What the Chevron ruling means for the healthcare industry

After 40 years on the road, the so-called Chevron doctrine has been hit with a big, fat Uno Reverse card.

The Supreme Court made a historic ruling on June 28 when it overturned Chevron, which had been cited in 18,000+ court decisions over the years, including a 2019 case involving short-term health insurance plans.

The reversal of the doctrine has already come into play in at least one healthcare-related case this month, too. A federal judge in Mississippi ruled that the US Department of Health and Human Services (HHS) can’t enforce a rule banning healthcare providers from discriminating against patients based on gender identity and sexual orientation, citing Chevron’s overturning in his decision.

If you’re not sure what the ruling means or how it could affect the healthcare industry, never fear: Healthcare Brew has put together a handy explainer for you.

What’s the Chevron doctrine?

First, let’s start with a quick background on what the Chevron doctrine is (or was).

The Chevron deference doctrine came out of the 1984 Chevron v. Natural Resources Defense Council case, which questioned whether the Environmental Protection Agency had legally created regulations for pollution-emitting devices. At the time, the Supreme Court decided that if Congress passed a law that would be administered by a government agency, US federal courts must defer to the agency’s interpretation of the law, so long as that interpretation was “reasonable.”

The reasoning was that agencies had more expertise on complicated subjects, like health insurance, that may be included in some legislation. Plus, the court held that deferring to the agencies was appropriate because they’re part of the executive branch, which is accountable to voters, unlike federal courts that have appointed judges, according to Morgan Nighan, a partner in Nixon Peabody’s Complex Disputes practice, where she leads the law firm’s healthcare dispute resolution team.

Nighan told Healthcare Brew that Chevron was “fundamental to how policy gets made” in the US, and the doctrine has been the “gold standard” in how legal teams look at laws passed by Congress.

Why did the Supreme Court overrule Chevron?

While legal teams considered Chevron integral, the majority of the Supreme Court took issue with the fact that it gave agencies power to interpret laws.

Chief Justice John Roberts argued that it should be the courts’ duty to interpret laws, not agencies.

According to Roberts, the Administrative Procedure Act (APA), a federal law that dictates how agencies develop and issue regulations, requires courts to use their judgment when ruling on legal questions. The APA “makes clear that agency interpretations of statutes—like agency interpretations of the Constitution—are not entitled to deference,” Roberts wrote in the majority opinion.

The court ruled 6–3 to overturn Chevron, but clarified that any case previously decided under the Chevron framework would still stand, Nighan said.

In a dissenting opinion, Justice Elena Kagan strongly rebuked the majority’s opinion.

“As if it did not have enough on its plate, the majority turns itself into the country’s administrative czar,” Kagan wrote.

Kagan defended the Chevron doctrine, arguing it has supported regulatory efforts including “keeping air and water clean, food and drugs safe, and financial markets honest.”

When has Chevron been used in healthcare?

Chevron had been cited in “numerous” healthcare-related cases before it was overturned, according to Michelle Long, senior policy analyst at nonprofit health policy research organization KFF. One recent example centers around short-term health plans, which are health insurance policies designed to fill temporary gaps in coverage, such as when a person is between jobs, according to CMS.

During former President Donald Trump’s administration in 2018 the HHS issued a rule stating that short-term health plans could last up to three years, as opposed to the prior limit of one year.

A coalition led by the Association for Community Affiliated Plans, a health plan trade group, sued HHS in 2019 over the rule, claiming it violated the APA and was “arbitrary and capricious.”

In its decision, the US District Court for the District of Columbia cited Chevron, saying that because the language surrounding short-term health plans in the legislation was ambiguous and HHS’s working definition of key terms did not seem unreasonable, the court would defer to the agency’s interpretation of the law, Long said.

The Biden administration in July 2023 overturned the Trump-era law, ruling that short-term health plans can only last four months.

But now, with Chevron overturned, “it’s not hard to see a situation in which the new rule could be challenged again,” Long said. “Absent that Chevron deference, maybe this time around the rule gets vacated because the courts no longer have to defer to the agency’s reasonable interpretation.”

