August 2024 Legal Intelligencer article by Lamb McErlane Health Law attorneys Vasilios (Bill)  Kalogredis and Sonal Parekh.

On June 28, 2024, the United States Supreme Court overturned a longstanding legal precedent that required courts to defer to the expertise and reasonable interpretation of federal agencies in carrying out laws passed by Congress.

The “Chevron Doctrine” arises from the 1984 U.S. Supreme Court case of Chevron v. Natural Resources Defense Council and has been further clarified over time. Under the Chevron Doctrine, if Congress has not directly spoken to the precise question at issue expressing its unambiguous intent, courts must give deference to an administrative agency’s interpretation of a statute so long as the interpretation is (i) issued by the agency charged with administering that statute; (ii) generally rational or reasonable; and (iii) given in a form that would have the force of law, such as an adjudication or formal notice-and-comment rulemaking.

In its ruling for Loper Bright Enterprises v. Raimondo, the Supreme Court overturned the Chevron Doctrine. With a vote of 6 to 3, the court split along ideological lines in the dispute, with Chief Justice John Roberts writing for the conservative majority, and Justices Elena Kagan, Sonia Sotomayor and Ketanji Brown Jackson in liberal dissent. The majority, in overruling Chevron, held that courts are required under the Administrative Procedure Act (APA) to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts do not have to defer to an agency interpretation of the law simply because a statute is ambiguous. The Court and the concurring opinions found that Chevron (i) violated the APA; (ii) violated the Constitution’s Separation of Powers and Due Process principles by removing the judiciary’s ability to independently interpret laws and allowing the executive branch to incorrectly assume legislative power from Congress; and (iii) needed to be limited due to its unworkability, which yielded inconsistent results in courts across the U.S. The Court, instead, adopted a “Best Reading Standard” to resolve statutory ambiguities. Pursuant to this standard, when confronted with an ambiguous statute, a court must use every tool at its disposal (i.e., traditional tools of statutory construction) to determine the best reading of the statute and resolve the ambiguity. So, the question is no longer whether an agency’s interpretation is a permissible interpretation, but rather whether it is the best reading. As Justice Roberts stated in the opinion, “in the business of statutory interpretation, if it is not the best, it is not permissible.”[1]

Given healthcare in the United States is largely governed through federal regulation, it begs the question – What does this mean for healthcare?

Agencies under the U.S. Department of Health and Human Services (HHS), such as the Centers for Medicare and Medicaid Services (CMS), Office for Civil Rights (OCR), Office of Inspector General (OIG), Food and Drug Administration (FDA), Substance Abuse and Mental Health Services Administration (SAMHSA), among others are known to have a complex set of rules, regulations, and other guidance. Many argue these agency actions go beyond authority granted by Congress. With Chevron overruled by Loper, health care providers, associations, and other private parties can challenge regulations and other determinations by these agencies, which would severely impact the health care industry as a whole. The Supreme Court’s ruling could likely impact several areas of health care including those set forth below.

1. Medicare Reimbursement. Until now, Chevron has typically been relied upon to support CMS’s position when making changes or limiting Medicare reimbursement for providers or prescription drugs. With Chevron out the way and the new, and arguably vague, Best Reading Standard implemented, providers may have more opportunities to successfully challenge reimbursement positions held by CMS.

2. Medicare and Medicaid Coverage Disputes. Similarly, in determining whether a certain item or service qualifies for Medicare or Medicaid coverage, federal courts have historically given great respect to HHS’ and CMS’ reading of applicable statutes, such as the Social Security Act (SSA) and the Affordable Care Act (ACA). Often, coverage disputes turn on the meaning of certain statutory words and phrases. For example, under the SSA, items and services only qualify for Medicare coverage if they are “reasonable and necessary for the diagnosis or treatment of illness or injury.” CMS has adopted rules and regulations that define the scope of coverage and courts have afforded Chevron deference to these regulatory interpretations in coverage disputes. Post-Loper Bright, however, we can expect to see an increase in the quantity of coverage disputes since HHS and CMS would not necessarily automatically have the upper hand.

3. Administration of Medicare and Medicaid. In the same vein, HHS and/or CMS may face difficulties administering Medicare and Medicaid without deference to rely on. It is likely Congress may need to refine the statutes to expand the scope of agency deference and authority if it wants that to be the case. It is about separation of powers among the executive, judicial, and legislative banches of our federal government.

4. Long Term Care Survey and Certification Survey. Skilled nursing facilities and nursing facilities under Medicare or Medicaid are not eligible for certification by CMS on the basis of status accreditation, but rather are directly surveyed by federal and state agencies. Asserted noncompliance from these surveys can lead to termination of provider status and/or other penalties. These surveys rely on requirements set forth through CMS regulatory and sub-regulatory guidance. Going forward, we may expect to see more challenges to the validity of sub-regulatory guidance based on regulations promulgated by CMS which, in the challenger’s view, are not clearly supported and/or authorized by a relevant statute.

5. Nondiscrimination under the ACA. On May 6, 2024, HHS, CMS, and OCR published a Final Rule interpreting the nondiscrimination requirement in Section 1557 of the ACA as it applies to sexual orientation, gender identity, and limited English proficiency requirements.[2] Soon thereafter, multiple complaints were filed in various courts demanding preliminary and permanent injunction from enforcing Section 1557 and/or implementing regulations thereto. In particular, in State of Tennessee et al. v. Xavier Becerra et al.[3], the District Judge, citing Loper Bright, found HHS’s interpretation of the phrase “on the basis of sex” to include gender identity was not persuasive enough and determined that interpreting the word “sex” to include gender identity would create contradictions and ambiguity within Title IX and its regulations. Accordingly, the court issued a nationwide, preliminary junction prohibiting HHS from enforcing the rule’s provisions concerning gender identity.

