          United States Court of Appeals
                      For the First Circuit

No. 02-1284

     SOUTH SHORE HOSPITAL, INC., D/B/A SOUTH SHORE HOSPITAL
                    TRANSITIONAL CARE CENTER,

                      Petitioner, Appellee,

                                v.

   TOMMY G. THOMPSON, SECRETARY OF HEALTH AND HUMAN SERVICES,

                      Respondent, Appellant.


          APPEAL FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF MASSACHUSETTS

          [Hon. Joseph L. Tauro,     U.S. District Judge]


                              Before

                      Selya, Lynch and Lipez,

                         Circuit Judges.


     Anthony A. Yang, Attorney, Appellate Staff, Civil Division,
United States Department of Justice, with whom Michael J. Sullivan,
United States Attorney, Robert D. McCallum, Jr., Assistant Attorney
General, and Barbara C. Biddle, Attorney, Appellate Staff, were on
brief, for appellant.
     Donald R. Frederico, with whom Peter R. Leone and McDermott,
Will & Emery were on brief, for appellee.



                         October 16, 2002
          SELYA, Circuit Judge.         This appeal leads us into the

often surreal world of Medicare administration.      It arises out of

efforts by South Shore Hospital (the Hospital), an acute care

hospital located in South Weymouth, Massachusetts, to obtain relief

for its transitional care center (the TCC) from Medicare's cost

limits on reimbursement of routine patient care expenses.         The

Health Care Financing Administration (HCFA) denied the Hospital's

application on the ground that its purchase of determination of

need (DON) rights from an unaffiliated nursing home rendered

unavailable the so-called "new provider" exemption codified at 42

C.F.R. § 413.30(e)(2) (1994).1    The Provider Reimbursement Review

Board (the Board) of the United States Department of Health and

Human Services (HHS) affirmed this determination.        See S. Shore

Hosp., No. 99-D38, 1999 WL 297452 (PRRB Apr. 21, 1999) (S. Shore

I).   The federal district court, however, took a different view,

reversing the Board's decision. S. Shore Hosp. v. Thompson, 204 F.

Supp. 2d 76, 83 (D. Mass. 2002)   (S. Shore II).    This timely appeal

ensued.

          We conclude that the new provider exemption is less than

pellucid; that the Secretary's interpretation of the relevant


      1
      Although the new provider exemption lately has migrated,
after certain amendments not relevant here, to 42 C.F.R. §
413.30(d) (2000), the previous version of the rule was in effect at
all times material hereto, and we will continue to refer to that
version.   By like token, even though HCFA is now known as the
Centers for Medicare and Medicaid Services, we will continue to use
the original acronym.

                                  -2-
regulatory language is reasonable (although not inevitable); that

the Hospital has failed to show that the Secretary vacillated in

his interpretation; and that substantial evidence supports the

Board's finding that the now-defunct nursing home from which the

Hospital    acquired     the    necessary     DON    rights    operated    as    an

equivalent of the TCC.         Consequently, we sustain the Secretary's

refusal to classify the TCC as a new provider, reverse the decision

of the district court, and direct the entry of judgment in favor of

the Secretary.

I.   STATUTORY AND REGULATORY FRAMEWORK

             The Medicare Act, 42 U.S.C. §§ 1395-1395ggg, provides

federal funding for a range of medical services for the elderly and

disabled,    including      reimbursement     for    the   reasonable     cost    of

certain services provided by skilled nursing facilities (SNFs).

Id. § 1395f(b)(1); 42 C.F.R. § 413.1(a)(2)(ii), (b), (g).                 The Act

expressly vests in the Secretary of HHS the discretion to determine

reasonable costs by regulations that, inter alia, "may provide for

the establishment of limits on the [costs] to be recognized as

reasonable    based    on   estimates    of   the    costs    necessary    in    the

efficient    delivery    of    needed   health      services."     42   U.S.C.     §

1395x(v)(1)(A).       In this regard, the Act mandates routine cost

limits (RCLs) that restrict per diem reimbursement to 112% of the




                                        -3-
national    average   for   similarly    situated     providers.2   Id.   §

1395yy(a).    Exemptions and exceptions that permit higher rates of

reimbursement are allowed "to the extent the Secretary deems

appropriate, based upon case mix or circumstances beyond the

control of the facility."      Id. § 1395yy(c).

            At issue here is an exemption for "new providers" of

skilled nursing services. 42 C.F.R. § 413.30(e)(2). The Secretary

promulgated this exemptive regulation in 1979 to ameliorate the

"initial underutilization" faced by many market entrants.           44 Fed.

Reg. 31,802.     It authorizes an exemption when "[t]he provider of

inpatient services has operated as the type of provider (or the

equivalent) for which it is certified for Medicare, under present

and previous ownership, for less than three full years." 42 C.F.R.

§ 413.30(e)(2).       This, then, permits the Secretary, under some

circumstances, to deny the exemption by tying together present and

previous ownership.

             Although this phraseology makes previous ownership an

important datum, the regulation does not dictate how previous

ownership    determinations   should     be   made.    The   Secretary   has

interpreted this phrase, more majorum, by reference to Part I of

HCFA's Provider Reimbursement Manual (the Manual).            Pertinently,


     2
      Routine service costs include those costs, such as room and
board, basic medical supplies, ordinary dietary and nursing
services, and other quotidian expenses, for which an institution
typically would assess a single per diem service charge. 42 C.F.R.
§ 413.53(b).

