AGENCY:

Office of the Secretary, Department of Health and Human Services.

ACTION:

Final rule.

SUMMARY:

The Department of Health and Human Services is issuing regulations promoting transparency and fairness in civil enforcement actions. These regulations will help to ensure that regulated parties receive fair notice of laws and regulations they are subject to, and have an opportunity to contest an agency determination prior to the agency taking an action that has a legal consequence.

DATES:

Effective January 12, 2021.

FOR FURTHER INFORMATION CONTACT:

Brenna Jenny, Department of Health and Human Services, 200 Independence Avenue SW, Room 713F, Washington, DC 20201. Email: Good.Guidance@hhs.gov. Telephone: (202) 690-7741.

I. Statutory and Regulatory Background

The primary legal authority supporting this rulemaking is 5 U.S.C. 301. That provision provides that the “head of an Executive department or military department may prescribe regulations for the government of his department, the conduct of its employees, the distribution and performance of its business, and the custody, use, and preservation of its records, papers, and property.” This statute authorizes an “agency to regulate its own affairs,” and issue rules, such as this one, that are “rules of agency organization[,] procedure or practice.” Chrysler Corp. v. Brown, 441 U.S. 281, 309-10 (1979). Similarly, 42 U.S.C. 1302 provides that the Secretary “shall make and publish such rules and regulations, not inconsistent with this chapter, as may be necessary to the efficient administration of the functions with which [he] is charged” under Chapter 7 of the Social Security Act. Chapter 7 contains, among other things, statutory provisions governing Medicare, Medicaid, and the Health Insurance Portability and Accountability Act (HIPAA).

The Administrative Procedure Act (“APA”), 5 U.S.C. 551 et seq., specifies the process by which such regulations are promulgated. Department heads generally must prescribe regulations through notice-and-comment rulemaking, but there is an exception for “rules of agency organization, procedure, or practice.” The requirements for notice and comment prior to finalization also do not apply to regulations that involve “a matter relating to agency management or personnel.” 5 U.S.C. 553(a)(2).

Because this final rule only specifies procedures that agency personnel must follow or that will govern civil enforcement actions, it is exempt from the requirement for notice and comment prior to finalization. In determining whether notice-and-comment rulemaking is required, the “critical feature is that [the rule] covers agency actions that do not themselves alter the rights or interests of the parties, although it may alter the manner in which the parties present themselves or their viewpoints to the agency.” Nat'l Sec. Counselors v. CIA, 931 F. Supp. 2d 77, 106-07 (D.D.C. 2013) (quoting Batterton v. Marshall, 648 F.2d 694, 707 (D.C. Cir. 1980)). This rule is exempt from notice and comment because it does not “put[ ] a stamp of approval or disapproval on a given type of behavior.” Am. Hosp. Assoc. v. Bowen, 834 F.2d 1037, 1047 (D.C. Cir. 1987). What had been a regulatory violation prior to finalization of this rule still is; the Department of Health and Human Services (“HHS” or “the Department”) is only modifying the procedures governing civil enforcement actions and the Department's civil enforcement action practices. To be sure, these procedural modifications, like most rules of agency procedure or personnel, might have some impact on the public. But agency rules that impose “derivative,” “incidental,” or “mechanical” burdens upon regulated individuals are considered procedural, rather than substantive, and are therefore exempt from the notice-and-comment requirement. Id. at 1051. Moreover, to the extent this rule has effects on the public, it only provides additional protections to the public, rather than depriving the public of any rights or interests it previously had.

The APA requires that “administrative policies affecting individual rights and obligations be promulgated pursuant to certain stated procedures so as to avoid the inherently arbitrary nature of unpublished ad hoc determinations.” Morton v. Ruiz, 415 U.S. 199, 232 (1974). The Freedom of Information Act amended the APA to advance this goal, and generally requires that agencies publish in the Federal Register their substantive rules of general applicability, statements of general policy, and interpretations of law that are generally applicable. 5 U.S.C. 552(a)(1)(D). Unless a party has actual and timely notice of the terms of a rule or policy, the Freedom of Information Act generally provides that a party may not be adversely affected by a rule or policy required to be published in the Federal Register that is not so published. 5 U.S.C. 552(a)(1)(flush language). This rule of agency procedure ensures that HHS actions comport with these requirements.

