Judicial vacaturs and remands, and agency responses to them, dominated the past week in regulatory practice. In a new case, a court found that the balancing of equities warranted only a remand for notice and comment rulemaking. Two final rules respond to a prior vacatur and impact present litigation. In addition, two agencies respond to an old statutory failing by submitting a multiagency solution for interagency review.
Two Midnight Rule: In the continuing skirmish over hospital payments for patient services and cost containment under Medicare, the United States District Court for the District of Columbia remanded without vacatur a portion of the Department of Health and Human Services (HHS) “two midnight” rule in Shands Jacksonville Medical Center v. Burwell. The rule presumed that hospital inpatient admissions were reasonable and necessary if the patient spent two midnights in the hospital. HHS’s Centers for Medicare and Medicaid Services (CMS) estimated that the rule would shift about 40,000 patients from outpatient to inpatient classification, leading to an additional $220 million in payments. The rule then offset these increased costs by reducing inpatient standard payments by 0.2%.
Plaintiffs challenged the reduction on various grounds, on one of which they succeeded: “The Court agrees with Plaintiffs that the Secretary did not provide sufficient notice of the actuarial assumptions and methodology she employed and that disclosure of this information was essential to communicate the basis for the proposed adjustments and to permit meaningful public comment.” In short, HHS failed to disclose the keys to its methodology in reaching the 0.2% reduction and deprived the public of the opportunity to comment on that methodology under the Administrative Procedure Act (APA).
Turning to remedy for this failure, the court noted that the APA requires that the court “hold unlawful and set aside [the] agency action” when an agency adopts a rule “without observance of procedure required by law.” The court admitted, however, that the United States Court of Appeals for the District of Columbia Circuit has long recognized, though not without dissent, that “when equity demands, an unlawfully promulgated regulation can be left in place while the agency provides the proper procedural remedy.” Remand without vacatur is unusual, but exists as an equitable “balancing” of relative harm and program disruption under the well-established Allied-Signal doctrine. The court ordered the parties to provide it with a timetable for a proposed rule that complies with the notice and comment requirements by no later than this coming Thursday.
► Agencies sometimes can remedy procedural failures and the court believed that HHS could remedy the faults in this rule. Troubling, however, is the reality that HHS has already made a decision and is highly unlikely to alter that decision after it discloses its methodology and accepts comments on that methodology. This is not a suggestion of bad faith, but merely the reality that any agency is unlikely to undo its own regulatory decision. The court’s decision provides a thorough and critical review of the APA standards and remedial problem, and is therefore worth the read. HHS is unlikely to appeal and plaintiffs cannot appeal a remand to the agency (asymmetrical as that may be).
Final Rules Respond: The Office of Management and Budget (OMB) completed review of several final rules that deserve attention because one dovetails with current litigation while the other responds to past litigation.
OMB completed also review of Environmental Protection Agency (EPA)’s economically significant NESHAP for Brick and Structural Clay Products Manufacturing and NESHAP for Clay Ceramics Manufacturing final rule. This final Clean Air Act (CAA) rule will establish national emission standards for hazardous air pollutants (NESHAP) emitted from brick and clay ceramics kilns, dryers, and glazing operations.
► The clay NESHAP rule responds to D.C. Circuit’s 2007 vacatur of the prior clay NESHAP and affects manufacturing of the likely second most ubiquitous building material. Expect the new rule to travail to the D.C. Circuit again.
OMB completed review of the not economically significant but policy significant, and the EPA released an advance copy of, NPDES Electronic Reporting Rule. The bottom line is that implementation of the final rule will replace most paper-based Clean Water Act (CWA) National Pollutant Discharge Elimination System (NPDES) permitting and compliance monitoring reporting requirements with electronic reporting.
► Electronic filing generally can simplify any regulatory framework and this rule appears to adopt flexible approaches to electronic filing methods that is welcome. Implementation will ultimately dovetail with the scope of the Waters of the United States (WOTUS) rule after judicial review.
Proposed Rules Review: The Department of State (DOS) and the Department of Homeland Security (DHS) submitted to OMB two coordinated proposed rules for executive and interagency review:
- DOS – Exemption or Waiver by Secretary of State and Secretary of Homeland Security of Passport and/or Visa Requirements in Individual Cases of Unforeseen Emergencies; and
- DHS – Waiver of Passport and Visa Requirements Due to an Unforeseen Emergency.
The two proposed rules respond to a provision of the Immigration and Nationality Act (INA) that requires DHS and DOS to act jointly to waive certain documentation requirements and how the agencies interpret or waive those requirements directly affects airline liability for penalties when they transport undocumented aliens to ports of entry to United States. In 2009, the United States Court of Appeals for the Second Circuit invalidated 1996 pre-DHS (Immigration and Naturalization Service (INS)) regulations as violating the joint action requirement and 1999 DOS regulations as violating the joint action requirement and the APA’s notice and comment requirements. The agencies now are seeking to propose some form of joint or coordinated rule and the two rules may again expand airline liability, even if unintentionally.
► The substance of the proposed rules will not be public until after OMB completes review and the agencies publish, but the process itself has a value. Congress recognized an overlap in responsibilities (originally the Secretary of State and the Attorney General) and codified the joint action requirement in what might be considered a narrow ossified interagency review (at least by those two agencies). More agencies have an interest and will have a say in OMB review.
The post Monday Morning Regulatory Review 9/28/15: Two Midnight Rule Remand; Final Rules Respond & Proposed Rules Review appeared first on Federal Regulations Advisor.
