Amicus Curiae Brief — American Hospital Association, et al., Petitioners v. Xavier Becerra, Secretary of Health and Human Services, et al.

No. 20-1114

IN THE

Supreme Court of the United States

____________________________________

AMERICAN HOSPITAL ASSOCIATION, et al.,

Petitioners,

v.

XAVIER BECERRA,

SECRETARY OF HEALTH AND HUMAN SERVICES, et al.,

Respondents.

____________________________________

On Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

____________________________________

BRIEF OF INDIANA, GEORGIA, LOUISIANA,

MISSISSIPPI, NEBRASKA, OKLAHOMA,

TEXAS, AND UTAH AS AMICI CURIAE

IN SUPPORT OF NEITHER PARTY

____________________________________

Office of the

THEODORE E. ROKITA

Attorney General

Attorney General

302 W. Washington St. THOMAS M. FISHER*

Indianapolis, IN 46204 Solicitor General

(317) 232-6255

KIAN J. HUDSON

Tom.Fisher@atg.in.gov

Deputy Solicitor General

JULIA C. PAYNE

*Counsel of Record

MELINDA R. HOLMES

Deputy Attorneys General

Counsel for Amici States

Additional counsel listed with signature blocks

i

QUESTIONS PRESENTED

1. Whether Chevron deference permits HHS to

set reimbursement rates based on acquisition cost

and vary such rates by hospital group if it has not collected adequate hospital acquisition cost survey data.

2. Whether petitioners’ suit challenging HHS’s

adjustments is precluded by 42 U.S.C. § 1395l(t)(12).

ii

TABLE OF CONTENTS

QUESTION PRESENTED ....................................... i

TABLE OF AUTHORITIES ................................... iv

INTEREST OF AMICI STATES ............................. 1

SUMMARY OF THE ARGUMENT ......................... 2

ARGUMENT ............................................................ 4

I.

Chevron Can Be Justified Only as an Exercise

in Implementing Congressional Delegation of

Policymaking Authority ................................... 4

A. The Constitution and the Administrative

Procedure Act require courts to interpret

statutory text de novo to determine how

much policymaking authority, if any,

Congress has delegated .............................. 4

B. From Chevron itself onward, the Court has

repeatedly justified Chevron in terms of

effectuating Congress’s intent to delegate

policymaking authority ............................ 10

II.

Because Chevron Is a Means of Carrying Out

Congressional Acts, Courts Must Decide the

Scope of Any Delegation to an Agency .......... 17

A. Courts considering the scope of an agency’s

authority under Chevron should interpret

the statutory delegation de novo .............. 17

iii

B. Here, the Court should consider the parties’

competing interpretations and adopt the

best reading, without tilting the scales in

favor of the agency .................................... 23

CONCLUSION ....................................................... 27

iv

TABLE OF AUTHORITIES

CASES

Adams Fruit Co. v. Barrett,

494 U.S. 638 (1990) ................................... 7, 8, 13

Addison v. Holly Hill Fruit Prods., Inc.,

322 U.S. 607 (1944) ............................................. 7

Bowen v. Georgetown Univ. Hosp.,

488 U.S. 204 (1988) ............................................. 7

Chevron U.S.A. Inc. v. Natural Resources

Defense Council, Inc.,

467 U.S. 837 (1984) .................................... passim

City of Arlington v. FCC,

569 U.S. 290 (2013) .................................... passim

Dep’t of Transp. v. Ass’n of Am. R.R.,

575 U.S. 43 (2015) ............................................... 6

FDA v. Brown & Williamson Tobacco Corp.

529 U.S. 120 (2000)..................................... 13, 16

Free Enter. Fund v. Pub. Co. Acct. Oversight

Bd.,

561 U.S. 477 (2010) ......................................... 4, 5

Gonzales v. Oregon,

546 U.S. 243 (2006) ........................................... 13

Indus. Union Dep’t, AFL-CIO v. Am.

Petroleum Inst.,

448 U.S. 607 (1980) ............................................. 6

v

CASES [CONT’D]

King v. Burwell,

576 U.S. ....................................................... 15, 16

Kisor v. Wilkie,

139 S. Ct. 2400 (2019)................................... 9, 22

La. Pub. Serv. Comm’n v. FCC,

476 U.S. 355 (1986) ............................................. 7

Loving v. United States,

517 U.S. 748 (1996) ............................................. 6

MCI Telecommunications Corp. v. Am. Tel.

& Tel. Co.,

512 U.S. 218 (1994) ..................................... 19, 20

Michigan v. EPA,

576 U.S. 743 (2015) ....................................... 8, 21

Negusie v. Holder,

555 U.S. 511 (2009) ..................................... 21, 22

Perez v. Mortg. Bankers Ass’n,

575 U.S. 92 (2015) ............................................. 10

Scialabba v. Duellar de Osorio,

573 U.S. 41 (2014) ............................................. 15

Soc. Sec. Bd. v. Nierotko,

327 U.S. 358 (1946) ............................................. 7

United States v. Mead Corp.,

533 U.S. 218 (2001) ........................................... 12

vi

CASES [CONT’D]

Util. Air Regul. Group v. EPA,

573 U.S. 302 (2014) ........................................... 20

Whitman v. Am. Trucking Ass’ns,

531 U.S. 457 (2001) ............................................. 6

Youngtown Sheet & Tube Co. v. Sawyer,

343 U.S. 579 (1952) ............................................. 4

STATUTES

5 U.S.C. § 706 ........................................................... 9

42 U.S.C. § 1395l ............................................. passim

47 U.S.C. § 203 ....................................................... 19

OTHER AUTHORITIES

Brett M. Kavanaugh, Fixing Statutory

Interpretation, 129 Harv. L. Rev. 2118

(2016) ................................................................... 8

Cass R. Sunstein, Interpreting Statutes in

the Regulatory State, 103 Harv. L. Rev.

