Old laws, Supreme Court may stymie HHS plan to fast-track policy

The Health and Human Services Department aims to fast-track policymaking by scrapping procedures it followed for more than 50 years to collect public feedback on government decisions. The Supreme Court and several federal laws may stand in the way.

As such, healthcare interests could cite decades of legal and statutory precedent supporting the notice-and-comment process for federal policies to push back against HHS Secretary Robert F. Kennedy Jr.'s plan to reduce transparency, according to legal and policy experts.

Related: HHS scraps transparency practices for policymaking

These legal theories are untested in court so far, but could provide healthcare companies, trade associations and citizens in general ammunition against new HHS policies they oppose, said Patric Hooper, a founding partner of the law and lobbying firm Hooper Lundy & Bookman.

"There are other well-established statutory requirements and regulatory requirements that give the public, including providers and beneficiaries, an opportunity to be heard with respect to Medicare and Medicaid decision-making," Hooper said.

HHS will continue to follow the Administrative Procedures Act of 1946 for many types of policies, including annual updates to Medicare fee-for-service reimbursements, the department announced last month. The department has not clarified the parameters for its approach to policymaking nor whether it only applies to new actions or will be used retroactively. HHS did not respond to a request for comment.

The department maintains the Administrative Procedures Act doesn't apply to actions such as loans, grants and federal contracts, for which HHS will eschew notice and comment. HHS has employed what's known as the Richardson Waiver since 1971, when the then-Health, Education and Welfare Department under Secretary Elliot Richardson announced it would adhere to notice-and-comment practices even when the Administrative Procedures Act doesn't explicitly require them.

Yet laws such as the amended Social Security Act of 1935 and court rulings including a key Supreme Court decision on Medicare disproportionate share hospital payments in 2019 may require public notice and comment on a wider array of policymaking than HHS asserts.

Since President Donald Trump returned to the White House in January, federal agencies have taken a number of steps that have made it more difficult for businesses and individuals to gain insight into and affect government actions. In addition to scaling back notice-and-comment practices, HHS is under an ongoing external communications freeze and in the midst of widespread layoffs, for instance.

“The possibility that HHS under the Trump White House will eliminate or significantly scale back public comment on policies impacting payment, regulations, safety, operations and other critical areas is truly troubling — a move we can only hope will not have the negative impact that we fear it might,” Katie Smith Sloan, president and CEO of of the long-term care trade association LeadingAge, said in a news release Feb. 28.

Statute

Businesses will need to watch closely for regulatory changes that could affect reimbursement, funding and compliance and be prepared to sue, according to an analysis the law and lobbying firm Arnold & Porter Kaye Scholer published March 4.

"The changed landscape may necessitate an increased willingness by industry to challenge such actions," a team of Arnold & Palmer attorneys and experts wrote. "We anticipate significant procedural changes and implications for stakeholder input and advocacy going forward in cases where the [Administrative Procedures Act] exemption applies."

Public comment requirements woven into many laws could mean HHS agencies would have to continue using the notice-and-comment process, the Arnold & Porter analysis says.

While the Administrative Procedures Act sets baseline requirements, it contains an exception for regulations on public property, loans, grants, benefits and contracts. Legal experts, including the federal Administrative Conference of the U.S., have said for decades that issuing rules without notice and comment is inadvisable.

“These types of rules may nevertheless bear heavily upon nongovernmental interests,” the Administrative Conference wrote in a report published in 1969. “Exempting them from generally applicable procedural requirements is unwise.” These recommendations led to the Richardson Waiver, the law and lobbying firm Akin Gump Strauss Hauer & Feld wrote in a memo to the American Hospital Association on March 4.

Other laws fill some gaps in the Administrative Procedures Act, such as the Social Security Act, which requires that HHS offer notice and comment for Medicare administration, including provider and supplier payment, hospital conditions of participation, and provider enrollment requirements, four Akin Gump lawyers wrote to the AHA.

The Social Security Act also mandates public comment when states apply to alter Medicaid demonstration programs, but most of Medicaid is not subject to that requirement, the Akin Gump memo says. CMS could potentially skip public comment on policies such as Medicaid managed care regulations, program integrity or state supplemental payment programs, the attorneys wrote.

Case law

Decades’ of case law about notice and comment offers stakeholders a set of decisions that could preserve their role in the regulatory and policymaking process.

Judith Waltz, a partner in the law and lobbying firm Foley & Lardner’s healthcare practice, pointed to a March 5 order from the U.S. District Court for the District of Massachusetts, which notes that the notice-and-comment process HHS curtailed is entrenched in case law. The court temporarily blocked National Institutes of Health grant cuts on these grounds.

The judiciary has repeatedly determined that HHS agencies must follow notice-and-comment requirements beyond the Administrative Procedures Act, the court ruled. “In light of the weight of precedent, the waiver of the grant exception is binding and cannot be summarily disregarded,” Judge Angel Kelley wrote in her order.

The hospital sector won a major victory in Allina v. Azar when the Supreme Court ruled the Centers for Medicare and Medicaid Services unlawfully altered how it calculates Medicare DSH payments.

"Because affected members of the public received no advance warning and no chance to comment first, and because the government has not identified a lawful excuse for neglecting its statutory notice-and-comment obligations, we agree with the court of appeals that the new policy cannot stand," Justice Neil Gorsuch wrote in the majority opinion in 2019.

Other courts have made similar rulings when they determined a government action was significant enough to warrant public notice-and-comment under what's known as a “substantive legal standard," irrespective of whether the Administrative Procedures Act explicitly requires it.

These include the Supreme Court's decisions in Federal Communications Commission v. Fox Television Stations in 2009 and U.S. v. Nixon in 1969, which determined that agencies cannot depart from standing policies without notice, Hooper said.

"The big hurdle for the administration, if and when this gets challenged, is how they can — in one fell swoop of a pen, through a policy change — change a policy that's been in effect for over 50 years, one that Congress was aware of and the courts were aware of, and everybody followed," Hooper said. "They're going to have to give a very valid rationale for something like that."

Precedent, however, is not uniform.

In 2019, the U.S. District Court for the Central District of California ruled in Agendia v. Azar that CMS should have used the notice-and-comment process for local coverage decisions, but the U.S. Court of Appeals for the 9th Circuit overturned that decision, concluding these actions were not "substantive."

'Good cause' exemption

Whether the new HHS policy holds up against potential legal challenges may rest on a different standard known as the “good cause” exception to the Administrative Procedures Act, which the department cited in its announcement last month. Courts have permitted agencies to forego notice-and-comment under certain circumstances.

The “good cause” exception has been interpreted narrowly, three attorneys from the law firm Epstein Becker & Green concluded in a policy brief published March 5. Courts have upheld "good cause" exceptions under circumstances such as natural disasters and infectious disease outbreaks but rejected "good cause" arguments based on statutory deadlines or economic reasons, the lawyers wrote.