FOR PUBLICATION
UNITED STATES COURT OF APPEALS
THE NINTH CIRCUIT
UNIVERSITY OF WASHINGTON
MEDICAL CENTER; PROVIDENCE
HOSPITAL EVERETT; PROVIDENCE
YAKIMA MEDICAL CENTER;
PROVIDENCE EVERETT MEDICAL
CENTER; PROVIDENCE CENTRALIA
HOSPITAL; PROVIDENCE ST PETER
HOSPITAL; STEVENS MEMORIAL
HOSPITAL; YAKIMA VALLEY
MEMORIAL HOSPITAL; HARRISON
MEDICAL CENTER; SOUTHWEST
WASHINGTON MEDICAL CENTER; No. 09-36044
SACRED HEART MEDICAL CENTER;
KADLEC MEDICAL CENTER; D.C. No.
2:07-cv-00394-RAJ
HARBORVIEW MEDICAL CENTER;
HOLY FAMILY HOSPITAL; GOOD OPINION
SAMARITAN COMMUNITY
HEALTHCARE; ST JOSEPH MEDICAL
CENTER; TACOMA GENERAL
HOSPITAL; ST FRANCIS HOSPITAL,
Plaintiffs-Appellants,
v.
KATHLEEN SEBELIUS, Secretary of
the United States Department of
Health and Human Services,
Defendant-Appellee.
Appeal from the United States District Court
for the Western District of Washington
Richard A. Jones, District Judge, Presiding
2289
2290 UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS
Argued and Submitted
December 6, 2010—Seattle, Washington
Filed February 11, 2011
Before: Robert R. Beezer, Diarmuid F. O’Scannlain, and
Richard A. Paez, Circuit Judges.
Opinion by Judge Beezer
2292 UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS
COUNSEL
Teresa A. Sherman, Spokane, Washington; Jeffrey Lovitky,
Washington, D.C., for the plaintiffs-appellants.
Peter A. Winn, Assistant United States Attorney, Seattle,
Washington, for the defendant-appellee.
OPINION
BEEZER, Circuit Judge:
Plaintiffs-appellants, the University of Washington Medical
Center and seventeen other hospitals from Washington State
(“Hospitals”), appeal the district court’s judgment upholding
the Secretary of the Department of Health and Human Ser-
vices’ (“Secretary”) exclusion of certain low-income popula-
tions from federal entitlement calculations. We affirm this
judgment. Though the patients at issue in this case are men-
tioned in Washington’s Medicaid plan, they are not “eligible
for medical assistance” under that plan.
UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS 2293
BACKGROUND
A. Medicare and Medicaid
Medicare is a federally funded insurance program designed
to cover older and disabled individuals. 42 U.S.C. § 1395 et
seq.1 Since the 1980s, Medicare has reimbursed hospitals pri-
marily through the Prospective Payment System (“PPS”)
based upon what it would cost an efficient hospital to treat a
patient with a given diagnosis. Tax Equity and Fiscal Respon-
sibility Act of 1982, Pub. L. No. 97-248, 96 Stat. 324 (1982)
(codified at 42 U.S.C. § 1395ww (2006)). However, the Med-
icare statute adjusts the PPS reimbursement to account for
hospital-specific factors that may make a provider’s costs
higher than average. 42 U.S.C. § 1395ww(d)(5).
The Medicare disproportionate share (“Medicare DSH”)
adjustment increases reimbursements to hospitals that serve a
disproportionately high number of low-income Medicare
patients. Id. § 1395ww(d)(5)(F).2 The adjustment represents a
percentage increase in a hospital’s reimbursement computed
by adding two fractions. The first, which is not at issue in this
case, represents the percentage of time a hospital spends serv-
ing Medicare patients entitled to Supplemental Security
Income. Id. § 1395ww(d)(5)(F)(vi)(I). The second represents:
the fraction (expressed as a percentage), the numera-
tor of which is the number of the hospital’s patient
days . . . which consist of patients who . . . were eli-
gible for medical assistance under a State plan
1
The laws governing both the Medicare and Medicaid programs are
contained in the Social Security Act.
2
For reasons such as lack of preventative care, indigent patients are gen-
erally more expensive to treat than the average patient. H.R. Rep. No. 99-
241, pt. 1, at 16 (1986), reprinted in 1986 U.S.C.C.A.N. 579, 594. Hospi-
tals that treat large numbers of indigent patients are also likely to have
higher overhead costs. For example, they may need to hire more staff such
as social workers. Id.