                                   -4-
the Manual has long defined "change of ownership" as including the

sale of "all or some portion of a provider's facility or assets

(used to render patient care)," so long as such sale "affects

licensure or certification of the provider entity." PRM-1 § 1500.7

(1976).     The Manual eventually integrated change of ownership, so

defined, into determinations of previous ownership and, ultimately,

into the definition of new provider.               See id. § 2533.1.E.1.b

(1997). It warns, however, that "[t]he mere existence of a [change

of    ownership]    does    not    in   itself   make   an   institution   or

institutional complex eligible for a new provider exemption."              Id.

§ 2533.1.E.     Rather, the Secretary conducts a comparison of the

operations conducted by the previous and current owners in order to

decide whether the current owner qualifies.             Equivalency plays an

important    role   in     this   comparison,    for,   generally   speaking,

previous ownership will not be carried forward unless, at a bare

minimum, the previous owner's operations and the current owner's

operations are deemed equivalent.

II.   PROCEDURAL BACKGROUND

            The Hospital began to plan for the TCC in 1992, with an

eye toward supplementing its existing continuum of care. But there

was a rub: Massachusetts, like many states, titrates the provision

of health care by requiring various types of facilities to secure

determinations of need as a prerequisite to offering covered




                                        -5-
services.3      See Mass. Gen. Laws ch. 111, § 25C; Mass. Regs. Code

tit. 105, § 100.352. Because Massachusetts had placed a moratorium

on the issuance of DON rights for skilled nursing beds, the

Hospital's plans were stymied until it arranged to purchase the

necessary    DON     rights    from   Prospect   Hill   Manor    Nursing     Home

(Prospect Hill), a facility that had gone into receivership in

March 1993.      No other transfers of property, patient records, or

assets accompanied the purchase, and the entity known as Prospect

Hill vanished shortly after transferring the DON rights.

             The Commonwealth of Massachusetts approved the transfer

of DON rights on condition that the Hospital assume liability for

any and all Medicaid overpayments to Prospect Hill.              Subsequently,

it   approved    a   phantom    "relocation"     of   Prospect   Hill   to     the

Hospital's campus.      Armed with these approvals, the TCC opened its

doors in January of 1995.

             On May 17, 1995, the Hospital petitioned HCFA to classify

its nascent TCC as a new provider.               The Hospital's continuing

interest in the exemption is easily grasped:             in 1995 — its first

full year of operation — the TCC's routine service costs exceeded

the applicable RCLs by almost $900,000. And when Congress replaced

Medicare's      existing      cost-based     reimbursement   system     with     a



      3
      What Massachusetts calls determination of need rights are
known elsewhere as certificate of need (CON) rights. See, e.g.,
R.I. Gen. Laws § 23-15-1 to -10 (2001).    We use the two terms
interchangeably.

                                       -6-
prospective     payment     system     that     looked   to    a    facility's      1995

reimbursement levels as a basis for setting future rates, see

Balanced Budget Act of 1997, Pub. L. No. 105-33, § 4432(a), 111

Stat.   251,       422     (codified      as     amended       at    42     U.S.C.     §

1395yy(e)(3)(A)(ii)), the lure of the new provider exemption became

irresistible.

            In due course, HCFA rejected the Hospital's application

on the ground that the conveyance of DON rights required that

Prospect    Hill's       previous    operations     be     imputed     to    the    TCC.

Following     an    evidentiary        hearing,    the     Board     affirmed       this

determination.       S. Shore I, supra, at *18.                In so holding, the

Board   found      that,    in   the    circumstances         of    this    case,    the

transferred DON rights were a sufficient basis for imputation of

previous ownership to the purchaser and that Prospect Hill and the

TCC were equivalent providers.                 Id. at *16-*17.         In regard to

equivalency the Board acknowledged that Prospect Hill had not

furnished the same level of nursing care that characterized the

operations of the TCC, but nonetheless concluded that Prospect Hill

had been operating as an SNF during the three years prior to the

conveyance. Id. at *17. The Secretary declined to intervene, thus

making the Board's decision administratively final.                        42 U.S.C. §

1395oo(f)(1).

            The Hospital petitioned for judicial review.                      See id.

The district court reversed, declaring that the TCC was a new


                                         -7-
provider in every relevant sense and that the Board could not

reasonably have ruled otherwise.            S. Shore II, 204 F. Supp. 2d at

82.    Accordingly, the court remanded the matter to the Board for a

determination of what level of reimbursement the TCC, as a new

provider, should receive.         Id. at 83.    This appeal followed.

III.    STANDARD OF REVIEW

            An inquiring court can set aside an agency's adjudicatory

decisions only if those decisions are "arbitrary, capricious, an

abuse of discretion, or otherwise not in accordance with law," 5

U.S.C. § 706(2)(A), or "unsupported by substantial evidence in the

administrative record," id. § 706(2)(E).             This standard tightly

circumscribes judicial review.         See Citizens to Preserve Overton

Park, Inc. v. Volpe, 401 U.S. 402, 415-16 (1971); Henry v. INS, 74

F.3d 1, 4 (1st Cir. 1996).

