Thank you very much, Your Honor. The issue in this case is whether for reimbursement for psychiatric hospitals, a target amount that was initially derived from the base here should be employed for the cost years 2003 and 2004, or whether a capped amount that was put in place by the Balance Budget Act for a five-year period should instead be used. I'd like to concentrate on two major arguments this morning. The first one is a regulatory argument based upon CMS's regulations. The second is a lie to that and has to do with CMS's statements in the federal register leading up to this period. Can we start? I think you need to do this. But the statute is most important to me. Yes. So could either want to start with the statute or do up on the statute? No, I'm not going to give up on the statute. So let's start with the statute. Starting with the statute, the first of all, the target amount is defined by the statute originally refers to a base year. That's the way in the updated amount it says to apply the prior year's target amount for each new cost year. And that was always construed to main based upon a base year until these caps came out. So the statute says, and now we're talking about three A to in the case of a later reporting period, the target amount for the preceding 12 month reporting period, increased by the other co-presentage. Yes. And then H.I
. says for cost reporting period beginning during fiscal year is 1980, 80, 2002. The target amount may not exceed the amount as updated up to or for such costs under two and two is a 75%ile cap, right? Correct. And so for example, for the year 2002, the target amount is the cap amount under that. Yes. That's right, right? And that means that if you then go back to three A to that target up for the next year is receiving the cap amount. And that means that the given of the stock clear does seem the better reading of the statute, doesn't it? I don't think so, Your Honor. And here's the reason. It's the use of the word target amount that creates perhaps some lack of clarity here. You told me that the statute itself defines target amount, and that's why I was using the target amount for such hospital is X, that's what it says. It says it's an update from the prior year's target amount. So what's the prior year's target amount? Right. And then does an H.I. tell you what the prior year's target amount is for fiscal year 2002? It says what the cap is. No, it says in the case of Osprey unit, it was within this class for a cost reporting period during fiscal year 2002, the target amount may not exceed the amount updated under cause two. That is an inattentive seed the amount in the 75% amount
. It says it may not exceed, but the target amount could be different from the cap. And it could be. I'm not saying this is why I'm saying, maybe it's not clear, but it does seem the better reading that the target amount is what it says it is. The target amount is the amount is an amount that can't exceed 75% amount. It can't exceed, that's correct. But there's two other things that I would like to mention in that regard. First of all, CMS had in effect during these years, I mean they say that we should give difference to their interpretation. They had in effect a regulatory definition of what the target amount is. Now of course we're going to get to that, but on the language itself, we didn't look at whether we're getting on the difference in that. Now, the language itself, it seems that I'm not clear on the better reason why the government doesn't have the better reason of the statute, better reading of the statute. Well, the, what I'll call the original target amount perhaps, I mean based upon the base here, continued to be computed during this time period. Even for hospitals that exceeded the, for their original costs, exceeded the 75th percentile. And in fact, the, sort of the natural reading I would, in my opinion, or honor is that after 2002, you would in fact revert to that. And that's what CMS itself said on many occasions, and I've set them out in the brief, but then we have about five long block quotes in there. Alright, so then you really want to rely on what CMS has said, even in regulations or otherwise, so long we go after that. I'm going to recognize that
. Yeah, that's okay. Gotcha. So go ahead, let's work with you. Sure. What I'm relying on here is several things in the regulations that were in effect at the time. And first of all, is the definition of target amount, which I've mentioned, which is the allowable net Medicare inpatient operating costs in the hospital base here, uptake. Yes, a three. And those are sort of terms of art. Any time you encounter these words like net allowable costs or reasonable costs in Medicare, that means based upon the hospital's own costs is determined from its cost report. It's totally inconsistent with a nationwide 75th percentile. But that section only says it's derived from. It doesn't say it is. It says it's derived from, right? Yes. And then subsection B then says each hospital's target amount is based on its allowable net increase under the, and then continues on. Is that the fact that it's derived from doesn't necessarily mean it is. And it doesn't say the target amount is this amount
