Last June, the Supreme Court issued a landmark 6-3 opinion in the combined cases of Looper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce, overturning the long-standing holding in Chevron v. Natural Resources Defense Council that federal courts must defer to an agency’s reasonable interpretation of a federal statute that’s ambiguous.
Then in September, a West Virginia district court ordered parties in a qui tam False Claims Act to submit briefing on how Loper and Relentless impact the court’s authority to decide whether the Stark Law’s regulatory scheme is “consistent with the power given by Congress and the statute as it was signed into law.”
Healthcare law is particularly reliant on federal agencies’ interpretation of often complex statutes. The Stark Law, primarily enforced by the Centers for Medicare & Medicaid Services, and the Anti-Kickback Statute, enforced by the Department of Health and Human Services Office of Inspector General, involve massive bodies of regulations, guidance, rulemaking, and agency opinions. And such content has been used to support the legality of likely billions of dollars’ worth of transactions and arrangements.
Below is a summary of Chevron deference and how its end might affect healthcare regulations and agency authority. While the ultimate impact of Loper and Relentless remain uncertain, these decisions could have far-reaching implications for the healthcare industry in the next few years.
Chevron: A brief history
Generally, Congress authorizes federal regulatory agencies to administer certain federal statutes through the promulgation of regulations. Because statutes, at times, can be subject to multiple reasonable interpretations, federal courts previously relied on Chevron to decide legal issues of statutory interpretation by engaging in a two-step analysis:
Step 1 requires a federal court to determine whether Congress has directly spoken to the question-at-issue. If Congress has done so, then the courts must give effect to Congress’s expressed intent.
If, after using all tools of statutory interpretation, the statues remain ambiguous, then courts proceed to step 2 in the analysis. Under step 2, a court determines whether an agency’s interpretation is reasonable and permissible construction of the statute. If so, the court must defer to the agency.
Chevron: Overrruled
Chevron was overturned last year. The Supreme Court’s decision in Looper Bright Enterprises and Relentless rejects Chevron’s foundational premise: Congress implicitly delegates the administrative agency to resolve the statutory ambiguity because its technical expertise best positions it do so.
Loper and Relentless instead charges the federal courts to assume their “proper” constitutional role. Under the Administrative Procedure Act (APA), a court’s role is “to independently interpret the statute at-issue and effectuate the will of Congress subject to constitutional limits.” Consequently, federal courts now must resolve questions of statutory interpretation without giving deference to an agency’s interpretation. The majority notes that an agency’s view’s may be especially informative “to the extent that its rests on factual premises within the [scope of the agency’s] expertise.”
Chevron: Implications for the Healthcare Industry
We anticipate that the Loper and Relentless decision incentivizes and buttress legal challenges and litigation to an agency’s “permissible” and “reasonable” interpretation of certain statutes throughout the federal court system.
As discussed above, in U.S. ex rel. Kyer v. Thomas Health System, a West Virginia district court has already used Loper and Relentless to question whether it needs to defer to CMS’s regulations. Specifically, in its September 12 Order, the court contemplated whether the definition of “indirect compensation arrangement” under the Stark Law, a definition entirely promulgated by CMS under its rulemaking authority, was beyond Congress’s intent.
The court in Kyer ultimately dismissed the qui tam complaint last November for failure to state a claim, though the plaintiff has requested leave to amend its compliant. Regardless, it’s highly likely that Kyer is only the first in a line of cases where courts are asked to question whether CMS and the OIG’s regulations align with the Stark and AKS statutes.
The healthcare arena, more than almost any other industry, is a complex matrix of agency rulemaking that touch translational medicine, medical devices, and reimbursement for medical treatment by federal and commercial payors. There is little doubt that the Court’s decision in Looper Bright and Relentless will have wide implications for the regulation of healthcare in the long run. In the short term, the Looper Bright and Relentless decision creates some uncertainty for ongoing legal challenges to agency regulations like the Federal Trade Commission’s (FTC) most recent regulation banning nearly all non-compete clauses in employment contracts.
- Noncompete Clauses: On May 5, 2024, the FTC announced a rule banning non-complete clauses in employment contracts effective September 4, 2024. This type of regulation could significantly bolster competition and increase the accessibility and availability of medical treatment for certain patient populations.
However, the United States District Court for the Northern District of Texas temporarily stayed its enforcement against the Plaintiffs in litigation but declined to issue a nation-wide injunction. Absent Chevron Deference, the Court is likely to be suspect of the FTC’s regulation and rule that it is invalid as a matter of law.
- FDA Regulations: The Food and Drug Administration (FDA) derives its authority to regulate the safety and effectiveness of medical devices from the 1976 Medical Device Amendments to the Food, Drug, and Cosmetic Act. Current and future FDA rules like the Quality Management System Regulation (QSMR) Final Rule, a rule that amends device current good manufacturing practice requirements, could face increased litigation and heightened judicial scrutiny.
- Health and Human Services Regulations: The Department of Health and Human Services and its related agencies govern a wide array of regulations that impact the healthcare operations and practice. These agencies often rely on agency rulemaking for determinations of coverage of certain medical treatment and reimbursement rates. With the erasure of Chevron Deference, interested parties like physician group and insureds of government and commercial payors.
- Federal healthcare law safe-harbors and exceptions: The Office of Inspector General (OIG) relies upon its rulemaking authority to promulgate new or revised safe-harbors and exceptions to federal healthcare laws like the Stark Law, False Claims Act, and Anti-Kickback Statute. As recently as 2021, the OIG published final rules specific to the care coordination safe harbor to coordinate care between hospitals and post-acute care facilities.
To facilitate compliance with these laws, the OIG permits interested parties to submit request an advisory opinion about the payment structures between covered entities. Although the OIG makes clear that recommendations in the advisory opinion are applicable only to the parties that submitted the request, courts have often relied upon the opinions to discern the OIG’s position on a particular issue and deferred to its conclusions. To come within a safe harbor or exception safely, similarly-situated parties will mimic these payment and fee arrangements when the OIG determines that a payment structure presents a low-risk of violating federal healthcare laws. The Looper Bright and Relentless decision may jeopardize reliance interests that a similar payment and fee arrangements comply with a safe harbor or exception.
In short, Looper Bright and Relentless could undermine or even invalidate agency rules, regulations, or guidance that the healthcare industry is currently built around. Our regulatory team at Nichols Brar Weitzner & Thomas LLP will continue to closely monitor the development of law and new implications for healthcare. If you have any questions, please feel free to contact us with any questions on how these decisions could impact your business or practice.
