Chevron Runs Out of Gas: The Bumpy Road Ahead for Health Regulations After Loper Bright
Key Points
- Loper Bright’s overruling of Chevron will affect regulations that purport to “fill a statutory gap” or interpret ambiguous statutory terms/provisions but that lack express statutory authority.
- The decision will raise the bar for agencies like CMS and FDA when they are implementing laws where Congress left gaps or used undefined terms. Having a “permissible reading” is no longer enough; agencies must put forward the “best reading.”
- For the small subset of cases that make it to the Supreme Court, or implicate “major questions,” Loper Bright is not a sea change. The Supreme Court has not relied on Chevron since 2016, and the Court’s “major questions” doctrine had already eliminated agency deference.
- Many lower courts have continued to apply Chevron in challenges to healthcare regulations, particularly in technical areas. This is where Loper Bright will likely have the greatest impact.
- The Corner Post decision opens up older regulations to new challenges under the APA, increasing agencies’ exposure to lawsuits.
On June 28, in Loper Bright Enterprises v. Raimondo, the Supreme Court overturned the longstanding Chevron doctrine, under which courts generally granted deference to a federal agency’s reasonable interpretation of ambiguous federal statutes. Days later, in Corner Post v. Board of Governors of the Federal Reserve System, the Court dealt another blow to federal agencies by saying that plaintiffs have six years from the date they are injured by a regulation (which, in the case of new market entrants, could be long after a regulation has issued) to challenge the regulation under the Administrative Procedure Act (APA).
While the Supreme Court had been signaling the diminishing role of Chevron deference in recent years, the end of Chevron will have significant implications for agencies in how they justify policies, how they defend them in court and what policies they are able to pursue. It also has implications for Congress, which can no longer rely on agencies to fill in statutory gaps without judicial second-guessing. Finally, this development will invite new challenges to longstanding regulations, even if they have been previously challenged and were upheld under Chevron, especially in light of the Court’s decision in Corner Post.
What is Chevron deference and why does it matter?
The Chevron doctrine originated in 1984 in the case Chevron USA, Inc. v. NRDC,1 and since then has served as a framework for federal courts in deciding disputes between federal agencies and private parties over the legality of agency regulations. Under the doctrine, courts were to first ask “whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter.”2 Where, however, the court determined that “the statute is silent or ambiguous with respect to the specific issue,” the court was supposed to defer to the agency if the agency’s preferred construction was “permissible.”3 Notably, courts would continue to defer to the agency even if the agency’s interpretation changed or contradicted itself over time, so long as the interpretation remained within a “range of reasonableness.”4
Since it was decided, Chevron has been a foundational aspect of administrative law. While the Supreme Court has largely abandoned the doctrine in the last decade, it has continued to play a key role in many lower court decisions, including many decisions affecting health policy.5
What changed under Loper Bright?
In Loper Bright, the Supreme Court overruled Chevron, eliminating the presumption that statutory ambiguities are implicit delegations of authority to agencies. In a 6-3 opinion authored by Chief Justice Roberts, the Court reasoned that under Article III of the Constitution it is the duty of the courts to say what the law is. While courts should give “due respect to Executive Branch interpretations of federal statutes,” it is the function of courts to determine “whether the law means what the agency says.”6
The Court, however, noted some limits on the reach of its holding. It pointed out that in some instances, Congress does “‘expressly delegate[]’ to an agency the authority to give meaning to a particular statutory term,” or “empower[s] an agency to prescribe rules to ‘fill up the details’ of a statutory scheme.”7Similarly, Congress may give agencies flexibility to regulate with use of the terms “appropriate” or “reasonable.”8 In these instances, where the court determines a statute delegates discretionary authority to an agency, the court’s task is to ensure that the agency has engaged in reasoned decision making within the boundaries of the delegation and in accordance with the APA.9 The Court also distinguished between questions of law and questions of fact or policy. The former must be resolved by courts without deference to agency interpretation, while the latter fall more squarely within the agency’s bailiwick and deserve deference. Relatedly, the Court noted that agency interpretations based on their “body of experience and informed judgments” and “factual premises within the agency’ expertise” are factors that may inform courts’ interpretations of a statute.10
At a high level, Loper Bright reflects the current Supreme Court’s formalistic approach to the separation of powers between the branches of government and to statutory interpretation. It also reflects the Court’s willingness to check the power of executive branch agencies and to overrule major longstanding precedent.
