Chevron Ruling Will Bring Uncertainty to Healthcare Compliance
September 1, 2024 9 minutes read
By Greg Freeman
Executive Summary
A recent Supreme Court ruling changes how federal rules are interpreted. Courts will no longer defer to federal agencies for clarification of rules.
- The ruling will introduce uncertainty to healthcare compliance efforts.
- Many healthcare rules could be affected.
- The change may chill agencies’ issuance of new healthcare rules.
The Supreme Court’s recent ruling sharply reducing the power of federal agencies to interpret the laws they administer might produce major changes in healthcare compliance in the coming years. The Supreme Court ruled in Relentless v. Department of Commerce and Loper Bright Enterprises v. Raimondo that courts should rely on their own interpretation of ambiguous laws rather than the interpretation of the agencies that created them.
The ruling could have a significant impact on the healthcare industry, says Henry Norwood, JD, an attorney with the Kaufman Dolowich law firm in San Francisco.
“This ruling reminds me of the famous George Gershwin song — ‘you say tomato, I say tomato’ except we can’t just call the whole thing off and the stakes are higher than a dispute over phonetics,” he says.
The Chevron doctrine was initially instituted to determine who had the right to decide if something is “tomato” or “tomato” — when it comes to the interpretations of ambiguous laws, Norwood says. The high court’s ruling striking down Chevron says courts should get that say, limiting the power of federal agencies who used to make such determinations.
The court’s ruling limits the power of federal agencies, which, for industries such as healthcare that are steeped in regulatory oversight, really upsets the applecart, he says. What used to be the standard operating procedure for 40-plus years is no more, Norwood says. In essence, the decision limits federal agencies like the Food and Drug Administration (FDA), Health and Human Services (HHS), Centers for Medicare & Medicaid Services (CMS), and the Office of Civil Rights to interpret ambiguous laws, and instead provides courts the ability to reconcile any ambiguities.
The litigation surrounding the abortion pill mifepristone is an example of where Chevron comes into play within the healthcare industry, he notes. The Fifth Circuit Court of Appeals struck down the FDA’s approval of the drug on the basis that the FDA’s judgments regarding mifepristone’s safety were not scientifically supported. The U.S. Supreme Court ultimately ruled in favor of the FDA on other grounds, but this type of challenge to the scientific determinations of federal agencies will be easier post-Chevron.
“The ruling has really opened the floodgates to litigation. There is likely to be a vast array of challenges brought before the courts by those unsatisfied with interpretations reached by federal agencies,” Norwood says. “There are two sides to this coin that may hit players in the healthcare space differently. On one hand, some healthcare organizations may find it beneficial to be able to challenge federal agencies’ regulatory interpretations that they disagree with. On the other, healthcare organizations may find this decision leaves the industry on shaky ground, facing a less certain health regulatory environment where agency determinations are more vulnerable to attack.”
Here Comes Uncertainty
The Chevron ruling is part of a recent trend to question the authority of government agencies, says Amanda B. Hill, JD, with the Hill Health Law Group in Bee Cave, TX.
“It wasn’t just the fact that the Chevron case was reversed. It’s the fact that there’s been several decisions in a row by the Supreme Court that really are shifting the landscape of administrative practice,” she says. “The one word that keeps coming up over and over to me is mistrust. Is there an overarching mistrust in our government agencies to create policies and regulations that people can depend on?”
Hill notes that it is impossible to create a law that has no ambiguity. There is no way to create an ironclad law that that every single person is going to understand easily because there will be some subset of people or some scenario that that law does not directly speak to, she says. Those questions have been resolved by subject matter experts within the agency who gave their interpretations of what Congress meant, she says.
“The Supreme Court’s position now is those people aren’t necessarily the experts,” Hill says. “Their job is not judicial interpretation. That’s the judges’ job.”
The ruling will introduce uncertainty in healthcare compliance, Hill says.
“If every regulatory edict is questioned, then it really does throw a wrench in the way healthcare works. Whether you like it or not, there are not enough judges, and there is not enough time to go analyze every statute if there is an alleged ambiguity,” she says. “The administrative agencies do play a role in trying to help interpret what these laws mean; I think it’s a radical shift.”
Hill suspects the Chevron ruling will have implications for the Federal Trade Commission’s January 2024 rule banning noncompete clauses in many healthcare arrangements.
