Loper Bright's Potential Impact On The U.S. Department Of Health And Human Services

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Most health-care entities—including drug and device manufacturers, payers, and providers—have multiple touch points with federal regulation.
United States Food, Drugs, Healthcare, Life Sciences
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Most health-care entities—including drug and device manufacturers, payers, and providers—have multiple touch points with federal regulation. The US Department of Health and Human Services (HHS) is both a direct regulator of the health-care products and services available to the public (such as through the Food and Drug Administration) and the nation's largest purchaser of health care (most notably through the Medicare program). In both capacities, HHS relies on regulations promulgated to effectuate the various statutes HHS has been charged with implementing. The standards by which courts review these regulations affects both industry's ability to legally challenge HHS rules and to successfully engage with the agency before and during a rulemaking to shape policy.

For nearly forty years, pursuant to the Supreme Court's holding in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., courts have deferred to an agency's reasonable interpretation of ambiguous language in their authorizing statutes in evaluating challenges to agency regulations. This standard has afforded HHS, like other federal agencies, significant leeway in promulgating regulations to achieve its policy objectives.

In Loper Bright Enterprises et al. v. Gina Raimondo, Secretary of Commerce et al. and Relentless, Inc. v. Department of Commerce, the Supreme Court has agreed to review whether to overturn the Chevron doctrine. If, as is expected, the Supreme Court overrules or significantly scales back Chevron, it will curtail the current breadth of HHS's discretion to enact rules and regulations. While this may improve a litigant's chances of successfully challenging HHS regulations in court, it may also limit the ability to obtain policy changes through the administrative process and increase uncertainty about the ability to rely on new and existing regulations.

The Standard Today: Chevron Deference

The Chevron doctrine provides a framework for courts reviewing agency interpretations of statutes the agency is tasked to administer. Specifically, this doctrine consists of a two-part test: first, the court must determine whether Congress resolved the issue in question. If so, Congress' resolution of the issue binds the court. Second, if the issue was not resolved by Congress and the statute is ambiguous, the court must uphold the agency's interpretation of the statute if it is reasonable.

The Chevron doctrine provides HHS, and other agencies, with significant flexibility to interpret questions that Congress did not speak to directly when enacting legislation. In practice, this occurs frequently. Given the complexity of health care, Congress often lacks the expertise, foresight, and practical capacity to address via statute how an agency should implement Congress' policy objectives in all circumstances.

For example, Section 1862(a)(1)(A) of the Social Security Act limits Medicare coverage to items and services that are "reasonable and necessary for the diagnosis or treatment of illness or injury." It would be impractical for Congress to specify the exact items and services it wanted covered, the medical conditions that may be treated, or which yet-to be developed technologies and procedures may be reimbursed through the Medicare program. Instead, CMS has necessarily adopted regulations defining the scope of these obligations.

Similarly, Section 1557 of the Affordable Care Act prohibits discrimination under any health program or activity receiving federal assistance on the basis of race, color, national origin, sex, age, or disability. This statutory mandate has been subject to varying regulatory interpretations by the Obama, Trump, and Biden administrations, respectively. While some federal courts of appeal have held aspects of Section 1557 are unambiguous, there remain aspects of the statute that are subject to agency interpretation.

Following Chevron, courts have afforded HHS significant leeway in making these decisions. As a result, litigants seeking to challenge HHS rules have faced an uneven playing field. To prevail in a legal challenge, the plaintiff is required to demonstrate the government's interpretation is either precluded by statute or is not reasonable—a significant burden. Within these broad guardrails, the agency is free to use its expertise, taking into account comments from stakeholders, to exercise its discretion and implement its policy preferences without significant risk that a court will second guess its conclusion.

Potential Post-Chevron Implications

Most observers expect that the Court will overturn (or at least substantially curtail) the Chevron doctrine in Loper Bright Enterprises and Relentless. The implications of such a decision for HHS, like other federal agencies, will be significant. While the Supreme Court has largely stopped applying the Chevron doctrine in recent years, lower courts have continued to rely on it. Absent Chevron, lower courts will likely be tasked with using traditional tools of statutory interpretations to assess the permissibility of agency regulations, or only giving deference to the extent the agency demonstrates persuasive reasoning.

One recent case, in which the Supreme Court reversed a circuit court's holding that relied on Chevron, illustrates how overturning Chevron may impact judicial review of HHS rules. In American Hospital Association et al. v. Becerra et al., a coalition of hospitals challenged a Medicare Part B policy that reimbursed hospitals for separately covered outpatient drugs the hospitals acquired under the 340B program at a significantly lower payment rate than those same drugs when purchased outside of the 340B program. CMS asserted that the lower payment rate was permissible because the statute allows the agency to pay for these drugs at the average price for the drug as "adjusted by the Secretary as necessary."

Historically, this case would almost certainly invoke the Chevron doctrine, and the D.C. Circuit acted accordingly. The D.C. Circuit upheld the rule concluding that HHS was "not unambiguously barred" from adopting its payment policy, and deferring to the agency's interpretation of its authority in accordance with Chevron. Specifically, the D.C. Circuit determined the term "adjust" in the governing statute is ambiguous as to size.