405 (1989) .......................................................... 22

Ernest A. Young, Executive Preemption, 102

Nw. U. L. Rev. 869 (2008)................................. 22

Henry P. Monaghan, Marbury and the

Administrative State, 83 Colum. L. Rev.

1 (1983) .......................................................... 9, 10

vii

OTHER AUTHORITIES [CONT’D]

John F. Manning, The Nondelegation

Doctrine as a Canon of Avoidance, 2000

Sup. Ct. Rev. 223 (2000) ..................................... 8

Jonathan H. Adler, Restoring Chevron’s

Domain, 81 Mo. L. Rev. 983

(2016) ....................................................... 9, 11, 18

Peter L. Strauss et al., Gellhorn & Byse’s

Administrative Law 1073 (11th ed.

2011) .................................................................. 21

Stephen Breyer, Judicial Review of Questions of Law and Policy, 38 Admin. L.

Rev. 363 (1986) ................................................. 16

The Federalist (C. Rossiter ed. 1961) .................. 4, 5

Thomas W. Merrill & Kristin E. Hickman,

Chevron’s Domain, 89 Geo. L.J. 833

(2001) ..................................................... 11, 18, 22

Thomas W. Merrill, The Mead Doctrine:

Rules and Standards, Meta-Rules and

Meta-Standards, 54 Admin. L. Rev. 807

(2002) ........................................................... 12, 13

1

INTEREST OF AMICI STATES

The States of Indiana, Georgia, Louisiana, Mississippi, Nebraska, Oklahoma, Texas, and Utah respectfully submit this brief as amici curiae in support of

neither party.

Amici States file this brief to explain why the

Court should approach the statutory interpretation

question raised by this case—the scope of agency authority to “adjust[]” data in setting drug reimbursement rates—without deferring to the agency’s view of

its own authority. Amici States take no position, however, on the ultimate question whether HHS acted

within its authority or whether judicial review of this

question is barred by 42 U.S.C. § 1395l(t)(12).

Amici States have significant interests in preserving the separation of powers and preventing overreach by federal agencies. Under the Constitution and

the Administrative Procedure Act, courts—not agencies—have final responsibility for determining the existence and extent of administrative agencies’ policymaking authority. Where, as in the decision below,

courts fail to discharge this responsibility and instead

defer to agencies’ views of the scope of their own authority, agency authority inevitably expands—in contravention of congressional intent and at the expense

of the authority of States and the liberty of citizens.

Amici States thus urge this Court to reaffirm the

judicial role in preserving federal law’s essential protections against administrative overreach.

2

SUMMARY OF THE ARGUMENT

This case presents a highly technical question—

whether the reimbursement rates for specified covered outpatient drugs (SCODs) set by the Secretary of

Health and Human Services (HHS) are authorized by

42 U.S.C. § 1395l(t)(14)(A)(iii)(II) (Subclause II),

which authorizes HHS to set rates using “the average

price for the drug . . . as calculated and adjusted by

the Secretary as necessary for purposes of” the SCODreimbursement program. Vast sums and important

policies no doubt turn on the answer to that question.

Even more important for the rule of law, however,

is how the Court goes about answering that question.

In adjudicating disputes over the scope of agency authority, should courts interpret the authorizing statute de novo, or should they instead defer to the

agency’s view of its meaning? This is not a matter of

reconsidering Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), but

of applying it with full force, properly understood. Far

from requiring courts to tilt the scale in favor of agencies’ views of the scope of their own authority, Chevron requires courts to consider competing statutory

interpretations evenhandedly and then choose the

best reading. Only then, if they decide an agency’s decision fits within the authority delegated by the statute, do courts accord the “deference” Chevron requires

and uphold the decision—so long as it is reasonable,

even if disagreeable. Chevron requires—and the Constitution permits—nothing more.

3

1. For decades members of this Court have recognized the serious constitutional concerns raised by

the enormous authority administrative agencies now

exercise. Crucially, the constitutional justification for

agency policymaking is that Congress has delegated

it. This scheme works, however, only if courts “tak[e]

seriously, and apply[] rigorously, in all cases, statutory limits on agencies’ authority.” City of Arlington

v. FCC, 569 U.S. 290, 307 (2013).

Properly understood, this is precisely what Chevron does. Chevron’s familiar two-step approach to

challenges to agency decision-making has of constitutional necessity always been grounded as an exercise

in statutory interpretation. Chevron does not command courts to uphold agencies’ “wrong but not crazy”

interpretations of statutory provisions. It instead instructs courts to decide the best reading of a statutory

provision—and when (1) the provision is best read to

delegate some discretionary authority to an agency

and (2) the agency’s decision falls within the scope of

that discretionary authority, to carry out Congress’s

instructions by upholding the agency’s decision. Once

the Court has decided whether and to what extent

Congress has delegated policymaking authority to the

agency, the Court defers to the agency’s judgment

within the range of delegated authority—subject of

course to the additional requirements of the Constitution and the Administrative Procedure Act (APA).

2. This case offers an apt illustration of how this

process should work. With respect to the first step of

Chevron, all agree that Subclause II confers upon

4

HHS some policymaking authority to “calculate[] and

adjust[]” average drug prices in setting reimbursement rates for SCODs. The sole question in this case

pertains to the scope of this authority—whether that

scope encompasses the way in which HHS calculated

reimbursement rates as it did here. The Constitution,

the APA, and Chevron itself require the Court to answer this question de novo.

