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HHS’ Withdrawal of the Richardson Waiver and New Statement of Organization: What Does It Mean for the Health Care Industry?

• American Health Law Association

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In March, the Department of Health and Human Services (HHS) withdrew the Richardson Waiver, a policy under which HHS voluntarily undertook notice-and-comment rulemaking in circumstances where it wouldn’t otherwise need to. HHS also issued a new Statement of Organization for the Office of the General Counsel (HHS-OGC), which, among other things, may signal an effort to consolidate and expand HHS-OGC’s authority. Jaime Jones, Partner, Sidley Austin LLP, and Brenna Jenny, Partner, Sidley Austin LLP, discuss HHS’ potential rationale for these changes and the implications for the health care industry. During the first Trump Administration, Brenna Jenny served as the Principal Deputy General Counsel at HHS and the Chief Legal Officer at the Centers for Medicare & Medicaid Services.

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Speaker 1:

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Speaker 2:

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Speaker 3:

Hi, I'm Jamie Jones. I co-lead Sly Austin's healthcare practice and represent healthcare and life sciences clients in litigation and enforcement matters involving the Department of Health and Human Services and its constituent agencies and their authorities.

Speaker 4:

I'm Brenna Jenny . I'm a partner in Sidley's healthcare practice here in DC and I focus on healthcare litigation matters and engagement with HHS. During the first Trump administration, I served as the principal Deputy General Counsel at HHS and the Chief Legal Officer for CMS.

Speaker 3:

So today we're gonna talk about two major announcements from HHS that involve the agency's legal function referred to as the HHS Office of General Counsel, or H-H-S-O-G-C. And that gives rise to some new challenges and opportunities for the healthcare industry. H-H-S-O-G-C is often not a particularly visible component of HHS to external stakeholders, and the department itself can be a bit of a black box because it is so large. So Brandon , given your background, let's level set and can you start off with an overview of how HHS is structured?

Speaker 4:

HHS has two primary arms, the office of the secretary, and the operating divisions. At a very high level of generalization, the office of the secretary includes the divisions that engage in little to no policy making . So this is where H-H-S-O-G-C sits. Other divisions within the office of the secretary include the Office of Legislative Affairs, which represents HHS in its engagement with Congress aspa , which handles public affairs. So they help draft press releases. And then in this day and age, manage official social media postings and the HHS Office of Inspector General, also referred to as H-H-S-O-I-G. The operating divisions in contrast include the core policymaking functions such as C-M-S-F-D-A, C-D-C-N-I-H, and hrsa. There's generally a layer of political appointees within each division, both on the policy making and the non policy making sides of the department. And they change with each administration. The most senior positions require Senate confirmation, but many political positions do not. Instead, these appointees move through a more streamlined non-public approval process run by the White House because that process is a lot more streamlined than senate confirmation. It can be common for these political appointees to hold a position for a couple years and then rotate to a different position during the same administration or even head back into the private sector. At a high level , political appointees are responsible for making ma major final decisions on big issues and questions. And the goal of career staff is to apply their subject matter expertise and their institutional knowledge and help political appointees make fully informed decisions. HHS has a large central office in downtown DC referred to as the Humphrey building. Virtually all HHS political appointees across both branches of the department sit there as well as a number of career officials. There are also several offices in the greater DC area specific to some of the larger components of HHS such as a CMS office in Baltimore and an FDA office in White Oak Maryland. These offices, of course, are in addition to the HHS regional offices, which are across the country. The legal function , uh, that you mentioned, Jamie , H-H-S-O-G-C is spread out across the downtown DC office and as well the other DC area offices plus regional offices. So H-H-S-O-G-C is divided into teams that support the different policymaking components of HHS. There's a team that advises CMSA team that advises FDA and so on. There's one component of HHS that is more siloed than the others, and that is the Office of Inspector General. H-H-S-O-I-G is responsible for policing fraud, waste and abuse committed by HHS. That's the core mission of any i's office police, your own agency. But H-H-S-O-I-G is unique among federal inspectors general because it actually spends the majority of its time policing the healthcare industry. The secretary a long time ago delegated to H-H-S-O-I-G, civil Monetary Penalty Enforcement Authority under laws such as the Annie Kickback statute and the beneficiary inducement statute. H-H-S-O-I-G also has its own lawyers who advise the IG and H-H-S-O-G-C lawyers historically do not advise on any of the issues that H-H-S-O-I-G works on. So for example, H-H-S-O-I-G lawyers have traditionally responded to requests for advisory opinions on the applicability of the Annie Kickback statute and the beneficiary inducement statute to certain arrangements. The OIG lawyers , uh, issue those opinions and they can have a pretty significant impact on the way the healthcare industry perceives risk and therefore how it structures common business arrangements. And the OIG lawyers are doing that work without consulting the OGC lawyers, equally important, OIG lawyers have traditionally exercised the authority granted by statute to the HHS secretary to determine when individuals or companies should be excluded from participating in the federal healthcare programs. And they have relatedly decided when to waive the secretary's permissive exclusion authority in exchange for a corporate integrity agreement. So Jamie , let's talk about the first of the two developments. The announcement on February 28 that HHS was withdrawing the Richardson waiver. Practically speaking, what does this change?