            Here,   there    is   a   further    gloss   on    this   familiar

formulation.        Where   Congress    has     entrusted     rulemaking   and

administrative authority to an agency, courts normally accord the

agency particular deference in respect to the interpretation of

regulations promulgated under that authority.            Bowles v. Seminole

Rock & Sand Co., 325 U.S. 410, 414 (1945); Johnson v. Watts

Regulator Co., 63 F.3d 1129, 1134-35 (1st Cir. 1995).                  Courts

withhold such deference only when the agency's interpretation of

its regulation is "plainly erroneous or inconsistent with" its

language.    Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512


                                      -8-
(1994). This deference is at its apex when, as in this instance, a

regulation concerns "a complex and highly technical regulatory

program in which the identification and classification of relevant

criteria necessarily require significant expertise and entail the

exercise of judgment grounded in policy concerns."             Id. (citation

and internal quotation marks omitted).

          Both the district court and the court of appeals are

bound by these principles.            Therefore, we review the district

court's resolution of such a case de novo, applying essentially the

same standards as pertained in that court.             Assoc. Fisheries of

Me., Inc. v. Daley, 127 F.3d 104, 109 (1st Cir. 1997); Mass. DPW v.

Sec'y of Agric., 984 F.2d 514, 520 (1st Cir. 1993).                  That the

parties brought the issues forward on cross-motions for summary

judgment is not significant; substance must prevail over form, and

the fact remains that the parties have presented this matter as a

case stated, on a fully developed administrative record.                     Our

review proceeds accordingly.

IV.   ANALYSIS

           We    turn     now   to    the    Secretary's   construction      and

application      of     the   new    provider    exemption,   42    C.F.R.    §

413.30(e)(2).         Our analysis proceeds in three steps.         First, we

discuss the reasonableness of the Secretary's interpretation of the

exemption.      Second, we address the Hospital's related claim that

the Secretary has applied the regulation willy-nilly.              Finally, we


                                       -9-
scrutinize the Board's finding that Prospect Hill and the TCC were

equivalent providers.

               A.   Interpretation of the Exemption.

           Despite the fact that Medicare rules fall squarely within

the   Secretary's   domain,    deference    is   due    to   the   Secretary's

interpretation of a particular regulation only when the language of

the regulation either (1) compels that interpretation or (2) admits

of differing interpretations, and the Secretary chooses reasonably

among them.    Christensen v. Harris County, 529 U.S. 576, 588

(2000); Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467

U.S. 837, 842-43 (1984).       Here, the Hospital's main argument is

that the new provider exemption is unambiguous and demands an

interpretation at odds with the Secretary's rendition.

           We find the new provider provision vague (and, therefore,

manifestly ambiguous).        This case hinges on the meaning of the

phrase "previous    ownership,"    and     section     413.30(e)(2)   neither

defines nor explains that phrase. To complicate matters, the terms

"provider" and "institution" are central to an understanding of the

exemption, and those terms subsume any number of components,

changes in one or all of which might, depending on the context,

lead one to deduce that a new provider has (or has not) been

created.   Because the regulation is not drawn in blacks and whites

but leaves significant gray areas unresolved, it is ambiguous. See

Paragon Health Network, Inc. v. Thompson, 251 F.3d 1141, 1148 (7th


                                   -10-
Cir. 2001) (discussing the same regulation and reaching the same

conclusion).

            To state the obvious, the fact that the regulation is

ambiguous means that some interpretation is inevitable.                   The

question reduces, therefore, to whether using the transfer of DON

rights as a basis for ascribing Prospect Hill's operations to the

Hospital    comes    within    a     reasonable   interpretation     of   the

regulation.      We think that this question must be answered in the

affirmative.

            In this case, the Secretary relied on section 1500.7 of

the Manual for guidance.        Noting that Prospect Hill's DON rights

were virtually the only assets it owned              at the time of the

transfer, he determined that the sale of the rights qualified as a

purchase of assets affecting licensure or certification (and,

therefore, constituted a change of ownership).          S. Shore I, supra,

at *13.    In this connection, the Secretary explained that there

need not    be   a   high   degree   of   operational   continuity   between

providers in order for the operation of one to be imputed to the

other.    Following this train of thought and citing section 2604.1

of the Manual, the Secretary determined that the relocation of beds

from Prospect Hill to the TCC did not substantially change the

population served or the number of inpatient days accumulated. Id.

at *15.    Concomitantly, the Secretary "looked back" at Prospect

Hill's operational history and determined that it had functioned as


                                      -11-
the equivalent of an SNF during the previous three years because it

had furnished some skilled nursing rehabilitation services, as

identified in 42 C.F.R. § 409.33(b) and (c).            S. Shore I, supra, at

*14.       Accordingly, he denied the Hospital's application for a new

provider exemption.

               The Hospital, ably represented, attempts to discredit the

Secretary's      reasoning      in   several    different   ways.   First,   it

emphasizes the genesis of the change of ownership definition

contained      in   PRM-1   §   1500.7    (which   originally   addressed    the

obligations of facilities leaving the Medicare program) and argues

that the Secretary arbitrarily applied this definition to the new

provider exemption.         But the Secretary, through HCFA, historically

has defined change of ownership differently in different contexts,4

and we see no reason why the Secretary, in the exercise of his

broad authority to interpret regulations that he himself has

promulgated, cannot choose to apply section 1500.7's dilucidation

in this context, regardless of the provision's origins.

