North Broward Hospital District v. Shalala

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 8, 1999 Decided April 27, 1999

No. 98-5164

North Broward Hospital District, et al.,

Appellees

v.

Donna E. Shalala, Secretary,

U.S. Department of Health and Human Services,

Appellant

Appeal from the United States District Court

for the District of Columbia

(No. 96cv00076)

Anne M. Lobell, Attorney, U.S. Department of Justice,
argued the cause for appellant. With her on the briefs were
Frank W. Hunger, Assistant Attorney General, Wilma A.
Lewis, U.S. Attorney, and Anthony J. Steinmeyer, Attorney,
U.S. Department of Justice.

Ronald N. Sutter argued the cause and filed the brief for
appellees.

Before Silberman, Sentelle, and Randolph, Circuit
Judges.

Opinion for the court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge: Congress has authorized Medi-
care reimbursement at a higher than usual rate to certain
large urban hospitals that receive significant state and local
funding apart from Medicaid and Medicare revenues. The
Secretary of Health and Human Services ("HHS") appeals a
decision of the district court rejecting her interpretation of
the qualifications for eligibility under this provision. See
North Broward Hosp. Dist. v. Shalala, 997 F. Supp. 41
(D.D.C. 1998). Finding the statute ambiguous and the Secre-
tary's interpretation reasonable, we reverse.

I.

In 1983, Congress began to phase out the existing cost-
based Medicare reimbursement system, see 42 U.S.C.
s 1395f(b)(1); Methodist Hosp. of Sacramento v. Shalala, 38
F.3d 1225, 1227 (D.C. Cir. 1994), and to phase in a "prospec-
tive payment" system providing reimbursement according to
pre-determined rates based on diagnosis and geographic loca-
tion. See Social Security Amendments of 1983, Pub. L. No.
98-21, s 601, 97 Stat. 65, 149 (1983) (codified as amended at
42 U.S.C. s 1395ww). In 1986, recognizing that special ad-
justments might be needed for hospitals serving an unusually
large number of low-income individuals, Congress crafted
provisions implementing "disproportionate share" adjust-
ments for such hospitals. See The Consolidated Omnibus
Budget Reconciliation Act of 1985 (COBRA), Pub. L. No.
99-272, s 9105, 100 Stat. 82, 158 (1986). These disproportion-
ate share adjustments provide for additional Medicare pay-
ments for hospitals that qualify on either of two grounds.
Hospitals typically qualify for an adjustment by showing that
they serve a disproportionate number of low-income patients
based on the proportion of inpatient days attributable to
Medicaid patients and to Medicare patients qualifying for

Supplemental Security Income benefits.1 See 42 U.S.C.
s 1395ww(d)(5)(F)(i)(I), (v), (vi). Alternatively, under the
provision at issue in this case, large urban hospitals can
qualify by demonstrating that they receive state and local
funding which exceeds a statutory threshold. Specifically,
the statute provides for a disproportionate share adjustment
for any hospital that

is located in an urban area, has 100 or more beds, and
can demonstrate that its net inpatient care revenues
(excluding any of such revenues attributable to [Medicare
or Medicaid]), during the cost reporting period in which
the discharges occur, for indigent care from State and
local government sources exceed 30 percent of its total of
such net inpatient care revenues during the period.

Id. s 1395ww(d)(5)(F)(i)(II). As originally enacted in 1986,
this provision read just as it does now, except that the phrase
"total of such net inpatient care revenues" read "total of such
revenues." See COBRA s 9105(a)(F)(i)(II), 100 Stat. 82, 158.
The change to the present wording was made by a 1987
amendment. See The Omnibus Budget Reconciliation Act of
1987 (OBRA), Pub. L. No. 100-203, s 4009(j)(3)(A), 101 Stat.
1330, 1330-59 (1987).

The controversy in this case centers on the proper inter-
pretation of the ratio specified in this provision. The single
issue is whether the 30% set forth in the provision is a
percentage of all net inpatient care revenues or whether it is
a percentage of net inpatient revenues excluding revenues
from Medicare and Medicaid. In other words, the question is
whether the antecedent of "total of such net inpatient care
revenues" is "net inpatient care revenues" or "net inpatient
care revenues (excluding any of such revenues attributable to
[Medicare or Medicaid])."

