Commonwealth of Pennsylvania D v. United States

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________

No. 17-2088
______________

COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF HUMAN SERVICES,

Appellant

v.

UNITED STATES OF AMERICA;
UNITED STATES DEPARTMENT OF HEALTH
AND HUMAN SERVICES; SECRETARY UNITED
STATES DEPARTMENT OF
HEALTH AND HUMAN SERVICES
______________

On Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. Civ. No. 1-15-cv-01169)
Honorable Christopher C. Conner, District Judge
______________

Argued on March 12, 2018
BEFORE: JORDAN, KRAUSE, and GREENBERG, Circuit
Judges

(Opinion Filed: July 25, 2018)
______________

W. Scott Foster, Esq. [Argued]
Commonwealth of Pennsylvania
Department of Human Services
Office of General Counsel
3rf Floor, Health & Welfare Building
Harrisburg, PA 171207

Jason W. Manne, Esq.
Manne Law Office
P.O. Box 81860
Pittsburgh, PA 15217

Counsel for Appellant

Melissa A. Swauger, Esq.
Office of United States Attorney
228 Walnut Street, P.O. Box 11754
220 Federal Building and Courthouse
Harrisburg, PA 17108

Suzanne Yurk, Esq. [Argued]
United States Department of
Health and Human Services
Office of the General Counsel
150 South Independence Mall West
The Public Ledger Building, Suite 418

2
Philadelphia, PA 19106

Counsel for Appellees

______________

OPINION
______________

GREENBERG, Circuit Judge.

I. INTRODUCTION

The Commonwealth of Pennsylvania Department of
Human Services (“Pennsylvania”) appeals from a decision and
order of the District Court for the Middle District of
Pennsylvania entered March 13, 2017, affirming a decision of
the United States Department of Health and Human Services
Departmental Appeals Board (“Appeals Board” or “Board”).
For the following reasons, we will affirm the District Court’s
order and thus will affirm the Board’s decision.

II. BACKGROUND

This case involves a reimbursement dispute between
Pennsylvania and the Centers for Medicare & Medicaid Services
(“CMS”) over the cost of a provider training program. From
1996 to 2011 Pennsylvania claimed the costs of the training
program as administrative costs under its Medicaid program.
CMS reimbursed Pennsylvania for about $3 million of those

3
costs, but, after an audit of Pennsylvania’s charges, it sought a
return of the money on the ground that funds Pennsylvania spent
on training programs were not reimbursable to the
Commonwealth from the federal government as administrative
costs under Medicaid. In reaching its decision, CMS relied
heavily on a 1994 State Medicaid Director Letter (“1994
SMDL” or “the Letter”), which explained that training program
costs are excluded from the definition of reimbursable
administrative costs under the Medicaid statute. The Appeals
Board sustained CMS’s decision. Our review of the agency’s
final decision is narrow. We limit our determination to deciding
whether the Appeals Board’s decision complies with the
Administrative Procedure Act (“APA”), 5 U.S.C. §§ 701 et seq.1

A. Medicaid Statutory and Regulatory Framework

To begin, we set forth some background of the Medicaid
program and its reimbursement provisions for state
administrative costs. With the passage of Title XIX of the
Social Security Act, Congress authorized the creation of the
Medicaid program, 42 U.S.C. §§ 1396 et seq., “a cooperative
federal-state program that provides medical care to needy
individuals.” Douglas v. Indep. Living Ctr. of S. Cal., Inc., 565
U.S. 606, 610, 132 S.Ct. 1204, 1208 (2012). States such as
Pennsylvania that opt into the program must submit a plan that
complies with the Medicaid statute and the Secretary of Health
and Human Services’ (“HHS”) implementing regulations. 42

1
Of course, the appeal to us is from the order of the District
Court but we state the question as if the appeal is from the
Appeals Board’s decision because our review of the District
Court summary judgment is de novo.

4
U.S.C. §§ 1396, 1396a; 42 C.F.R. § 430.15(a). Within HHS,
CMS oversees state compliance with Medicaid requirements.
42 C.F.R. § 430.15(b).

Under this cooperative program, the federal government
reimburses a state for a portion of its expenditures for both
“medical assistance” (i.e., medical care and services) and
“administration” of the Medicaid program. 42 U.S.C. §§
1396b(a), 1396d(a). There is a statute establishing the amount
of federal funding available to a state for such expenditures,
known as Federal Financial Participation (“FFP”). See 42
U.S.C. § 1396b(a).

Section 1396b(a)(7) governs the administrative costs at
issue in this case. Id. § 1396b(a)(7). 2 Specifically, §
1396b(a)(7) sets the usual amount of FFP at 50 percent for costs
that are “found necessary by the Secretary for the proper and
efficient administration of the State plan.” That is, states can
receive 50 cents on the dollar for costs claimed under their plans
that meet the definition of administrative costs in § 1396b(a)(7).
To implement this provision, HHS promulgated 42 C.F.R §
433.15(b)(7), which included the statutory FFP percentage for
reimbursement and a summary explanation of administrative
costs. See 42 C.F.R. § 433.15(b)(7) (“All other activities the
Secretary finds necessary for proper and efficient administration
of the State plan: 50 percent.”). But neither the statute nor the
implementing regulation defines “administration” or
“necessary.”

2
This case only involves claims for administrative costs under §
1396b(a)(7). Pennsylvania does not claim that the training costs
were allowable under other provisions of the Medicaid statute.

5
 B. The 1994 SMDL

In 1994 the Health Care Financing Administration
(“HCFA”), CMS’s predecessor, published the 1994 SMDL.
After an influx of inappropriately claimed administrative
activities, HCFA issued the Letter to “reiterate [its] long-
standing policy on allowable administrative costs.” JA 109.
The 1994 SMDL quotes § 1396b(a)(7)’s requirement that FFP is
permitted only for amounts “found necessary by the Secretary
for the proper and efficient administration of the State Plan.” JA
109. It then interprets that language to mean that “allowable
claims . . . must be directly related to the administration of the
Medicaid program.” JA 109.

The 1994 SMDL gives examples of administrative costs
that HCFA has allowed in the past. Among other items those
costs include Medicaid eligibility determinations, Medicaid
outreach, prior authorization for Medicaid services, and
Medicaid Management Information System development and
operation.

