Governmental bodies such as the U.S. Food and Drug Administration (FDA), have used rulemaking procedures to address gray areas in regulation or law. However, due to a recent Supreme Court decision, businesses may face greater risk to the extent that they have relied upon FDA positions or operate within the current confines of FDA regulation or guidance.
An Overview of the Loper Bright Supreme Court Case
With its 2024 decision in Loper Bright Enterprises v. Raimondo, the U.S. Supreme Court overruled 1984 Chevron USA v. Nat. Resources Def. Counsel, Inc., which had previously created a legal doctrine referred to as Chevron deference. In Chevron, the Supreme Court held that courts must generally defer to federal agencies’ decision-making in their interpretation of vague or ambiguous language in federal statutes, so long as the agency decision was reasonable. Federal agency decision-making could be in the form of regulations, published agency guidance or other decision-making procedures.
The Loper Bright case determined that federal agencies’ interpretation powers had gone too far and that courts shouldn’t automatically side with such agency decisions. As the Supreme Court ruled in Loper Bright, it may change how much power federal agencies have to make decisions and determine the method of application of laws.
“While this is not a life science case, what was overturned is applicable to life science and so many other so many industries,” says Brad John, life science industry practice lead at The Hartford. “Decades ago, the Chevron case gave deference to federal agencies for administrative and legal gray areas. If there was something the law didn’t specify, the courts would defer to agencies to interpret how the gray area in the law should be interpreted because of their expertise in that particular area.”
John explains that due to the Loper Bright case, the deference in its decision making no longer lies with the agencies. “Now, the court system determines ultimately how large and often ambiguous statutes should be interpreted, rather than following the Chevron deference principle and deferring to administrative agencies and their decision making."
Potential Downstream Impact on Life Science Companies
Many believe the decision in the Loper Bright case has the potential to encourage innovation because it could give more leverage to companies choosing to challenge federal agency rules and statute interpretations in court. However, some feel this will likely not be the case.
Daniel Tranen, attorney at Wilson Elser, explains Loper Bright could instead dampen future innovation. “This decision is likely ultimately to be an attack on regulation by federal agencies. However, innovation generally flourishes under stable conditions which make innovation less risky and less costly on average. Loper potentially upends the stability of the past 40 years by pushing the ultimate decision-making on interpretation of federal statutes to courts and away from federal agencies. The interpretive decisions of judges who may lack expertise, and may be more politically driven, may contribute to more chaos in the regulatory environment.”
Additionally, Tranen shares there could be a shift in how much control federal agencies have over interpreting and generating important rules and regulations for companies. Historically, agency interpretations have provided companies with a clear set of guidelines to follow. However, courts now have more authority to question and possibly overturn agency interpretations, the reliability of those rules may fail if they are called into question. This shift introduces uncertainty and complexity into the product development process, forcing life science companies to navigate a less predictable regulatory environment when developing products that may (or may not) fall within the scope of FDA’s regulatory authority.
Product Determination
Some believe Loper Bright holds the potential to significantly reshape the life science regulatory landscape regarding safety standards, labeling requirements and approval processes for life science products. Now, there is uncertainty around how much control the FDA has overregulating these products.
John shares an example specific to the life science industry. “There has been gray area surrounding laboratory developed tests (LDTs). In the past, the FDA indicated they had authority to regulate LDTs by enacting a policy of enforcement discretion. Because the Chevron deference existed, they had solid footing in that they could enforce whatever rule they came up with through that process. Now that the Chevron deference has been overturned, people have sued them, saying, ‘no, you can't implement that rule.’ Ultimately, the court will now make its own decision as to how that rule should be applied, which previously wouldn’t have happened.”
There are other areas where the law is not clear. For example, the FDA has current rules for how it will determine if an item is a medical device. Smart watches now have the ability to track not only heart rate and blood oxygen levels, but many can take electrocardiograms (ECGs) and include fall detection technology. Tranen says Loper opens the door to companies challenging the FDA’s decision on whether products which may be linked to a person’s health can be considered a medical device. That potentially means a company could face greater or lesser regulation in getting their products to market. It may also impact whether FDA is involved in the regulation and oversight of the product once it is on the market.
