How the Supreme Court’s regulation ruling will change healthcare

The Supreme Court has dramatically transformed the dynamic between federal agencies such as the Centers for Medicare and Medicaid Services and the entities they regulate.

On Friday, the high court weakened the executive branch’s authority to interpret laws and enhanced the judiciary’s power to resolve disputes about congressional intent. On Monday, justices ruled that plaintiffs may bring suit against old regulations if they claim new injuries.

Taken together, these landmark decisions throw the federal regulatory apparatus into disarray and fling open the doors to legal challenges against countless policies, past, present and future.

“The decision could actually lead to a chilling effect on agency regulations,” said Michelle Long, senior policy analyst for the KFF Program on Patient and Consumer Protections.

The decisions invite more lawsuits from parties that disagree with agency actions, and the threat of legal battles may encourage regulators to greater caution. Agencies may rely on nonbinding guidance and enforcement activity more and on rules less. Congress may attempt to write statutes with greater specificity and diminish the flexibility agencies have to adapt laws to new circumstances over time. Courts are now tasked with resolving even the most picayune technical questions.

Related: Supreme Court overturns Chevron ruling in blow to agency power

In the healthcare context, this upends regulatory conduct spanning from routine Medicare reimbursement updates to Food and Drug Administration reviews of emerging medical technologies. CMS policies such as nursing home staffing mandates, home health reimbursement cuts and disproportionate share hospital payments are endangered.

Companies and other plaintiffs now stand a much better chance of prevailing when they allege the federal government has overstepped its bounds.

The Supreme Court majority and the mostly conservative proponents of downgrading executive branch power characterize the rulings as the restoration of the legislative branch’s lawmaking authority and the judicial branch's mandate to parse the law.

“Agencies have no special competence in resolving statutory ambiguities. Courts do,” Chief Justice John Roberts wrote in the majority opinion on Loper Bright Enterprises v. Raimondo.

At the same time, businesses, state governments and others intertwined with federal agencies and programs will have to adjust to less-nimble, slower-acting agencies and to prolonged uncertainty about the rules as courts take a more active role in the minutiae of governing.

The high court’s liberal minority and their allies forewarn that the conservative majority has ensured that any semblance of consistency and stability for programs such as Medicare and Medicaid will fade, that a glut of lawsuits will clog the judiciary, and that agencies and those they regulate will be subject to rulings from judges who lack expertise in medicine and policy.

“In one fell swoop, the majority today gives itself exclusive power over every open issue — no matter how expertise-driven or policy-laden — involving the meaning of regulatory law,” Justice Elena Kagan wrote in dissent of the Loper Bright decision. “In every sphere of current or future federal regulation, expect courts from now on to play a commanding role.”

The rulings

The most consequential of several recent decisions undermining the administrative state came on Friday, when the Supreme Court ruled 6-3 to discard 40 years of precedent set under Chevron v. Natural Resources Defense Council.

That 1984 decision created a judicial presumption, known as “Chevron deference,” that agencies have expertise and the leeway to interpret laws, which heavily influenced federal jurisprudence, legislation and regulation.

Under the Loper Bright Enterprises v. Raimondo ruling, the Supreme Court effectively transferred that leeway to the judiciary when statutory language is unclear.

The 6-3 ruling on Corner Post v. Board of Governors of the Federal Reserve System Monday weakens the statute of limitations for lawsuits against federal actions by allowing plaintiffs to plead new harms from old regulations.

In the 6-3 ruling on Securities and Exchange Commission v. Jarkesy announced Friday, the Supreme Court made it harder for regulators to assess fines by broadening the criteria for what penalties entitle the accused to jury trials rather than administrative procedures.

The future of healthcare regulation

The Loper Bright decision is likely to alter how agencies operate, said Kaye Pestaina, director of the KFF Program on Patient and Consumer Protection.

Agencies such as CMS may favor issuing informal guidance to explain how they will enforce laws over engaging in formal rulemaking, Pestaina said.

And when agencies do issue regulations, they probably will be more reserved and hew as close to statutory language as possible, said Stephanie Webster, a partner at the law firm Ropes & Gray.

In his Loper Bright opinion, Roberts emphasizes that the ruling doesn’t erase previous court decisions that cite the now-defunct Chevron precedent. That doesn’t mean regulatory actions predating Friday are safe, however, especially given the implications of the Corner Post ruling.