Another example comes from Covid-19, when the HHS had to divvy up CARES Act funds. Chevron made it so that it was up to the agency to decide how to distribute the money, which means the doctrine had a “significant financial impact,” Nighan said.

Now, that kind of decision could lie in the hands of the courts.

How will healthcare be affected by Chevron being overturned?

That hypothetical from Long is just one way that legal interpretation could spin out post-Chevron. In the simplest terms, the overturning of the doctrine could change the way policies are passed and enforced, Long and Nighan told Healthcare Brew.

It’s likely there will be more legal disputes over policies since litigants may feel they have a better chance to overturn rules and regulations without Chevron, Long projected. That could “clog up the court system, which may make it harder for other people to seek redress in court for any number of other things,” she added.

Over time, Nighan said she also expects there to be a “significant increase in litigation” around policymaking. Previously, there was hesitancy to legally contest a rule that an agency had issued because it was a hard fight to win under Chevron unless the agency’s interpretation was “completely arbitrary or irrational.”

“That’s not the case anymore,” she said. “If you believe that the agency’s rule or guidance is not keeping with the interpretation of the statute, then there’s an avenue to challenge that in court that is stronger.”

Ultimately, overturning Chevron could shake up how agencies typically do business, and that may cause issues. Agencies may be less inclined to issue regulations and instead focus on more informal rulemaking, like advisory opinions, that are less enforceable than official policies, Long said.

Nighan said that overruling Chevron is “definitely going to create instability” and “uncertainty” since there may no longer be a uniform interpretation of a law or rule. For instance, there may be different interpretations about a law depending on the state, meaning companies that operate in multiple states could struggle with compliance or may have to change the way they set up their practices.

“Different courts sitting in different geographies and different circuits may have different opinions about the best interpretation,” she said.

The ruling could also slow down the policymaking process within agencies that may try to predict which laws could face more legal challenges, and therefore, take more time to nail down regulatory details. Nighan said that the Supreme Court was aware of the potential instability this could bring, but said it would rather have the “correct” interpretation of the law, according to the high court’s majority ruling.

What are some healthcare industry policies that could be challenged in the near future?

There are specific areas experts expect will be more at risk due to this overruling.

As part of the Inflation Reduction Act that Congress passed into law in 2022, Medicare can negotiate drug prices directly with pharmaceutical companies for a select number of drugs. A number of industry players have challenged this law in court, primarily pharmaceutical companies claiming the law is unconstitutional.

Long expects there could be more of that down the road.

Other potential legal battles, she added, could target Section 1557 of the Affordable Care Act, which prohibits certain healthcare programs from discriminating against patients on the basis of race, color, national origin, sex, age, or disability.

In April, HHS issued a rule under the provision to reinstate Obama-era protections that prohibited healthcare providers from discriminating against patients based on gender identity or sexual orientation. But in July, the US District Court for the Southern District of Mississippi ruled that HHS can’t enforce the rule, citing Chevron’s overruling in the court decision.

According to Nicholas Bagley, a law professor at the University of Michigan, the FDA and Centers for Medicare and Medicaid Services have passed a number of rules likely to face legal contestation, such as a proposed FDA rule looking to regulate diagnostic tests developed in hospital and health system laboratories. He said he could see more challenges to these rules post-Chevron.

But he added that he’s not overly concerned about Chevron’s overruling, as the doctrine hasn’t been cited in any Supreme Court cases for roughly a decade. Its overruling doesn’t “change everything,” but intensifies an existing trend of increasing judicial authority over federal agencies, Bagley said. “It will make it very hard for agencies to cut through the red tape and do their jobs. This decision contributes to that—there’s no question,” Bagley said. “But it is not by itself the sole reason for concern.”

Ultimately, though, the effects of Chevron’s overturning won’t be felt immediately in healthcare, Long noted.

“This isn’t going to be something that just happens tomorrow and then it’s going to be over,” she said. “It’s something that will be long, long into the future.”