Select Specialty Hospital—Bloomington, Inc. v. Burwell, 757 F.3d 308

A group of long-term care hospitals challenged the Medicare capital-cost exemption for “new hospitals” under 42 C.F.R. § 412.300(b) after the Secretary determined their facilities were not new hospitals because they were in buildings previously owned by hospital entities.
The transitional capital-payment scheme initially exempted genuinely new hospitals for two years, providing 85% of reasonable capital-related costs.
The 1992–1993 regulations added four exceptions to the “not new” rule, intended to protect new entrants lacking a historic asset base.
Most Hospitals were operating as “hospitals-within-hospitals” (leased or affiliated with host hospitals) or freestanding, with disputes over whether assets or organizational status determined “newness.”
The Board found the term “new hospital” ambiguous and its reasoning failed to coherently apply the exemption to the Hospitals’ asset-level vs entity-level status.
The district court adopted the Board’s reasoning as reasonable; the Hospitals challenged, and the court of appeals reversed, remanding for proper explanation of the decisional standard.

Issue	Plaintiff's Argument	Defendant's Argument	Held
What does “new hospital” mean in § 412.300(b)?	Select Specialty argues it refers to the organizational entity; the Hospitals are new entrants lacking historic assets.	The Government contends Board defined “new hospital” with respect to assets and/or entity, but remains unclear.	The meaning of “new hospital” is ambiguous in the Board’s decision.
Is the Board's decision arbitrary and capricious for failing to explain its standard and application?	The Board did not coherently explain how asset-level or entity-level analysis yields exemption results.	The Board believed assets and timing supported exemption, but provided insufficient articulation.	Yes; the decision is arbitrary and capricious and must be remanded.
Should the decision be remanded for a coherent standard rather than post hoc rationalizations?	Remand to clarify the decisional standard and its application to the Hospitals.	Post hoc rationalizations should not substitute for agency reasoning.	Remand to Secretary for further proceedings not inconsistent with this opinion.

Checkosky v. S.E.C., 23 F.3d 452 (D.C. Cir. 1994) (agency action arbitrary when reasoning is missing or incoherent)
Chenery Corp. v. S.E.C., 332 U.S. 194 (1947) (requires agency reasoning tied to its decision for APA review)
Coburn v. McHugh, 679 F.3d 924 (D.C. Cir. 2012) (arbitrary-and-capricious review when decision lacks coherence)
Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994) (limits deference when interpretation conflicts with regulation text)
Kaiser Found. Hosp. v. Sebelius, 708 F.3d 226 (D.C. Cir. 2013) (limits deference for agency interpretations that are plainly erroneous)