ARGUMENT

I. Chevron Can Be Justified Only as an

Exercise in Implementing Congressional

Delegation of Policymaking Authority

A. The Constitution and the Administrative

Procedure Act require courts to interpret

statutory text de novo to determine how

much policymaking authority, if any,

Congress has delegated

1. Our Constitution was adopted both “to enable

the people to govern themselves, through their elected

leaders,” Free Enter. Fund v. Pub. Co. Acct. Oversight

Bd., 561 U.S. 477, 499 (2010), and to “diffuse[] power

the better to secure liberty,” Youngtown Sheet & Tube

Co. v. Sawyer, 343 U.S. 579, 635 (1952) (Jackson, J.,

concurring). The Framers were acutely aware of the

tendency of individuals—and institutions—to favor

their own interests. See The Federalist No. 10 (C. Rossiter ed. 1961) (James Madison) (“No man is allowed

to be a judge in his own cause; because his interest

5

would certainly bias his judgment, and, not improbably, corrupt his integrity.”); The Federalist No. 80 (C.

Rossiter ed. 1961) (Alexander Hamilton) (“No man

ought certainly to be a judge in his own cause, or in

any cause in respect to which he has the least interest

or bias.”). The Constitution’s separation of governmental powers among the Branches is designed to redirect—and thereby mitigate the deleterious consequences of—such self-interestedness. See The Federalist, No. 51 (C. Rossiter ed. 1961) (James Madison).

As the Court has repeatedly observed, however,

the expansive reach of today’s federal administrative

state, “which now wields vast power and touches almost every aspect of daily life,” lies in serious tension

with the Constitution’s separation of powers. Free Enter. Fund, 561 U.S. at 499. Unelected agency personnel—who are often unaccountable even to the President—now exert enormous policymaking authority,

including the power to set rules and the powers to police compliance and adjudicate violations. See City of

Arlington v. FCC, 569 U.S. 290, 313 (2013) (Roberts,

C.J., dissenting). “The accumulation of these powers

in the same hands is not an occasional or isolated exception to the constitutional plan; it is a central feature of modern American government.” Id.

The Court’s solution to this problem—of reconciling agencies’ expansive powers with our constitutional scheme—has been to insist on the principle of

congressional control: The Constitution permits

agencies to exercise regulatory authority, the Court

has held, only because Congress has first passed a

6

law that delegates regulatory authority and defines

the scope of such authority.

The Court has long insisted, for example, that the

separation of powers bars agencies from defining

their own policy missions. The Court “repeatedly

ha[s] said that when Congress confers decisionmaking authority upon agencies Congress must ‘lay down

by legislative act an intelligible principle to which the

person or body authorized to [act] is directed to conform.’” Whitman v. Am. Trucking Ass’ns, 531 U.S.

457, 472 (2001) (quoting J.W. Hampton v. United

States, 276 U.S. 394, 409 (1928)). The delegation doctrine “has developed to prevent Congress from forsaking its duties” and is grounded on the rule “that

the lawmaking function belongs to Congress, U.S.

Const., Art. I, § 1, and may not be conveyed to another branch or entity.” Loving v. United States, 517

U.S. 748, 758 (1996) (citing Field v. Clark, 143 U.S.

649, 692 (1892)); see also Indus. Union Dep’t, AFLCIO v. Am. Petroleum Inst., 448 U.S. 607, 685 (1980)

(Rehnquist, J., concurring) (noting this rule ensures

“important choices of social policy are made by Congress, the branch of our Government most responsible to the popular will.”). It stands among the “many

accountability checkpoints” in the Constitution,

which “by careful design, prescribes a process for

making law.” Dep’t of Transp. v. Ass’n of Am. R.R.,

575 U.S. 43, 61 (2015) (Alito, J., concurring).

2. In addition to imposing the “intelligible principle” rule as a constitutional limit on Congress’s authority to delegate to agencies, the Court has applied

7

the principle of separation of powers to guide its interpretation of statutes delegating such authority. In

particular, because agencies are creatures of Congress, “[i]t is axiomatic that an administrative

agency’s power to promulgate legislative regulations

is limited to the authority delegated by Congress.”

Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208

(1988); see also La. Pub. Serv. Comm’n v. FCC, 476

U.S. 355, 374 (1986) (“[A]n agency literally has no

power to act . . . unless and until Congress confers

power upon it.”). And because agencies have only the

power Congress delegates to them, a court confronted

with a challenge to an agency action must carefully

examine the statute Congress enacted to determine

for itself whether the action falls within the agency’s

delegated authority. To do otherwise “would be to

grant to the agency the power to override Congress,”

which the Court has been “both unwilling and unable

to do.” Id. at 374–75.

The Court has thus long held that the separation

of powers requires that the “determination of the extent of authority given to a delegated agency by Congress is not left for the decision of him in whom authority is vested.” Addison v. Holly Hill Fruit Prods.,

Inc., 322 U.S. 607, 616 (1944). To “finally decide the

limits of [an agency’s] statutory power” is not the job

of the agency but is instead “a judicial function.” Soc.

Sec. Bd. v. Nierotko, 327 U.S. 358, 369 (1946); see also

Adams Fruit Co. v. Barrett, 494 U.S. 638, 650 (1990)

(“[I]t is fundamental ‘that an agency may not boot-

8

strap itself into an area in which it has no jurisdiction.’” (quoting Fed. Mar. Comm’n v. Seatrain Lines,

Inc., 411 U.S. 726, 745 (1973)).