North Broward Hospital District ("North Broward"), doing
business as Broward General Medical Center, North Broward

__________
1 Supplemental Security Income furnishes financial assistance
to indigent persons who are aged, blind, or disabled. See 42 U.S.C.
s 1381 et seq.

Medical Center, and Imperial Point Medical Center, believed
that the latter interpretation was correct, and that its facili-
ties therefore qualified for the disproportionate share adjust-
ment for fiscal years 1989-1991. However, the Medicare
fiscal intermediary adhered to the former interpretation, and
accordingly refused to make the more generous reimburse-
ments to North Broward. North Broward appealed to the
Provider Reimbursement Review Board ("PRRB") as speci-
fied in 42 U.S.C. s 1395oo(a), (h). The PRRB adopted the
latter interpretation of the ratio, reversed the intermediary's
decision, and held that the North Broward facilities qualified
for the disproportionate share adjustment. Next, at the
urging of the intermediary and HHS's Bureau of Policy
Development ("BPD"), the Administrator of the Health Care
Financing Administration ("HCFA"), acting as the Secre-
tary's delegate, reversed the Board's decision, as permitted
by 42 U.S.C. s 1395oo(f)(1) and 42 C.F.R. s 405.1875. The
Administrator held that the provision contained "incontro-
vertible referential ambiguity" and that the former interpre-
tation, adopted by the BPD and the intermediary, was rea-
sonable. Pursuant to 42 U.S.C. s 1395oo(f)(1), the hospitals
sought review in the district court, which in turn reversed the
Administrator's decision and granted summary judgment for
North Broward. The district court held that the language of
the provision is clear and unambiguous and that it requires
the latter interpretation, urged by North Broward. 997
F. Supp. at 45, 48. The Secretary appeals from this ruling of
the district court.

II.

The practical differences between the Secretary's interpre-
tation and that advanced by North Broward and accepted by
the district court are significant. As an illustration of the
implications of the two interpretations, consider an example
of a hospital whose total net inpatient care revenues are
$100,000,000, of which $40,000,000 are Medicare and Medicaid
revenues. Under North Broward's interpretation, which ex-
cludes Medicare and Medicaid revenues from the denomina-
tor of the ratio, the hospital would qualify for a disproportion-

ate share adjustment under the provision at issue as long as it
received more than $18,000,000 in state and local funding not
attributable to Medicaid or Medicare, as illustrated by the
following calculations:
North Broward's interpretation
Numerator = (State and local funding other than
Medicare & Medicaid)
= $18,000,000
Denominator = (Net inpatient revenues, excluding
Medicare & Medicaid)
= $100,000,000 - $40,000,000
= $60,000,000
The ratio is thus 18/60, or 30%.

Under the Secretary's interpretation, which does not exclude
Medicare and Medicaid revenues from the denominator, the
hospital would need to receive more than $30,000,000 of state
and local funding not attributable to Medicaid or Medicare to
qualify:
Secretary's interpretation
Numerator = (State and local funding other than
Medicare & Medicaid) = $30,000,000
Denominator = (Total net inpatient revenues)
= $100,000,000
The ratio is thus 30/100, or 30%.

Given the sizable difference in the amount of state and local
funding required to qualify under the two interpretations,
adopting North Broward's interpretation would likely in-
crease the number of providers qualifying for the dispropor-
tionate share adjustment under the provision.2

Whether such an increase in the provision's applicability
would be appropriate or desirable is a matter of policy, not of
statutory construction, and within the bounds of congressional
directive, it is primarily a question for HHS, not the courts.
Because an agency's policy choices are necessarily con-
strained by the statute pursuant to which it acts, when an
agency has interpreted a statute it administers, we first
consider whether Congress has "directly addressed the pre-
__________
2 According to HHS, fewer than a dozen facilities or hospital
districts in the nation qualified under this provision in 1995. Secre-
tary's Brief at 42; J.A. at 65.
cise question at issue." Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 843 (1984). If
the intent of Congress is clear, it must be given effect. Id.
However, if the intent of Congress is not clear, we do not
impose our own construction of the statute, but instead
examine only whether "the agency's answer is based on a
permissible construction of the statute." Id. Thus, absent
clear congressional intent to the contrary, we will defer to the
Secretary's interpretation " 'if it is reasonable and consistent
with the statute's purpose.' " National Med. Enters., Inc. v.
Shalala, 43 F.3d 691, 695 (D.C. Cir. 1995) (quoting Chemical
Mfrs. Ass'n v. EPA, 919 F.2d 158, 162-63 (D.C. Cir. 1990)).
See also HCA Health Servs. of Oklahoma, Inc. v. Shalala, 27
F.3d 614, 616-17 (D.C. Cir. 1994); Marymount Hosp., Inc. v.
Shalala, 19 F.3d 658, 661 (D.C. Cir. 1994).