               The Hospital also argues that a transfer of DON rights

alone cannot constitute a continuation of ownership for purposes of

this case because Prospect Hill closed its doors for unrelated


       4
      To cite one example, HCFA has regarded a transfer of
corporate stock as a change of ownership for some purposes but not
for others. See Las Encinas Hosp., No. 95-0303, 1998 WL 611452
(PRRB Sept. 11, 1998). To cite another, HCFA defines changes of
ownership for Medicare certification purposes differently than for
Medicare payment purposes. See N. Fla. Physical Therapy Serv., No.
98-D10, 1998 WL 119693 (HCFA Feb. 3, 1998).

                                         -12-
reasons (and, thus, the transfer did not contribute to the loss of

its licensure and certification).                 The district court found merit

in this argument, see S. Shore II, 204 F. Supp. 2d at 81-82, but we

do not.     Fairly read, section 1500.7 requires only that the

transfer "affect" licensure or certification, not that it be the

dispositive factor.       Here, the DON rights were a sine qua non for

the operation of a nursing home (whether Prospect Hill or the TCC)

— and the handsome price that the Hospital paid for them (which

appears to have been in the range of $125,000 - $150,000) attests

to their materiality.              We cannot say that the Secretary acted

unreasonably in rejecting the conceit that the significance of DON

rights should be measured solely by the happenstance of when the

original owner of the rights went out of business.

           In a related vein, we question the emphasis placed by the

lower court on the fact that Prospect Hill's DON rights were out of

circulation at the time of the purchase.                      See id. at 82.       The

court's    implication        is    that     Medicare     ought   to    spend     more

reimbursement       dollars    for    routine       service    costs    because    the

Hospital has "rescued" these dormant beds from the scrap heap. Id.

Even if we credit the district court's characterization of the

Hospital   as   a    rescuer,       however,       that   would   not   impugn     the

Secretary's discretionary decision to treat all purchasers of DON

rights alike. See Arkansas v. Oklahoma, 503 U.S. 91, 113-14 (1992)

(affirming that, within wide limits, agencies may decide for


                                           -13-
themselves what factors pertain to their decisionmaking).                       The

Secretary's vision of the transfer as simply relocating the beds in

question is not impermissible.

            This     reasoning      also        defeats       the      Hospital's

"fragmentation" argument, in which it points out that a previous

owner may sell its DON rights to one party, its site to a second

party, and a third pivotal asset (say, its equipment) to yet

another party. According to the Hospital, this threatens to create

a situation where one previous owner can spawn a multitude of

successors, none of whom will be regarded as a new provider.

            Unlike   the   Hospital,       we    find    this    result    to    be

acceptable.    After all, we would not hesitate to use the term

"previous   ownership"     in   reference       to   three   100-bed    hospitals

resulting from the split of a single 300-bed facility.                    Cf. Md.

Gen. Hosp., Inc. v. Thompson, 155 F. Supp. 2d 459, 462-65 (D. Md.

2001) (finding that "previous ownership" precluded a new provider

exemption when a nascent facility bought CON rights from three

different institutions).        Consequently, the fragmentation argument

fails.

            The Hospital next asserts that its actions were guided by

the plain meaning of the regulation and that "[a]ny contrary

interpretation of the regulation would require a gross distortion

of the English language."        Appellee's Br. at 38.          This approach is

doubly flawed.       In the first place, it overlooks the patent


                                     -14-
ambiguity of the regulation.          In the second place, accepting it

would make a mockery of the deference due to the Secretary's

interpretation of his own regulations.             As the Hospital itself

acknowledges, change of ownership is a term of art in the Medicare

context.     As such, interpretation of the term lies peculiarly

within the compass of the Secretary's expertise.                     See Thomas

Jefferson, 512 U.S. at 512; Pauley v. BethEnergy Mines, Inc., 501

U.S. 680, 697 (1991).

            In a variation on this theme, the Hospital maintains that

the   Secretary's   interpretation      of   the   new    provider    exemption

oppugns the underlying policy of the exemption when applied to

states, such as Massachusetts, that have imposed moratoria on new

nursing home beds.      As the Seventh Circuit explained, however,

moratoria on DON rights effectively limit the number of permitted

beds and thus reduce competition among such facilities.                Paragon,

251 F.3d at 1150.       This means that any given facility in a

moratorium state will be less likely to experience and sustain a

high vacancy rate during its early years.                Consequently, new or

expanded facilities in moratorium states have less need for special

swaddling     to    prevent     the     financial        drain   of     initial

underutilization.     See id.