As a practical matter, the Court’s overruling of the Chevron doctrine should not have much impact on agency litigation in the Supreme Court itself. That is because parties (including the Solicitor General) have not been relying on Chevron in recent years there given the Court’s growing hostility to agency deference. Likewise, the ruling should not materially affect challenges to the relatively small number of regulations subject to the Court’s “major questions” doctrine, which already requires agencies to point to explicit congressional authority before issuing controversial and novel regulations with significant policy consequences.11
But Loper Bright will matter in lower federal courts across the country, where judges have continued to rely on Chevron to resolve difficult and close cases involving challenges to agency regulation, both big and small. Regulated parties will be better positioned to attack federal regulations as exceeding statutory authority across agencies and subject matters. To the extent that courts will be offering more definitive interpretations of statutes, the decision may also constrain agencies from altering regulations when administrations change. Finally, on Capitol Hill, Congress may look to tap outside expertise rather than simply rely on an agency to fill statutory gaps—or at least be more explicit about how much interpretive discretion it intends to confer on a particular agency.
What Happened in Corner Post?
In Corner Post, the Court rejected the government’s argument that facial challenges to final agency actions (including regulations) are subject to a general six-year statute of limitations that begins running on the day the agency action becomes final.12Instead, it held that the limitations period begins running when a plaintiff is injured, even if that injury did not occur until many years after the agency action became final. The Court reasoned that a right of action “accrues” when a plaintiff has a right to file suit, and, under the APA, a plaintiff cannot bring suit until it suffers an injury from final agency action.
As a practical matter, that means that any party injured for the first time by a regulation within the past six years, such as new market entrants, may now file a facial challenge to most agency regulations (even regulations that have been on the books for decades). Importantly, however, Corner Post will not apply to agency regulations that are subject to more specific statutes of limitations.
Implications for Health Care Policy
Loper Bright carries broad implications for the United States Department of Health and Human Services (HHS), and especially the Food and Drug Administration (FDA) and the Centers for Medicare & Medicaid Services (CMS).
While Loper Bright will certainly affect regulatory activity, whether and how it will affect a particular policy will depend on the statutory authority underlying the policy in question. In other words, determining the effect of Loper Bright on a particular HHS policy requires a statute-by-statute analysis. The ruling will directly affect the agency’s approach to regulating in the absence of an express and directly applicable delegation of authority. For instance, where an agency identifies an ambiguity in the statute, and Congress has not expressly delegated to the agency the authority to interpret the provision, the agency can no longer select among a menu of “permissible” readings. Rather, it must select the “best” reading, which is an exercise that will require discipline and greater deference to agency lawyers. Further, if an agency’s reading is challenged in court, the court will determine the best reading of the law, and that determination will bind future administrations that may want to adopt a different interpretation.
However, much of HHS’ regulatory activity is carried out pursuant to express delegations of authority from Congress, where Congress affords the agencies considerable discretion in making policy. For instance, with respect to Medicare payment rules, Congress gave the agency discretion to fill in the missing details. In recognition of the complexity of the payment rules and the budget neutrality requirements, Congress insulated many of these discretionary decisions from administrative and judicial review. The end of Chevron will have less of an effect on these regulations that are issued pursuant to express congressional delegations, particularly where Congress has also shielded agency decisions from review.
A similar dynamic applies with regard to many aspects of FDA regulation, because Congress has delegated science-based decision-making to an expert agency. Such science-based regulations will still be reviewable (absent a statutory bar on judicial review), but that review may largely be governed by the more deferential standards articulated in the APA, which include whether the agency action is “arbitrary” or “capricious” or amounts to an “abuse of discretion.” Of course, the FDA often uses non-binding guidance to announce agency policy, including agency interpretations of statutory provisions. While Chevron deference applied to regulations issued through notice and comment rulemaking, the elimination of Chevron deference could prompt new questions regarding the propriety of agency positions announced via non-binding guidance.
