General, U.S. De-
partment of Justice, Wilma A. Lewis, U.S. Attorney at the
time the brief was filed, and Anthony J. Steinmeyer, Attor-
ney, U.S. Department of Justice.
Before: Ginsburg, Chief Judge; Sentelle and Garland,
Circuit Judges.
Opinion for the Court filed by Circuit Judge Sentelle.
Sentelle, Circuit Judge: P.I.A. Michigan City, Inc.,
brought this action pursuant to 42 U.S.C. s 1395oo(f)(1) for
review of the Secretary's decision in a Medicare reimburse-
ment matter. The hospital contended that the Secretary
erred in denying it an exemption from the Medicare payment
limitations imposed under the Tax Equity and Fiscal Respon-
sibility Act of 1982. The district court denied the motion of
the hospital for summary judgment, granted the cross-motion
for summary judgment of the Secretary, and dismissed the
action. Because we agree with the district court that the
Secretary's application of regulations was reasonable and the
Secretary's decision was supported by the record, we affirm
the grant of summary judgment in favor of the Secretary.
I. Background
A. Statutory and Regulatory Background
This case involves proper calculation of a hospital's compen-
sation or reimbursement under Part A of Medicare, the
federally funded and administered health insurance program
for the eligible elderly and disabled established by title XVIII
of the Social Security Act and codified as amended at 42
U.S.C. ss 1395-1395i-s (1994 & Supp. 1999). The program
can make direct payment to providers of inpatient hospital
services, 42 U.S.C. s 1395d(a)(1), including psychiatric hospi-
tals. Id. s 1395d(c). The statute describes hospitals eligible
to participate, including psychiatric hospitals, 42 U.S.C.
s 1395x(e)-(f), and permits a "distinct part" of an institution
to qualify as a psychiatric hospital. Id. s 1395x(f). The
statute also defines, and limits payment to, "reasonable
costs." 42 U.S.C. ss 1395x(v), 1395f(b)(1). The statutory
distinction between a generic hospital ("general hospital"
hereinafter) and a psychiatric or other special purpose hospi-
tal is material to the controversy before us because Congress
has chosen different means to attempt to limit the rise in
"reasonable costs" allowed for general hospitals than for
specialty hospitals.
Congress enacted a limitation on the extent to which Medi-
care Part A hospital insurance could recognize an increase in
a hospital's otherwise "reasonable costs" in the Tax Equity
and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248,
s 101(a)(1) (codified at 42 U.S.C. s 1395ww(b)(1994 & Supp.
1999)) ("TEFRA"). This approach allowed a percentage in-
crease in reasonable costs each year. The percentage was
specified in the statute; the base of costs to which the
percentage applied, or "target amount," was a hospital-
specific figure equal, for the hospital's first cost year under
the statute, to its actual operating costs in the preceding cost
year. Each year thereafter, the target amount for that
hospital increased from its base year target amount by the
percentage specified in the statute, even if the hospital's
actual cost experience differed. The target amount used in
the statutory formula for a particular hospital for a particular
subsequent year, in effect, was simply the product of that
hospital's base year costs and the cumulative statutory per-
centages. The next year, Congress partially replaced the
TEFRA limitation with a "prospective payment system"
(PPS) applicable to general hospitals but not to psychiatric
hospitals, distinct part psychiatric units, and other specialty
hospitals and distinct part units. See 42 U.S.C.
s 1395ww(d)(1)(A)-(B).
Congress directed the Secretary to provide exemption from
the TEFRA limit for events beyond a hospital's control, and
authorized such other relief from the TEFRA limit as the
Secretary deemed appropriate. 42 U.S.C. s 1395ww(b)(4)(A).
Pursuant to that discretionary authority, the Secretary pro-
mulgated the predecessor to 42 C.F.R s 413.40 in 1982 and
subsequently amended relevant portions of those regulations.
The present controversy relates to these regulations and
amendments as in effect for 1989-1990.
