SCOTUS, Chevron Deference, and the Future of Healthcare Fraud and Abuse Law

How will last week’s Supreme Court ruling change the rules governing hospital/physician agreements?

On Friday, in a striking blow to 40 years of administrative law doctrine, the Supreme Court overturned the “Chevron deference”. Previously, this doctrine gave Federal agencies substantial authority to interpret ambiguous laws through rulemaking. While the case being decided by SCOTUS was not a healthcare case (it involved the management of herring fishing), it has the potential to substantially impact the interpretation of healthcare regulatory law as we currently know it.

Historically, the Chevron deference was applied by the courts through a three step process. The first involved whether Congress granted rulemaking authority over a statute. The second involved whether Congress expressed intent and if that intent was ambiguous such that it required agency interpretation. The last step examined if the agency’s interpretation was reasonable. With Chevron overruled, it will now be in the hands of judges to provide interpretation of the law – without deferring to federal agency interpretation.

The long-standing rationale that supported the doctrine lies in the recognition of the expertise of the federal agencies in their respective fields. It stands to reason that having specialized knowledge enables these agencies to make reasonable interpretations of complex legislation. On the other hand, critics have held that the doctrine concentrates policymaking power in the hands of unelected bureaucrats. Thus raising concerns about regulatory overreach and shielding agency actions from thorough judicial review – review that could potentially address agency interpretation shortcomings.

Healthcare is one of, if not the most, highly regulated industries. Over the years, federal agencies under the U.S. Department of Health and Human Services (notably CMS and OIG), have developed complex guidelines interpreting the laws governing healthcare fraud and abuse. The two laws that we typically see impacting physician compensation and fair market value are the Stark law and anti-kickback statute(s). Numerous advisory opinions, fraud alerts, and other means have been utilized by these agencies to interpret and provide guidance on this complicated legislation.

Over the years, even new clarifications of fair market value, commercial reasonableness, and valuation methodology have often created new questions and confusion – increasing ambiguity for operators on how to maintain regulatory compliance. Some see this as a chance now for the healthcare industry to “regulate itself”.  Many believe that current rules governing physician-hospital financial relationships to be overly burdensome, counterproductive, overly punitive, and extremely difficult to administer and apply. It has been argued that much of the complexity provides little benefit to patients while draining the healthcare system of scarce resources. In some cases it has driven providers out of the market, potentially limiting access and reducing quality.

So what is next? It could be argued that significantly curtailing the power federal agencies have to regulate healthcare fraud and abuse laws will impact how operators and other participants choose to navigate the regulatory environment going forward. Regulatory compliance and litigation strategies will likely change. Understanding that the framework for making decisions in this space is now greatly altered – this is likely a good place for health systems to begin to focus their strategy. This may be the industry opportunity for better self-governance that can lead to greater compliance clarity and stronger hospital-physician alignment.

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Rud Blumentritt

Rud Blumentritt | LinkedIn

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