Placing responsibility for definitively interpreting

statutory delegations of power with courts reflects

“the obligation of the Judiciary “not only to confine itself to its proper role, but to ensure that the other

branches do so as well.” City of Arlington, 569 U.S. at

327 (Roberts, C.J., dissenting). To leave the task of

circumscribing agency authority with agencies themselves risks allowing agencies to wield excessive

power that goes beyond that which Congress has authorized. See Michigan v. EPA, 576 U.S. 743, 750–51

(2015) (Thomas, J., concurring) (noting that vesting

agencies with the authority to determine the scope of

their own authority “wrests from Courts the ultimate

interpretive authority to say what the law is and

hands it over to the Executive. . . . in tension with Article III’s Vesting Clause” (internal quotation marks

and citations omitted)); Brett M. Kavanaugh, Fixing

Statutory Interpretation, 129 Harv. L. Rev. 2118, 2150

(2016) (describing such deference as “nothing more

than a judicially orchestrated shift of power from Congress to the Executive Branch”); John F. Manning,

The Nondelegation Doctrine as a Canon of Avoidance,

2000 Sup. Ct. Rev. 223, 276 (2000) (“If Congress has

addressed a subject, but has done so in a limited way,

this fact may itself suggest that Congress has gone as

far as it could, as far as the enacting coalition wished

to, on the subject in question.”).

9

3. Finally, “[t]here is no statutory provision, in the

APA or elsewhere, instructing courts to defer to

agency interpretations of ambiguous statutory

texts.” Jonathan H. Adler, Restoring Chevron’s Domain, 81 Mo. L. Rev. 983, 990 (2016). Indeed, Section

706 of the APA explicitly directs courts to decide “all

relevant questions of law.” 5 U.S.C. § 706. And for

good reason: Without judicial oversight, the APA

would be wholly ineffective in policing administrative agencies. A court cannot know whether an

“agency action” is “in excess of statutory jurisdiction,

authority, or limitations” unless it interprets the

statute for itself. Id. § 706(2)(C).

The APA permits courts to uphold an agency action only after independently determining that the

action falls within the agency’s statutorily conferred

authority: Courts “do not ignore that command [of

Section 706] when [they] afford an agency’s statutory

interpretation Chevron deference; [they] respect it.

[They] give binding deference to permissible agency

interpretations of statutory ambiguities because Congress has delegated to the agency the authority to interpret those ambiguities ‘with the force of law.’” City

of Arlington, 569 U.S. at 317 (Roberts, C.J., dissenting) (quoting United States v. Mead Corp., 533 U.S.

218, 229 (2001)); see also Kisor v. Wilkie, 139 S. Ct.

2400, 2419 (2019) (citing this passage and offering a

similar defense of Auer deference); Henry P. Monaghan, Marbury and the Administrative State, 83

Colum. L. Rev. 1, 27–28 (1983) (noting that “the court

is not abdicating its constitutional duty to ‘say what

the law is’ by deferring to agency interpretations of

10

law: it is simply applying the law as ‘made’ by the

authorized law-making entity”).

The APA thus underscores courts’ constitutional

obligation to ensure agencies’ regulatory decisions

have been authorized by a congressional delegation

of authority. Cf. Perez v. Mortg. Bankers Ass’n, 575

U.S. 92, 109 (2015) (Scalia, J., concurring in the judgment) (acknowledging that the APA “contemplates

that courts, not agencies, will authoritatively resolve

ambiguities in statutes and regulations”).

B. From Chevron itself onward, the Court

has repeatedly justified Chevron in terms

of effectuating Congress’s intent to

delegate policymaking authority

1. Chevron did not suddenly renounce the Judiciary’s obligation to ensure Executive Branch agencies

(and independent agencies) stay within their delegated, statutory authority. To the contrary, its approach to reviewing agency decisions is premised on

implementing the precise scope of authority Congress

has delegated. Chevron directs courts always to ask

first “whether Congress has directly spoken to the

precise question at issue. If the intent of Congress is

clear, that is the end of the matter; for the court, as

well as the agency, must give effect to the unambiguously expressed intent of Congress.” Chevron, U.S.A.,

Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842–

43 (1984). And if the court concludes that there has

been a “legislative delegation to an agency,” id. at 844,

Chevron’s second step instructs the court to uphold

11

agency actions that fall within the scope of that delegated authority, see id. (requiring courts to uphold an

agency’s “reasonable interpretation”).

Chevron makes clear that this two-step approach

is meant to effectuate—not abdicate—courts’ duty to

discern for themselves the meaning of statutory provisions. As the decision acknowledges, the “judiciary

is the final authority on issues of statutory construction and must reject administrative constructions

which are contrary to clear congressional intent.” Id.

at 843 n.9. “If a court, employing traditional tools of

statutory construction, ascertains that Congress had

an intention on the precise question at issue, that intention is the law and must be given effect.” Id. (emphasis added).

Accordingly, as multiple scholarly observers have

pointed out, Chevron’s approach is best understood as

rooted in an attempt to discern the scope of Congress’s

delegation of regulatory authority. See, e.g., Thomas

W. Merrill & Kristin E. Hickman, Chevron’s Domain,

89 Geo. L.J. 833, 836 (2001) (“Chevron should be regarded as a legislatively mandated deference doctrine.”); Adler, supra, at 990 (“[T]he Court has made

clear that Chevron is, in fact, premised on a delegation of interpretive and policymaking authority from

Congress to implementing agencies.”). Other potential rationales for Chevron—such as those grounded

in considerations of “[e]xpertise, accountability, and

uniformity”—are all merely “policy reasons for deferring to agencies over judges” and “do not provide a legal basis for Chevron.” Id. at 989.

