Loss of Agencies’ Power Could “Slow Everything Down” in Health Care, Chernew Explains

Experts across a range of industries are grappling with the meaning of Friday’s Supreme Court ruling that dismantled the Chevron doctrine, which for 40 years granted deference to federal agencies to fill in gaps when Congress does not offer specifics.

The decision in Relentless v Department of Commerce and Loper Bright Enterprises v Raimondo concluded that one of the most-cited cases is inconsistent with the Administrative Procedures Act, a federal law that outlines the steps agencies must follow when making rules and guides the courts when reviewing their actions. For nearly 2 generations, following the 1984 ruling in Chevron v Natural Resources Defense Council, courts were told to defer to agency experts in interpreting statues, as long as agencies were reasonable.

Moving forward, those days are gone.

The decision “gives the courts more oversight of the executive branch and how laws are implemented,” said Michael E. Chernew, PhD, who is the Leonard D. Schaeffer Professor of Health Care Policy and the director of the Healthcare Markets and Regulation Lab at Harvard Medical School and co–editor in chief of The American Journal of Managed Care^®.

Michael E. Chernew, PhD | Image Credit: © Harvard Medical School

“I think the key thing to understand is that when laws are written, they're often quite broad, and their implementation relies on a whole range of administrative agencies in the government,” said Chernew, who is also currently serving as the chair of the Medicare Payment Advisory Commission, a nonpartisan independent legislative branch agency that provides Congress with analysis and policy advice on the Medicare program.

With Friday’s ruling, agencies can no longer assume they have the last word. Chief Justice John Roberts stated that decisions relying on Chevron are still intact while calling the doctrine “fundamentally misguided.” This caused Justice Elena Kagan to predict “massive shock” to the legal system in her dissent.

As Chernew noted, the case before the court had nothing to do with health care—it was about commercial fishing—but it could have implications for many federal rules that govern Medicare and Medicaid. As examples, he cited reforms in quality payment models and reimbursement, in which the Center for Medicare and Medicaid Innovation—created under the Affordable Care Act—has sought to push the health care system away from a fee-for-service model toward value-based care.

“There are issues related to the medical loss ratio rules, there are issues related to how they do risk adjustment in some of these programs, how reinsurance works,” Chernew said. “Several of these issues, by the way, have been litigated separately, but I can't think of an area in health care that doesn't involve some level of legislation.”

Right now, if an interest group is unhappy with an agency interpretation, it may have to go back to Congress for relief, a time-consuming and uncertain process. That’s what happened when the Community Oncology Alliance protested CMS’ interpretation of the Stark Law—and specifically, a document that barred practices with on-site pharmacies from mailing prescriptions to patients or letting caregivers pick them up. COA ended up suing CMS and has supported legislation to overturn CMS’ interpretation.

“The question is, when various plaintiffs have concerns about those regulations, what's their opportunity to sue in the courts? Under the Chevron ruling, the courts gave a lot of deference to the administrative agencies, and now that deference is weakened to some extent,” Chernew said.

He predicted, as others have, that it will take time to sort out the new balance of power between regulatory agencies and the courts.

“I don't have great insight as to the specifics of what's going to happen. I'm not sure anybody does,” Chernew said. “There are a number of rules that [CMS] puts in place, there are a number of aspects of the Affordable Care Act, there's a whole range of other administrative agencies that touch on health care, the CDC, the FDA, [and others]. What we will have to see is how those agencies continue to implement the laws, given the authority to act, and how other stakeholders react.” 

The main effect? Rulemaking will slow down, just as innovations such as artificial intelligence and recent cybersecurity attacks demand more nimbleness from the government.

“My concern is a little bit less that there will be a specific rule that then gets overturned in a particular way, although that is an issue,” Chernew said, offering the Braidwood v Becerra case that threatens the ACA mandate for preventive services as an example.

“But I think a bigger issue is how long and how costly is it going to be to figure that out, because the courts move very slowly, as there are different levels of the courts. So, you can slow a lot of regulations down even if you ultimately lose just by challenging them in court. We will have to see the scope of this and how specific the actual implementing legislation will have to be.” 

Of note, pharmaceutical companies are in court right now testing CMS’ powers to negotiate drug prices under the Inflation Reduction Act. Although early exchanges in US District Court did not look promising for pharma, the loss of Chevron could change the dynamic.

“In my personal opinion, there's no way Congress will or frankly should be able to specify all of the microdetails in legislation simply because the world changes. There's a need for regulatory bodies to implement rules as Congress has written them, and Congress ultimately has the authority to write the laws as they see fit, but I think there is a role to play for regulatory agencies. In order for that process to work efficiently, you need to have some understanding of the boundaries under which those regulatory agencies can act.”