July 16, 2024 • 44 mins
A major transformation in US law — the end of the Chevron doctrine and judges deferring to federal regulators— is likely to significantly ease risks for industries, from financials to telecommunications to technology and health care. This Votes and Verdicts episode features insights of BI analysts Matthew Schettenhelm, Elliott Stein, Justin Teresi and Duane Wright about the Supreme Court’s June 28 decision. They also look at the broader decline of deference to regulators, including a focus on impacts for industries and companies.
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Episode Transcript
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Speaker 1 (00:15):
Hello, and welcome to the Votes in Verdicts podcast hosted
by Bloomberg Intelligence, Bloomberg LP's investment research platform. In this
podcast series, we talk about the intersection of business policy
and law. My name is Matt Shettenhelm. I'm an analyst
with BI covering litigation and policy in the TMT space.
The Supreme Court on June twenty eighth overturned the Chevron doctrine.
(00:39):
Over a month before that ruling, my Bloomberg Intelligence colleagues
Elliott Stein, Justin Toreesie, Dwayne Wright and I put out
a detailed report anticipating the ruling and explaining the larger
demise of deference to regulators. And then days after the ruling,
on July second, we held this call to discuss our
report and to explain what this critical legal development means
(01:00):
for industries and businesses. Please enjoy. Okay, good afternoon, everyone,
and welcome to the Bloomberg Intelligence webinar the demise of
the Chevron Doctrine. A couple housekeeping notes before we begin.
Today's presentation will be recorded and available for playback. You
can ask a question to us by submitting one in
(01:22):
the Q and a box you see at the bottom
of your screen, and after the webinar, we're all available
to answer further questions on this topic. A brief note
about Bloomberg Intelligence. BI Research delivers independent perspective, interactive data
and investment research on companies, industries, and global markets. Our
(01:45):
team of three hundred and fifty professionals helps our clients
make informed decisions. We cover companies, industries, markets from the
perspective of strategy, equity, credit, ESG, government, and litigation. My
name is at Shuttinghelm. I'm a litigation and policy analyst
with Bloomberg Intelligence focused on the TMT sector, and I'm
(02:06):
joined today by my fellow Bloomberg Intelligence analyst, Dwayne Wright,
who's focused on healthcare, and Justin TREESI focused on industrials
and antitrust. Unfortunately, Elliott Stein isn't able to join us
today due to a death in his family, but he
shared some thoughts on the impacts on the financial sector
and we'll get to that in a little bit. Dwayne,
(02:27):
do you want to tell us more about the deep
dive report we did.
Speaker 2 (02:30):
On this Yeah, thanks, Matt.
Speaker 3 (02:32):
So we wanted to hold this webinar to highlight a
recent deep dive report we put out about the demise
of deference to regulators. We put out a bive report
on May seventeenth, anticipating that the Supreme Court would curtail
the Chevron doctrine and explaining what it would mean. After
the court's decision, on ju twenty eighth, we updated our report.
(02:55):
If you want to look for it, you can find
it on a terminal ATBI.
Speaker 2 (02:59):
Deepdep all New.
Speaker 3 (03:03):
You can also find some of our other deep Dye reports,
especially one that the team put together on the Inflation
Reduction Act and how the US selection outcome would affect
or could affect things like the drug negotiation process e.
The text credits clean out energy and other components of
the IRA. Again it's DIDEP. And with that, justin, would
(03:26):
you like to talk talk about how we're going to
structure the call today?
Speaker 4 (03:30):
Sure, thanks Drayne. So here's the plan for how we're
going to roll this out. First, we'll give an overview
of what we're planning to talk about what the court
decided and what that means going forward. And we're going
to do that as much as the cannon's in pretty
simple plain English. Try to leave the legally as to
others and really focus on what the ruling means as
a practical matter. Then we're going to discuss how the
demise of defference could impact particular sectors most immediately. And
(03:54):
it's not intended to be a comprehensive report. There are
fifty three titles of US Code, there's dozen of different
federal regulatory agencies in Washington, d C. So obviously impossible
to really get to the far reaches of where Chevron
the impact of the Chevron demise is really going to touch.
But we each bring expertise in some specific areas to
the conversation, and with that we really want to highlight
(04:17):
how the development impacts those areas that we know best.
So let's get into it. Matt, if you could give
us an overview of what we're talking about and why
any of this really matters going forward from this point.
Speaker 1 (04:28):
Here, Yeah, thanks, justin so trying to keep it in
simple plane English, plain English. This really goes to the
heart of how federal regulation has worked for the past
forty years. Congress passes federal laws, but Congress leaves gaps.
It doesn't answer all the questions about what federal law
(04:50):
applies to or how far it reaches, and so for
forty years, the Chevron doctrine has explained how those gaps
it filled, how those questions in federal law get answered,
And the doctrine says it's the regulators themselves, the SEC,
the FDA, the FCC who get to fill those gaps,
(05:11):
who to get to determine how far far federal law reaches.
And of course, virtually every time a federal agency does
that it expands or contracts federal law, they get sued.
And Chevron is the test that applies in courts when
judges look at did the agency do this properly? And
(05:32):
in those lawsuits, the Chevron doctrine has said that as
long as the regulator's view of the federal law passes
a very light touch, reasonable test, the court must accept it.
And that's true even if the court itself thinks it
has a better view of the law. The idea here
is that judges aren't experts in this stuff. The regulators are.
(05:55):
So there's always been a check from the courts on agencies.
It's always been very light touch, very deferential. The regulators
themselves get great discretion to interpret federal law by making
policy calls that are specific to the areas that they
know based on their expertise.
Speaker 4 (06:13):
So that's really how deference has operated so far. But
it's going away. How can you explain exactly how it's
going away?
Speaker 1 (06:19):
Yes, So it's really happened in three steps. So First,
as the courts have become increasingly led by Republican appointed judges,
they become more skeptical of regulator's overreach. And increasingly courts
have been deciding these agency cases without even mentioning Chevron.
(06:40):
Deference Chevron even before it died last week, it's been
quietly disappearing slowly over the last decade. Number two, In
a twenty twenty two case involving the EPA, the Supreme
Court announced what's known as the Major Questions doctrine, and
in a nutshell, the Court said that anytime a regulator
(07:01):
tries to answer a major question about what federal law means,
it can't do so unless Congress granted it that power clearly.
In other words, only Congress can answer the major questions
about federal law. The regulators themselves can't. And then the
third step came at the end of last week, the
Loper Right decision. After that twenty twenty two EPA Major
(07:25):
Questions decision, no one really knew which questions were major
and which ones weren't. And in theory, agencies still got
deference on the non major ones and so but the
loper Right decision kills everything. It's no longer there's no
longer a situation where courts must defer to the regulatory
(07:46):
agency even on non major questions. The courts themselves get
to decide how far federal law reaches. The regulators don't,
and they can try to persuade the courts, but it's
the courts, and ultimately the courts are guided by the
US Supreme Court that will determine what federal law means.
And the US Supreme Court, of course is very business
(08:08):
friendly friendly, very skeptical of aggressive regulation.
Speaker 4 (08:13):
So here comes the big question, And well, Congress is
basically set an interest resolved as now by giving regulators
more power.
Speaker 2 (08:20):
Yeah, in theory, Congress could.
Speaker 1 (08:22):
In theory, Corress could restore Chevron Defronce or on every
one of these issues where agencies are expanding their power,
Congress could step in and give the agencies the power
that they might seek under Chevron. But it's extremely unlikely
to happen. Congress struggles to reach consensus on just about everything,
and there's going to be a very limited appetite to
(08:45):
expand regulate regulator's power. And so in my view, this
development will be very good news for many industries that
prefer an environment of light touch federal regulation.
Speaker 4 (09:00):
Great, thanks, Matt. That's a great overview. And with that,
I think it's probably a good time to transition into
how this development impacts specific sectors moving forward. And Elliott Stein,
as you said, covers financial litigation, couldn't be here with
us today, but I know he sent you a series
of comments that he wanted to share with the group.
Speaker 1 (09:17):
Yeah, yeah, let me let me dive into what Elliott
Elliott sent us.
Speaker 2 (09:20):
So Elliott's thoughts were basically this so so he said.
Speaker 1 (09:24):
As an initial matter, the overruling of Chevron deference is
indicative of a larger trend this the demise of judicial
deference to administrative agencies. The Major Questions doctrine is of
course another example of that trend. And to put a
finer point on it, when the Fifth Circuit on June
(09:45):
fifth struck down the SEC's private funds rule, the court
cited neither Chevron nor the Major Questions doctrine. Instead, the
Court determined that the relevant statutes Dodd Frank and the
Investment Advisors Act in that case were clear on their
and that the SEC had exceeded its.
Speaker 2 (10:02):
Authority in issuing the rule.