North Broward advances two arguments that the usual
Chevron analysis is inapplicable, neither of which we find
convincing. First, North Broward argues that the Secre-
tary's interpretation of the statute creating the ratio is not
entitled to deference because it is not longstanding, noting
that even the Administrator's decision characterized the regu-
lations as silent with respect to the issue. We are somewhat
puzzled by North Broward's argument, since the statutory
interpretations of the agency's adjudicatory decision in this
case would be entitled to deference even if the matter had
never been addressed in regulations at all. See Appalachian
Regional Healthcare, Inc. v. Shalala, 131 F.3d 1050, 1054
(D.C. Cir. 1997). There is certainly no argument that the
Administrator's decision in this case is actually incompatible
with the regulations. While perhaps not entirely unambigu-
ous, the regulations describe the required ratio as 30 percent
of "net inpatient care revenues" and are thus more consistent
with the Secretary's interpretation of the statute than with
the contrary position urged by North Broward. See 42
C.F.R. s 412.106(c)(2) (providing that the adjustment is avail-
able if a hospital "can demonstrate that, during its cost
reporting period, more than 30 percent of its net inpatient
care revenues are derived from State and local government
payments for care furnished to indigent patients"). See also

51 Fed. Reg. 16,772, 16,776 (1986) (explaining that a qualify-
ing hospital must show "that more than 30 percent of its total
inpatient care revenues are from State and local government
sources and that these revenues are specifically earmarked
for the care of indigents").

Second, and even less convincingly, North Broward argues
that the Secretary is not entitled to deference because of her
"unremitting hostility" to disproportionate share adjustments
in general. As evidence of this hostility, North Broward
notes that Congress's 1986 enactment of statutory dispropor-
tionate share adjustments arose in response to HHS's failure
to implement acceptable adjustments by regulation, and that
the House and Senate reports expressed dissatisfaction with
the Secretary's nonresponsiveness. See H.R. Rep. No.
99-241, pt. 1, at 15-16 (1985); S. Rep. No. 99-146, at 291
(1985). As further evidence of the Secretary's alleged hostili-
ty to disproportionate share adjustments, North Broward
points to cases rejecting the Secretary's interpretation of the
statutory provisions governing disproportionate share adjust-
ments based on a high proportion of low-income "patient
days." See, e.g., Cabell Huntington Hosp., Inc. v. Shalala,
101 F.3d 984 (4th Cir. 1996); Jewish Hosp., Inc. v. Secretary
of HHS, 19 F.3d 270 (6th Cir. 1994). Not surprisingly, North
Broward cites no support for its suggestion that we should
deny an agency Chevron deference because of our judicial
assessment that it has been "hostile" to certain ideas. If an
agency's "hostility" leads it to adopt an unreasonable inter-
pretation of a statute, the interpretation will, if challenged, be
rejected by the courts, as is perhaps illustrated by the cases
cited by North Broward in which courts have rejected the
Secretary's interpretation of the "patient-day" based dispro-
portionate share mechanism. It is a far different thing to
suggest that a court withhold deference to an agency's inter-
pretation of a statute it administers on the basis of some sort
of judicial "vote of no confidence" regarding the agency's
actions on related matters. If Congress views HHS as
"unremittingly hostile" to disproportionate share adjust-
ments, it is free to decrease the agency's discretion in admin-
istering them or remove them from the agency's purview

entirely. Absent such congressional intervention, administra-
tion of the provision at issue is entrusted to HHS, and our
review is that prescribed by Chevron.

