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Health Law Scan

Legal Insights and Perspectives for the Healthcare Industry

Paired with the recent decision in Azar v. Allina, the healthcare industry in particular can hope for a greater voice in the regulatory process in the wake of the US Supreme Court’s directives. With Allina’s requirement that all statements of policy or guidance with substantive legal effect must proceed through notice and comment rulemaking, and Kisor’s instructions for greater judicial diligence with respect to interpreting agency rules, the healthcare industry may have increased confidence that the courts can provide a meaningful role in protecting regulated parties from unchecked agency authority. This is of great value in an era of rapidly changing and thoroughly regulated healthcare delivery systems.

In the much anticipated Kisor v. Wilkie decision issued June 26, the Supreme Court reconsidered the administrative law concept of Auer deference—the judicial doctrine that has developed under the Administrative Procedure Act (APA) that generally “deferred to agencies’ reasonable readings of genuinely ambiguous regulations.” 588 U.S. __ (2019). While the Court was unanimous in its determination that the case, involving the US Department of Veterans Affairs’ interpretation of a regulatory term in the disability benefits process, be remanded for further consideration, the Court was not unitary in its rationale. There were enough justices unwilling to expressly topple the precedent established in Auer v. Robbins, 519 U.S. 452 (1997), that the APA review doctrine survived, despite Justice Gorsuch’s passionate plea in his concurrence for its end.

The majority opinion, drafted by Justice Kagan, retained the principle of Auer deference based primarily on a presumption that Congress intends that the more “expert” regulatory agency “play the primary role” in resolving ambiguities in its regulations, rather than a court. Kisor, Opinion at 7 (citing Martin v. Occupational Safety and Health Review Comm’n, 499 U.S. 144 (1991)). The majority was also reticent to dismiss the importance of stare decisis, and did not believe the Auer doctrine had become “unworkable” as a standard or a “doctrinal dinosaur,” thereby giving the Court the justification to toss out its own prior precedent. The Gorsuch concurrence was dismissive of the majority’s rationale, and urged that the APA (as well as the US Constitution) grounded the interpretation of legal texts, including regulations, squarely in the judiciary.

Although where the majority did not reverse Auer, it gave back to courts what may have seemed lost in years of growing agency power, clarifying that “Auer deference is not the answer to every question of interpreting an agency’s rules. Far from it.” Kisor, Opinion at 11. Justice Kagan emphasized that “the possibility of deference” only arises if a regulation is “genuinely ambiguous”—even stressing that “we mean it” when the Court uses such term. Id. To be “genuinely ambiguous” the term must lie beyond a court’s interpretation even after all of the tools of interpretation and construction have been exhausted. This was enough for Justice Kavanaugh to suggest that when applying this test, “the court will almost always reach a conclusion about the best interpretation of the regulation at issue. After doing so, the court will then have no need to adopt or defer to an agency’s contrary interpretation.” Kavanaugh Concurrence at 1.

Yet, the majority goes a step further to hold that not even all agency constructions of those truly ambiguous rules are entitled to deference. While the court presumes that Congress intended to defer to agencies when they interpret their own ambiguous rules, when “reasons for the presumption do not apply, or countervailing reasons outweigh them, courts should not give deference to an agency’s reading, except to the extent it has the ‘power to persuade.’” Kisor, Opinion at 12 (referencing the standard in Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)). This opens to question what room exists between Skidmore and Auer review, and draws one to the conclusion Chief Justice Roberts noted in his concurrence: “[T]he distance between the majority and Justice Gorsuch is not as great as it may initially appear.”

The majority attempted to lay some guideposts for courts reviewing agency action in light of this now “cabined” Auer doctrine. To summarize the opinion, (1) the regulatory interpretation under consideration must have been made by the agency itself and an official position rather than a mere ad hoc statement, (2) the agency’s interpretation must be in some way related to the agency’s expertise, and (3) the agency’s reading must reflect “fair and considered judgment” to receive Auer deference.

At the end of the analysis, the majority’s instructions to reviewing courts may be indicative, as Justice Gorsuch suggests, that the Auer “doctrine emerges maimed and enfeebled—in truth, zombified.” Gorsuch Concurrence at 2. Ultimately, the message from the highest court was clear: Courts have a critical role in the interpretation of agency rules, and deference is not an impenetrable shield when challenging executive action.