Federal agencies’ longtime authority to regulate industries was significantly weakened by a Supreme Court decision on Friday.
The 6-3 decision, though it stems from cases on fishing regulations, will ripple across government agencies that have broadly interpreted the powers handed to them by Congress since a 1984 decision known as Chevron. The so-called Chevron doctrine laid out that courts should generally defer to federal agencies’ reasonable interpretations of their authority when issuing regulations.
In practice, that meant that courts stayed away from limiting sweeping rules from agencies like Medicare, Medicaid, and the Food and Drug Administration on how hospitals, biopharmaceutical companies, and other industry players operate. Public health and labor agencies also made broad regulations in the Covid-19 response that could be checked under new precedents.
Courts’ decadeslong deference to agencies on these policies is “misguided because agencies have no special competence in resolving statutory ambiguities. Courts do,” Chief Justice John Roberts wrote in the decision.
The ruling could breathe new life into multiple legal challenges from pharmaceutical companies opposed to Medicare’s drug price negotiation program, and is sure to spawn new lawsuits in the hospital and insurance industry, experts said.
“There’s a lot of litigation coming,” said Jamie Gregorian, an attorney at DLA Piper who previously was a lobbyist for biotech companies and orthopedic surgeons.
“If I were a pharmaceutical company and there were limits on reimbursement to my drugs, or if I was a hospital and I’m not getting the same reimbursement from [Medicare], I am going a litigation route that I would not have gone before because the field is no longer tilted against me,” he said.
Critics of the Chevron doctrine have long argued that it is illegal for regulators to make major decisions — those with “vast economic or political significance”— without congressional clearance. That so-called major questions doctrine has popped up repeatedly, particularly since the Covid-19 pandemic and lawsuits over vaccine requirements.
“In the post-Chevron world, there is more pressure on the agency to show in its rule-making that it has landed on a regulation that is not just a reasonable one, but the right one tied to statutory text,” said Samantha Chaifetz, an attorney at DLA Piper who worked at the Department of Justice for more than 15 years and has focused on administrative law.
The three Democrat-appointed judges dissented. Justice Ketanji Brown Jackson recused herself from a portion of the proceedings because she had heard the case at a lower court.
Friday’s decision “is likely to produce large-scale disruption,” Justice Elena Kagan wrote in her dissent.
“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,” Kagan said. “As if it did not have enough on its plate, the majority turns itself into the country’s administrative czar.”
Here’s how the ruling could reverberate across the federal government.
Biden’s drug price negotiation plan could be vulnerable
Multiple pharmaceutical companies have sued the administration over a law allowing Medicare to negotiate drug prices. While Congress made this provision of the Inflation Reduction Act fairly prescriptive — directing Medicare to negotiate prices for 10 drugs based on highest program spending — the agency still has to make policy decisions that are vulnerable to legal attacks.
For instance, instead of defining drugs by the diseases they are approved to treat, officials lumped together drugs with common active ingredients, expanding the number of drugs subject to price negotiation and shortening the time before negotiation starts for some drugs.
“The fall of Chevron could reignite industry opposition to the program, resulting in more lawsuits, including lawsuits challenging additional key provisions of the IRA,” said Erica White, a public service and leadership development fellow at Arizona State University’s law school.
Hospitals could sue over their federal payments
Hospitals have tried to get the Supreme Court to strike down Chevron for years. In a 2022 case, the Supreme Court said Medicare had to reverse large cuts to their drug payments, but the justices ruled in favor of hospitals by saying the government did not follow the text of the law when making those drug cuts — technically never touching Chevron, but indirectly chipping away at its potency.
Now that the Supreme Court has said that executive agencies like the Centers for Medicare and Medicaid Services no longer have the luxury of interpreting vague law, health care companies will be more motivated to sue when regulations threaten to decrease their Medicare and Medicaid payments.
Hospitals, doctors, and others also could be more emboldened to challenge health care’s fraud and abuse laws. The HHS Office of Inspector General routinely issues alerts and opinions that explain how the government would approach fraud and abuse laws in certain situations, knowing that its interpretations are legitimate under Chevron. However, with that doctrine now gone, providers wanting more leeway on fraud laws could push to reverse those opinions, Gregorian said.
The Food and Drug Administration could be hamstrung
The Food and Drug Administration in particular has gotten a lot of deference from the courts for its scientific and clinical expertise. Even with that deference, FDA lawyers are known for carefully building administrative records to avoid court challenges, and the Supreme Court ruling could slow FDA regulations and decisions even more.
Jerry Masoudi, a former chief counsel of the FDA, doubts the ruling will change the FDA’s case-by-case decisions on product approvals, but he said the doctrine has been an important tool for reaching its policy objectives and defending its regulations.
The ruling could also lead to uneven regulation from one part of the country to the next. With the courts free to interpret laws more broadly, plaintiffs might go forum shopping to challenge FDA rulings in favorable court districts.
“FDA may, where possible, narrowly follow such decisions only in the jurisdiction of the deciding court,” Masoudi said.
It will be harder for the U.S. to respond to public health emergencies
The government’s ability to respond to public health emergencies is particularly vulnerable to the ruling, because the government gets broad discretion to act in such emergencies without first undertaking the long process of rulemaking.
A variety of temporary rules were put in place during the Covid-19 pandemic, such as allowing people to stay on Medicaid longer, funneling extra money to hospitals, and making telehealth regulations more lenient. Some vaccine authorizations were also linked to the declaration of a public health emergency.
Absent Chevron, agencies may act more cautiously in an emergency, because it will be easier to challenge their actions and rules.