The US Supreme Court recently debated the future of the legal precedent known as Chevron deference in two separate cases arising out of the National Marine Fisheries Service’s statutory interpretation of the Magnuson-Stevens Act, a statute it enforces. The decision in these cases will almost certainly have far-reaching impacts on agency actions, including as it is applied in the healthcare and life sciences industries.
The central question in both cases is whether the Supreme Court should overturn its prior 1984 ruling in Chevron v. Natural Resources Defense Council (Chevron) or at minimum clarify whether congressional silence in statutory language constitutes an ambiguity triggering deference to an administrative agency charged with implementing the statute in question.
While this question was presented in the context of the Magnuson-Stevens Act governing fishery management in federal waters, the impact of the decision would likely affect administrative agencies broadly, including the US Food and Drug Administration (FDA).
Background
In Chevron, the Supreme Court held that where a statute is ambiguous (either in the language itself or the omission of language) the US Congress intended to delegate to the relevant agency the authority to fill in the identified statutory gaps. Under such circumstances, the Chevron court held that courts should defer to federal agencies’ reasonable interpretations of and expertise around a statute it administers and should not substitute their own construction of the statutory provision.
Chevron deference adopts a two-prong test under which the courts must first decide whether there is ambiguity in the statute. If the statute is found to be ambiguous, the court proceeds to the second prong of the test: whether the agency’s interpretation of the statute is reasonable. If so, the court defers to the agency’s interpretation even if there is another interpretation available (and even one that the court might otherwise prefer).
The Supreme Court granted certiorari for Relentless, Inc. v. Department of Commerce and Loper Bright Enterprises, Inc. v. Secretary of Commerce on October 13, 2023 and May 1, 2023, respectively, on nearly identical issues. Namely, the National Marine Fisheries Service, a federal agency, asserted a right to force fishing vessels into contracts to “carry” onboard and pay the salaries of federal observers (also known as monitors) who enforce the agency’s regulations under the Magnuson-Stevens Act.
Appellants in both cases argued that salary payments are impermissible under the principles of statutory construction. Nevertheless, the First Circuit and D.C. Circuit deferred to the agency under Chevron deference and upheld the salary payments.
Issues Raised at Oral Argument
The Supreme Court heard separate arguments in the cases, likely to permit Justice Ketanji Brown Jackson to participate in the Relentless argument, as Justice Jackson was recused from the Loper case. The justices focused on a number of issues in their questions to counsel during the four-hour hearing, including the following:
- What is the effect of reliance on Chevron? Will overturning Chevron open the flood gates to thousands of cases pertaining to administrative actions that were previously decided based on deference to agency interpretations? Will agencies be able to rely on stare decisis for 40 years of cases decided on Chevron? Does Chevron itself create reliance concerns by allowing agencies to change positions with each new administration?
- Without Chevron, will the courts be policymakers? What is the distinction between a legal question and a policy question? Considering that the decision in Chevron was in part motivated to prevent judges from making policy decisions, is this no longer a concern?
- Is Chevron deference unconstitutional? Does Chevron impermissibly limit judicial review? Does Chevron deference improperly deprive Article III courts of their ability to review a statute de novo? Does Chevron take power from Congress and shift it to the Executive?
- What is the meaning of ambiguity? Does “ambiguity” mean the court cannot reach a conclusion after exhausting the tools of interpretation? Is ambiguity impossible if courts would reach a conclusion in non-agency-related cases? Does it mean there is more than one reasonable interpretation? Are there different types of ambiguity?
A significant portion of the oral arguments focused on separation of powers and which branch—courts or agencies—should fill in gaps in congressionally enacted statutes. Should the courts defer to agencies as experts or should the courts, as neutral arbiters, decide without deferring to agencies? Who should decide when the courts think the law has one meaning and an agency says it has another?
These questions included examples drawn from the life sciences arena. For example, Justice Elena Kagan queried whether courts should decide if a new product that promotes healthy cholesterol is a drug or a dietary supplement. In another, Justice Jackson asked whether courts should decide if, under the Federal Food, Drug, and Cosmetic Act, a new drug has undergone an adequate and well-controlled investigation. Other justices stressed that the line between legal questions and policy questions is unclear (e.g., what is the meaning of a dietary supplement?).
Potential Impact on Life Sciences and Healthcare Industries
With parallels to many questions raised in the Food and Drug Administration v. Alliance for Hippocratic Medicine and Danco Laboratories v. Alliance for Hippocratic Medicine decisions in 2023, if the Supreme Court overturns Chevron FDA and similar federal agencies will have to conduct their regulatory activities differently and in such a way that may make federal product regulation and enforcement less efficient and predictable.
Justice Jackson questioned whether Congress intended for the courts, rather than FDA, to make a final decision to approve a pharmaceutical product based on a determination that its safety and efficacy were demonstrated through the ambiguous statutory concept of “adequate and well-controlled investigations.” Will FDA’s decision on the classification of a device through the de novo process be secure or always be subject to challenge in court by competitors of similar devices? Will a court be willing to second-guess FDA’s decision to determine a food is adulterated due to the level of E.coli in it because there is no statutory language on how much E.coli triggers a mandatory recall?
Similarly, the Centers for Medicare and Medicaid Services (CMS) consistently fills in the gaps of the Social Security Act to reach decisions, particularly those related to Medicare reimbursement. The Medicare and Medicaid programs have been described by the Supreme Court as “among the most completely impenetrable texts within human experience.”
There are thousands of pages of regulations and manuals containing agency interpretations of program requirements such as coding submissions for risk adjustment payments, the low-income patient percentage to qualify for disproportionate share hospital payments, supervision requirements for use of physician extenders, and contracting requirements for managed care organizations.
For decades, CMS has released annual fee schedules and payment adjustments that have formed the bases for many legal challenges against agency policy over the years and would furnish ample additional volume for the flood of litigation the justices fear should the gates of Chevron open. Will courts have to become experts on the nuances of claiming reimbursement on hospital cost reports or make decisions on what specific elements are necessary for a sufficient compliance program?
Other consumer protection agencies would face similar difficulties. The Consumer Product Safety Commission’s decisions that products pose “substantial product hazards” and Federal Trade Commission’s decisions that some activity or advertisement is “false and misleading” would be more easily challenged and may clog the federal court system. Courts would need to become experts, and dedicate the time required to do so, in fields such as human factors, consumer psychology, food and supplement chemistry, and drug research and development.
For companies with resources to challenge agency decision-making, the potential to overturn a negative agency decision would substantially increase, and the additional time it takes to obtain a decision may provide substantial competitive benefits.
Agencies would likely compensate in their decision-making by increasing the amount of evidence used to support a decision or take enforcement action, thus making them even more risk averse and increasing the cost and time for any regulatory and enforcement decisions. Agency morale may be undermined, with regulators’ expertise and decisions second-guessed and criticized. The effects on agencies would transform the administrative and regulatory landscape in the United States in diverse and unexpected ways.
What’s Next
The Supreme Court could issue a decision in this case before the end of the current term in July 2024. In addition to upholding or overruling Chevron, based on the questions presented in the briefs to the Supreme Court, it is possible that the Court may choose not to overrule Chevron entirely and instead hold that silence in a statute does not constitute ambiguity for the purposes of the first prong of the test.
Such a holding would require Congress in future laws or legislative amendments to explicitly delegate authority over an issue to an administrative agency. For now, the future of Chevron remains unclear, and stakeholders in the healthcare and life science space should stay tuned for this pivotal decision.