Finally, North Broward urges that even if Chevron applies,
we need not conduct a Chevron analysis, because regardless
of our view of the statute, the final decision by the HCFA
Administrator was arbitrary and capricious and therefore
violated the Administrative Procedure Act ("APA"). 5 U.S.C.
s 706(2)(A); see also 42 U.S.C. s 1395oo(d) & (f)(1). In
particular, North Broward relies on the fact that the Adminis-
trator's decision made reference to the fact that the phrase
"such revenues" appears twice in the relevant sentence of the
statute. North Broward accurately points out that while
"such revenues" appeared twice in the statute before the 1987
amendment, it no longer does so--"such revenues" appears
once, and "such net inpatient care revenues" appears once.
Thus, appellees argue, the Administrator "did not even get
the words of the statute right." North Broward Brief at 33.
We find this argument hypertechnical. The Administrator's
decision quoted the entire relevant statutory passage in two
places, one immediately above the complained-of references
to "such revenues." The statute was set forth correctly, with
"such revenues" in one place and "such net inpatient care
revenues" in the other. In light of this, it seems clear that
the Administrator's reference to the two occurrences of "such
revenues" was simply a shortening of the latter phrase by
omitting the modifiers for ease of reference. Such shorthand
may offend certain attorneys and copyeditors, but does not
offend the APA. We therefore proceed to a Chevron analy-
sis.

III.

Under the first step of Chevron, our task is to consider
whether "the intent of Congress is clear" with respect to the
interpretation of the state and local funding provision. Chev-
ron, 467 U.S. at 842. As we noted above, the statute provides
for enhanced reimbursement if a hospital

is located in an urban area, has 100 or more beds, and
can demonstrate that its net inpatient care revenues
(excluding any of such revenues attributable to [Medicare
or Medicaid]), during the cost reporting period in which
the discharges occur, for indigent care from State and
local government sources exceed 30 percent of its total of
such net inpatient care revenues during the period.

42 U.S.C. s 1395ww(d)(5)(F)(i)(II). The Secretary argues
that the statute is inherently ambiguous, in that "total of such
net inpatient care revenues" might refer back to simply the
entire category of "net inpatient care revenues" or might
instead include the modifying parenthetical "(excluding any of
such revenues attributable to [Medicare or Medicaid])." In
contrast, North Broward argues that the statute is unambigu-
ous, and that the Secretary's interpretation conflicts with the
text of the statute. According to North Broward, by inter-
preting "total of such net inpatient care revenues" as identical
with "net inpatient care revenues," the Secretary's interpreta-
tion fails to give effect to the words "of such."

North Broward's argument implicitly assumes that "such"
is surplusage if it is not serving some limiting or particulariz-
ing role. The district court adopted a similar view. Relying
on a portion of the definition of "such" from Black's Law
Dictionary, which notes that "such" "represents the object as
already particularized in terms which are not mentioned, and
is a descriptive and relative word, referring to the last
antecedent," Black's Law Dictionary 1432 (6th ed. 1990), the
court concluded that "net inpatient care revenues (excluding
any of such revenues attributable to [Medicare] or [Medic-
aid])" was the last antecedent, since the parenthetical phrase
"particularizes" the object. North Broward, 997 F. Supp. at
45. In our view, this analysis takes too narrow a view of the
uses of the word "such." While it often serves the particular-
izing role envisioned by North Broward and the district court,
the word "such" can also be used simply to refer back to
something previously mentioned but not "particularized." As
the Secretary notes, this use of "such" does not render the
word surplusage--it still serves a role in "helping the reader
to identify concepts that have already been employed in a

long or complicated piece of writing." Secretary's Reply
Brief at 18.

Where both a "particularizing" and a "non-particularizing"
interpretation of "such" are possible, it need not be the case
that the particularizing interpretation prevails. For example,
in Hogar Agua y Vida en el Desierto, Inc. v. Suarez-Medina,
36 F.3d 177 (1st Cir. 1994), the court encountered a provision
whose prefatory clause made the provision applicable to any
"single-family house sold or rented by an owner," and whose
following provisos referred to "such single-family houses."
Although it was argued that the phrase in the provisos
unambiguously related back to the complete phrase--"single-
family house sold or rented by an owner," rather than to
single-family houses generally, the court found the language
ambiguous. Id. at 185-86. Accordingly, the court construed
the statute in accordance with its remedial goals, and held
that the references to "such single-family houses" did not
incorporate the phrase "sold or rented by an owner," but
rather simply referred to any single-family houses. Id. at
186.

