243 F.3d 568 (D.C. Cir. 2001)
Lake Medical Center, Appellantv.Tommy G. Thompson, Secretary of the Department of Health and Human Services, Appellee
No. 00-5141
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 30, 2000Decided March 23, 2001

Appeal from the United States District Court  for the District of Columbia (96cv01389)
Patric Hooper argued the cause and filed the briefs for  appellant.
Sonia M. Orfield, Attorney, U.S. Department of Health  and Human Services, argued the cause for appellee.  With her on the brief were Harriet S. Rabb, General Counsel,  Sheree R. Kanner, Associate General Counsel, Henry R.  Goldberg, Deputy Associate General Counsel, David W. Ogden, Assistant Attorney General, U.S. Department of Justice,  and Wilma A. Lewis, U.S. Attorney.
Before:  Edwards, Chief Judge, Sentelle and Randolph,  Circuit Judges.
Opinion for the Court filed by Circuit Judge Randolph.
Opinion concurring in part and dissenting in part filed by  Circuit Judge Sentelle.
Randolph, Circuit Judge:
At issue is the valuation of  hospital assets for purposes of reimbursement under the  Medicare statute, 42 U.S.C. § 1395 et seq. Nu-Med, Inc.,  through its subsidiary Nu-Med Lake, purchased a general  hospital in Florida--the Lake Medical Center--in 1985 for  about $29 million.  Three years later, Nu-Med sold the  medical center and its associated assets to Leesburg Regional  Medical Center for $14.4 million.
Medicare providers such as Nu-Med are entitled--with  certain limitations not relevant here--to compensation for  "the reasonable cost" of services provided to Medicare patients.  See 42 U.S.C. § 1395f(b)(1).  Providers are reimbursed by "fiscal intermediaries"--typically private insurance  companies under contract to the Health Care Finance Administration to determine the cost basis of medical service and  make periodic payments.  See 42 C.F.R. § 400.202 (1999). Among the costs reimbursed is the depreciation on buildings  and equipment used to provide Medicare services.  See 42  C.F.R. § 413.134 (1999).  The intermediary makes depreciation payments to a provider based on an estimated depreciation method.  See 42 C.F.R. §§ 413.64(b);  413.134(b) (1999). When an asset is sold, it may become apparent that the  intermediary has paid either too much or too little depreciation because the sales price was either higher or lower than  expected.  Cf. Glenn A. Welsch & Charles T. Zlatkovich,  Intermediate Accounting 476 (8th ed. 1989) (noting that  depreciation is only an estimate).  The Medicare regulations permit the intermediary to recover overpayment of depreciation when an asset is sold for more than its cost basis less  reimbursed depreciation.  See 42 C.F.R. § 413.134(f) (1999).
In this case, Nu-Med filed a Medicare cost report on  March 18, 1988, and claimed a loss on its sale of the Lake  Medical Center.  The intermediary, Blue Cross and Blue  Shield of Florida, responded with a Notice of Program Reimbursement denying Nu-Med additional payments.  Because  there was a lump sum sales price, the intermediary allocated  the price among the assets and, having done so, calculated a  gain on the sale of the depreciable assets.  Nu-Med appealed  this determination to the Provider Reimbursement Review  Board.  The Board found that the intermediary had erred in  allocating all of the proceeds to depreciable assets, that it  should obtain an independent appraisal to establish the fair  market value of all the assets, and that it should then allocate  the purchase price among the depreciable and nondepreciable  assets (such as land) to determine what Nu-Med realized in  the sale.  See Lake Medical Ctr. v. Blue Cross & Blue Shield,  No. 96-D28, slip op. at 10 (Provider Reimbursement Review  Bd. Apr. 16, 1996).  After the intermediary obtained an  appraisal, it issued a new Notice of Program Reimbursement  calculating Nu-Med's total loss on the sale of $1,757,660. The Board affirmed.  See Lake Medical Ctr. v. Blue Cross &  Blue Shield, No. 97-D107, slip op. at 12 (Provider Reimbursement Review Bd. Sept. 26, 1997).  Nu-Med challenged this  recalculated loss as too low.  The district court (Flannery, J.)  rejected Nu-Med's contentions in a thorough and wellreasoned opinion.  See Lake Medical Ctr. v. Shalala, 89  F.Supp.2d 83 (D.D.C. 2000).

I.

1
For depreciable assets, that is for assets that lose value  over time, an owner's gain or loss on the sale of the asset is  the difference between the purchase price (the cost basis) less  accumulated depreciation (the net book value) and the sales  price.  See Welsch & Zlatkovich, supra, at 447.  If a provider sells a Medicare-depreciable asset at a loss, the Secretary assumes that more depreciation occurred than originally estimated and therefore provides additional reimbursement to  the provider.  If a gain results, the Secretary recaptures the  previously paid reimbursement.  See Lake Medical Ctr., 89  F.Supp.2d at 85.