Speaker 1 (10:04):
So, even without Chevron or the Major Questions doctrine, we've
been noting for some time that the conservative shift of
the federal judiciary has imperiled President Biden's financial regulation agenda,
and the overruling of Chevron just reinforces that trend. Now
there are a large number of financial regulations issued by
(10:24):
the Biden administration that are currently being challenged in court.
We expect many of those challenges to succeed. For example,
we expect the CFPB's credit card late fee rule to
be struck down in the courts. That rule seeks to
cap credit card late fees, which would eliminate about ten
billion dollars in fees that quarity card issuers like JP, Morgan,
Bank of America, Capital One, and American Express collect. Indeed,
(10:48):
the rule is already put on hold by a federal
District court judge in Texas who found compelling the arguments
made by the US Chamber of Commerce and other bank
trade groups that the CFP had CFP had exceeded its
authority under the Dodd Frank and the Credit Card Accountability,
Responsibility and Disclosure Act, better known as the Card Act.
We also expect the SEC's climate disclosure rule to be
(11:10):
struck down in court, in part due to the major
questions doctrine, since there's a strong argument that the rule
is a pretext for emissions regulations, which Congress has delegated
the EPA, not the SEC. Other lawsuits Elliott's watching concern
SEC rules over proxy advisors, short sales, and securities lending,
(11:30):
the definition of government securities dealers, and the consolidated Consolidated
Audit trail. Also watching lawsuits challenging CFPB rules over small
business lending and the agency's examination manual, and a lawsuit
against the fbiic FED and OCC over changes to the
Community Reinvestment Act. And finally, we think this trend of
(11:52):
court's deferring less to federal regulators will help coinbase and
other crypto companies in their defenses against see enforcement actions.
These cases concern the meeting of the term investment contract
in the federal securities laws. We expect the issue to
eventually reach the Supreme Court, which we anticipate will revisit
(12:13):
its seminal how we decision and narrow the Howie test
in a way that is favorable to coinbase so that
secondary transactions of digital assets are less likely to be
deemed securities that fall under the purview of the SEC.
If you would like to discuss any of these cases
and in more detail, please don't hesitate to reach out
to Elliott.
Speaker 2 (12:34):
I know he wanted to be here today.
Speaker 1 (12:35):
But again apologize he couldn't be here, and I think
we'll leave it at that.
Speaker 4 (12:39):
On the financial side, great, thanks Betan, I'll that go
with that as well. Definitely reach out to Elliott's sign
if there's any questions moving forward on the financial regulations
we discussed here, So Matt, let's search the impacts in
the TMT sector. Think you said this at a kind
of a major impact on broadband regulation at the FCC.
Speaker 1 (12:56):
Yeah, I think this should lead to a major victory
for broadmand companies like AT and T, Charter, Comcast, TE,
T Mobile, and Verizon. The question is whether these companies'
most important products, wired and wireless broadband, should be subject
to federal regulation at all. The courts have struggled for
this for two decades, but here's what's critical to know
(13:19):
about that litigation. Chevron deference has been at the heart
of that litigation. When the Obama era FCC restored federal
broadband regulation, it only won in court because of Chevron deference.
The courts had to defer to the FCC. It's just
not going to happen anymore. And in the second quarter
of this year, the Biden era FCC tried to restore
(13:42):
again aggressive federal broadband regulation under the Communications Act. And
the case is now in the Sixth Circuit Court of Appeals.
And although the FCC won the last round of this litigation,
it's going to lose this one. It won't win this,
I don't think without deference, and so the result is
very likely going to be no or minimal regulation of
(14:04):
these companies most important product at the federal level. How
about Internet regulation, Yeah, that's in trouble too. So Congress
has struggled to reach consensus on a data privacy build
that goes after Google and Meta's data privacy practices, and
so the Federal Trade Commission has started a process to
(14:26):
make rules that would regulate the digital ad business what's
really at the heart of their business model? And FTC
chair Lena Kahan has she calls it surveillance advertising, and has,
you know, threatened to propose pretty aggressive rules using the
FTC's power over unfair or deceptive practices. So her idea
(14:49):
is to expand that term in federal law unfair deceptive
to take aim at the digital ad business model. And
again here what we can say is that effort is
likely to run directly into this regulatory wall. So if
the FDC is aggressive with its digital ad regulations, which
(15:09):
I think it planned to be, at least, the courts
are almost certain to strike that down definitely.
Speaker 4 (15:16):
And I know you you've also written about the FDC's
efforts to regulate a lot of areas more broad.
Speaker 2 (15:22):
Can you address that a bit more? Yeah, So it
goes really beyond tech.
Speaker 1 (15:27):
The FDC is claiming a relatively novel power to make
competition unfair competition rules, and it's first try at using
that new power, it's discovered, is to strike down non
compete clause agreements thirty million contracts that it's it's it
claims are now illegal using its new rule making power.
(15:47):
That's just not going to work anymore. Expanding stretching your
powers under federal law in novel ways, the courts are
going to strike that down. In fact, we could see
a stay of that non compete clause UH decision this week.
Any industry impacted by that sort of rule making, or
any M and A impacted by unfair competition rules that
(16:12):
that the FDC might try to develop, that they're going
to escape that sort of regulation. In my view, the
FDC is picking about the worst possible time to try
to expand its rulemaking powers in novel ways.
Speaker 2 (16:26):
It's just not going to fly.
Speaker 1 (16:28):
And and with that, justin I, let's let's transition to
two areas. You know, well, I know you looked at
some EPA rules that that might be at risk.
Speaker 2 (16:38):
Can you tell us more about that? Sure, thanks, Matt.
Speaker 4 (16:41):
So so really I think important when we kind of
take a turn here and look at the EPA is
to really acknowledge the labyrinth and the degree of statute
that the EPA really has under its jurisdiction, so many
different areas of environmental policies, so many different areas of life,
if you will, so just providing these two particular recent
rules rule finalizations as examples for the kinds of things
(17:03):
that might be susceptible in some ways to a change
and chevron deference here, the first being both relate to
p fas or forever chemicals, as they're being referred to
right now and kind of the mainstream media, if you will.
Long story short, p fast chemicals come with particularly unpleasant
health effects for humans when they build up in the
human body, right So we're talking about the particular cancers,
hormonal issues, things like that. But with kind of that
(17:25):
as the base for moving forward. This spring, the EPA
finalize a rule that have under the Safe Drinking Water
Act that involves tapping the level of allowable p fas
in people's drinking water. So authorities nationwide now have to
measure and remediate for the presence of p fas and
drinking water that are beyond a particular allowable limit under
the final rule, what they also did when they promulgated
(17:49):
that regulation is they issued something called the hazard Index,
And what they did is they required authorities to not
only measure for particular substances, but also mixtures of those
substances in drinking water. So that's the first kind of
rule that came out in April, and something for us
to note here. The second involves the designation of p
FAS chemicals, two of them anyway, as hazardous substances under
(18:13):
the CIRCLA or what's better known to folks as a
super fun law, opening the door to kind of designating
physical sites for cleanup and remediation efforts if those particular
p FAS chemicals are present in those sites at a
particularly unpleasant amount. So what's important here is the billions
of dollars involved with both of these rules that are
anticipated in terms in the order for responsible parties to
(18:35):
become compliant with both of them. And you know, both
have their wrinkles here with regard to Chevron, and we'll
get into that a bit later, but you know, particularly
interesting wrinkle with the way the EPA operates too, is
that on the one hand, here you have the folks
who made these chemicals in the first place, the three m's,
two ponds and Camors of the world, who you know,
might see a shift in liabilities for any of these
(18:57):
cleanup efforts because of any changes here now under the
Chevron deference. And again this applies to all areas of
e p A regulation. But on the other side of
the coin, there is this whole green economy and companies
that stand a benefit from things like remediation costs and
and you know, putting out you know, green technologies, you
know green a whole wide range of spaces, which we'll
(19:18):
talk about too. So so there is this kind of
before and after effect here with with with these e
p A regulations and will industries you know, traditionally might
benefit from a roll back of Chevron, there's also the
possibility that they could be in some way harmed by that,
depending on what the nature of their business is over
at e PA.
Speaker 2 (19:35):
Got it? Got it?
Speaker 1 (19:36):
So that I mean that that's a good overview of
the rules. Is there already litigation litigation challenges coming to
these rules and and how does how does overruling Chevron
change that that landscape?
Speaker 4 (19:48):
Yeah, definitely, And you know again I think you know
the e p A, you know, these rules seem to
be unfairly strong footing. You peoput a lot of time,
and I think, you know, justification into both rules. But
when they were ruled out, you know, I think the
challenge just petitions for review I've already been filed in
the DC circuit. We're expecting those, and you know, we
haven't been anticipating challenges based on the EPA's reported failure
(20:10):
to take costs of the rules into account or to
take public comments. It's a bit in relation to the
rules into account and the way that they were supposed to.
