Skip to main content

Showing No Deference: Federal Courts Upend Regulatory Power

July 10, 2024

When in doubt, defer to the experts. That seems reasonable—until you realize that experts often disagree with each other. So, then what do you do? Where possible and if retrievable, go to the original source.

And that’s exactly what the U.S. Supreme Court (SCOTUS) decided in a game-changing ruling late last month. In a six-to-three decision, the court overturned 40 years of precedent known as the “Chevron deference,” a reference to a 1984 case involving the energy giant’s dispute with the Clean Air Act. In a nutshell, the high court in that case ruled that, when there is a gray area in a congressional law, the interpretation rendered by the federal agencies empowered to carry out that law would be given the benefit of the doubt as being the correct interpretation, as long as such interpretation was deemed reasonable in the estimation of the courts.

The Chevron deference doctrine essentially empowered the “fourth branch of government,” i.e., regulatory agencies, such as the Centers for Medicare and Medicaid Services (CMS), to make and revise rules that weren’t expressly called for in the associated legislation. Indeed, according to Forbes, the doctrine was cited as authority in more than 7,000 federal cases. Of course, with every new presidential administration, the interpretation of a certain law may change, thereby leading to the production of a new set of regulations and new mandates on American industry and citizens. Now, all that may be coming to an end.

A New Day

Loper Bright Enterprises v. Raimondo is the case that was brought before the U.S. Supreme Court that effectively ended the deference doctrine, after a 40-year-old run. Again, prior to Loper, agencies of the federal executive branch were afforded a degree of discretion in interpreting ambiguous laws. Now, lower courts will have to go back to the verbiage of the congressional acts to determine whether or not an agency’s regulation has sufficient merit. In other words, the SCOTUS ruling puts the job of interpreting congressional laws back in the hands of the courts. Chief Justice John Roberts penned the majority opinion, noting that the previous framework, based on Chevron, has proved “unworkable” and “fundamentally misguided.” He went on to make the following points:

Perhaps most fundamentally, Chevron’s presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do. The Framers, as noted, anticipated that courts would often confront statutory ambiguities and expected that courts would resolve them by exercising independent legal judgment. And even Chevron itself reaffirmed that “[t]he judiciary is the final authority on issues of statutory construction” and recognized that “in the absence of an administrative interpretation,” it is “necessary” for a court to “impose its own construction on the statute.” Chevron gravely erred, though, in concluding that the inquiry is fundamentally different just because an administrative interpretation is in play. The very point of the traditional tools of statutory construction—the tools courts use every day— is to resolve statutory ambiguities. That is no less true when the ambiguity is about the scope of an agency’s own power—perhaps the occasion on which abdication in favor of the agency is least appropriate.

Presaging this decision in recent months has been a bevy of rulings coming out of the U.S. Federal District Court for the Eastern District of Texas in connection with the No Surprises Act (NSA). That court struck down a number of regulatory provisions coming out of the U.S. Department of Health and Human Services (HHS) over the last year or so because it (the court) determined that these regs did not fully comport with the language of the NSA. With the SCOTUS ruling, HHS and its agencies may have one less leg on which to stand should they seek to appeal the district court’s decisions.

Coming on the heels of the Loper decision is a ruling by another federal district court in Texas—this time, the Northern District—which delays the recent Federal Trade Commission’s ban on non-compete clauses in employment contracts. In delaying the ban, Judge Ada Brown wrote that “the Court intends to rule on the ultimate merits of this action on or before August 30, 2024.” But the greater point here is that the federal courts are beginning to put the brakes on agency rulemaking that they deem to be inconsistent with the actual verbiage of the controlling statute.

Where is This Heading?

The upshot of all this is that executive branch agencies will have less leeway in determining or making law. Rather, the Congress will write the laws, the agencies will carry out the laws and the courts will interpret the laws in the event there is a lack of clarity.

On the hospital front, some have asserted that the overturning of the Chevron doctrine could lead to more legal challenges relative to Medicare payment. Certain FDA regulations could be affected, as well, according to one Yale assistant professor of Medicine who submitted an amicus brief in the Loper case. Some major organizations in the healthcare space, such as the American Cancer Society and the American Heart Association, argued that the ending of the Chevron deference doctrine could have “an enormous impact on the administration of federal programs—including Medicare, Medicaid and CHIP—that are crucial to public health.” Moody’s is speculating that the SCOTUS ruling could actually have a negative effect on reimbursement.

It is too early to say with certainty what ramifications the Loper decision will have on the hospital sector. More lawsuits are certainly a possibility. Rolling back of certain HHS or CMS rules is another. Administrators and facility decision-makers will need to strap in. The next several months are shaping up to be a wild ride.

Get the Latest RCM News Delivered

Receive practical tips on medical billing and breaking news on RCM in your inbox.

Get in Touch