NOTE TO READERS: Much of the public’s interest in the Supreme Court this week will be focused on the historic hearing on Wednesday on abortion rights.  However, the Court will hear other cases earlier in the week. The discussion below looks at two of those cases, putting them in a broader context of how law is made within the massive and complex federal government that exists today.  One of these cases – Becerra v. Empire Health Fund — will be heard tomorrow, beginning at 10 a.m.; the second – American Hospital Association v. Becerra – will be heard on Tuesday, beginning at about 11:30 a.m.

The ”live” audio (without the video) of each case can be heard at those times at Quick Links on the Supreme Court’s homepage – supremecourt.gov – as well as on c-span.org/supremecourt and at C-Span Now App.

Background:  When George Washington began his Presidency in 1789, his Cabinet had four members: secretaries of State, Treasury, and War, plus the Attorney General (the Justice Department itself would not be formed until 1870). That was the whole of the Executive Branch then.  Vice President John Adams was not part of the Cabinet; he was considered to be an officer in Congress.

When Joe Biden began his Presidency this year, his Cabinet included Vice President Kamala Harris and 15 major departments – with the 15^th added in 2002 when Congress combined 22 federal agencies into the new Department of Homeland Security.  The Executive Branch now includes 96 independent executive units and 220 components of the departments, according to the U.S. Government Manual.

Collectively, that is the federal bureaucracy.  Many if not most of these agencies have the power to “make” law, in the sense of issuing binding regulations and policy guidance.  Constitutionally, of course, Congress alone holds the legislative power under Article I, but it has delegated wide authority to “make” law to agencies that, while some have significant independence, are all a part of the Article II Executive Branch.

Critics of the complexity and power of the modern federal government have pejoratively referred to the bureaucracy as “the unelected fourth branch of government.”  But, as generations of Americans have learned in high school civics class, there are still only three branches of the national government.  The third branch, created by Article III, is the Judiciary, and as Chief Justice John Marshall famously wrote in 1804: “It is emphatically the province and duty of the Judicial Department to say what the law is.”

Even so, the Supreme Court for some four decades has been showing considerable respect for the Executive Branch as it carries out the duties delegated to the agencies by Congress, in the process writing a vast deposit of binding law.  The most significant ruling embodying that respect, or deference, was the Court’s 1984 decision in the case of Chevron USA v. Natural Resources Defense Council.  That was a ruling upholding federal regulation of air pollution.

The resulting “Chevron doctrine” set up a two-step inquiry when a government agency’s rule or regulation is challenged in court.  First, has Congress spoken clearly in the text of the law to guide the agency in writing regulations? If the answer is “yes,” the agency rule must conform closely to the text as written.  Second, if a court decides that the law is silent or ambiguous on the point, then a court is to assume that Congress meant to give the agency leeway in writing rules.  In that situation, the court must defer to any agency rule that is a reasonable or permissible way to interpret the text.

Several of the current conservative Justices have questioned whether to continue following that approach.  They have argued that it takes away too much of the power of the Judiciary, essentially transferring it to the Executive Branch, weakening the core constitutional concepts of checks-and-balances and separation of powers.

That questioning of the doctrine is very much in the background this week as the Court hears two cases in which the Department of Health & Human Services has written regulations to carry out two important sections of the Medicare law.  Those sections allow reimbursements to hospitals (1) for the costs of hospital care for low-income patients, and (2) for the costs of drugs for out-patients – many of them poor – served by the hospitals.

It would shake the federal bureaucracy from end to end if the Court were to use these cases to cast aside altogether the Chevron doctrine, or to seriously weaken it, by reclaiming interpretive powers for the federal courts.  In fact, the federal government cannot win either of these cases without deference by the Court to the rules that HHS wrote.

The Chevron decision was not a constitutional ruling, but only one to guide the federal courts’ use of their own judicial authority.   The Court if it wished to do so could overrule it.  In fact, it has been asked specifically by a conservative advocacy group taking part in both of these new cases to do just that.

In nearly identical briefs, the Americans for Prosperity Foundation has argued that the doctrine is unconstitutional, a violation of Articles I, II and III.  Pointedly, those briefs quote a good deal from writings criticizing the doctrine from three of the current Court’s conservative Justices – Neil M. Gorsuch, Brett M. Kavanaugh and Clarence Thomas.

In the case set for hearing on Tuesday, the challenge to the Chevron doctrine continues, with groups like the U.S. Chamber of Commerce and the National Association of Home Builders filing briefs that urge the Court to significantly narrow that concept, so that a court ruling that a law is ambiguous should be made only as a last resort, after making every effort to find that the law speaks clearly enough to limit federal agencies’ discretion.

What are these new cases about?

