In four decisions handed down on the final day of the 2024 term, the Supreme Court handed significant power to the courts to interpret the laws governing U.S. government agencies. These include Loper Bright Enterprises, et al. v. Secretary of Commerce Gina Raimondo, et al., Relentless, Inc., et al. v. Department of Commerce, et al., and Corner Post Inc. v. Board of Governors of the Federal Reserve System. These decisions completely change the landscape of federal administrative law, overturning nearly 40 years of precedent. Most notably, courts will no longer be required to follow the interpretation of statutes that government agencies administer.
What is “Chevron Respect”?
For over 40 years, the case of Chevron v. Natural Resources Defense Council has provided a framework for courts to evaluate executive branch interpretations of “ambiguous” statutes enacted by Congress.(1) Chevron instructed courts to first evaluate whether Congress “directly addressed” the issue at issue in the litigation, and if it did not, or if the statute was ambiguous or silent on the issue, to follow the executive branch’s interpretation of the statute if it was an “acceptable interpretation” of the statute.(2)
Now, the Supreme Court has overturned this “two-tier” framework, shifting the power to determine Congress’ intent from regulators to federal courts.
Roper and its companion cases will have significant implications for all areas of American life shaped by federal regulation, including climate change, the financial system, transportation, health care, and the development of AI. The dissent stated that “we expect the Court to play a leading role going forward in all areas of current or future federal regulation.” J. Kagan, dissenting, 32 pages.
In this alert, we explore one of the open questions raised by Justice Kagan in the wake of her Roper decision: What will the nation’s health care system look like in the coming decades?
The Chevron Challenge
The plaintiffs in both Loper Bright and Relentless, Inc. were Atlantic herring fishing companies that challenged regulations under the Magnuson-Stevens Fishery Conservation and Management Act (MSA) administered by the National Marine Fisheries Service (NMFS). In both cases, the plaintiffs argued that the regulations did not allow NMFS to compel them to pay for and board third-party observers on their vessels, whereas other vessels and certain fishing companies are required to pursuant to fishery management plans to have third-party observers on board their vessels for data collection purposes.
In Lopar Bright, the District Court for the District of Columbia granted summary judgment in favor of the government, finding that the MSA authorized the rule and that the rule was not ambiguous, but that even if it had been ambiguous, it would have been justified in deferring to NMFS’ interpretation of the rule under Chevron. (3) Applying Chevron, the District Court for the District of Columbia affirmed the judgment, concluding that the agency’s interpretation was a “reasonable” interpretation of the MSA. (4) The court in Relentless, Inc. reached the same conclusion. First, the District Court for the District of Rhode Island granted summary judgment in favor of the government, finding that it deferred to NMFS’ interpretation of the rule under Chevron. (5) The First Circuit affirmed the judgment, concluding that the agency’s interpretation of the rule was “not overstepping the bounds” under Chevron’s two-part framework. (6)
The Supreme Court decision in Roper
The Supreme Court granted leave to appeal in both cases and considered only whether Chevron should be overruled or clarified. In a 6-3 majority decision written by Chief Justice Roberts, the Court expressly overruled Chevron, concluding that it violated the Administrative Procedure Act (APA). In doing so, the Court instructed district court judges to “use their own judgment in determining whether an agency acted within the scope of a statute’s authority” without giving any particular level of deference to an agency’s interpretation of the challenged statute. (7) Going forward, courts “need not, and should not, defer to an agency’s interpretation of the statute simply because the statute is ambiguous.”
After discussing the history of the judicial role in determining statutory interpretation, the Court turned to the text of the APA, which provides that “to the extent necessary for its decision, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of the agency action, when presented” (5 USC §706). Courts are further instructed to “deem and set aside agency actions, findings, and conclusions if they are found to be out of compliance with the law” (§706(2)(A)).
Nearly 40 years after the APA was enacted, Chevron issued a now-defunct two-tier framework for review of challenged administrative actions. According to the Loper Bright majority, Chevron’s premise that statutory ambiguities should be left to agencies to resolve was misguided. The court found that Chevron’s instruction that courts give “binding deference to agency interpretations” was inconsistent with the APA’s injunction that “reviewing courts” should “determine all relevant questions of law” and “interpret the provisions of the statute.” The majority of justices rejected the suggestion that agencies are better suited than courts to determine what ambiguities in federal law mean.
Going forward, “courts must use their own judgment in determining whether an agency acted within its statutory authority, as the APA requires.” Ambiguities in Congressional intent, or “gaps” in a particular law, will no longer be resolved in favor of an agency’s interpretation. Instead, judges will exercise their “independent judgment” to resolve such issues. However, the courts have not completely ignored agency interpretations, stating that “careful attention to the executive branch’s judgments may aid in their examination.” Consistent with the APA, the courts have reaffirmed the principle known as Skidmore deference, which holds that courts may “seek assistance in the interpretation of those responsible for implementing a particular law.” See Skidmore v. Swift & Co., 323 U.S. 134, 140. Moreover, the courts are not precluded by this decision from deferring to agency factual findings.
