HHS Draws Curtain on the Healthcare Regulatory SUNSET Final Rule

July 12, 2022

On May 27, 2022, the U.S. Department of Health and Human Services (HHS) announced it was withdrawing the Securing Updated Necessary Statutory Evaluations Timely final rule (SUNSET final rule), which was originally set to take effect on March 22, 2021. The SUNSET final rule was published on the last day of the previous administration — Jan. 19, 2021 — and required HHS regulations with a significant economic impact to be reviewed by HHS or the applicable agency every 10 years, with regulations automatically expiring if they were not reviewed in this period. This would have impacted more than 17,000 HHS regulations and required a review process considerably faster than HHS ever conducted previously.

After a lawsuit sought to overturn the rule, HHS delayed the effective date by one year, until March 22, 2022. Then in March 2022, HHS published a notice of proposed rulemaking to consider whether to formally withdraw the SUNSET final rule and delay its implementation. This delay gave the Biden administration additional time to consider the allegations in the lawsuit, and — based on the “different policy views of the Biden-Harris administration” compared with the Trump administration that issued the rule originally — the effects of its implementation on stakeholders, and the legal authority for the final rule. Now, after reviewing the comments from its proposed rulemaking, HHS is withdrawing the SUNSET final rule in its entirety as of July 26, 2022.

Healthcare providers have different views on the Trump administration's SUNSET final rule and this action by the Biden administration HHS, but this regulatory action may impact providers in the following ways:

  1. Regulatory burdens are not decreasing anytime soon, at least not automatically. Those who hoped the SUNSET final rule would remove old or outdated requirements or hoped the time required to review old regulations would limit the amount of new regulations HHS could publish may be out of luck unless there is a new and independent push from the current or future administrations. HHS has been conducting retrospective review activities in response to President Obama’s January 2011 executive order, Improving Regulation and Regulatory Review, but there is not the same automatic nature of a regulation expiring if HHS did not expressly review it and determine the rule was still needed. There also is  not the same mandatory mechanism to force HHS to review its rules, where HHS previously noted that 85% of HHS regulations created before 1990 have not ever been edited, and HHS has almost 300 broken citation references in the Code of Federal Regulations.
  1. Many thought the SUNSET final rule would create more uncertainty, if not chaos, in the regulatory landscape as healthcare providers would not be able to assume that a regulation would remain in place. Such automatic expiration could have required vigilant monitoring by healthcare providers on even current regulations (although, in most cases, had a rule expired, continuing to follow the expired rule would not lead a provider to be in noncompliance with other rules). Because the SUNSET final rule is being withdrawn, however, the status quo remains intact and there is no need for special regulatory surveillance to comply with this rule. Business-as-usual compliance operations that implement responses to new rules may remain in place and once implemented with respect to a new rule can likely expect such rules to remain in place for a significant time.
  1. Many trade associations in the healthcare sector commented that while they supported reviewing and eliminating outdated rules, they were concerned that this approach could create additional uncertainty for the healthcare industry with rules expiring simply because the then-current administration HHS did not review the rule or support it. To meet the withdrawn SUNSET final rule’s targets, HHS would have to conduct at least 680 reviews per year, when the Trump administration HHS Regulatory Task Force reviewed much fewer rules recommended for repeal in 2018-2019. These trade associations would prefer a more targeted review and removal process.

With this withdrawal, the Biden administration dismantles a key rule some sought from the Trump administration to curtail the regulatory state, and to force a faster regulatory review for outdated policies. Yet, many were concerned the speed of review and lack of resources to accomplish the review would have left key programs dangling because the regulations had not been reviewed. Ultimately, HHS justified its withdrawal because it argues the final rule rested on a procedurally, factually and legally deficient foundation as further described below.

  • First, HHS now believes that the initial rulemaking process that occurred during the Trump administration was “unusually expedited for a rule of this significance,” having only taken three months from inception to final publication. For example, HHS notes how, contrary to its policy, the department did not consult with tribal governments during the proceedings about the rule’s impact on their communities. These “procedural shortcuts” may have impeded HHS’ ability to engage in reasoned decision-making regarding the significant concerns raised throughout the comment process.
  • Second, HHS now believes that deficient factual premises and conclusions undergird the SUNSET final rule, particularly the resources required to implement it. HHS concludes that, for each regulation reviewed, it would need to spend between 40 to 100 hours, compared to the “erroneous” assumption made during the Trump administration that it would only take three to 10 hours. As a result, HHS finds that the regulatory burden would be substantial and it would have to make difficult resource allocation decisions that could otherwise impede its ability to carry out its mission and key priorities, including issuing new regulations.
  • Third, HHS raised serious concerns that the rule’s automatic expiration provision may exceed the authority of the Regulatory Flexibility Act (RFA) and violate the notice-and-comment provisions of Administrative Procedures Act (APA). Given that the automatic expiration provision was key to the SUNSET final rule and that it may not allow individualized review of each rule, HHS believed that a court would not conclude that the rule was reasonable and reasonably explained.

In place of the SUNSET final rule, the Biden administration may return to the topic of regulatory review but likely only after the country has moved to a post-pandemic era. Such a process likely would focus on specific regulations, and not wholesale regulatory review.

McGuireWoods will continue to monitor developments and the potential implications of regulatory reform through retrospective review.

The authors thank McGuireWoods summer associate Jonathan Wrobel for assistance preparing this legal alert. He is not licensed to practice law.

 

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