2
In 1984, as part of the Deficit Reduction Act or "DEFRA,"  Congress set a limit on providers' historical cost of assets. See Deficit Reduction Act of 1984, Pub. L. No. 98-369,  § 2314(a), 99 Stat. 494 (July 18, 1984), codified at 42 U.S.C.  § 1395x(v)(1)(O) (1994).  Under 42 U.S.C. § 1395x(v)(1)(O)(i),1  when an asset changed hands, "the valuation of the asset ...  shall be the lesser of the allowable acquisition cost of such  asset to the owner of record as of July 18, 1984 ... or the  acquisition cost of such asset to the new owner."  42 U.S.C.  § 1395x(v)(1)(O)(i) (1994).  A second clause required regulations to "provide for recapture of depreciation in the same  manner as provided under the regulations in effect on June 1,  1984."  42 U.S.C. § 1395x(v)(1)(O)(ii) (1994).


3
Because Nu-Med sold the Lake Medical Center in 1988,  the Board found that the first of these provisions--clause  (i)--required the intermediary to consider the cost basis to be  the price paid for the facilities by the owner of record in  1984--namely, $11 million.  See Lake Medical Ctr. v. Blue  Cross & Blue Shield, No. 97-D107, slip op. at 10 (Provider  Reimbursement Review Bd. Sept. 26, 1997).  According to  Nu-Med this was error because clause (i) only specifies the  basis for calculating the depreciable value of an asset (and  thus the periodic reimbursement payments from the intermediary), whereas clause (ii) specifies the method for calculating  gain or loss from the sale of an asset.  (Both parties agree  that even though clause (ii) refers only to "recapture" it  applies not only to transactions resulting in a gain but also a  loss.)  Nu-Med's theory is that clause (i) did not exist in 1984  so the calculation in clause (ii) regarding gain or loss on a sale  must ignore the DEFRA cap on historical cost.


4
The district court rightly rejected Nu-Med's arguments. Nu-Med's interpretation of the interplay between clauses (i)  and (ii) does not exactly leap off the page.  The Secretary's  reading, on the other hand, is perfectly logical.  It treats  clause (ii) as dealing with the method of calculating depreciation (the clause uses the word "manner"), and clause (i) as  setting the depreciable basis of the asset from which the  clause (ii) calculation will be made.  It is unnecessary to  discuss all of the various regulations in effect in 1984 dealing  with the method of calculating depreciation.  The district  court mentioned one--42 C.F.R. § 405.415 (1984)--which is  enough to make the point:  as in 1984, the Secretary under  DEFRA continued "to compare sales price with the depreciated historical cost basis as defined in [the] existing regulations."  See Lake Medical Ctr., 89 F.Supp.2d at 87.  The  district court gave other reasons for sustaining the Secretary's interpretation but it would serve no useful purpose to  repeat them.  Even if the case were not so overwhelming in  favor of the Secretary's reading, the respect a court must give  to an agency's statutory interpretation would cause us to  reach the same result.  See National Medical Enters., Inc. v.  Shalala, 43 F.3d 691, 695 (D.C. Cir. 1995).  Upholding the  Secretary here is not inconsistent with the dicta in Whitecliff,  Inc. v. Shalala, 20 F.3d 488, 489 n.1 (D.C. Cir. 1994), that "the  Deficit Reduction Act of 1984 ... codified at 42 U.S.C.  § 1395x(v)(1)(O)(ii), ratified the recapture of depreciation regulations that were in effect as of June 1, 1984."  Clause (ii), as  we have said, did "ratify" those 1984 regulations dealing with  the manner in which depreciation is calculated.

II.

5
Nu-Med's alternative contention is that the intermediary's  loss valuation was too low because neither it nor the Provider  Reimbursement Review Board properly accounted for the  value of medical records in determining Nu-Med's reimbursable loss.  When Nu-Med sold the Lake Medical Center in  1988 for $14.4 million, there was no allocation of the sales  price among the buildings, land, equipment, the name "Lake  Medical Center," patient files or "good will."  Because not all assets are depreciable under Medicare, see 42 C.F.R.  § 413.134(a) (1999), when assets are sold in a bundle "the  gain or loss on the sale of each depreciable asset must be  determined by allocating the lump sum sales price among all  the assets sold, in accordance with the fair market value of  each asset ... at the time of sale."  42 C.F.R.  § 413.134(f)(2)(iv) (1999).


