 United States Court of Appeals
          FOR THE DISTRICT OF COLUMBIA CIRCUIT



Argued February 11, 2014               Decided April 11, 2014

                         No. 13-5090

               CATHOLIC HEALTHCARE WEST,
                       APPELLANT

                               v.

     KATHLEEN SEBELIUS, IN HER OFFICIAL CAPACITY AS
      SECRETARY OF HEALTH AND HUMAN SERVICES,
                      APPELLEE


         Appeal from the United States District Court
                 for the District of Columbia
                     (No. 1:11-cv-00459)


    Jeffrey A. Lovitky argued the cause and filed the briefs for
appellant.

    David L. Hoskins, Attorney, U.S. Department of Health
& Human Services, argued the cause for appellee. With him
on the brief were Stuart F. Delery, Assistant Attorney
General, Ronald C. Machen Jr., U.S. Attorney, Michael S.
Raab and Joel McElvain, Attorneys, William B. Schutlz,
General Counsel, U.S. Department of Health & Human
Services, Janice L. Hoffman, Associate General Counsel, and
Susan Maxon Lyons, Deputy Associate General Counsel for
                              2

Litigation. R. Craig Lawrence, Assistant U.S. Attorney,
entered an appearance.

   Before: KAVANAUGH and PILLARD, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.

   Opinion for the Court filed by Senior Circuit Judge
WILLIAMS.

     WILLIAMS, Senior Circuit Judge: Plaintiff Catholic
Healthcare West (“CHW”), a non-profit Catholic hospital
system, was the surviving entity after a merger between
Marian Medical Center and the hospitals previously
constituting CHW. Its claim here relates to depreciation taken
by Marian in the years before the merger. CHW argues that
the merger transaction revealed the inadequacy of that
depreciation and that, under the statute and regulations
applicable to the merger, the deficiency was subject to
recoupment as part of Medicare providers’ general entitlement
to compensation for the “reasonable cost” of services
rendered, 42 U.S.C. § 1395f(b)(1). The defendant Secretary
of Health and Human Services rejected the claim, reasoning
that the implicit selling price (namely, the value of CHW’s
assumption of Marian’s liabilities) showed a transfer for much
less than Marian’s true worth, so that the merger did not
represent a “bona fide sale” between “unrelated parties,” a
prerequisite for use of the transaction as evidence that the
prior depreciation had been inadequate, 42 C.F.R. § 413.134.
In reaching this conclusion the Secretary estimated Marian’s
true worth on a basis of “cost”—meaning roughly, in this
context, replacement cost as of the time of the merger,
adjusted for depreciation. CHW objects, arguing that the
choice of “cost” over other valuation approaches was arbitrary
and was based on a guidance document that the Secretary had
adopted without notice and comment rulemaking, namely,
Clarification of the Application of the Regulations at 42
                              3

C.F.R. 413.134(l) to Mergers and Consolidations Involving
Non-profit Providers, Program Memorandum A-00-76 (Oct.
19, 2000) (“PM”).

     In the end we find it unnecessary to evaluate the PM’s
effectiveness. Even under the valuation methods permitted
prior to the PM and in fact championed by CHW here and in
the administrative proceedings, there was a gross disparity
between Marian’s value and the implicit price paid. We
therefore affirm the district court’s judgment affirming the
Secretary.


                            * * *

     The Secretary’s regulations governing a Medicare
provider’s reasonable costs have long provided for an
“appropriate allowance” for depreciation in assets used for
Medicare services. 42 C.F.R. § 413.134(a). The annual
allowance is calculated by dividing the cost of acquiring the
asset by the asset’s years of estimated useful life,
§ 413.134(a), and then multiplying by the fraction of the asset
applied to Medicare services.
      The regulations also provide that for assets disposed of
before December 1, 1997—the CHW-Marian merger occurred
in August 1997—the Secretary will recognize gains or losses
on the sale of an asset (defined in a way that includes this
merger), calculated as the difference between the
consideration received for the asset and its “net book value”
(i.e., the cost of acquisition less previous depreciation
payments, § 413.134(b)(9)). (The Balanced Budget Act of
1997, Pub. L. No. 105–33, § 4404, 111 Stat. 251, 400 (1997),
amended 42 U.S.C. § 1395x(v)(1)(O) so as to eliminate the
statutory basis for such adjustments for assets sold after
December 1, 1997. But the recoupment scheme continues for
                                4