The Secretary's regulations provided a short term exemp-
tion for a "new hospital," which the regulations defined at the
pertinent time as
a provider of inpatient hospital services that has operat-
ed as the type of hospital for which HCFA granted it
approval to participate in the Medicare program * * *
for less than three full years.
42 C.F.R. s 413.40(f)(1)(i)(1989). ("HCFA" stands for Health
Care Financing Administration, an agency under the Secre-
tary. In the context of this opinion, distinctions between the
Secretary and HCFA are immaterial and not observed.) The
regulation tethered this paragraph (f) exemption period to
admission of the hospital's first patient. Id. Paragraph (b)
of the same regulation provided that the base year of a
hospital or a distinct unit continued in effect "unless the
hospital * * * qualifies as a new hospital." 42 C.F.R.
s 413.40(b)(1)(1989) (rebase provision).
In 1992, the Secretary amended these paragraph (f) exemp-
tion and paragraph (b) rebase provisions. Changes to the
Hospital Inpatient Prospective Payment Systems, 57 Fed.
Reg. 39746 (Sept. 1, 1992). The paragraph (f) new hospital
exemption provision was changed by shortening the three-
year period and, more relevant to this controversy, by adding
a second, "has provided" criterion to the existing "has operat-
ed" criterion:
For purposes of this section, a new hospital is a
provider of hospital inpatient services that--
(A) Has operated as the type of hospital for which
HCFA granted it approval to participate in the Medicare
program, under present or previous ownership (or both),
for less than 2 full years; and
(B) Has provided the type of hospital inpatient ser-
vices for which HCFA granted it approval to participate
in the Medicare program, for less than 2 years.
42 C.F.R. s 413.40(f)(1992). The amendment also added the
following sentence to the existing rebase provision:
When the operational structure of a hospital or distinct
unit changes (that is, a freestanding hospital becomes a
distinct part unit or vice versa) the base period would be
the first full 12-month cost reporting period effective
with the revised Medicare certification classification.
42 C.F.R. s 413.40(b)(1) (1992). With subsequent minor
changes in wording and format not material to this dispute,
these provisions persist to the present. See 42 C.F.R.
s 413.40 (2001).
B. Factual Background
Plaintiff P.I.A. Michigan City, Inc., formerly known as
Kingwood Hospital, of Michigan City, Indiana ("Kingwood"
hereinafter), was an existing hospital that began participating
in Medicare in 1968 as a general, short-term acute care
hospital of 89 beds. By 1984, Kingwood converted 36 of its 89
beds to psychiatric use and Medicare certified Kingwood as a
general acute-care hospital (subject to PPS payment regula-
tion) with a distinct part psychiatric unit (subject to TEFRA
limit payment regulation). By September 1985, Kingwood
had expanded its psychiatric unit to 58 of its 89 beds. By
May 31, 1989, Kingwood's psychiatric unit engulfed the gen-
eral-hospital remainder of its 89 beds. Medicare recognized
Kingwood as a free-standing psychiatric hospital effective
June 1, 1989.
Accordingly, when the Secretary applied Kingwood's 1984
base-year TEFRA limit to its 1989-90 cost year to deny
Kingwood full recovery of its costs, Kingwood applied timely
for recognition of exempt "new hospital" status under para-
graph (f) of 42 C.F.R. s 413.40, or at least a change in its
TEFRA limit base year from 1984 to 1989-90 under
s 413.40(b). The Provider Reimbursement Review Board
rejected both requests. See 42 U.S.C. s 1395oo(a); Hearing
Decision, Kingwood Hospital, No. 93-0054 (Provider Reim-
bursement Rev. Bd. Aug. 7, 1998), reprinted in Medicare &
Medicaid Guide (CCH) p 80,046 ("Board Decision" hereafter).
As the Secretary declined to review the matter further,
Kingwood's recourse was to the courts. 42 U.S.C.
s 1395oo(f).
Kingwood filed a civil action in the district court seeking
recognition of exempt new hospital status or alternatively a
new base year. Both Kingwood and the Secretary moved for
summary judgment. The district court denied Kingwood's
motion, granted the Secretary's, and dismissed Kingwood's
complaint. Order, P.I.A. Michigan City, Inc. v. Shalala, No.
