The Supreme Court concluded its 2023-2024 term with several rulings with significant implications for healthcare policy. These included overturning Chevron deference and checking the authority of administrative law judges (ALJs).
Chevron deference
In its joint review of Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce—cases about the cost of ferrying federal inspectors on fishing vessels and seemingly unrelated to healthcare—the Court considered whether to overrule or clarify Chevron deference.
Chevron deference, established by the Supreme Court’s 1984 decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., addressed who should resolve gaps or ambiguities in federal statutes. It required that courts defer to a federal agency’s interpretation of laws if the interpretation of a gap or ambiguity was reasonable. Courts would only intervene to change or overrule a regulation if the agency’s interpretation was deemed unreasonable.
Defenders of Chevron deference argued that requiring courts to defer to executive branch agencies allowed experts to make informed policy decisions. This deference helped ensure uniformity in statutory interpretation by preventing different courts from having multiple alternative readings of the same statute. While Chevron promoted predictability in resolving issues, it also allowed agencies to adapt their interpretations over time based on new scientific developments and changing circumstances, including political factors.
Chevron’s critics argued that it had led to an over-concentration of power within the executive branch, diminishing judicial oversight and compromising the checks and balances integral to the constitutional framework.
Once regularly cited by jurists across the ideological spectrum, Chevron has fallen out of favor with conservative judges in the past decade. The Supreme Court has not cited Chevron since 2016, indicating its declining favor among the justices. At least three justices—Thomas, Kavanaugh, and Gorsuch—had criticized Chevron deference before the Loper ruling. In his 2022 dissent in Thomas H. Buffington v. Denis R. McDonough, Justice Gorsuch wrote that Chevron placed “a finger on the scales of justice in favor of the most powerful of litigants, the federal government.”
Gorsuch’s opinion was echoed in the cases’ filings. In both Loper Bright and Relentless, plaintiffs argued that Chevron improperly shifted the authority to interpret the law—a principle established in Marbury v. Madison—from the Judicial Branch to the Executive Branch. That wasn’t the extent of the separation of powers argument. In an amicus brief filed in Loper Bright, the Competitive Enterprise Institute and the Manhattan Institute joined in asserting that the National Marine Fisheries Service, a federal agency, was using Chevron deference as a shield to exercise ‘the power of the purse,’ a power constitutionally reserved for the Legislative Branch.
The Biden Administration maintained that Chevron afforded “appropriate weight to the expertise, often of a scientific or technical nature, that federal agencies can bring to bear in interpreting federal statutes.” It argued that eliminating Chevron would hinder agencies from fulfilling their responsibilities and that policies based on data and science could be determined by courts and Congress, which lack appropriate subject matter expertise.
In overruling Chevron deference in a 6-3 vote, the Court reduced the authority of executive agencies and shifted power to courts. The Court held that “[t]he Administrative Procedure Act [(APA)] requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous.”
Writing in the majority opinion, Justice Roberts observes that “By forcing courts to… pretend that ambiguities are necessarily delegations, Chevron does not prevent judges from making policy. It prevents them from judging.”
Roberts notes that the Court’s decision does “not call into question prior cases that relied on the Chevron framework. The holdings of those cases that specific agency actions are lawful–including the Clean Air Act holding of Chevron itself–are still subject to statutory stare decisis despite our change in interpretive methodology.” However, this does not extend to agency actions that were not previously challenged and such cases could be overturned for other reasons beyond the overturn of Chevron.
Roberts clarified that the elimination of Chevron deference does not signify the end of all judicial deference to agency expertise, pointing to Skidmore deference, which predates Chevron, multiple times in the opinion. Unlike Chevron, which mandated judicial deference to reasonable agency interpretations of ambiguous statutes, Skidmore deference is more discretionary. Under Skidmore, courts may grant some deference or “respect” to agency interpretations based on their persuasiveness and the agency’s specialized knowledge and expertise. There are certain elements that are outlined as favorable, such as if the agency’s interpretation was issued at the same time as the statute and has remained consistent, or if the interpretation “rests on factual premises within the agency’s expertise.” Skidmore acknowledges the value of agency insights while allowing courts to exercise independent judgment.
The Court recognized that some statutory language explicitly affords discretionary authority to an agency in making policy judgments, noting that “when the best reading of a statute is that it delegates discretionary authority to an agency, the role of the reviewing court under the APA is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits.” Therefore, Congress may explicitly delegate authority to federal agencies if the scope is clearly defined.
Justice Sotomayor and Justice Jackson[1] joined in a written dissent authored by Justice Kagan, who anticipates “large-scale disruption” as a consequence of the ruling. Kagan underscored the importance of subject matter expertise in establishing regulation, citing previous caselaw. This included raising the question of whether judges were qualified to determine if an alpha amino acid polymer qualified as a protein under the Public Health Service Act or to define geographic areas for adjustments to Medicare reimbursement.