The Letter also lists examples of expenses that are not
regarded as administrative costs. Importantly for our purposes,
it states that allowable costs do not include “the overhead costs
of operating a provider facility, such as the supervision and
training of providers.” JA 113. Besides such training costs, the
Letter also excludes costs for medical services. It recites that
administrative costs cannot be “the cost of providing a direct
medical or remedial service,” or “an integral part or extension of
a direct medical or remedial service. . . .” Id. It states that
“[s]uch services are properly paid for as part of the payment for

6
the medical or remedial service. Because Medicaid providers
have agreed to accept service payment as payment in full, such
providers may not claim an additional cost as [an] administrative
cost under the State plan.” Id.

With this background in mind, we turn to this case.

C. Pennsylvania’s Restraint Reduction Initiative

In 1987 Congress amended Title XIX of the Social
Security Act to include nursing home reforms. The amended
Act provided that nursing home facilities could no longer use
physical and chemical restraints on their residents for discipline
or convenience reasons. 42 U.S.C. § 1396r(c)(1)(A)(ii). The
regulations required nursing facilities to train their staff on these
new care standards. 42 C.F.R. §§ 483.12(b)(3), 483.95(c).

In response to these reforms, Pennsylvania created the
Pennsylvania Restraint Reduction Initiative (“PARRI”). The
stated objective of the program which began in 1996 was “to
train long term care facility staff in the use of alternative
measures to physical and chemical restraints.” JA 275, 298.
Pennsylvania contracted with Kendal Outreach LLC (“Kendal”)
to supply the provider training. Kendal began by training
nursing home staff at four training sites but expanded the
number of sites to twenty six across the state over the next few
years.

At all relevant times Pennsylvania paid for the Kendal
contract through various funding methods and made claims to
CMS to reimburse it for the cost of the contract. Pennsylvania
consistently claimed the contract costs as Medicaid program

7
administrative expenses. But it did so without expressly
advising CMS of what it was doing for when it completed the
CMS form to report administrative costs, it did not specifically
itemize the PARRI payments. Instead, it lumped those
payments into a larger amount that it claimed as “Other
Financial Participation.” JA 249. From 1996 to 2011, CMS
reimbursed Pennsylvania a total of $3,001,536 for the PARRI
program.

Pennsylvania’s claims for administrative costs eventually
came to the attention of the HHS Office of Inspector General
(“OIG”). From 2011 to 2012 the OIG conducted an audit of
Pennsylvania’s claims for Medicaid administrative costs for
provider training under PARRI. According to OIG, the audit
was initiated because Pennsylvania relied on the CMS form’s
“Other Financial Participation” section to claim large sums of
FFP. For example, from 2010 to 2011, the OIG audit notes that
Pennsylvania claimed $924 million in administrative costs, of
which $654 million were unidentified costs lumped together as
“Other Financial Participation.” JA 265. OIG also noted that it
previously identified two other Pennsylvania programs that
failed to comply with the administrative cost requirements under
the Medicaid program. In the audit, OIG concluded that the
PARRI costs were not administrative costs, but rather “were for
training nursing home provider staff to improve the condition of
nursing home residents.” JA 266. The audit report stated that
“CMS explicitly prohibits claiming costs for provider training,
such as that supplied by Kendal for the Initiative, as
administrative costs, because they are not for the proper and
efficient administration of the [Medicaid] State plan.” Id.
(quotation marks omitted). The OIG audit thus recommended
that CMS require Pennsylvania to refund the $3,001,536 and

8
discontinue all future claims for PARRI costs.

In June 2014 CMS sent a letter to Pennsylvania notifying
it of its decision to disallow the $3,001,536 in FFP. CMS
explained the administrative cost requirements under §
1396b(a)(7) and the 1994 SMDL and adopted the OIG’s
findings. CMS concluded that “the costs of the Initiative do not
constitute general administrative costs of the Medicaid program.
Rather, these costs constitute nursing facility overhead costs
[because] the training was intended to support and augment the
in-service training for nursing facilities and to enhance the
quality of service delivery at nursing facilities.” JA 76.

D. Procedural Background

Pennsylvania appealed CMS’s disallowance decision to
the HHS Appeals Board, which affirmed the decision in a
written opinion. At the outset, the Appeals Board noted that
Pennsylvania made two key factual concessions material to this
dispute which thus are material to this appeal: Pennsylvania did
not dispute receiving the 1994 SMDL before it created PARRI,
and did “not deny that the disallowed claims were for the costs
of training nursing facility staff. . . .” JA 26.

The Appeals Board then found that the PARRI costs
were disallowable. The Board determined that the 1994 SMDL
expressly prohibits states from claiming provider training as a
cost of administering the plan. The Board also stated that “the
prohibition in the 1994 SMDL on states claiming provider
training and other medical assistance costs as costs of
administering their Medicaid state plans was not a new policy.”
JA 27. In support of this observation, the Board cited two of its

9
pre-1994-SMDL decisions, New York State Department of
Social Services, DAB No. 1146 (1990), and New York State
Department of Social Services, DAB No. 1252 (1991), in which
the Board held that provider training costs were not
administrative costs under § 1396b.

The Appeals Board further stated that although states
cannot claim training costs as administrative costs, CMS may be
able to reimburse states for training costs in other ways.
Specifically, the Board noted that states can recover provider
training costs through provider reimbursements rates for medical
assistance. The Board explained that there is a twofold rationale
for this authorization. First, when the state claims training costs
through the rate system, it must ensure that such costs are
reasonable and adequate under the relevant regulations. Second,
the prohibition on classifying direct services as administrative
costs “is necessary to prevent duplicate program payment for the
same activities.” JA 30 (internal citations omitted). Thus, the
Board stated that Pennsylvania may have been able to use the
rate system for reimbursement of the training costs, but it had
not done so; and it could not circumvent that treatment by
separately claiming training costs as administrative expenses.