            The district court attempted to distinguish Paragon as a

change of ownership between related corporations. S. Shore II, 204

F. Supp. 2d at 81.        But the court never explained how this


                                      -15-
circumstance compromised the underlying policy of the new provider

exemption.     Insofar as we can discern, relationship through a

common corporate parent will have little effect on whether the

transfer of DON rights does (or does not) ameliorate a facility's

initial underutilization.      Once that is understood, there is no

principled reason why the facility discussed in Paragon should have

any diminished claim to improved reimbursement by virtue of being

a related subsidiary.5

             In a further endeavor to blunt the force of Paragon, the

Hospital notes that the language of the regulation at issue does

not distinguish between facilities in states with and without

moratoria.       For   this   reason,   it   muses,   the   Secretary's

interpretation inevitably will lead to non-uniformity.       Relatedly,



     5
      The Hospital has called to our attention through successive
post-argument letters, see Fed. R. App. P. 28(j); 1st Cir. R.
28(j), the recent decisions in Mercy Med. SNF v. Mut. of Omaha Ins.
Co., No. 97-0135, 2002 WL 1906219 (PRRB Aug. 7, 2002), and
Peninsula Reg'l Med. Ctr. v. BCBS Assoc., No. 97-2659, 2002 WL ___
(PRRB Sept. 27, 2002). In both instances the Board, relying in
large part on the district court's opinion in this case, rejected
the Secretary's interpretation of the new provider exemption.
Mercy Med., supra, at *17; Peninsula Reg'l, supra, at *__. As the
dissent in Mercy Med. observed, however, six PRRB decisions, eight
reported HCFA determinations, five district court opinions, and a
court of appeals opinion (Paragon) all have upheld the Secretary's
interpretation of the new provider exemption. Mercy Med., supra,
at *19 (dissenting op.). Moreover, the Board recently granted the
Secretary's   motion   to   reconsider   Mercy   Med.,   and   that
reconsideration   is   presently   underway.      (The   time   for
reconsideration has not yet run in Peninsula.) Given this mise-en-
scène, we regard these decisions as founded upon a mistaken legal
interpretation and, therefore, entitled to little weight. See Good
Samaritan Hosp. v. Shalala, 508 U.S. 402, 417 (1993).

                                 -16-
it suggests that the Secretary ought to bear the burden of adducing

sufficient evidence or analysis to show that the putative oligopoly

effect in moratorium states will help relieve initial costs.

            In   asserting   these    propositions,       the    Hospital   leans

heavily on the decision in Ashtabula County Med. Ctr. v. Thompson,

191 F. Supp. 2d 884, 895-96 (N.D. Ohio 2002).                     We think that

Ashtabula — a case that is currently on appeal to the Sixth Circuit

— erects the wrong decisional framework.                The court's opinion

appears to place the burden on the Secretary to show that his

interpretation of a regulation is reasonable.             See id.    That is not

the law.    The burden is on the party challenging the Secretary's

reasoning   to    show   that    it   fails   to   pass    muster     under   the

reasonableness standard.        See Save Our Heritage, Inc. v. FAA, 269

F.3d 49, 60 (1st Cir. 2001); St. Mary of Nazareth Hosp. Ctr. v.

Schweiker, 718 F.2d 459, 466 (D.C. Cir. 1983).                  Hence, it is the

Hospital that must show that the Secretary unreasonably relied on

the oligopoly effect theory.          The Hospital has not done so (and,

indeed, there is evidence in the record suggesting that the TCC did

in fact enjoy a relatively high level of patient utilization from

the start).

            As to the charge of non-uniformity, it suffices to say

that discretion, such as that specifically conferred upon the

Secretary   to   establish      limits   on   routine     care    costs,    almost

invariably involves line-drawing (and, thus, inevitably entails


                                      -17-
some level of variation).        See Sprandel v. Sec'y of HHS, 838 F.2d

23,   27   (1st   Cir.   1988)   (per    curiam)    (observing    that   it   is

impossible to block out administrative categories that do not

"chafe at the outer edges").            We need find only that, from some

plausible standpoint, the Secretary had an organizing primum mobile

sufficient to justify his actions.             The Secretary's proffered

oligopoly effect theory passes this test.

            The   Hospital's     rejoinder     is    that   the   Secretary's

interpretation of section 1500.7 effectively obviates new provider

status for many (or even all) "new" SNFs within Massachusetts.

Even if true, this lament does not call the Secretary's judgment

into serious question.       The goal of regulation is not to provide

exact uniformity of treatment, but, rather, to provide uniformity

of rules so that those similarly situated will be treated alike.

In addition, as the Seventh Circuit suggested, the Secretary

reasonably may have concluded that, in states that have imposed

moratoria because they no longer need additional nursing beds,

subsidizing the start-up costs of new SNFs is unnecessary for the

efficient delivery of health-care services.            Paragon, 251 F.3d at

1149.

            To sum up, we find no plausible reason to discredit the

Secretary's rationale that, when one facility purchases another's

DON rights in a moratorium state, lessened competition will enhance

initial utilization (and, thus, will help defray costs in the


                                    -18-
transferee facility's early years).      On that rationale, it makes

sense, for purposes of construing the new provider exemption, to

attribute the operations of the seller to the acquirer of the DON

rights.    After all, "[w]hen Congress entrusts an agency with the

responsibility for drawing lines, and the agency exercises that

authority in a reasonable way, neither the fact that there are

other possible places at which the line could be drawn nor the fact

that the administrative scheme might occasionally operate unfairly

from a particular participant's perspective is sufficient, standing

alone, to undermine the scheme's legality." Mass. DPW, 984 F.2d at

522.      We therefore follow Paragon and uphold the Secretary's

interpretation of the disputed regulation as against the Hospital's

"reasonableness" challenge.

                          B.    Consistency.

            The Hospital has a fallback position:       even if the

Secretary's interpretation of the new provider exemption is not

arbitrary and capricious, its thesis runs, his interpretation

flouts prior practice.    The theoretical foundation on which this

position rests is sound:       if, over time, an agency interprets a

regulation erratically, that inconsistency may warrant a court in

declining to defer to the agency in a particular situation.      See

Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 417 (1993); INS v.

