On Friday, June 28, the Supreme Court overturned the longstanding Chevron doctrine, on a 6-3 vote, which had previously required courts to defer to federal agencies' reasonable interpretations of statutes within an agency’s ambit. The Chevron rationale was simple: agencies are specialists in their field and so should receive deference when courts review agency actions. The decision in Loper Bright Enterprises v. Raimondo, one of the most significant cases of the term for federal health policy, specifically states that the court will not use this change to overturn previously decided cases that relied on the Chevron doctrine. However, going forward, agency actions are subject to full judicial review. For a more general overview of the case, decision and implications, please see this alert.
Overview
The recent decision by the Supreme Court to overturn Chevron will significantly impact health policy and the health care industry at-large. The ruling ends a 40-year precedent that required courts to defer to administrative agencies’ interpretations of ambiguous statutes. The court found that Chevron deference was inconsistent with the Administrative Procedure Act (APA), which mandates that courts exercise independent judgment when reviewing agency actions. Without this deference, agency decisions will likely face increased scrutiny (and greatly more litigation challenging those decisions). This shift reduces the power of executive agencies, endangers numerous regulations and transfers authority from the executive branch to Congress and the courts.
The Loper decision will have immediate and significant implications for the U.S. Department of Health and Human Services (HHS), which oversees federal health care programs like Medicare and Medicaid. As detailed below, the Supreme Court’s ruling establishes a stricter standard for courts when reviewing HHS regulations and decisions; and the ruling could prompt a surge of lawsuits challenging decisions by agencies such as the Food and Drug Administration (FDA) and the Centers for Medicare and Medicaid Services (CMS). As a result, the elimination of Chevron deference may lead to a patchwork of health regulations as lawsuits filed in more than one jurisdiction could result in contradictory rulings and regulatory requirements; one circuit may uphold a federal regulation—such as the requirement that most Affordable Care Act health plans cover preventive services—while others may take different views, meaning health care policies for patients, providers or insurers could differ greatly from one area to another.
Plaintiffs in future cases—such as providers, drugmakers, health care businesses, 340B covered entities, patentees and other stakeholders—could challenge existing rules, potentially impacting health care delivery and access. In summary, the Chevron ruling has the potential to reshape health care policy, influencing how regulations are drafted, interpreted and enforced. The full impact will depend on how courts apply this new standard in specific cases, but given that the health care industry is one of the most heavily federally regulated industries, the consequences are likely to be far-reaching.
Impact on Federal Agencies
Federal health care programs like Medicare and Medicaid are established by statutes that outline numerous requirements regarding the coverage of items and services, including how, when and by whom said items and services may be provided. In interpreting the statutes, the designated agencies and subagencies within HHS—including CMS, FDA, the Centers for Disease Control and Prevention (CDC), the National Institutes of Health (NIH), the Health Resources and Services Administration (HRSA), Office for Civil Rights (OCR) and others—issue detailed regulations and guidance that ultimately determine how new and existing statutes are implemented.
Under the long-standing Chevron doctrine, courts were required to determine whether an agency’s interpretation of an ambiguous law was reasonable, allowing agencies to advance regulatory priorities within the scope of authority granted by Congress. Nullifying Chevron is expected to significantly hinder the ability of regulatory entities to issue rules without facing significant legal challenges. Chevron was designed to ensure that judges deferred to the subject matter experts in federal agencies when disputes arose over the interpretation of ambiguous laws. However, judges will now make those determinations. In her dissenting opinion, Supreme Court Justice Elena Kagan wrote that the ruling has created a “jolt to the legal system,” and that the court has in “one fell swoop,” given “itself exclusive power over every open issue—no matter how expertise-driven or policy-laden—involving the meaning of regulatory law.”
Implications for the Health Care Industry
The Supreme Court’s decision is expected to lead to an increase in legal disputes against HHS and other agencies’ regulations as they are finalized, making rulemaking less predictable and the regulatory process less efficient. Although prior decisions affirming regulations based on Chevron should remain stable, going forward, courts will no longer favor HHS’s legal positions, potentially boosting litigants’ confidence in challenging any new regulations. This shift creates uncertainty for providers, suppliers and other stakeholders in determining how to comply with contested regulations and will result in more cautious and delayed rulemaking due to the increased legal scrutiny.