United States v. Bowen, 100 U.S. 508 (1879), upon which
North Broward relies, is not to the contrary. In that case,
the Supreme Court read the statutory phrase "all such pen-
sioners" not to refer to all pensioners, but to a subset of
pensioners previously described, noting that the alternate
interpretation would render "such" useless. Id. at 512.
However, Bowen differs from the present situation in impor-
tant respects. First, the provision considered in Bowen had
not previously referred to the class of pensioners generally,
but had only referred to a certain subset. Thus, the Court
noted that "[t]here is no antecedent use of the word 'pension-
ers' in the [relevant] chapter ... to which the word such can
refer, but the immediately preceding sentence in the same
section." Id. Accordingly, "such" either had to refer back to
the subset, or to nothing. That is not the case here. Second,
the Bowen Court's task was not the same as ours. The
Bowen Court had simply to choose between two interpreta-
tions of the statute. We must decide whether there is a clear
congressional intent which precludes the Secretary's view.

Bowen did not involve the rejection of the interpretation of
those charged with administering the statute. Not only did
Bowen long predate Chevron, but, as the pensioners there
pointed out, the interpretation of the provision ultimately
chosen by the Court had apparently been "uniformly given to
it by the Commissioner of Pensions," who was charged with
the duty of executing the statute. Id. at 511.

Given a choice between attributing to "such" the simple
referential function described by the Secretary or a particu-
larizing function, we might ordinarily be inclined to choose
the latter, which arguably gives "such" a more meaningful
role. However, the provision at issue does not unambiguously
require such an interpretation, and indeed, other features of
the provision make the Secretary's interpretation of "such"
seem more than reasonable. First, the denominator refers
not simply to "such net inpatient care revenues" but to the
"total of such net inpatient care revenues." North Broward
correctly observes that if "such net inpatient care revenues"
incorporated the exclusion of Medicare and Medicaid reve-
nues, then "total of such net inpatient care revenues" would
as well. Nonetheless, we find the presence of the phrase
"total of" at least suggestive that the phrase following is to be
all-encompassing, without exclusions. Indeed, this seems the
only way to give any real function to the phrase "total of."

In addition, the syntactical structure of the phrase describ-
ing the numerator makes it unusually difficult to isolate the
antecedent of "such net inpatient care revenues" in the
denominator. Even if we were intent on interpreting this
phrase as referring to "net inpatient care revenues" as previ-
ously particularized, it would not be a simple task. This is so
because the reference to "net inpatient care revenues" in the
numerator is particularized not only by the parenthetical
excluding Medicare and Medicaid revenues, but by two addi-
tional phrases as well. The numerator consists of "net inpa-
tient care revenues (excluding any of such revenues attribut-
able to [Medicare or Medicaid]), during the cost reporting
period in which the discharges occur, for indigent care from
State and local government sources." 42 U.S.C.
s 1395ww(d)(5)(F)(i)(II). North Broward makes sensible ar-

guments explaining why the last two phrases cannot reason-
ably be read as being within the particularization incorporat-
ed by the "such" in the denominator, and we do not suggest
that they are. But this reasoning necessarily departs from a
simple rule that "such" always incorporates previous particu-
larizations, and illustrates that the unwieldy formulation of
the numerator makes blanket application of such a rule
unworkable here. Given this, it is impossible to conclude that
Congress clearly intended that "such" serve the specific
particularizing role advanced by North Broward.

The Secretary argues that her interpretation is also bol-
stered by consideration of the provision's original wording
and the change made by the 1987 amendment. The sole
modification to the provision made by the 1987 Act was to
replace the requirement that the numerator "exceed 30 per-
cent of [the hospital's] total of such revenues" with a require-
ment that the numerator "exceed 30 percent of [the hospi-
tal's] total of such net inpatient care revenues." See OBRA
s 4009(j)(3)(A), 101 Stat. 1330, 1330-59. According to the
Secretary, the 1987 change was merely intended to clarify
that the phrase "total of such revenues" was not meant to
indicate gross revenues rather than net. In the Secretary's
view, this is supported by a string of words from the Confer-
ence Report accompanying the 1987 amendment (calling it a
sentence would be too kind):

[T]here has been controversy over the interpretation of
current statutory language which refers to inpatient care
revenues as "net inpatient care revenues" in one location,
but refers to "such revenues" has been interpreted to
mean either gross inpatient revenues (revenues the hos-
pital would receive if all patients paid the hospital's full
charges) or net inpatient revenues (gross revenues minus
bad debts, contractual allowances, and charity care).

