Supreme Court Decides Major Chevron Case Without Citing Chevron

Today, the Supreme Court decision American Health Association v. Becerraunanimously rejecting reimbursement rates for certain prescription drugs set by the Department of Health and Human Services in 2018 and 2019 as contrary to statute. AHA was a closely watched case because some saw as it as an opportunity for the court to revisit, and potentially narrow or even overturn, the Chevron doctrine, under which courts are to defer to agency interpretations of ambiguous statutory provisions. Yet the Court ultimately resolved the case without citing Chevron at all — and this should send a message to lower courts about how Chevron should be applied.

In AHA the Court had accepted certiorari on two questions:

  1. whether Chevron deference permits HHS to set reimbursement rates based on acquisition cost and vary such rates by hospital group if it has not collected adequate hospital acquisition cost survey data.
  2. Whether petitioners’ suit is challenging HHS’s adjustments is precluded by 42 USC §1395l

In an unanimous opinion by Justice Kavanaugh, the Court answered both questions in the negative — the suit challenging the reimbursement rates was not precluded, and HHS may not vary reimbursement rates by a hospital group without having first collected survey data — but never once mentioned Chevron. What happened? The Court actually applied Chevron rigorously.

The Chevron doctrine has two steps. First, always, is to examine the relevant statutory text to see whether the statute is clear, and answers the question issue. If the statute is clear, the statute controls. If, however, the statute is ambiguous on the question at issue (here, whether HHS may vary reimbursement rates by hospital group in the absence of survey data), courts are to defer to a reasonable agency interpretation of the statutory language. As articulated by the Court, these are separate steps, and an agency’s interpretation of the statue is only relevant if the Court first concludes that the statutory text is ambiguous on the question at hand. Further, as the Court has emphasized in recent opinions (and Justice Kennedy stressed in one of his final opinions on the Court), this initial inquiry should be a serious one, in which courts are to apply all the traditional tools of statutory interpretation to see Whether Congress has answered the issue.

In AHA, the Court never had cause to consider whether HHS had offered a reasonable interpretation of the relevant statutory language because it resolved the case at step one, simply by interpreting the statutory text. As Justice Kavanaugh concluded his opinion:

After employing the traditional tools of statutory interpretation, we do not agree with HHS’s interpretation of the statute. We conclude that, absent a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rates for 340B hospitals. HHS’s 2018 and 2019 reimbursement rates for 340B hospitals were therefore contrary to the statute and legality.

No deference was due to the agency because there was no ambiguity in the statute — and because there was no ambiguity, there was no reason to even raise the question of Chevron reference. Rather, the Court could just apply the statute as written. In other words, what was styled as a Chevron case was really a straightforward statutory interpretation case.

Justice Kavanaugh’s approach to Chevron in AHA stands in marked contrast to how the case was handled below. Chief Judge Srinivasan of the US Court of Appeals for the DC Circuit wrote the majority opinion below. His approach to Chevron was quite different. Chief Judge Srinivasan wrote:

On that issue of statutory interpretation, HHS is entitled to Chevron deference, which it has invoked here . . .

Under Chevronwe first ask whether “Congress has directly spoken to the precise question at issue.” Chevron467 US at 842. Here, the “precise question at issue” is whether HHS’s adjustment authority in subclause (II) encompasses a reduction to SCOD reimbursement rates aimed at bringing reimbursements to 340B hospitals into line with their actual costs to acquire the drugs. If the statute does not directly foreclose HHS’s understanding, we defer to the agency’s reasonable interpretation. See id. at 844. We conclude that HHS’s interpretation of subclause (II) is not directly foreclosed and is reasonable.

Although repeating the canonical Chevron formulation, Chief Judge Srinivasan did not first focus on whether the statutory language provided a clear answer to the question of whether HHS could vary reimbursement rates. Rather, he asked whether the statute “directly force[d] HHS’s understanding,” and finding no such direct prohibition on HHS’s preferred approach, deferred to the agency.

The difference between how the DC Circuit and Supreme Court handled Chevron is subtle, but important. How the Chevron inquiry is framed — and how one orders and conceives the steps — can affect the outcome. Given the complexity of regulatory statutes, if a court adopts the view that any reasonable agency interpretation that is not “directly foreclosed” by the statute will be upheld, the dice are loaded in the agency’s favor. If, on the other hand, the Court first looks directly at the statute, and utilizes all of the traditional tools of statutory interpretation to determine whether the statute prevails the question, agencies will less often, as they will never get the opportunity to present their position as a “reasonable” interpretation of the statute.

Another problem with the DC Circuit opinion, in my view, is it adopted an improper baseline for evaluating agency authority. Rather than looking to see whether the statute authorized HHS to vary reimbursement rates, it looked to see whether the statute expressly barred HHS opting to vary reimbursement rates by hospital group without the benefit of survey data.

Because litigation will often involve questions that may not have been anticipated by a statute’s drafters, here again we see how where one starts the inquiry may determine the outcome. In the absence of any explicit language saying HHS may or may not vary reimbursement rates in the absence of survey data, whichever question is posed — did Congress authorize or did Congress prohibit — will be answered in the negative. So the question posed determines the answer.

Just as Justice Kavanaugh was correct to set HHS’s interpretation aside and first interpret the relevant statutory text, Justice Kavanaugh was also correct to recognize that what he was looking for was statutory language authorizing HHS’s approach (rather than language precluding HHS’s approach). After all, federal administrative agencies only have that authority delegated to them by statutes, and the failure to delegate authority is just that: A failure to delegate authority. Accordingly, Justice Kavanaugh wrote:

Regardless of the scope of HHS’s authority to “adjust” the average price up or down under the statute, the statute does not grant HHS authority to vary the reimbursement rates by hospital group HHS has conducted the required survey of hospitals’ acquisition costs. Under the statute, varying a rate by hospital group is not a lesser included power of adjusting price. Otherwise stated, HHS’s power to increase or decrease the price is distinct from its power to set different rates for different groups of hospitals.

Given that AHA never mentions Chevronsome may not think of it as a meaningful Chevron case. That interpretation is plausible, but for the reasons above I think that would be a mistake. Rather, AHA Reinforces a message that the Court has been giving for several years now: The first task of a reviewing Court is to focus on the statutory language and follow Congress’s instructions. If, after applying all the traditional tools of statutory interpretation, there is a residual ambiguity on the precise question at the issue — and only if there is such residual ambiguity — then the court may consider the reasonableness of the agency’s views. Lower courts do not always do this. AHA is a reminder that they should.

For another take on the AHA v. Becerra opinion, see University of Michigan* law professor Christopher Walker’s post on the Yale Journal on Regulation‘s Notice and Comment blog.

[*Effective July 1.]

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