Overview
At the end of the 2024 term, the executive branch struck out when the US Supreme Court issued three separate decisions along ideological lines that have the potential to materially weaken the enforcement authority of federal administrative agencies.
- First, the Court overruled the long-standing Chevron doctrine that instructed courts to defer to an agency’s permissible interpretation of ambiguous statutes.
- Second, the Court held that the ability to bring a claim against an agency for a final agency action under the Administrative Procedures Act (APA) does not accrue until the time that the plaintiff was injured by that action, effectively extending the six-year statute of limitations for bringing such claims.
- And third, the Court held that an agency’s use of an administrative process for assessing civil monetary penalties (CMPs) violated the Seventh Amendment right to a jury trial.
These cases will likely strengthen healthcare organizations’ ability to affirmatively sue executive agencies to challenge regulations governing operations and enforcement actions. Stakeholders should also closely evaluate these cases when defending actions brought by the government or whistleblowers under the federal False Claims Act (FCA) or by US Department of Health and Human Services (HHS) agencies under HHS’s CMP authorities. The cases may present additional arguments for challenging the validity of the underlying rule alleged to have been violated, thus increasing potential leverage in obtaining a more favorable settlement amount or court dismissal of any alleged wrongdoing. In HHS CMP actions, organizations may have a pathway to challenge the agency’s ability to assess CMPs where there is no clear pathway for the allegations to first be evaluated by a federal court instead of an administrative law judge (ALJ).
In Depth
STRIKE 1 – LOPER BRIGHT
At the end of June 2024, the Supreme Court published a much-anticipated opinion overruling the decades-old administrative law doctrine known as Chevron that required courts to defer to reasonable agency interpretations of ambiguous statutes. More specifically, in Loper Bright Enterprises v. Raimondo, which also decided the companion case Relentless, Inc. v. Department of Commerce, the Court held that in deciding whether an agency has acted within its authority under a statute, courts must exercise independent judgment to determine the “best reading” of the statute.
Decision Summary
Under the Chevron doctrine, courts were first to consider whether Congress had directly spoken to the precise question at issue. If the statute was clear, courts were bound by and required to apply the clear meaning of the statute. However, if the statute was ambiguous or silent, courts were to defer to the administrative agency’s interpretation in notice-and-comment rulemaking, provided that interpretation was “based on a permissible construction of the statute.”
The APA, 5 U.S.C. § 706, grants reviewing courts the right to “decide all relevant questions of law” and “interpret . . . statutory provisions.” In Loper Bright, the Court reasoned that because Chevron required reviewing courts to give binding deference to agency interpretations, the doctrine improperly ceded authority to decide certain questions of statutory interpretation (i.e., those involving unclear or ambiguous statutes) in violation of the APA.
The Court recognized in Loper Bright that there may be circumstances where Congress expressly delegates authority to give meaning to a statutory term to “fill up the details” of a statutory scheme, or to issue regulations subject to the limits imposed by a term or phrase such as “appropriate” or “reasonable” that gives flexibility to an agency. In these circumstances, Loper Bright sets forth a new two-pronged analysis: whether the agency is operating within “the boundaries of the delegated authority,” and whether an agency has engaged in “reasoned decision-making.” While the Supreme Court had chipped away at Chevron deference in recent years, the doctrine has now been replaced by Loper Bright.
How Is Loper Bright Relevant in Defending FCA Actions?
The most immediate reaction to Loper Bright has been a focus on the additional opportunities it provides for regulated entities to challenge agency rules and actions. These opportunities will likely be particularly plentiful for healthcare and life sciences organizations, which are subject to extremely complex regulatory regimes that often interpret ambiguous statutes (e.g., Centers for Medicare and Medicaid (CMS) regulations implementing the Social Security Act, and US Food and Drug Administration regulations interpreting the Federal Food, Drug, and Cosmetic Act) and were historically afforded Chevron deference. Now, it will be important to develop a robust notice-and-comment record before the agency in situations where the court examines the agency’s reasoned decision-making.
