BEAM, Circuit Judge.
St. Mary's Hospital and the Rochester Memorial Hospital filed suit in the district court against the Secretary of Health and Human Services. The suit sought review of the Secretary's denial of the hospitals' claim for approximately $4.1 million in Medicare reimbursements. The district court granted the Secretary's motion for
A. The Medicare Scheme
1. DRG Payments and Bundling
Medicare is health insurance funded by the federal government for the aged and disabled. Before 1983, the government reimbursed hospitals for the actual costs of treating Medicare patients, subject to a reasonable-cost limitation. In 1983, the government changed its method of reimbursement to a prospective payment system. Social Security Amendments of 1983, Pub.L. No. 98-21, Title VI, 97 Stat. 65, 149-72. That change instituted a set of flat-rate reimbursements for hospitals treating Medicare patients. The reimbursement rates were set according to historic costs in a given region and applied on a prospective basis to the hospitals during the upcoming fiscal year. These new payments were made according to patients' diagnoses. Thus, with regard to a Medicare patient, treating hospitals would get a payment that was tied to the patient's diagnosis related group (DRG).
For some hospitals, outside entities provided ancillary services to the hospitals' patients—e.g., laboratory, radiology, and physical therapy services. Before 1983, Medicare allowed such ancillary providers to bill Medicare directly, under Part B, for the reasonable costs those providers incurred in providing their services. The hospitals would bill their own charges to Medicare separately, under Part A. In 1983, as part of instituting the prospective payment system and its DRG-based reimbursement scheme, Congress required hospitals to bundle (or refrain from unbundling) the expenses associated with patient care, including the costs of services furnished by outside providers. 42 U.S.C. §§ 1395y(a)(14), 1395cc(a)(1)(H).
Keeping costs together, however, posed significant problems to hospitals that had followed a practice of having ancillary providers furnish services and seek reimbursement from Medicare separately because their accounting and billing systems would have to be changed. So Congress provided a waiver of the bundling requirements for hospitals that needed time to change. The waiver provision—section 602(k) of Pub.L. No. 98-21, 97 Stat. at 165-66, which was later included in the U.S.Code as a note to 42 U.S.C. § 1395y (Supp. I 1982)—gave the Secretary the power to allow such hospitals and their ancillary providers to continue their practice of separately billing unbundled charges "for any cost reporting period beginning prior to October 1, 1986." 97 Stat. at 165. According to the section 602(k)-waiver provision, "Any such waiver shall provide that [the ancillary providers'] billing may continue to be made under part B of such title but that the payments to such hospital under part A of such title shall be reduced by the amount of the billings for such services under part B of such title." Id. at 165-66. The part B payments to the ancillary providers were not calculated according to the patient's DRG. Rather, those payments were calculated on a reasonable-cost basis. Thus, Medicare would reimburse ancillary providers according to what it cost the ancillary provider to provide the services. Under the waiver provision, then, a waiver hospital's DRG payment was reduced by the reasonable costs of ancillary services billed by and paid to the ancillary provider.
2. Teaching Hospitals
When Congress implemented the DRG system, it was concerned that those payments would not adequately reimburse teaching hospitals because such hospitals typically have higher costs per patient than non-teaching hospitals. S.Rep. No.
IME expenses are not easily quantified. So the Secretary created a formula to calculate how much money teaching hospitals would get for IME expenses. That formula—derived from a statistical analysis of teaching hospitals' costs compared to non-teaching hospitals' costs that takes into account the ratio of residents and interns to beds, 45 Fed.Reg. 21,584 (Apr. 1, 1980)—basically allows teaching hospitals to get a payment that represents a fraction of their DRG revenue. For example, if the Secretary's formula—which is now codified in 42 U.S.C. § 1395ww(d)(5)(B)—yields an "indirect teaching adjustment factor" of .10, then a teaching hospital that has $10,000 of DRG revenue in a given cost reporting period (i.e., fiscal year) would get an additional payment of $1,000 as reimbursement for IME expenses.
B. The Mayo System and the Hospitals' IME Reimbursements
St. Mary's, Rochester, and the Mayo Clinic are all teaching facilities. The two hospitals house patients who are treated by the Mayo Clinic's physicians, residents, and interns. The Mayo Clinic also provided ancillary services to the hospitals' patients. Before the 1983 changes took effect, the Mayo Clinic billed Medicare separately for the ancillary services that it provided to the hospitals' patients. Under the bundling provisions, however, those charges would need to be billed by the hospitals, who would then pay the Mayo Clinic for its services. But St. Mary's and Rochester were given a section 602(k) waiver. Thus, during the cost reporting periods at issue
St. Mary's and Rochester disputed their Medicare reimbursements for the relevant cost reporting periods with their fiscal intermediary, Blue Cross and Blue Shield of Minnesota, claiming that they had been deprived of reimbursement for DME, capital, and IME expenses that they had incurred.