How Chevron kind of enters the fray here is that
you know, well, you know, it's not questionable really, and
it's well settled that things like capping the level of
substances and drinking water is good law and something that
EPA has the authority to do. You'll look kind of
(20:31):
zone in a little bit, a little bit zooming a
little further on that particular rule, and you look at
their use of this hazard in dex I mentioned whether
they're requiring from measuring mixtures of chemicals. Well, the statute
doesn't address this question of mixtures, So did EPA in
some way it surpass its authority when it decided to
do that. And from the standpoint of the Superfund law,
EPA is looking to other statutes and how substances were
(20:53):
designated under other statutes, But it remains the case that
as far as their actual Superfund law is concerned, this
is the very first time the APA has actually designated
new hazardous substances under that loss. There's not this existing
case law that already exists out there, kind of discussing
what the authority is to do that under the law itself.
So where there's some ambiguity where Chevron deference might have
(21:15):
been helpful in the past, now it's not there to
really protect them.
Speaker 1 (21:18):
Yeah, and one of those things that also plays a
role for agencies. It's sometimes not even ambiguity, but silence
in the statute has been enough for agencies to you know,
claim power to make rules, and so all of that
basically goes away now and it's in the hands of
the courts. But how much do you think the APA
accounted for the possibility of Chevron going away as it
(21:43):
finalized these rules.
Speaker 4 (21:44):
Sure, so you know we saw delay after delay with
the finalization of the rules. I think in many ways
it really was this practice of the EPA of really
trying to shore up the justification behind them as much
as they could from every standpoint, not just an agency
power standpoint, but all so the standpoint of you know,
cost benefits analysis and things like that that I also mentioned.
(22:05):
But there's no question that even the administration referred to
both of these these rules as historic and historic because
it really is the first time that a lot of
this action was taken with regard to forever chemicals, and
especially in the case of the super fun laws. So
this is something to really take into account here from
the standpoint of deference. You know, I think EPA did
what it could. But also an important wrinkle to kind
(22:26):
of mention here too is that, you know, for whatever reason,
if you know, I'm sure this is true for other
agencies as well, but forever whatever reason, if these rules
didn't go forward, you know, this is opening the door
to a situation where we see things like states continuing
that march forward. Before this this drinking cap or drinking
water cap was finalized by e PA, for example, ten
states already had a similar cap in place through through
(22:49):
their own regulatory scheme. So keeping that in mind too,
there's this all the other wrinkle here, where in the
absence of federal federal regulation or problems you might see
from Chevron decline, stay are kind of stepping in here
to fill that void in some ways as well, not
necessarily on the end of the story.
Speaker 1 (23:05):
Yeah, that's that's a great point, because if the federal
government is sort of paralyzed by this, the states aren't,
and and so that that is still out there, at
least in states that are inclined to regulate aggressively any
other EPA regulations that that could be on the line here.
Speaker 4 (23:25):
Yeah, so you know again that there's just so many
out there, and I think, you know, we really have
to sit back in a way and see the ambit
of of what this looks like from from what will
be challenged. And you know, from a historical standpoint too,
it sounds like all bets are kind of off and
everything's on the table again here in many ways. So
I think we really have have some time to before
we know the full extent to which this is going
(23:46):
to come into play. But another really recent rule for
ep that I think is also likely to be affected
in some ways. Was there the rule on vehicle emissions
that rolled out also this spring. This was hotly contested.
There's a lot of rhetoric around this. This many most
call it a Mandaday would say for two thirds of
new vehicles sold in the US to be electric in
some capacity by twenty thirty two. So the EPA used
(24:10):
the Clean Air Act basically to forward a lot of
that regulation. The questions arise as to well does a
cleaningir act really allow the EPA to do things like
regular tail pipe emissions or are we talking more about
factory emissions and things of the like. So all of
that again back on the table. Another big rule that
has that kind of bifurcated situation on where you've got
(24:31):
traditional automakers on one side who stand to benefit from
its demise, but then you've got ev manufacturers on the
other who also would be troubled if they were to
fall apart. So there you go.
Speaker 1 (24:42):
That's really helpful, I mean to me, I think all
of this fits like Elliott's notes referred to earlier about
how this is a larger trend and really the trend
all goes in one direction in my view anyway that
you know, it's just going to be very difficult. This
decision doesn't really change. It doesn't say agencies always going
(25:04):
to lose. You know, courts can still look to the
agencies to be persuaded by them, but the ultimate decision
maker here is the US Supreme Court on anything significant,
and that Supreme Court, we know how it has pretty
strong feelings about overreach of agencies, and I think we
just keep seeing that in every sector we look to
(25:27):
but thank you for that, justin that that's a that's
a nice overview. Last, but not least, Dwayne, I want
to bring you into this to to touch on the
healthcare side as we look as we think about healthcare
policy in this what's the broad theme? Are are there
pending policy disputes that could see different outcomes after the
(25:50):
Chevron decision last week?
Speaker 3 (25:51):
Yeah? Thanks, thanks Matt and just some great great to review.
I think as we look at FDA and CMS, the
are two agencies that stood and Drug Administration Center for
Medicare and Medicaid services with oversight of Medicare and Medicaid
and other health agencies. They've relied on some flexibility, and
(26:12):
we could see Congress being more clear and more prescriptive
from a legislation standpoint when new bills are passed will
open up agencies to legal challenge in terms of their
regulatory efforts. And I think what we saw and what
the FD had was some consistency and ft oversight where
(26:34):
there wouldn't see any second guessing of their decisions, especially
since many policy decisions are based on complex science. So
it's worth noting that while the business lobby Chamber of
Commerce maybe others supported the decision and may have submitted briefs.
We didn't see that from the trades for the life
(26:55):
science industry, So I think that's telling of some of
the flexibilities they see with with fd For f d
A and CMS, you know some specific examples of where
there are some pending policy disputes, and we've I've written
about these before, and I'll go over a couple now.
(27:17):
The first that comes to mind is the regulation of
laboratory developed tests. These are a subset of in vitro diagnostics.
They were designed and made for use in a single
clinical lab UH. FDA viewed LDTs as low risk UH
develop it developed for diagnosing a rare disease or for
(27:39):
use in smaller population. The FDA had exercise enforcement discretion
over LDTs and didn't require free market review or clearance
before use. Yet over time, these LDTs become more complex
and have been marketed nationwide even if the test is
run in a single lab. The FDA has for the
(28:02):
past excuse me, for the past several years, tried to
move in the direction of regulating these LDTs as medical devices.
There was a guidance in twenty sixteen ultimately got pulled.
This administration has moved forward with rulemaking and recently finalized
(28:23):
a rule that would require pre market review and other
quality system checks for tests that were marketed after the
final rule. The American Clinical Laboratory Association, which represents the
lab cores, the quests, and other labs, has sued the
FDA on grounds that it doesn't have the authority to
(28:45):
regulate LDTs because they believe their services and they're not
explicitly spelled out in the statute. In their view, Congress
would have to give them give the FDA the power
to regulate them, even though the FDA maintains authority to
do so. Now, what's interesting is given the timeline for
(29:08):
implementation with labs have to comply with device reporting beginning
May twenty twenty five, So are we looking at a
delay in implementation possible. We know that new administration or
a Trump administration will probably put the regulation on ice,
but if it goes the way of the court system,
(29:31):
it seems like they would view FDA authority here with
a bit of skepticism. I'd say the next step is,
if you follow this issue, could we see legislation here
which spells out FDA authority to regulate these tests and
what that authority is maybe regulating them separate from medical devices.
(29:52):
I think that it makes that scenario more likely eventually.
I don't think it's this year, but that is something
we could see. Another example is a more recent rule
on a nurse staffing mandate, which requires nursing homes to
have a nurse on duty for a certain number of
(30:12):
hours per day beyond what it's already were already have
in law right now, and there are some estimates or
studies that show only about twenty percent of nursing homes
or nursing facilities would actually be incompliance. So this could
be another area where CMS may have overstepped its bounds
in terms of mandating certain number of hours where nurses
(30:37):
are available. So these are a couple of things to watch,
and I could probably come up with several more, but
those are just two since they are very recent rules
that rely on some kind of flexibility in terms of
the FBA thinking or thought process of their authority.
Speaker 2 (30:54):
One more I wanted to ask you about Duina.
Speaker 1 (30:56):
The Inflation Reduction Act had drug price negotiation provisions, and
the drug companies are bringing constitutional cases to tied to
that do you think there are challenges to administrative action
in that area that are more likely now.
