Prior to 1980, the federal Medicare program treated teaching hospitals and non-teaching hospitals the same for reimbursement purposes. Teaching hospitals, however, had higher service costs. The Secretary established an adjustment for teaching hospitals in 1980. The adjustment was based on the number of full-time equivalent (FTE) residents employed on a particular date. When Congress further amended the Medicare reimbursement program in 1983, it included an indirect medical education (IME) adjustment to replace the Secretary's 1980 directive that also was based on the number of FTEs. The regulations in effect in 1996 required a resident to be assigned to the outpatient department of a hospital or the "portion" of the hospital subject to the 1983 program. Further amendments in 2001 excluded time spent in research not associated with treatment or diagnosis even if the resident was assigned to one of those two departments. The University of Chicago Medical Center included pure research time in calculating its residents' FTE count for fiscal year 1996. The Medicare program Administrators excluded that time. The district court disagreed. Judge Andersen (N.D. Ill.) concluded that "outpatient department" and "portion" are geographic areas, not spheres of operation as argued by the Administrator. The Secretary appeals.

In their opinion, Judges Cudahy, Evans, and Sykes affirmed. Although the Court agreed that the plain language of the regulation referred to a resident's geographic location, it also conceded that the answer to the ultimate question was not clear. If the regulation was ambiguous, the Court would have to address the degree of deference owed to the Secretary. In any event, the Court concluded that legislation enacted after oral argument provided the answer. The Patient Protection and Affordable Care Act, enacted in March of 2010, allowed the inclusion of non-patient care activities in the IME FTE count retroactively to 1983. It also provided that pure research activities should not be counted after 2001. Although the 2001 provision specifically stated that no inference should be drawn regarding pre-2001 calculations, the Court concluded that pure research was a subcategory of "non-patient care activities" and therefore specifically included in the Act's retroactive language.