. It's derived from, and of course, the one that's kept is also derived from the base here plus the increases plus the net. Yeah. Is that inconsistent? Is there a view that I think that's what this means? I think there's two things there. The derived from basically a target amount is a per discharge, per patient amount. So you have to take all the costs in the base here and then determine what shares Medicare and then divide that among the number of Medicare discharges. So that's what the derived from means, I think. And as far as the 75th percentile, no, it cannot possibly represent anything regarding the hospital's own costs. They're taking a 75th percentile average across the United States and it's not related to the particular hospital's cost. Well, they're then limiting the hospital's cost by that, right? And so if a hospital's costs were below that amount, if this way had no effect, like the cap would have no effect. Correct, right? So it is, you get all the way up to the cap based on your costs, but you won't get the cap unless you have those costs. I'm not about that. Unless you meet or exceed those costs, yeah. That's what it is. So in that sense, it's derived from the cost. It's not just a life in the cap, obviously. Well, it's a life that was derived from the cap, everybody would get the cap, which they don't
. Right. I mean, that that much is true. What I'm saying is that limiting pay-of-the-city hospital or anybody else who happens to exceed that cap to a national number means they're being reversed in a way that has no reference to their own inpatient operating costs. I mean, we were cut down here from, I can't remember the exact figure, but 16 or $17,000 per discharge to about 10 or 11 for both of these cost years. And it's because the hospital's costs were higher than a lot of other places. And the reason why they're higher is it's a Jerry psych facility, so-called. They have pulled through patients there and they tend to be sicker. You have to treat medical problems as well as psychiatric problems. And so- We were here and are there about the prospective payments system that apply. Oh, we didn't cut that also. I have no idea what the fact that would have. Haven't you had some experience with that guy? PPS. Yeah. Well, there's all different kinds of PPS systems. There's the original IPPS, inpatient PPS, which went into- But there isn't the hospital you represent. Have they had some experience with PPS since it was- If they have, I don't know what's the reimbursion rate
. I'm sorry. Let me ask you- I would not be apparently lower or higher, not inherently your doing way. Let me ask you a very- If we can pull back, maybe we should leave for a little bit here. Sure. It seems to me the way the difference works for our court is that at somewhere along the line, either the statute or the regulations, you're going to have to show some click. And you're going to have to have a little bit of clarity, right? Because if you can't point to clarity and it's awful, it's a problem to us. We're going to be deferring to the experts coming up with a re-sculpture prediction. So you have to fight for some clarity somewhere. And as I take it, your argument is- And then get congressional intent as always the touchstone here. Your argument is that it's clear that Congress didn't intend that the caps extend past 2000. That's part of your argument. It's clear that Congress not intend those caps to what more. Is that- It's a little different from that. Okay. And if I understand this court's precedence correctly and Chevron correctly and that sort of thing- So you said that- I had to bring it up. Students are now saying- I'm playing Chevron Bingo on there
. That's it. That Chevron deference applies in the sort of primary sense when you have a statute where Congress has delegated something to an agency and they give a formal interpretation of it by a regulation or some other official means. And our contention here is that that has been done in this case. CMS promulgated regulations to implement these caps. And basically we're just asking that they be followed. Well, but here's another view. So tell me what's wrong with- Right. It's clear that Congress did not intend the caps to extend the out of 2002. But it's also- Isn't it also- Is there any evidence that Congress intended to go back to the base year, Tefer caps as well? I mean, don't we have- Congress thought the PPF was going to go to the police and it's not. And so what do we do in that sort of regulatory void? And in that- In that in that land, right? Isn't that the land of great deference to CMS here? And in that case, I would ask you to follow what CMS said the results were going to be. And if you look at their publications and the federal register, they were quite clear. Okay, so then we get back to my point. You have to find clarity somewhere to- And you're saying we should find clarity in what CMS said. Yes, right. And obviously if we disagree with you on that, if we find some ambiguity in the regulations here, then you lose. But that's the point
