On August 17, 2020, the U.S. Department of Health and Human Services (HHS or the Department) issued a notice of proposed rulemaking setting forth requirements to guide its prospective issuance of guidance (the Proposed Rule). The Proposed Rule is being issued consistent with the requirements of Executive Order 13891 dated October 9, 2019, “Promoting the Rule of Law Through Improved Agency Guidance Documents,” 84 FR 55235 (Oct. 15, 2019), which requires federal agencies to set forth clear standards they will follow before they issue guidance and to make guidance documents available online. The Proposed Rule requires HHS to treat its guidance as nonbinding both in law and in practice.
The Proposed Rule is notable for at least two reasons. First, HHS’s decision to publish its Proposed Rule for public comment differs from the approach to implementing the Good Guidance requirements adopted by some other federal agencies, such as the Department of Defense, which elected not to take public comments on its proposed Good Guidance practices. In doing so, HHS has taken steps that signal that its Good Guidance practices may be considered more thorough and possibly have wider impact. Second, it amplifies HHS’s prior statements cautioning against the use of subregulatory guidance to pursue enforcement actions. HHS historically has issued subregulatory guidance in a number of highly regulated areas that are often the subject of administrative and Department of Justice enforcement action. The Proposed Rule, if finalized, should impede the issuance of subregulatory guidance and will provide important lines of attack in enforcement actions brought on the basis of such guidance.
The Proposed Rule would apply to the issuance and use of subregulatory Guidance Documents by all divisions of HHS other than the Food and Drug Administration (FDA).1 Comments are due by September 16, 2020.2
Applicability: Guidance Documents and Significant Guidance Documents
If adopted, the Proposed Rule would govern the procedures applicable to all “Guidance Documents,” which are defined to include “any Department statement of general applicability which is intended to have future effect on the behavior of regulated parties and which sets forth a policy on a statutory, regulatory, or technical or scientific issue, or an interpretation of a statute or regulation.”
HHS has clarified that not all communications by HHS or its agencies will be considered Guidance Documents. In particular, HHS proposes that the following types of communications should not be considered Guidance subject to the requirements under the Proposed Rule: 1) releases of technical or scientific information; 2) materials directed at government employees or agency contractors; 3) agency statements communicating news updates about the agency; or 4) agency statements of specific applicability, such as advisory opinions or correspondence with individual persons or entities, including congressional correspondence. Additionally, other categories of documents are excluded from proposed regulation as Guidance Documents, including rules promulgated pursuant to notice and comment rulemaking, agency adjudications and legal court filings, certain internal agency materials, and contract solicitations or awards. The exclusions include significant means by which HHS has, in the past, issued guidance or imposed additional expectations on parties and that have formed the basis of enforcement action.
The Proposed Rule also sets forth requirements that would apply to “Significant Guidance Documents,” including approval by the Secretary “on a non-delegable basis” prior to the issuance of any Significant Guidance Document.” The Proposed Rule defines “Significant Guidance Documents” as Guidance “that is likely to lead to an annual effect on the economy of $100 million or more, or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities; create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights or obligations of recipients thereof; or raise novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles of Executive Order 12866.”
Restrictions on Guidance Documents
The Proposed Rule prohibits the Department from issuing any Guidance Documents that (i) establish a legal obligation not reflected in a “duly enacted” statute or “lawfully promulgated” regulation or (ii) require a person or entity outside the Department to take, or refrain from taking, any action “beyond what is required by the terms of an applicable statute or regulation.” It also requires that all Guidance Documents issued by the Department be identified as “guidance,” among other requirements.
The Proposed Rule also implements the Executive Order’s requirement that HHS, as a federal agency, create and maintain a fully text-searchable guidance repository. HHS’s repository is public and available at www.hhs.gov/guidance. Any existing Guidance Documents not posted to the repository by November 2, 2020, will be considered rescinded.
Procedure to Petition for Review of Guidance
Under the Proposed Rule, regulated parties would have an opportunity to seek administrative and then judicial review of Guidance Documents that are issued inconsistently with the proposed regulations. Thus, a regulated health care entity could seek review of HHS Guidance Documents that 1) impose binding obligations beyond what is required by the terms of the applicable statutes or regulations; 2) create additional legal obligations; or 3) are improperly exempted by HHS from the procedures set forth in the Proposed Rule.
Impact on Healthcare and Life Sciences Stakeholders
The Proposed Rule builds on the directives in the January 2018 Department of Justice memo “Limiting Use of Agency Guidance Documents in Affirmative Civil Enforcement Cases”, which reflected DOJ’s position that the Department is not permitted to engage in rulemaking through enforcement by attempting to use agency guidance as evidence of noncompliance. Similarly, in November 2019, HHS released a memo from senior lawyers in its Office of General Counsel announcing that Centers for Medicare & Medicaid Services payment rules and other guidances that were not promulgated through notice-and-comment rulemaking cannot form the basis of enforcement actions.
Importantly, through the procedures to petition for review, the Proposed Rule also provides powerful and unprecedented opportunities to seek direct clarifications of or modifications to guidance that applies to the industry as a whole. While opportunities for clarification exist, through advisory opinions or similar avenues, such clarifications are often limited to the specific facts and circumstances at issue in a particular arrangement and are explicitly not intended to have broad applicability. The ability for the industry to seek more far-reaching clarifications of agency guidance could help mitigate enforcement exposure while significantly reducing uncertainty and risk in an industry that demands constant innovation and flexibility. In particular, the Proposed Rule would allow any regulated party to seek an administrative and judicial review of Guidance Documents that impose binding obligations, create new legal obligations, or are improperly exempted from the procedures in the Proposed Rule.
* * *
1 FDA has its own regulations on good-guidance practices. 21 CFR 10.115. The Notice of Proposed Rulemaking issued by HHS this week indicates that FDA will be revising those regulations also to be consistent with Executive Order 13891.
2 The advance print notice of the Proposed Rule stated comments would be due on September 13, 2020, but the Proposed Rule as published in the Federal Register states the deadline is September 16, 2020.
Sidley Austin LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.
Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, 212.839.5300; One South Dearborn, Chicago, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washington, D.C. 20005, 202.736.8000.