Post-Chevron Health Care Regulations: The Dawn of a New Day

Chevron reflected the view that a federal agency’s subject matter experts are best positioned to interpret and set policy when the language of a statute is silent or ambiguous regarding a specific issue, as opposed to a judge with little experience in the subject matter area. As discussed in our prior alert, the consolidated opinion in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce requires courts to exercise their independent judgment in determining the meaning of statutory provisions, rather than deferring to administrative agencies. The decision will have a profound effect on agency rulemaking and actions, particularly in the health care industry.

Background: Chevron Deference

In Chevron USA. v. National Resource Defense Council, the Supreme Court established a two-part test for federal courts to evaluate the reasonableness of an agency’s interpretation of a federal statute. First, a court was to decide whether US Congress had “directly spoken to the precise question at issue” in the statute. If Congress’s intent was clear, then the court owed no deference to the agency’s interpretation and was to follow the plain language of the statute. However, if the language of the statute was silent or ambiguous with respect to a specific issue, the court was to defer to the agency’s interpretation, provided that the interpretation was based on a permissible construction of the statute.

However, Chevron contained an important caveat: judicial deference was to be given only to agency interpretations that carried the “force of law,” such as rulemaking and formal adjudications. When an agency’s interpretation pertained to informal action, such as opinion letters or guidance, the Chevron test was not applied. Instead, those informal agency actions were (and still are) afforded a more limited deference, known as Skidmore deference. Under Skidmore, courts defer to an agency interpretation only to the extent that the interpretation has the “power to persuade.” This depends “upon the thoroughness evident in its consideration, the validity of its reasoning, [and] its consistency with earlier and later pronouncements.”

The Loper Bright Decision 

In Loper Bright, the plaintiffs, who brought separate actions in multiple district courts, challenged certain implementing regulations of the 1976 Magnuson-Stevens Act (MSA). The MSA requires fishing companies to provide space onboard their vessels for federal observers to ensure compliance with federal regulations. The National Marine Fisheries Service (NMFS) issued a rule that required the fishing companies to pay for the costs of the observers. The fishing companies sued, claiming that the language of the MSA did not state that they were responsible for the costs of the observers, and therefore, the NMFS’s rule was invalid. Two federal appellate courts, applying Chevron, found that the NMFS’s rule was a reasonable interpretation of the MSA and, consequently, the fishing companies were required to pay for the costs of the observers.

The Supreme Court reversed the appellate courts’ deference to the agency’s interpretation and overturned Chevron. The Court held that the reviewing court — not the agency — is to “decide all relevant questions of law” and “interpret … statutory provisions.” Ambiguity, the Court stated, does not “reflect a congressional intent that an agency, as opposed to the court, resolve[s] the resulting interpretive question.”

The Court concluded that Chevron “undermined the very ‘rule of law’ values that stare decisis exists to secure.” As such, federal courts must now exercise independent judgment when reviewing agency interpretations, regardless of statutory silence or ambiguity, and determine the statute’s “single, best meaning.”

The Future of Health Care Law Under Loper Bright

What all of this will mean in practice remains to be seen. Unlike Chevron deference, which limits judicial authority by requiring courts to defer to permissible agency interpretations in the event of an ambiguous statute, Loper Bright reinstates the universal application of Skidmore deference, which simply permits courts to defer to agency interpretations that they find persuasive.

Skidmore and Loper Bright are not the only applicable Supreme Court decisions on agency deference, however. Courts may still defer to an agency’s interpretation of its own rules under Kisor v. Wilke. In order for a federal court to defer to an agency’s interpretation of its own rule, Kisor requires a multifactor test. Specifically, courts must determine: (1) whether the regulation is “genuinely ambiguous,” (2) whether the agency’s interpretation is reasonable, (3) whether the agency’s “character and context” of the interpretation entitle it to deference, (4) whether the interpretation was actually made by the agency, (5) whether the question at issue implicates the agency’s expertise, and (6) whether the interpretation reflects the “fair and considered judgment” of the agency. But as with Skidmore, Kisor’s test is permissive. While a federal court may determine that an agency’s interpretation is reasonable, it is not required to defer to the agency’s interpretation of its own regulation.

Implications for the Health Care Industry

The US Department of Health and Human Services (HHS) regulates the health care provided to most Americans in some form or fashion. It controls a significant portion of the federal budget and provides health care to approximately 150 million Medicare, Medicaid, and Children’s Health Insurance Program beneficiaries. HHS regularly issues rulemakings impacting health care payment and the delivery of services.