. Well, yeah. So you're resting here on the clarity of the range of motion. The clarity of the regulatory scheme and CMS's interpretation of it. Contemporaneous interpretation of it. Not retroactive. The unusual thing we've got here is that usually when you have an APA case, you've got a decision, you've got a rule, you've got an agency issue and some type, you know. And the question is, look at that and see if it comports with APA requirements. Here what we've got is an amendment that came up in 2005 that reported to change the effectiveness of the statute. I mean, this is what they're- That's not what they reported to you, they were- Of the regulation, I'm sorry. Well, I guess they're too different, obviously. Sure, one is the regulation, but they say all they were doing is clarifying the position that they've always intended, that they'd always take. It's described as clarification, right? They described it, but let me just point you back. I just thought it was intended to change, they say it was intended to clarify. Well, in point of fact, in the reimbursement context, it caused a great change, it caused my client to, you know, lose a heck of a lot of money. It did change the clarity, it did not purport to be changed in the effect. It did not purport to, but it might be what it did, in the real world it did
. And what they said, for over a period of years, every year, you know, they publish an IPPS regulation. And over a period of years, they said that on or after October 1, 2002, payments to these classes, they just- Oh, I'm sorry. This was the proposed Reg in the spring of 2002. And then there's another one that follows it, the final IPPS Reg for 2003. In other words, the very cost year we're dealing with here, the very first year. And they say that these excluded hospitals or hospital units are no longer subject to caps on the cargo map. But then they go on to say that these excluded hospitals and hospital units continue to be paid on a reasonable cost basis. Were you looking at the 2002 August 1, 2002 free-emotional? Sorry, this one is May. What about the August 2? The August, just to complete them, the May, it says, paid on a reasonable cost basis. And payments are based on their Medicare inpatient operating costs, not to exceed the sealant. That's a hospital-specific cost. That's how CMS interprets its own regulation. And then for the August 1. I can't just ask about this. There's no cap applied in 2003. There's this echo effect that you talked about on the cap
. There is no actual cap applied in 2003, right? I don't call it an echo effect. I think one of the other darts, but my point is that it has the exact same effect as a cap. Well, it can still go above whatever the cap would be. There's no cap in 2003. It just uses the preceding. Which was cap. Yeah, and so, and it's just updated by a couple of percentage points. It depends on, I think, the year and then, and I'm not receiving a something to do with it. I mean, it costs a living off. Yeah, it does. So when they say that beginning in 2003 payments will no longer be subject to a 75th percentile cap, yeah, it seems to be one reading. Well, it seems like a straightforward reading is that in 2003, there's no cap that doesn't say anything about how you calculate 2003, based on the one that there was a cap for the... It does, though. In May, it says, sorry, in May it says that they will be paid on the basis that their reasonable cost. And payments are based on their Medicare inpatient operating costs. That has to be... 200 all of this is put to a point. And that's a true statement. Even if you're on campus, why don't you go to the States? It's based on the actual cost. It may not be a minute. You're back all of it. No, it's not true. It's based on... I don't think so, Your Honor, because under PPS for instance, it's not really based on cost. It's based on a prospectively.
. And payments are based on their Medicare inpatient operating costs. That has to be... 200 all of this is put to a point. And that's a true statement. Even if you're on campus, why don't you go to the States? It's based on the actual cost. It may not be a minute. You're back all of it. No, it's not true. It's based on... I don't think so, Your Honor, because under PPS for instance, it's not really based on cost. It's based on a prospectively... Well, enter all the possibilities here. You started with the cost. Now, you get to a cap under some of the possibilities. Yeah, but the cap is not before. It's based on. Yeah. But you know, it says it will be paid based upon their aggregate Medicare inpatient operating costs, which may not have seen. It also says that the seat that would still be computed using the hospital's... ...for years, starting up on the previous cost before. Is that right? For no, for no, no, no
.. Well, enter all the possibilities here. You started with the cost. Now, you get to a cap under some of the possibilities. Yeah, but the cap is not before. It's based on. Yeah. But you know, it says it will be paid based upon their aggregate Medicare inpatient operating costs, which may not have seen. It also says that the seat that would still be computed using the hospital's... ...for years, starting up on the previous cost before. Is that right? For no, for no, no, no. For 2003? For 2003. Yeah. What they're doing in the regulation that we rely on, which is CMS's regulation, 413.40C4, and this is the... I'll call it a triple-I. That's the governing regulation at this point. That is not... So this is important, I think. You're saying that it should be based on triple-I. Yes, what? The division that you're..