Mr. Angellotti dealt with two issues that Blue Cross had apparently raised, both of which questioned the extent to which the Mayo Clinic's charges should reduce the hospitals' DRG payments. The first dealt with DME and capital expenses. Mr. Angellotti reasoned that the Mayo Clinic's payments, the amount of which was determined on a reasonable-cost basis, included some amount of capital and DME costs that the Mayo Clinic had incurred and billed to Medicare as reasonable costs. "[I]n the interest of equity," Mr. Angellotti concluded that the hospitals should not be charged with the Mayo Clinic's capital and DME costs through a reduction in the hospitals' DRG payments. In other words, Mr. Angellotti concluded that the offset that the section 602(k) waiver required had to be reduced. To make that reduction, he concluded that Blue Cross should determine what portion of the Mayo Clinic's total ancillary-services charges were attributed to DME and capital costs. This was to be done by multiplying the total nonphysician charges by the "ratio of capital and direct medical education cost to total cost of the [Mayo Clinic]." The resulting amount was not to be included in the reduction of the hospitals' DRG payments. Thus, he told Blue Cross to reduce the 602(k)-waiver offset by the amount of the charges that were attributed to the Mayo Clinic's DME and capital costs.
The second issue that Mr. Angellotti dealt with was whether the hospitals were entitled to an "indirect teaching adjustment" based on an unreduced DRG payment—i.e., an IME payment calculated from the DRG payment before the 602(k)-waiver offset for the Mayo Clinic's payments. Mr. Angellotti concluded that
St. Mary's and Rochester appealed that decision to the Provider Reimbursement Review Board (PRRB), claiming they were owed over $4.1 million in IME reimbursements. The PRRB affirmed the HCFA's decision.
After exhausting their administrative remedies, St. Mary's and Rochester sought review in the district court. The district court
We review the district court's decision de novo. Shalala v. St. Paul-Ramsey Med. Ctr., 50 F.3d 522, 527 (8th Cir.1995).
A. Congressional Intent
Under Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), the question we must first address, "always, is ... whether Congress has directly spoken to the precise question at issue." Id. at 842, 104 S.Ct. 2778. So we look to the statute's plain language. And if we, "employing traditional tools of statutory construction, ascertain[ ] that Congress had an intention on the precise question at issue, that intention is the law and must be given effect." Id. at 843 n. 9, 104 S.Ct. 2778.
St. Mary's and Rochester argue that the decision not to calculate their IME reimbursement from an unreduced DRG payment was contrary to Congress's unambiguously expressed intent. We disagree. We have reviewed the legislative history accompanying the original 1983 version of section 602(k) and the IME-reimbursement provisions. We conclude that neither the statutes' plain language nor any discernible congressional intent on the precise question at issue resolves this case. The hospitals' arguments, however, are premised primarily on the 1986 amendment to the 602(k)-waiver provision. That amendment, among other things, added a new subsection (2) to 602(k):
Pub.L. No. 99-272, § 9112, 100 Stat. at 163. The amendment also included effective dates for both the new subsection (2), and the new subsection (3)(a):
Id. In sum, Congress's implemented the very construction of the statutes that the hospitals now champion. But Congress didn't go all the way back to 1984. Instead, it chose to use specific effective dates for the provisions it was adding. And, with regard to subsection (2), Congress chose cost reporting periods that began over four months before the law's enactment on April 7, 1986.
Both the district court and the PRRB hung their hats on the statute's effective date. We agree that the amendment plainly states how 602(k)-waiver offsets affect a hospital's IME reimbursements for cost reporting periods beginning on or after January 1, 1986. But, as we explain below, that does little to settle the question presented here—whether or not the Secretary could reach a different conclusion for cost reporting periods beginning before January 1, 1986. So we disagree with the district court and the PRRB insofar as they ruled that Congress's 1986 amendment closed the door on the hospitals' claim.
Congress, when it made the 602(k)-waiver amendment in 1986, did not speak to those prior years in the statute. It neither expressly endorsed nor prohibited the Secretary's construction of the statute by
The legislative history to the 1986 amendment is similarly unavailing. The amendment was part of budget-reconciliation legislation that took a storied path in the 99th Congress. The legislation originated in separate bills. In the House of Representatives, H.R. 3128 began with no provision regarding the interaction of IME reimbursements and the section 602(k) waiver. In the Senate, S. 1730 had such a provision, but in a much sparser form than was eventually passed:
S. 1730, at 164, reprinted in 131 Cong. Rec. at 27,490.
H.R. 3128 passed the House. The Senate struck the entirety of the House's version, substituted the text of S. 1730, including section 710, and sent the amended bill back to the House. 131 Cong. Rec. at 31,974-75. The House, in turn, struck the entirety of the Senate's amendment to H.R. 3128, and substituted the original text of H.R. 3128. 131 Cong. Rec. at 34,511-12. The bill then went to a joint conference committee. The conference committee reported an amended bill, H.R.Rep. No. 99-453, reprinted in 131 Cong. Rec. at 38,124, along with a joint explanatory statement, 131 Cong. Rec. at 38,234. The conference committee's amended bill included the language of H.R. 3128 that eventually became the 602(k)-waiver amendment at issue here, 131 Cong. Rec. at 38,151-52, and the effective dates appeared for the first time in that amended bill. The explanatory statement is the only indicia we have of why Congress included the effective date in the ultimate legislation.