H.R. Conf. Rep. No. 100-495, at 543 (1987). While impossi-
ble to parse grammatically, this is the only passage in the
legislative history to which we have been referred which
meaningfully attempts to explain the motivation for the 1987

amendment. It provides at least minimal support for the
Secretary's view of the purpose of that amendment.

Whether or not the 1987 amendment was made only to
clarify the net versus gross issue, it was styled a "technical
correction," see OBRA s 4009(j)(3)(A), 101 Stat. 1330, 1330-
59, suggesting that only clarification and not substantive
change was intended. Thus our concern is the meaning of
the phrase "such revenues" as used in describing the denomi-
nator of the ratio in the original 1986 enactment, and as
"clarified" in 1987 to read "such net inpatient care revenues."

As originally enacted, the provision provided an adjustment
for any hospital that could

demonstrate that its net inpatient care revenues (exclud-
ing any of such revenues attributable to [Medicare or
Medicaid]), during the cost reporting period in which the
discharges occur, for indigent care from State and local
government sources exceed 30 percent of its total of such
revenues during the period.

COBRA s 9105(a)(F)(i)(II), 100 Stat. 82, 158 (emphasis add-
ed). The first occurrence of "such revenues" in this passage
unambiguously referred back to "net inpatient care reve-
nues." In the Secretary's view, the second occurrence of
"such revenues" had the same meaning as the first, referring
back simply to "net inpatient care revenues," and since the
1987 amendment did not implement any substantive change,
the current "such net inpatient care revenues" language in
the denominator has the same meaning. While we cannot
assume that the antecedent of the second occurrence of "such
revenues" would necessarily have to be the same as that of
the first, we agree that the previous occurrence of "such
revenues" with a clear antecedent does seem to provide at
least some support for construing the latter occurrence of
"such revenues" (and thus the amended "such net inpatient
care revenues") as referring to the same antecedent.

The Secretary also asserts that her interpretation of the
statute is the only one compatible with the legislative history
of the original act, which indicated that the adjustment ap-

plied to a hospital if "at least 30% of its net inpatient care
revenue is provided by local or state governments for inpa-
tient care for low-income patients not otherwise reimbursed
by medicaid." H.R. Rep. No. 99-241, pt. 1, at 16. The House
Report also states that "[t]he Committee further intends that
the denominator of this equation, net inpatient care revenue,
be defined according to the generally accepted accounting
principles in the hospital industry; i.e., this factor should
represent gross patient care revenues less deductions from
revenue (other than contractual allowances), as those terms
are generally used." Id. at 18-19 (emphasis added). We
agree that these passages are consistent with the Secretary's
view that the relevant state and local funding was required to
be 30% or more of total net inpatient care revenues. The
Conference Report further supports the Secretary's view,
describing hospitals qualifying under this provision as "those
which can demonstrate that more than 30 percent of their
revenues are derived from State and local government pay-
ments for indigent care provided to patients not covered by
medicare or medicaid." H.R. Conf. Rep. No. 99-453, at 461-
62 (1985).

However, North Broward argues that since the present
wording of the provision dates only from the 1987 amend-
ment, the legislative history of that amendment, and not that
of the original enactment, is the better source for determining
Congress's intent. North Broward notes that in discussing
"present law," the 1987 Conference Report noted that a
hospital qualified under the provision at issue if "it can
demonstrate that more than 30 percent of its inpatient care
revenues (excluding any Medicare or Medicaid revenues) are
provided by State and local government payments for indi-
gent care." H.R. Conf. Rep. No. 100-495, at 543. The
Conference Report further noted that the amendment "[c]lar-
ifies that a hospital would qualify if more than 30 percent of
its net inpatient care revenues (excluding any Medicare or
medicaid revenues) are provided by State and local govern-
ment payments for indigent care." Id. at 545. The Secre-
tary argues, and we agree, that the 1987 Conference Report's
characterization of existing law is entitled to little weight. As