The import of Loper Bright also extends to defending FCA actions brought by the government or relators. It provides another argument to contest those allegations, either in convincing the government to decline – or exercise its power to affirmatively dismiss – a case, or in litigating a motion to dismiss a complaint based on either invalid regulations or non-enforceable guidance. In the CMS context, Loper Bright supplements the Supreme Court’s decision in Azar, Secretary of Health and Human Services v. Allina Health Services, et. al. (139 S. Ct. 1804 (2019)). Notably, several other hospitals and health systems were parties in filing this lawsuit. The decision held that HHS was required under § 1871 of the Social Security Act to issue through notice-and-comment rulemaking “substantive legal standards” that govern the scope of benefits; payment for services; eligibility of individuals to receive benefits; or eligibility of individuals, entities or organizations to furnish services. Organizations should seriously consider these arguments when developing their defense strategy to increase the litigation risk calculus of the government in particular, which will likely have more concern about protecting existing regulations from adverse court decisions than relators.
STRIKE 2 – CORNER POST
On the heels of the Loper Bright decision, the Supreme Court decided Corner Post, Inc. v. Board of Governors of the Federal Reserve System, holding that an APA claim accrues when a plaintiff is injured by a final agency action pursuant to the statute of limitations under 28 U.S.C. § 2401(a), even if the government action is challenged much earlier. The case arose as a challenge to the Federal Reserve Board’s regulations establishing standards for assessing whether the amount of any interchange fee received by a debit card issuer is reasonable and proportional to the cost incurred by the issuer with respect to the transaction.
Decision Summary
The Supreme Court reversed the US Court of Appeals for the Eighth Circuit’s judgment and held that the plaintiff’s suit was timely because it was filed within six years of the injury caused to the plaintiff by the regulation. The Court’s analysis centered on three statutory provisions: 5 U.S.C. § 702 and § 704, which are the relevant APA provisions, and 28 U.S.C. § 2401(a), the applicable statute of limitations. The Court held that a plaintiff cannot bring an APA claim unless and until it suffers an injury resulting from a final agency action.
The Court’s main reasoning focused on the interpretation of the language in § 2401(a) of the APA, which states that a civil action must be filed within six years after the right of action “first accrues.” The majority found that a “right accrues when it exists,” meaning when the plaintiff has a valid and current legal claim. Accordingly, the Court found that § 2401(a) operates as a statute of limitations that begins only when the plaintiff suffers injury (unless Congress states otherwise in the legislation at issue), rather than functioning as a statute of repose that allows just a six-year window from issuance.
What Opportunities Does Corner Post Afford Regulated Entities?
Corner Post may give regulated entities more runway to make Loper Bright affirmative litigation arguments to proactively challenge policies (e.g., payment rules) that could otherwise give rise to FCA liability, particularly with respect to entities that did not exist at the time the regulation was enacted. For cases concerning Medicare and Medicaid payment rules, Azar, Secretary of Health and Human Services v. Allina Health Services, et. al. offers another pathway to challenging an enforcement action’s validity where that action is based on sub-regulatory guidance, without necessarily needing to challenge the guidance that forms the basis of the enforcement action itself.
STRIKE 3 – JARKESY
In Securities and Exchange Commission v. Jarkesy, the Supreme Court considered an appeal by an investment adviser and his firm of the US Securities and Exchange Commission’s (SEC’s) imposition of CMPs after finding violations of various antifraud provisions of the Securities Act, the Securities Exchange Act and the Investment Advisers Act. The statutes at issue permit the SEC to choose between bringing the action in the Commission’s administrative process, which includes an ALJ hearing and appeal to the Commission, or in federal court. The SEC chose the administrative process.
