The US Department of Health and Human Services (HHS) issued a Final Rule on January 12, 2021 on Transparency and Fairness in Civil Administrative Enforcement Actions that amends 45 CFR Part I to set forth rules for appropriate reliance on guidance documents and requirements to give fair notice of relevant agency positions before taking a civil enforcement action that relies on any such position. The regulations purport to update HHS processes to ensure it operates with transparency and fairness so that regulated parties receive fair notice of laws and regulations to which they are subject and have an opportunity to contest an HHS determination prior to the agency taking any action with a legal consequence.
The Final Rule, which was effective immediately and applies in large part to all HHS agencies, implements Executive Order 13892 of October 9, 2019, Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication, as part of the administration’s broader regulatory reform initiative. The Final Rule builds on the HHS “Good Guidance Practices Rule” finalized December 3, 2020 that implemented Executive Order 13891, Promoting the Rule of Law Through Improved Agency Guidance Documents, also of October 9, 2019, which was established to ensure that the public receives appropriate notice of new guidance documents and that guidance documents do not impose obligations on regulated parties that are not already reflected in statutes or regulations. The regulations also are informed by the HHS Office of General Counsel’s December 3, 2020 Advisory Opinion 20-05 on Implementing Allina, referring to the steps being taken by HHS to comply with the decision in Azar v. Allina Health Services, 139 S. Ct. 1804 (2019) that HHS must use notice-and-comment rulemaking in certain circumstances where rulemaking is not required by the Administrative Procedure Act (APA).
As noted in a January 12 HHS press release announcing the new regulations, the Final Rule addresses appropriate reliance on agency guidance documents by “generally prohibiting HHS from treating noncompliance with a standard or practice announced solely in a guidance document as itself a violation of law.” The Final Rule applies to HHS civil enforcement actions based on an alleged violation of law that have “legal consequence” for a regulated party. In order to be of legal consequence, the action must directly or indirectly affect substantive legal rights or obligations, including by subjecting a regulated party to potential liability in an enforcement action.
The preamble explains that such actions include administrative enforcement proceedings and adjudications, and also agency letters or orders that establish or increase the probability of liability for regulated parties in a subsequent enforcement proceeding or adjudication. They do not include actions taken in the normal course of the agency’s regulatory communications or decisionmaking, such as product approvals, product denials/withdrawals of approval, claims authorizations, responses to citizen petitions, or public health notifications. Such actions also do not include an agency warning letter, inspectional observation or other communication intended to provide notice to a regulated party, which are viewed under the Final Rule as interim steps to elicit voluntary compliance that do not have immediate regulatory implications for the subject entity. Most notably, the Final Rule does not apply to civil enforcement actions or related investigations by the US Department of Justice (DOJ) or that are referred to the DOJ, or to any action related to a criminal investigation or prosecution.
Specifically, HHS is prohibited by section 1.6(b) of the new regulation from (a) using guidance documents to impose binding requirements or prohibitions unless expressly authorized by law or incorporated into a contract, (b) treating noncompliance with a standard or practice announced solely in a guidance document as itself a violation of applicable statutes or regulations unless expressly authorized by law, or (c) citing a guidance document in a civil enforcement action unless the public has been notified of the guidance document in advance through publication in the Federal Register or in the indexed database guidance repository that HHS was required to establish by the Good Guidance Practices Rule and Executive Order 13891.
If HHS cites a guidance document in a civil enforcement action to explain the legal applicability of a statute or regulation with regard to prohibition of certain conduct, it only may use the guidance document to articulate its understanding of how a statute or regulation applies to particular circumstances. Ultimately, civil enforcement actions and other agency determinations of legal consequence must be based on a violation of law that is alleged or established by applying statutes or regulations.
The Final Rule also contains “Fairness and Notice” provisions that impose procedural requirements with respect to civil enforcement actions, administrative inspections, and jurisdictional determinations (45 CFR §§ 1.7, 1.8). When it takes a civil enforcement action or otherwise makes a determination based on an alleged violation of law that has legal consequence for a regulated party, HHS only may apply standards or practices that have been publicly disclosed in a manner such that they will not cause “unfair surprise,” which is defined as a lack of reasonable certainty or fair warning, from the perspective of a reasonably prudent member of a regulated industry, of what a legal standard requires.
Unfair surprise also can be caused by the initiation of litigation by HHS following “a very lengthy period of conspicuous inaction” (i.e., deliberate inaction) indicating the agency previously had a different interpretation. Examples cited in the preamble of actions that generally will not be permitted under the Final Rule include imposing liability based on conduct that violates a new agency interpretation, or altering an interpretation during an adjudicative proceeding if doing so would impose new liability on parties who have acted in good faith on the prior interpretation.
In addition, HHS must give fair notice of relevant agency positions by publishing in the Federal Register or in the guidance repository:
Finally, Section 1.9 of the Final Rule requires that before taking any civil enforcement action that has legal consequence, including by issuing a notice of noncompliance or similar notice that has immediate regulatory consequence for a regulated entity or has the immediate effect of subjecting the entity to potential liability, HHS must afford the entity an opportunity to be heard. In so doing, HHS must provide written notice to the affected entity of the original legal and factual determinations underpinning the initial adverse determination; an opportunity for the affected entity to respond in writing and, if determined appropriate by HHS in its sole discretion, orally, stating the reasons for the entity’s disagreement with HHS’s proposed action; and a written response from HHS, after receiving a timely request from the entity, articulating the basis for its final decision. The Final Rule goes on to provide more detailed guidance to HHS on the timing of these various steps, but HHS’s written response may be issued contemporaneously with the agency taking final action.
These new procedures with respect to an opportunity to be heard do not apply to communications that have no immediate regulatory implications for the entity, such as those that serve as an interim step in the agency’s compliance communications or that are intended to encourage voluntary compliance. They also do not apply to settlement negotiations between HHS and regulated parties, notices of a prospective legal action with respect to which a statute specifically precludes review of agency action, any civil enforcement action either related to an investigation by the DOJ or referred to the DOJ, any action related to a criminal investigation or prosecution, or any other litigation before courts.
Because the Final Rule was issued in the waning days of the current administration and was not subject to a notice-and-comment period under the APA, its longevity is questionable. The preamble explains that there are exceptions in the APA for regulations that involve “rules of agency organization, procedure, or practice” and “matter[s] relating to agency management or personnel” to which the requirements for notice and comment do not apply. HHS maintains that the Final Rule is such a regulation because it only modifies practices and procedures that agency personnel must follow governing civil enforcement actions and does not itself alter the rights or interests of the parties.
To the extent this rule affects the public, it inures to the public’s benefit by providing additional protections rather than removing previous rights or interests. The preamble notes that the Final Rule may impose burdens on HHS by delaying the time until it can take actions with legal consequence that exceed the requirements of the Due Process clause of the Constitution. In keeping with the current administration’s business-friendly efforts to minimize the compliance burden on regulated industries, however, HHS maintains that the Final Rule offers “important procedural safeguards . . . [that] potentially reduce economic costs borne by regulated entities,” and that both regulated entities and the general public will “benefit from greater efficiencies and more transparency in how the Department regulates, including . . . by clearly defining how guidance can be used.“ It remains to be seen whether the incoming administration is committed to the same priorities.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Mark B. Stein
Lauren Z. Groebe
Brian M. Jazaeri
W. Reece Hirsch