Chevron Defeated, Implications for Healthcare Regulation

Chevron reflects the view that federal agency subject matter experts are best placed to interpret and set policy when the statutory language is mute or ambiguous with respect to a particular issue, as opposed to a judge with little subject matter experience. As discussed in our previous alert, the consolidated opinion in Loper Bright Enterprises v. Raimondo AND Relentless, Inc. v. Department of Commerce requires courts to exercise their independent judgment in determining the meaning of statutory provisions, rather than deferring to administrative agencies. The decision will have profound implications for rulemaking and agency action, particularly in the health care industry.

Background: Chevron Respect

IN Chevron USA v. National Resources Defense CouncilThe Supreme Court established a two-part test for federal courts to assess the validity of an agency’s interpretation of a federal statute. First, the court was to decide whether the U.S. Congress had “directly addressed the specific question at issue” in the statute. If Congress’s intent was clear, the court was not required to defer to the agency’s interpretation and was to follow the plain language of the statute. However, if the language of the statute was silent or ambiguous on a particular issue, the court was to defer to the agency’s interpretation, provided that the interpretation was based on a permissible interpretation of the statute.

However, Chevron contained an important caveat: judicial deference was to be given only to agency interpretations that had the “force of law,” such as rulemakings and formal rulings. When the agency interpretation involved informal actions, such as opinion letters or guidelines, this Chevron test was not applied. Instead, these informal agency actions were (and continue to be) accorded a more limited deference, known as Skidmore respect. Under Skidmorecourts rely on an agency interpretation only to the extent that the interpretation has “persuasive force.” This depends “on the accuracy evident in its deliberations, the validity of its reasoning (and) its consistency with prior and subsequent decisions.”

This Loper Light Decision

IN Loper Lightthe plaintiffs, who filed separate lawsuits in multiple district courts, challenged certain regulations implementing the Magnuson-Stevens Act (MSA) of 1976. The MSA requires fishing companies to provide space on board their vessels for federal observers to comply with federal regulations. The National Marine Fisheries Service (NMFS) issued a regulation that required fishing companies to pay the costs of observers. The fishing companies sued, arguing that the language of the MSA did not state that they were responsible for the costs of observers and that the NMFS regulation was therefore invalid. Two federal courts of appeals, applying Chevronfound that the NMFS regulations constitute a reasonable interpretation of the MSA and, therefore, fishing companies must bear the costs associated with the observer presence.

The Supreme Court reversed the appellate courts’ decision to reject the agency’s interpretation and Chevron. The court held that the reviewing court—not the agency—should “decide all substantive questions of law” and “interpret . . . statutory provisions.” The ambiguity, the court said, does not “reflect congressional intent that an agency, as opposed to a court, should decide the interpretive question that arises.”

The court found that Chevron “undermined the very values ​​of the ‘rule of law'” old decisions exists to protect.” Accordingly, federal courts must now exercise independent judgment in reviewing agency interpretations, regardless of statutory silence or ambiguity, and determine the “single best meaning” of the statute.

The future of healthcare law within Loper Light

What all this will mean in practice remains to be seen. In contrast to Chevron respect that limits judicial power by demanding courts should be guided by the permissible interpretations of the authorities in the case of an unclear provision, Loper Light restores widespread use Skidmore respect that simply permits courts should defer to agency interpretations that they find persuasive.

Skidmore AND Loper Light However, these are not the only relevant Supreme Court rulings regarding deference to agencies. Courts may still rely on the agency’s interpretation own rules in accordance with Kisor vs WilkeIn order for a federal court to defer to an agency’s interpretation of its own rule, Kisor requires a multifactorial test. Specifically, courts must determine: (1) whether the regulation is “genuinely ambiguous,” (2) whether the agency’s interpretation is reasonable, (3) whether the “nature and context” of the agency’s interpretation entitle it to deference, (4) whether the interpretation was actually made by the agency, (5) whether the question at issue involves agency expertise, and (6) whether the interpretation reflects the agency’s “fair and prudent judgment.” But as with Skidmore, Kisortest is permissible. While a federal court may find that an agency’s interpretation is reasonable, it is not required rely on the agency’s interpretation of the regulations.

Implications for the healthcare industry

The U.S. Department of Health and Human Services (HHS) regulates the health care provided to most Americans in some form. It controls a significant portion of the federal budget and provides health care to approximately 150 million beneficiaries of Medicare, Medicaid, and the Children’s Health Insurance Program. HHS regularly issues regulations that affect health care payment and delivery.