Speaker 3:

So many listeners are probably familiar with the requirement in the Administrative Procedure Act or a PA that when agencies issue substantive rules that establish or change the rights of regulated entities, they need to do so through what we call notice and comment rulemaking. The A PA includes a couple of exceptions, one of which is for any rules relating to agency management or personnel or to public property loans, grants, benefits or contracts. Because of the nature of the work that HHS performs, a lot of its rulemaking could be interpreted as implicating this exception and thus removed from having to go through notice and comment. So, HHS could just issue the rule as a final rule in the federal register. Now, HHS may still need to publish a 30 day delayed effective date , um, but that would be the only notice required and there wouldn't be any chance for industry to comment. The Richardson waiver is shorthand for a policy that HHS adopted in 1970, under which HHS would voluntarily undertake notice and comment rulemaking in circumstances where it wouldn't otherwise need to. Under the Richardson waiver, HHS has waived the exemption and undertaken notice and comment. For all rulemaking involving public property loans, grants benefits or contracts with the withdrawal of the Richardson waiver, HHS can now rely on the exemption. Now, it's important to note that HHS did not say it was never going to voluntarily undertake notice and comment rulemaking if the exemption applies. Instead, what it said was that it would, in certain circumstances choose to invoke the exemption, but there are a lot of open questions about how broadly this language in the a PA exemption should be interpreted. In other words, how often can HHS lawfully invoke the exemption? And then separately, how often will HHS invoke the exemption having served Brenna as the PRI principal, deputy General counsel of HHS during the last Trump administration, do you have any thoughts you can share as to why HHS withdrew the Richardson waiver? Now,

Speaker 4:

From my own perspective, I think this was driven by a belief that HHS shouldn't lose in court solely because it skipped notice and comment rulemaking. It didn't even have to undertake in the first place. The failure to use notice and comment. Rulemaking has already been raised against HHS by plaintiffs in litigation so far that's happened during the new administration. And I think from HH S's perspective, if their actions are substantively lawful, they feel that they shouldn't be enjoined on a procedural technicality. So I view the motivation as relatively narrow,

Speaker 3:

So it's narrow. But how do you think the revocation of the Richardson waiver will impact the healthcare industry then?

Speaker 4:

Well , consistent with my perception that the decision was made in response to a fairly narrow concern, I am not envisioning a dramatic shift in the use of notice and comment rulemaking. Rather, I think the exemption is gonna be used on a pretty isolated basis. And I say that for three overlapping reasons. First, HHS benefits from using notice and comment rulemaking, and I think they know it. As someone who has participated in the rulemaking process on the other side, I can say that stakeholder feedback can be helpful, including because it can raise new ways of addressing challenges or suggest new compromises that policymakers hadn't thought of before. Second, if HHS is dead set on finalizing a proposal, feedback can strengthen the rules that they finalize, including the justifications for those rules in ways that might help those rules survive a lead legal challenge down the line, particularly one under the arbitrary and capricious standard of the a PA . And then third, as you mentioned, there are a lot of open questions about the scope of the APAs exemption. For example, does any rule touching on Medicare implicate public benefits under the exemption? There are relatively few cases interpreting that statutory language. You really have to go back to the seventies and early eighties to find them. And then since then, because of the Richardson waiver, there hasn't been any litigation over the scope of the exemption and there really weren't a lot of a PA challenges back in the pre Richardson waiver time period, especially as compared to modern day. So relying on the exemption, therefore is going to carry some litigation risk. HHSI think can certainly expect that if they skip notice and comment and cite the exemption, plaintiffs will argue the exemption doesn't apply. So it's a fairly preventable litigation risk just by taking a couple extra months to go through notice and comment rulemaking as a belt and suspenders approach.