98-2386 (D.D.C. Oct. 27, 2000). The district court held that
the Secretary's interpretations of the applicable regulations
were reasonable and her decisions supported by substantial
evidence.
II. Analysis
Plaintiff's appeal presents the same alternative issues as
were before the Secretary and the district court: First,
whether Kingwood was entitled to a new TEFRA base cost
reporting period beginning June 1, 1989 under 42 C.F.R.
s 413.40(b)(1) as in effect June 1, 1989, taking into account
any retroactive amendments thereto, if any, and evidence of
the Secretary's interpretation thereof. Alternatively, wheth-
er Kingwood was entitled to a new-hospital exemption as of
June 1, 1989 under 42 C.F.R. s 413.40(f)(1) as in effect June
1, 1989.
The standards for our review are well known. We review
the district court's application of law de novo. As did the
district court, we review the Secretary's interpretation and
application of her regulations for reasonableness and the
Secretary's findings for substantial support in the record.
See, e.g., Allentown Mack Sales & Service, Inc. v. NLRB, 522
U.S. 359, 377 (1998).
A. New Base Period
Kingwood argues that it is entitled to a more or less
automatic change of its base period, under authority of
s 413.40(b), from calendar year 1984 to the fiscal year June 1,
1989 through May 31, 1990 by reason of operational changes
that led to its June 1, 1989 change in Medicare certification
from a general hospital (subject to PPS) with a distinct-part
psychiatric unit (subject to TEFRA) to an exclusively psychi-
atric, all-TEFRA hospital. According to Kingwood, granting
such a change of base year following such a change in
operations and certification was the then-existing policy of the
Secretary, as evidenced, first, by the Secretary's 1992 amend-
ment to "clarify" paragraph (b)(1), see 57 Fed. Reg. 23618,
23660 (June 4, 1992), by adding the language quoted in Part
I.A, supra, and second, by the Secretary's slightly earlier
May 1992 letter decision allegedly granting just such a new
base year to Dallas Rehabilitation Institute ("DRI").
The Review Board rejected Kingwood's argument. The
Review Board began by searching the then-applicable regula-
tions for language that supported an automatic change in
base year, but it found none in effect for a cost year begin-
ning when Kingwood's did. That decision evidences a reason-
able interpretation by the Board, because the language of
paragraph (b) as it existed in 1989, prior to the 1992 and later
revisions, appears to refer only to change of base year in
paragraph (f) "new hospital" circumstances. (Kingwood, of
course, seeks that paragraph (f) exemption as well, but as-
serts in this argument that it has a right to paragraph (b)
relief as of 1989 independently of whether it obtains para-
graph (f) relief.) Nor does Kingwood appear fundamentally
to disagree with the Review Board's conclusion on this partic-
ular point, as Kingwood's counsel conceded at oral argument
that Kingwood did not rely on the plain language of the pre-
1992 text.
The Review Board did note, further, that the Secretary had
added a provision relating to changing base years in para-
graph (j), 42 C.F.R. s 431.40(j) (now paragraph (i)), but that
provision became effective too late to benefit Kingwood, a
point Kingwood concedes. The Review Board noted, finally,
Kingwood's argument that the 1992 amendment to paragraph
(b) was intended to "clarify" the existing paragraph (b). The
preamble language upon which Kingwood relies states:
Therefore, to preclude hospitals from qualifying for a
new hospital exemption based solely on such operational
reorganizations, we are proposing to revise s 413.40(f) to
specify that a hospital will qualify as a new hospital only
if it has not previously provided the type of hospital
inpatient services for which HCFA granted it approval to
participate in the Medicare program.
However, we also recognize that it would not be appro-
priate to subject these types of hospitals or distinct-part
units to the [TEFRA Limit] that applied before the
hospital's reorganization. Therefore, when the opera-
tional structure of hospital or distinct unit changes (that
is, a freestanding rehabilitation hospital becomes a dis-
tinct part or vice versa), we are proposing to revise
s 413.40(b)(1) to clarify that the base period would be
the first full 12-month period effective with the revised
Medicare certification.