Speaker 3 (31:18):
It's quite possible, and I think we need to separate
kind of the constitutional claims that are being made about
whether Medicare the administration can do this and some of
the nuts and bolts of how the program is going
to be implemented defining certain terms, and I think that's
the piece I'll focus on, And we've focused on this
(31:41):
in the past, and it's largely because of how the agency,
the Medical Agency, has defined certain terms in the law too,
in particular that are very important for drug companies in
terms of whether they're drugs, these specific therapy that they
have is subject to negotiated pricing or not. And you
(32:03):
know whether a generic competitor comes on in the market,
either preventing their drug from going on the list or
getting it off the list faster. So there's two things
we like to focus on that are worth keeping an
eye on as its process unfolds. One is the term
single source drug, and then two it's the phrase that
(32:28):
is not in statute called bonified modified marketing of a
generic or bi similar as I said, bonified is not
in the Irish statute and it's a determination of what
is or when a generic is made available that prevents
the brand drug from being subject to negotiated pricing. CMS
(32:50):
came up with that term. It's something where they will
use it on a case by case basis that weighs
factors like generic utilization and included in a prescription drug
event data. Their point being they want serious competition in
the market to pull a drug off the list as
opposed to some token or nominal nominal generic marketing. Because
(33:15):
the statute just basically says marketing of a generic or
something to that effect, it's very very very loose. The
agency also defines a single source drug based on its
active ingredient so that it can multi It can group
multiple therapies with a different drug or biological license application
(33:40):
like Nordisk Novologue and biasp as. It's a diabetes drug,
same ingredient, different NDAs, so theoretically different drugs but same ingredient.
CMSs argue that the statute directs it to use data
that's aggregated ross susage, forms, and strength of the drug,
(34:03):
including new formulations of the drug, and as its basis,
we're focusing on the actual ingredient or active moiety drug companies,
no surprise would say that that interpretation oversteps the bounds
should focus on separate NDAs or blas for negotiation purposes.
(34:25):
So this is one of those things that could have
a significant impact down the road on potentially some of
these infused drugs that maybe moved to a subcutaneous version
where there's the active ingredient and maybe an inactive ingredient
that just helps with the absorption absorption of the mate
(34:46):
ingredient we're seeing go down that route and some others.
The subkey versions might be near the market but could
be swept in with older versions for price setting purposes.
Now these are all in guidance. It's it's worth pointing
that out. And CMS can basically say from one year
(35:06):
to the next, because what it does is released new
guidance for every applicable price year, they can pretty much
change UH the interpretation of that. And now if it's
the same administration, maybe we see the same interpretation review
for the next four years. A new administration might have
a different interpretation. But this is one of those things
(35:27):
where you might be able to see UH a challenge
to this administrative interpretation of pretty important provisions of the IRA.
Speaker 2 (35:39):
Excellent. Uh.
Speaker 1 (35:39):
And and one last question before we we wind up
Medicare and anything we should think about from a Medicare
perspective on this and any any response from lawmakers tied
tied to that.
Speaker 3 (35:51):
Yeah, I think generally speaking, you know, reimbursement decisions are
or could be in play. You know, one specific area
I like to focus on it and think about whether
this is something that might be right for action. Is
Medicare's coverage with Evidence development process or program where drugs
(36:14):
are cemester. The agency determines that some a new product, device,
or therapy it's reasonable and necessary for the Medicare population,
but maybe there needs to be more evidence in terms
of how it is applied to the Medicare population. CDs
(36:36):
not in statue, and it does limit patient access to
FDA approved items and services. It's again it's up to
Medicare to determine whether an FDA approved medical device or
drug is reasonable and necessary for the Medicare population, whereas
FDA standard is safe and effective. And so as part
(36:56):
of that mandate, the agency created cd to give that
access to therapies that might have had insufficient evidence while
that additional data is collected but that can also mean
limiting access to a therapy that's a lot narrower than
the approved label, or other restrictions like participating in a
(37:17):
clinical trial or a registry. So, you know, this is
a limitation that people talk about because we've seen with
some cd s, their CD in perpetuity that never seems
to end. Now, CMS would point to maybe their authority
(37:37):
is part of some reading of the statute that's just
not necessarily explicit in terms of CD but it could
be open to interpretation again, or maybe the courts would disagree,
you know, So this is one of those things where
we could still see challenges. I wonder if this means,
you know, you asked a question about Medicare, but just
(38:00):
to touch on FDA, if a lot of what they
do is now subject to second guessing, does this mean
they need more staff to focus on a lot of
these questions of safe and effective or what is or
is not a breakthrough when certain thresholds up been met.
Do they need more user fee dollars from the drug industry.
(38:23):
Now that's there's the User Fee Authorization Act for Medical
Devices Pharma bi Logics, and that is a way to
help get industry the regulated industry to help with the
process of moving the applications through the review process in
(38:45):
a more timely manner. Do we need more of those
and does that mean it shows up with the regulated
entities having to pay more for that process. It's quite
possible now in terms of Congress, they'll have to write
laws with greater specific specificity and less less than the
(39:07):
flexibility for agencies. It's worth noting that one member, Senator Cassidy,
Republican from Louisiana, he's the ranking member of the Health, Education, Labor,
and Pensions Committee. As jurisdiction over the the h part
the health, which is what I focus on. He sent
a number of letters to various federal agencies asking how
(39:28):
they would enforce laws as Congress writes them in light
of the ruling. I'll touch on one of our two
of them already touched on one. Actually they specific specifically
calls out whether or not i FT has authority to
the ld TS. So that's one area. He brings up
(39:51):
this issue of march and authority and the Biden administration's
proposal to basically give the or marching authority as a
whole allows the government to grant patent licenses to other
parties or to take the licenses for themselves for itself
and in cases where federal tax dollars helped fund the
(40:15):
patent owners R and D. So the Biden administration came
up with this framework that said it could do that
based on the cost of the drug if there's an
excessive price. The target has always been as it relates
to marching on the pharmacide or at least recently ex
standy a prostate cancer drug. So that framework of incorporating
(40:40):
prices or a drug price into a decision making process,
and whether exercise marching is something that Biden administration wants
to do, the opponents would say, well, that's not what
is allowed under the law. So that's one of those
things where we could see the courts less flexible to
(41:02):
the administracious interpretation. So overall, there's a lot to think
about in terms of how if G and CMS decision
making could be slowed or more technly structured moving forward.
Speaker 2 (41:14):
That's really helpful.
Speaker 1 (41:15):
I mean, listening to you guys talk about healthcare policy
and environmental policy. As a TMT analyst, it really underscores
how difficult it's going to be for generalist courts to
take up these questions and really be tasked with deciding
what is right and what is wrong. And there's really
inherently still going to be deference on a lot of
(41:38):
these questions, inevitably just based on the limits of the
court's expertise. But I think you are going to see
the courts not feel compelled to defer even on technical
areas where there's really there's potential disruption to business through
the regulation, is the way I think about it. So
a couple questions in the chat that popped up. First
(42:02):
of all, is the Federal Reserve impacted? I don't know
the answer to that directly, and i'd want to ask
Elliott and Elliott Stein who's not here, and Nathan Dean,
who is on our team as well, So I would
recommend taking that question up with them.
Speaker 2 (42:17):
On all of these areas, it's really turns on.
Speaker 1 (42:19):
The specifics of the statute in the field and how
that agency has used Chevron in the past to defend itself,
and so it's really specific to each So I'm not
going to try to hazard a guess on the Federal
Reserve directly, but I think you can reach out to
those guys. Another question, can you guys address how long
the challenge two agencies' actions take and just on average
(42:44):
to gauge the volatility of all of this.
Speaker 2 (42:47):
I don't know if you guys want to weigh in
on that.
Speaker 3 (42:53):
Good question. I think that's a case by case determination, right.
I don't think there's going to be one set rule,
one time frame timeline. It's too early, it's my view.
Speaker 2 (43:08):
Yeah, I can.
Speaker 1 (43:10):
I can add an in my area in you know,
generally FCC FTCU.
Speaker 2 (43:16):
They make a rule.
Speaker 1 (43:19):
You know, it takes takes the agency nine to twelve
months to make a rule.
Speaker 2 (43:23):
Then you sue the FCC.
Speaker 1 (43:26):
And the the immediate suit for FCC cases goes to
a court of appeals, the DC Circuit. Typically that takes
twelve to fifteen months for that court to decide. Typically,
then there's one more review above that. You could go
to the Supreme Court. That takes a year to two
so the whole process can take three years. Other agencies,
(43:47):
the challenge can go directly to a district court, so
below the court of appeal. So that adds an extra
step in the process. So add an extra year year
and a half to what I said before. So everything
about agency rulemaking and the litigation challenging that is slow,
and that nothing about the Chevron development this week changes
(44:07):
that agencies still.
Speaker 2 (44:09):
Are going to need to make rules, They're still going
to be challenged.
