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