Maine Medical Center v. Burwell

United States Court of Appeals
For the First Circuit

No. 15-2408

MAINE MEDICAL CENTER ET AL.,

Plaintiffs, Appellees,

v.

SYLVIA M. BURWELL, SECRETARY,
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES,

Defendant, Appellant.

____________________

No. 15-2483

MAINE MEDICAL CENTER ET AL.,

Plaintiffs, Appellants,

v.

SYLVIA M. BURWELL, SECRETARY,
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES,

Defendant, Appellee.

APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE

[Hon. Nancy Torresen, U.S. District Judge]
[Hon. John H. Rich, III, U.S. Magistrate Judge]

Before

Howard, Chief Judge,
Selya and Kayatta, Circuit Judges.
 Stephanie R. Marcus, Attorney, Appellate Staff, Civil
Division, United States Department of Justice, with whom Benjamin
C. Mizer, Principal Deputy Assistant Attorney General, Civil
Division, Thomas E. Delahanty, II, United States Attorney, Andrew
K. Lizotte, Assistant United States Attorney, and Mark B. Stern,
Attorney, Appellate Staff, Civil Division, were on brief, for
defendant.
William H. Stiles, with whom Nora Lawrence Schmitt and Verrill
Dana, LLP were on brief, for plaintiffs.

October 27, 2016
 SELYA, Circuit Judge. The system through which the

federal government reimburses hospitals for charity care is among

the most arcane known to man. A central feature of this system is

a provision through which hospitals receive so-called

disproportionate share payments (DSH payments). See 42 U.S.C.

§ 1395ww(d)(5)(F)(i)(I). These appeals involve a dispute between

the Secretary of Health and Human Services (the Secretary) and a

group of eight Maine hospitals1 about DSH payments for fiscal years

dating as far back as 1993.

After first clearing a jurisdictional hurdle, we hold

that the Secretary properly reopened the disputed years and

adequately demonstrated that the Hospitals had received

substantial overpayments of DSH funds. We further hold that the

myriad defenses to repayment asserted by the Hospitals lack force.

Accordingly, we reverse in part and affirm in part.

I. BACKGROUND

Putting these appeals in perspective requires a journey

into the "often surreal" Medicare reimbursement regime. See S.

Shore Hosp., Inc. v. Thompson, 308 F.3d 91, 94 (1st Cir. 2002).

Medicare has a noble purpose: it assists elderly and disabled

1
The eight hospitals (collectively, the Hospitals) are Maine
Medical Center, Central Maine Medical Center, Mid Coast Hospital,
Eastern Maine Medical Center, Mercy Hospital, Northern Maine
Medical Center, Southern Maine Medical Center, and Maine General
Medical Center.

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individuals in accessing health care. See 42 U.S.C. §§ 1395-

1395lll. This regime is administered by the Secretary through the

Centers for Medicare and Medicaid Services (CMS), which contracts

with fiscal intermediaries — often private health insurance

companies — to act as go-betweens for Medicare providers and CMS.

See 42 C.F.R. § 421.100.2

Initially, the federal government reimbursed hospitals

for the "reasonable cost" of treating Medicare patients. See,

e.g., R.I. Hosp. v. Leavitt, 548 F.3d 29, 39 (1st Cir. 2008). In

1983, however, Congress amended the program to incorporate a

prospective payment system through which hospitals are reimbursed

predetermined amounts for certain services. See 42 U.S.C.

§ 1395ww(d); R.I. Hosp., 548 F.3d at 39-40. Congress was

concerned, though, that the new payment system might disadvantage

hospitals that served disproportionate numbers of low-income

patients, so it created the DSH payment system to address this

concern. See 42 U.S.C. § 1395ww(d)(5)(F)(i)(I); H.R. Rep. No. 98-

861, at 1356 (1984) (Conf. Rep.), as reprinted in 1984 U.S.C.C.A.N.

1445, 2044; S. Rep. No. 98-23, at 54 (1983), as reprinted in 1983

U.S.C.C.A.N. 143, 194.

2
Unless otherwise indicated, we refer throughout to the
version of the regulations in effect in 2003 (when the notices of
reopening that undergird these appeals were issued).

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 The DSH payment protocol works this way. Hospitals that

serve a "significantly disproportionate number of low-income

patients" are known as disproportionate share hospitals (DSH

hospitals). 42 U.S.C. § 1395ww(d)(5)(F)(i)(I); see Catholic

Health Initiatives Iowa Corp. v. Sebelius, 718 F.3d 914, 916 (D.C.