Finally, the Appeals Board rejected Pennsylvania’s
arguments that (1) the 1994 SMDL is an invalid substantive
rule, (2) PARRI training cannot be disallowed on the basis of
the 1994 SMDL because the training costs were not overhead
costs, (3) Pennsylvania is entitled to discovery from CMS on
whether it previously agreed to reimburse the PARRI costs as
administrative costs, and (4) the HHS Grants Administration

10
Manual (“GAM”) limits the disallowance period to three years.3

In 2015 Pennsylvania challenged the Appeals Board’s
decision in the District Court, asserting that the disallowance
violated the APA. On the defendants’ motion the Court granted
summary judgment against Pennsylvania, holding that the
administrative record supported the agency action and was
consistent with the APA standard of review. Pennsylvania
Dep’t of Human Servs. v. U.S. Dep’t of Health & Human
Servs., 241 F. Supp. 3d 506, 517 (M.D. Pa. 2017). Specifically,
the Court found that (1) the 1994 SMDL was not a substantive
rule subject to APA public notice and comment but rather was
an interpretive rule not so subject; (2) Skidmore v. Swift & Co.,
323 U.S. 134, 65 S.Ct. 161 (1944) required the Court to give the
Letter judicial deference; and (3) there was no basis under the
APA to overturn the Board’s conclusions that (a) the 1994
SMDL barred reimbursement of PARRI costs, (b) the
disallowance period was not limited to three years, and (c)
Pennsylvania was not entitled to additional discovery.
Pennsylvania Dep’t of Human Servs., 241 F. Supp. 3d at 514-
17. The Court also denied Pennsylvania’s request to take
judicial notice of a 2015 CMS Question and Answer document
published online after the Board issued its decision. Id. at 511-
12.

Pennsylvania timely appealed from the District Court’s
final order. See Fed. R. App. P. 4(a)(1)(B).

3
Pennsylvania also argued unsuccessfully that other CMS
issuances and regulations permit FFP for provider training costs
contrary to the 1994 SMDL, but with limited exception
Pennsylvania does not raise those arguments before us now.

11
III. STATEMENT OF JURISDICTION AND STANDARD
OF REVIEW

The District Court had jurisdiction to review the decision
under 42 U.S.C. § 1316(e)(2)(C), 5 U.S.C. §§ 701-706, and 28
U.S.C. 1331. We have appellate jurisdiction under 28 U.S.C. §
1291.

“We apply de novo review to a district court’s grant of
summary judgment in a case brought under the APA, and in turn
apply the applicable standard of review to the underlying agency
decision.” Pennsylvania, Dep’t of Pub. Welfare v. Sebelius, 674
F.3d 139, 146 (3d Cir. 2012) (internal quotations omitted).
Under the APA, courts must set aside agency action that is
“arbitrary, capricious, an abuse of discretion or otherwise not in
accordance with law,” or is conducted “without observance of
procedure required by law. . . .” 5 U.S.C. § 706(2)(A) & (D).

Under “this narrow standard of review, we insist that an
agency examine the relevant data and articulate a satisfactory
explanation for its action.” F.C.C. v. Fox Television Stations,
Inc., 556 U.S. 502, 513, 129 S.Ct. 1800, 1810 (2009) (internal
citation and quotation marks omitted). Agency action will be
arbitrary and capricious “if the agency has relied on factors
which Congress has not intended it to consider, entirely failed to
consider an important aspect of the problem, offered an
explanation for its decision that runs counter to the evidence
before the agency, or is so implausible that it could not be
ascribed to a difference in view or the product of agency
expertise.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State

12
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2867
(1983). 4

IV. DISCUSSION

Pennsylvania makes six challenges to the disallowance
decision and thus to the summary judgment. It argues that (1)
the 1994 SMDL is an invalid substantive rule, (2) the 1994
SMDL’s text does not exclude PARRI training costs from
reimbursement, (3) the 1994 SMDL imposes an ambiguous
condition on a federal grant, (4) the Appeals Board abused its
discretion in denying discovery, (5) the HHS Grants
Administration Manual limits the disallowance period to three
years, and (6) the District Court should have taken judicial
notice of the 2015 CMS Question and Answer document. We
will address each argument in turn and explain why we find
none persuasive.

A. The 1994 SMDL Is an Interpretive Rule, Not a
Legislative Rule

Pennsylvania’s first argument can be regarded as
procedural. Pennsylvania challenges the use of the 1994 SMDL,

4
Pennsylvania incorrectly asserts that our review of many of its
arguments is plenary, citing Beta Spawn, Inc. v. FFE
Transportation Services, Inc., 250 F.3d 218, 223 (3d Cir. 2001),
but that case did not involve an agency action or the APA. As
such, even though our review of the summary judgment is de
novo, the standard APA judicial review standards which are
more deferential govern this case.

13
arguing that the agency’s reliance on the Letter violated the
APA because the Letter was not adopted after compliance with
the notice and comment procedures for the adoption of a rule
under the APA. See 5 U.S.C. § 553(b), (c). Appellees respond
that the 1994 SMDL is an interpretive rule, not subject to a
requirement for public notice and comment. See id. §
553(b)(A). Though we have determined that other HCFA state
Medicaid director letters were interpretive rules, see Elizabeth
Blackwell Health Ctr. for Women v. Knoll, 61 F.3d 170, 181
(3d Cir. 1995), we never have determined whether the 1994
SMDL is an interpretive rule. Now, however, in this matter of
first impression on this point, we conclude that the 1994 SMDL
is interpretive and is not a substantive or legislative rule.

The APA requirement that an agency rule go through
notice and comment procedures applies only to so-called
“legislative” or “substantive” rules, not to “interpretive” rules. 5
U.S.C. § 553(b), (c). Though it is not always easy to distinguish
between the two types of rules, we have developed guiding
principles to aid in distinguishing them. Legislative rules, which
have the force of law, “impose new duties upon the regulated
party.” Chao v. Rothermel, 327 F.3d 223, 227 (3d Cir. 2003).
‘“Interpretive’ rules, on the other hand, seek only to interpret
language already in properly issued regulations.” Id. (citation
omitted); Elizabeth Blackwell, 61 F.3d at 181 (deeming HCFA’s
letter to state Medicaid directors that interpreted Medicaid
statute to be interpretive guidance because it “clarifies and
explains existing law”). Interpretive rules do not add language
to or amend language in the statute, Chao, 327 F.3d at 227, but
“simply state[] what the administrative agency thinks the statute
means, and only remind[] affected parties of existing duties,”
SBC Inc. v. F.C.C., 414 F.3d 486, 498 (3d Cir. 2005) (quoting

14
Fertilizer Inst. v. U.S. E.P.A., 935 F.2d 1303, 1307 (D.C. Cir.
1991)).

Based on these principles, the 1994 SMDL is an
interpretive rule. As stated above, the Letter explains §
1396b(a)(7)’s statutory requirement that costs must be
“necessary . . . for the proper and efficient administration of the
State plan.” JA 109, 112 (emphasis removed). It “reiterates”
that CMS interprets the statutory requirement to mean the costs
“must be directly related to the administration of the Medicaid
program.” JA 109, 112. It then explains how that policy works
“in several particular situations,” JA 112, providing a non-
exhaustive list of costs that do and do not meet CMS’s
interpretation of the statute including the exclusion of training
costs.

