Chevron Deference Scope Tested in Supreme Court Medicare Case

May 21, 2021, 9:30 AM

A fight over $600 million in cuts to Medicare reimbursements for hospitals could limit the use of a decades-old principle that directs courts to defer to an agency’s interpretation when laws are unclear.

The American Hospital Association and various hospitals have asked the Supreme Court to hear a case questioning if that principle, known as Chevron deference, should apply when the law being interpreted precludes a court’s ability to weigh the lawfulness of a particular agency action.

If the justices take the case and decide Chevron doesn’t apply, the ruling could make it easier to challenge agency regulations.

“It’s unlikely they will overrule Chevron, but it could die slowly by a thousand cuts and this could be one of those cuts,” said Keith Bradley, who co-chairs the appellate and Supreme Court practice group at Squire Patton Boggs.

The justices could decide as early as next month whether it will hear the case in its next nine-month term starting in October.


Chevron deference comes from the Supreme Court’s 1984 holding in Chevron v. National Resources Defense Council, in which the justices said courts should defer to an agency in ambiguous situations as long as its interpretation of a law is reasonable.

“Federal judges—who have no constituency—have a duty to respect legitimate policy choices made by those who do,” Justice John Paul Stevens said in the court’s majority ruling. “The responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones.”

But the AHA argues “it is up to the federal courts, not administrative agencies, to determine” when they can and can’t hear a challenge to an agency action.

The AHA’s case stems from cuts the Department of Health and Human Services made in 2019 to Medicare payments that hospitals get for providing services at off-site outpatient clinics. The HHS said its interpretation of a Medicare provision allowed it to reduce reimbursement rates to control an unnecessary increase in the volume of evaluation and management services provided at outpatient departments.

The district court sided with the AHA, which argued this “method” of volume control wasn’t allowed under the Medicare statute and that Congress already expected these facilities to have higher rates.

But the U.S. Court of Appeals for the District of Columbia Circuit reversed that ruling. The appeals court said it lacked jurisdiction to hear a challenge to the rate reductions.

The D.C. Circuit said it can’t review the lawfulness of an agency action if a statute precludes judicial review unless that action is barred by the statute. Because the Medicare statute is ambiguous, the appeals court said it deferred to the agency and found that it reasonably interpreted the statute to allow for the reimbursement cut.

“By deferring to HHS’s interpretation of that statute, the D.C. Circuit permitted the agency to set the boundary of the court’s power,” the AHA argues in its February petition.

The Department of Justice, representing the HHS, counters that Congress never intended for courts to override provisions that limit judicial review.

“It is very unlikely that Congress, in expressly precluding review of HHS’s adoption of volume-control measures under that provision, intended such an unstated, easily manipulated exception,” acting Solicitor General Elizabeth Prelogar and other DOJ attorneys said in a reply brief.

Under Medicare’s outpatient prospective payment system, the DOJ said HHS sets annual payment rates and that the statute directs HHS to develop a method for controlling unnecessary increases in the the volume of services covered to manage costs.

The “statute expressly precludes judicial review of specified agency actions,” including those methods of controlling costs, the agency argues.

Whittle Down

Not all statutes include provisions that limit judicial review like the Medicare Act. But the AHA says laws governing immigration, the Transportation Security Administration, the Federal Communications Commission, the Supplemental Nutrition Assistance Program, and state telecommunications commissions include provisions that do.

If the court rules Chevron doesn’t apply to statutes with these preclusions, it could reduce the context in which Chevron doctrine would apply, law scholars say.

“If the court wants to continue to whittle Chevron down, this is another way to do it,” said Jeffrey Lubbers, an administrative law professor at American University Washington College of Law.

While the court may be unlikely to want to say explicitly that Chevron is overruled, “I do think that if you count up the justices there seems to be several who have suggested that in the past perhaps Chevron has been too readily applied,” said Jennifer Mascott, an assistant professor of law at the Antonin Scalia Law School at George Mason University.

The AHA cited rulings in which Justices Neil Gorsuch and Clarence Thomas and Chief Justice John Roberts were critical of Chevron doctrine. In a dissenting opinion while on the U.S. Court of Appeals for the Tenth Circuit, Gorsuch said Chevron permits executive agencies “to swallow huge amounts of core judicial” power.

“I’d be surprised if they didn’t grant cert.,” Lubbers, said, noting it only takes four justices to agree to hear a case.

And some legal minds think the AHA has a strong case.

“If it gets consideration, a majority of the court is likely to agree with the point that Chevron deference should not apply here,” Mascott said.

The case is Am. Hospital Ass’n v. Becerra, U.S., No. 20-1113.

To contact the reporter on this story: Lydia Wheeler in Washington at lwheeler@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloombergindustry.com; Karl Hardy at khardy@bloomberglaw.com

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