Speaker 3:

So three good reasons why the rescission of the Richardson waiver might not signal some massive change for industry. But what do you see , uh, in terms of any clues coming out of the rulemaking issued by HHS since the Richardson waiver was pulled down on March 14th?

Speaker 4:

So as of the date of this recording , um, we're a few weeks out from the rescission and uh, there was one notice of proposed rulemaking issued in March relating to Affordable Care Act exchange plans. I think there are aspects of that rule that arguably could meet the exemption, but HHS did submit the full rule for notice and comment. The other major data point is the annual Medicare payment rules. Some pundits in the immediate aftermath of HH S'S announcement that it was rescinding, the Richardson waiver predicted the sky is falling. HHS is going to use the exemption broadly to exempt all Medicare related rules, for example, from notice and comment. And according to that narrative, we would start to even see annual payment rules, which constitute some of the most time intensive notice and comment rulemaking undertaken by HHS each year. We would see that rammed through as final rules, but we're not seeing that on April 11th, HHS issued five proposed payment rules for various types of healthcare facilities operating on a fiscal year payment rule schedule. And there's been no indication in any of those rules that the rescission of the Richardson waiver has altered the rulemaking process. Now, it is true that the list of proposed rules under review at OMB is much, much smaller than it has been in the past. Um, but that being said, I think that's really a symptom of a broader deregulatory push, and we're seeing the same thing across agencies. Um, so even though there are actually no proposed rules right now in front of HHS , um, I don't think that has anything to do with the rescission of the Richardson waiver.

Speaker 3:

I see. So I thought the Medicare Act had its own notice and comment rulemaking requirement built into the statute. And if that's right, how should the listeners think about how that affects things?

Speaker 4:

Yes, it does. The Medicare Act requires notice and comment for certain types of actions relating to the Medicare program. The Supreme Court in a 2019 case called Allina , concluded that this notice and comment requirement is actually broader than the one in the A PA and it's also completely independent from the APAs requirements. And so some of the impact in the Medicare sphere from the rescission of the Richardson waiver is going to be blunted by this separate rulemaking requirement, which the Richardson waiver doesn't touch. There also haven't been a lot of decisions though interpreting this separate rulemaking requirement probably because it does significantly overlap with the APAs , uh, rulemaking requirement. So this is another place, I think, where we're likely to see the case law develop and have that pace of development pick up through legal challenges over the next few years. Uh, again, the pace of that development though is going to depend on how frequently HHS ends up invoking this exemption for notice and comment rulemaking.

Speaker 3:

So at , at a high level, just to sort of summarize , um, we've got this change, we're still waiting to see a bit what it really is gonna mean , um, in terms of where HHS engages in rulemaking or not, but as this is all going on, where do you see opportunities for healthcare providers or life sciences com companies , um, arising from this development?

Speaker 4:

One potential opportunity is that where HHS might be inclined to skip notice and comment rulemaking HHS also might be more receptive to meeting with stakeholders in advance of issuing a final rule. As I said before, I think HHS knows stakeholder input is valuable for a number of reasons, and that input will help improve a rule. So if there is an indication that HHS is working on a rule, I think companies either directly or through trade associations should consider proactively reaching out to the right policy makers or potentially H-H-S-O-G-C, depending on the issue and the strength of potential legal challenges and ask for a meeting. In my experience, HHS both in the last administration and so far in this one, has been very receptive to meeting requests.

Speaker 3:

Got it. Okay. So on that note , um, let's turn from the Richardson waiver to talking about another recent development, which is the statement of organization that was issued by the department in March, and it was issued specifically by H-H-S-O-G-C, which you just mentioned. Tell the listeners what the purpose of a statement of organization by H-H-S-O-G-C is.

