Notice & Comment

Going Through Regulatory Withdrawal

If I taught a class called “Advanced Regulatory Maneuvers,” regulatory withdrawals would have to be on the syllabus. Withdrawing a proposed rule that an agency previously issued but has not yet finalized effectively erases the earlier proposal, requiring an agency to start over if it wants to proceed with a rule. A withdrawal communicates to the public that the rule is off the table.

Typically, an agency will publish a notice in the Federal Register announcing its withdrawal of a prior proposed rule. But if an agency tells the public that a proposed rule is being withdrawn, and then it does not publish a Federal Register notice withdrawing the proposed rule, what is the status of that proposed rule? Did the public statements accomplish the withdrawal, or can the agency move ahead to finalize the rule because the proposal was not, in fact, withdrawn?

This not merely a law school administrative law exam question, though it would make a good one. President Trump’s executive order on drug pricing teed this issue up in July 2020 when he directed the Department of Health & Human Services (HHS) to finalize a rule that both the White House and the agency previously said had been withdrawn.

A recent example of ambiguous withdrawal

The HHS Office of the Inspector General proposed a rule related to the use of rebates in pharmaceutical pricing in February 2019. (Professor Rachel Sachs provides a good summary of this proposed rule in her blog post for Health Affairs.) Then, as reported by Shira Stein of Bloomberg Law, the White House made a public statement indicating a plan to withdraw the proposed rule: “Based on careful analysis and thorough consideration, the President has decided to withdraw the rebate rule.” The statement goes on to explain that legislation might be forthcoming, and that the president would consider additional executive action in the future.

Stein’s reporting also describes a July 11, 2019 press briefing in which the HHS Secretary explained the policy rationale for the withdrawal (i.e., concerns about increased prescription drug premiums for seniors). That same reporting includes a July 10, 2019 meeting of administration officials in which “Trump decided to kill the rule because of the high cost to the government and because of a concern that the rule could benefit drug companies, according to two sources briefed on the meeting.”

In addition, the unified regulatory agenda entry for this rule displays that it was “withdrawn” by HHS as of July 26, 2019. All of this, so far, suggests that HHS withdrew the proposed rule. But HHS did not complete the customary step of publishing a notice of withdrawal in the Federal Register.

Fast forward to July 29, 2020, when President Trump signed an executive order directing HHS to “complete the rulemaking process” for this same proposed rule. So where does the drug rebate proposed rule stand? Can HHS simply issue a final rule, or must it re-propose to be able to move forward?

Legal & policy considerations for withdrawal procedures

The Administrative Procedure Act (APA) governs informal rulemaking of the type that HHS began with its proposed rule. Under the APA, HHS must propose a rule, provide the public with an opportunity to comment on it, and consider those comments. After that, HHS can issue a final rule that is binding law. Agencies that skip these steps, or do them very poorly, can have their rules undone by a court. Rulemaking takes a lot of agency time and resources, so the incentives are aligned for agencies to strive to follow the APA’s steps very carefully to avoid having to start over because of an avoidable error that can set them back years.

The APA, though, was written in 1946, when the U.S. regulatory state was in its relative infancy and agency procedural sophistication with regulation was fairly low, compared to today. Administrative law scholars and practitioners know that much of day-to-day federal agency administrative procedure is not explicitly described in the APA. There are many forms of administrative procedure (e.g., interim final rules, direct final rules) that grew organically as agencies encountered new operational needs and challenges.

Withdrawals of proposed rules are like this; they are not expressly described in the APA and they grew from an operational need. This lack of specific procedures in the APA leaves an agency with a quandary. How best to execute a withdrawal?

A prudent agency attorney would note that the APA requires agencies to publish their rules in the Federal Register, and therefore a withdrawal notice in the Federal Register seems like a good choice, too. Interested parties might reasonably be expected to surveil the Federal Register for regulatory updates, so it is a good match between message and recipient.

Also, the Federal Register is durable while other agency policy statements (e.g., websites, press releases, speeches) can be ephemeral. That durability can give stakeholders confidence that the agency will stand by its decision, because it’s part of the public record in an archived and accessible manner. Publication in the Federal Register is likely a best practice, then, for withdrawal notices. That does not mean that it is the only way to accomplish a withdrawal, however.

Did HHS withdraw the drug rebate proposed rule?

