Loper Bright Begins its Matriculation: The End of the Chevron Doctrine and the Intersection with the Stark Law
As previously discussed in this newsletter, the end of the Chevron Doctrine brought about by the Supreme Court’s Loper Bright Enterprises v Raimondo decision set up the health care industry for a seismic shift. With much of true “health law” being found in regulatory and subregulatory guidance, it was more a question of when, not if, the Loper Bright decision would start to impact court decisions in contested health law matters. That time has arrived on a number of fronts, and now the question really becomes how far the impact will be.
One of the most impactful regulatory regimes in health care, and one of the most expensive if violated, is found in the Stark Law. The Stark Law regulates financial relationships between many providers and physicians. Oversimplifying, if a physician has a financial relationship with an entity that bills Medicare for certain designated health services and if that financial relationship does not fit within one of a number of exceptions, the referrals of designated health services made by that physician to that provider are prohibited. Billing Medicare for those services and/or failing to return overpayments received as a result of those services can lead to liability under the False Claims Act, which includes substantial per claim civil monetary penalties and treble damages.
Most of the exceptions to the Stark Law are regulatory in nature, with a litany of subregulatory interpretive guidance given by CMS through preamble and FAQs. Practitioners have come to heavily rely on CMS’s comments for clarity and as fundamental guidance when applying exceptions and structuring arrangements to comply with the Stark Law. Even though a number of exceptions are also statutory, even those exceptions are further refined and interpreted in underlying regulations.
Given the regulatory landscape surrounding the Stark Law and the draconian penalties related to its violation, it should come as no surprise that defendants in False Claims Act cases related to alleged Stark Law violations are raising defenses under the auspices of Loper Bright. While Loper Bright is still new in terms of judicial interpretation, courts are beginning to consider its impact when faced with cases alleging noncompliance with the Stark Law.
Notably, in a recent case in the Southern District of West Virginia, the court was asked to consider a Motion to Dismiss filed by the defendant. Instead of ruling on the motion, the court in United States ex rel. Liesa Kyer v. Thomas Health System, Inc. required the parties to brief on the effect, if any, of Loper Bright on the case at hand. In the case, a former employee filed a qui tam suit alleging that Thomas Health System violated the Stark Law by paying physicians in a manner that took into account their referrals. Notably, the court stated:
“Over the last 30 years, the Stark Law has grown complex, nuanced, and reliant on agency regulation to define key terms and safe harbors. . . In the past, I could simply defer to an agency’s interpretation of a statute without too much hand wringing over the province of the court versus the expertise of an agency. No longer.”
The court determined that, in light of the Loper Bright decision, and while neither party raised the issue in the motion or reply thereto, it required additional information from the parties in order to conduct the review mandated by Loper Bright, which requires interpretation of the underlying regulations involved in the case.[1]
Importantly, the court did not address the merits of the case nor suggest any criticism of CMS’s regulations. However, the requirement for the parties to provide briefs on the reasonableness of CMS’s interpretation of the underlying regulations represents a significant development in and of itself. As further stated by the court:
“I must ensure that the Stark regulatory scheme is consistent with the power given by Congress and the statute as it was signed into law. . . Loper Bright mandates that I carefully consider the regulations-without blindly deferring to any agency interpretation. Here, the Stark Regulations build the foundation of Relator’s Stark-based claim.”
The court went on to state:
“Over time the Stark Law (and accompanying regulations) has evolved into a labyrinth of multipart compliance requirements where the exception-to-the exception-to-the-exception is the norm. . . Perhaps, under Chevron, federal courts could wade through Stark Law claims by deferring and defaulting to an agency’s interpretation. . . That deference is no longer required; indeed, that deference is no longer acceptable. Inevitably, Loper Bright will begin to ripple through the Stark Regulations. The only question for courts is when and how.”
This health lawyer could not have said it better. It remains to be seen what will come of this case and other cases like it once courts begin to “wade through” the underlying Stark Law regulations and regulatory guidance. As every series to a great saga ends: to be continued….
[1] The relator’s case appears to depend in part on the definition of “indirect compensation arrangement” and the interpretation of the “indirect compensation exception”.