II. Summary of Transparency and Fairness Regulations

To provide regulated parties with greater transparency and fairness in administrative actions, and consistent with the requirements of Executive Order 13892 of October 9, 2019, “Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication,” 84 FR 55239 (Oct. 15, 2019), HHS is setting forth policies that promote transparency and fairness in civil enforcement actions that will apply to all divisions of HHS. The requirements in this rule amend 45 CFR part 1.

This rule is one component of the Department's broader regulatory reform initiative. The rule is designed to ensure accountability, fairness of how the Department uses guidance, proper use of guidance documents, and opportunities for third parties to be heard, and to safeguard the important principles underlying the United States administrative law system.

A. Scope (45 CFR 1.1)

The requirements established pursuant to this rule in §§ 1.2(b) and 1.6 through 1.9 apply to civil enforcement actions by any component of the Department. Sections 1.3 through 1.5 (as well as the definitions in § 1.2 that were added through the Good Guidance Practices final rule at 85 FR 78770 (Dec. 7, 2020), and that we will recodify in this rule at § 1.2(a)) will continue to apply to all guidance documents until FDA amends its good guidance practices regulation to be consistent with the HHS Good Guidance Practices rule, at which point §§ 1.2(a) and 1.3 through 1.5 shall apply to all divisions of HHS except FDA.

Nothing in this rule shall apply:

• To any action that pertains to foreign or military affairs, or to a national security or homeland security function of the United States (other than procurement actions and actions involving the import or export of nondefense articles and services);
• To any action related to a criminal investigation or prosecution, including undercover operations, or any civil enforcement action or related investigation by the Department of Justice, including any action related to a civil investigative demand under 18 U.S.C. 1968;
• To any action related to detention, seizure, or destruction of counterfeit goods, pirated goods, or other goods that infringe intellectual property rights;
• To any investigation of misconduct by an agency employee or any disciplinary, corrective, or employment action taken against an agency employee; or
• In any other circumstance or proceeding to which application of this order, or any part of this order, would, in the judgment of the Secretary of HHS, undermine the national security.

B. Definitions (45 CFR 1.2)

The definitions section at 45 CFR 1.2 is amended to include the following definitions at paragraph (b).

Civil Enforcement Action

HHS defines “civil enforcement action” to mean an action with legal consequence taken by the Department based on an alleged violation of the law. Such actions 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) but do not include actions taken in the normal course of the Department's regulatory communications or decision-making, for example, decisions on product applications (such as approvals or denials/withdrawals of approval), claims authorizations, responses to citizen petitions, food or color additive petitions, or public health notifications.

Legal Consequence

HHS defines “legal consequence” as the result of an action that directly or indirectly affects substantive legal rights or obligations including by subjecting a regulated party to potential liability in an enforcement action. The meaning of this term is informed by the Supreme Court's discussion in U.S. Army Corps of Engineers v. Hawkes Co., 136 S. Ct. 1807, 1813-16 (2016), and includes, for example, agency letters or orders establishing or increasing the probability of liability for regulated parties in a subsequent enforcement action, Ipsen Biopharmaceuticals, Inc. v. Azar, 943 F.3d 953, 956 (D.C. Cir. 2019); Rhea Lana, Inc. v. Dep't of Labor, 824 F.3d 1023, 1030 (D.C. Cir. 2016). It does not include a warning letter or other communication, such as one describing inspectional observations, that pursuant to agency policy is intended to provide notice to a regulated party and elicit voluntary compliance. Such warning letters and inspectional observations have no immediate regulatory implications for the entity, are an interim step in the agency's compliance communications with an entity, and are not final agency action that has legal consequences for a party. See Orton Motor, Inc. v. HHS, 884 F.3d 1205, 1215 (D.C. Cir. 2018); Holistic Candlers & Consumers Ass'n v. FDA, 664 F.3d 940 (D.C. Cir. 2012); see also Hi-Tech Pharm., Inc. v. Hahn, Civ. No. 19-1268(RBW), 2020 WL 3498588, *5 (D.D.C. June 29, 2020); Lystn, LLC v. FDA, No. 19-cv-1943-PAB-KLM, 2020 WL 248962, *5 (D. Colo. Jan. 16, 2020); Cody Labs., Inc. v. Sebelius, No. 10-CV-00147-ABJ, 2010 WL 3119279, *11 (D. Wyo. July 26, 2010), aff'd, 446 F. App'x 964, 969 (10th Cir. 2011); Gomperts v. Azar, No. 1:19-cv-00345-DCN, 2020 WL 3963864, *4-5 (D. Idaho July 13, 2020).

