SCOTUS Rejects Chevron Deference

Healthcare Industry and Valuation Implications

On June 28, 2024, the U.S. Supreme Court issued a seismic decision in which it explicitly overruled “Chevron deference,” limiting the ability of federal agencies to rely on their own interpretation of the laws they administer. This 6-3 ruling is expected to significantly impact the heavily regulated healthcare industry. The authors share their thoughts on how this decision may impact the healthcare industry and valuations.

Chevron deference is a legal test established in the 1984 Supreme Court case, Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.[1] In this case, the Court ruled that when federal law is ambiguous, and a federal agency issues a regulation interpreting the ambiguity, courts must defer to the agency’s interpretation.[2] Under Chevron deference, courts first assessed whether Congress directly addressed the question at issue—if so, courts relied on Congress’s intent; if not, courts deferred to the federal agency’s interpretation of the issue. While the Supreme Court itself has rarely relied on Chevron deference, the framework was essential to U.S. administrative law for nearly 40 years and utilized by lower courts in over 18,000 judicial opinions.[3]

The Supreme Court’s June 2024 ruling addresses two cases, Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce.[4] 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.[5] The question at issue before the Court was limited to “whether Chevron…should be overruled or clarified.”[6]

In the majority opinion, Chief Justice John Roberts asserted that Chevron deference is inconsistent with the Administrative Procedure Act (APA), a federal law that dictates federal agency procedure and instructs courts’ review of federal agency actions.[7] Chief Justice Roberts stated that “agency interpretations of statutes—like agency interpretations of the Constitution—are not entitled to deference.”[8] The Chief Justice also stated that under the APA, it “remains the responsibility of the court to decide whether the law means what the agency says.”[9] Any suggestion that federal agencies are better equipped to determine ambiguous federal law than courts was rejected by the Court, even when the ambiguous federal law involves scientific or technical questions in which the agency has expertise.[10] While the majority opinion made clear that courts should not defer to agency interpretation for an ambiguous statute, courts can consider the interpretation if it falls within the agency’s purview as explicitly granted by Congress.[11]

The Court’s dissenting justices[12] asserted that the Court’s decision would create a “jolt to the legal system,” given that “Congress and agencies alike have relied on Chevron—have assumed its existence—in much of their work for the last 40 years.”[13] The dissenting justices also expressed concern that overturning Chevron deference would call previous decisions into question.[14] The dissenting opinion’s author, Justice Elena Kagan, reprimanded her colleagues, stating that “in one fell swoop, the majority today gives itself exclusive power over every open issue—no matter how expertise-driven or policy-laden—involving the meaning of regulatory law. As if it did not have enough on its plate, the majority turns itself into the country’s administrative czar.”[15]

The dismantling of Chevron deference is expected to place significantly more scrutiny on executive agencies such as the Department of Health and Human Services (HHS), which operates federal healthcare programs such as Medicare and Medicaid, and their ability to implement omnibus laws passed by Congress.[16] The likelihood of agency regulations being overturned by courts will increase, and these decisions will incentivize litigants to challenge undesirable agency regulations through the legal system.[17]

For example, the healthcare industry is heavily regulated by fraud and abuse laws such as the Anti-Kickback Statute, Stark Law, and False Claims Act. HHS and its agencies have historically interpreted these statutes through the regular issuance of updated/revised regulations and guidance (e.g., Special Fraud Alerts and Advisory Opinions). The healthcare valuation terms fair market value (FMV), general market value (GMV), and commercial reasonableness (CR) were updated, clarified, and—the case of CR—formally defined, by CMS in its 2020 revisions to the Stark Law. In its commentary, CMS indicated its belief that Congress intended for FMV/GMV remuneration methodology to be consistent with “the concepts and principles of the valuation community,”[18] not unilaterally by government regulators. Post-decision, the interpretation of FMV, GMV, and CR will likely be left to the courts, who will necessarily look to the healthcare valuation community—both as a practical matter and in accordance with congressional intent—for guidance on these terms and methodology. Further, HHS and its agencies may even decide to not proceed in certain enforcement actions that it previously would have pursued, amid uncertainty surrounding whether a court will uphold agency interpretation.[19]

The overruling of Chevron deference shifts the authority to interpret statutes and regulations. As a result, regulatory ambiguities will not be resolved by subject matter experts (such as federal agencies), but by the courts and Congress.[20] Congress will still retain the ability to delegate the task of regulation development to specific administrative agencies, but agency regulations may be reviewed by courts de novo if that delegation is not clear.[21] This major shift is expected to drastically increase litigation and could lead to inconsistent determinations across federal courts, creating circuit splits.[22] While the Court’s ruling will affect all federal agencies, the effect on healthcare will be significant due to the complex regulatory environment in which providers operate.

