The case involves a Medicare statute and a regulation implementing part of that statute. The court held that the statute was ambiguous under the first Chevron step. Fine.
Then it says "The parties agree that CMS’s regulations are entitled to Chevron deference if the statute is ambiguous." Fine.
Then, referring not to the regulation but to what CMS actually did, the court says (slip op. at 12) "CMS’s decision to base reimbursements in 2003, 2004 and 2005 on the amount of the previous year’s reimbursement is not 'manifestly contrary to the statute.'" Okay, but why are we talking about CMS's decision -- what it actually did -- as opposed to its regulation, which is what we just agreed was entitled to deference? The court concludes:
Thus, although Providers may offer a “better” interpretation by taking into account the structure and purpose of the statute, CMS’s reading finds substantial support in the text ... and is backed by solid reasoning. CMS’s interpretation, therefore, falls within the range of permissible interpretations.The kicker here is that, in the last part of the op, the court goes on to consider the above-mentioned implementing regulation -- and holds that it does *not* support what CMS did, and in fact requires CMS to reimburse on the providers' theory, not CMS's! Hence, reversal and remand to the district court that had ruled for CMS.
Our conceptual difficulty here is that, once the court found that (1) the statute was ambiguous and (2) the agency had issued a reg applying its understanding of the statute, why did the court pronounce on the reasonableness of CMS's "decision" instead of cutting straight to the reg? Back to Chevron, which says:
If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute.Here, the providers wanted CMS to follow its own reg, and the court held that CMS must do so (hence "reversal"). But the court did not seem to grasp that the regulation just is the agency's interpretation of the statute.
Instead, the court appears to have been thrown off-track by the peculiarity that the agency was advancing an "interpretation" of the statute, in its actual practice and in its litigating position, that was contrary to its regulation.
... The issue, but not the Fifth Circuit's treatment of it, exposes a flaw in the routine application of "the Chevron two-step" by the courts. Step one is to analyze the statute for ambiguity, and if it's clear, then you stop there. Step two, if the statute is ambiguous, look to the reg or other interpretation.
The problem here is that courts risk finding the statute "clear" when it's not -- hey, no need to go to step two, case closed! -- without deferring to the agency's construction of the statute, itself a venerable principle expressly recognized in Chevron:
We have long recognized that considerable weight should be accorded to an executive department's construction of a statutory scheme it is entrusted to administer, and the principle of deference to administrative interpretationsSo really, where an agency has construed a statute, the analysis works more like "the agency's interpretation controls unless clearly contrary to the statute." If there's any doubt whether the statute is clearly contrary, deference requires going with the agency's interpretation."has been consistently followed by this Court whenever decision as to the meaning or reach of a statute has involved reconciling conflicting policies, and a full understanding of the force of the statutory policy in the given situation has depended upon more than ordinary knowledge respecting the matters subjected to agency regulations."