The Medicare program was created by Congress in 1965 as a national health insurance program for the aged and the disabled.  It now serves more than 61 million Americans at a cost of nearly $800 billion a year.  Administered by the Health & Human Services Department, it is a complex program functioning under a huge volume of regulations.  The two cases before the Supreme Court involve separate rules for two schemes for reimbursing hospitals for Medicare services.

The program for paying hospitals that treat low-income patients, at issue in the case being argued tomorrow, Becerra v. Empire Health Foundation:

Before 1986, Medicare provided for reimbursement of hospitals for in-patient care based on “reasonable” costs of providing the care, with no variation based on the nature of patients they served.  Congress changed its approach after concluding that it did not take account of the fact that some hospitals – known as “safety net” hospitals — have considerably higher costs because they serve low-income patients who often have no private insurance or who tend to have more lingering or serious illnesses.

Under this change, a hospital that serves a disproportionate share of low-income patients receives added reimbursement, based upon the combination of two formulas that count “patient days” – that is, the number of days a patient is in the hospital.  One formula is keyed to Medicare patients, one to those covered by Medicaid benefits – a separate program within Medicare that is only for the poor.

Because it often happens that a low-income, sicker person will remain in the hospital longer, many of them run out of eligibility for Medicare hospital coverage (Part A).  But, under a rule that HHS adopted in 2004 and put into effect in 2005, it included in the calculation “patient days” when a hospital was continuing to treat a low-income patient but HHS was no longer providing Part A benefits for that patient’s care.

This had the effect of reducing the reimbursement that these “safety net” hospitals were receiving from HHS.  A California hospital system sued HHS, claiming that the agency had gone beyond what Congress had specified.  A federal appeals court, noting that Congress had intended that a patient covered by Medicare had an “absolute right” to benefits, relied on the first step of the Chevron doctrine to nullify HHS’s rule – that is, finding that Congress had not spoken ambiguously but precisely in assuring such benefits, so HHS had no discretion to count days for patient care for which it had not paid the hospital.

HHS appealed to the Supreme Court, noting that different appeals courts had upheld the HHS rule and urging the Justices to clear up the conflict.  It is noteworthy that nowhere in the HHS legal filings in the Court does it discuss whether the Court should reconsider the Chevron doctrine, repeatedly arguing instead that its 2005 rule is a “reasonable” reading of the law.

The program for reimbursing hospitals for their costs of prescription drugs provided to out-patients, at issue in the case on Tuesday, American Hospital Association v. Becerra:

Under Part B of the Medicare health insurance program for the aged and the disabled, HHS reimburses hospitals for prescription drugs that are provided to out-patients and billed separately from other medical services.

This case involves HHS rules that mostly affect hospitals that provide Medicare services to lower-income people or communities – the so-called “340B Program.”  Hospitals in that group benefit from a requirement that drug manufacturers provide discounts on thousands of prescription drugs.

HHS, in a rule it adopted in 2018, decided that it was not appropriate to subsidize those hospitals through Medicare payments for separately billed drugs.   HHS said that the Medicare law gave it authority to “adjust” drug reimbursement rates.  Its rule eliminated the gap between customary Medicare reimbursement rates for drugs and the costs of drugs to the 340B Program hospitals.  That resulted in a cut of $1.6 billion in annual funding to those hospitals.

The American Hospital Association and other groups of health providers participating in the 340B Program sued HHS, contending that Congress had made clear that it wanted to subsidize the drug purchases of hospitals taking part in that program.  A federal appeals court upheld the HHS rule, however, concluding that the Medicare provision at issue was unclear, allowing HHS the discretion to adjust reimbursement rates.

The health providers took the case to the Supreme Court, relying on the Chevron doctrine to argue that HHS has deviated from what Congress explicitly intended, so its rule cannot stand.  In answering that appeal, HHS’s lawyers challenged the legal right of the hospital groups even to file their court challenge, relying on a provision in the Medicare law that bars the federal courts from even reviewing some of HHS’s actions.  When the Supreme Court agreed to review the reimbursement question, it also told lawyers to argue whether this lawsuit was barred.

Significance of these two cases:  Much is at stake, financially, for the federal budget and for health providers because of the sheer size of the programs involved and their cost.  But the more fundamental issue is whether HHS, and other federal agencies, are facing a serious reduction in the discretion they have to write rules to carry our Congress’s legislative policies.  Given the internal skepticism within the Court about the Chevron doctrine, these cases have potential for producing sweeping change for the federal administrative structure.

There is another case being argued on Tuesday morning.  It is a test of whether federal law against discrimination based on disability provides a remedy of money damages for bias against those who suffer emotional distress.  It will be discussed separately in this space tomorrow.