Speaker 1 (44:12):
It's just that the courts get to say whether they're
right or wrong, and there's no binding deference to the
agency about what it's trying to do. Thank you for
joining this episode of Votes and Verdicts. If you have
any questions about this issue or other litigation and policy developments,
please reach out to me, Matt Schuttenhelm, and please join
(44:32):
us for future episodes of Votes and Verdicts by Bloomberg
Intelligence
Hello, and welcome to the Votes in Verdicts podcast hosted
by Bloomberg Intelligence, Bloomberg LP's investment research platform. In this
podcast series, we talk about the intersection of business policy
and law. My name is Matt Shettenhelm. I'm an analyst
with BI covering litigation and policy in the TMT space.
The Supreme Court on June twenty eighth overturned the Chevron doctrine.
(00:39):
Over a month before that ruling, my Bloomberg Intelligence colleagues
Elliott Stein, Justin Toreesie, Dwayne Wright and I put out
a detailed report anticipating the ruling and explaining the larger
demise of deference to regulators. And then days after the ruling,
on July second, we held this call to discuss our
report and to explain what this critical legal development means
(01:00):
for industries and businesses. Please enjoy. Okay, good afternoon, everyone,
and welcome to the Bloomberg Intelligence webinar the demise of
the Chevron Doctrine. A couple housekeeping notes before we begin.
Today's presentation will be recorded and available for playback. You
can ask a question to us by submitting one in
(01:22):
the Q and a box you see at the bottom
of your screen, and after the webinar, we're all available
to answer further questions on this topic. A brief note
about Bloomberg Intelligence. BI Research delivers independent perspective, interactive data
and investment research on companies, industries, and global markets. Our
(01:45):
team of three hundred and fifty professionals helps our clients
make informed decisions. We cover companies, industries, markets from the
perspective of strategy, equity, credit, ESG, government, and litigation. My
name is at Shuttinghelm. I'm a litigation and policy analyst
with Bloomberg Intelligence focused on the TMT sector, and I'm
(02:06):
joined today by my fellow Bloomberg Intelligence analyst, Dwayne Wright,
who's focused on healthcare, and Justin TREESI focused on industrials
and antitrust. Unfortunately, Elliott Stein isn't able to join us
today due to a death in his family, but he
shared some thoughts on the impacts on the financial sector
and we'll get to that in a little bit. Dwayne,
(02:27):
do you want to tell us more about the deep
dive report we did.
Speaker 2 (02:30):
On this Yeah, thanks, Matt.
Speaker 3 (02:32):
So we wanted to hold this webinar to highlight a
recent deep dive report we put out about the demise
of deference to regulators. We put out a bive report
on May seventeenth, anticipating that the Supreme Court would curtail
the Chevron doctrine and explaining what it would mean. After
the court's decision, on ju twenty eighth, we updated our report.
(02:55):
If you want to look for it, you can find
it on a terminal ATBI.
Speaker 2 (02:59):
Deepdep all New.
Speaker 3 (03:03):
You can also find some of our other deep Dye reports,
especially one that the team put together on the Inflation
Reduction Act and how the US selection outcome would affect
or could affect things like the drug negotiation process e.
The text credits clean out energy and other components of
the IRA. Again it's DIDEP. And with that, justin, would
(03:26):
you like to talk talk about how we're going to
structure the call today?
Speaker 4 (03:30):
Sure, thanks Drayne. So here's the plan for how we're
going to roll this out. First, we'll give an overview
of what we're planning to talk about what the court
decided and what that means going forward. And we're going
to do that as much as the cannon's in pretty
simple plain English. Try to leave the legally as to
others and really focus on what the ruling means as
a practical matter. Then we're going to discuss how the
demise of defference could impact particular sectors most immediately. And
(03:54):
it's not intended to be a comprehensive report. There are
fifty three titles of US Code, there's dozen of different
federal regulatory agencies in Washington, d C. So obviously impossible
to really get to the far reaches of where Chevron
the impact of the Chevron demise is really going to touch.
But we each bring expertise in some specific areas to
the conversation, and with that we really want to highlight
(04:17):
how the development impacts those areas that we know best.
So let's get into it. Matt, if you could give
us an overview of what we're talking about and why
any of this really matters going forward from this point.
Speaker 1 (04:28):
Here, Yeah, thanks, justin so trying to keep it in
simple plane English, plain English. This really goes to the
heart of how federal regulation has worked for the past
forty years. Congress passes federal laws, but Congress leaves gaps.
It doesn't answer all the questions about what federal law
(04:50):
applies to or how far it reaches, and so for
forty years, the Chevron doctrine has explained how those gaps
it filled, how those questions in federal law get answered,
And the doctrine says it's the regulators themselves, the SEC,
the FDA, the FCC who get to fill those gaps,
(05:11):
who to get to determine how far far federal law reaches.
And of course, virtually every time a federal agency does
that it expands or contracts federal law, they get sued.
And Chevron is the test that applies in courts when
judges look at did the agency do this properly? And
(05:32):
in those lawsuits, the Chevron doctrine has said that as
long as the regulator's view of the federal law passes
a very light touch, reasonable test, the court must accept it.
And that's true even if the court itself thinks it
has a better view of the law. The idea here
is that judges aren't experts in this stuff. The regulators are.
(05:55):
So there's always been a check from the courts on agencies.
It's always been very light touch, very deferential. The regulators
themselves get great discretion to interpret federal law by making
policy calls that are specific to the areas that they
know based on their expertise.
Speaker 4 (06:13):
So that's really how deference has operated so far. But
it's going away. How can you explain exactly how it's
going away?
Speaker 1 (06:19):
Yes, So it's really happened in three steps. So First,
as the courts have become increasingly led by Republican appointed judges,
they become more skeptical of regulator's overreach. And increasingly courts
have been deciding these agency cases without even mentioning Chevron.
(06:40):
Deference Chevron even before it died last week, it's been
quietly disappearing slowly over the last decade. Number two, In
a twenty twenty two case involving the EPA, the Supreme
Court announced what's known as the Major Questions doctrine, and
in a nutshell, the Court said that anytime a regulator
(07:01):
tries to answer a major question about what federal law means,
it can't do so unless Congress granted it that power clearly.
In other words, only Congress can answer the major questions
about federal law. The regulators themselves can't. And then the
third step came at the end of last week, the
Loper Right decision. After that twenty twenty two EPA Major
(07:25):
Questions decision, no one really knew which questions were major
and which ones weren't. And in theory, agencies still got
deference on the non major ones and so but the
loper Right decision kills everything. It's no longer there's no
longer a situation where courts must defer to the regulatory
(07:46):
agency even on non major questions. The courts themselves get
to decide how far federal law reaches. The regulators don't,
and they can try to persuade the courts, but it's
the courts, and ultimately the courts are guided by the
US Supreme Court that will determine what federal law means.
And the US Supreme Court, of course is very business
(08:08):
friendly friendly, very skeptical of aggressive regulation.
Speaker 4 (08:13):
So here comes the big question, And well, Congress is
basically set an interest resolved as now by giving regulators
more power.
Speaker 2 (08:20):
Yeah, in theory, Congress could.
Speaker 1 (08:22):
In theory, Corress could restore Chevron Defronce or on every
one of these issues where agencies are expanding their power,
Congress could step in and give the agencies the power
that they might seek under Chevron. But it's extremely unlikely
to happen. Congress struggles to reach consensus on just about everything,
and there's going to be a very limited appetite to
(08:45):
expand regulate regulator's power. And so in my view, this
development will be very good news for many industries that
prefer an environment of light touch federal regulation.
Speaker 4 (09:00):
Great, thanks, Matt. That's a great overview. And with that,
I think it's probably a good time to transition into
how this development impacts specific sectors moving forward. And Elliott Stein,
as you said, covers financial litigation, couldn't be here with
us today, but I know he sent you a series
of comments that he wanted to share with the group.
Speaker 1 (09:17):
Yeah, yeah, let me let me dive into what Elliott
Elliott sent us.
Speaker 2 (09:20):
So Elliott's thoughts were basically this so so he said.
Speaker 1 (09:24):
As an initial matter, the overruling of Chevron deference is
indicative of a larger trend this the demise of judicial
deference to administrative agencies. The Major Questions doctrine is of
course another example of that trend. And to put a
finer point on it, when the Fifth Circuit on June
(09:45):
fifth struck down the SEC's private funds rule, the court
cited neither Chevron nor the Major Questions doctrine. Instead, the
Court determined that the relevant statutes Dodd Frank and the
Investment Advisors Act in that case were clear on their
and that the SEC had exceeded its.
Speaker 2 (10:02):
Authority in issuing the rule.
Speaker 1 (10:04):
So, even without Chevron or the Major Questions doctrine, we've
been noting for some time that the conservative shift of
the federal judiciary has imperiled President Biden's financial regulation agenda,
and the overruling of Chevron just reinforces that trend. Now
there are a large number of financial regulations issued by
(10:24):
the Biden administration that are currently being challenged in court.