6
Naturally, Nu-Med would prefer that as much of Lake  Medical Center's sale price as possible be apportioned to nondepreciable assets.  This would lower the allocable sales price  of the depreciable assets, maximizing both Nu-Med's losses  and its Medicare cost recovery.  To that end, Nu-Med thinks  that its reimbursement was inadequate because both the  intermediary and the Provider Reimbursement Review Board  assigned no value to the medical records transferred as part  of the sale.  See Lake Medical Ctr., No. 97-D107, slip op. at  12.


7
It is true that the appraiser placed a fair market value of  $1.5 million on the medical records out of a total appraisal of  approximately $17 million for the Center, although everything  actually sold for $14.4 million.  But those numbers show that  the purchaser paid nothing for residual going concern value: the tangible assets were sold for less than their fair market  value.  Medical records are, the Board determined, akin to  goodwill, assigned a positive value only when the sales price  of the other assets exceeds their fair market value.  See Lake  Medical Ctr., No. 97-D107, slip op. at 11-12.  In this respect  the Board's judgment comports with generally accepted accounting practices.  See Financial Accounting Standards  Board, Current Text:  Accounting Standards B50.145; B50.160 (1994) ("goodwill" only recorded when sale price of  assets exceeds fair market value);  John Downes & Jordan  Elliot Goodman, Dictionary of Finance and Investment  Terms 239 (5th ed. 1998) ("going concern value" recorded as  "goodwill" in acquisition accounting).  The Board sufficiently  supported its conclusion that Nu-Med's medical records could  not, as the district court put it, be "valued as an asset  independent of Lake Medical's ongoing operations."  See  Lake Medical Ctr., 89 F.Supp.2d at 90.  It is of no moment that the sales agreement includes "all books and records of  the facility."  The sales agreement also includes "good will,"  which only exists if the assets are sold for more than fair  market value.  The mere fact that an asset was transferred  does not mean it had a positive fair market value.


8
We have considered and rejected Nu-Med's other arguments.  The judgment of the district court is


9
Affirmed.



Notes:


1
 The statute was amended in 1997, changing clause (i) and  deleting clause (ii).  See 42 U.S.C. § 1395(v)(1)(O) (Supp. IV 1998).



10
Sentelle, Circuit Judge, concurring in part and dissenting in part:


11
I concur in most of the well reasoned opinion of  the court, but find that I am unable to join Part II.  Although  I think the result reached by the Secretary, the district court,  and the majority is a reasonable one, I do not think it is  consistent with governing HHS regulations.

The applicable HHS regulation provides:

12
If a provider sells more than one asset for a lump sum sales price, the gain or loss on the sale of each depreciable asset must be determined by allocating the lump sum sales price among all the assets sold, in accordance with the fair market value of each asset as it was used by the provider at the time of sale.  If the buyer and seller cannot agree on an allocation of the sales price, or if they do agree but there is insufficient documentation of the current fair market value of each asset, the intermediary for the selling provider will require an appraisal by an independent appraisal expert to establish the fair market value of each asset and will make an allocation of the sales price in accordance with the appraisal.


13
42 C.F.R. § 413.134(f)(2)(iv) (emphasis added).  The regulation makes no distinction between tangible and intangible  assets, nor does it limit the allocation of sale prices to  depreciable assets.  Most importantly for the purposes of the  present controversy, it does not adopt "generally accepted  accounting practices."  Maj. Op. at 571.


14
The Secretary's argument that medical records primarily  have a "going concern" value and that assets with "going  concern" value should not be allocated a portion of the sale  price is certainly reasonable, and I accept that following  "generally accepted accounting practices" would dictate the  result reached by the court.  Indeed, were the Secretary to  promulgate regulations to that effect, I have little doubt that  those regulations would withstand all challenge.  But that is  not the state of the regulations that governed the sale before  us.


15
As appellant argued, the Secretary's regulations explicitly  require the intermediary to allocate the sales price "among  all the assets sold."  There is little ambiguity in this statement.  If the medical records were among "the assets sold"  by Nu-Med, then they should be allocated a portion of the  sales price.  The records were listed as a separate asset at  the time of sale even though all of the assets were sold for a  lump-sum price.


16
Since the buyer and seller did not agree on the value, if  any, to be assigned to the medical records, the intermediary  was required to submit this matter for independent appraisal,  which it did.  Under the plain language of the regulation, this  appraisal, and not "generally accepted accounting practices,"  controls.  The regulatory language leaves no room for the  intermediary, or the Secretary, to reallocate portions of the  sales price because they disapprove of the appraiser's judgment.  While the Secretary's view is most reasonable as a  policy matter, it is not the view embodied in the Secretary's  own regulations.  If the medical records were "intended to be  among the assets transferred in the sale" then they were  among the "assets sold" and fall under the regulations.  That  this produces an unreasonable or unconventional result does  not give the Secretary or the courts license to rewrite the  regulatory language.


17
In all other respects I join Judge Randolph's careful opinion for the court.