Unfair Surprise

HHS defines “unfair surprise” to mean a lack of reasonable certainty or fair warning, from the perspective of a reasonably prudent member of regulated industry, of what a legal standard administered by an agency requires, or the initiation of litigation by HHS following “a very lengthy period of conspicuous inaction,” in other words deliberate inaction, suggesting the agency previously had a different interpretation. Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 156 (2012). However, an agency does not create unfair surprise when it proceeds with a new interpretation that it established in notice-and-comment rulemaking. See Martin v. Occupational Safety & Health Review Comm'n, 499 U.S. 144, 158 (1991) (identifying “adequacy of notice to regulated parties” as one factor relevant to the reasonableness of the agency's interpretation).

The definitions currently at 45 CFR 1.2 will be moved into a new paragraph (a). All definitions at paragraph (a) apply to all components of HHS until FDA amends its good guidance practices regulation, at which point the definitions at 45 CFR 1.2(a) shall apply to all divisions of HHS except FDA. The definitions at § 1.2(b) will apply to all components of the Department, including FDA.

C. Proper Department Reliance on Guidance Documents (45 CFR 1.6)

This rule reiterates the application of certain existing legal principles to HHS's use of guidance documents: When the Department takes 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. HHS may not use guidance documents to impose binding requirements or prohibitions on persons outside of the executive branch except as authorized by law or expressly incorporated into a contract. Noncompliance with a standard or practice that is not in a statute or regulation and announced solely in a guidance document may not be treated as itself a violation of applicable statutes or regulations, unless expressly authorized by statute.

This rule also explains the appropriate circumstances when the Department may use a guidance document in civil enforcement actions. The Department may use a guidance document to explain the legal applicability of a statute or regulation with regard to prohibition of conduct, but when it does so, HHS may only use the guidance document to articulate the Department's understanding of how a statute or regulation applies to particular circumstances. Except when referring to a guidance document for historical facts, the Department may reference a guidance document in a civil enforcement action only if it has notified the public of such document to convey that understanding in advance. The Department must notify the public in advance of a guidance document through publication in the Department's guidance repository (as described in § 1.4 and available at hhs.gov/guidance).

D. Fairness and Notice in Civil Enforcement Actions and Administrative Inspections (45 CFR 1.7)

This rule would require the Department to only apply standards or practices that have been publicly stated in a manner that would not cause unfair surprise when HHS takes 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, unless a statutory exception applies. See, e.g., 42 U.S.C. 1395hh(e). For purposes of this regulation, the Department would consider standards or practices to be publicly stated if available in paper publications or on the internet.

HHS avoids unfair surprise not only when it imposes penalties but also whenever it adjudges past conduct to have violated the law. For example, the Department generally cannot retroactively impose liability on a party for conduct that violates a new agency interpretation. But see 42 U.S.C. 1395hh(e). The Department also may not alter its interpretation during an adjudicative proceeding if doing so would impose new liability on parties who have acted in good faith on the prior interpretation. SmithKline Beecham, 567 U.S. at 156 & n.15.

Section 7 of Executive Order 13892 requires that each agency that conducts civil administrative inspections must publish a rule of agency procedure governing such inspections, if such a rule does not already exist. The Department is adding a requirement at 45 CFR 1.7 that HHS shall only conduct civil administrative inspections according to published rules of agency procedure. While the Administrative Procedure Act exempts these subsequently issued rules of agency procedure themselves from notice-and-comment rulemaking, see 5 U.S.C. 553(b)(3)(A), each agency must make the rules governing its civil administrative inspections, including audits, publicly available and readily accessible, such as by posting them on a website.

E. Fairness and Notice in Jurisdictional Determinations (45 CFR 1.8)

The requirement for fairness and notice also extends to jurisdictional determinations. If the Department relies on a decision previously issued by an agency within the Department in an agency adjudication (i.e., proceedings before and decided by the agency), administrative order, or agency document to assert a new or expanded claim of jurisdiction (e.g., a claim to regulate a new subject matter or a new basis for liability, or a relinquishment of a claim of jurisdiction), the Department must give fair notice by publishing the initial decision in the Federal Register or the Department's guidance repository. See 45 CFR 1.4. The Department should not rely on the new claim of jurisdiction to take a civil enforcement action regarding conduct that occurred before such publication. A claim of jurisdiction is not “new or expanded” simply because it involves a new or novel set of facts so long as it is based on an established principle of general applicability.