We expect many of those challenges to succeed. For example,
we expect the CFPB's credit card late fee rule to
be struck down in the courts. That rule seeks to
cap credit card late fees, which would eliminate about ten
billion dollars in fees that quarity card issuers like JP, Morgan,
Bank of America, Capital One, and American Express collect. Indeed,
(10:48):
the rule is already put on hold by a federal
District court judge in Texas who found compelling the arguments
made by the US Chamber of Commerce and other bank
trade groups that the CFP had CFP had exceeded its
authority under the Dodd Frank and the Credit Card Accountability,
Responsibility and Disclosure Act, better known as the Card Act.
We also expect the SEC's climate disclosure rule to be
(11:10):
struck down in court, in part due to the major
questions doctrine, since there's a strong argument that the rule
is a pretext for emissions regulations, which Congress has delegated
the EPA, not the SEC. Other lawsuits Elliott's watching concern
SEC rules over proxy advisors, short sales, and securities lending,
(11:30):
the definition of government securities dealers, and the consolidated Consolidated
Audit trail. Also watching lawsuits challenging CFPB rules over small
business lending and the agency's examination manual, and a lawsuit
against the fbiic FED and OCC over changes to the
Community Reinvestment Act. And finally, we think this trend of
(11:52):
court's deferring less to federal regulators will help coinbase and
other crypto companies in their defenses against see enforcement actions.
These cases concern the meeting of the term investment contract
in the federal securities laws. We expect the issue to
eventually reach the Supreme Court, which we anticipate will revisit
(12:13):
its seminal how we decision and narrow the Howie test
in a way that is favorable to coinbase so that
secondary transactions of digital assets are less likely to be
deemed securities that fall under the purview of the SEC.
If you would like to discuss any of these cases
and in more detail, please don't hesitate to reach out
to Elliott.
Speaker 2 (12:34):
I know he wanted to be here today.
Speaker 1 (12:35):
But again apologize he couldn't be here, and I think
we'll leave it at that.
Speaker 4 (12:39):
On the financial side, great, thanks Betan, I'll that go
with that as well. Definitely reach out to Elliott's sign
if there's any questions moving forward on the financial regulations
we discussed here, So Matt, let's search the impacts in
the TMT sector. Think you said this at a kind
of a major impact on broadband regulation at the FCC.
Speaker 1 (12:56):
Yeah, I think this should lead to a major victory
for broadmand companies like AT and T, Charter, Comcast, TE,
T Mobile, and Verizon. The question is whether these companies'
most important products, wired and wireless broadband, should be subject
to federal regulation at all. The courts have struggled for
this for two decades, but here's what's critical to know
(13:19):
about that litigation. Chevron deference has been at the heart
of that litigation. When the Obama era FCC restored federal
broadband regulation, it only won in court because of Chevron deference.
The courts had to defer to the FCC. It's just
not going to happen anymore. And in the second quarter
of this year, the Biden era FCC tried to restore
(13:42):
again aggressive federal broadband regulation under the Communications Act. And
the case is now in the Sixth Circuit Court of Appeals.
And although the FCC won the last round of this litigation,
it's going to lose this one. It won't win this,
I don't think without deference, and so the result is
very likely going to be no or minimal regulation of
(14:04):
these companies most important product at the federal level. How
about Internet regulation, Yeah, that's in trouble too. So Congress
has struggled to reach consensus on a data privacy build
that goes after Google and Meta's data privacy practices, and
so the Federal Trade Commission has started a process to
(14:26):
make rules that would regulate the digital ad business what's
really at the heart of their business model? And FTC
chair Lena Kahan has she calls it surveillance advertising, and has,
you know, threatened to propose pretty aggressive rules using the
FTC's power over unfair or deceptive practices. So her idea
(14:49):
is to expand that term in federal law unfair deceptive
to take aim at the digital ad business model. And
again here what we can say is that effort is
likely to run directly into this regulatory wall. So if
the FDC is aggressive with its digital ad regulations, which
(15:09):
I think it planned to be, at least, the courts
are almost certain to strike that down definitely.
Speaker 4 (15:16):
And I know you you've also written about the FDC's
efforts to regulate a lot of areas more broad.
Speaker 2 (15:22):
Can you address that a bit more? Yeah, So it
goes really beyond tech.
Speaker 1 (15:27):
The FDC is claiming a relatively novel power to make
competition unfair competition rules, and it's first try at using
that new power, it's discovered, is to strike down non
compete clause agreements thirty million contracts that it's it's it
claims are now illegal using its new rule making power.
(15:47):
That's just not going to work anymore. Expanding stretching your
powers under federal law in novel ways, the courts are
going to strike that down. In fact, we could see
a stay of that non compete clause UH decision this week.
Any industry impacted by that sort of rule making, or
any M and A impacted by unfair competition rules that
(16:12):
that the FDC might try to develop, that they're going
to escape that sort of regulation. In my view, the
FDC is picking about the worst possible time to try
to expand its rulemaking powers in novel ways.
Speaker 2 (16:26):
It's just not going to fly.
Speaker 1 (16:28):
And and with that, justin I, let's let's transition to
two areas. You know, well, I know you looked at
some EPA rules that that might be at risk.
Speaker 2 (16:38):
Can you tell us more about that? Sure, thanks, Matt.
Speaker 4 (16:41):
So so really I think important when we kind of
take a turn here and look at the EPA is
to really acknowledge the labyrinth and the degree of statute
that the EPA really has under its jurisdiction, so many
different areas of environmental policies, so many different areas of life,
if you will, so just providing these two particular recent
rules rule finalizations as examples for the kinds of things
(17:03):
that might be susceptible in some ways to a change
and chevron deference here, the first being both relate to
p fas or forever chemicals, as they're being referred to
right now and kind of the mainstream media, if you will.
Long story short, p fast chemicals come with particularly unpleasant
health effects for humans when they build up in the
human body, right So we're talking about the particular cancers,
hormonal issues, things like that. But with kind of that
(17:25):
as the base for moving forward. This spring, the EPA
finalize a rule that have under the Safe Drinking Water
Act that involves tapping the level of allowable p fas
in people's drinking water. So authorities nationwide now have to
measure and remediate for the presence of p fas and
drinking water that are beyond a particular allowable limit under
the final rule, what they also did when they promulgated
(17:49):
that regulation is they issued something called the hazard Index,
And what they did is they required authorities to not
only measure for particular substances, but also mixtures of those
substances in drinking water. So that's the first kind of
rule that came out in April, and something for us
to note here. The second involves the designation of p
FAS chemicals, two of them anyway, as hazardous substances under
(18:13):
the CIRCLA or what's better known to folks as a
super fun law, opening the door to kind of designating
physical sites for cleanup and remediation efforts if those particular
p FAS chemicals are present in those sites at a
particularly unpleasant amount. So what's important here is the billions
of dollars involved with both of these rules that are
anticipated in terms in the order for responsible parties to
(18:35):
become compliant with both of them. And you know, both
have their wrinkles here with regard to Chevron, and we'll
get into that a bit later, but you know, particularly
interesting wrinkle with the way the EPA operates too, is
that on the one hand, here you have the folks
who made these chemicals in the first place, the three m's,
two ponds and Camors of the world, who you know,
might see a shift in liabilities for any of these
(18:57):
cleanup efforts because of any changes here now under the
Chevron deference. And again this applies to all areas of
e p A regulation. But on the other side of
the coin, there is this whole green economy and companies
that stand a benefit from things like remediation costs and
and you know, putting out you know, green technologies, you
know green a whole wide range of spaces, which we'll
(19:18):
talk about too. So so there is this kind of
before and after effect here with with with these e
p A regulations and will industries you know, traditionally might
benefit from a roll back of Chevron, there's also the
possibility that they could be in some way harmed by that,
depending on what the nature of their business is over
at e PA.
Speaker 2 (19:35):
Got it? Got it?
Speaker 1 (19:36):
So that I mean that that's a good overview of
the rules. Is there already litigation litigation challenges coming to
these rules and and how does how does overruling Chevron
change that that landscape?
Speaker 4 (19:48):
Yeah, definitely, And you know again I think you know
the e p A, you know, these rules seem to
be unfairly strong footing. You peoput a lot of time,
and I think, you know, justification into both rules. But
when they were ruled out, you know, I think the
challenge just petitions for review I've already been filed in
the DC circuit. We're expecting those, and you know, we
haven't been anticipating challenges based on the EPA's reported failure
(20:10):
to take costs of the rules into account or to
take public comments. It's a bit in relation to the
rules into account and the way that they were supposed to.