Cardoza-Fonseca, 480 U.S. 421, 446 n.30 (1987).       In this case,

however, the Hospital's thesis fails.


                                  -19-
            Once proffered, agency interpretations are not chiseled

in stone.       See    Good Samaritan Hosp., 508 U.S. at 417 ("An

administrative agency is not disqualified from changing its mind.")

(citation omitted). As we have pointed out, "[e]xperience is often

the best teacher, and agencies retain a substantial measure of

freedom to refine, reformulate, and even reverse their precedents

in the light of new insights and changed circumstances."                 Davila-

Bardales v. INS, 27 F.3d 1, 5 (1st Cir. 1994).

            This does not mean that an agency may change positions

with the same ease that an actor changes costumes.             For example, an

agency may not, without rhyme or reason, create conflicting lines

of precedent governing materially identical situations.                  Shaw's

Supermarkets, Inc. v. NLRB, 884 F.2d 34, 36-37 (1st Cir. 1989).

But an agency may learn from its mistakes and decide to discard one

interpretation in favor of another, as long as it thereafter

consistently applies the new interpretation.              See, e.g., Rust v.

Sullivan, 500 U.S. 173, 186-87 (1991); Motor Vehicle Mfrs. Ass'n v.

State Farm Mut. Auto Ins. Co., 463 U.S. 29, 42 (1983).

            The    Hospital    complains    that   the   Secretary   has   only

sporadically denied new provider exemptions to facilities that have

acquired DON rights from other providers.           To support this plaint,

the Hospital cites a single incident, involving a facility known as

Meridian-Spa Creek, in which HCFA granted a new provider exemption

despite   the     facility's   use   of   transferred    CON   rights.      This


                                     -20-
citation is unpersuasive.        The incident occurred well before the

TCC applied for its exemption, and it is impossible to tell from

the scanty record why HCFA granted Meridian-Spa Creek an exemption.

          It is incumbent on a party complaining of inconsistency

in administrative action "to bring before the reviewing court

sufficient particulars of how the appellant was situated, how the

allegedly favored party was situated, and how such similarities as

may exist dictate similar treatment and how such dissimilarities as

may exist are irrelevant or outweighed."           P.I.A. Mich. City, Inc.

v. Thompson, 292 F.3d 820, 826 (D.C. Cir. 2002).                While the

Hospital speculates that the unexplained grant of an exemption to

Meridian-Spa   Creek   betrays    a    pervasive   inconsistency   in   HCFA

decisions, it has not supported this conjecture with proof.             Nor

has the Hospital shown that its circumstances bear a substantial

similarity to those of Meridian-Spa Creek in all (or nearly all)

relevant aspects. Hence, we cannot say that the Meridian-Spa Creek

scenario demonstrates administrative inconsistency.6


     6
      In all events, the Meridian-Spa Creek determination may be no
more than a waif in the wilderness. It was not appealed to the
Board, much less to the HCFA Administrator or the Secretary. Thus,
the determination may well be explained as the decision of a lower-
level agency employee that cannot bind either the Board or the
Secretary. See Irving v. United States, 162 F.3d 154, 166 (1st
Cir. 1998) (en banc) ("To determine what is agency policy, courts
customarily defer to the statements of the official policymaker,
not others, even though the others may occupy important agency
positions."); Henry, 74 F.3d at 5-6 (recognizing that in large,
bureaucratic agencies, "different officials may not act identically
in every case," but, nevertheless, "[a] certain amount of asymmetry
is lawful") (citation and internal quotation marks omitted).

                                      -21-
              That   ends    this   aspect    of   the    matter.     Because     the

Hospital has failed to show that the Secretary's interpretation of

the new provider exemption constitutes a reversal of position, its

argument fails.        Although patently inconsistent applications of

agency standards to similar situations are by definition arbitrary,

the law does not demand perfect consistency in administrative

decisionmaking.       See Ill. Bell Tel. Co. v. FCC, 740 F.2d 465, 470-

71 (7th Cir. 1984).

              Along somewhat the same lines, the Hospital urges what

amounts to an ex post facto theory.                   It asseverates that HHS

published its new guideline, PRM-1 § 2533.1, in August of 1997,

more   than    two   years     after   the    Hospital     first    submitted     its

application for new provider status.               Thus, the Hospital asserts,

the Secretary should not be able to change the rules by applying

the new   guideline         retroactively.         This   is   especially   so,    it

maintains, because the prior guideline, PRM-1 § 2604.1, stated that

"changes of the institution's ownership or geographic location do

not in itself [sic] alter the type of health care furnished and

shall not be considered in the determination of the length of

operation."