the Supreme Court has observed, subsequent legislative his-
tory is "an unreliable guide to legislative intent." Chapman
v. United States, 500 U.S. 453, 464 n.4 (1991). See also
Wright v. West, 505 U.S. 277, 295 n.9 (1992); Pierce v.
Underwood, 487 U.S. 552, 566-67 (1988). However, North
Broward argues that because the 1987 legislative history
accompanied an amendment to the provision at issue, its view
of existing law deserves credit. While a discussion of existing
law in subsequent legislative history may be more valuable
where it accompanies a related amendment to the provision,
see Mackey v. Lanier Collection Agency & Serv., Inc., 486
U.S. 825, 840 (1988); United States v. General Motors Corp.,
518 F.2d 420, 436-37 (D.C. Cir. 1975), here there is no
evidence that the exclusion of Medicare and Medicaid funds
from the denominator of the ratio was the focus of attention
of Congress, the Conference Committee, or even the author
of the report. Hence the passages in the Conference Report
on which North Broward relies as evidencing whether Medi-
care and Medicaid were intended to be excluded from the
denominator are mere "legislative dicta," Dunn v. Commodi-
ty Futures Trading Comm'n, 519 U.S. 465, 478 (1997), and we
do not view these remarks as speaking meaningfully to this
issue.

Furthermore, even if we were inclined to give weight to the
1987 Conference Report, which we are not, it is not at all
clear that the report, taken as a whole, supports North
Broward's position. To be sure, in the passage cited by
North Broward, the Conference Report characterizes existing
law as providing an adjustment if a hospital can demonstrate
"that more than 30 percent of its inpatient care revenues
(excluding any Medicare or Medicaid revenues) are provided
by State and local government payments for indigent care."
Because of the placement of the parenthetical after "reve-
nues" rather than at the end of the sentence, this portion of
the history is consistent with North Broward's interpretation.
However, elsewhere in the same Conference Report, there is
language encouraging the Secretary "expeditiously to imple-
ment the disproportionate share adjustment for hospitals
which receive more than thirty percent of net patient reve-

nues from State and local governmental sources," H.R. Conf.
Rep. No. 100-495, at 525 (1987), and setting the amount of the
adjustment at 15% for hospitals "which receive at least 30
percent of their net inpatient care revenues from State and
local payments for indigent care," id. at 521. Because these
portions of the report refer to the required ratio as 30% of
net revenues with no reference to excluding Medicare and
Medicaid, they do not support North Broward's interpreta-
tion. Thus, in our view, the only lesson to be drawn from the
1987 legislative history is that the individuals who wrote it
had not carefully considered, or at least didn't quite agree on,
what the original provision meant.

In sum, the provision's textual unwieldiness is not illumi-
nated by this jumbled legislative history, and we cannot
discern any clear congressional intent regarding the meaning
of the provision. Accordingly, we agree with the Secretary
that the provision is ambiguous, and proceed to the second
step of the Chevron analysis.

IV.

We have little difficulty concluding that the Secretary's
interpretation is a permissible construction of the provision.
Indeed, the ambiguity of the provision described above arises
largely because the provision is reasonably amenable to both
the Secretary's and North Broward's readings. Nonetheless,
North Broward argues that even if the Secretary's interpre-
tation is a possible parsing of the provision's text, it is
unreasonable in that it effectively penalizes hospitals for
treating Medicare and Medicaid patients. This is so, the
argument goes, because under the Secretary's interpretation,
the more services a hospital furnishes to Medicare and Medic-
aid patients, the lower its ratio will be, since revenues for
those services will be included in the denominator, but not the
numerator. In contrast, North Broward suggests that under
its interpretation, services to Medicare and Medicaid patients
"do not help a hospital qualify for a disproportionate share
adjustment ... but neither do they hurt the hospital." North
Broward Brief at 39.

We find North Broward's argument unconvincing. First,
even if increased Medicare and Medicaid funding adversely
affected a hospital's ratio under this provision, hospitals
treating an unusually large number of Medicaid and low-
income Medicare patients are entitled to the disproportionate
share adjustment under the alternate mechanism of 42 U.S.C.
s 1395ww(d)(5)(F)(i)(I), (v), (vi). The provision at issue in
this case seeks to identify and appropriately compensate
hospitals receiving significant state and local funding for
indigent care apart from Medicaid and Medicare spending.
To the extent that an increase in Medicaid and Medicare
revenues decreases the proportion of revenues attributable to
other state and local funding, a decrease in the hospital's ratio
could well be what Congress had in mind.

