SCOTUS wants to revisit executive agency authority. What does that mean for healthcare?

The Supreme Court’s announcement that it will hear commercial fisheries’ dispute with their federal regulatory agency likely heralds changes in how healthcare agencies will tackle—and defend—their rulemaking, legal experts said.

The case, Loper Bright Enterprises V. Raimondo, involves a rule issued by the National Marine Fisheries Services that requires fishing companies to pay for compliance observers, who are also required to be onboard.

The fishing industry’s legal strategy involves readdressing the Chevron statute. This 39-year-old legal precedent, speaking broadly, outlines whether the courts should defer to an agency’s “reasonable” interpretation of ambiguous legislation so long as Congress has not specifically addressed the issue being discussed.

“This deference is useful for agencies seeking to implement regulatory changes, like cutting costs or adding new requirements, particularly if the change affects industries that may seek legal recourse for unfavorable changes,” Heather Meade, a principal at Washington Council Ernst & Young who advises on healthcare policy, told Fierce Healthcare. “In healthcare, this might arise when the agencies make changes limiting reimbursement for hospitals or prescription drugs or adding new coverage requirements.”

The Chevron statute has become commonplace in cases involving federal agencies. It tallies roughly 1,000 judicial citations per year, according to a 2014 publication from Columbia Law School faculty.

The highly regulated healthcare agency is no exception, with agencies like the Centers for Medicare & Medicaid Services (CMS) needing to interpret major statutes like the Medicare Act “on a daily basis,” said James Segroves, a partner at Reed Smith who represents healthcare and life sciences organizations.

“The question of what legal standard the court should apply can have significant real-world consequences—and, as we find in healthcare, significant financial consequences,” he told Fierce Healthcare. “Certainly, any Medicare reimbursement case, for example, that I’ve been involved in, you’re almost always fighting over [Chevron].”

Though examples of Chevron’s role in healthcare abound, the legal experts noted its absence in recent high-profile decisions as a bellwether for last week’s announcement from the top court.

Both specifically cited last summer’s unanimous decision rejecting the Department of Health and Human Services’ (HHS') 2018 payment cuts to 340B hospitals. That ruling avoided discussing the precedent despite it being broached by both parties and the justices themselves earlier in the case.

“To have a decision in a case like that … come after oral argument where Chevron is talked about extensively, and the decision doesn’t mention Chevron doesn’t make it all that surprising that [in May 2023] we have the Supreme Court granting review expressly on the question of whether Chevron should be overruled,” Segroves said. “[It] kind of raises an eyebrow. … It suggests that it’s a contentious or hot-button topic within the court itself.”

A new playing field for agency rulemaking, legal challenges

The top court will likely be briefed on Loper Bright Enterprises v. Raimondo over the summer and into early fall, with oral arguments potentially heard in the fall and a decision landing “about this time, if not later” in 2024, Segroves said.

Still, news that the case will be considered at all should bring more immediate changes to how government agencies like CMS, the Food and Drug Administration, the Department of Labor and the Federal Trade Commission are writing the preambles that justify their upcoming rules.

“I have to imagine that my friends at the Office of General Counsel at HHS that are advising their client agencies [are] having a discussion that rulemaking activity should perhaps contemplate a world in which Chevron no longer exists,” Segroves said. “Knowing that that’s a risk right now, you would want to be counseling an agency like CMS to maybe say things and reach certain determinations in the rulemaking process that would permit the agency to defend itself … especially given how long it can take for, like, a Medicare reimbursement dispute to reach court.”

Those agencies, however, are now “stuck with” the arguments they made in the preambles of prior final rules, “so it’ll be interesting to see how those kind of legacy disputes play out,” Segroves said.

Maybe the bigger question is how any potential changes to the Chevron statute may shift the balance of future lawsuits challenging the rules laid out by federal agencies.

Speaking broadly, Meade said that “efforts to curtail Chevron deference will benefit plaintiffs seeking to overturn HHS guidance that interferes with their preferred policy outcomes.”

Segroves said that the esoteric nature of “fairly arcane statutory questions” often at the center of Medicare and Medicaid disputes should ensure expert agencies maintain their influence in the federal courts.

“Would you see a shift of private parties winning more challenges? Perhaps,” he said. “But I still think you’re going to see a lot of instances of federal courts applying de facto deference—like, they’re going to look to the expert agency and say ‘Okay, you all at the agency deal with the statute on a daily basis, I don’t see this statute but once in a blue moon.’”

Overturning Chevron “doesn’t mean that all of a sudden it becomes easy to win the challenge of an agency regulation on statutory authority grounds,” he said. “It was difficult to do before Chevron, [and] I don’t think it’s gonna get abundantly easier if Chevron goes away.”

How likely is SCOTUS to shift power from the executive branch?

To what extent the statute could change is also far from a done deal, though last year’s Dobbs v. Jackson Women’s Health Organization decision overturning constitutional protections for abortion suggests that the conservative-dominated Supreme Court isn’t afraid of overturning long-standing legal precedent.

Segroves said that the uncommon decision to grant a review on questions of past precedent in itself indicates that “there’s a material possibility” Chevron could be tossed.

However, he said a more likely outcome could be a narrowing of the statute similar to 2019’s Kisor v. Wilkie decision, in which the Auer deference (a doctrine instructing courts to generally defer to an agency’s interpretation of its own regulation) was modified.

“For the Kisor case, the court had granted review on whether to overrule its past deference precedent in that particular context and ultimately the majority of the court backed away from doing so and refined, if you will, arguably modified … the standard,” Segroves said. “I think we could see something similar. We could see some trying to go back to first principles and [they’ll] say, ‘Here’s what the standard should be. We don’t necessarily think it’s inconsistent with Congress, so we’re clarifying.’”

Both a refinement and an overturning could be seen as a message from the top court’s majority to Congress to be more explicit in legislation, he added.

Such was the case in a 2022 dissenting opinion (PDF) from Justice Neil Gorsuch for Buffington v. McDonough, where the justice wrote that the doctrine gave too much power to the executive branch to the detriment of “ordinary Americans … unexpectedly caught in the whipsaw of all the rule changes a broad reading of Chevron invites.”

A decision that modifies Chevron could revert that policymaking back to the legislative branch and, as a result, place more pressure on Congress and the president to come together politically when hashing out their intended policies, Segroves said.

“The majority of the court could be going ‘We’re not saying that we’re picking an outcome here. If Congress wants a particular outcome, lay it out in clear legislative text and we’ll enforce it so long as it complies with the Constitution,'” he said. “Ultimately, I think it could potentially have an impact on legislative drafting going forward.”