Notice & Comment

HHS Proposes to Rescind the SUNSET Rule, by William Funk

On the day before President Biden’s inauguration, the Department of Health and Human Services (HHS) adopted the Securing Updated and Necessary Statutory Evaluations Timely rule,
colloquially known as the SUNSET Rule, because it would sunset any regulation that had not
been assessed and, where required, reviewed within a specific timetable. Specifically, it provided
that all HHS regulations would expire at the end of: (i) five calendar years after the year that the
regulation first becomes effective; (ii) ten calendar years after the year of the regulation’s
promulgation; or (iii) ten calendar years after the last year in which HHS assessed and (if review
of the regulation was required) reviewed the regulation, whichever is latest. The purpose of the
rule, according to HHS, was to incentivize the agency to undertake the reviews required under
the Regulatory Flexibility Act (RFA). That Act requires agencies to have a plan for reviewing
every ten years those regulations that have a significant effect on a substantial number of small
entities, and each year to publish a list of those regulations that the agency will review that year. As interpreted by HHS, the RFA required it to “assess” all of its existing regulations to determine whether they had a significant effect on a substantial number of small entities, and
then to review those determined to have such an effect. HHS admitted that it had failed over the
years to make all the required reviews required by its plan. Under the SUNSET Rule such
failures would result in the automatic termination of the unassessed or unreviewed regulation.

The rule was almost immediately challenged in court on substantive and procedural
grounds. In response, the new administration’s HHS delayed the effective date of the rule until
March 22, 2022, pending judicial review. Because HHS said that it was reconsidering the
SUNSET Rule in light of the claims made in the lawsuit, the parties sought a stay of the
litigation, which the court granted. Then, in October 2021, HHS issued a notice of proposed
rulemaking to rescind the SUNSET Rule, and in early March 2022, HHS further extended the
effective date to September 22, 2022, in order to give it adequate time to consider the comments
on the proposed repeal of the rule.

Everyone is expecting HHS to rescind the SUNSET Rule in the near future, and HHS
should indeed take this action. Unlike the SUNSET Rule itself, which was neither lawful nor
good policy, its rescission would be both lawful and good policy. But before we go any further,
let us be clear that what is really at issue here is not HHS’s SUNSET Rule, but the concept of
having sunset rules for regulations at all. There is nothing special about HHS or its regulations,
or its failure to fulfill the requirements of the Regulatory Flexibility Act. HHS’s situation is faced
by all federal agencies.

This is not to say that retrospective review of at least some rules is not a good idea; it is a
good idea. And federal agencies, including HHS, have engaged in substantial retrospective
reviews. Nevertheless, the Regulatory Flexibility Act and several executive orders have called for
almost universal retrospective reviews, and neither HHS nor other agencies have been able to
comply with those demands. If we ask why, the answer, as established by various studies, is that
in light of limited time and resources other matters had higher priority. The retrospective reviews
that agencies have made were done because the retrospective review of those particular
regulations was deemed important enough to devote the time and resources necessary for that
review and potential revision or repeal. However, if an agency determines that a retrospective
review of some regulations does not merit the time and resources necessary for that review in
light of other demands, why should we want the agency to waste its time on less important
matters? We could even ask why the Trump administration’s HHS, viewing retrospective review
as so important, did not complete all the reviews that it was required to perform. If, as we
imagine, it was the lack of time and resources in light of other demands, we could ask why HHS
thought it could perform the necessary reviews in the future with no increased staff or resources.

How important are the regulations that HHS failed to review? It is worth noting that the
RFA actually provides for judicial review of an agency’s failure to comply with the RFA’s
retrospective review requirements, and there have been virtually no cases brought against
agencies for their failures. This at least suggests that those failures have not been deemed very
important to the small entities affected by the regulations not reviewed.

Agencies can and should do better at identifying which rules should be reviewed, and the
Administrative Conference of the United States has issued a number of recommendations over the
years, including one this past year, that provide guidance to agencies in this regard. Notably
neither the Administrative Conference nor any of its reporters have ever suggested using
automatic sunsetting as an incentive.

Sunsetting has been tried from time to time, even by federal agencies, but it has not been
successful at achieving the goal intended – ensuring meaningful review. Those who have used it
abandoned it, because the result was not meaningful review, but pro forma review done just to
avoid the sunset. The SUNSET Rule did not foresee any additional resources available to do the
thousands of reviews it said would be necessary. And absent significant additional resources to
handle significant review, pro forma review is all that can be achieved. Or, of course, no review at
all with a resulting termination of the unassessed, unreviewed regulation.

So, sunsetting a regulation simply because an agency did not review it according to some
arbitrary deadline is not good policy. It is also illegal.

Why is the HHS SUNSET Rule illegal? It’s probably not because of some procedural
error. It is due to its sunsetting of an existing regulation for no other reason than it had not been
reviewed within the deadline created in the SUNSET Rule. That would be illegal because the
actual termination of a regulation without a finding that its termination is reasonable would be
arbitrary and capricious. Now, it is true that the HHS SUNSET Rule does not immediately
terminate any regulation. Indeed, the preamble to the HHS SUNSET Rule implies, if not states,
that no regulation will ever be sunsetted under the terms of the HHS SUNSET Rule, because no
regulation will fail to be reviewed. If, indeed, that prediction was accurate, then the illegal
authorization of termination through sunsetting would never come into play. But is that prediction

Imagine, if you can, an administration that is hostile to agency regulation generally and to
particular regulations in particular. Maybe it is hostile to the Affordable Care Act, and it cannot
get Congress to eliminate it. Moreover, HHS will not be able to repeal the regulations that
implement it, because that would be inconsistent with the terms of the Affordable Care Act, so
contrary to law. But wait, just do not retrospectively review the implementing regulations, and
under the terms of the SUNSET Rule the regulations will terminate. No fuss, no bother, no
procedure, no more Obamacare.

Now, we can presume that someone will challenge that termination, arguing that the
sunsetting provision is arbitrary and capricious as applied to the Affordable Care Act regulations.
That is, whatever the benefit of incentivizing retrospective review, it cannot justify the
elimination of the Affordable Care Act. And, of course, the result would be the same with respect
to any other regulation that might be terminated, because the statutory basis for the regulation
terminated would not have been considered in its termination.

In short, the SUNSET Rule was a bad idea from the start, with perhaps even nefarious
purposes. The current HHS has taken the time and effort now to establish that rescission is
appropriate. It is only unfortunate that it had to devote resources to repealing this bad rule, when it
could have been engaging in some other retrospective review.

William Funk is the Lewis & Clark Distinguished Professor of Law Emeritus at Lewis & Clark Law School.

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