Cir. 2013). Those hospitals receive additional payments — known

as DSH payments or DSH adjustments — from the government. See

Catholic Health Initiatives, 718 F.3d at 916. Both a hospital's

eligibility for DSH payments and the amount of any such payment

depend in large part on the hospital's disproportionate patient

percentage (DPP). See 42 U.S.C. § 1395ww(d)(5)(F)(vi). Generally

speaking, the more low-income patients a hospital serves, the

higher its DPP and, thus, the higher its annual DSH payment. See

Catholic Health Initiatives, 718 F.3d at 916; Metro. Hosp. v. HHS,

712 F.3d 248, 251 (6th Cir. 2013). Nevertheless, this figure does

not correlate directly with "the actual percentage of low-income

patients served; rather, it is an indirect, proxy measure for low

income." Catholic Health Initiatives, 718 F.3d at 916.

To receive Medicare payments (including DSH

adjustments), a Medicare provider submits cost reports to an

intermediary at the end of each fiscal year. The intermediary

thereafter issues a notice of program reimbursement (NPR)

specifying the amount the provider is owed in reimbursements and

adjustments. See 42 C.F.R. §§ 405.1801(b)(1), 413.24(f), 421.100;

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see also MaineGen. Med. Ctr. v. Shalala, 205 F.3d 493, 494, 496

(1st Cir. 2000). The intermediary may reopen a cost report within

three years after issuing the NPR and, if necessary, issue a

revised NPR. See 42 C.F.R. § 405.1885(a)-(b). A provider may

appeal an intermediary's decision to the Provider Reimbursement

Review Board (the Board). See 42 U.S.C. § 1395oo(a)(1)(A)(i).

The Secretary has the option of reviewing Board decisions, and the

agency's final decision is subject to judicial review. See id.

§ 1395oo(f)(1).

In the case at hand, the Secretary maintains that the

Hospitals were overinclusive in their DSH payment calculations

because they included patient days for patients entitled to both

Medicare Part A and Medicaid but not supplemental security income

(SSI), known as non-SSI type 6 days. The inclusion of these days

dates back to at least 1997, when one of the plaintiffs (Central

Maine Medical Center) settled an administrative cost report

appeal. The settlement required the intermediary to include non-

SSI type 6 days in its DSH payment calculations. Following this

settlement and similar agreements between the intermediary and

other hospitals in the late 1990s, the intermediary began telling

all Maine hospitals to include such days in their cost reports.

In 2003, the intermediary changed its tune and reopened

numerous cost reports to reassess DSH payments. After several

meetings between the Hospitals, the intermediary, and CMS, CMS

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remained unconvinced that non-SSI type 6 days should be included

in the DSH payment calculation. Accordingly, the intermediary

recouped from the Hospitals approximately $22 million in alleged

overpayments.

The Hospitals did not go quietly into this bleak night:

they challenged the intermediary's action before the Board. Their

challenge bore fruit. The Board, finding many of the notices of

reopening to be ineffectual, ordered the intermediary to restore

approximately $17 million to the Hospitals.

The Hospitals' victory was short-lived. The Secretary

elected to review the Board's decision and reversed. Displeased,

the Hospitals sought judicial review. See 42 U.S.C.

§ 1395oo(f)(1). Following cross-motions for judgment on the

administrative record, the district court3 held that some notices

of reopening were fatally flawed and that settlement agreements

barred the intermediary from reopening certain cost reports.

Neither side was completely satisfied with the district court's

ruling, and these cross-appeals ensued.

II. JURISDICTION

At the outset, a jurisdictional question looms. The

parties jointly assure us that we have jurisdiction under 28 U.S.C.

3For ease in exposition, we do not distinguish between the
district judge and the magistrate judge but, rather, take an
institutional view and refer throughout to the district court.

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§ 1291, which permits us to review "appeals from all final

decisions of the district courts." Notwithstanding their shared

assurance, we have an independent obligation to confirm our

jurisdiction to hear this dispute. See Anversa v. Partners

Healthcare Sys., Inc., ___ F.3d ___, ___ n.5 (1st Cir. 2016) [No.

15-1897, slip op. at 15 n.5].

The district court's initial decision inspires some

cause for concern: it directed the parties to inform the court

which settlement agreements purported to be "full and final

settlements of the issues raised concerning the cost reports for

the years at issue." It went on to provide that if the parties

disagreed about which settlement agreements satisfied this

standard, the court would establish a dispute-resolution

procedure. The parties could not agree on an answer to the

question the court had posed. Instead, they jointly petitioned

the court to amend its decision and leave the matter unresolved.

The court acquiesced to the parties' suggestion that it did not

need to answer the question "at this point" and simply removed the

requirement from its decision.

A related matter also may bear on the jurisdictional

issue. After the district court handed down its initial decision,

the Hospitals requested the payment of interest on the amounts due

under the court's decision. The court denied the Hospitals'

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request without prejudice because the precise amounts owed to the

Hospitals had not yet been determined.

We begin the probe into our subject-matter jurisdiction

with first principles. As a general matter, a final decision is

one "that disposes of all claims against all parties." Bos. Prop.

Exch. Transfer Co. v. Iantosca, 720 F.3d 1, 6 (1st Cir. 2013).

The decision in this case does not satisfy that general rule; it

leaves open the identification of the fiscal years to which the

decision applies, as well as the question of interest.

Here, however, the general rule does not apply because

this is not an appeal from a garden-variety civil judgment.

Rather, it is an appeal taken from the district court's review of

agency action.

This is a critically important distinction because "when

a court reviewing agency action determines that an agency made an

error of law, the court's inquiry is at an end: the case must be

remanded to the agency for further action consistent with the

corrected legal standards." County of Los Angeles v. Shalala, 192

F.3d 1005, 1011 (D.C. Cir. 1999) (quoting PPG Indus., Inc. v.

United States, 52 F.3d 363, 365 (D.C. Cir. 1995)); see Hosp. Ass'n

of R.I. v. Sec'y of HHS, 820 F.2d 533, 538 (1st Cir. 1987) (stating

that "it is the Secretary who must first apply" the applicable law

to the facts). Thus, the court below had gone as far as it could

go: even if it had intended to resolve other issues at a later

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date, it lacked any authority to do so.4 Consistent with the

limits of the district court's authority, we construe its decision

as a remand to the agency. See County of Los Angeles, 192 F.3d at

1012.

Even so, a remand order is not usually considered a final

decision. See Glob. NAPs, Inc. v. Mass. Dep't of Telecomms. &

Energy, 427 F.3d 34, 41 (1st Cir. 2005). There is an exception,

though, for cases "where the agency to which the case is remanded

seeks to appeal and it would have no opportunity to appeal after

the proceedings on remand." County of Los Angeles, 192 F.3d at

1012 (quoting Occidental Petrol. Corp. v. SEC, 873 F.2d 325, 330

(D.C. Cir. 1989)). This is such a case: the Secretary will have

to conduct further proceedings pursuant to the remand order and,

unless the Hospitals appeal the outcome of those further

proceedings, the district court's ruling will escape review. See

id.

To be sure, a district court's failure to award or

withhold interest may in some circumstances prevent its decision

4
In all events, the administrative record does not contain
all of the documentation needed to permit a determination as to
which settlement agreements were full and final settlements of the
issues raised concerning the cost reports for the years at issue.
Ideally, the agency — not the district court — should be the body
to augment the record. See Camp v. Pitts, 411 U.S. 138, 142 (1973)
(per curiam) (explaining that "the focal point for judicial review
should be the administrative record already in existence, not some
new record made initially in the reviewing court").

- 10 -
on the merits from being a final judgment. See Comm'l Union Ins.

Co. v. Seven Provinces Ins. Co., 217 F.3d 33, 37 & n.3 (1st Cir.

2000). But in this case, the district court's refusal to pass

upon the Hospitals' request for interest does not alter our

analysis. Since the district court had to remand to the agency to

determine the precise amounts due to the Hospitals, an award of

interest would have been premature. See Palisades Gen. Hosp. Inc.

v. Leavitt, 426 F.3d 400, 403 (D.C. Cir. 2005) (holding that

district court lacked authority to order specific relief because

it had jurisdiction only to vacate agency's decision, and then had

to remand).

We conclude that we have jurisdiction to hear and

determine these appeals. Consequently, we proceed to the merits.

III. STANDARDS OF REVIEW

We review the judgment of the district court de novo.

See Doe v. Leavitt, 552 F.3d 75, 78 (1st Cir. 2009). Given the

nature of the case, we — like the court below — are obliged to

apply familiar principles of administrative law. See Assoc'd

Fisheries of Me., Inc. v. Daley, 127 F.3d 104, 109 (1st Cir. 1997).

The most basic of these tenets is that a court will

disturb an agency's decision only if that decision is "arbitrary,

capricious, an abuse of discretion," "otherwise not in accordance

with law," or "unsupported by substantial evidence in the

administrative record." S. Shore Hosp., 308 F.3d at 97 (citations

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omitted). Atop this tenet lies a "further gloss." Id. When

Congress has spoken directly on a particular issue and the

traditional tools of statutory interpretation reveal that

congressional intent is clear, an inquiring court must give effect

to Congress's intent. See Chevron U.S.A., Inc. v. Nat. Res. Def.

Council, Inc., 467 U.S. 837, 842-43 & n.9 (1984). If Congress did

not directly address the issue, the question reduces to whether

the agency's view is based on a permissible construction of the

statute. See id. at 843. Particular deference is owed to the

agency's interpretation of its own regulations when Congress has

entrusted the agency with rulemaking authority. See S. Shore

Hosp., 308 F.3d at 97. That deference is most pronounced when the

issue involves "a complex and highly technical regulatory

program," such as Medicare, "in which the identification and

classification of relevant criteria necessarily require

significant expertise and entail the exercise of judgment grounded

in policy concerns." Id. (quoting Thomas Jefferson Univ. v.

Shalala, 512 U.S. 504, 512 (1994)).

IV. THE SECRETARY'S APPEAL

The Secretary claims that the district court erred both

by holding certain notices of reopening invalid and by holding

that settlement agreements barred the reopening of certain cost

reports. We put these claims in context and then explain why we

accept them.

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 A. Validity of Notices of Reopening.

We start with the validity of the notices of reopening.5

To initiate a cost report reopening, the intermediary must give a

hospital written notice. See 42 C.F.R. § 405.1887(a). At that

point, the hospital "shall be allowed a reasonable period of time

in which to present any additional evidence or argument in support

of [its] position." Id. § 405.1887(b). In this instance, the

district court ruled that certain notices of reopening were invalid

because they failed to comply with the Medicare Provider

Reimbursement Manual, CMS Pub. 15-1, Section 2932 (PRM). This

ruling illuminates a lack of congruence between the regulations

and the PRM. On the one hand, the regulations simply require

"written notice" to all parties and allowance of "a reasonable

period of time in which to present any additional evidence or

argument in support of [the party's] position." 42 C.F.R.

§ 405.1887(a)-(b). On the other hand, the PRM goes further: it

requires that the notice advise the provider "as to the

circumstances surrounding the reopening, i.e., why it was

necessary to take such action, and [notify the provider of its]

opportunity to comment, object, or submit evidence in rebuttal."

PRM § 2932(A).

5 We limit our discussion under this heading to the district
court's rationale for invalidity. The Hospitals' other arguments
for invalidity, rejected by the district court, are discussed infra
in connection with our discussion of the Hospitals' appeal.

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 Here, the written notices sent by the intermediary were

terse. They stated:

The above referenced Medicare cost report is reopened to
address the following issue:
To review and correct the disproportionate
share hospital (DSH) payment calculation in
accordance with section 1886(d)(5)(F) [of] the
Social Security Act and 42 CFR 412.106.
Please contact me at . . . if you have any questions
regarding this reopening.

The Hospitals do not seriously argue that the notices failed to

satisfy the plain language of the regulation. They do argue,

however — and the district court found — that the notices did not

satisfy the more elaborate criteria limned in the PRM: although

the notices advised the Hospitals of the circumstances surrounding

the reopening by identifying DSH payments as the relevant issue,

they failed to furnish any additional detail and did not offer the

Hospitals the opportunity to comment, object, or submit evidence

in rebuttal.

Essentially, the Secretary makes two arguments. First,

she says that the notices substantially complied with the demands

of the PRM. Second, she says that even if they did not, they

complied with the regulation — and no more was exigible.

The second of these arguments is dispositive. The

regulation itself does not require that a notice of reopening

include advice about the opportunity to present evidence and

arguments. The regulation controls: as we said in an earlier case

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discussing the PRM, the PRM is nothing more than an interpretive

guide and, as such, "interpretive guides generally do not have the

force of law."6 S. Shore Hosp., 308 F.3d at 103; accord Shalala

v. Guernsey Mem'l Hosp., 514 U.S. 87, 99 (1995) (concluding that

the PRM does not have the force and effect of law).

B. Effect of Settlement Agreements.

This brings us to the Secretary's contention that the

settlement agreements present no barrier to the cost report

reopenings in this case. This contention rests on solid ground:

the regulations make pellucid that an intermediary lacks the

authority to make payments that are not authorized by Medicare.

See 42 C.F.R. § 421.100(a)(1)(ii) (directing intermediary to

ensure "that it makes payments only for services that are

. . . [c]overed under Medicare"). We see no reason why an

intermediary would have any greater authority when entering into

6Because we agree with the Secretary that the PRM did not
bind her, we need not decide whether she substantially complied
with its notice requirements. We note, though, that the Hospitals
do not appear to have suffered any prejudice because the notices
failed to comport fully with the PRM's guidance. The Hospitals'
representatives attended numerous meetings to discuss the DSH
adjustments and took full advantage of ample opportunities to
present their side of the story. This alone suggests that the
Secretary may well have substantially complied with the notice
provisions of the PRM. See, e.g., Boateng v. InterAm. Univ., Inc.,
210 F.3d 56, 61 (1st Cir. 2000) (finding substantial compliance
where error was harmless); In re Hollingsworth & Whitney Co., 242
F. 753, 760-61 (1st Cir. 1917) (finding substantial compliance
where parties were not denied the opportunity to present the merits
of their case in any material respect).

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a settlement agreement or administrative resolution.7 The fact

that the Secretary was not a party to the settlement agreements

reinforces this conclusion. See Howard Young Med. Ctr., Inc. v.

Shalala, 207 F.3d 437, 443 (7th Cir. 2000) (holding Secretary not

bound by stipulation entered into by intermediary); Appalachian

Reg'l Healthcare, Inc. v. Shalala, 131 F.3d 1050, 1053 n.4 (D.C.

Cir. 1997) (holding Secretary not bound by intermediary's

statements before the Board).

We acknowledge that the intermediary represented to at

least one hospital (Central Maine Medical Center) that it had the

authority to enter into a settlement that included non-SSI type 6

days. Such a representation, however, cannot cloak the

intermediary with authority that it does not have. Cf. Sheinkopf

v. Stone, 927 F.2d 1259, 1269 (1st Cir. 1991) (recognizing that,

under doctrine of apparent authority, agent's own words are

insufficient to bind principal). The Supreme Court has made it

7
Before the agency, the Hospitals advanced a more nuanced
argument: that the settlement agreements barred the intermediary
from reopening the cost reports under its permissive reopening
authority, meaning that CMS had to follow the mandatory reopening
protocols if it did not want to comply with the agreements. See
42 C.F.R. § 405.1885(a)-(b). This nuanced argument was mentioned
only briefly in the district court and evaporated entirely on
appeal. Consequently, we treat it as waived. See United States
v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990). For the sake of
completeness, though, we note that the settlement agreements do
not seem to bar the intermediary from reopening under its
permissive authority; they appear only to require the intermediary
to issue revised NPRs, without discussion of whether the revised
NPRs could be reopened.

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nose-on-the-face plain that "anyone entering into an arrangement

with the Government takes the risk of having accurately ascertained

that he who purports to act for the Government stays within the

bounds of his authority." Fed. Crop Ins. Corp. v. Merrill, 332

U.S. 380, 384 (1947); see United States v. Flemmi, 225 F.3d 78, 85

(1st Cir. 2000) (noting that "doctrines such as estoppel and

apparent authority are not available to bind the federal

sovereign"). Here, the Hospitals accepted public funds knowing

(or, at least, being fully charged with knowledge of) the

limitations of intermediaries; and any attempt by the Hospitals to

claim that they reasonably relied on the intermediary's extra-

legal representations would be empty.8 See Heckler v. Cmty. Health

Servs., 467 U.S. 51, 64-65 (1984); Faith Hosp. Ass'n v. Blue Cross

Hosp. Serv., 537 F.2d 294, 295 (8th Cir. 1976) (per curiam); see

also Madison Gen. Hosp., Inc. v. United States, No. 141-85 C, 1986

WL 66215, at *2-3 (Cl. Ct. Sept. 19, 1986) (holding that a

settlement agreement between a hospital and an intermediary did

not bind the government when the intermediary lacked authority to

settle the claim).

8
Knowing the circumscribed authority of intermediaries, the
utter lack of any documentation concerning the intermediary's
purported authority to include previously excluded days in DSH
computations should have constituted a flashing red light, easily
visible to the Hospitals.

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 This ends our analysis of the Secretary's appeal. The

short of it is that we find her arguments largely persuasive. We

therefore proceed to the Hospitals' appeal. As we undertake that

task, we are cognizant that unless the Hospitals prevail, the

Secretary will be entitled to the relief that she seeks.

V. THE HOSPITALS' APPEAL

In their appeal, the Hospitals advance three main lines

of argument. They begin with the proposition that the reopening

notices were invalid because they failed to comply with mandatory

reopening provisions contained in the regulations. As a fallback,

the Hospitals say that even if the notices of reopening were valid,

non-SSI type 6 days were properly included in DSH calculations.

Finally, the Hospitals suggest that they should either be held

harmless or absolved as without fault for including non-SSI type

6 days in their DSH calculations. We examine each line of argument

in turn.

A. Effect of Mandatory Reopening Provisions.

The Hospitals assert that the notices of reopening were

invalid for a reason different from those identified by the

district court. Their view has morphed over time, see supra note

7; but as expressed here, their assertion seems to be that the

mandatory reopening provisions of 42 C.F.R. § 405.1885(b) must

always be complied with, and those provisions were flouted because

there was no documentation of CMS's instruction to the intermediary

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to reopen the cost reports. The Secretary demurs, asserting that

compliance with the mandatory reopening provisions does not

constitute the exclusive method for reopening and that, under the

circumstances of this case, the intermediary was at liberty to

reopen the cost reports without a written directive from CMS. The

district court agreed with the Secretary's conclusion, and so do

we.

It is clear that the regulations allow an intermediary

to reopen its own determination. See 42 C.F.R. § 405.1885(a)

(explaining that "[a] determination of an intermediary . . . may

be reopened . . . by such intermediary . . . either on motion of

such intermediary . . . or on the motion of the provider"). The

regulations also make clear that CMS (acting for the Secretary)

has the authority to direct an intermediary to reopen a

determination. See id. § 405.1885(b)(1) ("An intermediary

determination . . . must be reopened and revised by the

intermediary if . . . CMS— (i) Provides notice to the intermediary

that the intermediary determination . . . is inconsistent with the

applicable law . . . ; and (ii) Explicitly directs the intermediary

to reopen and revise . . . .").

Here, the record indicates that CMS instructed the

intermediary to reopen the cost reports, but did not issue a

written directive to that effect. Rather, the instruction appears

to have taken place orally and informally. The Hospitals' argument

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is that, under 42 C.F.R. § 405.1885(b)(1), a written directive

from CMS was a condition precedent to reopening. We find this

wooden reading of the regulation insupportable: it would nullify

an intermediary's power to reopen if CMS advises it to reopen only

in a casual conversation, and that dilution of the intermediary's

power would serve no useful purpose. Indeed, it would pay

obeisance to formalism for formalism's sake.

The more logical reading of the regulation is that it

simply makes clear the power structure in play: CMS trumps the

intermediary. Should an intermediary and CMS disagree about the

need for reopening, CMS may force the intermediary's hand. Such

a situation did not occur here because the intermediary reopened

the cost reports as CMS desired. Accordingly, any failure to

comply with the mandatory reopening provisions did not abrogate

the notices of reopening.

B. Treatment of Non-SSI Type 6 Days.

We turn next to the Hospitals' contention that the

statutory scheme permits providers to include in DSH calculations

all patients eligible for either Medicare or Medicaid, whether or

not those patients are entitled to SSI. Like the agency and the

district court, we reject this contention.

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 The DPP is the sum of two fractions: the Medicare

fraction and the Medicaid fraction.9 See 42 U.S.C.

§ 1395ww(d)(5)(F)(vi); Catholic Health Initiatives, 718 F.3d at

916. For the Medicare fraction, the numerator is the number of

patient days for patients who were entitled to both Medicare Part

A and SSI benefits. See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I); see

also Metro. Hosp., 712 F.3d at 251; 42 C.F.R. § 412.106(b)(2).

The denominator is the number of patient days for patients entitled

9 The statute provides in pertinent part:

the term "disproportionate patient percentage" means,
with respect to a cost reporting period of a hospital,
the sum of--

(I) the fraction (expressed as a percentage), the
numerator of which is the number of such hospital's
patient days for such period which were made up of
patients who (for such days) were entitled to benefits
under part A of this subchapter and were entitled to
supplementary security income benefits (excluding any
State supplementation) under subchapter XVI of this
chapter, and the denominator of which is the number of
such hospital's patient days for such fiscal year which
were made up of patients who (for such days) were
entitled to benefits under part A of this subchapter,
and

(II) the fraction (expressed as a percentage), the
numerator of which is 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 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) (emphasis added).

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to Part A benefits. See 42 U.S.C. § 1395ww(d)(5)(F)(vi)(I). For

the Medicaid fraction, the numerator is the number of patient days

for patients who were eligible for coverage under a federally

approved state Medicaid plan but who were ineligible for Medicare

Part A coverage. See id. § 1395ww(d)(5)(F)(vi)(II); see also

Metro. Hosp., 712 F.3d at 251; 42 C.F.R. § 412.106(b)(4). The

denominator is the total number of patient days. See 42 U.S.C.

§ 1395ww(d)(5)(F)(vi)(II).

This taxonomy, as the Secretary interprets it, excludes

patients who are entitled to both Medicare Part A and Medicaid,

but not entitled to SSI. The Secretary reasons that a patient

must be eligible for SSI to be included in the Medicare fraction

numerator and must be ineligible for Medicare Part A to be included

in the Medicaid fraction numerator. The Hospitals take issue with

this reasoning, insisting that all Medicaid- and Medicare-eligible

patient days, including non-SSI type 6 days, should be included in

the DSH calculation.

Our resolution of these dueling interpretations is

guided by the Supreme Court's landmark decision in Chevron. Where

applicable, Chevron requires a two-step approach. See 467 U.S. at

842-43. At step one, an inquiring court must determine whether

Congress has spoken clearly and, if so, must give effect to

Congress's intent. See id. Step two is necessary only if

Congress's intent is unclear: in that event, the question reduces

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to whether the agency's view is based on a permissible

interpretation of the statute. See id. at 843.

Here, we need not go beyond step one. The language of

the controlling statute is unambiguous, and the Secretary's

interpretation of the statute faithfully tracks its plain

language.

The Hospitals nonetheless point out that in a Chevron

step one analysis, courts must apply the traditional rules of

statutory interpretation. See id. at 843 & n.9. These rules

include the canon that statutes should be construed to avoid absurd

results. See Stornawaye Fin. Corp. v. Hill (In re Hill), 562 F.3d

29, 32 (1st Cir. 2009). Seizing on this canon, the Hospitals argue

that excluding certain low-income patients from the DSH

calculation is absurd because the purpose of the figure is to

compensate hospitals for providing services to disproportionately

large populations of low-income patients.

Although the kind of line-drawing that is often

necessary in our administrative state may occasionally be

unsatisfying at the edges, that discomfiture does not make a rule

absurd. See, e.g., Sprandel v. Sec'y of HHS, 838 F.2d 23, 27 (1st

Cir. 1988) (per curiam). Absurdity, like beauty, sometimes lies

in the eye of the beholder. So it is here: given that the DSH

calculation is merely a proxy for low-income patients rather than

a reimbursement scheme designed to compensate hospitals for care

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administered to specific patients, see Catholic Health

Initiatives, 718 F.3d at 916, we do not consider the exclusion of

certain low-income patients to be absurd. While the rules for

Medicare reimbursement may seem inscrutable at times, Congress's

intent with regard to this provision is transparently clear. Thus,

the Secretary's reading of the provision is unimpugnable and our

analysis can stop at Chevron step one. See 467 U.S. at 842 (stating

that "[i]f the intent of Congress is clear, that is the end of the

matter").

Even if a Chevron step two analysis were required, the

result would be the same: it is crystal clear that the Secretary's

interpretation would certainly be permissible under Chevron step

two. The Hospitals' argument rests upon the supposition that

Congress must have intended to include in the DSH calculation all

patients eligible for either Medicare or Medicaid. But the

authorities on which they rely for that supposition, see Jewish

Hosp., Inc. v. Sec'y of HHS, 19 F.3d 270 (6th Cir. 1994); Edgewater

Med. Ctr. v. Blue Cross & Blue Shield Ass'n/Blue Cross & Blue

Shield of Ill., 2000 WL 1146601 (HCFA Admin. June 19, 2000), lend

no support.

To be sure, the Jewish Hospital court stated that

"Congress intended to include all days attributable to Medicaid

beneficiaries in the proxy." 19 F.3d at 276. The context of the

case reveals, however, that the Sixth Circuit's analysis was

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focused on the meaning of the words "eligible for" medical

assistance and "entitled to" benefits, 42 U.S.C.

§ 1395ww(d)(5)(F), without reference to SSI status. See Jewish

Hosp., 19 F.3d at 274-76; see also Metro. Hosp., 712 F.3d at 259

(limiting decision in Jewish Hosp.).

So, too, the Secretary's decision in Edgewater explains

that one apparent purpose of the two fractions that compose the

DPP is to prevent double counting of patient days. See 2000 WL

1146601, at *5 n.17. Again, the Secretary was considering the

"eligible for" versus "entitled to" dichotomy addressed in Jewish

Hospital. See id. at *4-5. The decision simply did not consider

the possibility that a patient could be eligible for Medicare and

Medicaid but ineligible for SSI. See id. at *4. And to the extent

the decision is applicable at all, it is more helpful to the

Secretary than to the Hospitals: it recognizes that the plain

language of the statute excludes from the Medicaid fraction

individuals who are eligible for Medicare Part A. See id. (noting

that "the statutory phrase in the Medicaid proxy 'but who were not

entitled to benefits under Medicare Part A of this title'

forecloses the inclusion of the days at issue in this case in the

numerator of the Medicaid proxy" (quoting 42 U.S.C.

§ 1395ww(d)(5)(F)(vi)(II))).

The Hospitals argue that these two decisions require us

to hold that an interpretation of the statutory provision that

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does not count a particular low-income patient at all must be an

unreasonable synthesis of congressional intent. But — as we have

shown — the authorities upon which the Hospitals rely do not

support, let alone require, such a view, and we refuse to take

such a gargantuan leap. We believe that the Secretary, at the

very least, acted permissibly in adhering to the plain language of

the statute, which is typically the best evidence of Congress's

intent. See Metro. Hosp., 712 F.3d at 269 (stating that the

"exclusion of at least some dual-eligible patient days

. . . appears to be inevitable based on" the statute's structure).

C. Confession and Avoidance.

In a last-ditch effort to stem the tide, the Hospitals

attempt to confess and avoid. This attempt takes two forms.