Federal rules already on the books and future regulations are fair game for “any good lawyer,” said Scott Lewis, senior counsel at the law firm Anderson Krieger.

Healthcare companies that consider regulations too burdensome will have an easier time getting out from under them, said Sarah Somers, legal director of the National Health Law Program.

At the same time, the healthcare sector is uncommonly vulnerable to an uncertain regulatory environment given its reliance on the federal government for the rules and money that promote stability, Somers said.

For example, CMS rules detail how providers are approved for participation in Medicare and Medicaid, how Medicare payments are calculated and how actuarial soundness is determined throughout the industry.

The Supreme Court decision could have major ramifications for current controversies, such as the CMS final rule establishing minimum staffing levels at nursing homes. The American Health Care Association and others have sued to block the regulation.

Congress only specifically required nursing homes to have a registered nurse on duty eight hours a day, and CMS went well beyond that, said Matthew Murer, who chairs the national health law practice at the law firm Polsinelli.

“It looks like they are going to be able to strike this rule down without any problem at all,” Murer said.

Hackensack Meridian Health wasted no time by citing Loper Bright in a lawsuit filed Friday challenging how CMS calculates Medicare DSH payments. “In light of Loper Bright Enterprises, CMS’ construction is entitled to no deference whatsoever,” the New Jersey health system asserts in its complaint.

The National Association of Home Care and Hospice immediately recognized the significance of the Loper Bright decision to its legal fight against Medicare pay reductions arising from the Home Health Patient-Driven Groupings Model.

“We believe the Supreme Court ruling will provide us with even stronger arguments in NAHC’s challenge to the PDGM rate cuts,” a spokesperson wrote in an email Friday.

Kagan even cited a specific Medicare issue in her dissent: adjustments to the Medicare hospital wage index that account for varying costs among geographic areas. "How should the Department of Health and Human Services measure a 'geographic area?'" she wrote. "By city? By county? By metropolitan area?"

Healthcare in the courts

Different district and circuit courts will come to divergent conclusions about the same issues, which will disrupt how agencies carry out laws and how organizations and people follow them, Lewis said.

“That pattern of inconsistency is often never going to be resolved because the Supreme Court isn't going to take every one of those cases,” Lewis said. That uncertainty will be costly for the healthcare industry, particularly for insurers and providers that do businesses in multiple judicial jurisdictions, he said.

And while Loper Bright doesn’t invalidate prior judicial rulings, it does create the possibility that new cases may reverse previously settled issues, Jamie Gregorian, of counsel at the law firm DLA Piper, wrote in an email.

Chevron deference has been a factor in most Medicare-related lawsuits involving matters such as coverage determinations and payment policy, and federal authorities have lost an advantage in these kinds of disputes, Gregorian wrote.

“Any case where Chevron proved to be dispositive in ruling for the government could presumably be relitigated now,” Gregorian wrote.

The role of Congress

Congress may be compelled to write laws differently by providing agencies with more specificity, which would insulate policymaking from legal challenges based on Loper Bright.

“This post-Chevron moment could be a moment for congressional reassertion of lost authority, but they'll have to act,” said Kevin Kosar, a senior researcher at the conservative American Enterprise Institute. “The power is not going to flow back to them naturally.”

Congress instead could advance legislation that essentially would codify Chevron deference and resurrect the previous status quo, Gregorian wrote. But that’s far-fetched, he wrote: “Congress does not often try to give up the kind of power afforded by overturning Chevron.”

Moreover, there are many lawmakers who believe the Supreme Court ruled correctly, Gregorian wrote. “Conservatives are very much in favor of this decision and have long decried what they believe to be regulatory overreach and an improper shift of Article I legislative authority to the executive branch that has flowed from Chevron,” he wrote.

Congress is more likely to take a more targeted approach and empower agencies in specific cases when lawmakers consider it impractical to legislate with the “level of precision and granularity required for complex health statutes,” Gregorian wrote.

Lawmakers also are going to assert more scrutiny over how agencies execute laws, Webster said.

Senate Health, Education, Labor and Pensions Committee ranking member Dr. Bill Cassidy (R-La.) demonstrated that in a letter sent to HHS Secretary Xavier Becerra on Sunday.

“Given your agency’s track record, I am concerned about whether and how the Department of Health and Human Services will adapt to and faithfully implement both the letter and spirit of this decision,” Cassidy wrote.

Hayley DeSilva, Diane Eastabrook and Michael McAuliff contributed to this story.