If the Department intends to rely on a document arising out of litigation (other than a publicly published opinion of an adjudicator) such as a brief, a consent decree, or a settlement agreement, to establish jurisdiction in future civil enforcement actions involving persons who were not parties to the litigation, the Department must also publish that document in the Federal Register or on the Department's guidance repository. Alongside publication of the document, the Department must also provide an explanation of the document's jurisdictional implications. Publication of a document discussed in this paragraph may either be in full or by citation, if the document is publicly available.

HHS is also proposing that if the Department seeks judicial deference to its interpretation of a document arising out of litigation (other than a publicly published opinion of an adjudicator) in order to establish a new or expanded claim of jurisdiction, HHS must, before seeking judicial deference, publish the document or a notice of availability in the Federal Register or on the Department's guidance repository, along with an explanation of the document's jurisdictional implications.

F. Opportunity To Contest Agency Determinations (45 CFR 1.9)

Providing regulated parties with the opportunity to be heard, including through informal oral or written communications, prior to the Department taking any civil enforcement action that has legal consequence is critical to ensuring that the Department operates with transparency and fairness. This rule will require that, before any component of the Department takes any civil enforcement action with respect to a particular entity that has legal consequence for that entity—including by issuing to such a person a notice of noncompliance or other similar notice that has immediate regulatory consequence or the immediate effect of subjecting the person to potential liability—the Department must afford that person an opportunity to be heard, either orally or in writing, as deemed appropriate at the Department's election. The rule will require HHS to provide the person with its proposed legal and factual determinations and then give the person a reasonable amount of time to respond to those determinations. The specific timeframe shall be in the discretion of the agency but must be long enough to provide a meaningful opportunity to be heard. Certain circumstances may warrant a time period of 30 days, while other circumstances may warrant a shorter period, such as 15 days or fewer, particularly where existing agency procedures already offer a shorter period in which to respond. Unless the Department withdraws the action, the Department must then respond in writing to the regulated party and articulate the final basis for the Department's action. This written response may be issued contemporaneous to the Department taking the action with legal consequence. We anticipate that generally, existing HHS procedures will already satisfy these standards, and where they do, those existing procedures will continue in effect unchanged. This rulemaking is not intended to preempt existing rules of agency procedure that are already consistent with this rule. Furthermore, where the Department takes an action based on a predicate finding that was reached following notice, an opportunity to be heard, and a written response, for example, where the Department revokes Medicare enrollment based on a prior exclusion or felony conviction, these procedural requirements are considered to have already been satisfied.

These procedures regarding fair notice and an opportunity to respond would not apply where the agency, in its discretion, determines there is a serious threat to health, safety, or similar emergency, or where a statute specifically authorizes proceedings that are inconsistent with this section, including proceedings without a prior opportunity to be heard. Where such a threat arises and a statute does not specifically authorize proceedings without a prior opportunity to be heard, HHS would still provide an affected entity with an opportunity to be heard and a written response as soon as practicable. In this context, a serious threat means that, as reasonably determined by the Department, there is a non-negligible likelihood of the threat materializing.

We anticipate that the exception from § 1.9 for actions taken in the context of threats to health, safety, or similar emergencies will apply broadly to public health agencies acting in furtherance of their missions. Actions will be considered to fall into this exception regardless of whether there is a showing of actual, imminent risk or harm, either to persons or animals. The agency has sole discretion to determine when an action falls into this exception. An agency may invoke this exception regardless of whether agency action is taken reactively (e.g., to address an unsafe item currently on the market) or proactively (e.g., to enforce regulations needed to protect public health prior to actual exposure by the public to unsafe items). Actions that fall into this exception include, for example, enforcing age restrictions or other controls around access to certain regulated products, enforcing manufacturer recordkeeping or reporting requirements, enforcing premarket requirements where there is an absence of or insufficient data concerning the product, protecting beneficiary data privacy or a federal healthcare program beneficiary from harm, and taking action to remove unapproved, misbranded, or adulterated human or animal products from the market.

Because of this exception, the procedures in § 1.9 generally will not impact, for example, the administrative detention process for foods, drugs, devices, and tobacco products (21 U.S.C. 334(g), (h)), the detention, refusal, and where authorized, destruction of imported products regulated by FDA (21 U.S.C. 381), disqualification (21 CFR parts 56, 58, 312, 511, 812), administrative detention, recall requests, import alerts, or other public notifications about food, drug, device, or tobacco products, or other actions related to investigating adulterated or misbranded products.

