On June 28, 2024, the U.S. Supreme Court issued a decision that overrules the “Chevron doctrine.”  This means that federal agencies are limited in their ability to rely on their own interpretation of the laws they administer. Under the Chevron doctrine, courts were required to uphold a federal agency’s interpretation of a statute as long as the agency’s interpretation was reasonable. 

Chevron deference is a legal test that was established by the Supreme Court in the case Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. The case was decided in 1984 and essentially held that when federal law is ambiguous, and a federal agency issues a regulation interpreting the ambiguity, courts must defer to the agency’s interpretation. Chevron deference has been integral to federal administrative law since the decision was announced.  Federal courts have issued thousands of opinions relying on the deference.

The Supreme Court’s June 2024 ruling addresses two cases, Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce. In both cases, commercial fishing companies challenged the Department of Commerce’s rule that held fishing vessels responsible for the cost of federal observers used to monitor potential overfishing. The question at issue before the Court was limited to whether the Chevron deference should be overruled entirely or clarified.

The majority opinion held that Chevron deference is inconsistent with the Administrative Procedure Act (APA), a federal law that dictates federal agency procedure and instructs how courts can review federal agency actions. Specifically, Chief Justice Roberts stated that “agency interpretations of statutes—like agency interpretations of the Constitution—are not entitled to deference” and that under the APA it “remains the responsibility of the court to decide whether the law means what the agency says.” The Court rejected the notion that federal agencies are better equipped to determine ambiguous federal law than are courts even when the ambiguous federal law involves scientific or technical questions in which the agency has expertise.  While the majority opinion made clear that courts should not defer to agency interpretation for an ambiguous statute, courts can consider the agency’s interpretation if it falls within the agency’s purview explicitly granted by Congress.

The impact of the Supreme Court’s ruling is expected to create significant scrutiny on executive agencies such as the Department of Health and Human Services (HHS), which operates the Medicare and Medicaid programs. The likelihood of agency regulations being overturned by courts is expected to increase, and should incentivize health care providers and stakeholders to challenge undesirable agency regulations in court.

The ruling may impact the healthcare industry in numerous ways.  There is a high likelihood of legal challenges to the Center for Medicare and Medicaid Services’ (CMS) statutory interpretations of ambiguous language in the Medicare and Medicaid regulations.  For example, when HHS and its agencies made major changes in the past regarding prescription drugs, hospital, and physician reimbursement, or introduced new requirements for Medicare coverage, Chevron required courts to give agencies wide latitude and defer to the agency’s own interpretation.  This insulated agencies from legal challenges. Now, however, providers should have greater ability to challenge HHS on reimbursement issues such as cuts to physician reimbursement, changes to outpatient and inpatient payment systems, and other billing and coding guidance.

Additionally, when CMS made a determination whether or not an item or service qualified for Medicare or Medicaid coverage, courts generally gave great weight to the agencies’ understanding of their statutes. However, with the elimination of Chevron deference, providers may feel embolden to dispute coverage determinations because the courts will be the ones resolving such disputes without deferring to the agencies’ interpretation.

Another area that should see increased challenges to agency interpretation is health care fraud and abuse laws such as the Anti-Kickback Statute (AKS), Stark Law, the False Claims Act (FCA), and the Civil Monetary Penalties Law. Violators of these laws face civil and criminal penalties, as well as exclusion from federal healthcare programs such as Medicare and Medicaid. For years, HHS and its agencies have interpreted these statutes through the regular issuance of updated/revised regulations and guidance such as Special Fraud Alerts & Advisory Opinions. With the elimination or severe curtailing of agency deference, health care providers’ compliance and litigation strategies may change.  There may be fewer enforcement actions or a reduction in settlement values due to the uncertainty about whether a court will uphold an agency’s interpretation or disagree entirely with the agency’s interpretation and agree with the providers’ interpretation. 

Regulatory ambiguities will no longer be resolved by subject matter experts such as federal agencies, but by the courts and Congress.  As a result, this shift in legal framework is expected to drastically increase federal litigation, with every single federal agency’s decision having the potential of being challenged in court.