How Chevron kind of enters the fray here is that
you know, well, you know, it's not questionable really, and
it's well settled that things like capping the level of
substances and drinking water is good law and something that
EPA has the authority to do. You'll look kind of
(20:31):
zone in a little bit, a little bit zooming a
little further on that particular rule, and you look at
their use of this hazard in dex I mentioned whether
they're requiring from measuring mixtures of chemicals. Well, the statute
doesn't address this question of mixtures, So did EPA in
some way it surpass its authority when it decided to
do that. And from the standpoint of the Superfund law,
EPA is looking to other statutes and how substances were
(20:53):
designated under other statutes, But it remains the case that
as far as their actual Superfund law is concerned, this
is the very first time the APA has actually designated
new hazardous substances under that loss. There's not this existing
case law that already exists out there, kind of discussing
what the authority is to do that under the law itself.
So where there's some ambiguity where Chevron deference might have
(21:15):
been helpful in the past, now it's not there to
really protect them.
Speaker 1 (21:18):
Yeah, and one of those things that also plays a
role for agencies. It's sometimes not even ambiguity, but silence
in the statute has been enough for agencies to you know,
claim power to make rules, and so all of that
basically goes away now and it's in the hands of
the courts. But how much do you think the APA
accounted for the possibility of Chevron going away as it
(21:43):
finalized these rules.
Speaker 4 (21:44):
Sure, so you know we saw delay after delay with
the finalization of the rules. I think in many ways
it really was this practice of the EPA of really
trying to shore up the justification behind them as much
as they could from every standpoint, not just an agency
power standpoint, but all so the standpoint of you know,
cost benefits analysis and things like that that I also mentioned.
(22:05):
But there's no question that even the administration referred to
both of these these rules as historic and historic because
it really is the first time that a lot of
this action was taken with regard to forever chemicals, and
especially in the case of the super fun laws. So
this is something to really take into account here from
the standpoint of deference. You know, I think EPA did
what it could. But also an important wrinkle to kind
(22:26):
of mention here too is that, you know, for whatever reason,
if you know, I'm sure this is true for other
agencies as well, but forever whatever reason, if these rules
didn't go forward, you know, this is opening the door
to a situation where we see things like states continuing
that march forward. Before this this drinking cap or drinking
water cap was finalized by e PA, for example, ten
states already had a similar cap in place through through
(22:49):
their own regulatory scheme. So keeping that in mind too,
there's this all the other wrinkle here, where in the
absence of federal federal regulation or problems you might see
from Chevron decline, stay are kind of stepping in here
to fill that void in some ways as well, not
necessarily on the end of the story.
Speaker 1 (23:05):
Yeah, that's that's a great point, because if the federal
government is sort of paralyzed by this, the states aren't,
and and so that that is still out there, at
least in states that are inclined to regulate aggressively any
other EPA regulations that that could be on the line here.
Speaker 4 (23:25):
Yeah, so you know again that there's just so many
out there, and I think, you know, we really have
to sit back in a way and see the ambit
of of what this looks like from from what will
be challenged. And you know, from a historical standpoint too,
it sounds like all bets are kind of off and
everything's on the table again here in many ways. So
I think we really have have some time to before
we know the full extent to which this is going
(23:46):
to come into play. But another really recent rule for
ep that I think is also likely to be affected
in some ways. Was there the rule on vehicle emissions
that rolled out also this spring. This was hotly contested.
There's a lot of rhetoric around this. This many most
call it a Mandaday would say for two thirds of
new vehicles sold in the US to be electric in
some capacity by twenty thirty two. So the EPA used
(24:10):
the Clean Air Act basically to forward a lot of
that regulation. The questions arise as to well does a
cleaningir act really allow the EPA to do things like
regular tail pipe emissions or are we talking more about
factory emissions and things of the like. So all of
that again back on the table. Another big rule that
has that kind of bifurcated situation on where you've got
(24:31):
traditional automakers on one side who stand to benefit from
its demise, but then you've got ev manufacturers on the
other who also would be troubled if they were to
fall apart. So there you go.
Speaker 1 (24:42):
That's really helpful, I mean to me, I think all
of this fits like Elliott's notes referred to earlier about
how this is a larger trend and really the trend
all goes in one direction in my view anyway that
you know, it's just going to be very difficult. This
decision doesn't really change. It doesn't say agencies always going
(25:04):
to lose. You know, courts can still look to the
agencies to be persuaded by them, but the ultimate decision
maker here is the US Supreme Court on anything significant,
and that Supreme Court, we know how it has pretty
strong feelings about overreach of agencies, and I think we
just keep seeing that in every sector we look to
(25:27):
but thank you for that, justin that that's a that's
a nice overview. Last, but not least, Dwayne, I want
to bring you into this to to touch on the
healthcare side as we look as we think about healthcare
policy in this what's the broad theme? Are are there
pending policy disputes that could see different outcomes after the
(25:50):
Chevron decision last week?
Speaker 3 (25:51):
Yeah? Thanks, thanks Matt and just some great great to review.
I think as we look at FDA and CMS, the
are two agencies that stood and Drug Administration Center for
Medicare and Medicaid services with oversight of Medicare and Medicaid
and other health agencies. They've relied on some flexibility, and
(26:12):
we could see Congress being more clear and more prescriptive
from a legislation standpoint when new bills are passed will
open up agencies to legal challenge in terms of their
regulatory efforts. And I think what we saw and what
the FD had was some consistency and ft oversight where
(26:34):
there wouldn't see any second guessing of their decisions, especially
since many policy decisions are based on complex science. So
it's worth noting that while the business lobby Chamber of
Commerce maybe others supported the decision and may have submitted briefs.
We didn't see that from the trades for the life
(26:55):
science industry, So I think that's telling of some of
the flexibilities they see with with fd For f d
A and CMS, you know some specific examples of where
there are some pending policy disputes, and we've I've written
about these before, and I'll go over a couple now.
(27:17):
The first that comes to mind is the regulation of
laboratory developed tests. These are a subset of in vitro diagnostics.
They were designed and made for use in a single
clinical lab UH. FDA viewed LDTs as low risk UH
develop it developed for diagnosing a rare disease or for
(27:39):
use in smaller population. The FDA had exercise enforcement discretion
over LDTs and didn't require free market review or clearance
before use. Yet over time, these LDTs become more complex
and have been marketed nationwide even if the test is
run in a single lab. The FDA has for the
(28:02):
past excuse me, for the past several years, tried to
move in the direction of regulating these LDTs as medical devices.
There was a guidance in twenty sixteen ultimately got pulled.
This administration has moved forward with rulemaking and recently finalized
(28:23):
a rule that would require pre market review and other
quality system checks for tests that were marketed after the
final rule. The American Clinical Laboratory Association, which represents the
lab cores, the quests, and other labs, has sued the
FDA on grounds that it doesn't have the authority to
(28:45):
regulate LDTs because they believe their services and they're not
explicitly spelled out in the statute. In their view, Congress
would have to give them give the FDA the power
to regulate them, even though the FDA maintains authority to
do so. Now, what's interesting is given the timeline for
(29:08):
implementation with labs have to comply with device reporting beginning
May twenty twenty five, So are we looking at a
delay in implementation possible. We know that new administration or
a Trump administration will probably put the regulation on ice,
but if it goes the way of the court system,
(29:31):
it seems like they would view FDA authority here with
a bit of skepticism. I'd say the next step is,
if you follow this issue, could we see legislation here
which spells out FDA authority to regulate these tests and
what that authority is maybe regulating them separate from medical devices.
(29:52):
I think that it makes that scenario more likely eventually.
I don't think it's this year, but that is something
we could see. Another example is a more recent rule
on a nurse staffing mandate, which requires nursing homes to
have a nurse on duty for a certain number of
(30:12):
hours per day beyond what it's already were already have
in law right now, and there are some estimates or
studies that show only about twenty percent of nursing homes
or nursing facilities would actually be incompliance. So this could
be another area where CMS may have overstepped its bounds
in terms of mandating certain number of hours where nurses
(30:37):
are available. So these are a couple of things to watch,
and I could probably come up with several more, but
those are just two since they are very recent rules
that rely on some kind of flexibility in terms of
the FBA thinking or thought process of their authority.
Speaker 2 (30:54):
One more I wanted to ask you about Duina.
Speaker 1 (30:56):
The Inflation Reduction Act had drug price negotiation provisions, and
the drug companies are bringing constitutional cases to tied to
that do you think there are challenges to administrative action
in that area that are more likely now.