We need go no deeper into the legislative history to evaluate the parties' arguments. The hospitals argue that the 602(k)-waiver amendment was a "clarifying" amendment, geared at overruling the Secretary's construction of the statute under the rubric of declaring Congress's original intent. The Secretary, on the other hand, argues that the 602(k)-waiver amendment was a "changing" amendment, geared at changing the way in which the statute dealt with IME reimbursement from the effective date on.
The hospitals garner support for their argument from the legislative history accompanying
Id. at 294, reprinted in 1986 U.S.C.C.A.N. at 42 at 261. The conference report, which included a substantially different version of the 602(k) amendment (the one that eventually passed), included a joint explanatory statement. In that statement, the conference committee recounted the current-law and explanation-of-provision language from the Senate Report and explained the conference's agreement:
131 Cong. Rec. at 38,259.
From this, all we can glean is that Congress intended the amendment to take effect on January 1, 1986. The hospitals' citation of the word "clarify" from the Senate Report, in conjunction with an expression of what the Senate thought the earlier Congress intended—"was only intended to"—and the report's mention of the HCFA's decision, are somewhat indicative of the Senate's intent to change what the administration had done under the 1983 legislation. And it at least implies that the Senate thought the HCFA had erred in its construction of the statute. But the language that ultimately made it into the statute was derived from the conference committee's amended bill in which the conference included the Senate's proposal with modifications. One of those modifications was the effective date. This indicates that Congress did not want to change the rules that far back. And the statements included in the legislative history to the Senate's bill provide "`a hazardous basis for inferring the intent of an earlier [Congress].'" United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 349, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963) (quoting United States v. Price, 361 U.S. 304, 313, 80 S.Ct. 326, 4 L.Ed.2d 334 (1960)); accord Consumer Prod. Safety Comm'n, 447 U.S. at 118 n. 13, 100 S.Ct. 2051.
Moreover, once we consider the context of the legislation—as part of a budget reconciliation act geared at cutting costs—the hospitals' interpretation of the amendment as being applicable to cost reporting periods starting before January 1, 1986, would surely frustrate the congressional
Taken in this light, we know two things about the 1986 amendment: (1) Two committees were aware of the HCFA's decision regarding IME reimbursement, and (2) Congress clearly enunciated the way in which IME reimbursements were to be calculated for cost reporting periods beginning on or after January 1, 1986. But we do not take the 1986 amendment as far as the district court and the PRRB did; we do not glean from the amendment an indication that Congress acquiesced in or validated the Angellotti decision for the cost reporting periods beginning before January 1, 1986. See S.E.C. v. Sloan, 436 U.S. 103, 121, 98 S.Ct. 1702, 56 L.Ed.2d 148 (1978) (questioning acquiescence in a case where it was "based only upon a few isolated statements in the thousands of pages of legislative documents"). Congress's intent with regard to how the waiver provision and the IME reimbursement mechanism should interact was unclear in 1983 when it enacted the statutes that govern the cost reporting periods at issue. And Congress's 1983 intent remained as unclear after the 1986 amendment.
B. The Secretary's Interpretation
With the 1983 congressional intent in doubt, and with no clarification of that original intent in the subsequent amendment, we turn to the Secretary's interpretation of the 1983 legislation. In 1983, Congress did not address the precise issue presented here: whether or not the 602(k) waiver should reduce the hospitals' DRG reimbursement for purposes of calculating the hospitals' IME reimbursements. So the Secretary was left with little or no statutory guidance. When such a gap is filled by regulation or formal agency adjudication, we will hold such a construction impermissible only if the agency acted unreasonably. Chevron, 467 U.S. at 843-44, 104 S.Ct. 2778. The formal adjudication of this matter—the PRRB decision—did not reach the question presented here because it viewed the 1986 amendment as dispositive. However, the Angellotti letter interpreted the statutes as they applied to the hospitals' reimbursements. That letter is not entitled to Chevron-type deference because it does not appear to have "the force of law." Christensen v. Harris County, 529 U.S. 576, 587, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000). Indeed, the PRRB regarded Mr. Angellotti's letter as "more interpretive in nature than authoritative." However, the Angellotti letter does represent the HCFA's, and therefore the Secretary's, interpretation of the statute. Thus it is "`entitled to respect'" to the extent it has the "power to persuade." Christensen, 529 U.S. at 587, 120 S.Ct. 1655 (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944)). Under that standard, an agency interpretation may stand if it is persuasive. Kai v. Ross, 336 F.3d 650, 655 (8th Cir.2003). We are persuaded by the Secretary's interpretation.
The IME reimbursements in this case were calculated based on the amount of money each hospital received. The waiver, by the express terms of the statute,
Given the statutory provision that requires a reduction in the waiver hospitals' DRG payments by the ancillary providers' reasonable costs, and the statutes' failure to address how that offset should affect IME reimbursements calculated from DRG payments, the Secretary had a gap to fill. The Secretary's interpretation of the statute was logical because it fully reimbursed the hospitals for their costs, including whatever inefficiencies may have arisen because of their teaching activities.
Accordingly, we affirm.