57 Fed. Reg. at 23,660 (emphasis supplied by Kingwood).
Kingwood argues that the Secretary's styling of the new
language as "clarification" must mean that the effect of the
amended regulation is the same as the prior language, and
that therefore, the pre-amendment language, applicable to
Kingwood, must reach the same result as would prevail after
the amendment. The Review Board rejected that retroactivi-
ty argument on the grounds that the same preamble express-
ly provided that the regulations proposed had an effective
date of October 1992. Accordingly, the Review Board dis-
missed Kingwood's view that the single use of the word
"clarify" in the regulation preamble mandated retroactive
application of that portion of the regulation, notwithstanding
the effective date clause. This final conclusion is not unrea-
sonable, particularly as the usage cited by Kingwood is in the
context of an integrated six-paragraph discussion of the rea-
sons for the third proposed change to the new hospital
exemption regulations, which Kingwood expressly argues is
not retroactive. See generally 57 Fed. Reg. at 23,659-60.
Finally, the Review Board observed that Kingwood was not
entirely without relief under the then-effective regulations
because the 1989 version of paragraph (h), 42 C.F.R.
s 413.40(h)(1989) (codified as revised at 42 C.F.R.
s 413.40(g)(2001)), provided a mechanism for adjustment to
cost period data, including data in the base year itself, and
that in fact Kingwood had received some relief under that
provision. Yet again the Review Board's interpretation of the
regulations is reasonable.
Unfortunately, the Review Board does not directly address
the DRI letter decision in this analysis. The Review Board
did discuss that letter as the last item in the immediately
preceding section of its opinion, but only in discussing the
paragraph (f)(1) exemption. The DRI letter decision in ques-
tion is a three-paragraph response to an equally short inquiry
by DRI's financial intermediary as to whether DRI might be
eligible for a new base period because of its June 1, 1989
change in certification from an exclusively rehabilitation spe-
cialty hospital to a general short-term hospital with a distinct
part rehabilitation unit. (A rehabilitation hospital or unit is
subject to TEFRA limits, but a general short-term hospital is
subject to the PPS regime.) The Director of the Office of
Payment Policy, a sub-subdivision of HCFA, replied that it
"would not be appropriate" to continue use of the TEFRA
base period formerly established for the free-standing reha-
bilitation hospital for the rehabilitation unit because of an
unspecified change in "methodology in determining Medi-
care's share of the costs of the different levels of patient care
services," and authorized a base period of June 1, 1989 to
May 31, 1990. Letter from Charles R. Booth, Director, Office
of Payment Policy, Health Care Financing Administration to
Gene Brock, Senior Audit/Reimbursement Representative,
Medicare Administration, Aetna Life Insurance Co. (May
1992), Administrative Record at 110. The short letter says
little else.
As noted above, the Review Board did not deal with this
letter at all in the portion of its opinion discussing this
paragraph (b) issue. The Board's entire treatment of the
DRI letter in the last two sentences of the preceding section,
dismissing Kingwood's request for a paragraph (f) new hospi-
tal exemption, is curt and cryptic. The Board disregards the
letter because "the facts in the Texas case can be distin-
guished from the facts in the current issue." Board Decision
at 14. At oral argument, neither counsel for Kingwood or for
the Secretary was able to provide content for this statement
with support in the record, and we have found none in the
record.
However, although it is incumbent on an agency to explain
itself, it is also incumbent on an appellant complaining of
inconsistency and capriciousness in the agency's explanation
of its treatment to bring before the reviewing court sufficient
particulars of how the appellant was situated, how the alleg-
edly favored party was situated, and how such similarities as
may exist dictate similar treatment and how such dissimilari-
ties as may exist are irrelevant or outweighed. Kingwood on
the sparse record before us "has failed to establish convincing
inconsistencies between [the Secretary's] treatment of [King-
wood] and other facilities." Lomak Petroleum, Inc. v. Feder-
al Energy Regulatory Commission, 206 F.3d 1193, 1198 (D.C.