“I do think this is up for challenge. In that particular case, the Federal Trade Commission sort of overstepped their authority,” Hill says. “They weren’t interpreting anything. They weren’t giving some guidance. They were creating a new policy.”
Opportunities and Challenges
Now that the Supreme Court has shifted the balance of power between courts and agencies — ending Chevron deference to agencies and tasking judges with saying what the law is — healthcare companies will have opportunities and face challenges, says Selina P. Coleman, JD, partner with the Reed Smith law firm in Washington, DC.
With respect to opportunities, the lack of Chevron deference will allow healthcare companies to challenge burdensome rules, she says. Healthcare companies should begin evaluating whether any agency rules or regulations overstep statutory bounds or improperly interpret ambiguous statutes. For example, it will now be easier to challenge CMS rules that interpret complex statutory formulas for reimbursement, Coleman says. Courts will no longer need to defer to agency interpretations of ambiguities and may interpret a statutory formula in a way that will yield more favorable reimbursement for healthcare companies, she explains.
“The flip side of the opportunity to challenge burdensome rules is the likelihood that litigants will challenge beneficial rules,” she says. “If healthcare companies learn of challenges to agency rules or regulations that are beneficial to their operations or the patients they serve, they could consider providing supporting briefs in the litigation that may help persuade a court to agree with the agency’s reading of a statute.”
In an environment with increased litigation, healthcare companies will have less certainty, particularly if different courts reach conflicting interpretations of statutes, she says. They will need to evaluate their approach to moving forward with meeting compliance obligations that burden them — or relying on legal exceptions that help them — if the relevant agency rules may be declared invalid, Coleman says.
Healthcare companies also can expect the lack of deference to chill agencies from issuing swift or expansive new rules unless they have express delegation or authorization to do so. If state regulations fill the gaps, companies with national operations likely will need to tailor their compliance programs based on a patchwork of different state laws, she says.
“In this new environment that will favor the use of clear statutory language, healthcare companies should also consider how they or their industry groups interact with lawmakers,” Coleman says. “Supporting specific statutory language or appropriate delegations of authority will help agencies respond to the evolving healthcare landscape, including with respect to rapidly advancing medical technology and the potential use of artificial intelligence.”
Effects on Medicare, CMS
With the recent overturning of the Chevron doctrine, health plans face a new wave of uncertainty, says Jenn Kerfoot, chief strategy and growth officer with DUOS, a healthcare technology company in Minneapolis. The key lesson from both scenarios is the necessity of an organizational framework that thrives amid uncertainty, underpinned by effective communication and democratized information, she says.
The solvency of the Medicare Beneficiaries Trust Fund could be indirectly affected by the Chevron ruling, she says. Increased litigation and the potential for courts to overturn or modify CMS regulations could lead to changes in reimbursement policies and coverage determinations. If CMS’s ability to enforce cost-saving measures or implement new payment models is hindered, it could result in higher costs for the Medicare program overall. This scenario could strain the Trust Fund, potentially accelerating its depletion, she says.
The Chevron ruling could lead to inconsistent court decisions across different jurisdictions, potentially creating a patchwork of regulations affecting Medicare funding and administration. This fragmentation might complicate efforts to implement uniform, nationwide policies aimed at preserving the Trust Fund’s solvency, Kerfoot says. In the event Congress remains divided and fails to provide timely clarity on regulations or enforcement, states may step in to fill the void, leading to further confusion and inefficiency in administering compliant programs, she says.
The Inflation Reduction Act (IRA) includes provisions for Medicare to negotiate drug prices, a key component aimed at reducing healthcare costs.
“The Chevron ruling could lead to increased legal challenges from pharmaceutical companies, jeopardizing these drug price negotiations and undermining the IRA’s goals,” Kerfoot says. “This would not only affect the Medicare program but also broader efforts to control healthcare costs and improve affordability for beneficiaries.”
Now that Chevron is overruled, healthcare providers, their associations, and other private parties can — and already have begun to — challenge regulations and other determinations by agencies and receive a more fulsome, independent review by the judiciary, says Thomas H. Barnard, JD, shareholder with Baker Donelson in Washington, DC.
The government will be concerned that, among other impacts, overturning Chevron will result in providers and associations strategically choosing not to comply with rules, regulations, and guidance because they believe a court may overturn or decline to enforce them, Barnard says.
The healthcare industry likely will see a delay or chill in federal agencies’ rulemaking processes, since agencies will be mindful to carefully draft guidance that will be statutorily supported and upheld in court, Barnard says. Consequently, agencies may be slower to respond to public health emergencies and rapid advancements in science, health, and technology, he says.
“Despite the Loper majority’s insistence that its overruling Chevron will not re-open to attack regulations previously upheld using Chevron, the Supreme Court’s Corner Post decision holds that any person ‘injured’ by a federal regulation can challenge it within six years of their injury,” Barnard says. “This breathes new life into challenges to existing law by newly formed entities and newly harmed persons. Practically any and all federal regulations can now be challenged anew.”
Prepare Now for Ruling’s Effect
Organizations should prepare for potential effects of the Chevron ruling, says McKenna S. Cloud, JD, attorney with Baker Donelson in Jackson, MS. She suggests taking these steps:
- Review current and threatened litigation to stay apprised of the changing legal landscape.
- If considering or pursuing litigation, evaluate the following considerations: selecting a forum, highlighting special considerations when seeking to distinguish or reverse under stare decisis, educating the judge on complicated subject matter, and preserving a comprehensive record for the judge.
- Identify and understand which federal agencies have regulatory authority over your business operations. This may extend beyond the HHS to include the Department of Labor, the Department of the Treasury, etc.
- Consider how your entity will approach regulatory compliance. Healthcare businesses may have more discretion to make judgment calls as to whether to comply with certain rules, regulations, and guidance because they believe a court may overturn or decline to enforce them. Similarly, healthcare businesses and providers may be more reluctant to self-disclose possible violations of rules, regulations, and guidance.
- Evaluate business opportunities and consider how the change in the law might benefit your business or the healthcare industry at large.
- Engage with industry-specific lobbying groups to stay informed.
Many Regulations Could Be Affected
A number of CMS regulations could be at risk after Loper Bright, says Anthony J. Burba, JD, partner with the Barnes & Thornburg law firm in Chicago. This could include certain Stark exceptions, the physician fee schedules, and, certainly, conditions of participation, he says.
Burba suspects the conditions of participation for Critical Access Hospitals (CAH) would fall into this category. One example would be the concept of a Mountainous Road. The regulations define it with respect to types of highways and provide more color to the statutory term of “mountainous terrain,” he notes. The conditions of participation also provide substantial color around the statutory staffing requirements and add conditions for things such as relocation that are not fully addressed in the statute, he says. There are rural areas that may have roads that are not numbered highways or that have more rugged routes between facilities, he notes. If addition of one of these types of unnumbered routes would qualify a facility for a CAH, when it otherwise would fail under the statute, Burba says he could see that leading to a successful challenge.
“At this point, we are in pretty uncharted territory. All Loper Bright really says is that courts are no longer to defer to an agency’s interpretation of ambiguous statutory terms like, arguably, mountainous terrain,” Burba says. “That does not preclude the court from agreeing with the agency, nor does it necessarily mean that a challenged regulation is going to be struck down.”
SOURCES
- Thomas H. Barnard, JD, Shareholder, Baker Donelson, Washington, DC. Telephone: (202) 508-3400. Email: [email protected].
- Anthony J. Burba, JD, Partner, Barnes & Thornburg, Chicago. Telephone: (312) 338-5908. Email: [email protected].
- Selina P. Coleman, JD, Partner, Reed Smith, Washington, DC. Telephone: (202) 414-9220. Email: [email protected].
- Amanda B. Hill, JD, Hill Health Law Group, Bee Cave, TX. Telephone: (512) 329-2620. Email: [email protected].
- Jenn Kerfoot, Chief Strategy and Growth Officer, DUOS, Minneapolis. Telephone: (855) 212-9242.
- McKenna S. Cloud, JD, Baker Donelson, Jackson, MS. Telephone: (601) 351-2427. Email: [email protected].
- Henry Norwood, JD, Kaufman Dolowich, San Francisco. Telephone: (628) 219-9814. Email: [email protected].
The Supreme Court’s recent ruling sharply reducing the power of federal agencies to interpret the laws they administer might produce major changes in healthcare compliance in the coming years.
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