In contrast, on appeal, the Supreme Court took pains to avoid Chevron all together. Instead, the Court conducted a more searching review of the statute's text than the D.C. Circuit, and reversed. The Court concluded that the statute required CMS to reimburse all hospitals at the same rate for separately covered outpatient drugs, in the absence of conducting a survey to determine hospitals' acquisition costs of those drugs. If Chevron is overturned, lower courts will similarly ask HHS, as the Supreme Court did here, to show that the agency's interpretation of its authority is persuasive not just that their policy is "not barred" by the statute.

This shift in power from HHS to courts will be felt immediately. If the Supreme Court overturns Chevron, it will impact 1) HHS's consideration of new rules during the notice and comment process, 2) the ability of regulated health-care entities to challenge new rules, and 3) the permissibility of some long-standing rules, creating short-term uncertainty on the status of numerous regulations.

First, at the rulemaking stage, it will generally be more difficult for health-care entities to advocate for policy changes via regulation. Overturning Chevron will force HHS to be more cautious in adopting policies and promulgating associated regulations to avoid having more aggressive policy positions struck down. HHS is likely to be particularly reluctant to change existing or long-standing interpretations of statutory language. This will create challenges for health-care entities seeking to encourage the agency to adopt a regulatory change at the notice and comment stage. For example, HHS may be constrained in its ability to adopt regulations reflecting new technologies or similar developments that were not contemplated at the time the authorizing statute was adopted, as the statutory basis for the agency's interpretation is less clear.

Second, the health-care industry's ability to challenge newly adopted policies in litigation will greatly improve. Whereas Chevron gave HHS a favorable standard in defending their rules against legal challenges, a post-Chevron world will have a more level playing field where the courts will find in favor of the party with the more persuasive interpretation of the statute as opposed to deferring to agency interpretation. There will be more intensive judicial scrutiny of agency policy choices, and HHS will be required to demonstrate a clear tie between the statutory text and the policy selection. This change has the potential to effect some of the most watched issues in health-care policy today. For example, agency rules interpreting the non-discrimination provisions in Section 1557 of the ACA, the Medicare Drug Price Negotiation Program (particularly for 2029 and subsequent initial price applicability years), and recent regulatory changes to the marketing rules for Part D and Medicare Advantage Plans could all be increasingly vulnerable to legal challenges should Chevron fall.

Finally, we may also see an influx in litigation challenging existing regulations that had either been upheld under Chevron or which are now more vulnerable to legal challenge. The scope of existing rules vulnerable to renewed litigation depends on the breadth of the Supreme Court's decision in Loper Bright Enterprises and Relentless. Some claims against long-standing agency rules may be time-barred by the six-year statute of limitations for claims against the federal government, including APA claims (the scope of which is being reviewed by the Supreme Court this term in Corner Post, Inc. v. Board of Governors).

There will, however, likely be legal challenges to a number of long-standing policies, creating uncertainty in the short-term regarding the status of many existing regulatory frameworks. Also, as courts across the country are forced to adjust to a post-Chevron world, different district and circuit courts may interpret the new standard of review differently, and we may see more conflicting decisions across judicial districts, further complicating a regulated entity's compliance activities.

Practical Considerations

Whether overturning Chevron benefits health-care entities will vary depending on the policy at issue. With that in mind, there are a handful of steps health-care entities can be taking to prepare themselves for this likely shift in the regulatory landscape.

  • Notice and Comment Rulemaking: HHS will have less flexibility to adopt policies that are not clearly tied to persuasive interpretations of the statute. At the notice and comment stage, it will be imperative for health-care attorneys to provide the agency a cogent tie between the preferred policy and the authorizing statute, arguing that the preferred interpretation is clearly supported by statute. When advocating for changes to HHS rules to account for new technologies or other recently developed treatments, health-care entities should pay careful attention to demonstrate to the agency, to the extent possible, that the desired statutory interpretation is consistent and/or analogous to historical practice (this has always been best practice, but the need will be even more acute post-Chevron).
  • Challenging New Rules: As mentioned above, a health-care entity's likelihood of succeeding in litigation challenging HHS rules will increase absent deference to the agency's interpretation of its statutes. As a result, litigation will become a more compelling option than it has previously been for many regulated parties. Potential litigants should start making the legal arguments as to why an agency's interpretation is flawed in their comments on a proposed rule. By forcing the agency to respond to these positions in comments, potential litigants will then limit the agency's ability to adopt post-hoc explanations for their decisions, and may create a record that highlights the flaws in agency's reasoning.
  • Preparing for Challenges to Longstanding Policies: There is potential for an influx of litigation challenging existing rules that were either upheld under Chevron or may now be vulnerable to challenge. While the extent of these legal challenges will depend on the exact scope of the Court's decision in Loper Bright Enterprises and Relentless, any significant shift in HHS's flexibility in interpreting its own statutes is likely to create short-term uncertainty regarding the status of various regulatory requirements. Health-care entities should be evaluating their key regulatory requirements, and assessing which of those may have previously been upheld as a result of Chevron deference and may be vulnerable to a renewed challenge.

Originally published by Bloomberg Law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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