Cir. 2000). The DRI letter does not come close to filling this
gap. The burden of proof lays the consequences on King-
wood. See id. In these circumstances, the treatment of the
DRI letter is not a fatal flaw in the Review Board's otherwise
adequate rejection of Kingwood's arguments on this issue.
B. New Hospital Exemption
We now turn to Kingwood's alternative argument, that, if
not entitled to a new base period, it must certainly be entitled
to a new-hospital exemption. As noted earlier, a new hospital
is one "that has operated as the type of hospital for which
HCFA granted it approval to participate in the Medicare
program * * * for less than three full years." 42 C.F.R.
s 413.40(f)(1)(i) (1989). Kingwood argues that, by this lan-
guage, the Secretary adopted a bright line test based on the
date of HCFA approval. In Kingwood's view, the regulation
is clear that an institution can not have operated as a psychi-
atric hospital until Medicare had recognized it as such. King-
wood supports this position by drawing to our attention the
additional operational standards for records and staff that
Medicare requires for its recognition, not just as a hospital,
but as a psychiatric hospital. 42 U.S.C. s 1395x(f)(3)-(4), 42
C.F.R. ss 482.60-482.62. Kingwood also relies upon the
preamble to the original exemption from 1982 in which the
Secretary offered as a reason for the exemption that new
hospitals "commonly have unusually high operating costs per
case in the first year of operation." 47 Fed. Reg. at 43,282,
43,288 (Sept. 30, 1982). Kingwood argues that an institution
like itself which changes its nature incurs costs in meeting the
additional requirements occasioned by the change so as to
come within the Secretary's rationale of increased operating
costs expressed in that preamble. Thus, Kingwood concludes
that the Secretary's concern supports a bright-line test based
on date of certification.
The Review Board did not accept this bright line test and
peremptorily rejected exemption based on "recertification and
licensure change in and of itself." Board Decision at 14. The
critical facts for the Review Board were instead that King-
wood "was primarily operating as a provider of psychiatric
services for over five years prior to its recertification as a free
standing psychiatric hospital" and "had used a majority of its
beds (eighty-nine percent) for psychiatric services during the
three years preceding its recertification on June 1, 1989." Id.
The Review Board cited substantial record evidence for these
findings, which Kingwood does not challenge. The only ques-
tion is the legal relevance of these findings.
We hold that the Review Board's interpretation is reason-
able and entitled to deference. Kingwood claims that its
bright-line reading of the regulation is "compell[ing]" and
therefore bars deference, citing Thomas Jefferson University
v. Shalala, 512 U.S. 504, 512 (1994). We do not agree.
Kingwood reminds us that neither the Review Board nor this
Court may focus on the phrase "has operated" and ignore the
balance of the regulatory sentence. Cf. Lexecon Inc. v.
Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 35-36
(1998) (courts must construe a statute as a whole). Kingwood
emphasizes that the regulation refers to a "new hospital" as
"hav[ing] operated as the type of hospital for which HCFA
granted it approval" for the requisite period. 42 C.F.R.
s 413.40(f). Unquestionably, the "for which" phrase King-
wood emphasizes modifies the "type of hospital" phrase, and
must be given effect. But the Review Board appears to have
given it effect when it determined that Kingwood had been
"primarily operating as a provider of psychiatric services."
Board Decision at 14 (emphasis added). The Review Board
clearly first determined that "psychiatric hospital" is the
"type of hospital for which HCFA granted [Kingwood] ap-
proval to participate in the Medicare program" and then
inquired whether Kingwood had operated as such for less
than three full years. 42 C.F.R. s 413.40(f)(1)(i) (1989). The
interpretation of the regulation embodied in that inquiry
takes into account the entire regulation.
