After nearly 40 years, the Chevron Doctrine[1] – a long-standing legal doctrine that requires courts to show great deference to agency decisions interpreting ambiguous rules created pursuant to power delegated by Congress – may be on the verge of collapse. Recent arguments before the Supreme Court of the United States in Loper v. Raimondo[2] and Relentless v. Department of Commerce[3] suggest that the Court may overturn or substantially limit “Chevron” deference. This would have a significant impact on how federal courts determine the validity of regulatory actions and their adherence to legislative mandates. Eliminating (or substantially limiting) “Chevron” deference will undoubtedly have a major impact on how healthcare providers such as specialty pharmacies, oncology practices, 340B covered entities, and other providers whose contracts are subject to federal oversight may go about effectuating change when faced with common challenges. Some of these challenges include unreasonably low reimbursement rates and network access issues in Medicare Part D. This potential shift could open the door to broader judicial scrutiny of agency decisions, like those affecting 340B hospital reimbursement rates, where courts previously deferred to agency expertise under Chevron.[4] The Court’s reconsideration of this doctrine would substantially impact the interpretive authority of agencies, placing more power in the federal judiciary to review, and possibly overturn, agency decisions.
The Potential Power Shift from Agencies to the Courts
The crux of this change lies at the heart of the Chevron Doctrine: that courts should defer to federal agencies’ interpretations of ambiguous statutes they are empowered to administer, as long as those interpretations are “reasonable.” However, recent oral argument in the aforementioned cases hints that a majority of justices lean towards a less deferential approach.
Instead of showing extreme deference to agency interpretations of ambiguous statutes, a majority of the justices appeared open to providing lower courts with more power to shape policy, even if the court’s interpretation clashes with agency expertise. Simply put, overturning Chevron completely would likely eliminate the obligation for courts to accept agency interpretations of the statutes they interpret when promulgating regulations, thus broadening the scope for healthcare providers, pharmacies, drug manufacturers, and other healthcare entities to contest federal agency directives, standards, and decisions.
Why Agency Deference is Being Challenged
A key question behind the potential limitation or elimination of Chevron deference is whether it truly serves its intended purpose. On one hand, the doctrine rests on the assumption that expert civil servants within agencies are best positioned to navigate the complex, technical areas of regulation they govern. But critics, including attorneys for the petitioners in Loper and Relentless, argue that the doctrine creates an unchecked power dynamic such that deference becomes a shield that blocks proper judicial scrutiny, potentially leading to misinterpretations of statutes and regulatory overreach that can negatively impact healthcare providers and others relying on regulations that more strictly adhere to the legislative mandates agencies are charged with enforcing.
Historical Application of Deference in Healthcare Cases
Chevron deference has made healthcare providers increasingly vulnerable to the rules, regulations and guidance promulgated and created by federal agencies pursuant to the extensive authority granted to these agencies by Congress. In the past, the Chevron Doctrine has often placed entities like 340B hospitals and Federally Qualified Health Centers (“FQHCs”) at a disadvantage when facing agency interpretations of statutes. Consider the case of Am. Hosp. Ass’n v. Azar,[5] where several 340B hospitals challenged severe reimbursement reductions for certain drugs promulgated by the Department of Health and Human Services (“HHS”). The court, bound by Chevron deference, largely sided with HHS’s purported authority for issuing such cuts, leaving 340B covered entities with limited options to challenge the agency’s decision.
FQHCs have faced similar constraints when challenging a specific reimbursement methodology approved by the Centers or Medicare and Medicaid Services (“CMS”), which resulted in unfair reimbursements. In Cmty. Health Care Ass’n of N.Y. v. Shah,[6] the dispute centered around New York’s submission of a State Plan Amendment (“SPA”) to CMS, which introduced a formula to compute average costs by implementing cost-ceilings tied to certain regions. The FQHCs contested this methodology, arguing that it unfairly impacted their reimbursement for Medicaid services. However, the Second Circuit, following Chevron, focused solely on CMS’s statutory interpretation authority and deeming CMS’s interpretation as “reasonable,” thus maintaining the reimbursement formula that continued to harm FQHCs.
The Potential Impact of Eliminating or Limiting Chevron Deference
Diminishing the strength of—or entirely eliminating—Chevron deference could open new avenues for healthcare providers to contest agency decisions more effectively. For example, this shift might enable entities, such as 340B covered entities, to present stronger cases against the negative impacts of reimbursement cuts on underserved populations, leading to stricter judicial review and fairer payment systems. Moreover, a reduced reliance on Chevron would allow courts to examine the equity and legal grounding of regulatory limits more thoroughly, potentially facilitating reforms that secure essential funding for a provider’s operations and patient care, ensuring they receive the proper reimbursement needed to keep their doors open.
Ultimately, a move away from Chevron deference might level the playing field for healthcare providers facing rigid agency regulation by placing more of the decision-making in the hands of the judiciary, allowing judges more leeway to determine the propriety of agency implementation of statutes. This, in turn, could pave the way for more reasonable reimbursements, improved access to resources, and ultimately, enhanced care for the communities that rely on these vital services.
Read our latest update, “Supreme Court Overturns the Chevron Doctrine – Potential Impacts on Healthcare Providers and Pharmacies – Part 2.”
How Frier Levitt Can Help
Frier Levitt’s attorneys are continuing to evaluate how the potential changes to the Chevron Doctrine may impact providers, pharmacies, and other stakeholders in the healthcare and life sciences spaces. From reimbursement disputes to potential changes in regulatory compliance, our attorneys are experienced in navigating laws, rules and regulations governing the complex healthcare landscape. Contact Frier Levitt today to better understand your rights and explore your options.
[1] Chevron, U.S.A., Inc., v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).
[2] Loper Bright Enterprises, et al. v. Gina Raimondo, Secretary of Commerce, et al., No. 22-451 (U.S. 2024), transcript of oral argument published by Heritage Reporting Corporation, January 17, 2024, available at https://www.supremecourt.gov/oral_arguments/argument_transcript/2023
[3] Relentless, Inc., et al. v. Department of Commerce, et al., No. 22-1219 (U.S. 2024), transcript of oral argument published by Heritage Reporting Corporation, January 17, 2024, available at https://www.supremecourt.gov/oral_arguments/argument_transcript/2023
[4] See Managed Pharmacy Care v. Sebelius, 716 F.3d 1235, 1241 (9th Cir. 2013).
[5] Am. Hosp. Ass’n v. Azar, 967 F.3d 818 (D.C. 2020).
[6] Cmty. Health Care Ass’n of N.Y. v. Shah, 770 F.3d 129 (2d Cir. 2014).
