• On June 28, 2024, in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce (“Loper Bright”), the Supreme Court struck down the doctrine of Chevron deference, ending four decades of judicial deference to agency interpretations of ambiguous statutes. 
• Deference to federal agencies will now be permitted only when Congress has expressly delegated such authority—and even then only as applied to factual determinations. 
• Going forward, courts reviewing federal agency actions, including regulations issued by the Centers for Medicare & Medicaid Services (CMS), the U.S. Food and Drug Administration (FDA), and others, must determine the statute’s “single, best meaning.”
• While Chevron deference applied only to notice-and-comment rulemaking and formal adjudications, Loper Bright’s reasoning applies whenever an agency purports to interpret or implement a law—whether that interpretation takes the form of rulemaking, informal guidance, or a policy manual. 
• Although the decision explicitly does “not call into question prior cases that relied on the Chevron framework,” it could nevertheless trigger a flurry of challenges to established rules (as well as new rules and guidance). 
• A second Supreme Court decision issued just days after Loper Bright—Corner Post v. Federal Reserve—held that the statute of limitations for suits against the United States under the Administrative Procedure Act (APA) begins to run only when the individual plaintiff is injured by final agency action (e.g., a final rule), not when the agency action occurs. Particularly coupled with Loper Bright, Corner Post may open up long-finalized regulations to new legal challenges. 
• For healthcare and life sciences companies, Loper Bright creates both opportunities and risks. Clients looking to challenge agency rules and policies will now enjoy a more level playing field. But companies seeking to persuade an agency to adopt a policy change may have a tougher road to hoe, as agencies are likely to be more cautious in the wake of Loper Bright when promulgating rules, developing administrative guidance, or taking any other action that requires the agency to interpret or implement a statute.

Background

Since 1984, the “Chevron doctrine” had served as the bedrock of many regulatory actions by the U.S. Department of Health and Human Services (HHS) and other federal agencies. Under the doctrine, courts followed a two-step process to evaluate an agency’s interpretation of a statute the agency was charged with implementing. In step one, a court was to determine whether Congress clearly addressed the question at issue; if it did, then the court was to apply the plain language of the statute, and no deference was warranted. If, however, the statute was silent or ambiguous with respect to the question at issue, the court proceeded to step two, where it deferred to the agency’s statutory interpretation so long as that interpretation was a “reasonable” one.

Under Chevron, HHS and other agencies had significant flexibility to set policy where Congress left a gap or failed to speak clearly when enacting legislation—a frequent occurrence in the complex and byzantine world of federal healthcare legislation. Although the Supreme Court had not, for its part, relied on Chevron since 2016, lower courts invoked it frequently to defer to agency interpretations of ambiguous statutes. Loper Bright ends that era.

The Supreme Court’s Decision

On June 28, 2024, the Supreme Court issued its decision in Loper Bright and Relentless. Relying on historical practice and the text of the APA, the Court stated that the APA codifies the “elemental proposition reflected by judicial practice dating back to Marbury: that courts decide legal questions by applying their own judgment.” Slip op. 13-14. The APA’s text, the Court reasoned, requires courts to “exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” Thus, the Court concluded: “The deference that Chevron requires of courts reviewing agency action cannot be squared with the APA.”

To be sure, the majority noted, lower courts may—as they have always done—look for guidance when construing a statute “from the interpretations of those responsible for implementing [the] statute[].” The Court repeatedly emphasized that “interpretations issued contemporaneously with the statute at issue, and which have remained consistent over time, may be especially useful in determining the statute’s meaning.” But courts may not defer to those interpretations just because a case involves an agency.

Deference, the Court instructed, is appropriate only in instances of express delegation. “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.” What are those “constitutional limits”? The Court doesn’t say, but it suggests that deference to federal agencies—even where expressly prescribed by Congress—is permissible only in the context of “fact-bound determinations,” not pure questions of law, which belong solely to the courts.

Under Chevron, an agency’s interpretation of an ambiguous statute was permissible so long as it was reasonable—it did not need to be the best reading of the statute. No longer. “[S]tatutes, no matter how impenetrable, do—in fact, must—have a single, best meaning,” the Court explained in Loper Bright. Going forward, “if [an agency’s statutory interpretation] is not the best, it is not permissible.”

The Scope of the Decision

In theory—though it remains to be seen in practice—Loper Bright’s reach is limited by a few key principles.

• Chevron Step Zero. Because the Chevron doctrine applied only to agency action carrying the force of law—i.e., notice-and-comment rulemaking and formal adjudications—the methodological shift ordained by Loper Bright should likewise impact only formal agency decision-making. Loper Bright should not, in other words, affect courts’ review of informal agency action like guidance statements or policy manuals. But that doesn’t mean it won’t. The Supreme Court emphasizes throughout Loper Bright that interpreting laws is “the proper and peculiar province of the courts,” not agencies, basing its reasoning in separation-of-powers principles. Loper Bright’s lessons thus apply whenever an agency is purporting to interpret or implement a law, however that interpretation is styled. Further, because CMS is already required by the Supreme Court’s precedent in Azar v. Allina Health Services to promulgate any change to a “substantive legal standard” for the Medicare program through notice-and-comment rulemaking, CMS will have limited ability to avoid Loper Bright’s reach.
• Stare Decisis. Although Loper Bright “leave[s] Chevron behind,” the decision explicitly notes that it does “not call into question prior cases that relied on the Chevron framework. The holdings of those cases that specific agency actions are lawful are “still subject to statutory stare decisis.” “Mere reliance on Chevron,” the Court continued, “cannot constitute a ‘special justification’ for overruling such a holding."