Decision Summary
The Court held that the administrative process violated the defendant’s right to a jury trial under the Seventh Amendment for lawsuits “at common law.” In examining this issue, the Court articulated a two-step analysis process: whether the CMP action “replicated” a common law action, and if so, whether the “public rights” exception applies.
In answering the common law question, the Court discussed the distinction between an “equity” action, or one that solely seeks to return the aggrieved party to the status quo, and a “common law” action, which seeks to punish culpable individuals and/or deter future misconduct by others. The Court stated that claims under a statute that are “legal in nature” are common law claims where the cause of action under the statute resembles common law causes of action and where the remedy is of the sort traditionally obtained in a court of law (with the remedy being “the more important consideration”). Since CMPs are monetary sanctions designed to punish or deter, and not simply to “return unjustly obtained funds” that a court of equity could order, the Court held that CMPs are a common law remedy that entitled the defendant to the right to have a federal court and jury trial adjudicate.
The Court also held that the “close relationship between the causes of action in this case and common law fraud confirms” its conclusion. Both essentially dealt with the same concepts: misrepresenting or concealing material facts. The Court then found that the “public rights” exception did not save the SEC’s position. While acknowledging that its precedent on this exception was “not always spoken in precise terms,” the Court articulated the following standard: when “a suit is in the nature of an action at common law, then the matter presumptively concerns private rights, and adjudication by [a federal] court is mandatory.” The Court then listed examples of subjects that would qualify for the public rights exception, such as collection of revenue (taxes or custom duties), workplace safety regulations, immigration, patents, foreign commerce, tariffs, public benefits, relations with Native American tribes and administration of public lands. The concurrence by Justice Gorsuch (joined by Justice Alito) also pointed to the lack of Fifth Amendment due process in the administrative process as compared to a federal court as another reason supporting the majority’s decision.
Can HHS Bring CMP Actions in Light of Jarkesy?
HHS has a large number of CMP authorities in various statutes, such as § 1128A of the Social Security Act. Some of these CMPs have been delegated to the HHS Office of Inspector General, which has issued regulations dealing with CMPs (42 CFR Part 1003) and the administrative litigation process (42 CFR Part 1005). Other CMPs created in other statutes sit with CMS, the Office of Civil Rights, the Health Resources and Services Administration, and myriad other HHS agencies. Similar to the securities laws examined in Jarkesy, under Social Security Act § 1128A, the Secretary may initiate a proceeding to seek CMPs after providing written notice and a “hearing,” which has been implemented through providing a hearing before an ALJ and then the Departmental Appeals Board. A person subject to an adverse decision concerning § 1128A CMPs may appeal the action to the applicable US court of appeals after exhausting all administrative appeal procedures.
Organizations facing a CMP action should examine the CMP authority against the Jarkesy test to determine if they have a Seventh Amendment claim opposing the agency’s action to impose the penalty. Many commonly used CMPs, such as those for submitting false claims or false information to federal healthcare programs, seem likely to be considered a common law cause of action that entitles the defendant to a jury trial. Both the penalty and any statutory assessment, or multiplier on the government’s “damages,” serve a punishment and deterrence function and purpose above returning the programs to their “status quo.”
Other CMP authorities may fall within the public rights exception. The Supreme Court left open the possibility for organizations to challenge CMPs that are arguably outside of an “antifraud” purpose. These assessments would require nuanced analysis by experienced counsel. And, even if the CMP is not considered grounded in common law, the concurrence’s concern with the adequacy of the administrative process under Fifth Amendment due process principles may provide another avenue to challenge the agency’s action (although this argument likely will not gain significant traction).
CONCLUSION
The Court’s decisions in Loper Bright, Corner Post and Jarkesy likely will have significant impact on the enforceability of agency regulations and CMP authorities and will provide regulated organizations with additional tools to challenge government enforcement actions. Accordingly, in formulating a defense strategy against such enforcement actions, healthcare and life sciences organizations should carefully evaluate the facts, the government or whistleblower’s allegations, and the statutory and regulatory basis for such claims.