Kingwood's contrary position that the entire regulatory
sentence must be read to refer not simply to a period of
operation as a psychiatric hospital, but to a period of opera-
tion as a HCFA-approved psychiatric hospital is not com-
pelled by the language of the regulation. See Thomas Jeffer-
son University, 512 U.S. at 512. In fact, Kingwood's bright-
line interpretation arguably is the less reasonable reading
because it effectively reads the verb "operated" out of the
sentence. Kingwood might have had the necessarily "com-
pell[ing]" reading if the Secretary had, in 1982, defined a new
hospital as one that had been "certified as the type of hospital
for which HCFA granted it approval to participate in the
Medicare program for less than three years," but the verb the
Secretary chose was operated, not certified or approved. A
hospital can operate as a psychiatric hospital, that is, provide
psychiatric services, without Medicare approval. No hospital
is required, at least by Medicare itself, to meet Medicare
criteria as such if the hospital does not seek payment from
Medicare, see 42 U.S.C. ss 1395f(a), 1395cc(b)(2)(B) (incorpo-
rating section 1395x definitions), 1395cc(i), and we are not
aware of any other law or regulation, state or federal, that
requires a facility to have Medicare approval solely as a
requirement for providing psychiatric services to patients.
Indeed, quite the contrary. 42 U.S.C. s 1395. A hospital
could be licensed by its state to offer psychiatric services
primarily or exclusively without seeking Medicare certifica-
tion, and still be a psychiatric hospital.
Kingwood assumes that the term psychiatric hospital is a
term of Medicare art that necessarily entails satisfaction of all
the Medicare criteria, so that there is no meaningful distinc-
tion in this statutory and regulatory environment between the
terms psychiatric hospital and HCFA-approved psychiatric
hospital, making psychiatric hospital necessarily imply
HCFA approval. See 42 U.S.C. s 1395x(f) (defining psychiat-
ric hospital). Fundamentally, this is the same argument
raised in Memorial Rehabilitation Hospital of Santa Bar-
bara v. Secretary of Health and Human Services, 65 F.3d
134, 137 & n.3 (9th Cir. 1995), with respect to the expression
type of provider in an earlier version of this regulation.
There, the institution claiming a new-hospital exemption was
a rehabilitation hospital that had, under prior ownership,
been only a distinct-part unit of another hospital and thus did
not meet the statutory definition of provider, including the
statutory definition of a hospital as a separately licensed
entity. Thus, argued the institution, the Secretary was bound
by these definitions and the institution clearly was a new
provider because it never previously had met the definition of
provider at all. The court rejected that argument on the
grounds that the Secretary's interpretation need only be
reasonable in light of the wording and purpose of the regula-
tion, and the Secretary's generic interpretation of provider
satisfied that test because the plaintiff's predecessor had
offered and been certified for the same services. See id.
For substantially the same reasons, the Secretary's implicit
interpretation, that the regulation in its 1989 form does not
use the term hospital in the phrase type of hospital in the
technical sense of the statutory definition, is reasonable. The
essential fact distinguishing the Medicare definition of a
psychiatric hospital from any other type of hospital is the
type of services the institution primarily provides. The stat-
ute defines "hospital" for relevant purposes as an institution
which
(1) is primarily engaged in providing, by or under the
supervision of physicians, to inpatients (A) diagnostic
services and therapeutic services for medical diagnosis,
treatment, and care of injured, disabled, or sick persons,
or (B) rehabilitation services for the rehabilitation of
injured, disabled, or sick persons;
(2) maintains clinical records on all patients;
(3) has bylaws in effect with respect to its staff of
physicians;
(4) has a requirement that every patient with respect
to whom payment may be made under this subchapter
must be under the care of a physician;
(5) provides 24-hour nursing service rendered or su-
pervised by a registered professional nurse, and has a
licensed practical nurse or registered professional nurse
on duty at all times; except that until January 1, 1979,
the Secretary is authorized to waive the requirement of
this paragraph for any one-year period with respect to
any institution, insofar as such requirement relates to the
provision of twenty-four-hour nursing service rendered
or supervised by a registered professional nurse (except
that in any event a registered professional nurse must be
present on the premises to render or supervise the
nursing service provided, during at least the regular
daytime shift), where immediately preceding such one-
year period he finds that--....
42 U.S.C. s 1395x(e)(1). The same statute defines "psychiat-
ric hospital" as
an institution which--
(1) is primarily engaged in providing, by or under the
supervision of a physician, psychiatric services for the
diagnosis and treatment of mentally ill persons;
(2) satisfies the requirements of paragraphs (3)
through (9) of subsection (e) of this section;
(3) maintains clinical records on all patients and main-
tains such records as the Secretary finds to be necessary
to determine the degree and intensity of the treatment
provided to individuals entitled to hospital insurance
benefits under part A of this subchapter; and
(4) meets such staffing requirements as the Secretary
finds necessary for the institution to carry out an active
program of treatment for individuals who are furnished
services in the institution.
42 U.S.C. s 1395x(f)(1). Other than the difference in services
provided, the only differences in definitions address require-
ments of clinical records and staffing, which do not go to the
type of provider in the direct manner that the nature of
services provided does. Accordingly, as did the Ninth Cir-
cuit, we hold that the "type for which" phrase in the regula-
tion does not compel technical Medicare usage rather than
customary, everyday usage.
Kingwood has relied on not just the plain language of the
1989 regulation, but the light shed on that language by both
the 1992 amendment of the regulation and the accompanying
preamble. Kingwood points to language in the preamble to
the 1992 Proposed Rule that characterizes this addition as a
substantive change intended to prevent results that had oc-
curred under the 1989 regulations. See Proposed Rule,
Changes to the Hospital Inpatient Prospective Payment Sys-
tems, 57 Fed. Reg. at 23,618, 23,659-60 (June 4, 1992). In
particular, Kingwood relies on the concluding six-paragraph
passage at the end of the preamble discussion of changes to
the new hospital, which states, in relevant part:
Our third proposed change in the new hospital exemp-
tion concerns the issue of whether a participating facility
that reorganizes and/or changes the basis of its partic-
ipation in the Medicare program is a new hospital....
Under our current regulations, [a described distinct part
unit that became a stand alone] rehabilitation hospital
would meet the criteria for a new hospital and, thus,
could qualify for a new hospital exemption.
Another example involved a rehabilitation hospital that
added an acute care distinct-part unit [that eventually
became the hospital, with the former rehabilitation hospi-
tal a distinct-part unit thereof]. Again, under the cur-
rent regulations, the distinct-part unit would qualify for
an exemption because the hospital technically meets the
criteria for a new hospital.
In both examples, the former distinct-part units quali-
fied for a new hospital exemption because they were in
existence for less than 3 years as the type of hospital for
which they were approved to participate in the Medicare
program. However, in a broader sense, these hospitals
were not new.... Therefore, to preclude hospitals from
qualifying for a new hospital exemption based solely on
such operational reorganizations, we are proposing to
revise s 413.40(f)....
...
We note that the proposed change would mean that
the new hospital exemption would not apply to hospitals
that change the basis of their certification but do not
experience a significant change in organizational struc-
ture or in the type of services provided.... Under
current policy, the exemption as a new hospital would
begin with the first date ... for which the hospital is
certified as a [PPS-exempt hospital after having been
under PPS]. Under the revised policy, the exemption
would begin [when the hospital began offering relevant
services], whether or not the certification is effective for
that period.
... The proposed policy would be effective for Medi-
care certifications occurring on or after October 1, 1992.
Id.
This preamble language, Kingwood submits, is more than
simply a retrospective interpretation of the prior regulation,
as another provider argued (unsuccessfully) in SSM Rehabili-
tation Institute v. Shalala, 68 F.3d 266, 270 (8th Cir. 1995),
but the very reason given by the Secretary for the need to
change that regulation by amendment to end the conse-
quences of that interpretation. Thus the weight accorded the
1992 preamble should not be the slight weight accorded a
mere after-the-fact commentary, but instead the full weight
due the Secretary's contemporaneous interpretation of his
1992 amendment as necessary to bar future exemptions simi-
lar to some actually obtained under the pre-amendment lan-
guage.
The difficulty we have in accepting this argument is that
Kingwood has not in fact established that it is situated
similarly to the unidentified entities discussed in the 1992
preamble. It is true that Kingwood's psychiatric services
were formerly a distinct-part unit of the hospital, cf. 57 Fed.