              This argument is unavailing.            The Manual is merely an

interpretive guide, and interpretive guides generally do not have

the force of law.      See, e.g., Arnold v. United Parcel Serv., Inc.,

136 F.3d 854, 864 (1st Cir. 1998) (collecting cases).                       In any


                                       -22-
event, the Board's decision in S. Shore I did not rely upon (and,

indeed, never cited) PRM-1 § 2533.1.            Last — but far from least —

even though the Manual did not specifically incorporate change of

ownership into the definition of new provider until 1997, there is

ample evidence that HCFA did apply the more limited concept of

change   of    ownership   involving      DON    rights     to   new     provider

determinations prior to 1995 (the time when the Hospital initially

requested the exemption). See Appellee's Br. at 43 (conceding that

HCFA previously had denied new provider exemptions on the basis of

transferred    DON   rights);    see    also     Larkin     Chase      Nursing    &

Restorative Ctr. v. Shalala, No. 99-00214, 2001 U.S. Dist. LEXIS

23655 (D.D.C. Feb. 6, 2001).       Consequently, we see no basis for

characterizing the 1997 implementation of PRM-1 § 2533.1 as a post

hoc rationalization.

                            C.   Equivalency.

          Previous     ownership       aside,      an     applicant      is      not

disqualified from access to the new provider exemption unless it

"has operated as the [same] type of provider (or the equivalent)"

for the prescribed period.       42 C.F.R. § 413.30(e)(2).             In a last-

ditch effort to ward off disqualification, the Hospital asks us to

rule that the Board erred in finding that Prospect Hill had

operated as the equivalent of an SNF (and, thus, as an equivalent

of the TCC).    The district court did not reach this issue, and the




                                   -23-
Secretary requests us to remand it to the lower court for specific

findings.     The Hospital, however, urges us to decide it.

             Although we sometimes decline to pass upon issues not

first vetted by the district court, e.g., N.E. Reg'l Council of

Carpenters v. Kinton, 284 F.3d 9, 19 (1st Cir. 2002), that is by no

means an inflexible rule.      Where, as here, we are called upon to

view a static administrative record through the same prism as the

lower court, deciding the case fully is often the option of choice.

See, e.g., Trustees of Mich. Laborers' Health Care Fund v. Gibbons,

209 F.3d 587, 595 & n.5 (6th Cir. 2000) (collecting cases).              This

is a paradigmatic case for the application of such a principle:

the facts are straightforward and fully developed, and the parties

have had notice of, and ample opportunity to respond to, the merits

of   the    unaddressed   issue.     We    turn,   then,    to   the   Board's

equivalency finding.

             The Hospital's argument on this point amounts to an

attack upon the sufficiency of the evidence.               This is an uphill

climb, for courts ordinarily do not afford plenary review to

administrative factfinding.        So it is here:    our review is limited

to whether the equivalency finding is supported by substantial

evidence in the administrative record.         See 5 U.S.C. § 706(2)(E);

see also 42 U.S.C. § 1395oo(f)(1) (conforming judicial review in

Medicare matters to the standards set forth in section 706 of the

APA).      So long as the Board reasonably could have credited those


                                    -24-
witnesses and reports supporting its finding that Prospect Hill had

operated    as   the   equivalent    of   an   SNF,    we    must   sustain    its

equivalency finding.      See Mass. DPW, 984 F.2d at 525-26; Concerned

Citizens on I-190 v. Sec'y of Transp., 641 F.2d 1, 7 (1st Cir.

1981).     It is immaterial how we, if sitting as a court of first

instance, would have resolved the disputed questions of fact.

            Generally speaking, substantial evidence comprises proof

that a reasonable mind might find adequate, in light of the record

as a whole, to support a particular conclusion.                NLRB v. Beverly

Enters.-Mass., Inc., 174 F.3d 13, 21-22 (1st Cir. 1999).                      Such

proof suffices even if the evidence also might support some other,

inconsistent conclusion.      Posadas de P.R. Assocs., Inc. v. NLRB,

243 F.3d 87, 90 (1st Cir. 2001). So viewed, "substantial evidence"

is an objective standard that gives the agency the benefit of the

doubt as to disputed facts. See Beverly Enters.-Mass., 174 F.3d at

21-22.   This sets the bar fairly low.

            In its original denial of the Hospital's application for

an exemption, HCFA found that Prospect Hill had satisfied the

definition of an SNF because it had furnished skilled nursing care

and related services for qualified persons as set forth in 42

C.F.R. § 409.33(b) and (c).         HCFA based this finding in part on

services    that   Prospect   Hill    provided        only   sporadically      (as

documented in that facility's periodic activity reports) as well as

on the testimony of various witnesses presented at the Board's


                                     -25-
hearing.    The Hospital argues that the record contains conflicting

evidence    and    that    the   witnesses   favorable    to   the    Hospital

outnumbered those favorable to the Secretary.            These observations

are true as far as they go — but neither goes very far.                 Within

wide limits, the weight and credibility of the evidence are for the

Board to determine.        See Am. Textile Mfrs. Inst. v. Donovan, 452

U.S. 490, 523 (1981); Posadas, 243 F.3d at 90.           Here, the Board's

finding is supported by substantial evidence in the record.                No

more is exigible.

            Taking a slightly different tack, the Hospital seizes on

an   undisputed    fact:     that    Prospect   Hill   typically     furnished

custodial services, performing more sophisticated services only

rarely.     Extrapolating from this fact, it contends that Prospect

Hill could not have operated as the equivalent of an SNF (which

offers sophisticated nursing care as a staple). This strikes us as

an oversimplification.

