On January 25, 2017, Judge Amos Mazzant entered a preliminary injunction enjoining the Department of Health and Human Services (HHS) from implementing or enforcing an interim final rule that HHS adopted in December. The rule would have required end-stage renal disease (ESRD) facilities that make contributions to charitable organizations that in turn pay private insurance premiums for the patients of the facilities to 1) disclose certain information to their patients and 2) notify, and receive certain assurances of acceptance of premium contributions from, the insurers that cover them.

Judge Mazzant had earlier entered a temporary restraining order blocking the rule from going into effect temporarily, but the preliminary injunction blocks it effectively until the court enters a final order.

The decision is of interest both because of the issue it addressed and because of the reasoning on which the court based its decision, which could have implications for the Trump administration’s efforts to rapidly reverse Obama administration policies regarding the ACA. HHS adopted the rule as an interim final rule without going through the normal Administrative Procedures Act notice and comment rulemaking process: publishing a proposed rule, accepting comments, and then, after due consideration of those comments, publishing a final rule. HHS was reacting to loud complaints from insurers that third party payments for individual insurance coverage for ESRD patients was destabilizing marketplace insurance markets. The insurers claimed that the ESRD patients are eligible for Medicare or Medicaid coverage, but that the ESRD facilities and the charities they supported were enrolling the patients in private coverage because the private insurers paid much higher rates to the providers than did the public programs.

While HHS’ primary motivation in adopting the rule seems to have been the complaints of insurers, HHS justified the rule by claiming that it was necessary to protect ESRD patients from negative effects on their ability to get kidney transplants, from high cost-sharing, and from possible mid-year disruptions in care. Judge Mazzant concluded HHS had offered no support for these claims. He also held that the rule was causing large financial losses to dialysis facilities, was depriving ESRD patients of access to the providers of their choice, and was causing some of them to be uninsured. He concluded, therefore, that the requirements for a preliminary injunction were met and enjoined the enforcement of the rule.

Judge Mazzant’s Reasoning

As noted, the reasoning of the court on the legal issues in the case may be of even greater interest than the immediate effect of its ruling. HHS had issued a request for information in August seeking information on third-party payment practices but had not published a proposed rule. It had published the interim final rule with a comment period, but had not sought or considered comments before promulgating the rule.

Judge Mazzant observed that an agency may issue a rule without prior notice and comment for “good cause” when notice and comments would be “impractical, unnecessary, or contrary to the public interest.” HHS contended that it had good cause for waiving notice and comment procedures, but Judge Mazzant concluded that he did not have to give any deference to HHS’ conclusion. The good cause exception should be applied only when prior “announcement of a proposed rule would enable the sort of . . . manipulation the rule sought to present,” or in true emergencies, such as the situation that justified changed FAA rules adopted in the wake of the September 11 attacks.

A narrow construction of the good cause exception, the court held, is necessary “to avoid providing agencies with an ‘escape clause’ from the requirements Congress prescribed.” The court observed that notice and comment rulemaking “produces nuanced and detailed regulations, [which] greatly benefit from expert and regulated entity participation.” The court also held that HHS’ request for information did not provide adequate notice to the plaintiffs of the rulemaking being considered.

The court further held that, independent of the lack of notice and comment issue, the rule should be set aside under the Administrative Procedures Act as “arbitrary and capricious.” HHS had not considered, the court held, the problems its rule would cause for ESRD patients. Moreover, in adopting the interim final rule, HHS changed its position from long-standing HHS Office of Inspector General guidance concerning ESRD facility charitable donations. HHS did not provide a reasoned explanation as to why it was changing its position. Its rule was thus in violation of the APA.

What Judge Mazzant’s Reasoning Could Mean For The Trump Administration

The implications of the ruling are obvious. The Trump administration’s executive order on the Affordable Care Act strongly suggests that the new administration intends to rapidly alter Obama administration policies implementing the ACA. Most of those policies are established in federal rules and can only be changed through notice and comment rulemaking.

The agencies will have to give notice of their proposed changes, solicit comments, and carefully consider comments that they receive both supporting and opposing their proposals. They will have to give reasons why changes in policy are needed. If the Trump administration proceeds precipitously, ignoring the requirements of the APA (which the executive order instructed agencies to observe), it will likely find itself facing injunctions such as the one entered by Judge Mazzant.

Sections about Rand Paul’s Replacement Plan, Non-Discrimination Litigation, And New CBO Projections, originally published as part of this post were moved to an ACA Round-up here.