12

2. Indeed, the Court has repeatedly justified

Chevron as a tool for implementing congressional intent. In Mead, for example, the Court explained that

Chevron held that Congress may delegate authority

implicitly as well as explicitly: Even where Congress

has not “expressly delegated authority or responsibility to implement a particular provision or fill a particular gap,” it may—or may not—“be apparent from the

agency’s generally conferred authority and other statutory circumstances that Congress would expect the

agency to be able to speak with the force of law when

it addresses ambiguity in the statute or fills a space

in the enacted law.” United States v. Mead Corp., 533

U.S. 218, 229 (2001); see also id. at 231–32 (concluding that “the terms of the congressional delegation

give no indication that Congress meant to delegate

authority to [the U.S. Customs Service] to issue classification rulings with the force of law”).

Mead thus clarified that courts should not infer a

congressional intent to delegate—and thus should not

defer to agency decisions—every time they encounter

a statutory ambiguity or “gap.” Instead, there must be

actual “indication of a . . . congressional intent” to do

delegate. Id. at 227. Only “[w]hen circumstances implying such an expectation exist” should a reviewing

court “accept the agency’s position,” so long as “Congress has not previously spoken to the point at issue

and the agency’s interpretation is reasonable.” Id. at

229. Mead thus “eliminates any doubt that Chevron

deference is grounded in congressional intent.”

Thomas W. Merrill, The Mead Doctrine: Rules and

13

Standards, Meta-Rules and Meta-Standards, 54 Admin. L. Rev. 807, 812 (2002).

The Court’s other Chevron cases confirm as much.

In Adams Fruit Co. v. Barrett, for example, the Court

observed that “[a] precondition to deference under

Chevron is a congressional delegation of administrative authority.” 494 U.S. 638, 649 (1990) (citing

Bowen, 488 U.S. at 208). The Court reiterated this

point in Gonzales v. Oregon, observing that “Chevron

deference . . . is not accorded merely because the statute is ambiguous and an administrative official is involved”—rather, the regulation advancing the interpretation “must be promulgated pursuant to authority Congress has delegated to the official.” 546 U.S.

243, 258 (2006) (citing Mead, 533 U.S. at 226–27).

And in FDA v. Brown & Williamson Tobacco

Corp., the Court again explained that “[d]eference under Chevron . . . is premised on the theory that a statute’s ambiguity constitutes an implicit delegation

from Congress to the agency to fill in the statutory

gaps.” 529 U.S. 120, 159 (2000). For this reason, the

Court explained, an agency’s claim to authority will

pass the first step of Chevron only where the statutory

context as a whole makes it reasonable to infer a delegation of authority. Id. at 132–33 (explaining that a

“reviewing court should not confine itself to examining a particular statutory provision in isolation” and

“must be guided to a degree by common sense as to

the manner in which Congress is likely to delegate a

policy decision of such economic and political magnitude to an administrative agency”).

14

4. Even the Court’s famously pro-agency decision

in City of Arlington confirms this understanding of

Chevron. Every opinion in City of Arlington—Justice

Scalia’s majority opinion, Justice Breyer’s concurrence, and the Chief Justice’s dissent—recognized

that Chevron’s legitimacy stems from the delegation

of authority by Congress.

Justice Scalia observed that “Chevron is rooted in

a background presumption of congressional intent,”

which means that the “underlying question” is always

“Does the statute give the agency authority to regulate . . . or not?” 569 U.S. at 296, 298 (majority op.).

Similarly, Justice Breyer noted that the “question

whether Congress has delegated to an agency the authority to provide an interpretation that carries the

force of law is for the judge to answer independently.”

Id. at 310 (Breyer, J., concurring in part and concurring in the judgment) (emphasis added). And the

Chief Justice likewise explained that “Chevron deference is based on, and finds legitimacy as, a congressional delegation of interpretive authority,” id. at 321

(Roberts, C.J., dissenting)—courts thus only “give

binding deference to permissible agency interpretations of statutory ambiguities because Congress has

delegated to the agency the authority to interpret

those ambiguities ‘with the force of law,’” id. at 317

(quoting Mead, 533 U.S. at 229).

Notably, the dispute in City of Arlington was not

over the rationale for Chevron but was instead over

whether the Chevron framework applies to “an

agency’s interpretation of a statutory ambiguity that

15

concerns the scope of its regulatory authority (that is,

its jurisdiction).” Id. at 293 (majority op.). Writing for

the majority, Justice Scalia concluded that it does, on

the ground that “the distinction between ‘jurisdictional’ and ‘nonjurisdictional’ interpretations is a mirage.” Id. at 297. In doing so, however, Justice Scalia

reaffirmed the principle that an agency’s authority

goes only so far as Congress allows: Regardless of how

a statutory provision might be characterized, under

Chevron the question “is always whether the agency

has gone beyond what Congress has permitted it to

do.” Id. (emphasis added).

5. The Court’s opinions following City of Arlington

reaffirm that Chevron is rooted in delegation. For example, in Scialabba v. Cuellar de Osorio, the Chief

Justice, now joined by Justice Scalia, observed that

while “courts defer to an agency’s reasonable construction of an ambiguous statute because we presume that Congress intended to assign responsibility

to resolve the ambiguity to the agency,” no such assumption can be made where the ambiguity was created by Congress enacting conflicting provisions. 573

U.S. 41, 76 (2014) (Roberts, C.J., concurring).