The ruling also limits HHS’s ability to create new programs or impose new requirements on existing programs. Regulations imposing substantive requirements not clearly authorized by statute, such as CMS’s minimum-staffing requirements for nursing homes, may be particularly vulnerable. Similarly, new programs or initiatives based on broad statutory language may face increased challenges, like the FDA’s new rule on Laboratory Developed Tests or HHS’s Nondiscrimination Regulations. Other regulations potentially up for dispute include the Medicaid Access Rule and interpretations of the No Surprises Act. Lawmakers including Senate Health, Education, Labor, and Pensions Committee Ranking Member Bill Cassidy (R-LA) have already questioned HHS’s interpretation of the No Surprises Act and NIH’s proposed framework exercising March-In Rights on drug patents, sending several letters to agency heads asking how their regulatory approach will change in response to the Supreme Court’s decision, and whether they plan to pause or stop any ongoing rulemakings in response.
In addition to these rules, the decision incentivizes challenges to CMS reimbursement rules, over which legal disputes often arise as they involve complex statutory formulas open to various interpretations. In the past, courts typically deferred to CMS’s interpretations, but Loper presents more opportunities for industry stakeholders to seek favorable legal interpretations to enhance reimbursement. For example, drugmakers may try to capitalize on CMS’s reduced authority to interpret the Inflation Reduction Act, challenging CMS’s interpretation of which drugs are eligible for price negotiation and the methods used to select and determine the maximum fair price for those drugs. Additionally, President Joe Biden’s landmark Medicare drug price negotiation program will likely face new challenges under this ruling.
The development of new drugs and medical devices may also slow down due to the impact on FDA decision-making. Although the ruling is unlikely to challenge the FDA’s individual product decisions, which are grounded in statute, the process by which the FDA reaches these decisions could face greater scrutiny. This could lead to more lawsuits and potentially longer lead times for agency decisions as government lawyers work to strengthen their legal positions.
Moreover, the emerging field of artificial intelligence (AI) still needs regulations and guardrails from Congress, despite already being used in health care across various aspects of patient care and management. In her dissent, Justice Kagan warned that limiting deference to agencies’ interpretations of laws hinders Congress’s ability to appoint a regulator for the rapidly evolving field of AI. Lawmakers are currently debating whether to regulate health AI through existing agencies or to establish a new regulatory body. The Loper decision could delay regulation, as the ruling emphasizes the need for Congress to be specific and prescriptive in its legislative efforts to control AI development since courts will now play a more significant role in interpreting ambiguities.
Finally, the decision may lead to inconsistent rulings across different courts. Instead of deferring to a single regulatory body, courts will exercise independent judgment, potentially resulting in varied conclusions regarding federal regulations across the country. This could make certain locations more or less favorable for health care company operations or expansions. It will also lead to a surge of litigants venue shopping for judges sympathetic to their challenges to particular agency actions.
What to Anticipate
Looking ahead, courts are likely to be more receptive to challenges against federal regulations, creating both difficulties and opportunities for health care providers, suppliers, payors and others in the industry. It is essential for stakeholders to carefully assess the legal basis for all new regulations. This shift necessitates increased vigilance and strategic planning to navigate the changing regulatory landscape effectively.
The Supreme Court’s decision fundamentally alters the dynamics of regulatory authority, making it crucial for industry participants to stay informed and proactive in responding to these developments. Additionally, Congress, lacking the necessary expertise and staff, will face significant challenges in crafting complex regulatory legislation, needing to shift away from the use of “secretary shall” language that is used abundantly in drafting health care laws. Lawmakers will need to hire and retain expert staff to write detailed legislation and navigate the partisan atmosphere in Congress, and they are expected to take more time fleshing out legislation to avoid legal challenges as judges will be more apt to overrule current and future regulations. This situation emphasizes the importance of staying engaged with legislative processes and advocating for clear and effective health care regulations.
THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING how the SCOTUS decision in Loper Bright Enterprises v. Raimondo will affect health care. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.