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On June 28th, 2024, the U.S. Supreme Court overruled the Chevron doctrine in the case of Loper Bright Enterprises v. Raimondo. A 40-year-old precedent cited in more than 19,000 judicial opinions (1) spanning administrative laws in every industry imaginable, the Chevon deference (named after the case Chevron v. Natural Resources Defense Council) served as a major shield for regulatory action (2) as it ordered courts to defer to an agency’s interpretation of a statute whenever legislative language was vague.
Chevron mandated courts to take a two-step approach (3) when it came to statutory provision:
1) whether the statute in question was ambiguous
2) was the agency’s interpretation reasonable
Though the Chevron doctrine has been under scrutiny for quite some time, the outright shutdown of this longstanding standard is bound to send shockwaves throughout federal agencies.
Regulatory and Compliance Changes to the Healthcare & Life Sciences Space
As an industry entrenched in administrative laws and highly regulated by government agencies, the healthcare sector can expect changes as federal agencies including the U.S. Department of Health and Human Services (HHS), FDA, HHS Office of Civil Rights (OCR), and the Center for Medicare & Medicaid Services (CMS) grapple with the real-world impact of the ruling.
The technical and scientific nature of the field makes it virtually impossible for Congress to draft legislation that is granular enough to capture every single regulatory scenario, leaving the door open for legal challenges to decisions made by government agencies. Chevron’s reversal in combination with the major questions doctrine (which states that agencies cannot regulate things of major economic or political significance without Congress’s explicit authorization (4)) significantly undermine the power of the federal government.
Though deference to agency interpretations will still be significant, the authority of agencies has been reduced as they will now have to defend their interpretations with specific, pointed evidence of Congress’s intent. The concern is the shift of power from proactive federal agencies to passive execution of White House directives.
The impact and correlated legal challenges that may arise for federal healthcare agencies have the potential to be significant for healthcare and innovation.
Anticipated Effects (5) on Federal Healthcare Programs
Greater hesitation from agencies to act without explicit delegated authority and direction from Congress in fear of litigation so fast-moving issues like artificial intelligence in healthcare may not be addressed in time
Less authority to create new programs or impose new regulations
Differing lower court decisions based on geographical region
Increased pressure to lobby Congress on laws that clearly prescribe authority to agencies
Areas of Litigation
Hospital Reimbursements Rules
There are already ongoing case debating over the calculation of Medicare reimbursement and hospital payments (ex. Hackensack v. Becerra (6): “Hackensack Meridian Health is suing Health and Human Services Secretary Xavier Becerra over the calculation of Medicare reimbursement used to determine Disproportionate Share Hospital payments. The Centers for Medicare and Medicaid Services calculations left out more than 400 patients, which reduced the amount of reimbursement Hackensack hospitals were paid”)
Drug Price Negotiations
Inflation Reduction Act’s drug price negotiation (7) program: Congress let CMS define what qualifies as a negotiation-eligible drug and implementation of negotiations, but the program is already the subject of several ongoing lawsuits; the end of Chevron will surely complicate this further
Drug Approval Process
FDA’s interpretation of “adequate and well-controlled investigations” that serves as the foundation to FDA’s regulatory standards may now potentially be second-guessed (8)
Slower response times are expected as FDA build up their legal standing
Regulation of Laboratory-Developed Tests
On May 6th, 2024, FDA issued a Final Rule on laboratory developed tests (LDTs), stating that in vitro diagnostics (IVDs) offered as LDTs are subject to FDA regulations as medical devices (9) and these heightened regulatory requirements are already being challenged in the Eastern District of Texas for violating the APA; plaintiffs are expected to invoke both the “major questions” doctrine and Loper Bright
Areas of Interest and Strategic Course
Enhanced Regulatory Monitoring
Establish dedicated teams to monitor judicial rulings and regulatory updates
Use advanced analytics and legal intelligence tools to stay ahead of potential changes
Legal Readiness
Strengthen in-house legal capabilities or partner with specialized law firms to prepare for potential litigation and regulatory challenges
Identify regulatory pain points and conduct an internal assessment
Develop contingency plans for scenarios where agency decisions are overturned or modified by courts
Agile Compliance Systems
Invest in adaptable compliance management systems that can be quickly updated to reflect new legal interpretations and requirements
Train staff on emerging regulatory trends
Innovation and Advocacy
Leverage shifting legal landscape to challenge restrictive regulations
Advocate for clearer and more predicable regulatory frameworks that support the development and deployment of new healthcare solutions
Foster strong relationships with industry associations, regulatory bodies, and policymakers
As federal agencies navigate this new era of reduced authority and heightened scrutiny, the healthcare industry must adapt by bolstering legal readiness, enhancing regulatory monitoring, and advocating for clearer legislative guidance.