2294 UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS
approved under subchapter XIX of [the Social
Security Act], but who were not entitled to benefits
under [Medicare], and the denominator of which is
the total number the hospital’s patient days.
Id. § 1395ww(d)(5)(F)(vi)(II). “[A] State plan approved under
[subchapter] XIX” is the State’s “Medicaid” plan. 42 C.F.R.
§ 400.200. The result of this adjustment is that a hospital
receives a higher reimbursement per Medicare patient as it
treats more Medicaid patients.
Medicaid is a federal grant program that encourages states
to provide certain medical services “on behalf of families with
dependent children and [on behalf] of aged, blind, or disabled
individuals, whose income and resources are insufficient to
meet the costs of necessary medical services.” 42 U.S.C.
§ 1396-1. While the program is entirely optional, to receive
Federal Financial Participation (“FFP”) for the care of the
indigent, a State must meet certain requirements. See id.; 42
C.F.R. § 400.203.
First, the State must submit a comprehensive plan to the
Secretary for approval and must meet certain other procedural
requirements. 42 U.S.C. § 1396a(b). Only after the State’s
plan is approved is the State eligible for FFP.
Second, the State must provide minimum coverage for “the
categorically needy, generally those eligible for welfare; aged,
blind, or disabled individuals who are qualified for social
security disability benefits; and low-income pregnant women
and children.” Spry v. Thompson, 487 F.3d 1272, 1274 (9th
Cir. 2007) (internal quotation marks and footnote omitted). It
may also choose to provide such services for “the medically
needy, individuals who are above the poverty line but would
not be if they were not assisted with medical expenses.” Id.
(internal quotation marks and footnote omitted). The Secre-
tary reimburses the State for the care of the categorically and
UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS 2295
medically needy based on the “Federal medical assistance
percentage.” 42 U.S.C.. § 1396b(a)(1).
While the Federal medical assistance percentage is the pri-
mary form of Medicaid reimbursement, Medicaid (like Medi-
care) provides an adjustment for hospitals that serve a
disproportionate number of low-income individuals
(“Medicaid DSH”). However, the funding mechanism for the
Medicaid DSH adjustment differs from the Medicare DSH
adjustment. Rather than paying on a per patient basis, as in
the Medicare DSH adjustment, the Medicaid statute allocates
to each State a specific lump sum. Id. § 1396r-4(f). A State’s
Medicaid plan must define how hospitals receive Medicaid
DSH reimbursements from that allotment. Id. § 1396r-4(a)(1).
A hospital may qualify for Medicaid DSH reimbursements
in one of two ways. The first is if the hospital’s “medicaid
inpatient utilization rate . . . is at least one standard deviation
above the mean medicaid inpatient utilization rate for hospi-
tals receiving medicaid payments in the State.” Id. § 1396r-
4(b)(1)(A). A hospital’s “medicaid inpatient utilization rate”
is simply the percentage of a hospital’s patients who are eligi-
ble for care under the State’s Medicaid plan. Id. § 1396r-
4(b)(2).
The second is if the hospital’s “low-income utilization rate
. . . exceeds 25 percent.” Id. § 1396r-4(b)(1)(B). A hospital’s
low-income utilization rate is the percentage of a hospital’s
patients who (1) are eligible under the State Medicaid plan,
(2) receive “cash subsidies . . . directly from State and local
governments” for medical care, or (3) are charity patients. Id.
§ 1396r-4(b)(3).
Because a State must define how it will distribute Medicaid
DSH funds, a State’s Medicaid plan will often describe indi-
viduals who are neither categorically nor medically needy
because they are either charity patients or eligible for direct
cash subsidies from State or local governments. This case
2296 UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS
centers on whether such individuals can be considered eligible
for medical assistance under a State plan within the meaning
of 42 U.S.C. § 1396ww(d)(5)(vi)(II) if a State uses its Medi-
caid DSH reimbursements to indirectly fund their care.
B. Washington’s Medicaid Plan
Washington has chosen to extend hospital care beyond the
categorically and medically needy to two other groups at issue
in this case: the General Assistance-Unemployable (“GAU”)
and the Medically Indigent (“MI”). The GAU and MI popula-
tions have incomes similar to the categorically and medically
needy. But the Hospitals admit that they are ineligible for tra-
ditional Medicaid because they are not aged, blind or dis-
abled, and they do not have dependent children. See 42 U.S.C.
§ 1396-1.
It is undisputed that these programs began as state-funded
initiatives. But facing budgetary constraints in 1991, Wash-
ington sought ways to alleviate the financial burden of cover-
ing these individuals. Because the GAU and MI populations
did not qualify for traditional Medicaid, Washington amended
its State Medicaid plan to indirectly fund their care using fed-
eral Medicaid DSH dollars.3 In doing so, it placed the supervi-
sion of the GAU and MI programs under the purview of the
Washington Department of Social and Health Services
(“Department”). This agency uses a consolidated reimburse-
ment system, creating much of the confusion in this case. But
key differences remain between Medicaid’s reimbursements
for categorically and medically needy patients and Washing-
ton’s program for the care of the GAU and MI populations.
3
Although the Hospitals’ intermediary stipulated certain facts about how
federal funds paid for the MI and GAU programs early in the administra-
tive process, the Secretary is not bound by these stipulations because she
was not a party to the proceedings where these stipulations were made.
Loma Linda Univ. Med. Ctr. v. Leavitt, 492 F.3d 1065, 1074 (9th Cir.
2007). We look to the entire administrative record, most particularly the
terms of the Washington State Medical Plan itself.
UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS 2297
When a hospital treats a poor patient, it submits a claim to
the Department. The Department then determines into which,
if any, of the four categories (i.e., categorically needy, medi-
cally needy, GAU or MI) the particular patient falls. The
Department then reimburses the hospital based upon a pre-
established formula for the appropriate program. The Depart-
ment determines the reimbursement for a GAU or MI patient
by dividing Washington’s Medicaid DSH allotment by the
anticipated number of patients covered by these programs.
That is, rather than distributing Medicaid DSH money to
Medicaid DSH hospitals through a lump sum or at higher
rates for their categorically or medically needy patients,
Washington uses federal Medicaid DSH dollars to reimburse
those hospitals at a much discounted rate for what would oth-
erwise be state-funded MI or GAU patients.4
The Hospitals argue that because Medicaid dollars subsi-
dize the care of these individuals, they should be considered
Medicaid patients in the calculation of their Medicare DSH
reimbursements.
C. Prior Proceedings
Medicare funds are distributed to providers through a sys-
tem of fiscal intermediaries, usually insurance companies. 42
C.F.R. § 405.1801(b)(1). The Hospitals sought to include
their GAU and MI patients in their Medicare DSH reimburse-
ment calculations. The Hospitals’ intermediary disagreed with
the Hospitals’ interpretation of the Medicare DSH statute and
excluded the GAU and the MI populations for fiscal years
1994-2000. As a result, the Hospitals received a lower Medi-
care DSH reimbursement than they expected.
4
That these individuals would otherwise be state-funded is confirmed by
the fact that if a GAU or MI patient is treated by a hospital that does not
qualify for Medicaid DSH reimbursement, the State reimburses the Hospi-
tal out of its own coffers.
2298 UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS
The Hospitals administratively appealed the intermediary’s
decision to the Provider Reimbursement Review Board
(“Board”), which hears disputes between providers and their
intermediaries. 42 U.S.C. § 1395oo(a). The Board found in
favor of the Hospitals. Ordinarily, this decision would have
been final, but the Secretary (acting through the Administrator
of the Centers for Medicare and Medicaid Services) exercised
her prerogative to review the Board’s decision. Id.
§ 1395oo(f)(1). The Secretary reversed the Board’s decision
because she concluded that Washington’s GAU and MI
patients were not “eligible for medical assistance” under
Washington’s Medicaid plan and therefore should not have
been included in the Medicare DSH calculation.
The Hospitals sought judicial review of this decision in the
district court. The district court granted summary judgment to
the Secretary because the court found the Secretary’s conclu-
sion to be based upon a reasonable interpretation of the statute
and supported by the record.
The Hospitals timely appealed.
JURISDICTION AND STANDARD OF REVIEW
The district court had jurisdiction to review the final deci-
sion of the Secretary under 42 U.S.C. § 1395oo(f)(1).5 We
have jurisdiction pursuant to 28 U.S.C. § 1291.
We review the district court’s grant of summary judgment
5
We reject the Secretary’s determination that the Board lacked jurisdic-
tion over the Hospitals’ claims for several of the cost-reporting periods at
issue in this case. See French Hosp. Med. Ctr. v. Shalala, 89 F.3d 1411,
1420-22 (9th Cir. 1996) (holding that the Board has jurisdiction over
issues forming the basis for a request for a reopening of a provider’s cost
report). Because the Board had jurisdiction over these claims, the district
court also had jurisdiction over them. See Anaheim Mem’l Hosp. v. Sha-
lala, 130 F.3d 845, 850 (9th Cir. 1997).
UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS 2299
de novo and without deference. Portland Adventist Med. Ctr.
v. Thompson, 399 F.3d 1091, 1095 (9th Cir. 2005).
The Social Security Act incorporates the standards of
review established by the Administrative Procedure Act. 42
U.S.C. § 1395oo(f)(1). We review any factual findings by the
Secretary for substantial evidence. 5 U.S.C. § 706(2)(A). We
assess the Secretary’s interpretation of the Medicare and Med-
icaid statutes under the two-step method laid out in Chevron
U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467
U.S. 837, 842-43 (1984). We first decide whether “Congress
has directly spoken to the precise question.” Id. at 842. If so,
the inquiry ends. But “if the statute is silent or ambiguous
with respect to the specific issue, the question for the court is
whether the agency’s answer is based on a permissible con-
struction of the statute.” Id. at 843.
DISCUSSION
[1] This case turns on the meaning of the phrase “eligible
for medical assistance under a State plan approved under sub-
chapter XIX.” 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II). The Hos-
pitals assert that because the GAU and MI populations are
mentioned in Washington’s Medicaid plan and indirectly ben-
efit from federal Medicaid dollars, they are “eligible for medi-
cal assistance” under Washington’s plan. Because we
conclude that “eligible for medical assistance under a State
plan approved under subchapter XIX” is unambiguously lim-
ited to those eligible for traditional Medicaid, we reject this
interpretation under Chevron’s first step.
[2] As we have previously stated, a person is “eligible for
medical assistance” if he or she is “capable of receiving”
medical assistance. Legacy Emanuel Hosp. & Health Ctr. v.
Shalala, 97 F.3d 1261, 1264 (9th Cir. 1996) (internal quota-
tion marks omitted). Any individual who is capable of receiv-
ing medical assistance must be included in a hospital’s
Medicare DSH percentage whether or not the State pays for
2300 UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS
the patient’s medical care. Id. at 1265. Because the inquiry
turns not on the payment of a patient’s medical bills but on
eligibility for “medical assistance,” we must understand what
that term means under the Social Security Act.
Medicare does not define “medical assistance,” but we may
look to its definition under Medicaid. Nothing in the context
of the Social Security Act overcomes the “natural presump-
tion that identical words used in different parts of the same act
are intended to have the same meaning.” Atl. Cleaners &
Dyers v. United States, 286 U.S. 427, 433 (1932). Indeed,
given that the Medicare DSH adjustment counts patients who
are eligible for “medical assistance” under subchapter XIX of
the Social Security Act, it is hard to imagine looking any-
where other than subchapter XIX for a definition of this criti-
cal term. Cf. Phoenix Mem’l Hosp. v. Sebelius, 622 F.3d
1219, 1226 (9th Cir. 2010).
[3] As we have recently said, under Medicaid, “medical
assistance” does not include just “any type of medical assis-
tance under a [S]tate plan.” Id. at 1225; accord Adena Reg’l
Med. Ctr. v. Leavitt, 527 F.3d 176, 179-80 (D.C. Cir. 2008);
Cooper Univ. Hosp. v. Sebelius, 686 F. Supp. 2d 483, 494
(D.N.J. 2009) aff’d___ F.3d___, 2011 WL 117625 (3rd Cir.
Jan. 14, 2011). Rather, “medical assistance” is a statutory
term of art that “means payment of part or all of the cost of
[certain enumerated categories of] care and services . . . for
individuals, and, with respect to physicians’ or dentists’ ser-
vices, at the option of the State, to individuals” who meet stat-
utory eligibility criteria. 42 U.S.C. § 1396d(a); Phoenix
Mem’l Hosp., 622 F.3d at 1226.
[4] Thus, the definition of “medical assistance” has four
key elements: (1) federal funds; (2) to be spent in “payment
of part or all of the cost”; (3) of certain services; (4) for or to
“[p]atients meeting the statutory requirements for Medicaid,”6
Legacy Emanuel Hosp. & Health Ctr., 97 F.3d at 1266.
6
As the Hospitals’ counsel asserted at oral argument, the Secretary may
waive certain of these requirements and allow States to cover other popu-
UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS 2301
[5] Even though federal Medicaid money indirectly subsi-
dized the medical treatment received by Washington’s GAU
and MI populations, their care still does not meet this defini-
tion of “medical assistance.”
