Potential Implications of Loper Bright for the Healthcare Industry

U.S. Supreme Court Overrules Chevron, Creating New Opportunities in the Healthcare Industry

On June 28, 2024, the Supreme Court issued its decision in Loper Bright v. Raimondo and Relentless v. Department of Commerce. As expected following oral argument, the Court overruled Chevron v. Natural Resources Defense Counsel, Inc. in a 6–3 decision written by Chief Justice John Roberts.

The decision will have important implications for the healthcare industry and its principal regulator, the Department of Health and Human Services (HHS). Under Chevron, HHS statutory interpretations often received significant deference from the courts. As noted in our Sidley Update last week, the new framework from Loper Bright is likely to increase both the frequency of challenges to agency action and their odds of success by eliminating one way in which the government previously prevailed in such cases. This new world is likely to present opportunity to the healthcare industry to challenge unfavorable HHS actions.

Loper Bright Framework

Chevron’s two-step framework governed courts’ judicial review of government agencies’ interpretations of statutes for more than 40 years. Step one required courts to determine whether the statute at issue was clear. If so, courts were required to apply it as written. If not, they moved on to step two and deferred to the agency’s interpretation so long as it was reasonable.

In Loper Bright, the Supreme Court held that Chevron was incompatible with the Administrative Procedure Act, which, the Court held, tasks federal courts alone with “decid[ing] all relevant questions of law, interpret[ing] constitutional and statutory provisions, and determin[ing] the meaning or applicability of the terms of an agency action.” The Court also found Chevron “misguided because agencies have no special competence in resolving statutory ambiguities,” even when those ambiguities “implicate a technical matter,” because courts will always have the benefit of briefing from parties “steeped in the subject matter.” Thus, Loper Bright leaves it solely to courts to determine the “best” reading of ambiguous statutes, rather than assessing whether the agency’s reading is one of multiple permissible interpretations.

The Court’s decision included some important caveats.

• Agency interpretations may still be given special consideration when those interpretations reflect the agency’s technical expertise: “[A]lthough an agency’s interpretation of a statute ‘cannot bind a court,’ it may be especially informative ‘to the extent it rests on factual premises within [the agency’s] expertise.” That “expertise has always been one of the factors which may give an Executive Branch interpretation particular ‘power to persuade, if lacking power to control’ ” under the separate deference framework applicable to agency interpretations of their own regulations, as laid out in Skidmore v. Swift and Co., which remains in place.
• Deference may still be given to “agency policymaking and factfinding” (as opposed to legal interpretation). As reported in a Sidley Update on Loper Bright’s implications for Food and Drug Administration (FDA) and FDA-regulated industries, during oral argument, Justice Amy Barrett discussed the distinction between a drug and a supplement under the Federal Food, Drug, and Cosmetic Act, suggesting that “the definition of dietary supplement or drug might be something that’s a question of statutory interpretation … but which category one thing fell in might be a question of policy for the agency.” In other words, the correct legal definition of dietary supplement would be a legal question for a court, but whether an individual product meets the definition would be a factual question on which a court might still defer to the agency.
• When Congress “expressly delegates” discretion to an agency to resolve an ambiguity or empowers an agency to issue rules to “ ‘fill up the details’ of a statutory scheme,” agencies will be authorized to exercise that expressly granted discretion.

Implications for the Healthcare Industry

Loper Bright will have important implications for the healthcare industry.

To be sure, Loper Bright’s impact will be reduced somewhat by a trend in recent years by some judges not to rely on Chevron. After decades of relying heavily on Chevron, the Supreme Court has not cited it since 2016, even in cases where Chevron was plainly implicated. For example, in the 2021 healthcare case Becerra v. Empire Health Foundation, the Court considered an HHS regulation interpreting the phrase “entitled to [Medicare Part A] benefits” in the Medicare payment statute for disproportionate share hospitals. The Court upheld the regulation but did so without deferring to HHS or invoking Chevron (even though the Ninth Circuit had applied Chevron below). Textualist lower courts have followed suit. For example, in the recent Texas Medical Association v. HHS litigation regarding challenges to regulations implementing the No Surprises Act promulgated by HHS and other agencies (discussed further here), the district court found the statute unambiguous and never moved beyond Chevron step one.