The Supreme Court confirmed that the agency’s regulations, which were enforceable before Loper Light decision, will remain intact. However, agency rulemaking is an ongoing process, and HHS (and its agencies, including the Centers for Medicare & Medicaid Services, the Health Resources and Services Administration, the Food and Drug Administration, and the Office of the Inspector General) can be expected to continue issuing regulations as they have in the past. However, federal health care laws, including those authorizing the Medicare and Medicaid programs, are extraordinarily complex. Agency regulations can be even more convoluted and intricate — a fact that courts have often acknowledged.

Consider the following judicial commentary, in which the criticism of the Social Security Act and its regulations is divided equally between these two issues:

• “The Social Security Act is one of the most complicated ever crafted by Congress. Its Byzantine construction … makes the law nearly incomprehensible to the uninitiated.” Schweiker vs. Grey Panthers453 U.S. 34 (1981).
• “The statutory formula for determining exactly how much HHS will pay … hospitals is incredibly complicated.” Becerra vs. Empire Valley597 U.S. 424, 445 (2022) (Kavanaugh, J., dissenting).
• “As programs have evolved, the Social Security Act, and especially its regulations, have become increasingly complex, making them nearly incomprehensible to the uninitiated. There should be no form of reference such as ’45 CFR § 248.3(c)(1)(ii)(B)(2)’ … the drafter who finds himself in a situation requiring such a thing should start over. Such incomprehensibility is doubly unfortunate in the case of a statute concerning the rights of the poor.” Friedman vs. Berger547 F.2d. 724, 727 n.7 (2d Cir. 1976).
• “The Medicaid Act (like other parts of the Social Security Act) is a heightened attack on the English language, resistant to attempts at understanding. The Act is complex and obscure, not only difficult to administer and interpret, but it sets a poor example for those who would use plain and simple language.” Friedman vs. Berger409 F. Supp. 1225, 1225–26 (S.D.N.Y. 1976).

Justice Elena Kagan’s dissent in the case Loper Light also recognized the practical difficulties of how courts interpret health care law. She wrote: “(U)nder Medicare, hospital reimbursements are adjusted to reflect ‘differences in hospital pay levels’ across ‘geographic areas.’ How should the Department of Health and Human Services measure ‘geographic area’? By city? By county? By metropolitan area? … According to the dictionary, a ‘geographic area’ can be as large as a region encompassing multiple states or as small as a census tract. How do you choose? … Congress knows that the Department of Health and Human Services can do all of these things—and the courts cannot.”

Looking to the future

Following in the footsteps of Loper Lightwe expect to see an increase in challenges to HHS’s interpretation of federal statutes and its regulations. In the past, HHS has expanded the breadth and depth of its interpretations of statutory requirements and limitations based on the assumption that statutory silence provided an opportunity for increased rulemaking and issuance of “guidance.” However, the Department may now be less aggressive in invoking regulatory authority when interpreting broad statutory language because it faces greater risk of successful litigation from the provider community. Using guidance as a form of policy implementation may become a more popular tactic for HHS to avoid judicial review under the Loper Bright — However, guidelines do not have the same legal force as regulations.

Courts will almost certainly reach different conclusions regarding the meaning of the HHS regulations because judges may not be familiar with the structure, complexity, history, and details of health care statutes and regulations. The differing opinions may create instability for health care organizations operating in multiple states and jurisdictions. Health care organizations may gravitate to certain areas of the country where courts have taken a narrow view of HHS’s authority over their operations.

Another factor to consider is the impact Corner Post vs. Federal Reservepotentially positive Supreme Court decision for healthcare organization, issued two days after Loper Light. Corner post held that the default six-year statute of limitations for lawsuits brought under the Administrative Procedure Act begins to run not from the time the agency takes final action but from the time the individual plaintiff is harmed by that action. The decision potentially creates an open-ended deadline for challenging the agency’s final rules.

Taken together, Loper Light AND Corner post will lead to increased judicial review of agency actions, which creates both opportunities and threats, given the extensive federal regulation of the health care industry. The new perspective from which courts view agency actions could lead to a regulatory landscape that is significantly different from that in effect Chevron. Indeed, on the same day Loper Light has been settled, three New Jersey hospitals have filed a lawsuit challenging HHS’s “unreasonable and unlawful” calculation of reimbursement for hospitals serving a disproportionately high percentage of low-income patients. We expect to see further challenges in other areas of health care law, including the agency’s oversight of standards and certification, fraud and abuse, data privacy and security, and any other actions HHS takes in statutory interpretation and implementation.

Additional research and writing by Meredith Gillespie, a 2024 summer intern in the Washington office of ArentFox Schiff and a law student at Wake Forest University School of Law.