The Supreme Court confirmed that agency rules which were enforceable prior to the Loper Bright decision, will remain intact. However, agency rulemaking is an ongoing process, and one expects HHS (and its agencies, including the Centers for Medicare & Medicaid Services, the Health Resources and Services Administration, the Food and Drug Administration, and the Office of Inspector General) to continue issuing regulations as they have in the past. Yet, federal health care statutes, including those authorizing the Medicare and Medicaid programs, are exceedingly complex. Agency regulations can be even more intricate and convoluted — a fact frequently acknowledged by the courts.

Consider the following judicial commentary, where criticism is allocated equally between the Social Security Act and its regulations:

• “The Social Security Act is among the most intricate ever drafted by Congress. Its Byzantine construction … makes the Act almost unintelligible to the uninitiated.” Schweiker v. Gray Panthers, 453 US 34 (1981).
• “The statutory formula for determining exactly how much HHS will pay to … hospitals is mind-numbingly complex.” Becerra v. Empire Valley, 597 US 424, 445 (2022) (Kavanaugh, J., dissenting).
• “As program after program has evolved, there has developed a degree of complexity in the Social Security Act and particularly the regulations which makes them almost unintelligible to the uninitiated. There should be no such form of reference as ‘45 C.F.R. § 248.3(c)(1)(ii)(B)(2)’ … a draftsman who has gotten himself into a position requiring anything like this should make a fresh start. Such unintelligibility is doubly unfortunate in the case of a statute dealing with the rights of poor people.” Friedman v. Berger, 547 F.2d. 724, 727 n.7 (2d Cir. 1976).
• “The Medicaid statute (as is true of other parts of the Social Security Act) is an aggravated assault on the English language, resistant to attempts to understand it. The statute is complicated and murky, not only difficult to administer and to interpret but a poor example to those who would like to use plain and simple expressions.” Friedman v. Berger, 409 F. Supp. 1225, 1225–26 (S.D.N.Y. 1976).

Justice Elena Kagan’s dissent in Loper Bright also acknowledged the practical difficulties of judicial interpretation of health care regulations. She wrote, “[u]nder the Medicare program, reimbursements to hospitals are adjusted to reflect ‘differences in hospital wage levels’ across ‘geographic area[s].’ How should the Department of Health and Human Services measure a ‘geographic area’? By city? By county? By metropolitan area? … According to a dictionary, the term ‘geographic area’ could be as large as a multi-state region or as small as a census tract. How to choose? … Congress knows the Department of Health and Human Services can do all those things — and that courts cannot.”

Looking Ahead

In the wake of Loper Bright, we expect an increase in challenges to HHS’s interpretations of federal statutes and its rulemakings. In the past, HHS expanded the breadth and depth of its interpretations of statutory requirements and restrictions based on the premise that statutory silence supplied an opportunity for increased rulemaking and issuance of “guidance.” However, the Department may now be less aggressive in asserting regulatory authority when interpreting broad statutory language as it is faced with a higher risk of successful litigation by the provider community. The use of guidance as a form of implementing policy may become a more popular tactic by HHS to avoid judicial review under Loper Bright — but guidance does not have the same force of law as regulation.

Courts will almost certainly reach differing conclusions regarding the meaning of HHS’s regulations as judges may be unfamiliar with the structure, complexity, history, and detail of health care statutes and regulations. Differing opinions may create instability for health care organizations operating in multiple states and jurisdictions. Health care organizations may gravitate to certain areas of the country where courts have adopted a narrow view of HHS’s authority concerning their operations.

Another consideration is the effect of Corner Post v. Federal Reserve, a potentially positive Supreme Court decision for health care organizations, issued two days after Loper Bright. Corner Post held that the default six-year statute of limitations for lawsuits brought under the Administrative Procedure Act begins to run not upon an agency’s final action, but instead when an individual plaintiff is injured by that action. The decision potentially creates an unlimited time limit for challenging agency final rules.

Taken together, Loper Bright and Corner Post will lead to increased judicial scrutiny of agency actions, creating both opportunities and risks given the expansive federal regulation of the health care industry. The new lens under which courts view agency actions may lead to a regulatory landscape that is remarkably different from that under Chevron. Indeed, on the same day Loper Bright was decided, three New Jersey hospitals filed suit challenging HHS’s “irrational and unlawful” calculation of reimbursement for hospitals serving a disproportionately high percentage of low-income patients. We expect further challenges to follow in other areas of health care law, including agency oversight of standards and certification, fraud and abuse, data privacy and security, and any other action taken by HHS in its statutory interpretation and regulatory implementation.

Additional research and writing from Meredith Gillespie, a 2024 summer associate in ArentFox Schiff’s Washington, DC office and a law student at Wake Forest University School of Law.