The 1994 SMDL thus qualifies as an interpretive rule on
several levels. The Letter represents what the Secretary “thinks
[§ 1396b(a)(7)] means,” see SBC Inc., 414 F.3d at 498, i.e., that
costs are “necessary” for plan administration when they are
“directly related” to plan administration. The Letter also
“clarifies and explains” the statute, Elizabeth Blackwell, 61 F.3d
at 181, by describing types of costs that are not “directly
related,” such as the cost of providing direct medical services,
see JA 112-13. These features indicate the 1994 SMDL is an
interpretive rule.

The Letter’s discussion of training costs, the particular
portion of the Letter that Pennsylvania challenges, reinforces
this conclusion. This discussion about training costs provides an
example of how the agency applies its rule in practice, a
treatment which we have held is indicative of an interpretive

15
rule. See Bailey v. Sullivan, 885 F.2d 52, 62 (3d Cir. 1989)
(holding social security administration publication that “contains
merely examples of the application of the [at-issue] regulations”
was interpretive rule); see also L.A. Closeout, Inc. v. Dep’t of
Homeland Sec., 513 F.3d 940, 942 (9th Cir. 2008) (per curiam)
(holding agency memo “simply provided the agency’s
construction of the regulation in a particular factual
circumstance. As such, notice and comment procedures were
not required”). Finally, inasmuch as the purpose of the Letter is
to reiterate the agency position, the Letter expressly “reminds
affected parties” of these interpretations in light of states’ past
misapplication of the rule. See SBC Inc., 414 F.3d at 498.
Accordingly, the 1994 SMDL is an interpretive rule not subject
to the APA’s notice and comment procedures. 5

5
The Appeals Board did not address the question of whether the
1994 SMDL is an interpretive or substantive rule. Instead, it
held that “the 1994 SMDL was binding on Pennsylvania in any
event.” JA 32. The Board explained that the 1994 SMDL is
entitled to deference because it is a reasonable interpretation of
the ambiguous definition of administrative costs in §
1396b(a)(7) and Pennsylvania was on notice of that
interpretation. JA 32. We question the Board’s reasoning. If
the 1994 SMDL Letter were an improperly promulgated
legislative rule, the Letter would be invalid—thus the agency
could not have based the disallowance on it. See State of
Alaska v. U.S. Dep’t of Transp., 868 F.2d 441, 445 (D.C. Cir.
1989) (deeming legislative rule “invalid by virtue of the
[agency’s] failure to employ notice-and-comment procedures”);
see also Elizabeth Blackwell, 61 F.3d at 188 (Nygaard, J.,
dissenting) (Legislative rules promulgated without notice and
comment “are not true legislative rules at all, but rather

16
 We realize that Pennsylvania contends that our reading of
the Letter contradicts our prior case law. Pennsylvania argues
that Federal Labor Relations Authority v. United States
Department of the Navy, 966 F.2d 747 (3d Cir. 1992) (en banc)
(hereafter “FLRA”) is “closely on point” and supports its claim
that the Letter is a legislative rule. Pennsylvania Br. 17. But
FLRA does not offer support for its contention. Pennsylvania

examples of invalid spurious rules. . . .”). Nonetheless, because
we conclude that the 1994 SMDL is an interpretive rule, and
because we agree with the Board’s conclusion that the 1994
SMDL reiterated longstanding agency policy, we may affirm its
decision.

We note that, while we question the agency’s reasoning,
our decision to affirm comports with the Supreme Court’s
Chenery doctrine. Under the Chenery doctrine, “a reviewing
court, in dealing with a determination or judgment which an
administrative agency alone is authorized to make, must judge
the propriety of such action solely by the grounds invoked by the
agency.” S.E.C. v. Chenery Corp., 332 U.S. 194, 196, 67 S.Ct.
1575, 1577 (1947). But the issue here falls under a recognized
exception to the doctrine. “Chenery reversal is not necessary
where, as here, the agency has come to a conclusion to which it
was bound to come as a matter of law, albeit for the wrong
reason, and where, as here, the agency’s incorrect reasoning was
confined to that discrete question of law and played no part in its
discretionary determination.” United Video, Inc. v. F.C.C., 890
F.2d 1173, 1190 (D.C. Cir. 1989). We therefore may uphold the
agency’s correct conclusion without endorsing its reasoning.

17
misreads that case, suggesting that in FLRA we invalidated an
Office of Personnel Management (“OPM”) interpretation of the
word “necessary” because it was a legislative rule that was
designed to have a measurable impact. Pennsylvania then likens
the circumstances in FLRA to those here, because the agencies
in both situations interpreted the word “necessary.” Our holding
in FLRA was quite different, however, because in that case we
assumed, without deciding, that OPM’s interpretation was an
interpretive rule because the parties and “[o]ther courts of
appeals to consider the issue [had] also cast the rule as
interpretive.” Id. at 762. We then rejected the agency’s
interpretation for a reason unrelated to this case: because the
OPM failed to publish it in a meaningful way. Id. at 764.
FLRA accordingly does not support Pennsylvania’s erroneous
argument that the 1994 SMDL is an invalid substantive rule.

In reaching our result, we have taken into account the
recent decision of the United States Court of Appeals for the
First Circuit in New Hampshire Hospital Ass’n v. Azar, 887
F.3d 62 (1st Cir. 2018), that was decided after the argument in
this case and on which Pennsylvania relies. There, the court
held that a CMS answer in a Frequently-Asked-Questions
(“FAQ”) document was an invalid legislative rule. The FAQ
stated, in essence, that hospitals which serve Medicaid patients
must reduce their reimbursement claims for those services by
any amount they already received from Medicare and private
insurance. Two main features led the court to find the FAQ a
legislative rule: the absence of a statutory standard for the
Secretary’s action and the FAQ’s bare language. Neither feature
appears in our case.