An Increased Legal Risk
While life science companies have an opportunity to challenge FDA rulings that may adversely impact them, the potential turmoil that may result creates new risks.
Tranen shares that companies may now face additional legal risk in relation to product liability claims. “Many life science companies rely heavily on the FDA’s approval of their products as well as evidence that they’re effectively complying with FDA regulations if their products are challenged in court. Historically, having this regulatory approval, as well as federal preemption to protect some products, is a significant factor that sets apart litigation involving medical devices and pharmaceuticals from other types of product liability litigation. If Loper Bright potentially weakens the product approval and rulemaking authority of federal agencies including the FDA--this may open new risks for life science companies defending themselves against future product liability litigation.”
Tranen believes there could be a shift in the way preemption is considered. As Loper Bright effectively pushes decisions back to the courts, companies should anticipate some court decisions might stray from enforcing preemption and finding that a federal agency decision controls given the combination of the court’s newfound powers and authority and the potential limitation on federal agency power and authority.
Following the Loper decision, companies may decide that they can no longer rely on preexisting interpretations for developing, receiving approvals and marketing their products moving forward. Some companies may challenge the FDA’s authority, and to the extent that they succeed, it will impact everyone else. While it may be the case that courts will continue to defer to FDA on scientific and factual issues, it is difficult to know the ultimate impact that the move away from deference to the FDA on legal issues (like statutory interpretation and rulemaking) will have on life science companies down the road.
Additionally, the Loper decision means that the guardrails for development, testing, approving, and marketing products may no longer be as clear as they were prior to that decision. Companies can invest time and money into the development of a product assuming current set of rules, but by the time they get to the regulatory approvals, they might find that the regulations have changed.
John explains that companies need to be aware of how these regulatory changes can affect their insurance coverage. “Now you have products where the need for FDA approval is unclear because of a gray area due to a rule change. Companies must be aware of how insurance carriers will respond. Will they be covered if their product is on the market illegally, even if it isn’t a purposeful act? Is there an exclusion within the policy that might prevent coverage?”
Risk Mitigation Strategies
While experts believe Loper Bright presents new risks for the life science industry, there are ways to prepare.
Both John and Tranen encourage companies to stay informed. New standards will continue to evolve as more cases go to court and the Loper decision is interpreted by the lower courts. Companies can try to satisfy all approval processes while they are developing their products. While this takes more time and effort, following both standards that would have been required helps to make sure you get proper approval.
“Begin with the end in mind. It is all about how much risk the individual company is willing to take,” says John. “A company with a low tolerance for risk will want to straddle the fence and satisfy both standards so they aren’t out of compliance. People don't think about how that translates to an insurance perspective. Risk is something the underwriter is going to look at. The underwriter reviews a company’s approach and how proactively they are dealing with risk. This is typically a good indicator of how they run their business in general.”
John also encourages companies to be an agent for change. For example, there weren’t clear standards for design features and product functionality for some life science products. The industry came together, along with the administrative governmental bodies, and made a proposal that looked at and how things should apply to these products. In turn, they came up with industry standards to better guide companies who are designing similar products, eliminating the gray area.
Overall, the Supreme Court’s overturn of the Chevron case presents complexity for the life science industry. While the way regulations are approached will continue to evolve, companies can take steps to protect their business.
“Life science companies should continue to act reasonably,” says Tranen. “But they should also carefully monitor how this change in the law impacts the FDA, its authority and the scope of its regulatory power following Loper Bright.”
The information provided in these materials is intended to be general and advisory in nature. It shall not be considered legal advice. The Hartford does not warrant that the implementation of any view or recommendation contained herein will: (i) result in the elimination of any unsafe conditions at your business locations or with respect to your business operations; or (ii) be an appropriate legal or business practice. The Hartford assumes no responsibility for the control or correction of hazards or legal compliance with respect to your business practices, and the views and recommendations contained herein shall not constitute our undertaking, on your behalf or for the benefit of others, to determine or warrant that your business premises, locations or operations are safe or healthful, or are in compliance with any law, rule or regulation. Readers seeking to resolve specific safety, legal or business issues or concerns related to the information provided in these materials should consult their safety consultant, attorney or business advisors. All information and representations contained herein are as of October 2024.
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