May 8, 2018

Should federal courts defer to federal agencies interpreting *state* law?

By Deborah J. La Fetra Senior Attorney

Critical access hospitals” in rural Kentucky serve indigent patients in isolated areas of the state. To help these cash-strapped facilities remain open and provide healthcare to underserved populations, Congress enacted subsidies for these hospitals via the Medicare and Medicaid laws and regulations to reimburse reasonable costs. In 2009, the Department of Health and Human Services enacted a new policy to administer these subsidies by interpreting Kentucky tax laws in a way that effectively reduced the amount of reimbursement. Several rural health providers sued, but in Breckinridge Health, Inc. v. Price, the Sixth Circuit Court of Appeals deferred to the agency’s interpretation of the state tax laws and ruled that HHS’s policy decision was not “arbitrary, capricious, or manifestly contrary to the Medicare statute.”

Chevron deference applies only “when it appears that Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority,” United States v. Mead Corp.(2001), and when the agency has “the degree of regulatory expertise necessary to [the] enforcement” of the provision at issue. Babbitt v. Sweet Home Chapter of Cmtys. for a Great Or. (1995). Neither justification applies when a federal agency interprets state law that the agency neither enforces nor administers.

Breckinridge’s recently filed petition for writ of certiorari presents the question of whether courts should defer to federal agency interpretation of statutes or regulations that involve embedded questions of state law. Circuit courts are split on this question. PLF filed an amicus brief today in support of the petition, arguing that the issue is of national importance because it extends well beyond the Medicare and Medicaid statutes considered here. Many agencies are called upon to interpret state laws and regulations in a variety of contexts, raising significant federalism concerns. PLF’s Center for Separation of Powers argues that all or most Chevron applications are unconstitutional (or at least highly questionable) because they violate a judge’s Article III duty to render independent rulings. For this reason, the Court should be especially reluctant to extend Chevron deference, especially when its own theory cannot support it. PLF urges the Court to grant the petition and, on the merits, to hold that no deference is warranted with regard to federal agency interpretations of state law.

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