Corner Post injects a further degree of uncertainty into the stability of longstanding health care regulations, and creates new opportunities for litigants to challenge what they believe to be unlawful regulations. This window of opportunity could close if Congress takes heed of the Court’s admonition to “enact a distinct statute of limitations for the APA.”13
Below we address several areas of HHS regulation that may be affected to varying degrees by Loper Bright.
FDA Regulation of Laboratory-Developed Tests
FDA’s Final Rule on Laboratory Developed Tests (LDTs), issued May 6, 2024,14 has already been challenged by laboratory plaintiffs including the American Clinical Laboratory Association (ACLA) in the Eastern District of Texas.15Plaintiffs have alleged that the LDT rule violates the APA in a number of respects.16The notice and comment process previewed a variety of arguments from potential plaintiffs regarding whether the Food, Drug and Cosmetic Act (FDCA) should be interpreted to provide FDA authority to regulate LDTs as medical devices; FDA also provides an extensive defense of the agency’s interpretation.17 It can be expected that plaintiffs will invoke both the “major questions” doctrine and Loper Bright to argue that Congress did not grant FDA authority to regulate LDTs under the FDCA.
Nursing Home Minimum Staffing Ratios
Industry groups sued HHS in May seeking to block the controversial staffing policy the Biden administration says is necessary to protect facility residents. The lawsuit was filed in the Northern District of Texas, a forum (like the Eastern District of Texas) that is typically favorable for plaintiffs challenging federal agency action. The industry groups challenged regulatory provisions (a) requiring 24/7 presence of a registered nurse (RN) and (b) imposing minimum staffing ratios for RNs and nurse aids, on the grounds that those requirements exceed CMS’s statutory authority and are arbitrary and capricious.18
CMS primarily relies on its broad grant of authority to establish “requirements relating to the health, safety, and well-being of residents or relating to the physical facilities thereof as the Secretary may find necessary,”19 as well as a number of other congressional directives. In other words, Congress expressly delegated authority to the agency to establish requirements beyond those enumerated in the statute. In this respect it is unlike Loper Bright, where the question centered on whether, in the absence of an express delegation of authority from Congress to regulate on a matter, a statutory ambiguity should give rise to an implicit delegation of authority to an agency—a question the Court answered in the negative. Still, Loper Bright makes clear that even where Congress clearly delegated authority to an agency to make discretionary policy decisions, courts must still “independently identify and respect such delegations of authority, police the outer statutory boundaries of those delegations, and ensure that agencies exercise their discretion consistent with the APA.” 20
The “80/20” Rule
Another highly vulnerable CMS policy is the new Medicaid regulatory requirement that home health agencies pass through 80% of Medicaid revenue to direct care workers. The purported rationale for this new requirement was the need to ensure the stability of the direct care workforce, which has historically seen a high rate of turnover and staffing shortages. CMS primarily relies on Section 1902(a)(30)(A) of the Social Security Act, which requires state Medicaid programs to establish “methods and procedures” related to payment to ensure that payments to providers are consistent with efficiency, economy and quality of care and are sufficient to enlist enough providers so that care and services are available to beneficiaries at least to the extent as to the general population in the same geographic area. CMS reasons that payments must be sufficient to recruit and retain enough providers to ensure care and services are available to beneficiaries, and that the 80% pass-through requirement is therefore an exercise in implementing the statutory requirement for state Medicaid programs.21
Where, as here, an agency purports to be relying on an express statutory delegation of authority to make discretionary policy, Loper Bright instructs lower courts to “independently identify” those delegations and to “police the outer statutory boundaries of those delegations.” Should this Medicaid policy be challenged in court, CMS may have a hard time convincing a judge that a statutory directive aimed at state “methods and procedures” of setting provider payment is a grant of authority to CMS to regulate how home care providers pay their staff.22
Medicare Payment Rules
As noted above, Congress has often provided express delegation of authority to CMS over the provisions of its payment rules and, in an increasing number of instances, has precluded avenues of administrative judicial review over such rules. That said, Congress’s Medicare payment legislation is often complicated, imprecise and subject to varying interpretations. Loper Bright’s rejection of Chevron may very well provide openings for relief in the courts. It will certainly spawn even more Medicare payment litigation.
