Post-Chevron Health Care Regulations: What May Be in Store for Stark Law Litigation

Read our previous discussion here.

To recap, the Court’s opinion in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce requires courts to exercise “independent judgment” when reviewing an agency’s interpretation of a statute rather than deferring to that agency’s interpretation. In effect, this provides new opportunity for private litigants to challenge agency actions. For the health care industry, prior litigation surrounding the Stark Law demonstrates the ways in which Loper Bright creates such opportunities.

The Stark Law (42 U.S.C. § 1395nn(a)(1)) prohibits a physician from referring patients for designated health services to an entity with which they have a financial relationship and prohibits the entity from submitting claims for reimbursement by Medicare or Medicaid resulting from such referrals, unless the arrangement between the parties meets an applicable exception. In this alert, we examine a past challenge to a Centers for Medicare and Medicaid Services (CMS) interpretation of the Stark Law, in which the court deferred to CMS’s interpretation under Chevron. Post-Loper Bright, such deference would be impermissible. As such, the decision provides a glimpse into what we may expect in future Stark Law litigation.

How Loper Bright Could Change Stark Law Litigation

In Council for Urological Interests v. Burwell, a joint venture of private urologists challenged the definition of “entity furnishing designated health services” contained within a regulation promulgated by CMS under the Stark Law. The Council argued that the regulation wrongly defined “entity furnishing designated health services” to include joint ventures. Ultimately, the US Court of Appeals for the DC Circuit rejected the challenge, deferring to CMS’s interpretation of the Stark Law under Chevron.

Today, a court facing a similar challenge would be required to exercise “independent judgment” in reviewing CMS’s definition of “entity furnishing designated health services” under the Stark Law. In doing so, that court could disagree with CMS’s definition and, in effect, exclude joint ventures from the scope of enforcement under the Stark Law. Indeed, the same could be true of any challenge to any definition contained within a regulation promulgated by CMS pursuant to the Stark Law. In this fashion, Loper Bright provides private litigants with a much stronger tool to test the limits on physician arrangements implicating the Stark Law.

Loper Bright’s Effect on Existing Precedent

In Loper Bright, the Supreme Court explicitly stated, “we do not call into question prior cases that relied on the Chevron framework.” In this way, the Court preserved existing precedent adjudicating agency actions under Chevron.

In practice, however, this caveat preserves only binding precedent relying upon Chevron; it does not insulate all existing regulations from challenge, even those that have survived prior challenge, unless the decision upholding the regulation is embodied in precedent that binds the court deciding any subsequent challenge. For example, Council for Urological Interests, which was decided by a panel of the DC Circuit, would effectively foreclose any challenge to CMS’s definition of “entity furnishing designated health services” brought before the US District Court for the District of Columbia or the DC Circuit. At the same time, nothing in Loper Bright prevents a litigant from challenging that same definition in another jurisdiction, and that jurisdiction would not be bound to follow the DC Circuit’s opinion in Council for Urological Interests.

In other words, Loper Bright’s caveat simply confirms two things. First, existing Supreme Court precedent relying on Chevron continues to bind all federal courts. Second, existing precedent from federal courts of appeal continues to bind (1) future panels of those particular courts of appeal and (2) district courts within their jurisdictional boundaries.

Looking Ahead

As Council for Urological Interests demonstrates, Loper Bright increases the likelihood of success for those in the health care industry challenging agency regulations, both existing ones and those yet to come. But it is not the only Supreme Court decision in this term to do so.

As explained in our prior alert, the Supreme Court’s decision in Corner Post Inc. v. Board of Governors of the Federal Reserve System clarified that the six-year statute of limitations for a claim under the Administrative Procedures Act does not accrue until the challenged action injures the plaintiff, regardless of how long the agency action has been on the books. Taken together, Corner Post and Loper Bright represent a significant expansion of the ability for litigants to challenge actions of the administrative state.

For those in the health care industry, this will mean new opportunities to challenge the scope and nature of various areas of health care law, including agency oversight of standards and certification, fraud and abuse, data privacy and security, and any other action taken by the US Department of Health and Human Services in its statutory interpretation and regulatory implementation.

The ArentFox Schiff Investigations team has extensive experience advising life science companies and health care providers on the complex issues addressed here. We can assist you in developing tools to avoid governmental scrutiny and help you navigate the shoals should a governmental investigation ensue.

Additional research and writing from Meredith Gillespie, a 2024 summer associate in ArentFox Schiff’s Washington, DC office and a law student at Wake Forest University School of Law.