. For 2003? For 2003. Yeah. What they're doing in the regulation that we rely on, which is CMS's regulation, 413.40C4, and this is the... I'll call it a triple-I. That's the governing regulation at this point. That is not... So this is important, I think. You're saying that it should be based on triple-I. Yes, what? The division that you're... The rule that you're actually talking to, the May statement that you're talking about, under 81, the last sentence of 81 says, that whole paragraph is all about, in accordance with the existing double-I. Right? It doesn't say triple-I. It says in accordance with the existing double-I. Yeah, but double-I is subject to triple-I. Well, the governance position is triple-I. So you would have a strong case if... And they said it again on the next page, if it said you were to be using triple-I, which is what you said in your argument, but the May statement doesn't refer to triple-I. It does refer to double-I. That's correct. But it's subject to triple-I. And if you look at the regulation, look at the structure of it. Basically, triple-I, which was added at the time that the caps went into effect, is made the only small subsection there that applies to psychiatric hospitals, long-term care hospitals, and rehab hospitals. It says, if you want to know the rule for those kinds of hospitals, you look at triple-I. That's all you look at
. The rule that you're actually talking to, the May statement that you're talking about, under 81, the last sentence of 81 says, that whole paragraph is all about, in accordance with the existing double-I. Right? It doesn't say triple-I. It says in accordance with the existing double-I. Yeah, but double-I is subject to triple-I. Well, the governance position is triple-I. So you would have a strong case if... And they said it again on the next page, if it said you were to be using triple-I, which is what you said in your argument, but the May statement doesn't refer to triple-I. It does refer to double-I. That's correct. But it's subject to triple-I. And if you look at the regulation, look at the structure of it. Basically, triple-I, which was added at the time that the caps went into effect, is made the only small subsection there that applies to psychiatric hospitals, long-term care hospitals, and rehab hospitals. It says, if you want to know the rule for those kinds of hospitals, you look at triple-I. That's all you look at. And if they wanted to go back to double-I, then you get into a situation where it says, it's based upon updating the previous year, but then we come to the circular question as to target them out. And what was the previous year's target them out was a cap or not. And that's still to give its question, which is, you have to give us clarity not to go ahead. Right, right. Well, I'm saying the clarity is here in the statements at CMS made, which basically said, we're going back to the old system. You're going to get your inpatient operating costs now. After 2002, caps were expired. They're all gone. And there's not the slightest hint in there anywhere that it's going to be a cap amount. They couldn't say that if that was going to be the case, and they did. Isn't that a bit surprising given the trajectory of congressional action on this one? I mean, everything was leading towards capping or having things go down. And to come along and say, and you're saying that you're going to say, and that's not understanding, but what my question is, isn't that surprising to see and that's took that view at that time, given what seems to be the direction Congress was pushing this. I see no evidence that Congress want to go back to the good old days. Is it that you're trying to claim for those two years now? I think your time is arguing that it's not that black thing, the one that you've raised with the state of the United States by CMS, and we'll hear from the government how we can have the same life. Okay. All right
. And if they wanted to go back to double-I, then you get into a situation where it says, it's based upon updating the previous year, but then we come to the circular question as to target them out. And what was the previous year's target them out was a cap or not. And that's still to give its question, which is, you have to give us clarity not to go ahead. Right, right. Well, I'm saying the clarity is here in the statements at CMS made, which basically said, we're going back to the old system. You're going to get your inpatient operating costs now. After 2002, caps were expired. They're all gone. And there's not the slightest hint in there anywhere that it's going to be a cap amount. They couldn't say that if that was going to be the case, and they did. Isn't that a bit surprising given the trajectory of congressional action on this one? I mean, everything was leading towards capping or having things go down. And to come along and say, and you're saying that you're going to say, and that's not understanding, but what my question is, isn't that surprising to see and that's took that view at that time, given what seems to be the direction Congress was pushing this. I see no evidence that Congress want to go back to the good old days. Is it that you're trying to claim for those two years now? I think your time is arguing that it's not that black thing, the one that you've raised with the