18
 First, the statutes underlying the 1994 SMDL and the
FAQ are different. New Hampshire Hospital does not concern §
1396b(a)(7) or administrative costs. Rather it involves 42
U.S.C. § 1396r-4(g)(1), which deals with caps on
reimbursements to hospitals for medical services to Medicaid
patients. Specifically, that statute provides that reimbursements
to hospitals for Medicaid services cannot exceed the hospital’s
“costs incurred” in furnishing those services. But the statute
leaves it to the Secretary to decide what payments must be offset
from “costs incurred.” 42 U.S.C. § 1396r-4(g)(1)(A) (“A
payment adjustment during a fiscal year shall not . . . exceed[ ]
the costs incurred during the year of furnishing hospital services
[]as determined by the Secretary. . . .”). The court found it
significant that the statute lacked any standard for what “costs
incurred” means and left it to the Secretary to fill that gap. It
stated that this “textual silence” suggests that any agency rule
implementing the statute is likely substantive, reasoning that,
“[w]here Congress has specifically declined to create a standard,
the [agency] cannot claim its implementing rule is an
interpretation of the statute.” New Hampshire Hosp., 887 F.3d
at 71 (alteration in original) (quoting Mendoza v. Perez, 754
F.3d 1002, 1022 (D.C. Cir. 2014)).

Unlike § 1396r-4(g)(1), which does not provide a
standard to guide the Secretary in implementing the “costs
incurred” rule, § 1396b(a)(7) does provide a meaningful
standard for the administrative expenses rule. It instructs the
Secretary that administrative expenses are amounts “found
necessary by the Secretary for the proper and efficient
administration of the State plan.” So, Congress has not granted
the Secretary carte blanche authority to fill in a statutory gap as
it did in the statute involved in New Hampshire Hospital; rather,

19
it gave the Secretary a rule (administrative costs under §
1396b(a)(7) are reimbursed at 50%) and provided a standard
(administrative costs are costs “necessary . . . for the proper and
efficient administration of the State plan”) to help the Secretary
apply that rule in practice. Thus, because § 1396b(a)(7) contains
a meaningful standard, the Secretary here can claim that the
1994 SMDL is an interpretation of the statute.

The second feature of New Hampshire Hospital, the bare
language, is also absent from our case. There, the court
expressed concern with the language used in the
FAQ. Specifically, the FAQ stated that “costs incurred” must
exclude payments hospitals receive from Medicare and private
insurance. In reaching this conclusion, however, the FAQ
provided no interpretation of the statute or regulation, and did
not explain how the new set-offs flowed from those
authorities. The Secretary merely noted the statute’s textual
silence and asserted the new rule. The court noted that “such an
announcement, without reasoned interpretive explanation, looks
to us more as if the Secretary is using delegated power to
announce a new policy out of whole cloth, rather than engaging
in an interpretive exercise.” 887 F.3d at 72. Here, however, the
1994 SMDL does link its rule to the statutory and regulatory
language. It charts the statutory and regulatory standards,
discusses how states have misinterpreted § 1396b(a)(7) in the
past, and explains why various expenditures like training costs
are more like medical services and overhead than administrative
work and thus cannot be “necessary . . . for the proper and
efficient administration of the State plan.” As such, the
Secretary did engage in an interpretive exercise when crafting
the 1994 SMDL.

20
 As a side note, we see some irony in Pennsylvania’s
reliance on New Hampshire Hospital. If anything, the decision
cautions us to look out for substantive rules masquerading as
agency interpretations in online question-and-answer
documents. Yet, as we will see later, Pennsylvania contends
that we give a similar CMS document from 2015 controlling
weight over the 1994 SMDL. While we take no position on the
validity of the 2015 CMS document, we note that New
Hampshire Hospital offers no aid to Pennsylvania on that point
either.

In sum, New Hampshire Hospital does not change our
conclusion that the 1994 SMDL is a valid interpretive rule.

B. The 1994 SMDL’s Application to PARRI Training
Costs

Second, Pennsylvania challenges the agency’s application
of the 1994 SMDL to exclude reimbursement for PARRI
training costs as overhead expenses. 6 The 1994 SMDL

6
Pennsylvania does not make a substantial challenge to the
District Court’s grant of Skidmore deference to the 1994 SMDL.
The Court granted Skidmore deference to the Letter because the
terms “necessary” and “administration” were undefined in the
statute and were ambiguous; Congress delegated the
interpretation of those words to the Secretary; and although
interpretive guidelines like the 1994 SMDL do not carry the
force of law, the 1994 SMDL was persuasive because it
“reflect[ed] a reasonable and considered interpretation” of the
statute. Pennsylvania Dep’t of Human Servs., 241 F. Supp. 3d
at 513-14. In response, Pennsylvania argues only that the Court

21
excluded from administrative costs all “overhead costs of
operating a provider facility such as the supervision and training
of providers.” JA 113.

Pennsylvania claims that PARRI training costs cannot be
overhead costs. Specifically, Pennsylvania argues that overhead
costs are defined as “necessary costs incurred by a company in
its operations which cannot be easily identified with any
individual product,” relying on a definition of “overhead” from
an out-of-circuit case about a union dispute published over sixty
years ago. Pennsylvania Br. 18 (quoting United Elec., Radio. &
Mach. Workers of Am. v. Oliver Corp., 205 F.2d 376, 387 (8th
Cir. 1953)). Based on that definition, Pennsylvania claims that
the PARRI training costs cannot be regarded as overhead
expenditures because PARRI training is not a cost nursing home
providers “must incur to operate their facilities,” and nursing
home providers did not pay for the training. Pennsylvania Br.
18-19.

As a threshold matter on this overhead issue, we note that
we question whether we need to decide whether the Letter’s
discussion of overhead captures PARRI costs because the
Appeals Board provided separate support for its disallowance.
The Board stated that provider training is disallowable under
other portions of the 1994 SMDL, even without the overhead

should not have granted any deference because the 1994 SMDL
does permit reimbursement of training costs as administrative
costs. Pennsylvania Br. 18. As we will explain in this section,
that argument is meritless, the 1994 SMDL does apply to
PARRI costs, and there is no reason to disturb the Court’s
application of Skidmore deference to the Letter.

22
costs language. Given the language of § 1396b, 42 C.F.R. §
433.15, and the prior Board decisions, the Board found that
“exclusion of provider training from Medicaid administration
reflects the longstanding principle . . . that a state may not claim
costs of medical assistance rendered by providers as the state
agency’s Medicaid administrative cost.” JA 31. Thus, the
finding that provider training is related to medical assistance and
therefore cannot be an administrative cost is a sufficient basis
for us to uphold the decision.

