With another presidential transition in the history books, you may find it unsurprising to hear that many of us at Reed Smith are continuing to closely monitor and track which of the outgoing Trump administration’s “midnight regulations” will survive past the early months of the Biden administration. But for those less familiar with the topic (or just looking to learn more), below is a brief primer on so-called “midnight regulations.”
What exactly is a “midnight regulation”?
The term “midnight regulation” refers to a last-minute rulemaking generated by an outgoing administration’s executive agencies during the “lame duck” period between Election Day in November and Inauguration Day on January 20th of the following year—also known as the “midnight” period. Historically, since the midnight period of the outgoing Carter administration in 1981, the United States has experienced significantly increased regulatory output during the final quarter of an outgoing President’s term (relative to the final quarter in other years) regardless of political party.
What is the reason for the surge in rulemaking after “midnight”?
Although there are likely multiple factors that contribute to the phenomenon, most scholars agree that the late-term surge in rulemaking primarily derives from increased pressure as a result of the upcoming presidential transition. That is, political appointees seek to take advantage of their last chance to advance the outgoing administration’s regulatory agenda before the incoming administration alters priorities, while non-political agency staff seek to hurry and complete work to avoid any delays brought about by the incoming administration. Additionally, the rulemaking process can routinely take up to four years to complete.
What is unique about rulemaking during the midnight period relative to other times?
Depending on the status of an outgoing administration’s midnight regulation (i.e., proposed but not yet final, final but not yet in effect, or final and in effect) on Inauguration Day, the incoming administration may have the authority to freeze, rescind, and/or amend the rulemaking. Notably, the speed with which a midnight regulation can emerge from the procedural pipeline is contingent on several statutory requirements.
What are the relevant statutory requirements that govern the rulemaking process?
With respect to midnight regulations, two statutes governing the rulemaking process stand out. First, under the Administrative Procedure Act (APA), executive agencies are typically required to publish a notice of proposed rulemaking in the Federal Register, solicit comments from the public, publish a final rulemaking in the Federal Register, and provide for at least a 30-day waiting period before the regulation goes into effect.
Second, under the Congressional Review Act (CRA), executive agencies are typically required to submit a report on the final rulemaking to both houses of Congress and the Government Accountability Office (GAO) before the rulemaking can take effect. Additionally, with respect to “major” regulations (e.g., those that have a $100+ million annual effect on the economy), the CRA provides for at least a 60-day waiting period from the later of (i) the date both Houses of Congress receive the report on the final rulemaking or (ii) the date of publication in the Federal Register.
What is the significance of Inauguration Day?
Following the inauguration of the newly elected President, the incoming administration customarily issues a memorandum that instructs all executive agencies to freeze various regulatory activity, including all final rules that have not yet taken effect. This year was no exception: on January 20, 2021, the new White House Chief of Staff Robert Klain issued a memorandum with the subject line “Regulatory Freeze Pending Review” to all executive agencies.
What midnight regulations will survive the presidential transition?
For those midnight regulations that have been published as final in the Federal Register and already taken effect (in compliance with the APA and CRA), the incoming administration cannot freeze, withdraw, or postpone the rulemakings. Any attempt to repeal and/or amend this type of midnight regulation would likely require another, separate round of rulemaking.
For those midnight regulations that have been published as final in the Federal Register but not yet taken effect (or whose stated effective date was not in compliance with the APA or CRA), the incoming administration could postpone the effective dates of the rulemakings (typically up to 60 days) and review them for any questions of fact, law, and policy they may raise, which could subject the rulemakings’ effective dates to additional delay.
For those midnight regulations that have been proposed but are not yet published as final in the Federal Register, the incoming administration could halt and withdraw them entirely.
What is an example of a midnight regulation that Reed Smith attorneys are monitoring and tracking?
Here is a prime example of why the above information may be important to know. Say you are a health care company that would like to engage in a value-based arrangement protected by the recently-promulgated rulemakings modernizing the Physician Self-Referral Law (the Stark Law) and the federal Anti-Kickback Statute (AKS), which rulemakings were published in the Federal Register on December 2, 2020. Given that December 2, 2020, is squarely in the midnight period of the outgoing Trump administration, you would like to know whether these value-based rulemakings will persist during the Biden administration.
The untrained eye may look at the value-based regulations’ stated effective dates (i.e., January 19, 2021), determine that the rulemakings went into effect before Inauguration Day, and move forward with a value-based arrangement. However, the trained eye—one that has reviewed this primer—will note that the value-based regulations, which are “major” regulations, have effective dates that are not in compliance with the CRA’s mandatory 60-day waiting period. In fact, in December 2020, GAO formally determined that the January 19, 2021 effective dates in both of the value-based regulations violated the CRA. That finding possibly provided the incoming Biden administration, if so inclined, the ability to assert that the original effective dates in the value-based regulations were unlawful and to stay implementation of those rulemakings at least temporarily.
To date, we have not seen the Biden administration take any such action—in fact, using the CRA, the Stark Law amendments took effect on January 31, 2021, or 60 days after December 2, 2020—but we will continue to watch closely for any updates. Using the CRA, the AKS amendments are scheduled to take effect on February 14, 2021, or 60 days after December 16, 2020 (i.e., the date that the House of Representatives received the report on the AKS final rulemaking).