Speaker 4:

For a long time since the early nineties, H-H-S-O-G-C has maintained a formal statement of organization, but for most of its history, the statement of organization was very high level . And then in August, 2020, so the tail end of the first Trump administration, H-H-S-O-G-C amended the statement of organization and provided significantly more information about the structure of the divisions within OGC and their relative responsibilities. So we're now on the fourth update since August, 2020. So it's become a document that really is updated more frequently. A couple days before releasing the latest amendments to the statement of organization, H-H-S-O-G-C previewed two of the changes on their website. And a lot of people saw this in the news. First six of the 10 H-H-S-O-G-C regional offices will be closed, although there was no announcement as to timing. And second, H-H-S-O-G-C is reorganizing some of the FDA related OGC leadership. The statement of organization does reflect those changes, but there are also a number of other more subtle changes. And in my experience, some of those subtle changes can reflect broader changes or shifting dynamics behind the scenes. So Jamie , what jumped out at you the most in terms of changes in the March statement of organization?

Speaker 3:

Well, I see some potential for H-H-S-O-G-C to start to opine on matters that H-H-S-O-I-G lawyers who are within the office of counsel to the Inspector General or OIG , have historically owned. So the secretary of HHSA while back delegated to H-H-S-O-I-G, as you said, the authority to enforce a lot of the fraud and abuse laws that shaped the way , uh, healthcare entities operate in the industry. And that includes the anti kickback statute and the beneficiary inducement statute. Um, OIG in turn took the position that only its lawyers in OCI could opine on how those fraud and abuse laws are interpreted and enforced. And as a result, H-H-S-O-G-C lawyers have not really , um, given their opinions on some of the fraud and abuse laws that have the biggest impact on the industry, but there are a couple of hints in the March statement of organization that the lines that have been drawn around the work considered to be within OIGs jurisdiction might be changing. For example, the statement of organizations says that H hs, OIG G is authorized to have its own council with respect to matters solely within the OIGs jurisdiction. That is new language to the statement of organization. Similarly, the H-H-S-O-G-C description of responsibilities previously stated that OGC supervises all legal activities of the department and its operating and staff divisions except the OIG, that language has now been updated to say except with respect to certain matters within the jurisdiction of the OIG. So with these changes, it seems like OGC may begin taking the position that certain legal issues OIG currently advises on or historically has advised on, are not solely within OIG G'S jurisdiction and thus should be worked on by H-H-S-O-G-C lawyers and not OS lawyers. What might be

Speaker 4:

An example of something not solely within HHS OIGs jurisdiction?

Speaker 3:

Yeah, good question. I mean, we're in wait and C mode, but one possibility is that H-H-S-O-G-C says that it should opine on some of the fraud and abuse laws delegated way back by the secretary to OIG, like the anti-kickback statute. And one hook for that , uh, might come from the Inspector General Act of 1978, which requires each federal agency to establish an Office of Inspector General, but prohibits agencies from transferring to that office, any program operating responsibilities, and some of the policy making that OIG does around the fraud and abuse laws like the Anna Kickback statute could indeed be viewed as program operating responsibilities . So it would be about rethinking , um, the way in which that authority got delegated.

Speaker 4:

What are the implications if H-H-S-O-G-C does start to assert this new position and, and take the position that it should be opining on some of these fraud and abuse laws?

Speaker 3:

So it might lead to changes in some of OIGs longs longstanding interpretations of fraud and abuse laws. OIG, including OIG for a long time, has been insulated from political leadership at HHS. Right? The ig, the Inspector General is usually a longstanding career official with a background in combating healthcare fraud, waste, and abuse, and usually someone who has worked within H-H-S-O-I-G for a number of years. And that's the same for senior staff within OIG and within osi I , for example, the most recent inspector general was Christie Grim, who was a long time civil servant within OIG. And one result of that is that OIGs positions rarely changed with new administrations, there's priorities in their , you know, interpretations of the, the core statutes remain pretty consistent. In contrast, H-H-S-O-G-C has political leadership, and as a result, the positions in OGC fluctuate more as administrations change. So if OGC takes over any OCI areas, you may see some changes in position resulting from that. And we also might see more willingness to reconsider previous positions because of new leadership within OIG. In January, president Trump fired a number of agency inspectors general, including Christie Grin. Recently, March Bell was nominated to be the new Inspector General of HHS. His nomination is as of this recording pending senate confirmation. He was a political appointee in the first Trump administration and served in the HHS Office of Civil Rights, also known as OCR. He has enforcement experience relating to the civil rights laws enforced by OCR, but he does not have an established record regarding the healthcare fraud and abuse laws. And he'll probably have a different perspective than a longstanding OIG civil servant with respect to how those laws are enforced.