SEC v. Jarkesy
The Court’s 6-3 decision in Securities and Exchange Commission v. Jarkesy also has significant implications for the enforcement practices of federal agencies, including the Department of Health and Human Services (HHS).
On June 27, the Court ruled that the SEC’s pursuit of civil penalties for securities fraud must be conducted in federal court, entitling defendants to a jury trial under the Seventh Amendment. This ruling could impact how ALJs within other federal agencies, including HHS, operate.
As Applied Policy has previously discussed, ALJs have assumed a pivotal role in adjudicating Medicare reimbursements, healthcare fraud, and regulatory compliance disputes. ALJs affiliated with the Office of Medicare Hearings and Appeals (OMHA), for example, oversee appeals associated with coverage and payment for items and services furnished under Medicare Parts A, B, C, and D. As adjudicators in the third level of the five-level Medicare appeals process, they have previously been empowered to make decisions regarding the disposition of millions of Medicare dollars.
The Supreme Court’s decision in Jarkesy highlights that civil penalties for fraud, common in healthcare enforcement actions, must be considered “legal in nature” and, therefore, require a jury trial. This ruling could lead to significant procedural changes, shifting many enforcement actions from ALJs in administrative settings to federal courts.
The Jarkesy decision raises questions about the future role of ALJs across federal agencies and could lead to reforms in how healthcare fraud and compliance cases are managed and adjudicated. Since federal court litigation is typically more resource-intensive than administrative proceedings, the decision may result in a more burdensome and costly enforcement process for healthcare agencies and companies.
In her dissent, Justice Sotomayor predicted that Jarkesy could have significant consequences, noting that “[T]he constitutionality of hundreds of statutes may now be in peril, and dozens of agencies could be stripped of their power to enforce laws enacted by Congress.”
Congressional response
While both Loper Bright and Jarkesy have important implications, the overturn of Chevron has garnered the most political and media attention. Congressional Republicans, including House Speaker Mike Johnson, praised Loper as “the beginning of the end of the administrative state.” In contrast, Democratic Leader Hakeem Jeffries contended that “overturning Chevron will make it harder for public agencies to protect hardworking American taxpayers.”
Senator Bill Cassidy (R-LA), ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, acted quickly after the Loper ruling. Within two days of the Court’s opinion, he sent letters to executive branch agencies within the scope of the HELP Committee’s interests asking if they would “adapt to and faithfully implement both the letter and spirit of (the) decision.”
In his letter to HHS, Cassidy cited the department’s participation in discussions of the exercise of march-in rights under Bayh-Dole to lower drug prices as an “egregious example” of agency overreach that might not stand in light of Chevron’s demise. Cassidy sent a separate correspondence to the Food and Drug Administration (FDA) in which he cautioned the agency regarding its recently asserted jurisdiction over laboratory-developed tests. (Find background on these issues in Applied Policy’s recent stories on march-in rights and LDTs.)
If control of the Senate were to shift, it is easy to imagine the HELP Committee being more aggressive in these matters. For now, that is unlikely. Far from sharing Cassidy’s enthusiasm over the decision, HELP Committee chair Bernie Sanders (I-VT) called the Loper Bright decision evidence of a Supreme Court “out of control.”
White House response
The Biden Administration described the overturn of Chevron as “troubling.” On June 28, the White House issued a statement from Vice President Kamala Harris, where she characterized the Loper Bright decision as evidence of a Supreme Court that “sides with powerful special interests who want to roll back commonsense rules that protect Americans.”
Judicial rulings and filings
Several lower courts and litigants were quick to act in response to the Supreme Court’s decisions.
Within hours of the decision, Hackensack Meridian Health, which operates 18 hospitals in New Jersey, filed a complaint in the District Court for the District of Columbia challenging what it characterized as HHS’s “irrational and unlawful” interpretation of statute in calculating payments under the Medicare Disproportionate Share Hospital program.
Since the decision, federal judges in Florida, Mississippi, and Texas have each cited Loper Bright in blocking the enforcement of a rule prohibiting healthcare discrimination on the basis of sexual identity or gender identity under the Affordable Care Act.
Moving Forward
The discussions of Loper Bright and Jarkesy are young and speculative, but we can reasonably expect both rulings to impact healthcare policy.
By overturning Chevron deference, the Court has shifted the responsibility of interpreting ambiguous statutes from federal agencies to the judiciary. This change may lead to increased legal challenges against regulations set by agencies, including CMS, and could slow the implementation of new healthcare programs and policies.
Similarly, the ruling in Jarkesy could complicate the regulatory environment by limiting the power of administrative agencies to enforce rules through in-house adjudication processes. This decision may lead to increased judicial review of agency actions, potentially slowing regulatory enforcement and creating compliance uncertainties in the healthcare sector.
As these changes unfold, stakeholders should stay informed and be prepared to adapt to an evolving legal landscape.
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[1] Justice Jackson did not participate in the consideration or decision of the Loper Bright case and her opinion applied only to Relentless.