HHS Posts Civil Enforcement, Regulatory Review Mandates

The administrative levers at the U.S. Department of Health and Human Services will change hands shortly, but the current administration has taken two actions that each could have a significant impact going forward. HHS finalized a November 2020 draft rule stipulating a decennial review of regulations, while the second action sets an enforcement policy that in part seems to reflect the terms of a memo released by the Department of Justice in January 2018.

HHS had proposed a decennial review of regulations issued by its agencies under the Regulatory Flexibility Act of 1980, which proposed that the review include a consideration of whether a rule should be modified or rescinded. The proposed change was justified in part by a retrospective examination of regulations posted prior to 1990 by means of an artificial intelligence algorithm, which determined that 85% of these legacy regulations had never been edited.

The final rule, announced Jan. 8, is dubbed the Securing Updated and Necessary Statutory Evaluations Timely (SUNSET), and retains the 10-year lookback interval provided by the draft. Any regulation that is 10 years old as of the date of the final rule must be examined within five years of the effective date of the rule, more than twice the two-year term of compliance provided by the draft.

One difficulty for the authors of this rule is that it does not go into force until 60 days until after its appearance in the Federal Register, suggesting the incoming administration will have ample opportunity to repeal it. Given the robust history of bipartisan support for such actions as cited in the HHS press release, however, the next administration at HHS may believe there is some justification for leaving it in place.

Rebranding the Brand memo

HHS posted a second final rule in mid-January, which is “designed to enhance” department practices in the context of transparency and fairness in civil enforcement actions. The Jan. 12 announcement for the rule was followed Jan. 13 by a formal statement by HHS chief of staff Brian Harrison, which states that the rule pertains to parties caught up in administrative enforcement and adjudication proceedings.

An example of this policy is that HHS will conduct its in-house adjudications in a manner that more strongly resembles those conducted in federal court, but also that enforcement discretion may be exercised for defendants who had acted in good faith when they breached the law. Harrison said the department’s civil enforcement division activity can readily cripple small businesses and individuals, and that HHS owes it to these entities to ensure that any such proceedings are fair and transparent.

Among other things, the final rule reinforces the HHS commitment to prohibit the practice of treating non-compliance with “a standard or practice” that appears nowhere but in HHS agency guidance “as itself a violation of the law.”

The HHS announcement would seem to echo the Brand memo, which the Department of Justice disclosed in January 2018. DOJ characterized the memo as a prohibition of the conversion of agency guidance documents into binding rules during civil enforcement actions. The scope of this policy was presumably limited to the actions of federal attorneys, although the memo itself states that its terms are applicable when those attorneys are handling affirmative civil enforcement cases for client agencies. Among these client agencies is the FDA.

That understanding was reinforced by a presentation made by Deputy Assistant Attorney General Ethan Davis in February 2018. The conference at which Davis spoke dealt with the off-label promotion question that has vexed the FDA for a number of years, and Davis noted that the department’s civil division collaborates closely with the FDA.

In addition to the provision regarding agency guidance, the HHS rule requires that all civil administrative inspections be conducted according to published rules of procedure. The rule also requires that the department provide written notice and opportunity to respond before taking any civil enforcement action with legal consequence, although HHS said exceptions exist.

HHS Proposes Decennial Review of Regulations

The U.S. Department of Health and Human Services posted a notice of proposed rulemaking requiring HHS agencies to periodically assess their regulations to determine whether a regulation is reviewable under the Regulatory Flexibility Act (RFA) of 1980. Under the proposed rule, any regulation issued by an HHS agency becomes null at 10 years unless a confirmatory review is conducted, but the rule has a short activation time, given the impending change of administration at the White House.

The Nov. 4 HHS statement asserts that federal government agencies should retrospectively re-examine the initial projections of the impact of a rule to determine whether the rule should be amended or rescinded. HHS stated that an analysis of HHS data performed by an artificial intelligence (AI) algorithm disclosed that 85 percent of the regulations issued by HHS agencies before 1990 have not been edited. HHS Secretary Alex Azar said the proposed rule would help ensure that the affected agencies are fulfilling their responsibilities “in a way that maximizes benefits, minimizes costs, and keeps up with the times.”

Several types of regulations would not be subject to the proposed rule, such as regulations issued jointly by two or more agencies. Any regulations that are exempt from rulemaking requirements under the Administrative Procedures Act would also be exempt (the RFA was an amendment to the Administrative Procedures Act).

The statement lists similar actions undertaken by every president to hold office since 1978, along with statements in support of routine regulatory review from members of the Obama and George H. W. Bush administrations. The Organization for Economic Cooperation and Development (OECD) is also among the entities that have recommended this type of review function, with OECD recommending that regulations be subject to a sunset to incentivize the review.

One of the issues that surfaced during the AI review of HHS regulations is that the U.S. Code of Federal Regulations (CFR) bears nearly 300 references to portions of the CFR that no longer exist. There are 50 references to requirements to submit paperwork in triplicate or quadruplicate, and 114 sections with no regulatory entity listed. HHS stated that a number of regulations that have been relaxed to aid in the response to the COVID-19 pandemic would also be subject to review.