How the Supreme Court’s decision will impact the healthcare industry
The U.S. healthcare industry is one of the most highly regulated industries, with a myriad of constantly changing rules, regulations, and interpretive guidelines. Going forward, under the APA, regulations across the industry will be more susceptible to challenge in court and less likely to survive judicial review.
This change will be felt acutely in the healthcare industry, which is governed by a complex network of federal, state, and local agencies, including the Department of Health and Human Services (HHS). This includes HHS agencies such as the Centers for Medicare & Medicaid Services (CMS), the Office of Inspector General (OIG), and the Food and Drug Administration (FDA). While the impact will not be “overnight,” we expect to see a significant increase in litigation challenging existing and new regulations and other decisions made by federal agencies. These litigation cases are expected to have a series of long-term effects, including less uncertainty about compliance, increased opportunities to challenge federal agency policies, and greater slowing and systematicity in agency rulemaking.
As more regulations and agency decisions come into question, their interpretation will be in the hands of judges rather than the agencies that administer them, potentially leading to inconsistent results and uncertainty across the legal landscape. The majority seemed to recognize that its decision would make federal law less uniform, stating that “there is little value in imposing a uniform interpretation of the law if that interpretation is wrong.” This means that interpretations of federal regulations governing health care may vary from federal circuit to federal circuit, and even state to state, unless competing interpretations are resolved by the Supreme Court. Moreover, while the majority noted that its decision “does not call into question prior cases that relied on the Chevron framework,” the dissent was quick to point out that “some agency interpretations that were never challenged under Chevron will now be called into question.” For health care companies that knowingly operate in compliance with applicable regulatory guidance, does it risk scrutiny and enforcement if a court determines that such guidance is wrong? The future presents obvious compliance challenges, especially for health care companies and administrators operating in multiple jurisdictions.
At the same time, the change in framework creates new opportunities to challenge rules and regulations that were previously considered beyond reproach under Chevron. Industry stakeholders now have more opportunities to hold federal agencies accountable for sub-regulatory guidance and arbitrary decisions. To cite one example, the way COVID-19 pandemic relief funds were allocated to health care providers under the CARES Act and related laws is now vulnerable to legal challenge. That law allocated trillions of dollars to HHS with few parameters about who should be eligible and how they should be allocated. HHS filled that ambiguity with its own judgment about how to use and allocate the funds, but courts no longer have to defer to HHS in determining whether its allocation of funds under the APA was appropriate.
Even regulations enacted years or decades ago are subject to litigation. In fact, on Monday, July 1, a federal court expanded the statute of limitations for challenging rules and regulations under the APA in the case of Corner Post Inc. v. Board of Governors of the Federal Reserve System. Now, legal challenges to federal regulations can be brought outside the statute of limitations if they are not prejudiced until the six-year grace period for filing a lawsuit has passed. For example, Corner Post was brought by a truck stop in North Dakota. The store began operations in 2018, and in 2021 began challenging a cap on debit card transaction fees enacted in 2011 that unfairly favored large banks. The impact on healthcare is significant, and new market entrants will have the opportunity to challenge rules and regulations that were previously thought to be settled.
In the health care arena, other examples of legal challenges include CMS Terms of Participation/Payment (CoP) or Conditions of Coverage (CfC) rules and fiscal year reimbursement rates. Complex challenges can also arise regarding the boundary between FDA’s interpretation of the law and issues where FDA’s scientific expertise should be respected, and the role FDA guidance documents should play in the agency’s enforcement decisions.
At the agency level, this shift in authority is expected to result in slower, more cautious agency rulemaking. Agencies such as HHS will have less ability to create new programs or impose new requirements that are not expressly authorized by underlying statutes. This agency restriction goes beyond the “major question” principle enunciated by the Supreme Court in West Virginia v. EPA, 142 S. Ct. 2587 (2022). This is likely to result in slower, more cautious rulemaking as cautious agencies seek to craft regulations that can withstand enhanced judicial review.
The future of medical regulation
The Supreme Court’s shift in agency law authority will change the way the government regulates health care for years to come, creating both uncertainty and opportunity for market participants.
467US837 (1984).
(return to reference) 467 US, pp. 842-43.
(Return to reference) 544 F.Supp.3d 82, 107 (D.C. 2021).
(Return to reference) See 45 F.4th 359 (2022).
(Back to references) See 561 F.Supp.3d 226, 234-38 (RI 2021).
(Return to reference) See 62 F.4th 621 (2023).
(Back to references) Loper Bright Enterprises, et al. v. Secretary of Commerce Gina Raimondo, et al., 603 U.S. ___ (2024).
(Back to references)
