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The Supreme Court recently upended a cornerstone of administrative law, known as “Chevron deference,” in Loper Bright Enterprises v. Raimondo. A major question for 340B stakeholders is how the Loper decision will impact the 340B program.
Although the Loper decision overturned 40 years of administrative law precedent, the impact of the case on the 340B program may not be as drastic as it may be for other federal programs. This article will provide a brief background on Chevron deference and its application to federal agency decisions. It will then explain how Chevron deference has applied—or rather has not applied—to cases involving HRSA’s 340B policies over the last few years.
What was Chevron Deference?
In short, Chevron deference was a principle applied by federal courts under which, in certain circumstances, the court upheld federal agency rules or decisions based on the agency’s expertise in administering programs under its oversight. The term “Chevron deference,” originates from the 1984 Supreme Court case that first applied this principle: Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. That case articulated two steps that courts followed to determine whether a federal agency policy or action should be upheld.
Under the first step, the court must determine whether Congress has “spoken to the precise question at issue.” Stated differently, the court must review the law under which the agency acted and determine if the agency’s action was contrary to the statute. If the agency acted contrary to the statute, the court would invalidate the agency action under this first step. If the statute was unclear, step two required the court to determine if the agency’s action was reasonable. If the agency’s action was reasonable, the courts deferred to the agency’s expertise and upheld the agency’s action, even if the court conjectured that another action would have been better than the one that the agency choose.
Subsequent case law developments resulted in adoption of Chevron “step zero.” Step zero asks whether Congress has delegated authority to the agency to issue regulations or to adjudicate decisions under a statute. If the statute does not give the agency the authority to adopt regulations or adjudicate disputes, or the agency issues a policy without going through the regulatory or adjudicatory process, Chevron deference does not apply. Instead, the courts apply “Skidmore deference”, which derives its name from another Supreme Court case: Skidmore v. Swift. Under Skidmore deference, courts give agency actions “respect” to the extent the action has the “power to persuade.” In short, courts were more deferential under a Chevron analysis than they are under a Skidmore analysis.
Did Chevron Deference Impact the 340B Program?
Chevron deference has not historically impacted the 340B program significantly because HRSA has limited authority to issue regulations under the 340B statute. Specifically, the 340B statute authorizes HRSA to issue regulations to address only three topics: 1) the administrative dispute resolution (ADR) process; 2) calculation of the 340B ceiling price; and 3) civil monetary penalties on manufacturers.
Notably, the 340B statute does not give HRSA the authority to issue regulations to define “patient” for purposes of the 340B program. The decision in Genesis Health Care v. Becerra is a good example of how HRSA’s lack of regulatory authority on patient definition plays out in a lawsuit. Genesis Health Care brought a lawsuit challenging HRSA’s audit finding that Genesis had engaged in diversion by using 340B drugs to fill prescriptions for individuals that Genesis had treated in the previous two years but whose prescriptions arose from services provided outside Genesis. Each of the parties to the lawsuit, and the court, agreed that Chevron deference did not apply to HRSA’s patient definition policies. The Court also held that HRSA’s diversion finding was not entitled to “respect” under its Skidmore analysis. The court’s analysis focused principally on the fact that HRSA had never formally announced the patient policy that it applied to Genesis. The court also determined that HRSA’s policy as applied to Genesis was contrary to the plain meaning of the term “patient” in the 340B statute.
Similarly, the 340B statute does not give HRSA explicit regulatory authority to implement a contract pharmacy program. In both the Third Circuit and D.C. Circuit court opinions upholding manufacturer contract pharmacy restrictions, the courts stated that Chevron deference did not apply. The courts also held that HRSA’s policy requiring manufacturers to offer drugs at multiple contract pharmacies was not entitled to Skidmore deference because that policy did not have the “power to persuade”. (Sanofi v. HHS; Novartis v. HHS).
In recent court decisions impacting the 340B program, therefore, Chevron deference has not played any role. Rather, courts relied on common tools of statutory interpretation and other factors to determine what a statute requires and whether HRSA’s rule or decision was persuasive.
ADR Decisions
The 340B statute required HRSA to establish an ADR process and, because an ADR decision is the result of an adjudication process specifically authorized by Congress, any ADR decision that was challenged in court would likely have received Chevron deference. In the wake of Loper, an appeal of an ADR decision to court will likely be given less deference than it would have previously.
Conclusion
While the end of Chevron deference is no doubt a significant development for many entities regulated by federal agencies, it is not as impactful for the 340B program because HRSA has limited regulatory authority. The Loper decision will likely mean, however, that a court that is asked to review an ADR decision will give that decision less deference than it would have before Loper.
Barbara Williams, is Principal at Powers Pyles Sutter & Verville. She can be reached at Barbara.Williams@PowersLaw.com.
Associate Attorneys Hannah Hauer and Mark Ogunsusi also contributed to this article.