Similarly, the Court’s decision in King v. Burwell

explicitly relies on the notion that Chevron “is premised on the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the

agency to fill in the statutory gaps.” 576 U.S. 473, 485

(2015) (quoting Brown & Williamson, 529 U.S. at

159). There the IRS had issued a regulation interpreting the Affordable Care Act to authorize tax credits

16

for individuals who purchase insurance plans through

a federal exchange, but the Court refused to defer to

this interpretation—even though the IRS held general statutory authority to issue regulations implementing the statute, and even though the Court concluded the statute was ambiguous. See id. at 486, 490.

The Court explained that because the interpretive

question was “of deep ‘economic and political significance’” and “central to this statutory scheme,” it was

unlikely that the statutory ambiguity constituted an

implicit delegation; “had Congress wished to assign

that question to an agency, it surely would have done

so expressly.” Id. at 486 (quoting Utility Air Regulatory Group v. EPA, 573 U.S. 302, 324 (2014)).

Indeed, the Court’s decision in King v. Burwell illustrates a more general point: The Court has refused

to accord Chevron deference when statutory ambiguities concern major questions precisely because Chevron is all about effectuating congressional intent. See

also Stephen Breyer, Judicial Review of Questions of

Law and Policy, 38 Admin. L. Rev. 363, 370 (1986)

(“Congress is more likely to have focused upon, and

answered, major questions,” such as whether to confer

jurisdiction to an agency, while “leaving interstitial

matters,” such as how delegated authority is exercised, for resolution by the agency during the “daily

administration” of the statute (emphasis added));

Brown & Williamson, 529 U.S. at 159 (citing Breyer,

supra, at 370); King v. Burwell, 576 U.S. at 485 (quoting Brown & Williamson, 529 U.S. at 159).

17

In sum, Chevron and the Court’s subsequent decisions confirm that there is only one viable justification for the Chevron framework: It discerns and implements Congress’s intent to delegate regulatory authority. This understanding conforms with the separation of powers and the APA, and it resolves many of

the key questions that arise in applying Chevron—including the question before the Court here.

II. Because Chevron Is a Means of Carrying Out

Congressional Acts, Courts Must Decide the

Scope of Any Delegation to an Agency

A. Courts considering the scope of an

agency’s authority under Chevron should

interpret the statutory delegation de novo

1. Because the purpose of Chevron is to effectuate

congressional intent, it requires a court to uphold

agency decisions only after the court has decided for

itself how much authority Congress has conferred. As

the Chief Justice has explained, a court always “must

on its own decide whether Congress—the branch

vested with lawmaking authority under the Constitution—has in fact delegated to the agency lawmaking

power over the ambiguity at issue.” City of Arlington

v. FCC, 569 U.S. 290, 317 (2013) (Roberts, C.J., dissenting). “Agencies are creatures of Congress” and

have “no power to act unless and until Congress confers power upon” them, which means that “[w]hether

Congress has conferred such power is the relevant

question of law that must be answered before affording Chevron deference.” Id. (cleaned up).

18

Chevron thus always requires courts to interpret

the statute de novo. Courts apply the “deference” for

which Chevron calls only after independently determining the scope of the agency’s delegated authority:

When the agency acts within the scope of this authority, then it is entitled to deference. See id. at 321–22

(explaining that whether “Congress has delegated authority to definitively interpret a particular ambiguity in a particular manner . . . must be determined by

the court on its own before Chevron can apply”); Jonathan H. Adler, Restoring Chevron’s Domain, 81 Mo.

L. Rev. 983, 985 (2016) (noting that because “Chevron

deference is predicated on a theory of delegation,

courts should only provide such deference when the

relevant power has been delegated by Congress”);

Thomas W. Merrill & Kristin E. Hickman, Chevron’s

Domain, 89 Geo. L.J. 833, 836 (2001) (“The conclusion

that Chevron rests on an implied delegation from

Congress also has important implications for Chevron’s domain: It means that Congress has ultimate

authority over the scope of the Chevron doctrine, and

that the courts should attend carefully to the signals

Congress sends about its interpretative wishes.”).

At step one, Chevron requires the court first to determine whether Congress conferred policymaking

authority on the agency at all. As the Court in Chevron allowed, “[s]ometimes the legislative delegation to

an agency on a particular question is implicit rather

than explicit,” but regardless, the court may proceed

only after determining that Congress has in fact delegated regulatory authority to the agency. Chevron

U.S.A. Inc. v. Natural Resources Defense Council, Inc.,

19

467 U.S. 837, 844 (1984). If the court finds Congress

did delegate authority, the court then defines the

scope of the agency’s delegated authority under the

statute—setting the outer bounds of permissible

agency action at Chevron step two. That zone of reasonable policies, definitively articulated by the court,

constitutes the scope of authority delegated by Congress. It is within this zone that the agency is free to

take actions according to its own lights, subject always to the Constitution and the APA.

2. The Court employed precisely this approach in

MCI Telecommunications Corp. v. American Telephone & Telegraph Co., 512 U.S. 218 (1994). As here,

the provision at issue there, 47 U.S.C. § 203(b)(2), conferred some policymaking authority: It authorized the

FCC to “modify any requirement” imposed by a law

requiring common carriers to file tariffs with the

FCC. Id. at 225. The key question concerned the scope

of policymaking authority conferred by this “modification” clause—in particular, whether it encompassed

the FCC’s decision to make tariff filing optional for all

nondominant long-distance carriers. Id. at 220.

Justice Scalia, writing for the Court, rejected the

FCC’s interpretation of the modification clause and

held that the FCC’s policy was an impermissible exercise of its authority. Relying on textual tools and

canons of interpretation, the Court explained that the

word “modify” connotated “increment or limitation,”

id. at 225, which was suggestive of only “moderate

change.” Id. at 228. The Court thus rejected the rule,

because the FCC’s rate-setting policy “effectively . . .