These procedures would also not apply to settlement negotiations between agencies and regulated parties, to notices of a prospective legal action, where a statute specifically precludes review of agency action, or to litigation before courts. Examples of situations where statutes specifically authorize differently structured proceedings include, but are not limited to, the hospital cost report appeals process (42 U.S.C. 1395oo), the individual benefit claims appeals process (42 U.S.C. 1395ff), and the process for the review of disallowances of Medicaid expenditures by the Secretary (42 U.S.C. 1316(e)). In such circumstances, the process and substantive standards governing review of claims arising under a relevant statute or regulation remain governed by those more specific procedures. The procedures would also not apply to any action related to a criminal investigation or prosecution, including undercover operations that may be used in a criminal investigation or prosecution, or any civil enforcement action either related to an investigation by the Department of Justice, or referred to the Department of Justice.

III. Rulemaking Analyses and Notices

A. Executive Orders 12866 and 13563

Executive Order 12866, “Regulatory Planning and Review,” and Executive Order 13563, “Improving Regulation and Regulatory Review,” direct agencies to assess all costs and benefits of available regulatory alternatives and, if the regulation is necessary, to select regulatory approaches that maximize net benefits. The Department does not believe that this rulemaking is a significant regulatory action under these Executive Orders. This rule describes an update to the Department's current processes to ensure that it operates with transparency and fairness. The requirements in 45 CFR 1.6 through 1.9 relating to the proper use of guidance documents and fairness and notice in enforcement actions generally already exist in law. The requirements set forth in Section 6 of Executive Order 13892 and codified at 45 CFR 1.6 may exceed the requirements imposed by the Due Process clause of the Constitution and may impose a burden by delaying the time until HHS can take actions with legal consequence. However, this process will also offer important procedural safeguards and potentially reduce economic costs borne by regulated entities, which will have an opportunity to respond in writing before the Department takes an action that has (potentially costly) legal consequence.

The Department anticipates that the public, and, in particular, regulated parties, would benefit from greater efficiencies and more transparency in how the Department regulates, including facilitating smoother operations within HHS by clearly defining how guidance can be used.

B. Executive Order 13771

This final rule is neither a regulatory nor a deregulatory action under Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs,” 82 FR 9339 (Feb. 3, 2017), because this rule is estimated to impose no more than de minimis costs on regulated entities.

C. Regulatory Flexibility Act

The Department has examined the economic implications of this rule as required by the Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq. The RFA requires an agency to describe the impact of a rulemaking on small entities by providing an initial regulatory flexibility analysis, unless the agency expects that the rule will not have a significant impact on a substantial number of small entities, provides a factual basis for this determination, and proposes to certify the statement. 5 U.S.C. 603(a), 605(b). The Department considers a proposed or final rule to have a significant impact on a substantial number of small entities if it has at least a three percent impact on revenue on at least five percent of small entities. The Department anticipates that this rule will allow small entities to operate more efficiently, by increasing the transparency of government regulation. As a result, the Department has determined, and the Secretary certifies, that this final rule would not have a significant impact on the operations of a substantial number of small entities.

D. Executive Order 13132 (Federalism)

Executive Order 13132, “Federalism,” establishes certain requirements that an agency must meet when it promulgates a rule that imposes substantial direct requirement costs on State and local governments or has Federalism implications. The Department has determined that this final rule will not impose such costs or have any federalism implications.

E. Paperwork Reduction Act of 1995

In accordance with the Paperwork Reduction Act of 1995 and its implementing regulations, 44 U.S.C. 3501-3521; 5 CFR part 1320, the Department has reviewed this rule and has determined that it imposes no new collections of information.

List of Subjects in 45 CFR Part 1

• Guidance
• Government employess

For the reasons set forth in the preamble, the Department of Health and Human Services amends 45 CFR Part I as set forth below:

PART 1—TRANSPARENCY AND FAIRNESS IN CIVIL ADMINISTRATIVE ENFORCEMENT AND ADJUDICATION

1. The authority citation for part 1 continues to read as follows:

Authority: 42 U.S.C. 1302, 5 U.S.C. 301, 551 et seq.

2. Section 1.1 is revised to read as follows:

3. Section 1.2 is amended by designating the existing text as paragraph (a) followed by the alphabetical ordered definitions, revising newly designated paragraph (a) introductory text, and adding paragraph (b).

The revision and addition read as follows:

4. Section 1.6 is added to read as follows:

5. Section 1.7 is added to read as follows:

6. Section 1.8 is added to read as follows:

7. Section 1.9 is added to read as follows: