Chevron: Gone, But Not Forgotten

I’ll start with a quote from Yogi Berra, who once said it’s “tough to make predictions, especially about the future.” As I speculated in February, the Chevron Doctrine is finally gone. After 40 years of inconsistent application and multiple revisions, the U.S. Supreme Court has put it to rest – for now.

The decision rests on the majority’s interpretation of the Administrative Procedure Act, or APA, which dates back to 1946. I’ll skip extensive legal analysis, but I recommend you read more on the subject.

Deep in the decision are some key points worth considering. The most important is that the Court is not instructing that agency opinion is worthless, but that it has boundaries. In fact, some agency rules deserve extra regard. Those rules include the following:

• Rules issued shortly after the legislation;
• Rules that have been invariant for long periods of time, with consistent application; and 
• Rules that legitimately seem to fit the statutory intention, not simply a permissible interpretation.

Statute becomes the basis for regulatory interpretation. When legislation is silent, courts must take a de novo look at the statute and the regulation. Don’t forget, there are 94 federal district courts and 13 circuit courts. States like Texas could end up with four opinions on the same question. After all, the nine justices on the Supreme Court couldn’t agree on the meaning of the APA.

Let’s look at some examples of rules that won’t fit into the court’s “extra regard” category:

• First, the definition of “inpatient.” The Social Security Act is silent on the definition. The Centers for Medicare & Medicaid Services (CMS) initially defined it as someone admitted to receive inpatient services: tautological, but consistent. Later, CMS imposed a two-midnight expectation. The Social Security Act has not changed related to inpatient definition.

• Next, the Inpatient-Only (IPO) List also has no basis in statute. The IPO was slated for elimination, but with a change in administration, it again became crucial to patient safety.

• Finally, observation services appear nowhere in the Social Security Act. Observation versus inpatient is a financial distinction, not a care-or-quality distinction.

These changes illustrate the arbitrary nature of regulations. Now, courts will decide. It may still make no sense, but theoretically, it won’t change every four years.

Now, I’ll make three guesses about the future:

• First, we’ll begin to see challenges to the Two-Midnight Rule and the definition of “inpatient” almost immediately. District courts are not required to treat other districts’ decisions as precedent, but they may be persuasive. Therefore, the earliest cases will have the greatest impact.

• Next, Medicare Advantage (MA) plans may sit out the first round of lawsuits. If providers topple the Two-Midnight Rule, then MAs may score a payment win without incurring legal expenses.
• Finally, observation services will be collateral damage if the definition of “inpatient” changes. The alleged disregard by payers and captive physician groups will force challenges to observation by someone. It may be providers, but it may also come from patients – similar to the Bagnall suit.

Justice Kagan, in the dissent, hints at the Court’s potential overload from a flood of cases. I suspect she’s correct. I wonder how the Court will determine who’s an inpatient – and how many midnights it might take to render a split verdict.