HHS May Issue More Rules Without Public Notice and Comment; Medicaid Impact Uncertain

Editors: Patti Boozang and Amanda Eisenberg
Authors: Julian Polaris

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tl;dr

• The Department of Health and Human Services (HHS) reversed a five-decade policy effective March 3. Specifically, HHS authorizes its agencies to bypass public comment for rules addressing “grants, benefits or contracts,” and in cases where “good cause” exists to forgo comment procedures. 

• Rulemaking with “notice and comment” gives the public a preview of future policy changes and allows regulators to hear directly from stakeholders, including state Medicaid agencies, on the estimated impacts of specific proposed policy changes.  

• HHS now asserts that those procedures are “contrary to the efficient operation of the Department and impede the Department's flexibility to adapt quickly to legal and policy mandates.”  

• This new policy’s impact will vary by program area. Congress specifically required public notice for many types of regulations for Medicare, for example. 

• It remains to be seen whether the Centers for Medicare & Medicaid Services (CMS) will pursue any major Medicaid rulemaking without public notice and comment—and if they do, whether that approach will hold up in court. 

The 80 Million Impact

Public comment plays an important part in how the federal policy makers draft and implement program rules in Medicaid and other federal programs. These comments enhance policy quality, accuracy, and effectiveness by incorporating diverse perspectives and real-world insights from the organizations and parties who need to implement the proposed policy. CMS has often modified proposed rules in response to public comment, and in some cases has opted to drop a proposed rule entirely after significant public opposition.  

Public notice and comment processes also promote stakeholder buy-in and transparency and reduce certain types of litigation risks. All these benefits lead to better policy impacts for the 80 million Medicaid enrollees and better policy implementation by state Medicaid programs, providers, health plans and other stakeholders delivering Medicaid services. 

Under the Administrative Procedure Act (APA), agency rulemaking is generally required to undergo public notice and comment unless an exception applies. Those exceptions include rulemaking related to “grants, benefits, or contracts”— terms that are not defined in the APA. In 1971, shortly after the Medicaid and Medicare programs were established, HHS voluntarily waived that exception in a statement known as the Richardson Waiver, calling for “greater participation by the public in formulation of [the] Department’s rules and regulations.” Since that time, HHS agencies such as CMS have remained committed to providing notice and comment in rulemaking processes. (By contrast, public notice and comment has never been required for sub-regulatory guidance documents.) 

HHS has now reversed course, directing its component agencies to make full use of two APA exceptions to “notice and comment” rulemaking: 

1. Rulemaking on a matter relating “public property, loans, grants, benefits, or contracts.” The Richardson Waiver asserted that the benefits of public input “should outweigh any administrative inconvenience or delay which may result from use of the APA procedures.” In rescinding that directive, HHS advises that agencies retain “discretion to apply notice and comment procedures to these matters but are not required to do so, except as otherwise required by law.” In some areas, Congress has expressly required public notice and comment, including for most Medicare regulations (42 U.S.C. § 1395hh(b))—a law Congress enacted when a prior administration proposed to rescind the Richardson Waiver.¹  

2. Scenarios where the agency has “good cause” to forgo these procedures because they are “impracticable, unnecessary, or contrary to the public interest.” The Richardson Waiver directed agencies to use this exception “sparingly, as for example in [emergencies] and in instances where public participation would be useless or wasteful because proposed amendments to regulations cover minor technical matters.” HHS has rescinded that caveat and now directs agencies to exercise the “good cause” exception “in appropriate circumstances.” 

This HHS policy change would have a significant policy impact if applied to what are traditionally considered benefits, contracts, and grants. It arrives on the heels of court cases blocking certain agency actions seeking to implement President Trump’s many executive orders. That included several agency attempts to modify or terminate grants or contracts by, for example, modifying overhead financing in research grants from the National Institutes of Health or directing recipients of public health grants to cease equity-related programming. Even where agencies potentially had the authority to take certain steps, the courts have chastised them for disregarding required procedures — including formal rulemaking with notice and comment. 

It remains to be seen how broadly HHS agencies will interpret and apply this new policy on public comment. In particular, it is unclear whether CMS may seek to exempt large swaths of Medicaid rulemaking from public comment, potentially including rules addressing payment, access, covered benefits and other core features of the Medicaid program. In that scenario, State Medicaid agencies and other stakeholders could be caught flat-footed by final rules they did not see coming, having had no opportunity to engage with CMS on potential clarifications or adjustments to support effective implementation. 

If CMS does rely on this new policy to promulgate new Medicaid regulations — or repeal existing regulations — without public comment, affected parties retain the ability to mount a legal challenge arguing that the rule did not qualify for an APA exception to public comment, as well as substantive arguments challenging the agency’s reasoning or legal authority to issue the rule in the first place.  

The Bottom Line

It is not clear whether or how CMS will respond to HHS’ invitation to issue rules without public notice and comment. If CMS engages in major Medicaid rulemaking without seeking public comments, it would be a seismic change for the 80 Million and all Medicaid stakeholders, including states that see themselves as federal partners in this program of cooperative federalism and, accordingly, value public notice and comment as an essential vehicle to share their perspective on proposed rules. Further, the resulting, unvetted rules may face avoidable legal challenges and implementation obstacles. 

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