dissenting:
I agree with the majority that, under step one of Chevron analysis, courts are required to consider “traditional tools of statutory interpretation.” Chevron, 467 U.S. at 843 n. 9, 104 S.Ct. 2778. Thus, the majority correctly considers the legislative history when determining if Congress has clearly spoken on the issue of whether a carry-forward provision is required under the Medicare statute. 42 U.S.C. § 1395 et seq. I disagree, however, with the majority’s and district court’s conclusion that the repeal did not violate Congress’ intent. I conclude that Congress expressed its clear *836intent that the Medicare statute be implemented in a manner that avoids penalizing providers for short range discrepancies and does not create incentives for providers to set higher charges. The carry-forward provision satisfied these concerns and the regulation that repealed the carry-forward provision, without replacing it with another mechanism to respond adequately to Congress’ concerns, violates Congress’ clear intent, and thus is not entitled to deference. Accordingly, I respectfully dissent.
Step one of Chevron analysis begins with a consideration of the language of the statute itself, 42 U.S.C. § 1395f(b)(l). The statute in relevant part provides, “[t]he amount paid to any provider of services ... shall ... be ... the lesser of (A) the reasonable costs of such services, ... or (B) the customary charges with respect to such services.” 42 U.S.C. § 1395f(b)-(b)(1). This language, adopted in 1972, implements the “lower costs or charges” (“LCC”) principle. The statutory language does not address the question whether Congress intended for a carry-forward provision to apply.
Because the text of the statute is silent on this issue, courts next consider other manifestations of congressional intent, including the structure of the statute, the purpose of the statute, and legislative history to determine whether Congress clearly expressed an intent concerning adoption of a carry-forward (or similar) provision. In this case, all parties agree that the only other relevant manifestation of Congress’ intent is the legislative history.
The majority cites the Senate and House Reports that accompanied the 1972 legislation. Although these reports raise serious concerns over the potential negative consequences of the implementation of the “lower costs or charges” principle, the majority ultimately concludes that this legislative history does not clearly express Congress’ intent that the Secretary adopt provisions to respond to these concerns. I disagree. The report clearly identifies Congress’ concerns with the LCC rule: that providers might be “penalized by such short-range discrepancies between costs and charges” and that there might be an “incentive for providers to set charges for the general public at a level substantially higher than estimated costs merely to avoid being penalized by this provision.” H.R. Rep. No. 92-931, 92d Cong., 1st Sess. 102 (1971); S. Rep. No. 92-1230, 92d Cong., 2d Sess. 203 (1972). Thus, Congress “recognize[d] the desirability of permitting a provider ... to carry un-reimbursed allowable costs.” Id.
This language evinces Congress’ clear intent to avoid penalizing providers for short-range discrepancies between costs and charges and prevent creating incentives for providers to set charges higher to avoid being penalized by the LCC provision. Although Congress did not mandate that a carry-forward provision be adopted, the legislative history identifies two serious congressional concerns and proposes a solution: the adoption of a carry-forward provision.
The majority argues that Congress’ expressed “desire” for the implementation of a carry-forward provision does “nothing more than reflect Congress’ understanding that the LCC provision could have some unnecessarily harsh consequences, and that the Secretary would have discretion to temper these effects by permitting a carry-forward provision.” This argument is undercut by the Secretary’s remarks in the Federal Register. When the Secretary repealed the carry-forward provision in 1988, he published a response to the universal opposition expressed during the public comment period. See 53 Fed. Reg. at 10079-083. He initially noted that *837among the new regulations, the elimination of the carry-forward provision was the sole change that did not “conform to the clear intent of the pertinent provisions” of the Social Security Act. 53 Fed. Reg. at 10079. He then noted, “while the LCC principle is mandated by sections 1814(b) and 1833(a)(2) of the Act, the specific inclusion of the carry-forward provisions in the regulations resulted solely from administrative discretion guided by indicated Congressional intent. ” Id. at 10080 (emphasis added). He then went on to explain that, in the Agency’s view, developments after the passage of the Act indicated that the carry-forward provision was no longer necessary. Id. Thus, the Secretary himself asserted that the carry-forward provision was part of the agency’s strategy to effectuate Congress’ intent.
Even if I were to accept that Congress has not expressed a clear intent that the Secretary provide a carry-forward provision, I would conclude that the Secretary’s interpretation does not pass step two of Chevron analysis because it is not a “permissible construction of the statute.” Chevron, 467 U.S. at 843, 104 S.Ct. 2778. Congress unequivocally expressed its intent in the legislative history that the LCC provision neither penalize providers for short-range discrepancies between costs and charges nor create incentives for providers to set higher charges. Because the Secretary failed to adequately consider Congress’ intent when he repealed the carry-forward provision, I conclude that his interpretation is impermissible.
The Secretary first argues that, after 14 years, providers should be used to the LCC and should have tightened their financial practices. The Secretary asserts (in his brief):
[accordingly, it was eminently rational for the Secretary to conclude in 1974 that an LCC carry-forward was needed to give providers time to adjust their charge structures and tighten up their accounting practices. Presumably even Irvine would concede that 14 years elapsed from 1974 to 1988. It was, then, not irrational for the Secretary to conclude in 1988 that the health care provider industry had “long-term experience” in making the adjustments to its charge structures in response to establishment of the LCC limit.
This explanation, at best, supports an argument that the Secretary’s decision to repeal the carry-forward was not irrational. The explanation does not refute the proposition that without a carry-forward provision — or some similar mechanism— providers will not be penalized for short range discrepancies. The appellants cite to the rich record of public comments describing the short-range discrepancy problem and refuting the Secretary’s suggestion that “experience” with the LCC will avert the problem. See, e.g., American College of Physicians, Letter to HCFA, Nov. 17, 1986 (“We believe that the reasons which prompted formulation of the carry-forward provisions are as valid today as they were in 1968”). The Secretary fails to demonstrate that repealing the carry-forward provision — in the absence of another mechanism — is not contrary to the clear congressional intent to avoid penalizing providers for short term discrepancies.
Next, the Secretary argues that the repeal will not result in higher charges to the beneficiaries because: (1) providers could reduce costs, and (2) beneficiaries might select another provider. Contrary to these arguments, the Secretary conceded, in the Federal Register “comment and response” section, that beneficiaries would seek other facilities only “in a few instances,” and that in cases where other facilities are not available, “the imposition of higher charges would result in a higher coinsurance *838amount imposed on Medicaid beneficiaries.” Fed. Reg. at 10082. The record contains the public comments of numerous organizations opposing the carry-forward repeal, in part, because it creates an incentive for providers to set higher charges. See, e.g., Middle Tennessee Home Health Service letter to HCFA (describing why elimination of the carry over provision will lead to increased charges to recipients and concluding “[w]e should not be trying to balance the budget on the backs of the elderly”.). Thus, the Secretary’s argument that the repeal of the carry-forward provision does not violate congressional intent by creating incentives for providers to raise charges is unpersuasive.
I conclude that Congress expressed a clear intent concerning the precise question at issue: whether the LCC provision should be implemented in a manner that did not penalize providers for short-range discrepancies or create incentives for providers to set higher charges. The Secretary’s repeal of the carry-forward provision is contrary to this clear intent. Moreover, even accepting the majority’s position that Congress has not clearly expressed such an intent, the Secretary’s interpretation of the statute is contrary to the congressional directive evidenced in the legislative history and therefore impermissible. I decline to defer to the agency’s interpretation of the Medicare statute in this instance and respectfully dissent.