HHS acknowledged the problem with the proposed rule in the event the 2020 presidential election failed to return President Donald Trump for a second term. The comment period ends Jan. 4, 2021, but HHS said that whether it finalizes the rule and the time frame for doing so “depends on the comments received during the public comment period.” Inauguration day is Jan. 20, 2021, leaving HHS with only 16 calendar days to act on the proposal once the comment period closes.

HHS Using Algorithms in Regulatory ‘Clean-up’ Initiative

The Nov. 4 HHS statement’s references to the use of AI for regulatory review were expounded on in a Nov. 17 HHS statement describing the use of a new department-wide regulatory clean-up initiative, which uses both AI and natural language processing (NLP) technologies. The intent of this program is to identify entries in the CFR that call for correction, such as the incorrect citations mentioned in the Nov. 4 HHS statement. The process used by HHS also examined the CFR for misspellings, typographical errors, and erroneous language, but the HHS statement also tabulated the CFR at approximately 185,000 pages, a testimonial to the complexity of compliance.

This regulatory clean-up program is part of a final rule that is effective Dec. 16, and which takes aim at administrative, non-substantive changes that will clean up HHS agency regulations. This final rule is based on a pilot program that employed the same algorithms to analyze a limited section of the HHS portion of the CFR. The statement describes this pilot program as having demonstrated that federal agencies can execute “a cost-effective, enterprise-wide approach to regulatory reform that could improve accountability and transparency.”

The HHS statement further emphasizes the deregulatory agenda of the Trump administration, and HHS deputy secretary Eric Hargan said HHS accounted for more than half the regulatory savings achieved by the federal government between fiscal years 2017 and 2019. Hargan said HHS is the first cabinet agency to use AI and NLP to conduct a regulatory clean-up that will eliminate “archaic, obsolete and inconsistent rules.”

DC District Court Sides With Pharma Over WAC Rule

The U.S. federal government’s pressure on drug makers has ratcheted up considerably over the past few years and included a rule that would have forced pharmaceutical manufacturers to list the wholesale acquisition cost of their products in any direct-to-consumer ads. That effort on the part of the Trump administration came up short in a lawsuit heard recently in the U.S. District Court for the District of Columbia in a decision that went against the administration before the question of compelled commercial speech was even considered.

The Department of Health and Human Services and the Centers for Medicare & Medicaid Services said in the pricing disclosure final rule that the intent of the rule was to give Medicare beneficiaries “relevant information” about the cost of drugs so as to enable beneficiaries to minimize their out-of-pocket spending. The scope of the final rule included prescription drugs and biotech products as covered by both the Medicare and Medicaid programs, although the rule also acknowledged that manufacturers were at liberty to advise viewers that their final costs might differ from the wholesale acquisition cost (WAC).

Conversely, the litigants, which included the Association of National Advertisers and three pharmaceutical companies, argued that listing WACs in ads would not only confuse the drug price question for beneficiaries of both programs, but indeed that HHS had anticipated that the rule would actually mislead beneficiaries.

The court said in its decision that the plaintiffs put forth two arguments, the first of which was that the federal government had exceeded its authority in that the statute neither expressly nor implicitly granted the federal government the power to mandate such disclosures under the Social Security Act. Judge Amit Mehta said that given that the federal government had failed to pass this first hurdle, there was no need to review the question of the First Amendment challenge posed by the plaintiffs, which they had said revolved around the HHS’s failure to demonstrate that it could not achieve its ultimate objective by other means. The rule was set to go into force July 9, but the decision was published July 8, thus foreclosing any chance to enforce the rule.

Mehta indicated that attorneys for the federal government declined to cite Chevron U.S.A., Inc. v. Natural Defenses Resource Council, Inc., a defense that revolves around the proposition that when Congress speaks lucidly to the executive branch, some deference is owed to the executive branch’s efforts to act on that legislative imperative. Instead, attorneys for the federal government are said to have cited Mourning v. Family Publications Services, Inc., which provides a rather broader mechanism that is said to support the validity of regulatory actions so long as those actions can be construed to be “reasonably related” to the directing portion of the statute. Mehta would have none of it, however, indicating that Mourning is at best secondary to Chevron and ultimately insufficient to carry the government’s argument.

One of the problems with the executive branch’s argument in Mehta’s view was that the rule would have regulated the conduct of parties that are not direct participants in either the Medicare or the Medicaid programs. He stated further that the government’s argument that the statute allows the government to act in effort to “minimize unreasonable expenditures” falls flat because the statute does not empower the federal government to regulate the health care market itself or any actors therein as a means of reducing costs.

The predicament faced by CMS and HHS here is somewhat reminiscent of the fate of the least costly alternative policy under the twin cases of Hays v. Leavitt and Hays v. Sebelius, neither of which went the way the federal government had hoped. In that conflict, the Chevron defense was raised, albeit to little useful effect. Precisely where this latest outcome leaves the administration in its effort to tamp down on drug prices is difficult to forecast, but it might be noted that the FDA was for a number of years presumed to be the federal government agency in the best position to act on drug prices. Indeed, members of FDA advisory panels have proposed that costs should factor into their votes in support of or against an applicant product, but the FDA has never explicitly demonstrated any appetite for such authority, with or without the support of federal advisory committees.