HHS rescinds policy regarding notice-and-comment rulemaking – implications for health care industry

Background

The APA, which was enacted in 1966, generally requires agencies to use notice-and-comment rulemaking when promulgating binding rules of general applicability. 5 U.S.C. § 553(b). However, the APA notably provides an exemption from its notice-and-comment rulemaking requirements “to the extent that there is involved . . . a matter relating to agency management or personnel or to public property, loans, grants, benefits, or contracts.” Id. § 553(a)(2). In addition, the APA’s rulemaking requirements do not apply in certain situations, including “when the agency for good cause finds . . . that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest,” which is known as the “good cause” exception. Id. § 553(b). 

Starting in 1971, HHS opted to nonetheless use notice-and-comment rulemaking on what it considered a voluntary basis, when adopting binding rules related to public property, loans, grants, benefits, and contracts. HHS also historically directed that the “good cause” exception be applied “sparingly.” See 36 Fed. Reg. 2,532, 2,532 (Feb. 5, 1971). Although little known to the public, this historical policy was foundational to the Department’s approach to implementing various HHS programs, ensuring the regular use of notice-and-comment rulemaking in setting program policy. 

HHS’s February 28 Policy Statement rescinds this historical approach—which HHS now regards as “contrary to the clear text of the APA.” Effective immediately, HHS is exempting all “matters relating to agency management or personnel or to public property, loans, grants, benefits, or contracts” from notice-and-comment rulemaking requirements, unless otherwise required by law. However, “[a]gencies and offices of the Department have discretion to apply notice and comment procedures to these matters but are not required to do so . . . .” HHS also states that the good cause exception should be used in “appropriate circumstances” in accordance with the requirements of the APA, and states that it is “contrary to the clear text of the APA to use the good cause exception ‘sparingly.’”

Potential implications for federal health health benefits programs

On its face, the Policy Statement appears to exempt a range of areas from APA notice-and-comment rulemaking, generally including HHS grants and contracts. The Policy Statement also exempts rules “relating to . . . benefits” from APA rulemaking. It is unclear how HHS will interpret and apply the exclusion from notice-and-comment rulemaking requirements with respect to benefits. Currently, HHS frequently uses notice-and-comment rulemaking to set complex and far-reaching policies under its various health benefit programs, such as Medicare and Medicaid. HHS could potentially interpret the exemption as relevant to these types of programs. However, the Policy Statement expressly calls out that it has no application to the extent that law other than the APA requires notice-and-comment rulemaking. Thus, even if HHS were to apply the Policy Statement to benefit programs, the implications of HHS’s Policy Statement would vary—based on the federal health care program at issue: 

• Medicare: On its terms, most policies implemented under the Medicare Act (Title XVIII of the SSA) should not be impacted by the HHS Policy Statement. The Policy Statement applies exclusively to the notice-and-comment rulemaking requirements under the APA. But Medicare Act program rules are generally subject to independent, non-APA rulemaking requirements under section 1871(a) of the SSA. The reasoning of the Supreme Court’s decision in Azar v. Allina Health Services, 587 U.S. 566 (2019), also confirms that these Medicare rulemaking requirements apply independently from any rulemaking obligations imposed under the APA. 

That said, the Medicare Act’s rulemaking provision does not apply to all Medicare Act policies. Policies that are exempted from notice-and-comment rulemaking under the Medicare Act will remain so. We note that national coverage determinations continue to be subject to a separate statutory requirement for notice-and-comment procedures. 

• Medicaid and the Children’s Health Insurance Program (“CHIP”): HHS has, historically, utilized rulemaking to impose the myriad regulations that govern the Medicaid and CHIP programs. See 42 C.F.R., Chapter IV, Subchapter C. Medicaid and CHIP are codified in title XIX of the SSA, which (unlike title XVIIII, which governs Medicare) does not contain an independent notice-and-comment rulemaking requirement. However, HHS previously engaged in notice-and-comment rulemaking for many changes to the Medicaid program. See, e.g., 89 Fed. Reg. 40,542 (May 5, 2024). 

Thus, under its new Policy Statement, HHS could interpret the exclusion from notice-and-comment rulemaking for “benefits” as exempting Medicaid program policymaking from notice-and-comment rulemaking. This would make it easier to quickly implement Medicaid reforms. However, it remains unclear if HHS will take this approach, as the Policy Statement does not purport to stop an agency from voluntarily continuing to use notice-and-comment rulemaking to make policy. Further, it is unclear if courts would agree with an interpretation of the APA that categorically excludes Medicaid (or other federal benefit program) rules from notice-and-comment rulemaking. See generally Whitman v. American Trucking Assns., Inc., 531 U.S. 457, 468 (2001) (“Congress . . . does not, one might say, hide elephants in mouseholes.”). In addition, HHS could still voluntarily elect to pursue notice-and-comment rulemaking as to the Medicaid program. 

• Other Programs: The term “benefits” is not clearly defined in the APA, so it remains unclear if other programs could also be impacted, such as Affordable Care Act insurance exchanges or Temporary Assistance for Needy Families. 

Potential implications for HHS contracts and grants

The longstanding HHS waiver of the APA rulemaking exemption for grant and contract matters has provided for public visibility into HHS contract and grant policy and management. Its undoing will allow the agency to pick and choose which, if any, such actions will be subject to public review and comment. Under the Policy Statement, the issue of how to characterize internal policy and management efforts, as compared to those creating legally binding contractual obligations, will be parsed by the agency and industry stakeholders alike.

Operating under the waiver, HHS has engaged in APA notice-and-comment rulemaking for contract- and grant-related rules and policies. For example, HHS is the largest grant-making agency in the United States and has long sought public comment on its grants regulations (Uniform Administrative Requirements, Cost Principles, And Audit Requirements For HHS Awards) at 45 CFR Part 75, soon to be recodified in 2 CFR Part 300. These rules govern a recipient’s pre-award and post-award obligations under HHS grants and cooperative agreements.

Notably, even without having a similar waiver in place, other Departments and agencies managing health-related and socio-economic programs, in particular, have often engaged in notice and comment rulemaking with policy and program management, which is certainly permitted under the APA framework, although not required. As an example, Department of Labor wage and hour regulations, workplace safety rules, and federal contractor requirements have been subject to expanded notice-and-comment procedures even when immediate guidance or policy statements could have been issued instead. 

But there are notable exceptions. One such exception involves the Department of Veterans Affairs approach to implementation of Federal contactor requirements under the Veterans Health Care Act of 1992 (“VHCA”), 38 U.S.C. 8126, a program establishing pricing and Federal contracting standards for drug manufacturers. Under this program, Department of Veterans Affairs policies and rules applicable to Federal contractors have been applied through guidance letters, avoiding rulemaking altogether. 

Ultimately, steps by HHS to implement Federal contract and grants rules and requirements without first following notice-and-comment rulemaking procedures could affect practical implementation and judicial review. Without published final rules and related comments, there is potential for less certainty as to the intended interpretation of rules applicable to contracts and grants, which can impact all aspects of performance. 

Potential implications for FDA

The Policy Statement is unlikely to have an impact on FDA as FDA’s regulatory actions rarely relate to “agency management, public property, loans, grants, benefits, or contracts.” Should FDA, on its own or under direction from HHS, interpret any regulation as impacting any of these areas, especially as “benefits,” the concerns described above in the CMS context should come into play.

Further, in recent years, FDA has relied more heavily on issuing guidance as a means of informal policy making as opposed to formal notice-and-comment rulemaking. On its face, the Policy Statement is unlikely to impact FDA’s receipt of public comments on guidance documents. FDA’s authority to issue guidance documents stems from the federal Food, Drug, and Cosmetic Act (“FDCA”), which emphasizes the need for public comment on guidance documents prior to implementation. The FDCA provides that, “[f]or guidance documents that set forth initial interpretations of a statute or regulation, changes in interpretation or policy that are of more than a minor nature, complex scientific issues, or highly controversial issues, the Secretary shall ensure public participation prior to implementation of guidance documents, unless the Secretary determines that such prior public participation is not feasible or appropriate.” 21 U.S.C. § 371(h)(1)(C)(i). 

However, it is possible that FDA may apply the revised “good cause” exemption articulated in the Policy Statement to guidance documents and other agency actions where “public participation” is prescribed, even though guidance documents are not subject to the APA notice-and-comment requirement, or issue its own Policy Statement regarding public participation and the use of the “good cause” exception. 

Conclusion

Ultimately, it is not yet known how HHS will implement the Policy Statement across the agencies or what consequences will flow from the Department’s new approach—including whether and to what extent HHS will interpret it to exempt certain federal health benefit program rules from notice-and-comment requirements—as well as to what extent HHS will voluntarily continue to engage in notice-and-comment rulemaking. HHS’s implementation of the Policy Statement should, however, be closely monitored even within the Medicare space, as well as across Medicaid and other federal benefit programs implemented by HHS and its agencies. 

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If you have any questions about this alert, please do not hesitate to contact the Hogan Lovells attorney with whom you work or any author listed on this alert. 

Authored by Beth Halpern, Ken Choe, James Huang, Lynn Mehler, Stephanie Agu, Joy Sturm, Bill Ferreira, Joe Liss, Viraj Paul, and Randy Prebula.