A New Arena for Future Challenges to CMS Regulations – the Overturn of Chevron

On June 28, 2024, the Supreme Court overruled Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., and consequently invalidated the “Chevron Deference” — a cornerstone of administrative law since 1984. In the 6-3 decision of Loper Bright Enterprises v. Raimondo, the Court held that it was the province and the duty of the judiciary to interpret the law and that the Chevron Deference was inconsistent with the Administrative Procedure Act (APA).

Although the underlying issue in Loper focused on the National Marine Fisheries Service’s enforcement of the Magnusson-Stevens Fishery Conservation and Management Act, Loper’s impact will reach virtually every corner of administrative law. Loper will have significant implications for heavily regulated industries, including health care, and will directly impact the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS), the federal agency that administers federal health care programs, including Medicare and Medicaid. The Court’s decision creates a new arena within which providers and suppliers will challenge CMS’s interpretation of statutes, promulgation of regulations and other legal positions.

The Chevron Deference

The Chevron Deference was established by the Supreme Court in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., under which courts generally deferred to federal agencies’ presumed subject matter expertise. Specifically, if a statute was “silent or ambiguous with respect to a specific issue,” courts would defer to the agency’s interpretation. As long as a federal agency offered “a permissible construction of the statute . . . a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.”

The Loper Decision

In overturning Chevron, the Court held that the APA requires courts, not agencies, to exercise their independent judgment in deciding “all relevant questions of law” arising on review of agency action, even those involving ambiguous laws. The Court held that “courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.”

The Court further emphasized that the APA does not prescribe a “deferential standard for courts to employ” when exercising such independent judgment. However, the Court noted that agency deference may still be afforded in certain circumstances. Specifically, the APA mandates deferential judicial review of agency policymaking and factfinding. The APA also provides that courts exercising independent judgment may “seek aid from the interpretations of those responsible for implementing particular statutes.” That is, “interpretations and opinions of the relevant agency, made in pursuance of official duty and based upon specialized experience, constitute[d] a body of experience and informed judgment to which courts and litigants could properly resort for guidance, even on legal questions.” The weight of such interpretations and opinions however would “depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” For example, those “interpretations issued contemporaneously with the statute at issue, and which have remained consistent over time,” are especially informative, as are agency interpretations that rest on factual premises that are within the agency’s expertise. Such expertise has always been one of the factors that give an agency’s interpretation particular “power to persuade, if lacking power to control.”

Loper’s Impact on the Regulation of Federal Health Care Programs

Under the Chevron Deference, courts interpreted and deferred to administrative decision-making regarding the implementation and enforcement of various health care issues. As a result, agencies under the oversight of HHS, such as CMS, exercised relatively free reign to create and implement rules, regulations and guidance, amending their programs without the need for prior congressional approval. In Loper, the Court specifically took issue with this “free reign” and held that “rather than safeguarding reliance interests, Chevron affirmatively destroys them by allowing agencies to change course even when Congress has given them no power to do so.” The Court emphasized that the only question that matters is: “Does the statute authorize the challenged agency action?”

Under Loper, interested parties such as health care providers and suppliers will have an easier time challenging CMS’s regulations and other determinations as CMS will be held more accountable in judicial review processes. As a result, there could be a flood of federal litigation targeting the regulatory power afforded to CMS. It is anticipated that CMS will encounter increased scrutiny from the courts moving forward, specifically related to:

  • Provider reimbursement cuts
  • Drug pricing regulation
  • The CMS final rule that establishes the minimum staffing levels at nursing homes
  • CMS’s calculations of Medicare DSH payments
  • Medicare pay reductions arising from the Home Health Patient-Driven Groupings Model

The Loper decision has several important implications in the context of federal health care regulation:

  • Unless CMS is acting pursuant to its express authority via statute, its actions may be vulnerable to challenges, decreasing its ability to unilaterally create new programs or impose new requirements
  • Without deference to CMS’s complicated statutory formulas, providers and suppliers may feel more confident in challenging reimbursement rules
  • With each regulation that CMS promulgates, it will have to consider the enhanced litigation risk under Loper. As a result, CMS may proceed more cautiously in its rulemaking processes and specifically seek to craft more defensible regulations or favor issuing informal guidance to explain how it will enforce laws rather than engaging in formal rulemaking. When CMS does issue regulations, it will likely be more reserved and align more expressly with the statutory language
  • Without deference given to CMS and its interpretations, courts around the country may reach differing conclusions and interpretations of CMS’s regulations. As a result, new geographic hotspots may arise for provider and supplier operations and/or expansions. Such divergent conclusions regarding the same or similar issues may disrupt not only how CMS carries out its regulations, but how providers and suppliers follow them. Such uncertainty can be costly, especially for providers and suppliers that conduct business in multiple jurisdictions

It is important to note that the Loper decision does not call into question prior cases that relied upon the Chevron Deference, despite the change in interpretative methodology. However, regulatory actions predating the Loper decision are not automatically safe given the Court’s ruling on Corner Post, Inc. v. Board of Governors of the Federal Reserve System, which held that litigation could be initiated concerning prior agency actions if the plaintiff can plead new injuries or harms.

Moving Forward

Loper creates both opportunities and challenges for health care providers and suppliers. As a result, providers and suppliers must carefully assess the legal basis for all new CMS regulations and know that if implemented, CMS concluded that it was defensible at some level. While health care providers and suppliers will most likely have an easier time challenging and potentially avoiding burdensome regulations, it will occur within an uncertain regulatory environment. The Health Law Observer will continue to monitor this new age of federal regulation and report on any changes/updates.