This article was previously published in the HCC Newsletter, Volume 17, Issue No. 7 (July 2024) and is republished here by permission.

 

[1]     “SCOTUS Case Could Weaken the Impact of Regulation on Key Patient and Consumer Protections” By Michelle Long, Justin Lo, and Kaye Pestaina, Kaiser Family Foundation, April 9, 2024, https://www.kff.org/private-insurance/issue-brief/upcoming-scotus-case-could-weaken-impact-regulation-key-patient-consumer-protections/ (Accessed 7/12/24).

[2]     Ibid.

[3]     “U.S. Supreme Court May Soon Discard or Modify Chevron Deference” By Rich Gold et al., Holland & Knight, May 20, 2024, https://www.hklaw.com/en/insights/publications/2024/05/us-supreme-court-may-soon-discard-or-modify-chevron-deference (Accessed 7/12/24).

[4]     “Supreme Court strikes down Chevron, curtailing power of federal agencies” By Amy Howe, SCOTUSblog, June 28, 2024, https://www.scotusblog.com/2024/06/supreme-court-strikes-down-chevron-curtailing-power-of-federal-agencies/ (Accessed 7/12/24).

[5]     “Supreme Court Overrules Chevron in Far-Reaching Decision Limiting the Power of Administrative Agencies” By Jason Hicks and Ian Dickinson, National Law Review, June 28, 2024, https://natlawreview.com/article/supreme-court-overrules-chevron-far-reaching-decision-limiting-power-administrative (Accessed 7/12/24).

[6]     “LOPER BRIGHT ENTERPRISES ET AL. v. RAIMONDO, SECRETARY OF COMMERCE, ET AL.” Supreme Court of the United States, June 28, 2024, https://www.supremecourt.gov/opinions/23pdf/22-451_7m58.pdf (Accessed 7/12/24), Syllabus p. 1.

[7]     Ibid., “Supreme Court strikes down Chevron, curtailing power of federal agencies” By Amy Howe, SCOTUSblog, June 28, 2024, https://www.scotusblog.com/2024/06/supreme-court-strikes-down-chevron-curtailing-power-of-federal-agencies/ (Accessed 7/12/24).

[8]     Ibid.

[9]     “LOPER BRIGHT ENTERPRISES ET AL. v. RAIMONDO, SECRETARY OF COMMERCE, ET AL.” Supreme Court of the United States, June 28, 2024, https://www.supremecourt.gov/opinions/23pdf/22-451_7m58.pdf (Accessed 7/12/24).

[10]   Ibid., “Supreme Court strikes down Chevron, curtailing power of federal agencies” By Amy Howe, SCOTUSblog, June 28, 2024, https://www.scotusblog.com/2024/06/supreme-court-strikes-down-chevron-curtailing-power-of-federal-agencies/ (Accessed 7/12/24).

[11]   Ibid.

[12]     Justice Elena Kagan filed the dissenting opinion with Justice Sonia Sotomayor; Justice Ketanji Brown Jackson joined with dissent on the Relentless case only, as she was recused from Loper Bright due to hearing oral arguments in the case during her time on the bench of the U.S. Court of Appeals for the D.C. Circuit.

[13]   “LOPER BRIGHT ENTERPRISES ET AL. v. RAIMONDO, SECRETARY OF COMMERCE, ET AL.” Supreme Court of the United States, June 28, 2024, https://www.supremecourt.gov/opinions/23pdf/22-451_7m58.pdf (Accessed 7/12/24); “Supreme Court strikes down Chevron, curtailing power of federal agencies” By Amy Howe, SCOTUSblog, June 28, 2024, https://www.scotusblog.com/2024/06/supreme-court-strikes-down-chevron-curtailing-power-of-federal-agencies/ (Accessed 7/12/24).

[14]   “LOPER BRIGHT ENTERPRISES ET AL. v. RAIMONDO, SECRETARY OF COMMERCE, ET AL.” Supreme Court of the United States, June 28, 2024, https://www.supremecourt.gov/opinions/23pdf/22-451_7m58.pdf (Accessed 7/12/24).

