Post-Chevron Health Care Regulations: Using Loper Bright as a Shield in Stark Law Litigation

Read our prior discussion here.

To recap, the Court’s opinion in Loper Bright requires courts to exercise “independent judgment” when reviewing an agency’s interpretation of a statute rather than deferring to that agency’s interpretation under Chevron. The Stark Law prohibits a physician from referring patients for designated health services to an entity in which they have a financial relationship and prohibits the entity from submitting claims for reimbursement by the Centers for Medicare and Medicaid Services (CMS) resulting from such referrals unless the arrangement between the parties meets an applicable exception. For those in the health care industry, Loper Bright increases the likelihood of success for those challenging broad agency enforcement regulations, both existing ones and those yet to come.

But Loper Bright also provides those facing enforcement actions under the Stark Law with an opportunity to argue in the inverse that agency regulations protecting certain actions from enforcement, e.g., safe harbors, are too narrow. The following decision provides a glimpse into what that might look like in future Stark Law litigation.

How Providers Could Use Loper Bright as a Shield in Stark Law Litigation

In United States ex rel. Raven v. Georgia Cancer Specialists I, P.C., the relator alleged that a group of cancer specialists orchestrated improper referral arrangements with third-party health care providers. In defense of its actions, the group argued that the arrangements met the requirements for certain Stark Law exceptions.

The Stark Law excepts certain compensation arrangements from enforcement, including any “financial relationship which the Secretary [of Health and Human Services] determines, and specifies in regulations, does not pose a risk of program or patient abuse.” 42 U.S.C. § 1395nn(b)(4). One of those exceptions is known as the “payments by a physician” exception, which excepts payments made by a physician as compensation for items or services furnished at a price consistent with fair market value “that are not specifically excepted by another” exception promulgated by the US Department of Health and Human Services (HHS). 42 C.F.R. § 411.357(i). (Note that a subsequent rulemaking by CMS expanded the potential use of the “payments by physician” exception by revising the language around the scope of the services “not specifically excepted by another” exception to apply to only a handful of the exceptions set forth at 42 C.F.R. § 411.357.)

Another exception is known as the “fair market value compensation” exception, which excepts “commercially reasonable” written arrangements that further “the legitimate business purposes” of both parties to the arrangements, where the compensation is “consistent with fair market value, and not determined in a manner that takes into account the volume or value of referrals or other business generated by the referring physician.” 42 C.F.R. § 411.357(l).

In Georgia Cancer Specialists, the physician group argued that both exceptions applied to their arrangements with third-party health care providers, but the district court disagreed. In its brief, the group argued that the regulation ran afoul of the Stark Law in making the exceptions mutually exclusive. In rejecting this argument, the district court cited Chevron and determined that the regulation was a permissible interpretation of the Stark Law by CMS. The court noted that the regulation provides that the “payments by a physician” exception and the “fair market value compensation” exception are mutually exclusive, and, because the “fair market value compensation” exception applied to the arrangements at issue, the “payments by a physician” exception did not. Separately, the court determined that the “fair market value” exception did not apply to one of the group’s arrangements for a certain period of time because it was not memorialized in writing at that time. Ultimately, the court granted in part the relators’ motion for partial summary judgment, holding that the group violated the Stark Law because the “payments by a physician” exception did not apply to the certain of the group’s arrangements and the arrangements failed to meet all elements of the “fair market value compensation” exception.

Today, a court facing a similar argument would be required to exercise “independent judgment” in reviewing the limits on the “payments by a physician” exception under the Stark Law. In doing so, that court could disagree with the limits and, in effect, consider whether either exception applied and protected the group from the scope of enforcement under the Stark Law. (Note, with respect to the applicability of both the “payments by a physician” and the “fair market value” exception to a specific arrangement, the subsequent revisions to the “payments by a physician” regulation by CMS would permit analysis of an arrangement under both exceptions.) Indeed, the same could be true of any challenge to any limit contained within the exceptions promulgated by CMS under the Stark Law. In this fashion, Loper Bright provides private litigants with a much stronger defensive tool against enforcement under the Stark Law.

Two Important Limits on Loper Bright

Although Loper Bright represents a sea change in administrative jurisprudence, it is not without its limits. For those looking to use it as a shield to expand the exceptions to the Stark Law, there are two important limitations to keep in mind.

First, as we explained in our prior alert, the Court preserved existing precedent adjudicating agency actions under Chevron. That said, decisions by federal district courts are nonprecedential, and accordingly, the Court’s decision in Georgia Cancer Specialists would not fall within the scope of protection afforded by the Supreme Court in Loper Bright.

Second, the Court’s opinion in Loper Bright states “[W]hen a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring that the agency acts within it.” And again, the Stark Law specifically provides HHS with the authority to promulgate exceptions for certain arrangements to enforcement under the Stark Law. It remains to be seen whether courts will review regulations promulgated in accordance with such statutory grants of authority in the same fashion as, or different from, other agency regulations. But it is an important caveat in the opinion for those in the industry to keep in mind.

What’s Ahead

As Georgia Cancer Specialists demonstrates, Loper Bright increases the likelihood of success for those in the health care industry seeking greater protections from agency enforcement. Furthermore, Loper Bright offers new opportunities to challenge the scope of various 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.

The ArentFox Schiff Investigations team has extensive experience advising life science companies and health care providers on the complex issues addressed here. We can assist you in developing tools to avoid governmental scrutiny and help you navigate the shoals should a governmental investigation ensue.

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.