Medicare Coverage Policy
Congress gave CMS the express authority to establish national coverage policy for Medicare. Under the rules prescribed by Congress, CMS may issue national coverage determinations (NDCs) instead of regulation, to state whether or not a particular item or service is covered nationally. According to the congressional grant of delegation, CMS decides whether an item or service is “reasonable and necessary” for the diagnosis or treatment of illness or injury. To be sure, the exercise of determining whether something is “reasonable and necessary” is not necessarily a legal question, and the Loper Bright Court provided that factual and policy decisions are deserving of deference. This does not mean, however, that NCDs are immune from challenge. Motivated litigants could challenge, for instance, the factors CMS considers in making a reasonable and necessary determination (e.g., does the “reasonable and necessary” framework authorize CMS to second-guess the FDA’s determinations of safety and efficacy), or its use of NCDs to issue policies on broad classes of items or services (e.g., does the authority to make national policy on a “particular” item or service mean CMS cannot use the NCD process to regulate broad classes of drugs?). The “reasonable and necessary” standard is broad, but not boundless, and under Loper Bright courts must still “fix the boundaries of the delegated authority.”
The Inflation Reduction Act’s Drug Price Negotiation Program
The Inflation Reduction Act of 2022 (IRA) fundamentally changed the historic role of the federal government with respect to drug prices by authorizing HHS to directly “negotiate” drug prices with manufacturers.23
The IRA broadly declares that “The Secretary [of HHS] shall establish a Drug Price Negotiation Program,” and goes on to state that under that program the Secretary “shall” publish a list of selected drugs in accordance with section 1192 of the IRA, enter into “agreements with manufacturers,” “negotiate” “maximum fair prices” and carry out publication, administrative duties and compliance monitoring in accordance with section 1194 of the IRA.24 It remains to be seen how Loper Bright will be applied to CMS’s various implementation memos for the IRA: what does it mean for CMS to act “in accordance” with the Act’s statutory provisions? Does the “in accordance” grant of authority equate to an “express[] delegate[ion] to an agency the authority to give meaning to a particular statutory term,” or is it “empower[ing] an agency to prescribe rules to ‘fill up the details’ of a statutory scheme”? Or did Congress give flexibility to regulate as “appropriate” or “reasonable”?
Further, CMS’s IRA implementation memos, the latest of which was published in draft on May 3, 2024,25are not formal regulations pursuant to notice and comment rulemaking, and appear to be issued pursuant to section 11001(c) of the IRA, which provides that “The Secretary of Health and Human Services shall implement this section, including the amendments made by this section, for 2026, 2027, and 2028 by program instruction or other forms of program guidance.”26 Further, the IRA expressly states in section 1198 that “There shall be no administrative or judicial review of” the determination of drug ‘units,’ the selection of drugs for inclusion in the program as “negotiation eligible,” “renegotiation eligible” or “qualifying single source drugs,” or the determination of the “maximum fair price” of the drug by HHS.27
The primary barrier for pharmaceutical companies to overcome in mounting an APA challenge to CMS’ implementation of the Price Negotiation program will be the bar on judicial review. The lines between what is reviewable and what is not will certainly be litigated, and is already before one court in pending litigation over the IRA. Plaintiffs that can overcome this barrier can look to Loper Bright to argue that CMS’ interpretation of the statutory scheme deserves no deference in the absence of an express delegation of authority to interpret statutory terms.
These are just a few of the major areas of HHS policymaking that might be implicated by the Supreme Court’s Loper Bright decision. The impact could also extend to regulation around health information and privacy, for example. Loper Bright’s rejection of the Chevron doctrine will fuel potential changes in how Congress drafts health-related legislation and considers oversight of agencies in their implementation of the laws Congress writes, how HHS carries forward its authority in future rulemakings, and how the judiciary inserts its own interpretation of the laws and rules governing one of the most highly regulated and consequential industries in the country.
If you have any questions about the Loper Bright decision or its potential impact on health care and life sciences policy, regulation and litigation, please contact any of our authors.
1 Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842 (1984), overruled by Loper Bright Enterprises v. Raimondo, No. 22-1219, 2024 WL 3208360 (U.S. June 28, 2024).