prior transactions such as the Marian-CHW merger.) So,
subject to some conditions discussed below, if an asset is sold
for less than its net book value, the Secretary makes an
additional payment to the provider, reflecting an
understanding that the previous depreciation payments fell
short of reflecting true cost. Conversely, of course, the
provider pays the government if the asset is sold at above
book value.
     The regulatory conditions are aimed at ensuring that the
consideration exchanged for a depreciable asset constitutes a
meaningful indication of the asset’s market value, and hence a
sound basis to assess whether a depreciation recoupment to
(or from) the provider is in order. In particular, the Secretary
makes such adjustments only for depreciation discrepancies
evidenced by “bona fide sales” of depreciable assets,
§ 413.134(f)(2); the adjustments and the “bona fides”
requirement are extended to transfers in a “statutory merger,”
as here, by § 413.134(k)(2) 1 and its incorporation of
§ 413.134(f)’s requirements. The regulations further specify
that a triggering merger must not be between “related” parties,
§ 413.134(k)(2)(i)-(ii), as defined in § 413.17.
    After the merger here, CHW filed a claim for a loss of
roughly $8.1 million on the disposal of depreciable assets. In
pursuit of that claim it then suffered a string of adjudicatory
defeats—before a Medicare contractor, the Provider
Reimbursement Review Board (“PRRB”), and ultimately the
Administrator of the Centers for Medicare and Medicaid
Services (“CMS”), whose decision was the Secretary’s final

    1
      At the time of the merger this provision was designated
§ 413.134(l)(2). It has since then been redesignated as subsection
(k) without change. See Medicare Payment Amounts and Technical
Amendments, 65 Fed. Reg. 8,660, 8,662 (Feb. 22, 2000).
                                5

action.    CMS found a large disparity between the
consideration received and Marian’s “fair market value,”
calculated, as we noted, on the basis of replacement cost
adjusted for depreciation, and thus found no bona fide sale. It
also decided that CHW and Marian were related parties for
the purposes of the regulations, an aspect of the decision we
needn’t address. CHW appealed to the district court, which
dismissed the case on a motion for summary judgment.
Catholic Healthcare West v. Sebelius, 919 F. Supp. 2d 34
(D.D.C. 2013).


                             * * *

      Our review is de novo, as though on direct appeal from
the agency, Tenet HealthSystems HealthCorp. v. Thompson,
254 F.3d 238, 244 (D.C. Cir. 2001), and under the
Administrative Procedure Act we set aside an agency action if
it is “arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law,” 5 U.S.C. § 706(2)(A); Pharm.
Research & Mfrs. of Am. v. Thompson, 362 F.3d 817, 821
(D.C. Cir. 2004).
     Under the Secretary’s interpretation of the regulations,
“reasonable consideration” must be exchanged in a merger to
support a finding of a bona fide sale. We have previously
upheld this interpretation, St. Luke’s Hosp. v. Sebelius, 611
F.3d 900, 905-06 (D.C. Cir. 2010), which CHW doesn’t
contest. Recoupment may be disallowed under the regulations
either on the ground that no bona fide sale occurred,
§ 413.134(f), or that the transaction was between related
parties, § 413.134(k)(2).
     CHW commissioned an appraisal of Marian, which
included a calculation of its value under three methods—
market value, income, and the Secretary’s “cost” approach.
                              6

CMS used the latter, arriving at a figure of approximately
$51.1 million. That estimate excludes working capital, such
as cash and cash equivalents. So CMS then added $15.9
million in cash and cash equivalents transferred from Marian
to CWH, arriving at a total of about $67 million. By
comparison, the total consideration received by Marian was
$32.7 million in the form of assumed liabilities, implying a
disparity of over $34 million.
     CHW argues that the Secretary erred in disregarding the
two rival methods of valuation used in the appraiser’s report
(the income and market approaches). The Secretary did so on
the basis of the PM’s interpretation of the regulations. We
have affirmed the Secretary’s invocation of the PM in two
prior cases, Forsyth Mem’l Hosp., Inc. v. Sebelius, 639 F.3d
534, 536-37 (D.C. Cir. 2011), and St. Luke’s Hosp., 611 F.3d
at 905-07, but in both cases only for the anodyne view that the
regulations require a “reasonable consideration.” Neither
involved flat-out preclusion of either the market value or the
income method. Indeed, the PM itself, while precluding both
those methods for non-profits, offers an explanation only as to
the income approach. See PM at 3-4.
     We can resolve the case, however, without considering
whether the PM (or the regulations themselves) provided an
adequate basis for excluding the market and income
approaches. E.g., Molycorp, Inc. v. EPA, 197 F.3d 543, 546
(D.C. Cir. 1999) (an agency may not amend a rule “under the
guise of reinterpreting it”). Even though those approaches
yield lower figures than does the “cost” approach, they
indicate a value high enough to sustain the Secretary’s finding
of a gross disparity between value and the implicit price paid
by CHW.
    The appraiser’s report indicates that the market and
income approaches produce value estimates of $37 million,
and $28.5 million, respectively, excluding working capital.
                               7

