The new HHS memo builds on two years of efforts by the U.S. Department of Justice (DOJ) to limit the reach of sub-regulatory agency guidance. In 2017, former U.S. Attorney General Jeff Sessions issued a memorandum preventing the DOJ from issuing “guidance documents that purport to create rights or obligations binding on persons outside the Executive Branch.” In 2018, the Brand Memorandum expanded on this theme and prohibited civil enforcement actions based on “noncompliance with guidance documents.” The Brand Memorandum has been incorporated into the Justice Manual, the guidebook for DOJ attorneys.
The HHS memo comes in response to the U.S. Supreme Court’s recent disapproval of HHS’s attempt to change Medicare reimbursement by posting revisions online. (See Azar v. Allina Health Servs., ___U.S.___ (2019), 139 S. Ct. 1804, 1808, 204 L. Ed. 2d 139, 144.) The Court based its decision on the Medicare Act’s requirement that a “substantive legal standard” be promulgated through formal rulemaking. The Court did not define “substantive legal standard,” but affirmed a lower court ruling that held that the term “at a minimum includes a standard that creates, defines, and regulates the rights, duties, and powers of parties.”
Earlier this month, a federal court in Pennsylvania relied on the Court’s reasoning in Allina to dismiss a whistleblower’s claims under the False Claims Act. (See Polansky v. Exec. Health Res., Inc. No. 12-CV-4239, 2019 U.S. Dist. LEXIS 192332, at *4 (E.D. Pa. Nov. 5, 2019).) The whistleblower alleged that the defendant did not follow Medicare criteria when admitting inpatients. The Pennsylvania court granted summary judgment on the claims because the relevant inpatient standards were “contained in agency manuals that had not been promulgated pursuant to notice and comment, as required by the Medicare Act.” The court reasoned that the inpatient criteria was a “substantive legal standard” because it “creates, defines, and regulates the rights, duties, and powers of parties.”
In the aftermath of Allina, the new HHS memo recognizes that Allina forecloses enforcement actions based solely on guidance documents that create or alter “substantive legal standards.” The agency distinguishes between guidance documents that “are not closely tied to statutory or regulatory standards”—which cannot form the basis of an enforcement action—and those that merely “provide additional clarity without creating a new non-statutory or non-regulatory norm.” The memo leaves open the question of what it means to be “closely tied.” A likely interpretation is that the guidance cannot add new substantive requirements. Even then, HHS recognizes that “a guidance document issued consistent with Allina may not be used as the sole basis for an enforcement action, although it may be relevant for other purposes, such as scienter or materiality.” Importantly, the HHS memo specifically states that “government enforcement actions based solely on LCDs are generally unsupportable.”
Going forward, providers and suppliers should consider how best to use Allina, the new HHS memo, and related DOJ policy to limit enforcement actions based on requirements found only in LCDs, reimbursement manuals from the Centers for Medicare & Medicaid Services, or other sub-regulatory guidance. Providers and suppliers should also consider whether they agreed by contract to comply with these sub-regulatory requirements.
This new guidance impacts not only enforcement by putative whistleblowers and the DOJ, but also administrative actions by HHS and its components like the Office of Inspector General and the Office of Civil Rights. It could also lead to a significant increase in rulemaking activity by the agency.