2 Id. at 842. This is often referred to as “Chevron Step One.” Courts also recognized a “Chevron Step Zero,” whereby the Chevron framework was only applied when “Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority.” Loper Bright, 2024 WL 3208360, at *18 (quoting United States v. Mead Corp., 533 U.S. 218, 226–27 (2001)).
3 Chevron, 467 U.S. at 843. This is often referred to as “Chevron Step Two.”
4 See Nat’l Cable & Telecomm. Ass’n. v. Brand X Internet Servs., 545 U.S. 967, 982 (2005).
5 See, e.g., Gentiva Health Servs. v. Becerra, 31 F.4th 766 (D.C. Cir. 2022) (deferring to CMS’ permissible interpretation of how to apply an aggregate cap on reimbursements to hospice providers); Am. Hosp. Ass’n v. Azar, 967 F.3d 818 (D.C. Cir. 2020), rev’d and remanded sub nom. Am. Hosp. Ass’n v. Becerra, 596 U.S. 724 (2022) (ruling in favor of the government at Chevron Step Two, which the Supreme Court reversed); Arizona All. for Cmty. Health Centers v. Arizona Health Care Cost Containment Sys., 47 F.4th 992, 1004 (9th Cir. 2022) (reversing and remanding to district court upon finding that the record was insufficient to determine that Chevron Step Two was satisfied); DaVita, Inc. v. Marietta Mem’l Hosp. Emp. Health Benefit Plan, 978 F.3d 326, 352–53 (6th Cir. 2020), rev’d and remanded, 596 U.S. 880 (2022) (invoking Chevron doctrine to show that the plaintiff had plausibly pled a violation of the Medicare Secondary Payer Act); Williams v. Dimensions Health Corp., 952 F.3d 531, 537 (4th Cir. 2020) (deferring to agency interpretation of requirement under the Emergency Medical Treatment and Active Labor Act).
6 Loper Bright, 2024 WL 3208360, at *13 (quoting Peres v. Mortgage Bankers Assn., 575 U.S. 92, 109 (2015)).
7 Id.
8 Id.
9 Id. at *14–15. The Court referenced “constitutional delegations,” hinting that not all delegations of legislative power will pass constitutional muster.
10 Id. at * 17
11 CITE [add citation to WV v. EPA or Nebraska v. Biden]
12 Corner Post, Inc. v. Board of Governors of the Federal Reserve System, No. 22-1008 (2024).
13 Corner Post, slip op., 22-23.
14 Medical Devices; Laboratory Developed Tests, 89 Fed. Reg. 37286 (May 6, 2024).
15 Complaint, ACLA v. FDA, No. 4:24-cv-479 (E.D. Tex. May 29, 2024).
16 Id.
17 Id.
18 See Amended Complaint, Am. Health Care Ass’n v. Becerra, No. 2:24-cv-00114-Z-BR, (N.D. Tex. Jun. 18, 2024).
19 Social Security Act §§ 1819(d)(4)(B), 1919(d)(4)(B). CMS also cites the express congressional directive that it ensures federal requirements “are adequate to protect the health, safety, welfare, and rights of residents and to promote the effective and efficient use of public moneys.” Id. §§ 1819(f)(1), 1919(f)(1).
20 Loper Bright, 2024 WL 3208360, at *17.
21 Medicaid Program; Ensuring Access to Medicaid Services, 89 Fed. Reg. 40,542, 40,610 (May 10, 2024).
22 The regulation is also highly vulnerable to attack on numerous other grounds, including that it is arbitrary and capricious and was promulgated without observance of procedural requirements in the APA.
23 Our previous publications have summarized the IRA’s Price Negotiation program and its impact on the life sciences industry here, here and here.
24 The Inflation Reduction Act, H.R. 5376, 117th Cong. §§ 1192, 1194 (2022).
25 CMS, Medicare Drug Price Negotiation Program: Draft Guidance, Implementation of Sections 1191–1198 of the Social Security Act for Initial Price Applicability Year 2027 and Manufacturer Effectuation of the Maximum Fair Price (MFP) in 2026 and 2027 (May 3, 2024), available here.
26 Inflation Reduction Act § 11001(c).
27 Social Security Act § 1198.
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