Nonetheless we will reach Pennsylvania’s argument. We
conclude that the Appeals Board considered Pennsylvania’s
arguments and rendered a plausible decision rejecting them. See
Motor Vehicle Mfrs. Ass’n of U.S., 463 U.S. at 43, 103 S.Ct. at
2867. The Board gave no weight to Pennsylvania’s narrow
definition of overhead. We, too, see no reason to read
“overhead” to mean costs a company “must” incur. Indeed, as
the term is generally understood, “overhead” can include all
kinds of costs, both necessary and permissive. See
OVERHEAD, Black’s Law Dictionary (10th ed. 2014) (making
no mention of costs that must be incurred). Further, were we to
agree that Pennsylvania’s definition was more on point than the
Secretary’s, we still would side with the Secretary because the
Secretary bears responsibility for making the overhead
determination. See Elizabeth Blackwell, 61 F.3d at 181
(“[p]erhaps appreciating the complexity of what it had wrought,
Congress conferred on the Secretary exceptionally broad
authority to prescribe standards for applying certain sections of
the [Medicaid] Act.”) (quoting Schweiker v. Gray Panthers, 453
U.S. 34, 43, 101 S.Ct. 2633, 2640 (1981)) (alterations in
original). Thus, because the Board gave a plausible reason to
reject Pennsylvania’s narrow definition of overhead, and

23
because the Secretary has broad authority to define overhead, we
reject Pennsylvania’s argument that the 1994 SMDL excludes
only provider training that a company must incur.

We also reject Pennsylvania’s argument that PARRI
training costs are allowable because nursing home providers did
not pay for them. The argument goes as follows: providers pay
for overhead costs, but the state, not the provider, paid for the
training, so the cost of the training cannot be an overhead cost.
But that argument misses the point. Had Pennsylvania
structured the PARRI payments correctly, the providers would
have paid for the training. And CMS could have reimbursed
Pennsylvania for those costs if Pennsylvania factored the
amount into its rate-setting scheme instead of claiming the
amount as administrative costs.

The 1994 SMDL and the Appeals Board explained why
this is the case. The Letter explains that “[s]uch services are
properly paid for as part of the payment made for the medical or
remedial service.” JA 113. It states that “[b]ecause Medicaid
providers have agreed to accept service payment as payment in
full, such providers may not claim an additional cost as [an]
administrative cost under the State plan.” Id. The Board further
explained, as noted above, that this payment scheme forces
states to ensure that the costs are reasonable and adequate, and
prevents duplicative payments to states and providers for the
same activity. So, even accepting Pennsylvania’s claim that
overhead must be paid by the provider, its argument still fails
because the provider should have paid the costs for the PARRI
training.

But Pennsylvania contends that CMS encouraged

24
Pennsylvania to create the PARRI program, so it argues that
CMS cannot now say that Pennsylvania should not have paid for
the program. We disagree. CMS may well have encouraged
Pennsylvania to create the training program. Indeed, it makes
sense that CMS would have done so. The program ensured
faster and smoother rolling-out of the nursing home reforms.
But it is wrong to say that CMS’s support for the program
conflicts with its opposition to the state paying for the program
directly. Those issues are different and reconcilable. In other
words, CMS did encourage Pennsylvania to create the PARRI
program, but there is no evidence that CMS encouraged
Pennsylvania to pay for the training program directly and then
claim those payments as administrative costs. Rather, based on
the record, CMS showed no support for the kind of payment
scheme Pennsylvania employed. It instead showed support for
the rate-setting scheme where providers paid for the training
themselves and then the states factored those payments into the
rate-setting calculation. Thus, the fact that CMS encouraged
Pennsylvania to create the training program does not make its
disallowance of the PARRI costs arbitrary and capricious.

In fact, the Appeals Board’s position that Pennsylvania
should have used the rate-setting scheme to have obtained
reimbursement is consistent with its prior treatment of training
costs. For example, in New York State Department of Social
Services, DAB No. 1146 (1990), the state, like Pennsylvania
here, claimed FFP for the cost of contracts to train nursing home
employees. HCFA, like CMS here, disallowed the payments
because they were not necessary for the proper and efficient
administration of the state plan. On appeal the Board affirmed,
finding that the costs were related to the services provided by
provider facilities, and explained why the rate-setting

25
methodology was the best way, in the agency’s view, to
reimburse such costs. It further rejected the state’s argument
that “as a practical matter, it had no other way to recover these
costs,” reasoning that the state’s failure to structure its scheme
properly does not allow the state to “change the character of the
expenditure from a services cost to an administrative cost.” Id.
at 6-7. This prior decision reinforces the Board’s decision in
this case that providers must pay for their own training costs.

Pennsylvania argues that we should not give these prior
decisions any weight. It asserts that the Appeals Board does not
have authority to create formal policy for the Secretary, so we
should not consider those prior decisions. But even if the
Board’s decisions do not constitute formal policy, they are
helpful because they show that the agency had a consistent
position on training costs. Cf. Nazareth Hosp. v. Sec’y U.S.
Dep’t of Health & Human Servs., 747 F.3d 172, 179 (3d Cir.
2014) (“Agency action is arbitrary and capricious if the agency
offers insufficient reasons for treating similar situations
differently.”).

In sum, under our narrow review, we will not disturb the
agency’s finding that PARRI costs are not reimbursable as
administrative costs. The Appeals Board determined that
PARRI training costs are excludable provider training costs
under the Medicaid statute as reflected in the Letter; that such
training costs should be paid by providers and factored into the
state’s rate-setting calculations; that two reasons exist for the
rate-setting payment calculations; that those reasons comport
with the Board’s prior treatment of the same issue; and
Pennsylvania gave no reason why those bases are unsound. As
such, the APA counsels us to defer to the agency’s decision.

26
 C. The 1994 SMDL Is Not an Ambiguous Condition
on a Federal Grant

Pennsylvania next argues that, even if we read the 1994
SMDL to disallow PARRI costs, the disallowance violates
constitutional spending clause principles. Pennsylvania asserts
that the 1994 SMDL’s discussion of training costs and overhead
costs is ambiguous, and therefore the Letter failed to provide
sufficient notice that training expenses were disallowable.
Consequently, Pennsylvania claims, the disallowance is invalid.

In support, Pennsylvania cites Pennhurst State School &
Hosp. v. Halderman, 451 U.S. 1, 101 S.Ct. 1531 (1981) and its
progeny, which upheld Congress’ power to attach conditions to
federal grants to states so long as the conditions are stated
unambiguously. Id. at 17, 101 S.Ct. at 1540. To determine
whether a statute satisfies this clarity requirement, courts “ask
whether . . . a state official would clearly understand . . . the
obligations” of the law, and “whether the [statute] furnishes
clear notice regarding the liability at issue in [the] case.”
Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S.
291, 296, 126 S.Ct. 2455, 2458 (2006). Because a conditional
grant is akin to a contract, recipients of federal funds should
accept the attached conditions “voluntarily and knowingly.”
Pennhurst, 451 U.S. at 17, 101 S.Ct. at 1540. “[W]e must view
the [Medicaid statute] from the perspective of a state official
who is engaged in the process of deciding whether the State
should accept [Medicaid] funds and the obligations that go with
those funds.” Arlington, 548 U.S. at 296, 126 S.Ct. at 2459.