[6] First, substantial evidence supports the Secretary’s
finding that the GAU and MI populations do not fit within the
enumerated classes of people under section 1396d(a). In large
part, these classes share the characteristics of the categorically
or medically needy. Compare 42 U.S.C. § 1396a(10) with id.
§ 1396d(a)(i)-(v), (vii)-(viii). The Hospital’s own witnesses
admitted during the administrative review process that the
GAU and MI programs covered those who are not within
these categories. Indeed, the Hospitals concede on appeal that
the “MI and GAU programs cover low-income persons who
do not meet the categorical or status requirements for the Cat-
egorically Needy and Medically Needy programs, and there-
fore are considered ineligible for ‘Medicaid.’ ” Appellants’
Opening Br. at 17. Because the Hospitals’ GAU and MI
patients did not fit within the statutory classes of people, the
patients were not capable of receiving medical assistance as
defined by Medicaid. Cf. Adena Reg’l Med. Ctr., 527 F.3d at
180.
[7] Second, the federal government was not spending its
funds for the GAU and MI populations’ care. The Hospitals
assert that because Washington uses its Medicaid DSH allot-
ment to reimburse the Hospitals for the care of the GAU and
MI populations on a per patient basis, this requirement is sat-
lations in their Medicaid plans. But this authority comes not under the
Medicaid DSH provision, 42 U.S.C. § 1396-4 (distinguishing explicitly
between state- and federally-funded patient populations). Rather, this
authority derives from 42 U.S.C. § 1315(a). Because the Secretary has not
granted Washington a waiver for its GAU and MI populations under sec-
tion 1315, this provision does not operate to make these patients “eligible
for medical assistance” under subchapter XIX of the Social Security Act.
See Phoenix Mem’l Hosp., 622 F.3d at 1226-27.
2302 UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS
isfied. But adopting this interpretation would ignore the dif-
ferent funding mechanisms Congress created within the
Social Security Act for the Medicare and Medicaid DSH
adjustments.
The federal government makes matching Medicaid pay-
ments to Washington based upon the federal medical assis-
tance percentage for the care of the categorically or medically
needy. 42 U.S.C. § 1396b. The more categorically or medi-
cally needy patients that a State serves, the more reimburse-
ment it gets. Therefore, it is easy to see how the federal
government is paying for their care.
[8] By contrast, the Medicaid DSH adjustment consists of
a State-specific statutory allotment that increases only with
inflation. Id. § 1396r-4(f). This lump sum is not based upon
or keyed to the number of patients served. Id. Indeed, States
are required to use it “to take into account the situation of hos-
pitals which serve a disproportionate number of low income
patients with special needs.” Id. § 1396r-4(a)(1) (emphasis
added). Regardless of how the State chooses to distribute it to
DSH hospitals, this money is not being paid on behalf of any
specific individual for any specific service.7
[9] Finally, adopting the Hospitals’ interpretation of the
Medicare DSH statute would also ignore key differences
between the Medicare and Medicaid DSH statutes themselves.
While both provisions use proxies to measure how many of
a hospital’s patients are low-income individuals, the proxies
are different. The Medicare DSH adjustment uses as its proxy
only those patients who are eligible for federal assistance
7
The experience of hospitals that are not entitled to DSH reimburse-
ments but that serve individual MI or GAU patients confirms this. In such
circumstances, the federal government pays nothing for their care. In addi-
tion, because Washington only receives a certain amount under the DSH
program, the State caps how much of that lump sum it will distribute to
any given hospital under the GAU or MI programs. No such cap exists for
traditional Medicaid because it is a true matching program.
UNIVERSITY OF WASHINGTON MEDICAL v. SEBELIUS 2303
either from the Supplemental Security Income program or
“under a plan approved under subchapter XIX.” Id.
§ 1395ww(d)(5)(F)(vi)(II). The Medicaid DSH proxy consid-
ers either those patients who are “eligible for medical assis-
tance under a State [subchapter XIX] plan” or who qualify
under the statute’s definition of “low-income.” Id. § 1396r-
4(b)(2)-(3). Adopting the Hospitals’ interpretation of the
Medicare DSH statute would render this difference meaning-
less.
[10] For these reasons, we conclude that Washington’s
GAU and MI patients were not eligible for medical assistance
under Washington’s Medicaid plan. They were therefore
properly excluded from the calculation of the Hospitals’ Med-
icare reimbursements.
AFFIRMED.