The United States Department of Health & Human Services (HHS) has issued a regulation modifying certain practices with respect to civil enforcement actions, intended to promote “transparency and fairness”[1] in such proceedings (the rule). HHS states that the rule is “designed to ensure accountability, fairness of how [HHS] uses guidance, proper use of guidance documents, and opportunities for third parties to be heard.”[2] The rule became effective January 12, 2021, and applies to all HHS divisions, including Centers for Medicare & Medicaid Services (CMS).

General background: Issuance of Executive Order 13892

On October 9, 2019, President Donald J. Trump issued Executive Order 13892 (the order).[3] The order, which notes that “regulated parties must know in advance the rules by which the Federal Government will judge their actions,” outlines various existing laws that are intended to provide transparency to the public regarding policies and rules that affect individual rights and obligations, such as the Administrative Procedure Act and the Freedom of Information Act. However, because “departments and agencies…in the executive branch have not always complied with these requirements,” the order officially prohibits departments and agencies in the executive branch from subjecting affected parties to civil administrative enforcement or adjudication “absent prior public notice of both the enforcing agency’s jurisdiction over particular conduct and the legal standards applicable to that conduct.” In furtherance of these requirements, the order prohibits agencies from using “guidance documents” to impose new standards of conduct on individuals “except as expressly authorized by law or as expressly incorporated into a contract.”[4]

As a result of the order, HHS issued the rule to expressly incorporate the requirements set forth in the order to civil enforcement actions taken by HHS.

HHS applies the order to its civil enforcement actions

At the outset of the rule, HHS defines “civil enforcement actions” to mean “an action with legal consequence taken by the Department based on an alleged violation of the law.”[5] These actions may include “administrative enforcement proceedings and enforcement adjudication (which is the administrative process undertaken by any component of the Department to resolve the legal rights and obligations of specific parties with regard to a particular enforcement issue pending before it).” The definition also notes that civil enforcement actions do not include “actions taken in the normal course of the Department’s regulatory communications or decision-making.”

The rule states that whenever HHS pursues a civil enforcement action or “otherwise makes a determination based on an alleged violation of law that has legal consequence for a person or state,” it must allege or establish the violation of law by applying statutes or regulations and may not use guidance documents to impose binding requirements on individuals.[6] Further, HHS may not base an individual’s noncompliance with a standard or practice that is announced solely in a guidance document but is not expressly mirrored in a statute or regulation as a violation of applicable statutes or regulations.

The rule clarifies that guidance documents may be used by HHS to explain how it interprets a statute or regulation with respect to certain conduct or a particular set of circumstances; however, it may only do so if HHS has notified the public of the guidance document in advance through HHS’s guidance repository.

DOJ’s policy aligns with HHS

In the rule, HHS explains that its purpose is to reiterate “the application of certain existing legal principles to HHS’s use of guidance documents.” While the rule incorporates directives set forth in the order, it is generally consistent with other existing agency policies, such as those issued by the U.S. Department of Justice (DOJ).

DOJ has separately maintained a policy, consistent with the rule, that prohibits its employees from relying on agency guidance documents that bind the public without first undergoing the notice-and-comment rulemaking process. Specifically, on November 16, 2017, Attorney General Jeff Sessions issued a memorandum regarding the DOJ’s use of guidance documents, defined as “any Department statements of general applicability and future effect, whether styled as guidance or otherwise that are designed to advise parties outside the federal Executive Branch about legal rights and obligations falling within the Department’s regulatory or enforcement authority” (the guidance policy).[7] The guidance policy prohibits DOJ from issuing guidance documents, or “similar instruments of future effect by other names, such as letters to regulated entities,” that bind private parties without undergoing the rulemaking process. The guidance policy also prohibits DOJ from creating “binding standards by which the Department will determine compliance with existing regulatory or statutory requirements.”

On January 25, 2018, Associate Attorney General Rachel Brand issued a memorandum that further limits the DOJ’s ability to rely on guidance documents, specifically with respect to affirmative civil enforcement cases, defined as “the [DOJ’s] filing of civil lawsuits on behalf of the United States to recover government money lost to fraud or other misconduct or to impose penalties for violations of Federal health, safety, civil rights or environmental laws,” including enforcement of the False Claims Act (the Brand memo).[8] Significantly, the Brand memo noted that the DOJ “should not treat a party’s noncompliance with an agency guidance document as presumptively or conclusively establishing that the party violated the applicable statute or regulation.” Further, the Brand memo emphasized that a party’s failure “to comply with agency guidance expanding upon statutory or regulatory requirements does not mean that the party violated those underlying legal requirements.”