The appraiser’s report characterizes these estimates as
“mutually supportive,” and concludes that the market value of
the hospital is $30 million, “including working capital.” It
appears inescapable that the word “including” is a typo, as it
is inconsistent with every other page in the document, see,
e.g., Appraiser’s Report 84, 92 (recording income and market-
based estimates of $37 and $28.5 million, respectively,
excluding working capital; corresponding estimates of $47
and $38.5 million including working capital), inconsistencies
CHW acknowledged at oral argument, Oral Arg. Tr. 5-6.
     The Administrator’s decision was based on the large
disparity between Marian’s value and the consideration
received. It is true that the Administrator discusses only the
cost approach, not the income or market approaches, and that
we do not affirm agency decisions on a legal analysis other
than that expressed by the agency. SEC v. Chenery Corp.,
318 U.S. 80, 95 (1943). But here, even if CHW’s proposed
appraisal method were used, the record shows a large
disparity between the fair market value of Marian and the
consideration received. In view of the conclusion the
Administrator drew from valuation under the cost approach, it
would be futile to remand for reassessment of whether a bona
fide sale occurred under the income or market approach.
     Consider the income approach, the one most favorable to
CHW, yielding the most conservative appraised value for
Marian. It produces an estimate of $28.5 million, excluding
working capital. To this we then add the appraised value of
Marian’s “other assets,” not reflected in the $28.5 million
figure, including vacant sites and construction in progress, a
total of roughly $5.3 million, as well as the $15.9 million in
cash and cash equivalent assets. Grade-level arithmetic
reveals that, after adding these three figures, the full market-
based estimate of Marian’s value would be $49.7 million.
The disparity between this figure and the consideration
                              8

received by Marian is $17 million. Thus, even by the most
conservative estimate of Marian’s value, CHW paid only
about 66 cents on the dollar in this transaction ($32.7 million
exchanged for $49.7 million).
     Though the parties cite no sharp rule on the size of the
disparity between value and consideration relevant to
determining whether a bona fide sale has occurred, CHW
bears the burden to prove a bona fide sale, Forsyth Mem’l
Hosp., Inc., 639 F.3d at 539, and nothing in the briefing or
administrative record suggests that a bona fide sale could be
found in the face of such a discrepancy. Cf. Via Christi Reg’l
Med. Ctr., Inc. v. Leavitt, 509 F.3d 1259, 1277 (10th Cir.
2007) (suggesting that the reasonable consideration
requirement would not be satisfied if $32.7 million in assets
are exchanged for $26.1 million in consideration).
     During oral argument, CHW advanced a new argument
that the $15.9 million in cash and cash equivalents consisted
primarily of accounts receivable, and that CHW is unlikely to
“collect dollar for dollar,” Oral Arg. Tr. 11, suggesting a
closer alignment between the paid consideration and Marian’s
true value. But we do not normally consider arguments first
sprung at oral argument. Roth v. Dept. of Justice, 642 F.3d
1161, 1181 (D.C. Cir. 2011). Under these circumstances, we
cannot say that the Secretary failed to consider relevant
factors or committed a clear error in judgment when she
determined that a bona fide sale had not occurred. See also 5
U.S.C. § 706 (“due account shall be taken of the rule of
prejudicial error”); City of Portland, Or. v. EPA, 507 F.3d
706, 711 (D.C. Cir. 2007); PDK Labs. Inc. v. DEA, 362 F.3d
786, 799 (D.C. Cir. 2004).

                            * * *

    The judgment of the district court is
9

    Affirmed.