More importantly, we are unconvinced of North Broward's
factual premise--at least in some circumstances, it is the
Secretary's interpretation, and not North Broward's, that is
neutral with regard to services to Medicare and Medicaid
patients. For example, suppose that in a given year, Hospital
A and Hospital B each had total net inpatient care revenues
of $100,000,000, of which $20,000,000 was state and local
funding not attributable to Medicare or Medicaid. Suppose,
however, that Hospital A received $40,000,000 net inpatient
care revenues from Medicare and Medicaid, and $40,000,000
from other sources such as private insurance and individual
payments, while Hospital B received $50,000,000 from Medi-
care and Medicaid and $30,000,000 from other sources. Thus,
the only difference in the two hospitals' revenues is the
amount of funding from Medicare and Medicaid versus pri-
vate sources. The ratios calculated under this provision
would be as follows:

Secretary's interpretation

Hospital A: Numerator = $20,000,000 state and local
funding

Denominator = $100,000,000 total

Ratio = 20/100

Hospital B: Numerator = $20,000,000 state and local
funding

Denominator = $100,000,000 total
Ratio = 20/100

North Broward's interpretation

Hospital A: Numerator = $20,000,000 state and
local funding
Denominator = $100,000,000 total
- $40,000,000 Medicare
& Medicaid
= $60,000,000
Ratio = 20/60

Hospital B: Numerator = $20,000,000 state and
local funding
Denominator = $100,000,000 total
- $50,000,000 Medi-
care & Medicaid
= $50,000,000
Ratio = 20/50

Under the Secretary's method, the fact that Hospital B had
more services funded by Medicare and Medicaid than Hospi-
tal A leads to no difference in the ratios for the two hospitals.
Under North Broward's method, however, Hospital B's great-
er Medicare and Medicaid funding leads to a higher ratio.
We do not understand why North Broward views this as
"neutral."

Furthermore, in some situations, this feature of North
Broward's interpretation would lead to results which seem
less consistent with the apparent purpose of the provision
than would be the case under the Secretary's interpretation.
For example, consider two otherwise qualifying hospitals, C
and D, each of which has total net inpatient care revenues of
$100,000,000, of which $10,000,000 is from Medicaid. Suppose
that Hospital C receives heavy state and local funding not
attributable to Medicaid or Medicare, in the amount of
$23,000,000, while Hospital D receives $10,000,000 in such
funds. One would expect that if either hospital would qualify
for a disproportionate share adjustment under the provision
targeted at hospitals with unusually high state and local
funding, it would be Hospital C. However, under North
Broward's interpretation, as we understand it, this would not
necessarily be the case. In particular, suppose that Hospital
D is in an area with a large number of retirees, and therefore
has a large amount of Medicare revenues totaling $60,000,000,
while Hospital C has Medicare revenues of only $10,000,000.
The calculations under North Broward's method would pro-
ceed as follows:

HospitalC: Numerator = $23,000,000

Denominator = $100,000,000 - $10,000,000
Medicaid - $10,000,000
Medicare
= $80,000,000

The ratio is thus 23/80, which is less than 30%.

HospitalD: Numerator = $10,000,000

Denominator = $100,000,000 - $10,000,000
Medicaid - $60,000,000
Medicare
= $30,000,000

The ratio is thus
10/30 = 1/3, which is greater
than 30%.

Thus despite its far greater state and local funding, Hospi-
tal C would not qualify for the adjustment under North
Broward's interpretation, while Hospital D would. We note
that the difference in Medicare funding that tips the balance
in favor of Hospital D need not be for indigent elderly at all,
but could equally as well be for wealthy seniors with Winne-
bagos and supplemental insurance. It is hard to see why
serving a high number of such patients should affect Hospital
D's ratio so favorably. We see little logic in this feature of
North Broward's interpretation, and cannot condemn the
Secretary's failure to adopt it.

For the foregoing reasons, the decision of the district court
is

Reversed.