After issuance of the Brand memo, questions generally arose as to what extent agency guidance documents may be relied upon by executive branch agencies. The Brand memo suggested one example in the context of the DOJ, such as when documents paraphrase legal mandates, in which case the DOJ may use a party’s reading of that document to show the party’s awareness of the law. In a February 2018 speech, Deputy Associate Attorney General Stephen Cox restated the Brand memo and offered a similar, potentially permissible use, which is that a party may receive confirmation from counsel that an agency’s interpretation of law is “reflective of binding judicial precedent,” which could be relevant to the party’s knowledge.[9]

In December 2018, DOJ added section 1-20.000 to the Justice Manual, titled “Limitation on Use of Guidance Documents in Litigation,” which reiterated the Brand memo’s directives and applied them to both civil and criminal enforcement actions by all DOJ employees.[10]

Although the rule expressly states that it does not apply to “any action related to a criminal investigation or prosecution…or any civil enforcement action or related investigation by the Department of Justice,”[11] it is consistent with policies already in place and adhered to by the DOJ.

Federal courts generally prohibit reliance on guidance documents

The rule is also consistent with positions taken by federal courts, including the United States Supreme Court, holding that certain agency guidances, including Medicare internet-only manuals and policy statements, do not create legally binding requirements for healthcare providers. For example, in Shalala v. Guernsey Memorial Hospital, the Supreme Court, in evaluating a section of the Medicare Provider Reimbursement Manual, noted that the manual section is a “prototypical example of an interpretive rule” issued by an agency, and that interpretive rules “do not have the force and effect of law and are not accorded that weight in the adjudicatory process.”[12] In a Ninth Circuit decision, the court held that “pronouncements in manuals like the [Medicare Provider Reimbursement Manual], which do not have the force of law, are entitled to less deference than an interpretation arrived at after a formal adjudication or notice-and-comment rulemaking.”[13]

Courts have also held that certain agency guidance issued by CMS constituted an invalid, substantive change to the Medicare program, which must typically undergo the notice-and-comment period. Specifically, the government must provide public notice and a 60-day comment period for any “rule, requirement, or other statement of policy (other than a national coverage determination) that establishes or changes a substantive legal standard governing the scope of benefits, the payment for services, or the eligibility of individuals, entities, or organizations to furnish or receive services or benefits under [Medicare].”[14] As such, if a substantive change is made to the Medicare program without first going through the notice-and-comment period, the substantive change is invalid. This concept was emphasized by the Supreme Court, which held that when CMS “wishes to establish or change a ‘substantive legal standard’ affecting Medicare benefits,” whether the substantive legal standard is a policy change or an interpretation, CMS must “afford the public notice and a chance to comment.”[15]

Additionally, courts have held that a defendant’s failure to comply with an administrative guideline is not sufficient to demonstrate a violation of the United States False Claims Act. For example, in one case, the North District of Illinois rejected the relator’s allegation that the defendants violated the False Claims Act by falsely certifying with each invoice for payment that they were in compliance with all Defense Security Assistance Agency guidelines.[16] The court explained that “opinion letters or other agency pronouncements that have not been established after formal adjudication or notice-and-comment rulemaking, lack the force of law,” and therefore, “evidence of a failure to comply with an administrative guideline does not, on its own, ‘establish that a defendant presented legally false claims…in violation of a statute or regulation to the United States.’”[17]

Conclusion

HHS’s official prohibition on the use of guidance documents in civil enforcement actions is consistent with the positions previously taken by federal courts and other agencies. The rule, in its effort to facilitate transparency and fairness in civil enforcement actions, will enable the public, whose rights and obligations are affected by guidance documents, to know in advance what those rights and obligations are.

Takeaways

  • Executive Order 13892 prohibits executive branch agencies from using guidance documents to impose new standards of conduct on individuals.

  • U.S. Department of Health & Human Services issued a rule as a result of Executive Order 13892, incorporating its requirements into 45 C.F.R. § 1 .

  • U.S. Department of Health & Human Services prohibits evaluating an individual’s noncompliance with a standard or practice that is announced solely in a guidance document but is not mirrored in a statute or regulation.

  • U.S. Department of Justice has previously set forth policies, incorporated into the Justice Manual, similarly prohibiting reliance on guidance documents in both the civil and criminal contexts.

  • Federal courts, including the United States Supreme Court, have held that agency documents are not legally binding unless they have gone through the notice-and-comment rulemaking process.