state of the United States by CMS, and we'll hear from the government how we can have the same life. Okay. All right. Thank you very much. That was called a set up. Good morning. May it please the court care and shown on behalf of the secretary. In calculating the hospital's target amount, CMS did exactly what the statute unambiguously required it to do. Section B3A, little room and two of the statute, which sets forth the meaning of target amount, provided that a hospital's target amount for a given cost period was equal to its target amount for the pre-seating 12 month cost reporting period updated by the applicable percentage increase. So to calculate the hospital's 2003 target amount, the agency had to use the 2002 target amount, notwithstanding that it had been limited by the cap. Even if there were some ambiguity in the statute, the agency's decision to use the 2002 target amount, which had been limited by the cap, was reasonable. And as Judge Griffith just pointed out, I think the legislation over time, evidence is a clear congressional intent to limit the growth of Medicare costs, and to move toward a more uniform objective reimbursement standards, and to revert to a base-year calculation, as if the cap had never applied, simply flies in the face of that congressional intent. And I think it's helpful to actually look at the numbers in this case. The hospital's 2002 target amount, which was limited by the cap, was $10,469. The applicable percentage increase for 2003 was 3.5%. And so the 2003 target amount that the agency calculated was $10,835. Under the calculation that plaintiff advocates, its 2003 target amount would be $18,298. That's almost a 75% increase over the 2002 target amount, and given the clear congressional intent to limit the growth of Medicare costs, I think that simply cannot be what Congress intended
. Thank you very much. That was called a set up. Good morning. May it please the court care and shown on behalf of the secretary. In calculating the hospital's target amount, CMS did exactly what the statute unambiguously required it to do. Section B3A, little room and two of the statute, which sets forth the meaning of target amount, provided that a hospital's target amount for a given cost period was equal to its target amount for the pre-seating 12 month cost reporting period updated by the applicable percentage increase. So to calculate the hospital's 2003 target amount, the agency had to use the 2002 target amount, notwithstanding that it had been limited by the cap. Even if there were some ambiguity in the statute, the agency's decision to use the 2002 target amount, which had been limited by the cap, was reasonable. And as Judge Griffith just pointed out, I think the legislation over time, evidence is a clear congressional intent to limit the growth of Medicare costs, and to move toward a more uniform objective reimbursement standards, and to revert to a base-year calculation, as if the cap had never applied, simply flies in the face of that congressional intent. And I think it's helpful to actually look at the numbers in this case. The hospital's 2002 target amount, which was limited by the cap, was $10,469. The applicable percentage increase for 2003 was 3.5%. And so the 2003 target amount that the agency calculated was $10,835. Under the calculation that plaintiff advocates, its 2003 target amount would be $18,298. That's almost a 75% increase over the 2002 target amount, and given the clear congressional intent to limit the growth of Medicare costs, I think that simply cannot be what Congress intended. What's expected payment system come into play now? It has. Yes. And do you know what it would have been and do that? I don't know the figures. For most hospitals, it is. I think it's because this is a sort of expected payment system was also to limit growth. I cannot let it rely only on individual hospitals costs. That's right. We reduce a lot of the variability and have more uniform payment standards. That's correct. You know, you spend a lot of time looking at the preamble in August 1, 2002. And hospitals council pointed to the use, for example, of- I actually talked about the May 1, although I guess about the August 1. Okay. Well, if it's okay, I'll point to the August 1 language. I have that in front of me. I know that you told me. It's at 67th, bedrag, 5103
. What's expected payment system come into play now? It has. Yes. And do you know what it would have been and do that? I don't know the figures. For most hospitals, it is. I think it's because this is a sort of expected payment system was also to limit growth. I cannot let it rely only on individual hospitals costs. That's right. We reduce a lot of the variability and have more uniform payment standards. That's correct. You know, you spend a lot of time looking at the preamble in August 1, 2002. And hospitals council pointed to the use, for example, of- I actually talked about the May 1, although I guess about the August 1. Okay. Well, if it's okay, I'll point to the August 1 language. I have that in front of me. I know that you told me. It's at 67th, bedrag, 5103. And he pointed to the reasonable cost language there. And one thing I'd like to just point out the context of this, because this discussion was in the context of Congress's directive to move to the prospective