20

introduc[ed] . . . a whole new regime of regulation” not

contemplated by “the one that Congress [had] established.” Id. at 234. The Court refused to defer to the

FCC’s rule, in other words, because its rule exceeded

the scope of the authority the statute delegated to it.

Following MCI, the Court has consistently insisted that—even where an agency has been delegated some policymaking authority—Chevron still requires courts to ensure that agency decisions fall

within the zone of authority conferred by the statutory text. As the Court explained in Utility Air Regulatory Group v. EPA, “[e]ven under Chevron’s deferential framework, agencies must operate ‘within the

bounds of reasonable interpretation’”—which, the

Court ultimately demonstrated, means the agency’s

decisions must fall within the scope of authority actually granted by the statute. 573 U.S. 302, 321 (2014)

(quoting City of Arlington, 569 U.S. at 296). The Clean

Air Act provisions at issue there required permits for

major emitters of “any air pollutant,” and the EPA

had issued a regulation defining this term to include

greenhouse gases. Id. at 316. Although this provision

obviously gave the EPA some measure of regulatory

authority, the Court refused to defer to the EPA’s interpretation: It held that the agency’s regulation was

“‘incompatible’ with ‘the substance of Congress’ regulatory scheme,’” id. at 322 (quoting FDA v. Brown &

Williamson Tobacco Corp., 529 U.S. 120, 156 (2000)),

and “unreasonable because it would bring about an

enormous and transformative expansion in EPA’s

regulatory authority without clear congressional authorization,” id. at 324.

21

Similarly, in Michigan v. EPA, the Court invalidated an EPA regulation because the agency had

again exceeded its statutory authority and thereby

failed to “‘operate within the bounds of reasonable interpretation.’” 576 U.S. 743, 751 (2015) (quoting Utility Air Regulatory Group, 573 U.S. at 321). The EPA’s

regulation had interpreted a statutory provision directing the agency to regulate power plants when it

“‘finds such regulation is appropriate and necessary,’”

to “mean that cost makes no difference to the initial

decision to regulate.” Id. (quoting 42 U.S.C.

§ 7412(n)(1)(A)). Again, the provision at issue clearly

delegated some policymaking discretion to the

agency, but the Court nevertheless refused to defer to

the agency’s interpretation under Chevron: In light of

the statutory context and the long history of agencies’

consideration of cost, the EPA had “strayed far beyond” the bounds of reasonable interpretation “when

it read [the statute] to mean that it could ignore cost

when deciding whether to regulate power plants.” Id.

3. The fundamental lesson of these decisions is

that Chevron does not require courts to take the

agency at its word that its decision is reasonable—

that is, that it falls within the scope of its delegated

authority. As one leading commentator has observed,

“what the reasonable meanings might be is, within

the Chevron universe, a question for the courts to decide.” Peter L. Strauss et al., Gellhorn & Byse’s Administrative Law 1073 (11th ed. 2011) (emphasis

added). “The fact that Congress has left a gap for the

agency to fill means that courts should defer to the

agency’s reasonable gap-filling decisions, not that

22

courts should cease to mark the bounds of delegated

agency choice.” Negusie v. Holder, 555 U.S. 511, 531

(2009) (Stevens, J., concurring in part and dissenting

in part) (emphasis added); see also, e.g., Merrill &

Hickman, supra, at 836 (“[I]t has never been maintained that Congress would want courts to give Chevron deference to an agency’s determination that it is

entitled to Chevron deference . . . .”).

Indeed, the Court recently reiterated that, “under

Chevron, the agency’s reading must fall ‘within the

bounds of reasonable interpretation,’” which means

“it must come within the zone of ambiguity the court

has identified after employing all its interpretive

tools.” Kisor v. Wilkie, 139 S. Ct. 2400, 2416 (2019)

(quoting City of Arlington, 569 U.S. at 296) (emphasis

added); see id. (noting that the statute’s “text, structure, history, and so forth . . . establish the outer

bounds of permissible interpretation”). And it went on

to admonish lower courts that “there be no mistake:

That is a requirement an agency can fail.” Id.

The principle that “foxes should not guard henhouses,” is fundamental to judicial review of agency

action. See Ernest A. Young, Executive Preemption,

102 Nw. U. L. Rev. 869, 889 (2008); Cass R. Sunstein,

Interpreting Statutes in the Regulatory State, 103

Harv. L. Rev. 405, 446 (1989) (“The basic case for judicial review depends upon the proposition that foxes

should not guard henhouses.”). And as Justice Scalia

explained, courts avoid the “fox-in-the-henhouse syndrome . . . by taking seriously, and applying rigor-

23

ously, in all cases, statutory limits on agencies’ authority. Where Congress has established a clear line,

the agency cannot go beyond it; and where Congress

has established an ambiguous line, the agency can go

no further than the ambiguity will fairly allow.” City

of Arlington, 569 U.S. at 307.

B. Here, the Court should consider the

parties’ competing interpretations and

adopt the best reading, without tilting the

scales in favor of the agency

1. This case is an apt occasion for the Court to confirm that Chevron directs courts to uphold agency decisions only after they independently determine the

scope of the agency’s authority and then conclude that

the agency’s decision falls within that scope. Conveniently, step one of Chevron—the locus of many if not

most challenges to agency decisions—is not at issue

here, for Subclause II clearly grants HHS some policymaking authority. Where “hospital acquisition cost

data are not available” (and all agree they are not, see

Pet. App. 19a), Subclause II explicitly grants HHS the

authority to set SCOD reimbursement rates using

“the average price for the drug . . . as calculated and

adjusted by the Secretary as necessary for purposes of”

the SCOD-reimbursement program. 42 U.S.C.

