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A trio of high-profile Supreme Court decisions will likely lead to an “avalanche” of new cases challenging the authority of federal health regulators and other agencies, testing judges’ expertise and court bandwidth in what one Justice warned could be “chaos.”

There is both reason to cheer and fear the doors being newly thrown open to extensive regulatory review, legal experts told McKnight’s Long-Term Care News Tuesday.

The Court’s combined rulings undercut the power of administrative agencies in such varied ways that it’s almost certain lower courts will see a sharp increase in regulated entities challenging the authority of their regulators, said Varu Chilakamarri, partner in the Washington, DC, office of global law firm K&L Gates.

“There is much more incentive for parties to bring cases. … This is something that people who are in litigation right now can begin bringing up in cases, or if they’re in District Court or on appeal or in adjudication with an agency. You can see it sort of percolating,” said Chilakamarri, noting potential for short-term bandwidth issues.

“I suspect there will be a race to the courthouse,” she said. “Once the court makes a decision about a regulation or what the proper interpretation of a statute is, that should be the final say. The agencies can’t come back in and through rule-making shift their position because the court has said what the law is.”

Quick provider interest

Healthcare providers will be no exception in getting to the front of line, added Gabe Scott, a K&L Gates partner in North Carolina focused on healthcare regulation and transactions.

“There’s already been significant interest in these decisions within the provider community. I think they will take a couple of initial approaches you’d expect them to take. On the rulemaking side, increasingly I think there will be activity in questioning the agency’s interpretation or whether it has the authority to implement the policies that they are proposing or finalizing,” Scott told McKnight’s.

“And providers, the sophisticated ones particularly, will look at rules that they disagree with or they have been harmed by and consider whether the Loper and Corner Post opinions offer an opportunity to challenge the agency’s policy in a way that may be beneficial.”

That could mean challenging not just rules but the subregulatory guidance issued to help surveyors interpret it.

In a blog following the Loper Bright ruling revoking courts’ implied deference to administrative expertise, Hogan Lovells partner Sean Marotta encouraged providers to think “creatively” about how they will shape challenges.

“Litigants should look for ways to further push the already ‘fuzzy’ line between legislative rules (which are subject to notice-and-comment) and interpretive rules (which are not),” he wrote. “Chevron incentivized agencies to use notice-and-comment procedures because only notice-and-comment rules were generally eligible for deference. Without deference, agencies will likely look more to less-formal processes with increasing frequency. Consider arguing that the agency’s supposed ‘interpretive’ rule is actually legislative and impermissibly skipped the notice-and-comment process.”

Decisions, decisions

The landmark decisions include:

  • Securities and Exchange Commission v. Jarkesy, in which the court stripped the SEC of its right to use agency administrative law judges when enforcing fraud complaints. Experts have said the decision could impact other agencies that impose civil penalties through administrative proceedings.
  • Loper Bright Enterprises v. Raimondo, in which the majority found that courts do not have to defer to regulatory agencies’ expertise, but rather judges can strike rules that extend beyond any specific authority granted by Congress.
  • Corner Post, Inc. v. Board of Governors, in which the court revoked a six-year statute of limitations to allow any newly affected entity to challenge a final rule issued by a federal agency.

In Corner Post, one of the Court’s final opinions of the term, justices ruled in favor of a convenience store that wanted to contest a debit card regulation enacted years before the store opened. Justice Amy Coney Barrett wrote for the majority that companies harmed by federal rules should be able to challenge them in court, regardless of how long those regulations have been in effect.

But in her dissent, Justice Ketanji Brown Jackson said the majority decision “throws caution to the wind” and requires Congress to act to “forestall the coming chaos” in the courts.

“At the end of a momentous term, this much is clear: The tsunami of lawsuits against agencies that the court’s holdings in this case and Loper Bright have authorized has the potential to devastate the functioning of the federal government,” Jackson wrote.

The Corner Post decision opens the door to an “avalanche” of litigation involving final agency actions, according to the University of Cincinnati Law Review, which said the ruling reduces the federal statute of limitations to “meaningless words.” 

All of this means it could be easier for long-term care providers to argue against regulations affecting enrollment, payment disputes and appeals based on noncompliance, and survey results. For example, with these new opinions, a facility facing Medicare disenrollment has “a new approach that it would not have had in the past or would have been less likely to take,” Scott said.

Will Congress intervene?

Already, language about “congressional intent” and “agency authority” are popping up in standard communication to CMS from provider groups, including in a letter sent late last week to Administrator Chiquita Brooks-LaSure seeking the withdrawal of a proposal to expand civil monetary penalties.

How much unraveling of the administrative state would be enough to compel Congress to step in and legislate more authority to an agency like CMS? That may depend in part on the majority party but also, possibly, any impact of reversed authority on consumers and public safety.

“You can imagine a blockbuster case that goes to the Supreme Court and results in an outcome that the public finds distasteful,” Scott said. “There may be a backlash that spurs congressional action.”

More likely though, is that a flood of activity creates “judicial paralysis” and overwhelms systems such as the existing CMS administrative law judge appeals process, which is often backlogged already, Scott acknowledged.

Persistent comments during rule-making could have a similar influence, both in convincing rule makers to proceed more cautiously and in bringing Congressional attention to rules the majority would not like to see undone.

“With Loper now, to ensure that agencies’ interpretations are enforced, Congress will need to be thinking about how they’re going to refine the Medicare & Medicaid statutes to expand the scope of agency authority and address language that may be unclear,” Scott said.