  But that does not mean that Loper Bright will not lead to the invalidation of decisions previously decided on Chevron deference grounds. As Justice Kagan noted in her dissent, the majority simply says that a decision’s “‘ [m]ere reliance on Chevron’ is not enough to counter the force of stare decisis; a challenger will need an additional ‘special justification.’” “Courts motivated to overrule an old Chevron-based decision,” Justice Kagan wrote, “can always come up with something to label a ‘special justification,’” just like—she added—the majority did in this case. 

• Application to Long-Standing Rules. Although some previously established (but unchallenged) rules may now be vulnerable, the APA’s six-year statute of limitations generally would have barred challenges to longstanding regulations. However, in a separate decision issued on July 1, 2024, Corner Post v. Federal Reserve, the Supreme Court held that a right of action first accrues under the APA’s six-year statute of limitations when the individual plaintiff is injured by final agency action. As a result, plaintiffs may bring suit under the APA for six years after they are first injured by, e.g., an agency rule, even if that injury does not occur for many years after the agency promulgates the final rule. Thus, for example, a new company could challenge a longstanding agency regulation. As Justice Jackson noted in dissent, as a result of Loper Bright and Corner Post, “every legal claim conceived of in th[e] last four decades—and before—can possibly be brought before courts newly unleashed from the constraints of [Chevron] deference.”
• Federal Agency Action. Loper Bright applies only to courts’ handling of federal agency action. Although some states will likely follow suit, they need not do so. Thus, where states’ high courts have adopted Chevron-like rules, state agencies will, for now, continue to enjoy deference in circumstances where federal agencies no longer will.

The consequences of Loper Bright may be momentous and will likely include the following:

• Increased Litigation. As noted above, the Court’s attempt to limit its holding in Loper Bright through stare decisis is hardly ironclad. Loper Bright and Corner Post are therefore likely to unleash a flurry of challenges to established rules where (1) agencies relied on Chevron to interpret (purportedly) ambiguous legislation; (2) courts upheld a rule at Chevron step two; and (3) newly injured plaintiffs seek to challenge longstanding rules. Going forward, moreover, observers can expect increased litigation challenging new rules, given challengers’ improved odds of prevailing.

  Notable healthcare regulations and other agency actions that may be at risk include, but are not limited to: (a) key provisions of CMS’s guidance implementing the Medicare Drug Price Negotiation Program established under the Inflation Reduction Act; (b) pending rulemaking governing the Medicaid Drug Rebate Program; (c) FDA rulemaking and determinations on a number of issues, including FDA’s framework for market exclusivity, drug approval determinations, and laboratory developed tests; (d) disputes regarding Medicare reimbursement, including the often-litigated issue of disproportionate share (DSH) payments for hospitals; (e) recent regulatory changes to the marketing rules for Medicare Advantage and Part D Plans; and (f) Medicare and Medicaid coverage disputes. Other hotly contested issues may include: the scope of nondiscrimination under the Affordable Care Act; current agency enforcement and guidance related to healthcare fraud and abuse laws; and CMS’s regulations governing the survey, certification and enrollment of various provider types.

• Federal Rulemaking. Loper Bright is expected to make federal agencies more cautious in their rulemaking, hewing closely to the statutory language. The same is true of agency interpretations that take the form of guidance statements or policy manuals. This will be welcome news to regulated entities in some contexts. But in others, where industry would benefit from agency flexibility, regulated entities may lament agencies’ more limited authority.

  True, some agencies had already begun to adjust their practices given the Supreme Court’s silent rejection of Chevron. (Prior to Loper Bright, the Court had not relied on Chevron since 2016.) But the Supreme Court reviews few cases on the merits, so the odds were fairly good that an agency could evade Supreme Court review, so long as the rule at issue wasn’t terribly high-profile or impactful. By contrast, lower courts were still widely applying Chevron deference. That ends with Loper Bright. With ambiguity and deference off the table, courts must now determine statutes’ “single, best meaning” using only traditional tools of statutory interpretation. 

• “Consistent and Contemporaneous.” As noted, Loper Bright’s lessons should apply whenever an agency is interpreting or implementing a law. The majority opinion also makes clear—as foreshadowed by numerous comments from Justice Gorsuch during oral argument—that agencies’ interpretations should receive greater consideration where those “interpretations [were] issued contemporaneously with the statute at issue, and … have remained consistent over time.” More so than in the past, then, shifting agency interpretations and those issued long after a statute’s enactment will likely face skepticism in the courts.

The Supreme Court’s invalidation of the Chevron doctrine will significantly impact the future of regulation in the healthcare and life sciences industries.