Notice & Comment

What is Chevron? American Hospital Association v. Becerra Tells Us Leaving No Ambiguity, by Linda Jellum

What is Chevron: a rule of decision, a standard of review, or an ambiguity resolver? Professor Kristin Hickman and R. David Hahn concluded it was a standard of review. Until this week, I was firmly in their camp. But after the Supreme Court’s decision in American Health Association v. Becerra, I have defected: Chevron deference is a tool of statutory interpretation for resolving ambiguity.

AHA is a relatively simple case with a lot of pre-decision angst. As Professor Chris Walker explained, some administrative law scholars feared that the case might provide a vehicle for the conservative justices to eliminate the centuries old beloved Chevron two-step. Indeed, As Professor Nicholas Bagley noted, at oral argument, Justices Samuel Alito and Neil Gorsuch asked whether it was time to overrule the doctrine. But the author of the case, Justice Brett Kavanaugh, did not ask about overturning the doctrine. Instead, he asked AHA’s attorney whether the justices should “take footnote 9 of Chevron seriously.” Footnote 9 directs courts to “employ[y] traditional tools of statutory construction [to] ascertain[n] that Congress had an intention on the precise question at issue.” And that is exactly what the Court did.

The issue in the case was whether the Department of Health and Human Services (HSS) properly set reimbursement rates for certain outpatient prescription drugs given to Medicaid patients. The Medicare statute provides two methods by which HSS can determine rates. Option 1 applies when HSS conducts a survey of the hospitals’ acquisition costs. This option requires HSS to set reimbursement rates equal “to the average acquisition cost for the drug for that year” and expressly allows the agency to “vary [the reimbursement rate] by hospital group.” 42 U.S.C. § 1395/(t)(14)(A)(iii)(I). Option 2 applies when HHS does not conduct the acquisition cost survey. It requires HSS to set reimbursement rates based on “the average price” manufacturers charge for the drug, as “calculated and adjusted by the Secretary as necessary for purposes of” this provision. 42 U.S.C. § 1395l(t)(14)(A)(iii)(II). It does not authorize HHS to vary the reimbursement rates by hospital group. Yet, HSS did so anyway.

HSS never conducted acquisition cost surveys. So, it relied on Option 2. From 2006 to 2017, HSS set reimbursement rates without varying that rate for different hospital groups (340B hospitals). However, in 2018 and 2019, HSS concluded that its current approach overpaid hospitals that serve underinsured and uninsured populations because federal law caps the prices manufacturers can charge these hospitals. 42 U. S. C. §256b(a)(1). When HSS issued two separate rates, the American Hospitals Association (AHA) sued, claiming the reimbursement rate regulations were ultra vires.

This district court agreed with AHA; however, the U.S. Court of Appeals for the D.C. Circuit reversed, upholding HHS’s reduced reimbursement rates as a reasonable interpretation of the statute under Chevron’s second step. The Supreme Court granted certiorari on the following question: “Whether Chevron deference permits HHS to set reimbursement rates based on acquisition cost and vary such rates by hospital group if it has not collected adequate hospital acquisition cost survey data.” The cert. question was poorly worded: it should have said, “Whether 42 U.S.C. § § 1395l(t)(14)(A)(iii)(II) permits HHS to set reimbursement rates….” And this is the question that the Court answered with a resounding “No.”

Examining the text and structure of the statute, Justice Kavanaugh found the statute clear. Further, he rejected HSS’s argument that because Option 2 authorized the Secretary to “adjust[]” the rate as “necessary,” HSS has the authority to vary rates among hospitals. HSS can adjust the rate up or down; it cannot vary the rate across institutions.

Importantly, Justice Kavanaugh never mentioned or cited Chevron or deference, even though all would agree that under a traditional Chevron analysis, Justice Kavanaugh decided this case at Chevron step one. Congress had spoken to the precise issue—whether HSS could vary rates among hospitals when it used Option 2 to set reimbursement rates—and said “No.”

So, what do we make of Justice Kavanaugh’s intentional omission? While Professor Chris Walker says, “Probably Not Much,” I respectfully disagree. To me, Justice Kavanaugh clarified that the two-step Chevron analysis is not a thing. There is no Chevron step one; there is just statutory interpretation 101. Chevron is irrelevant unless and until a court finds it cannot resolve the meaning of a statute with the traditional tools of statutory interpretation, in AHA those tools were text and structure. At this point in the analysis, the court may accept (we confusingly use the term “defer”) the agency’s reasonable interpretation to resolve the ambiguity.

In sum then, Chevron deference is an ambiguity tiebreaker, much like the rule of lenity or the constitutional avoidance canon. If I am right, then Chevron does not have two steps (or three or four); it has one, which applies only in the case of ambiguity. Justice Gorsuch did ask, “What’s ambiguous enough to trigger deference to the government?” That is a great question for another day.

For another take on the AHA v. Becerra opinion, Case Western law professor Jonathan H. Adler’s post on the Volokh Conspiracy.

Linda D. Jellum is a former Chair of the ABA Section of Administrative Law and Regulatory Practice. She is currently the Ellison Capers Palmer, Sr. Professor of Law at the University of Mercer School of Law but will be joining the faculty at the University of Idaho College of Law this fall.

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