payment system. And the very next paragraph, beyond what was quoted in the briefs, then talks about beginning after October 1, 2002, rehabilitation hospitals and long-term care hospitals would be moving to a prospective payment system. And I think then the reference that the agency used for reasonable cost was meant to distinguish the two types of systems, the old reasonable cost system that was governed by Part 413 of the regulations, of which the regulation that's an issue here was a part, versus the new prospective payment system, where the implementing regulations were in Part 412. And so I just want to make sure that it's clear that it wasn't meant to refer to, you know, a hospital's own reasonable cost, and therefore that it couldn't potentially have been limited by the cap. I think it was really just meant to distinguish the two types of systems. You know, I'd also like to note, and I apologize this provision is not in a hard-dendum, but there was also another provision that was enacted at the same time as the cap, in Section B7 of the statute, which applied to so-called new providers. And those were hospitals that first received reimbursement after October 1, 1997. And what that did is it limited, it effectively imposed a cap of 110% of the median target amounts for a given year. And there was no expiration. So I think it would be somewhat anomalous to go back to a base year calculation as if there had never been any caps for old providers, but to effectively cap new providers to 110%. We did not year on our no. One. What do I want? I don't have a good answer for that. We usually pay more attention, but our interest rate is great. I'm saying that it's a rather good one
. And he pointed to the reasonable cost language there. And one thing I'd like to just point out the context of this, because this discussion was in the context of Congress's directive to move to the prospective payment system. And the very next paragraph, beyond what was quoted in the briefs, then talks about beginning after October 1, 2002, rehabilitation hospitals and long-term care hospitals would be moving to a prospective payment system. And I think then the reference that the agency used for reasonable cost was meant to distinguish the two types of systems, the old reasonable cost system that was governed by Part 413 of the regulations, of which the regulation that's an issue here was a part, versus the new prospective payment system, where the implementing regulations were in Part 412. And so I just want to make sure that it's clear that it wasn't meant to refer to, you know, a hospital's own reasonable cost, and therefore that it couldn't potentially have been limited by the cap. I think it was really just meant to distinguish the two types of systems. You know, I'd also like to note, and I apologize this provision is not in a hard-dendum, but there was also another provision that was enacted at the same time as the cap, in Section B7 of the statute, which applied to so-called new providers. And those were hospitals that first received reimbursement after October 1, 1997. And what that did is it limited, it effectively imposed a cap of 110% of the median target amounts for a given year. And there was no expiration. So I think it would be somewhat anomalous to go back to a base year calculation as if there had never been any caps for old providers, but to effectively cap new providers to 110%. We did not year on our no. One. What do I want? I don't have a good answer for that. We usually pay more attention, but our interest rate is great. I'm saying that it's a rather good one. I agree. I wish we had mentioned it in Aubrey. You know, I'm happy to answer any other questions the court may have. If there are no further questions, we'd ask that you affirm the judgment of the district court. Thank you. What would you say, Cali? Maybe just one minute. Thank you, Your Honor. The one thing that really hasn't been mentioned too much as part of all this is the fact that this whole change, and it was a change because it changed our reimbursement and a lot of other providers as well, was all implemented completely retroactively. It was done in August of 2005. That's when the final federal register notice was. It's only retroactively, you think that it was a change. I think that your change, because the intermediary of the county did one thing and then did another, but the question is whether each HHS has changed its view? Change its view, and I think it has changed its view as I've argued before. But my point is that just from a timing perspective here, this is after the healthcare services were provided by the hospital, after the cost years in question, after the notice. If we thought that there wasn't a change, that this is consistent with the unit they expressed in 2002, then there's no retroactively question. That's a hard one to answer because their expressions were so clear. I'm asking for that, doing it as I can recall, imagine that we thought that in 2002 they were clear about this, and what they said in 2005 was only as they claim a clarification
. Then there's no retroactively. I guess if there's no change, there's no retroactively change. Thank you very much. We'll take both sides again, good arguments, and we'll take this matter under submission, and of course, we'll do the research