Further, Loper Bright includes language that agencies can be expected to leverage in attempts to limit the case’s impact on prior decisions. The majority explained that the fact that a prior decision relied on Chevron is, standing alone, “not a reason for overruling a precedent.” And “holdings [in] cases that specific agency action are lawful … are still subject to statutory stare decisis.”

Despite these potential limitations, Loper Bright’s impact will be significant. Many cases have relied on Chevron over decades, as Justice Elena Kagan noted in dissent, highlighting, as an example, a healthcare case from the Second Circuit, Bellevue Hosp. Ctr. v. Leavitt, which held that HHS did not act arbitrarily and capriciously in adopting regulations implementing a statutory requirement to adjust Medicare reimbursements to reflect differences in hospital wage levels across geographic areas. And as Loper Bright itself makes clear, stare decisis can be overcome based on changes in the law. Prior cases in which a court found the law ambiguous and deferred to an agency interpretation therefore are likely vulnerable to the argument that the law, as explained in Loper Bright, now requires a court to exercise its independent judgment rather than deferring to the agency. Appellate courts, especially en banc appellate courts, are likely to seriously consider challenges to existing precedents that they consider doubtful. And in many other instances, stare decisis will have no significant role to play — such as when a precedent is challenged in a different circuit.

For example, the following statutes and associated agency interpretations may be subject to increased scrutiny following Loper Bright:

• Drug Pricing: The Inflation Reduction Act authorizes the Centers for Medicare & Medicaid Services (CMS) to directly negotiate prescription drug prices with pharmaceutical companies through the Drug Price Negotiation Program. Pursuant to that authorization, CMS has issued guidance explaining the program’s implementation and announced in August 2023 a list of 10 drugs that it intends to subject to the program’s price negotiation process. Numerous lawsuits have been filed challenging the program’s implementation under various constitutional provisions. Further, over the years, numerous lawsuits have challenged CMS interpretations to the Medicaid Drug Rebate Program as articulated in guidance and final rules that have departed from the plain language of the Medicaid statute. The Court’s decision in Loper Bright may offer drug manufacturers another avenue of attack.
• Affordable Care Act: The Affordable Care Act (ACA) has been the subject of over 2,000 legal challenges since its inception in 2010. For example, the ACA includes a provision establishing an upper limit on patient cost sharing, and HHS’ implementation of this provision has been the subject of several lawsuits. One HHS regulation allowed insurers and pharmacy benefit managers to not count cost-sharing assistance received from drug manufacturers toward the upper limit. In a recent case — HIV and Hepatitis Policy Institute et al. v. U.S. Department of Health and Human Services et al. — the District Court for the District of Columbia struck down this regulation, finding that the statute did not speak clearly (Chevron step one) and that the agencies had not yet offered an authoritative interpretation of the statute, so there was no interpretation for the court to defer to at Chevron step two. The court remanded “to permit the agencies to interpret the statutory definition in the first instance.” Loper Bright may facilitate further challenges to ACA implementation in the future.
• Antikickback Statute: The Antikickback Statute prohibits the provision of remuneration to induce referrals of items and services reimbursed by federal healthcare programs. The statute itself includes a number of exceptions, and the HHS Office of Inspector General (OIG) has promulgated additional safe harbors, all of which protect certain arrangements from prosecution. For example, there is both a statutory exception and safe harbor covering discount arrangements. HHS-OIG has consistently argued that they are coterminous and that the more onerous requirements of the safe harbor must also be met to satisfy the statutory exception, but the defense bar and at least one court (see United States v. Shaw) have rejected that position. Post-Loper Bright, we may see this precedent further backed by courts.

In addition, Loper Bright may provide new opportunities for engagement with agencies in order to prompt agencies to reopen or otherwise reconsider agency interpretations to avoid litigation. It has not been unusual for agencies to recognize that they are choosing one permissible interpretation out of several in issuing regulations. Now, any such statement invites a challenge in which a litigant asks a court to determine that the agency did not choose the single best interpretation of the statute. Agencies may be open to revisiting existing rules and regulations to avoid that litigation risk.

Healthcare companies should be actively evaluating the opportunities that Loper Bright may present in terms of both litigation and advocacy before the agency.