            To be sure, Prospect Hill, in its heyday, was a Medicaid-

certified Level III nursing home that provided custodial care

primarily to psychiatric patients — but it also periodically

delivered skilled nursing, restorative care, and other therapeutic

services.    The TCC has a different orientation:         it is a Level II

nursing     home    providing       mostly   rehabilitative     care     (and,




                                      -26-
occasionally, custodial care) to a wide variety of patients.7

Based on these and other differences, the Hospital suggests three

ways in which the Board may have embarrassed the substantial

evidence standard.      First, the Hospital asserts that because the

new provider exemption makes no explicit allowance for facilities

as   disparate   as   Prospect   Hill   and   the   TCC,   such   facilities

necessarily must lie outside the ambit of the equivalency rubric.

Second, the Hospital contends that in order to be an equivalent of

an SNF, a facility would have to meet the definition of an SNF —

and Prospect Hill did not.       Third, the Hospital posits that, given

the underlying policy of the new provider exemption, Prospect

Hill's sporadic deployment of skilled nursing services simply does

not justify a finding of equivalency.

           All three of these arguments miss the essential point.

The Secretary, in his discretion, reasonably could have looked not


      7
      These levels are part of a taxonomy developed by the
Commonwealth with respect to its administration of the Medicaid
program. The Commonwealth defines a Level III nursing home as a
supportive nursing care facility "that provide[s] routine nursing
services and periodic availability of skilled nursing, restorative
and other therapeutic services, as indicated, in addition to the
minimum, basic care and services required for patients whose
condition is stabilized to the point that they need only supportive
nursing care, supervision and observation." S. Shore II, 204 F.
Supp. 2d at 78 n.12 (quoting Mass. Regs. Code tit. 105, § 151.020).
It defines a Level II nursing home as a skilled nursing care
facility "that provide[s] continuous skilled care and meaningful
availability of restorative services and other therapeutic services
in addition to the minimum, basic care and services required for
patients who show potential for improvement or restoration to a
stabilized condition or who have a deteriorating condition
requiring skilled care." Id.

                                    -27-
at the particular level of care provided by a nursing facility,

but, rather, at a broader definition of equivalency.          Although our

review is geared to whether the Secretary's decision rests on

substantial evidence, we must in the process defer to what the

Secretary reasonably found to be relevant.          To do otherwise would

fetter the Secretary's discretion in an unwarranted manner.                See

Villa View Cmty. Hosp., Inc. v. Heckler, 728 F.2d 539, 543 (D.C.

Cir. 1984); see also Mass. DPW, 984 F.2d at 527 (reiterating that

the court cannot substitute its judgment for that of the agency).

             The Board accepted this premise — and reasonably so.          In

the process, it cited specifically to the nursing home reform

provisions    of    the   Omnibus   Budget   Reconciliation   Act   of    1987

governing the certification of long-term care facilities under

Medicare and Medicaid.        See Omnibus Budget Reconciliation Act of

1987 (Revenue Reconciliation Act of 1987), Pub. L. No. 100-203, §§

4211(a)(3) & (c), 4212(a) & (b), 4213(a), 4216, 101 Stat. 1330-182,

-196, -204, -207, -212, -213, -220 (1987) (codified as amended at

42 U.S.C. § 1395r).       These provisions indicate that both Medicare

SNFs and Medicaid nursing facilities provide the same basic range

of services.       See S. Shore I, supra, at *14, *17 (explaining that

these provisions require both Medicare SNFs and Medicaid nursing

facilities to provide the range of services described in sections

1819(b)(4) and 1919(b)(4) of the Social Security Act).                   Thus,

Prospect Hill, as a Medicaid facility, "would have already incurred


                                     -28-
the start-up costs associated with the development of the capacity

to furnish inpatient SNF services, by meeting the requirements for

participation."        Id. at *2.

              This is a convincing argument. Faced with it, we decline

to substitute our judgment for the Secretary's as to whether so

broad-gauged a comparison contradicts the underlying purpose of

either the challenged regulation or the enabling statute.                    In the

last    analysis,     Medicare      is     a     complex   and   highly   technical

regulatory scheme, and courts should be hesitant to second-guess

the Secretary in such matters.                 See Thomas Jefferson, 512 U.S. at

512; Cheshire Hosp. v. N.H.-Vt. Hosp'n Serv., Inc., 689 F.2d 1112,

1117 (1st Cir. 1982); see also Villa View, 728 F.2d at 543

(explaining that a court cannot reverse the Secretary's decision in

such a case when doing so would require displacement of the

Secretary's policy).          We therefore uphold the Board's finding of

equivalency.

V.    CONCLUSION

              We need go no further.              Generic perceptions of reality

are not the gold standard when administrative discretion is in

play.    Where Congress has chosen to cede substantial discretion to

an agency, a reviewing court should scrutinize the administrative

record    with      due    regard    for       that   discretion   and    weigh   the

reasonableness of the Secretary's action accordingly.                     Mass. DPW,

984    F.2d    at   522.      That    respectful        approach    is    especially


                                           -29-
appropriate when the challenged action — here, the interpretation

of the new provider exemption — plainly calls for a delicate

balancing   of   a   melange    of   factors   within   the   scope   of   the

Secretary's expertise.         Hewing to these precepts, we affirm the

Board's denial of the Hospital's application for a new provider

exemption, reverse the district court's contrary decision, and

direct the entry of judgment in favor of the Secretary.



Reversed and remanded for the entry of judgment.




                                     -30-