We reject Pennsylvania’s argument. We note first that
the argument is narrow. Pennsylvania does not claim that the

27
Medicaid statute—§ 1396b(a)(7)—or the implementing
regulations set forth ambiguous conditions of a federal grant. It
levels that claim against only the 1994 SMDL. With that narrow
scope in mind, Pennsylvania’s theory is shaky. Pennsylvania
provides no case—nor are we aware of one—where a court
invalidated a spending condition based on an agency’s position
in interpretive guidance. Nor do we know of such an
invalidation where the plaintiff challenges the guidance but
takes no issue with the controlling statute and regulations.

In any event, even if Pennsylvania had case law support,
its theory would fail. We must consider Pennsylvania’s claim
from the perspective of a state official. Arlington, 548 U.S. at
296, 126 S.Ct. at 2459. Pennsylvania does not challenge either
the statute or the regulation. Consequently, Pennsylvania does
not dispute the circumstance that the official knew the state
could claim administrative costs that are necessary for the
proper administration of the plan, 42 U.S.C. § 1396b(a)(7), and
also knew that determination was left to the sole discretion of
the Secretary of HHS, id.; 42 C.F.R. § 433.15(b)(7).
Nonetheless, Pennsylvania claims that the Letter is an
ambiguous condition on a grant because the official would not
have known that the Secretary could deem training costs to be
disallowable overhead costs in the 1994 SMDL. But that
argument makes little sense. If the official knew the applicable
test and knew the Secretary had discretion to apply the test; and
the Secretary applied the test reasonably, as we conclude the
Secretary did here, then the official cannot claim not to have
been on notice that the disallowance was possible.

At bottom, Pennsylvania’s position is merely that it did
not know for sure that the Secretary would deny the PARRI

28
costs until it received CMS’s disallowance letter. But that
circumstance does not make the Secretary’s decision to exclude
the training costs an ambiguous condition of funding. Rather, as
is true when an agency reasonably exercises discretion, there
always was a possibility that the Secretary would make the
decision reached here. And Pennsylvania was on notice of that
possibility when it accepted the Medicaid funds. As such, we
reject Pennsylvania’s argument that it lacked notice of a
condition of receiving the Medicaid funds.

D. The Denial of Discovery Was Not Abuse of
Discretion

Fourth, Pennsylvania claims that the Appeals Board
abused its discretion when it denied it the opportunity for
discovery. Under HHS regulations, the Board may authorize
discovery when it determines that it is appropriate to do so. 45
C.F.R. § 16.9 (“The Board may, at the time it acknowledges an
appeal or at any appropriate later point, request additional
documents or information . . . and take such other steps as the
Board determines appropriate to develop a prompt, sound
decision.”). Here, Pennsylvania requested the opportunity for
discovery to determine if CMS had promised to pay the state for
the PARRI costs. Pennsylvania claimed that it has purged any
such documents, if they existed, pursuant to its record retention
policy. The Board denied the motion as speculative and lacking
any factual basis. We agree because Pennsylvania did not
provide a reason to believe CMS made that promise.

Pennsylvania claims that it should have been allowed the
opportunity for discovery for two reasons. First, it notes that
CMS had been paying for the PARRI costs since 1996 but then

29
abruptly changed course. Pennsylvania claims that this abrupt
change raised enough suspicions to warrant discovery.
However, the OIG audit explains the reason for the change in
course. The audit recites that Pennsylvania claimed the PARRI
costs as “Other Financial Participation” without further detail
for years until the payments came to OIG’s attention due to
previous payment issues. Then Pennsylvania states that a CMS
representative was on the PARRI task force and might have
information about any payment agreement. But Pennsylvania
does not state what this representative’s role was vis-à-vis CMS
and the task force or explain the representative’s function on the
PARRI task force or how the representative was involved in
Pennsylvania’s reimbursement scheme. Consequently we
uphold the Board’s decision to deny discovery.

E. HHS Grants Administration Manual

Pennsylvania’s penultimate argument seeks to limit the
lookback period for CMS’s disallowance decision to three years.
The HHS Grants Administration Manual (“GAM” or “the
Manual”) then in effect, set a time period for computing
disallowances. JA 191; GAM § 1-105-60(C)(3)(a)(1). The
Manual states that the disallowance period “will cover” the
time-period the organization was required to retain records. JA
191. 7 The parties agree that the applicable regulations required

7
The relevant language in the GAM provides:

3. Time Period for Computing Disallowances

a. If the Action Official determines that certain
costs should be disallowed, the computation of

30
Pennsylvania to keep the records for three years from the date
Pennsylvania sent the expenditure reports to CMS, though the
parties also agree that Pennsylvania retained its records for the
full period for which reimbursement was disallowed. Because
OIG told Pennsylvania about its audit in July 2011,
Pennsylvania argues that the GAM limits CMS’s disallowance
to 2008, three years earlier.

The Appeals Board disagreed. Citing prior Board
decisions, it held that “the GAM provision does not state that for
all disallowances, the computation will only cover the period of
time records are required to be retained.” JA 35 (internal
quotation marks omitted) (emphasis in original). The Board
further held, based on prior Board precedent, that “the GAM
provision [does] not bar the disallowance where records in fact
exist to support the computation of the disallowance, so the
grantee is not prejudiced by the passage of time.” Id. Because
Pennsylvania did not claim that the records had been destroyed,
and because there were sufficient records to calculate accurately
the disallowance back to 1996, the Board affirmed the full
fifteen-year disallowance period.

Pennsylvania argues that the Appeals Board was wrong

the disallowance will cover the following periods.

(1) If the costs can be identified to specific
awards, the computation will cover the period the
organization is required to retain records under
applicable records retention requirements.

GAM § 1-105-60(C)(3)(a)(1). JA 191.