Parsing through the various public statements reveals good reasons to think that HHS did withdraw the proposed rule on drug rebates. The various statements effectively communicated a withdrawal to the public, even though HHS did not execute a withdrawal in the customary way using the Federal Register.

White House & HHS Secretary statements

First, consider the White House statement that the president “decided to withdraw the rebate rule” and reporting about a meeting in which the president “decided to kill the rule.” Whether the president has the authority to make policy decisions that Congress has vested in agency heads is a controversial topic among legal scholars. Setting that aside, the White House often communicates agency decisions, and by doing so it amplifies the message. While it would not comport with the law to have White House statements stand in for a proposed rule, for example, they might suffice for a withdrawal, which is primarily a tool to communicate the government’s plans.

Second, the statement from the HHS Secretary is a clear and valid statement of withdrawal. Here, the relevant agency communicates its position through a statement of the head of that agency. The statement included the policy rationale for the withdrawal (i.e., concern about premium costs for seniors) that signaled a final, not a short-term, decision.

Statements, both from the Secretary and the White House, walked back the proposed rule after facing stiff headwinds from inside and outside of the administration. The public statements about withdrawing the rule quashed the controversy, most likely because stakeholders understood that HHS would have to re-propose to move forward with the rule. (The withdrawal was covered extensively in the press. E.g., Angelica La Vito, White House drops proposal to eliminate drug rebates. Health stocks soar., CNBC (July 11, 2019) It would be a sleight of hand if the administration claims now to have used the word “withdraw” to mean that it was merely pausing the rule. As Dan Bosch notes in his report on this issue, that would also seem to be an unprecedented posture for an agency to take, and it could do some damage:

If HHS proceeds to a final rule in this case, it would set a troubling precedent that could destabilize the regulatory process. Future administrations may use this rule to justify similar maneuvers for political benefit. Imagine a future administration proposing a controversial rule and accepting public comment, announcing it as withdrawn before an election to avoid negative political consequences, then quickly finalizing it soon after. The public and affected stakeholders would feel rightly deceived, and political accountability would have been subverted.

Dan Bosch, Zombie Rebate Rule Could Create Troubling Precedent, AAF Insight (Aug. 25, 2020).

Unified Agenda entry

The unified regulatory agenda entry showing the proposed rule as “withdrawn” probably is not dispositive. On the one hand, guidance from the Office of Information and Regulatory Affairs (OIRA) indicates that withdrawing a rule’s entry from the unified agenda—the agency’s forward-looking 12-month plan for upcoming rules—is not equivalent to withdrawal of the proposed rule itself. Applying that logic here, listing the agenda entry as “withdrawn” does not qualify as a withdrawal of the proposed rule. On the other hand, this is an incredibly technical distinction that even experienced regulatory practitioners might not appreciate. OIRA guidance on this topic is not binding, and a judge could certainly disagree, perhaps finding that an agency should be held to all of its public statements about withdrawals.

Withdrawal from OMB review

John O’Brien, a former HHS Trump appointee, suggests that the White House and agency statements regarding a “withdrawal” merely removed the rule from OMB review. While it is true that withdrawing a proposed rule or final rule from OIRA review does not nullify a proposal, that does not seem to be what happened with the HHS drug rebate pricing rule. There is no record of the final rule being sent to OMB and then withdrawn from OMB’s consideration.

On balance, HHS probably withdrew the proposal

As this analysis shows, HHS did not complete the step—publication of a Federal Register notice—that is customarily understood to legally withdraw a proposed rule. HHS has used the Federal Register to withdraw other proposed rules over the last few years. In one example, the Office of the Inspector General explains the reason for issuing a notice “to avoid any confusion that could be caused by having this proposal in the public domain.” In that notice, HHS did not suggest that it was obliged to publish a notice in the Federal Register, but that it was choosing to do so for clarity about the administration’s plans for the rule. If that same reasoning was applied here, the public statements noted above, as well as the designation in the agenda, were public statements intended to clear up that same kind of confusion. Overall, that is probably enough to conclude that HHS withdrew the proposed rule.

If the next action we see from HHS is a final rule, we could see litigation on this incredibly weedy issue of agency procedure. But more than the weeds are at stake. When can the public rely on a statement from the head of an agency, or from the president? The agency benefitted from relaxed public expectations generated by its various statements about withdrawal. If it can move forward without consequence, that result is in tension with the goals of the APA as a whole. A close call should go towards enhancing, not undermining, the government’s credibility.

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