Speaker 3 (31:18):
It's quite possible, and I think we need to separate
kind of the constitutional claims that are being made about
whether Medicare the administration can do this and some of
the nuts and bolts of how the program is going
to be implemented defining certain terms, and I think that's
the piece I'll focus on, And we've focused on this
(31:41):
in the past, and it's largely because of how the agency,
the Medical Agency, has defined certain terms in the law too,
in particular that are very important for drug companies in
terms of whether they're drugs, these specific therapy that they
have is subject to negotiated pricing or not. And you
(32:03):
know whether a generic competitor comes on in the market,
either preventing their drug from going on the list or
getting it off the list faster. So there's two things
we like to focus on that are worth keeping an
eye on as its process unfolds. One is the term
single source drug, and then two it's the phrase that
(32:28):
is not in statute called bonified modified marketing of a
generic or bi similar as I said, bonified is not
in the Irish statute and it's a determination of what
is or when a generic is made available that prevents
the brand drug from being subject to negotiated pricing. CMS
(32:50):
came up with that term. It's something where they will
use it on a case by case basis that weighs
factors like generic utilization and included in a prescription drug
event data. Their point being they want serious competition in
the market to pull a drug off the list as
opposed to some token or nominal nominal generic marketing. Because
(33:15):
the statute just basically says marketing of a generic or
something to that effect, it's very very very loose. The
agency also defines a single source drug based on its
active ingredient so that it can multi It can group
multiple therapies with a different drug or biological license application
(33:40):
like Nordisk Novologue and biasp as. It's a diabetes drug,
same ingredient, different NDAs, so theoretically different drugs but same ingredient.
CMSs argue that the statute directs it to use data
that's aggregated ross susage, forms, and strength of the drug,
(34:03):
including new formulations of the drug, and as its basis,
we're focusing on the actual ingredient or active moiety drug companies,
no surprise would say that that interpretation oversteps the bounds
should focus on separate NDAs or blas for negotiation purposes.
(34:25):
So this is one of those things that could have
a significant impact down the road on potentially some of
these infused drugs that maybe moved to a subcutaneous version
where there's the active ingredient and maybe an inactive ingredient
that just helps with the absorption absorption of the mate
(34:46):
ingredient we're seeing go down that route and some others.
The subkey versions might be near the market but could
be swept in with older versions for price setting purposes.
Now these are all in guidance. It's it's worth pointing
that out. And CMS can basically say from one year
(35:06):
to the next, because what it does is released new
guidance for every applicable price year, they can pretty much
change UH the interpretation of that. And now if it's
the same administration, maybe we see the same interpretation review
for the next four years. A new administration might have
a different interpretation. But this is one of those things
(35:27):
where you might be able to see UH a challenge
to this administrative interpretation of pretty important provisions of the IRA.
Speaker 2 (35:39):
Excellent. Uh.
Speaker 1 (35:39):
And and one last question before we we wind up
Medicare and anything we should think about from a Medicare
perspective on this and any any response from lawmakers tied
tied to that.
Speaker 3 (35:51):
Yeah, I think generally speaking, you know, reimbursement decisions are
or could be in play. You know, one specific area
I like to focus on it and think about whether
this is something that might be right for action. Is
Medicare's coverage with Evidence development process or program where drugs
(36:14):
are cemester. The agency determines that some a new product, device,
or therapy it's reasonable and necessary for the Medicare population,
but maybe there needs to be more evidence in terms
of how it is applied to the Medicare population. CDs
(36:36):
not in statue, and it does limit patient access to
FDA approved items and services. It's again it's up to
Medicare to determine whether an FDA approved medical device or
drug is reasonable and necessary for the Medicare population, whereas
FDA standard is safe and effective. And so as part
(36:56):
of that mandate, the agency created cd to give that
access to therapies that might have had insufficient evidence while
that additional data is collected but that can also mean
limiting access to a therapy that's a lot narrower than
the approved label, or other restrictions like participating in a
(37:17):
clinical trial or a registry. So, you know, this is
a limitation that people talk about because we've seen with
some cd s, their CD in perpetuity that never seems
to end. Now, CMS would point to maybe their authority
(37:37):
is part of some reading of the statute that's just
not necessarily explicit in terms of CD but it could
be open to interpretation again, or maybe the courts would disagree,
you know, So this is one of those things where
we could still see challenges. I wonder if this means,
you know, you asked a question about Medicare, but just
(38:00):
to touch on FDA, if a lot of what they
do is now subject to second guessing, does this mean
they need more staff to focus on a lot of
these questions of safe and effective or what is or
is not a breakthrough when certain thresholds up been met.
Do they need more user fee dollars from the drug industry.
(38:23):
Now that's there's the User Fee Authorization Act for Medical
Devices Pharma bi Logics, and that is a way to
help get industry the regulated industry to help with the
process of moving the applications through the review process in
(38:45):
a more timely manner. Do we need more of those
and does that mean it shows up with the regulated
entities having to pay more for that process. It's quite
possible now in terms of Congress, they'll have to write
laws with greater specific specificity and less less than the
(39:07):
flexibility for agencies. It's worth noting that one member, Senator Cassidy,
Republican from Louisiana, he's the ranking member of the Health, Education, Labor,
and Pensions Committee. As jurisdiction over the the h part
the health, which is what I focus on. He sent
a number of letters to various federal agencies asking how
(39:28):
they would enforce laws as Congress writes them in light
of the ruling. I'll touch on one of our two
of them already touched on one. Actually they specific specifically
calls out whether or not i FT has authority to
the ld TS. So that's one area. He brings up
(39:51):
this issue of march and authority and the Biden administration's
proposal to basically give the or marching authority as a
whole allows the government to grant patent licenses to other
parties or to take the licenses for themselves for itself
and in cases where federal tax dollars helped fund the
(40:15):
patent owners R and D. So the Biden administration came
up with this framework that said it could do that
based on the cost of the drug if there's an
excessive price. The target has always been as it relates
to marching on the pharmacide or at least recently ex
standy a prostate cancer drug. So that framework of incorporating
(40:40):
prices or a drug price into a decision making process,
and whether exercise marching is something that Biden administration wants
to do, the opponents would say, well, that's not what
is allowed under the law. So that's one of those
things where we could see the courts less flexible to
(41:02):
the administracious interpretation. So overall, there's a lot to think
about in terms of how if G and CMS decision
making could be slowed or more technly structured moving forward.
Speaker 2 (41:14):
That's really helpful.
Speaker 1 (41:15):
I mean, listening to you guys talk about healthcare policy
and environmental policy. As a TMT analyst, it really underscores
how difficult it's going to be for generalist courts to
take up these questions and really be tasked with deciding
what is right and what is wrong. And there's really
inherently still going to be deference on a lot of
(41:38):
these questions, inevitably just based on the limits of the
court's expertise. But I think you are going to see
the courts not feel compelled to defer even on technical
areas where there's really there's potential disruption to business through
the regulation, is the way I think about it. So
a couple questions in the chat that popped up. First
(42:02):
of all, is the Federal Reserve impacted? I don't know
the answer to that directly, and i'd want to ask
Elliott and Elliott Stein who's not here, and Nathan Dean,
who is on our team as well, So I would
recommend taking that question up with them.
Speaker 2 (42:17):
On all of these areas, it's really turns on.
Speaker 1 (42:19):
The specifics of the statute in the field and how
that agency has used Chevron in the past to defend itself,
and so it's really specific to each So I'm not
going to try to hazard a guess on the Federal
Reserve directly, but I think you can reach out to
those guys. Another question, can you guys address how long
the challenge two agencies' actions take and just on average
(42:44):
to gauge the volatility of all of this.
Speaker 2 (42:47):
I don't know if you guys want to weigh in
on that.
Speaker 3 (42:53):
Good question. I think that's a case by case determination, right.
I don't think there's going to be one set rule,
one time frame timeline. It's too early, it's my view.
Speaker 2 (43:08):
Yeah, I can.
Speaker 1 (43:10):
I can add an in my area in you know,
generally FCC FTCU.
Speaker 2 (43:16):
They make a rule.
Speaker 1 (43:19):
You know, it takes takes the agency nine to twelve
months to make a rule.
Speaker 2 (43:23):
Then you sue the FCC.
Speaker 1 (43:26):
And the the immediate suit for FCC cases goes to
a court of appeals, the DC Circuit. Typically that takes
twelve to fifteen months for that court to decide. Typically,
then there's one more review above that. You could go
to the Supreme Court. That takes a year to two
so the whole process can take three years. Other agencies,
(43:47):
the challenge can go directly to a district court, so
below the court of appeal. So that adds an extra
step in the process. So add an extra year year
and a half to what I said before. So everything
about agency rulemaking and the litigation challenging that is slow,
and that nothing about the Chevron development this week changes
(44:07):
that agencies still.
Speaker 2 (44:09):
Are going to need to make rules, They're still going
to be challenged.
Speaker 1 (44:12):
It's just that the courts get to say whether they're
right or wrong, and there's no binding deference to the
agency about what it's trying to do. Thank you for
joining this episode of Votes and Verdicts. If you have
any questions about this issue or other litigation and policy developments,
please reach out to me, Matt Schuttenhelm, and please join
(44:32):
us for future episodes of Votes and Verdicts by Bloomberg
Intelligence
Host
Elliott Stein
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