HHS Proposes Decennial Review of Regulations

The U.S. Department of Health and Human Services has posted a notice of proposed rulemaking that would require HHS agencies to assess their regulations periodically 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 would become null at 10 years unless a confirmatory review is conducted, but the rule has a short time for activation, 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re-examine the initial projections of the impact of a rule to determine whether the rule should be amended or rescinded.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.