§ 1395l(t)(14)(A)(iii)(II) (emphasis added).

Accordingly, the only disputed issue in this case

concerns Chevron step two—namely, the precise scope

of HHS’s authority under Subclause II. And on this

24

question the parties each offer coherent, alternative

readings of the statute.

Petitioners argue the Secretary’s authority to “adjust[]” a drug’s average price is subject to two limitations derived from the structure of the statute. When

hospital acquisition cost survey data is available, the

statute (1) directs HHS to set rates using each drug’s

“average acquisition cost” and (2) authorizes, “at the

option of the Secretary,” varying reimbursement rates

“by hospital group.” 42 U.S.C. § 1395l(t)(14)(A)(iii)(I)

(Subclause I). Warning that any other reading would

“nullify” these provisions of Subclause I, Petitioners

argue that the Secretary’s “adjustment” authority under Subclause II cannot extend (1) to basing reimbursement rates on a drug’s average acquisition cost

or (2) to setting different rates for different hospital

groups. Pet. Br. 32–35. And beyond these two structural limitations, Petitioners further contend that the

term “adjust” must be read to permit only “slight

change[s]” that take average prices—not acquisition

costs—as their “starting point.” Id. at 37–38.

HHS, meanwhile, argues that the only limitation

on its adjustment authority is that the adjustment be

“necessary for purposes of . . . Section 1395l(t)(14),”

and it argues that one such purpose is to “align specified-drug reimbursement with hospital costs.” Br. in

Opp. 18 (internal quotation marks, alterations, and

citations omitted). HHS thus contends that Subclause

II gives it expansive authority to adjust average price

data so that reimbursement rates reflect hospitals’ acquisition costs—a reading that reflects its conclusion

25

that “average price” under Subclause II serves as a

proxy for average acquisition cost. Id. at 19. HHS further argues that the limitations Petitioners would impose on its authority would themselves render Subclause II superfluous: While Petitioners contend that

the “purposes” for which HHS can adjust average

prices cannot include the goal of approximating hospital acquisition costs, they “point[ed] to no other ‘purpose’ that could permissibly support an adjustment.”

Id. at 20 (quoting Pet. App. 24a).

The Court’s task in this case is to examine the

statutory text and determine which of these interpretations offer a better reading of the statute. And the

Court should do so using its own best judgment, without putting a finger on the scale in favor of the agency.

2. The decision below failed to follow the appropriate approach because it misunderstood what Chevron

is about. Chevron is not about upholding agency interpretations of statutes that are “close enough for

government work.” See Pet. App. 17a–18a (“[T]he sole

question before us is whether HHS had statutory authority to impose its 28.5% cut to SCOD reimbursement rates . . . . On that issue of statutory interpretation, HHS is entitled to Chevron deference . . . .”). As

explained above, Chevron is instead about answering

“the question . . . whether the agency has stayed

within the bounds of its statutory authority.” City of

Arlington, 569 U.S. at 297. And courts confronted

with that question must “decide independently.” Id.

at 308 (Breyer, J., concurring in part and concurring

in the judgment).

26

Accordingly, “HHS’s understanding of its statutory authority,” is not the sort of thing that is ever

“entitled to Chevron deference.” Pet. App. 18a. An

agency’s understanding of the scope of its statutory

authority may be correct, in which case Chevron directs courts to uphold the decisions the agency takes

within the scope of that authority, so long as those decisions comply with any additional requirements of

the Constitution and the APA. Chevron does not, however, entitle agencies to decide for themselves

whether statutory provisions authorize their actions.

Under Chevron—and under the Constitution and the

APA—that task is reserved to the Judiciary.

The proper course here is thus straightforward.

The Court should undertake a de novo review of the

statute and, in light of all of the relevant tools of statutory interpretation, adopt the best reading of the

scope of authority conferred by Subclause II. Perhaps

the Court will agree with the agency’s interpretation—indeed, perhaps that is all the decision below

meant to do. See Pet. App. 30a. If it does, the Court

should uphold the agency’s decision. What the Court

should not do, however, is permit HHS to decide for

itself how much authority it has been given by Congress. Such a result violates the separation of powers,

the APA, and the Court’s Chevron jurisprudence.

27

CONCLUSION

For the foregoing reasons, the Court should decide

between the parties’ competing interpretations of 42

U.S.C. § 1395l(t)(14)(A)(iii)(II) de novo, without according any deference to the agency’s view of the scope

of its own authority.

Respectfully submitted,

Office of the

Attorney General

302 W. Washington St.

Indianapolis, IN 46204

(317) 232-6255

Tom.Fisher@atg.in.gov

*Counsel of Record

THEODORE E. ROKITA

Attorney General

THOMAS M. FISHER*

Solicitor General

KIAN J. HUDSON

Deputy Solicitor General

JULIA C. PAYNE

MELINDA R. HOLMES

Deputy Attorneys General

Counsel for Amici States

Dated: September 10, 2021

28

ADDITIONAL COUNSEL

CHRISTOPHER M. CARR

Attorney General

State of Georgia

JOHN O’CONNOR

Attorney General

State of Oklahoma

JEFF LANDRY

Attorney General

State of Louisiana

KEN PAXTON

Attorney General

State of Texas

LYNN FITCH

Attorney General

State of Mississippi

SEAN REYES

Attorney General

State of Utah

DOUG PETERSON

Attorney General

State of Nebraska

Counsel for Amici States