6. FDA Decision-Making. The Federal Food, Drug, and Cosmetic Act (FDCA) gives the FDA authority to oversee the safety of foods, drugs, medical devices and cosmetics. The FDCA’s statutory scheme includes broad language that is inherently ambiguous. Federal courts have historically granted considerable latitude to the FDA’s interpretations of the FDCA, given the FDA’s scientific expertise. The FDA has typically relied on deference granted by Chevron to make what it deems to be evidence-based decisions regarding drugs, medical devices and other medical products with a strong likelihood that they will be upheld. However, with Chevron overturned, FDA regulations are likely to be challenged more often which will make it difficult for the industry to rely on new FDA interpretations and guidance. Areas under which the FDA is likely to be challenged abound, including drug approvals, drug labelling, dietary supplements, market exclusivity provisions, and most recently, the FDA’s new rule on laboratory developed tests[4].

7. Fraud and Abuse Laws and Enforcement. HHS, CMS, and OIG have typically interpreted statutes and issued regulations and guidance, including special fraud alerts, OIG advisory opinions and bulletins. Typically, courts upheld the agencies’ interpretation of fraud and abuse laws, such as the Stark Law, Anti-Kickback Statute, False Claims Act, and Civil Monetary Penalties Law. However, going forward, compliance and litigation strategies may likely change. Providers may become more hesitant to submit self-disclosures to the OIG for possible violations if courts are less likely to give deference to agencies’ policies, rules, and guidance, and/or if providers suspect that if challenged, the regulation that was supposedly violated would not be upheld. Government enforcement actions, investigations and whistleblower lawsuits may also decrease.

8. Federal Trade Commission (FTC) Final Rule on Noncompetes. On May 7, 2024, the FTC issued a final rule banning noncompetes (with some exceptions) as unfair methods of competition.[5] Complaints were almost immediately filed against the FTC on the grounds that this final rule exceeded the FTC’s authority. The complaints sought preliminary and/or permanent injunction. Although different results were reached by different courts, the Supreme Court’s ruling in Loper Bright will undoubtedly have influence with respect to what happens going forward. Though the FTC’s final rule does not exclusively apply to the healthcare industry, it impacts employment contracts to which many, if not most, healthcare providers are subject.

The above list represents just a few of the areas that could be impacted, amongst a much longer list within healthcare, let alone other industries. We may also see impacts to the Centers for Disease Control and Prevention (CDC); proposed regulations under the Mental Health Parody and Addiction Equity Act; Social Security and Disability Benefits; Medicare drug price negotiations under the Inflation Reduction Act; surprise medical billing rules under the No Surprises Act; preventive health care services under the Affordable Care Act, rules and regulations regarding the COVID-19 pandemic; and patients’ data protection; and privacy under the Privacy Rule of the Health Insurance Portability and Accountability Act (HIPAA).

No matter what industry, it is likely that we will see: (i) an increase in litigation challenging regulations; (ii) inconsistent determinations across the country as lower courts have to interpret the new vague Best Standard Reading with respect to various regulations; (iii) slower rulemaking processes; and (iv) potential doubt cast on underlying agency positions which have been relied upon by regulated entities to operate their businesses.

Health care providers, especially owners of businesses, should identify federal agencies that have regulatory authority over them, stay informed on current developments in the law, anticipate continued disruption, and stay flexible. This means, they should be ready to update internal policies and procedures more often and more rapidly. There will undoubtedly be a lot for health care providers to keep up with as we enter this new era. Accordingly, health care providers should obtain legal counsel to ensure they can continue their compliance efforts in a proper and cost- and time-efficient manner.

If you have any questions or if we may be of further assistance regarding compliance in light of the Supreme Court’s ruling, or other health law matters, please feel free to contact Bill Kalogredis, Esq. or Sonal Parekh, Esq.

[1] Loper Bright Enterprises v. Raimondo, No, 22-451; 603 U.S. __ (2024); 144 S. Ct. 2244, 2266 (2024).

[2] 89 Fed. Reg. 37522.

[3] State of Tennessee et al. v. Xavier Becerra et al., Case No. 1:24cv161-LG-BWR, U.S. District Court for the Southern District of Mississippi.

[4] 89 Fed. Reg. 37286.

[5] 90 Fed. Reg. 38342.

Read the article online here on Law.com / Legal Intelligencer.

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Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other healthcare professionals and their businesses as to contractual, regulatory and transactional matters for 50 years. He is Chairman of Lamb McErlane PC’s Health Law Department. Bill can be reached by email at bkalogredis@lambmcerlane.com or by phone at 610-701-4402.

Sonal Parekh, Esq., who contributed to this article, is a practicing attorney at Lamb McErlane PC who focuses on healthcare transactional matters and a broad range of healthcare regulatory-related issues on behalf of healthcare systems, physicians, dentists, and other healthcare providers, and is a pharmacist by education and training. Sonal can be reached by email at sparekh@lambmcerlane.com or by phone at 610-701-4416.

*This alert is for educational purposes only and is not intended to be legal advice. Should you require legal advice on this topic, any health care matter, or have any questions or concerns, please contact Vasilios J. (Bill) Kalogredis, Esq. or Sonal Parekh, Esq.