The View from the Crow’s Nest
As the ramifications of Chevron’s termination start to materialize, it is now more important than ever for stakeholders to possess proficient legal capabilities to monitor, navigate, and adapt to the changing regulatory landscape.
Healthcare and life sciences companies are presented with both opportunities and risks (10): there are now greater odds for successfully challenging agency rules and policies, but firms also have to be prepared for increased efforts and prolonged timelines when persuading an agency to adopt a policy change.
Industry leaders who are well-equipped with legal expertise and agile compliance systems will set themselves apart from competitors by taking advantage of the new wave of legal battles that is soon to come and strategically challenge disadvantageous statutes to better position themselves.
If you are interested in learning more, get in touch at strategy@spinnakerLS.com.
Spinnaker offers true partnership and comprehensive guidance to help leaders navigate the complexities of the Life Sciences industry and chart a path to success. From early-stage market assessment through commercial execution and ongoing lifecycle management, we deliver tailored solutions to ensure optimized practicable results.
Sources:
Egelko, Bob. “The Supreme Court Appears Poised to Overturn a Ruling Cited in More than 19,000 Cases.” San Francisco Chronicle, San Francisco Chronicle, 17 May 2023, www.sfchronicle.com/politics/article/supreme-court-chevron-doctrine-18101145.php.
Sneed, Tierney, et al. “How the Supreme Court’s Blockbuster ‘Chevron’ Ruling Puts Countless Regulations in Jeopardy | CNN Politics.” CNN, Cable News Network, 30 June 2024, www.cnn.com/2024/06/30/politics/chevron-ruling-explained-supreme-court-meaning/index.html.
Farber, Dan. “Everything You Always Wanted to Know About the Chevron Doctrine.” Legal Planet, 23 Oct. 2017, www.legal-planet.org/2017/10/23/everything-you-always-wanted-to-know-about-the-chevron-doctrine/#:~:text=But%20Chevron%20upped%20the%20level%20of%20deference%20to,the%20court%20would%20have%20chosen%20an%20alternative%20interpretation.
Sivas, Deborah. “The Impact of Overturning the Chevron Decision.” Stanford Report, www.news.stanford.edu/stories/2024/06/stanfords-deborah-sivas-on-scotus-loper-decision-overturning-chevrons-40-years-of-precedent-and-its-impact-on-environmental-law.
Krueger, Matthew D., et al. “What Does the End of Chevron Deference Mean for Federal Health Care Programs?” Foley & Lardner LLP, 2 July 2024, www.foley.com/insights/publications/2024/07/end-chevron-deference-federal-health-care-programs/.
Morse, Susan. “Hackensack Hospitals Sue HHS over DSH Payments.” Healthcare Finance News, 8 July 2024, www.healthcarefinancenews.com/news/hackensack-hospitals-sue-hhs-over-dsh-payments.
Wanneh , Gabrielle. “Overturn Of Chevron Offers Major Assist To Drug Makers’ IRA Battle.” InsideHealthPolicy, 1 July 2024, www.insidehealthpolicy.com/inside-drug-pricing-daily-news/overturn-chevron-offers-major-assist-drug-makers-ira-battle#:~:text=The%20Supreme%20Court%E2%80%99s%206-3%20decision%20Friday%20%28June%2028%29,negotiation-eligible%20drug%20and%20implementation%20of%20the%20negotiations%20themselves.
Ovalle, David, et al. “ How the Supreme Court Has Roiled U.S. Health-Care Agencies.” The Washington Post, 2 July 2024, www.washingtonpost.com/health/2024/07/02/chevron-doctrine-fda-public-health-supreme-court/.
Kelly, Jeremiah J., et al. “Summary of LDT Rule: An in-Depth Look at the Final Rule Regarding Laboratory-Developed Tests: Insights.” Venable LLP, 24 May 2024, www.venable.com/insights/publications/2024/05/an-in-depth-look-at-the-final-rule-regarding.
“Chevron’s Demise- and What It Means for Healthcare and Life Sciences Companies.” Foley Hoag LLP, 2 July 2024, www.foleyhoag.com/news-and-insights/publications/alerts-and-updates/2024/july/chevrons-demise-and-what-it-means-for-healthcare-and-life-sciences-companies/.
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