[15]   Ibid., “Supreme Court strikes down Chevron, curtailing power of federal agencies” By Amy Howe, SCOTUSblog, June 28, 2024, https://www.scotusblog.com/2024/06/supreme-court-strikes-down-chevron-curtailing-power-of-federal-agencies/ (Accessed 7/12/24).

[16]   “Supreme Court Decision Limiting the Authority of Federal Agencies Could Have Far-Reaching Impacts for Health Policy” By Kaye Pestaina, Michelle Long, and Justin Lo, Kaiser Family Foundation, July 1, 2024, https://www.kff.org/private-insurance/issue-brief/supreme-court-decision-limiting-the-authority-of-federal-agencies-could-have-far-reaching-impacts-for-health-policy/ (Accessed 7/12/24).

[17]   “SCOTUS Case Could Weaken the Impact of Regulation on Key Patient and Consumer Protections” By Michelle Long, Justin Lo, and Kaye Pestaina, Kaiser Family Foundation, April 9, 2024, https://www.kff.org/private-insurance/issue-brief/upcoming-scotus-case-could-weaken-impact-regulation-key-patient-consumer-protections/ (Accessed 7/12/24).

[18]   “Medicare Program; Modernizing and Clarifying the Physician Self-Referral Regulations” Federal Register Vol. 85, No. 232 (December 2, 2020), p. 77553.

[19]   “What the Supreme Court’s “Chevron Deference” Ruling Could Mean for Health Care Law” Baker Donelson, June 25, 2024, https://www.bakerdonelson.com/what-the-supreme-courts-chevron-deference-ruling-could-mean-for-health-care-law (Accessed 7/12/24).

[20]   “SCOTUS Case Could Weaken the Impact of Regulation on Key Patient and Consumer Protections” By Michelle Long, Justin Lo, and Kaye Pestaina, Kaiser Family Foundation, April 9, 2024, https://www.kff.org/private-insurance/issue-brief/upcoming-scotus-case-could-weaken-impact-regulation-key-patient-consumer-protections/ (Accessed 7/12/24).

[21]   “Supreme Court Decision Limiting the Authority of Federal Agencies Could Have Far-Reaching Impacts for Health Policy” By Kaye Pestaina, Michelle Long, and Justin Lo, Kaiser Family Foundation, July 1, 2024, https://www.kff.org/private-insurance/issue-brief/supreme-court-decision-limiting-the-authority-of-federal-agencies-could-have-far-reaching-impacts-for-health-policy/ (Accessed 7/12/24).

[22]   “Chevron Deference and Its Impact on the Health Care Industry” O’Connell Aronowitz, https://www.oalaw.com/blog/health-law/chevron-deference-and-its-impact-on-the-health-care-industry/#:~:text=Chevron%20deference%20has%20had%20significant,enforcing%20various%20healthcare%2Drelated%20issues. (Accessed 7/12/24); “U.S. Supreme Court Overturns Chevron – Impact on Health Care and Life Sciences” By Kenya Woodruff et al., Katten, July 3, 2024, https://quickreads.ext.katten.com/post/102jc1d/u-s-supreme-court-overturns-chevron-impact-on-health-care-and-life-sciences (Accessed 7/12/24).

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Todd A. Zigrang, MBA, MHA, FACHE, CVA, ASA, ABV, is president of Health Capital Consultants, where he focuses on the areas of valuation and financial analysis for hospitals and other healthcare enterprises. Mr. Zigrang has significant physician-integration and financial analysis experience, and has participated in the development of a physician-owned, multispecialty management service organization and networks involving a wide range of specialties, physician owned hospitals, as well as several limited liability companies for acquiring acute care and specialty hospitals, ASCs, and other ancillary facilities.

Mr. Zigrang can be contacted at (800) 394-8258 or by e-mail to tzigrang@healthcapital.com.

Jessica Bailey-Wheaton, Esq., is vice president and general counsel for Heath Capital Consultants, where she conducts project management and consulting services related to the impact of both federal and state regulations on healthcare exempt organization transactions, and provides research services necessary to support certified opinions of value related to the fair market value and commercial reasonableness of transactions related to healthcare enterprises, assets, and services.

Ms. Bailey-Wheaton can be contacted at (800) 394-8258 or by e-mail to jbailey@healthcapital.com.