Speaker 4:

Jamie , you've dealt with H-H-S-O-I-G-A lot over the years on different enforcement matters, negotiating corporate integrity agreements. How might stakeholders use this as an opportunity?

Speaker 3:

Healthcare companies faced with H-H-S-O-I-G enforcement actions might wanna think through with their counselors, whether C'S newly articulated position gives them an opportunity to pull in other decision makers in the agency outside of OIG. Now that is a potentially high risk , but high reward strategy , um, that wouldn't be taken undertaken lightly. For example, though it's possible that H-H-S-O-G-C might consider decisions around whether to impose a corporate integrity agreement as a program operating responsibility, that should be determined outside of OIG. And in turn, we might see OGC be more hesitant to impose corporate integrity agreements. That kind of position would in fact be consistent with one taken recently by the Department of Justice to pause all corporate monitorships. It's possible too that political appointees at H-H-S-O-G-C might be receptive to alternatives to corporate integrity agreements in connection with the resolution of issues that implicate hh s's permissive exclusion authorities. For example, you could imagine HHS being interested in other deal making , right? Such as a company providing free goods or services to the government as part of a negotiated resolution rather than agreeing to implement prospective compliance obligations. And that would be particularly true, I would think, where the conduct at issue is historic, you know, where it maybe was self-disclosed and or where the company can demonstrate a highly effective compliance program. Brenna, what about you? What other changes caught your eye here ?

Speaker 4:

Well, H-H-S-O-G-C formally added a new item to its list of responsibilities. Uh, and that item is issuing advisory opinions. When I served in H-H-S-O-G-C, we started the practice of issuing advisory opinions, and it is a practice that was continued during the Biden administration, and one I expect to see continue during the second Trump administration. There's really no formal source of authority for issuing advisory opinions other than the fact that OGC is the final arbiter of interpreting HHS laws and regulations. Aside from the OIG carve out , you mentioned Jamie . And so this addition to the statement of in , um, organization really creates a bit of more of a formal basis for issuing advisory opinions.

Speaker 3:

Well, let's pause on that for a minute. So what types of advisory opinions did H-H-S-O-G-C issue, for example , when you were there during the last Trump administration?

Speaker 4:

A whole range of issues from three 40 B contract pharmacies to interpreting the Supreme Court's decision. In the Allina case that I mentioned, we basically issued advisory opinions on topics that we believed were important and where it would be helpful to share HH S's views on a question of legal interpretation with stakeholders. Because keep in mind, OGC generally doesn't represent HHS in court. The Department of Justice represents HHS, like it represents , uh, a whole host of agencies. And so OGC doesn't always have a direct way to communicate its views on legal issues. They end up having to channel those views through the filter of DOJ advisory opinions, though allow H-H-S-O-G-C to communicate directly to stakeholders.

Speaker 3:

So what opportunities does that present to industry stakeholders? Brenna,

Speaker 4:

I think the amendments to the statement of organization, including this one , uh, more broadly reflect and empowered H-H-S-O-G-C legal function. I think OGC is interested in drafting advisory opinions on topics of interest to stakeholders, and I think they would be receptive to stakeholders reaching out and explaining why it would be helpful for OGC to issue an advisory opinion. And of course, sharing thoughts on the content of said advisory opinion stakeholders should assess their operations and consider proactively approaching OGC about a proposed advisory opinion topic. So of course, as with all things in Washington right now, there is lots in flux and we'll continue to monitor the changes coming out of HHS. Thanks everyone for joining us on discussing these two updates coming out of HHS.

Speaker 2:

Thank you for listening. If you enjoyed this episode, be sure to subscribe to ALA's speaking of health law, wherever you get your podcasts. To learn more about ah , HLA and the educational resources available to the health law community, visit American health law.org.