First, the Hospitals claim that, even if their DSH

calculations were incorrect, they should be held harmless from any

obligation to refund overpayments. This claim rests on a program

memorandum issued by the Secretary, see Program Memorandum HCFA-

Pub. 60A, No. A-99-62 (Dec. 1, 1999) (PM A-99-62), which instructed

intermediaries to refrain from recouping "the portion of Medicare

DSH adjustment payments previously made to hospitals attributable

to the erroneous inclusion of general assistance or other State-

only health program, charity care, Medicaid DSH, and/or ineligible

waiver or demonstration population days in the Medicaid days factor

used in the Medicare DSH formula." The Secretary argued below —

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and the district court found — that this hold-harmless provision

does not extend to the obligation to refund DSH overpayments based

on non-SSI type 6 days. We agree.

Read in context, PM A-99-62 plainly concerns a different

DSH calculation issue. Historically, "hospitals and

Intermediaries [had] relied, for the most part, on Medicaid days

data obtained from State Medicaid agencies to compute Medicare DSH

payments and . . . some of those agencies commingled the types of

otherwise ineligible days . . . with Medicaid Title XIX days." PM

A-99-62. Seen in this light, the hold-harmless provision in PM A-

99-62 must refer to the calculation of Medicaid-eligible patient

days, not to whether Medicaid- and Medicare-eligible patients who

were not entitled to SSI could be included in the DSH calculation.

Nor can there be any legitimate doubt about the sweep of

the hold-harmless provision. PM A-99-62 itself states that it "is

not intended to hold hospitals harmless for any other aspect of

the calculation of Medicare DSH payments or any other Medicare

payments."

In yet another effort to confess and avoid, the Hospitals

attempt to skirt liability by insisting that they should be excused

as being "without fault" for collecting DSH overpayments because

they reasonably relied on the incorrect advice of their

intermediary. See 42 U.S.C. § 1395gg. The Secretary rejoins that

the statute on which the Hospitals rely, 42 U.S.C. § 1395gg, does

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not apply to DSH overpayments because they are aggregate payments

as opposed to reimbursement for services provided on behalf of a

specific patient. We agree with the district court that the

Secretary's argument carries the day.

Section 1395gg sets forth a framework for recovering

overpayments made to or on behalf of individuals. As part of this

scheme, Section 1395gg(b) authorizes the Secretary to recoup

overpayments from individuals and providers when the overpayments

were made "for items or services furnished an individual." Section

1395gg(c) carves out an exception: it provides that overpayments

made "with respect to an individual who is without fault" should

not be recouped if doing so "would defeat the purposes of [Social

Security] or [Medicare] or would be against equity and good

conscience." Congress's repeated references to "individuals" in

the text of the statute convince us that the "without fault"

language in Section 1395gg(c) does not apply to DSH payments, the

calculation of which does involve individual patient days but only

as a means of evaluating a provider's patient population income

level. See Visiting Nurses Ass'n of Sw. Ind., Inc. v. Shalala,

213 F.3d 352, 357 (7th Cir. 2000) ("Because the only adjustment

contemplated by § 1395gg(b) is an adjustment of payments to

individuals, no waiver under § 1395gg(c) is possible for these

providers."); see also Medicare Program; "Without Fault" and

Waiver of Recovery from an Individual as it Applies to Medicare

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Overpayment Liability, 63 Fed. Reg. 14,506, 14,510 (Mar. 25, 1998)

("[T]he without fault provisions under [42 U.S.C. § 1395gg] do not

extend to aggregate overpayment issues, such as Medicare cost

report errors, because liability for an individual claim cannot be

shifted to a specific individual.").

The Hospitals make one final argument. They protest

that during meetings at which the Hospitals, CMS, and the

intermediary were all represented, the attendees discussed whether

the Hospitals satisfied the "without fault" requirements and

agreed that the provision applied. But even if this is an accurate

depiction of the parties' negotiations, it does not preclude the

Secretary from asserting a different view now. In the absence of

detrimental reliance — and we see none here — the Secretary is not

foreclosed from changing a position that she has come to conclude

is rooted in a mistaken interpretation of the statutory scheme.

See Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 417 (1993).

VI. CONCLUSION

We need go no further. For the reasons elucidated above,

we reverse the judgment of the district court as to the cost

reports for which the Board and the district court found that the

notices provided to specific plaintiffs were inadequate and as to

the cost reports for providers and years covered by written

settlement agreements entered into by individual providers and the

intermediary. As to all other plaintiffs and cost years, we affirm

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the district court's entry of judgment for the Secretary. All

parties shall bear their own costs.

Reversed in part, affirmed in part, and remanded with instructions

to enter judgment in favor of the Secretary.

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