How hospitals and health systems are affected by Supreme Court tossing Chevron doctrine

Hospitals and health systems are navigating a new regulatory landscape, thanks to a recent Supreme Court decision.

The Supreme Court has upended the Chevron doctrine, and hospitals and the healthcare industry face a different regulatory environment in light of the high court's ruling.

The high court last month overturned what is known as the Chevron Doctrine, which has stood for 40 years. In 1984, the Supreme Court held that when Congress doesn’t specify its intent on certain aspects of the law, courts should generally defer to regulatory agencies and their interpretation of statutes.

But with a 6-3 ruling reflecting the court’s ideological lines, the majority of justices voted to upend that precedent. Essentially, the Supreme Court’s conservative justices said that courts should apply their own judgment to legal questions.

Many legal analysts say this ruling will weaken the power of regulators. While conservatives hailed the decision as a step to prevent government overreach, critics say this could make it harder for regulators to protect the public and invites judges to overturn laws and protections on complex issues outside their expertise.

Hospitals and health systems could be affected by the regulatory uncertainty. But they also could use the new landscape to challenge federal reimbursements.

One health system has already filed a lawsuit after the high court tossed aside the Chevron precedent. Hackensack Meridian Health in New Jersey said earlier this month that it is suing the Centers for Medicare and Medicaid Services and is challenging its administration of Medicare statutes.

Specifically, Hackensack says CMS has “deprived hospitals of some of the reimbursements they are due and the data to check their reimbursement rates.”

Hackensack Meridian also says it’s challenging CMS’ “refusal to enable hospitals to effectively employ the congressionally mandated procedures for obtaining relief from these underpayments.”

Other lawsuits from hospitals are expected. Fitch Ratings is projecting more litigation as a result of the Supreme Court ruling.

“Providers and their industry groups may be more inclined to challenge government agency rules and regulations including reimbursement rate determinations by the Centers for Medicare and Medicaid Services (CMS), which sometimes relied on the Chevron Doctrine in its work,” Fitch said in an analysis this month.

Legal analysts also suggest that the ruling could make it more difficult for policymakers to change laws and regulations. Regulators could be more cautious to revise policies for fear of legal challenges. Congress may have to take more time in crafting legislation to ensure lawmakers are offering specific direction on the intent of their statutes.

Fitch warned that could be problematic in fields of rapid change that could need a more nimble approach to regulation, such as artificial intelligence.

With courts having wider latitude on changing statutes and regulation, Fitch says, “There will be less visibility into the legislative and regulatory environment with resultant wider confidence intervals for the industry’s future operating cashflows and capital allocation decisions. All else being equal, this is a credit negative.”

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Agencies could be ‘more cautious’

Legal experts discussed the post-Chevron landscape in a webinar sponsored by KFF Thursday, and they said there could be important ramifications that may not be fully understood for some time.

Cindy Mann, a partner at Manatt Health and former deputy administrator of the CMS, said the Supreme Court ruling reflects a judicial trend in recent years of courts giving less deference to federal agencies.

“I do think it'll have quite a significant impact in the short run,” Mann said in the webinar.

Looking down the road, she said, “Certainly agencies, their general counsels, their leadership, will be more cautious about undertaking rulemaking, more cautious about changing their rules over time.”

She also said she anticipated the possibility of a lot more litigation, which could make federal agencies “more reluctant, more concerned, more cautious about moving forward.”Dean A. Rosen, a partner at Mehlman Consulting and former chief healthcare advisor to former Senate Majority Leader Bill Frist, said lawmakers will have to be much more clear on their intentions in drafting legislation.

“I think it will make legislation more challenging, potentially,” Rosen said in the KFF webinar.

Rosen suggested that the post-Chevron landscape could lead to a better balance among the three branches of government, which he said is a positive. But he also said that he is most worried about an environment where regulators and federal agencies can’t react as quickly as necessary when there’s “a need for speed.” In public health, there have been broad delegations of authority provided under federal law, he noted.

“We certainly have seen with Covid and other things, where there may be challenges and the agencies may not be able to move quickly enough or accurately enough or timely enough to make critical changes or to protect citizens,” Rosen said.

Kaye Pestaina, KFF’s vice president and director of the program on patient and consumer protection, noted that changes in the healthcare system happen regularly, which CMS must be mindful of as it considers rule-making in the Medicare program. She said CMS is an agency “replete with real experts”, but the Medicare program may be hindered if it can’t adapt to changes when needed.

“We cannot ossify the program rules,” Pestaina said. “So I'm worried about that and worried that we've got to really come, regardless of political direction …to some ability to have rules evolve and modernize as the world changes, without Congress stepping in every five minutes to adjust its statutory pronouncements.”

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‘It produces risk’

Craig Green, a professor of law and government at Temple University, told Chief Healthcare Executive® that the court ruling reduces the power of federal regulators.

“The outer limits of what the FDA could do to keep food and drugs safe has been shifted dramatically backward,” Green said in an interview. “What can the Environmental Protection Agency do to keep America's air and water safe … has been dramatically shifted backward, in a more limited direction. This is true across the board, that's what we're told, Chevron is not just abolished for one agency or one field of law, but rather for administrative agencies across the board. And this produces uncertainty, it produces weakness, and it produces risk.”

Michael Dimino, a professor of law at Widener University, told Chief Healthcare Executive® that in his view, the Supreme Court doesn’t undermine what he called “regulatory authority.”

“It doesn't lessen the power to enforce the law, to investigate violations of the law, or anything like that,” Domino said. “All it does is it says, if the agency has a certain view of what a statute means, and it tries to enforce that view in court, it has to convince the judges that its reading of the statute is right, whereas now all the agency has to do is convince the court that its reading of the law is reasonable within the bounds of some permissible vagueness.”

However, Green and other legal experts say the Supreme Court’s move to overturn Chevron, and years of other lower court decisions, are going to put the brakes on federal agencies in moving forward on matters of public health and safety.

“I think that the government lawyers have also gotten this message,” Green said. “So agencies have to be more careful in developing their policies more limited in the scope of what they can do to address public problems that Congress had authorized them to address.”