The Supreme Court case Regions Hospital v. Donna E. Shalala, Secretary of Health and Human Services in 1997 revolved around the interpretation of a Medicare reimbursement provision by the Department of Health and Human Services (HHS). The HHS had interpreted this provision to mean that hospitals could only be reimbursed for their "reasonable costs" incurred in treating Medicare patients, which did not include graduate medical education expenses. However, Regions Hospital argued that these costs should be included as they were necessary for providing care to such patients. The court ruled unanimously in favor of Shalala's interpretation stating that it was reasonable and consistent with the statute's language and purpose. This decision upheld an important principle regarding administrative law: courts must defer to an agency’s reasonable interpretation of ambiguous statutory language.

In the dissenting opinion for Regions Hospital v. Shalala, Justice O'Connor argued that the majority's interpretation of Medicare reimbursement regulations was incorrect. She contended that the Secretary of Health and Human Services had overstepped her authority by retroactively applying a rule change to deny additional reimbursements to teaching hospitals for their indirect medical education costs. According to Justice O'Connor, this action violated both statutory law and principles of fairness because it changed the rules after hospitals had already made financial commitments based on previous interpretations of those rules. Furthermore, she disagreed with the majority's view that Congress implicitly approved these changes through inaction; instead, she believed there was no clear evidence indicating congressional approval or disapproval.