Reg. at 23,659, but the present Kingwood hospital is not one
that "eventually split off" from its parent hospital, as did the
unnamed institution described in the preamble. In fact, that
language in the preamble more accurately describes the facts
in Memorial Rehabilitation Hospital than the facts here, and
that was a case in which the Secretary clearly did not grant
the exemption. 65 F.3d at 135-36, 139. Likewise, the
preamble refers to an acute care hospital that added a
distinct part rehabilitation unit that eventually expanded to
become the hospital, with the former hospital now a subordi-
nated acute-care unit. See 57 Fed. Reg. at 23,659. Again,
this does not precisely describe Kingwood's circumstances.
Finally, we note the absence of meaningful time references in
either of the Secretary's two preamble descriptions, or quan-
tified comparisons of the proportion of all services provided
by the hospitals and distinct part units, whereas the Review
Board made unchallenged findings that Kingwood had been
engaged "primarily" in providing psychiatric services for
more than three years prior to its HCFA approval as an
exclusively psychiatric hospital. As there is no basis for
comparison of Kingwood's situation with the anonymous,
stick-figure entities sketched in the 1992 regulation preamble,
and as the burden of fleshing out the alleged inconsistencies
of treatment falls on Kingwood, Lomak Petroleum, 206 F.3d
at 1198, Kingwood gains no ground from its reliance on the
1992 preamble. To the extent that the 1992 preamble may
have characterized the new regulation as a change in policy
that would be relevant to Kingwood and those similarly
situated, that characterization is outweighed by earlier and
more specific indications of the Secretary's intent. See SSM
Rehabilitation, 68 F.3d at 270.
Extending its argument based on the 1992 amendment,
Kingwood insists that the Review Board improperly applied
the 1992 amendment itself to Kingwood retroactively. King-
wood was certified as a psychiatric hospital in 1989, and by its
terms the 1992 amendment applies only to "Medicare certifi-
cations occurring on or after October 1, 1992." 57 Fed. Reg.
at 23,660. The 1992 amendment added to the existing re-
quirement that the provider must have "operated as the type
of hospital for which HCFA granted it approval to participate
in the Medicare program" for less than a specified period a
new, second requirement that the provider have "provided
the type of hospital inpatient services for which HCFA
granted it approval ... for less than two years." 42 C.F.R.
s 413.40(f)(1992) (emphasis added). Kingwood asserts that
the Review Board disqualified Kingwood simply because
Kingwood had provided psychiatric services for some time,
thereby applying, before its 1992 effective date, the new "type
of services" element of the 1992 test. Kingwood is mistaken
in its premise that the new element is necessary to explain
the Review Board's decision. It is true that the new "type of
services" element does not specify the level of services the
hospital must have offered for more than two years in order
to bar it from exemption, and that that bar could be set quite
low. In the case before us, however, the Review Board's
decision was not based simply on the fact that Kingwood had
previously provided psychiatric services. Instead, the Review
Board's decision was based on well-supported factual determi-
nations that Kingwood had been "primarily operating" as a
provider of psychiatric services and not "primarily providing
acute care inpatient services" during the look-back period.
This emphasis on Kingwood's "primary" level of activity
clearly relates to the pre-1992 "type of hospital" test and the
statutory definition of a psychiatric hospital. See Board
Decision at 14; cf. 42 U.S.C. s 1395x(e)(1), (f)(1). According-
ly, the second test, in which any level of services might be
disqualifying, clearly was not applied by the Review Board to
Kingwood, retroactively or otherwise, and this argument fails
as well.
III. Conclusion
The district court made no error in determining that the
decision of the Review Board, as the decision of the Secre-
tary, satisfied the standards of 5 U.S.C. s 706. The Secre-
tary has articulated reasonable interpretations of 42 C.F.R.
ss 413.40(b) and (f) as in effect at the relevant time, and
Kingwood Hospital has failed to establish a compelling alter-
native interpretation. The judgment of the district court is
affirmed.