31
because the GAM permits only a three-year disallowance period.
We disagree, though we resolve the issue without weighing in
on the agency’s reading of the GAM. No matter the
interpretation of the GAM, the agency was not bound by the
three-year time limit. The GAM was not binding because it
“satisf[ies] none of the criteria which have been developed by
the courts to determine whether agency regulations have the
force of law.” Gatter v. Nimmo, 672 F.2d 343, 347 (3d Cir.
1982); see also Schweiker v. Hansen, 450 U.S. 785, 789-90, 101
S.Ct. 1468, 1471-72 (1981) (“[T]here is no doubt that [the
agency employee] failed to follow the Claims Manual. . . . But
the Claims Manual is not a regulation. It has no legal force, and
it does not bind the [agency].”). The GAM sets out audit
policies and procedures for internal use by HHS employees or
auditors acting on HHS’s behalf; 8 it was not published in the

8
JA 188 (explaining applicability of GAM to audit procedures);
see also U.S. Dep’t of Health and Human Servs., Grants Policy
Statement ii (Jan. 1, 2007) (“Recipients are not directly subject
to the requirements of HHS Grants Policy Directives and
implementing HHS Grants Administration Manuals (or any
predecessor OPDIV manuals), which are internal documents
guiding HHS operations.”),
https://www.hhs.gov/sites/default/files/grants/grants/policies-
regulations/hhsgps107.pdf.

Pennsylvania claims, however, that the Secretary has
cited the Manual in the Code of Federal Regulations, meaning it
is not merely a guiding document. That is incorrect. While the
Secretary has promulgated regulations that require compliance
with unrelated GAM policies, see, e.g., 42 C.F.R. §§ 86.19,
86.33 (requiring compliance with GAM section concerning

32
federal register or promulgated with public notice and comment;
and there is no other evidence the agency meant to give the
GAM binding force. Accordingly, the GAM was promulgated
to assist the agency in running its audits rather than to set forth a
binding legal mandate. See Gatter, 672 F.2d at 347; Concerned
Residents of Buck Hill Falls v. Grant, 537 F.2d 29, 38 (3d Cir.
1976) (“[S]ince the Guide and the Handbook are merely internal
operating procedures, rather than regulations officially
promulgated under the APA or otherwise, they do not prescribe
any rule of law binding on the agency.”). And consequently,
because the agency has shown that the disallowance decision
captures every year for which accurate records of
Pennsylvania’s erroneous claims exist, the decision is not
arbitrary and capricious.

F. Judicial Notice of CMS’s Post-Disallowance
Statement

Finally, Pennsylvania claims that the District Court erred
in not taking judicial notice of a CMS statement about training
costs issued in July 2015, three months after the Appeals Board
issued its final decision in this case and thus long after the
events involved in this case.

In July 2015 CMS issued a “Questions and Answers”
document addressing administrative claims for training costs.
One of the three questions reads as follows:

animal welfare), there is no regulation requiring compliance
with the GAM’s policy for computing the disallowance time
period.

33
 Q: Is federal Medicaid administrative match
available for provider training activities?

A: Yes. Provider training provided by the
Medicaid agency or its contracted designee
regarding the scope or the benefits of Medicaid
covered services, or that is aimed at improving the
delivery of Medicaid services, is reimbursable as
a Medicaid administrative expenditure. This
could include, for example, training for case
managers, individuals who develop and
coordinate person-centered care planning, primary
care practitioners, or hospital discharge planners.

JA 53.

After the District Court denied Pennsylvania’s motion to
supplement the administrative record with this document on the
ground that it was published after the agency rendered its
decision, Pennsylvania asked the Court to take judicial notice of
the document. The Court declined to do so because it regarded
the request as an “end around the restrictions on record
supplementation” and the parties disputed what the CMS
document meant. Pennsylvania Dep’t of Human Servs., 241 F.
Supp. 3d at 511-12. Pennsylvania challenges the decision not to
take judicial notice of the statement, and we review the Court’s
decision on the point for abuse of discretion. In re NAHC, Inc.
Sec. Litig., 306 F.3d 1314, 1323 (3d Cir. 2002).

A court may take judicial notice of an adjudicative fact if
that fact is not subject to reasonable dispute. Fed. R. Evid.
201(b). “A judicially noticed fact must either be generally

34
known within the jurisdiction of the trial court, or be capable of
accurate and ready determination by resort to sources whose
accuracy cannot reasonably be questioned.” Werner v. Werner,
267 F.3d 288, 295 (3d Cir. 2001).

Here, the District Court did not abuse its discretion in
declining to take judicial notice of the CMS Question and
Answer document. Although the document appears to provide
some support for Pennsylvania’s contention that PARRI costs
are now allowable, such a conclusion is not indisputable. In
order to reach that conclusion, several related questions which
the document does not address must be answered as well. For
example, it is unclear if this rule reverses the 1994 SMDL or
clarifies a requirement that the Letter already states. It is also
unclear without more information how the answer can be
squared with 42 C.F.R. § 433.15(b)(7)’s requirement that the
training must be “necessary for proper and efficient
administration of the State plan” because arguably training for
medical services is distinct from the administration of a
Medicaid plan. We take no position on these questions, but note
that they open up the CMS document to reasonable dispute.

Furthermore, even if we agreed with Pennsylvania that
the document clearly contradicts the 1994 SMDL, we still would
not conclude that the District Court erred in declining to
judicially notice it. Just as the Secretary had authority to
interpret the Medicaid statute in the 1994 SMDL, so, too, does
the Secretary have the right to change the CMS interpretation
over the course of years. See Pennsylvania Fed’n of
Sportsmen’s Clubs, Inc. v. Kempthorne, 497 F.3d 337, 350-51
(3d Cir. 2007) (“[A]n administrative agency is not disqualified
from changing its mind. . . .”) (quoting Good Samaritan Hosp. v.

35
Shalala, 508 U.S. 402, 417, 113 S.Ct. 2151, 2161 (1993)). And
if the Question and Answer document is in fact an about face on
the issue of training costs, as Pennsylvania suggests, that
circumstance would call into question the new policy change,
not CMS’s original position from 1994. See Revak v. Nat’l
Mines Corp., 808 F.2d 996, 1002 (3d Cir. 1986) (“We do not
believe that we should defer to the [agency’s] change of policy
in the absence of [a reasoned analysis by the agency].”),
abrogated on other grounds by Mullins Coal Co. of Va. v. Dir.,
Office of Workers’ Comp. Programs, U.S. Dep’t of Labor, 484
U.S. 135, 159 & n.34, 108 S.Ct. 427, 440 & n.34 (1987).
Consequently, we cannot say that the District Court erred in
declining to take judicial notice of the document.

V. CONCLUSION

For the foregoing reasons, we will affirm the order of the
District Court entered March 13, 2017, affirming the decision of
the Appeals Board.

36