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Federal Regulations Advisor Insight and Commentary on U.S. Government Regulatory Affairs

Monday Morning Regulatory Review – 8/27/12

Posted in Constitutional Issues in Regulations, Judicial Process, Judicial Review & Remedies, Regulatory Process

The Department of Health and Human Services (HHS) dominated last week.  The United States Court of Appeals for the District of Columbia Circuit affirmed the District Court in two cases of note:  upholding HHS’s revised embryonic stem cell research rules and striking down HHS’s tobacco packaging rules – which will be the subjects of future separate posts.  The District Court for the District of Columbia dismissed another challenge to the HHS Affordable Care Act preventative services / contraception rule.  In addition, the Office of Management and Budget (OMB) completed review on another HHS economically significant final rule on electronic health records.  Last week was not all HHS; the Securities and Exchange Commission (SEC) approved its “conflict minerals” rule.

Stem Cell Lines:  In Sherley v. Sebelius the court of appeals panel (with two concurrences) upheld HHS National Institute of Health funding guidelines that opened new lines of embryonic stem cells (ESCs) for research, finding, as did the district court, that HHS reasonably interpreted limitations imposed by its appropriations.  An Administrative Procedure Act (APA) point of contention focused on whether HHS failed to address specific comments on the proposed rule citing scientific and ethical problems with stem cell research and categorically objected to funding any ESC research at all.  That line of inquiry, the court found, was not substantively subject to comment because President Obama’s Executive Order 13505, expanding stem cell research, foreclosed it.  Separate concurring opinions focused on:

  1. the lack of delegation in the appropriation funding limitation, and
  2. the efficacy of Executive Orders consuming policy choices to make response to public comments unreviewable under the APA.

Tobacco Advertising & Packaging:  In R.J. Reynolds Tobacco Co. v. Food and Drug Administration (FDA), the court of appeals panel affirmed (over a dissent) the decision of the district court that FDA regulations imposing graphical advertising and packaging requirements on tobacco producers violated the companies’ Constitutional First Amendment rights not to enunciate the government’s favored substantive position.  The court of appeals was not unanimous on the level of scrutiny to apply to the complex First Amendment issues relating to commercial speech and governmental substantive imposition, reason alone for which this decision should be read.  Two sidebar administrative law highlights deserve future posts:

  1. the APA substantial evidence standard applied to a Regulatory Impact Analyses under Executive Order 12866, and
  2. the nature of APA judicial review before a United States District Court.

Preventive Care / Contraceptive Rule:  In another case seeking relief from the Affordable Care Act Preventative Services (contraceptives) Rule, the United States District Court for the District of Columbia dismissed the complaint in Wheaton College v. Sebelius.  The court found that Wheaton College lacked constitutional standing (i.e. injury in fact) and were not ripe for review in light of HHS’s announced enforcement “safe harbor” guidance posted on the internet (reiterated this month in light of the present litigation) and an advance notice of proposed rulemaking to consider application of the rule to religious institutions.  The court thus followed Belmont Abbey College and Nebraska ex rel. Bruning v. U.S. Dep’t of Health & Human Services, not the narrowly tailored Newland.  Some two dozen cases remain in the pipeline and much more activity should be expected, as noted here after Brunning and Newland.

Medicare/Medicaid Electronic Health Records:  OMB completed review of Medicare and Medicaid Electronic Health Record Incentive Program – Stage 2 economically significant final rule on August 23, 2012, consistent with required changes and the Federal Register is scheduled to publish it on September 4.  The rule provides more potential criteria that eligible professionals, eligible hospitals, and critical access hospitals must meet in order to qualify for Medicare and/or Medicaid electronic health record incentive payments (upside), and payment adjustments when they failed to demonstrate meaningful use of certified technology (downside).  HHS estimates the total Federal cost of the Medicare and Medicaid EHR Incentive Programs under the rule between 2014 and 2019 to be $15.4 billion.

SEC Conflict Minerals:  On August 22, 2012, the SEC, by a 3-2 vote, approved and released an innocuously named Disclosure of Payments by Resource Extraction Issuers final rule, to be effective 60 days after publication, with compliance required for fiscal years ending after September 30, 2013.  As Sarah Altschuller points out,

A draft rule was originally released in December 2010, and has been the subject of considerable debate regarding the expected costs of compliance as well as the efficacy of using disclosure requirements to address human rights concerns.

No political hot potato is free, and the SEC’s conclusion about the cost of the SEC’s “limited” “discretionary authority” under the Dodd-Frank Act in this reporting rule is stark:

After analyzing the comments and taking into account additional data and information, we believe it is likely that the total initial cost of compliance for all issuers is approximately $1 billion and the ongoing cost of compliance is between $200 million and $400 million.

The SEC’ s Paperwork Reduction Act analysis is no less jolting: approximately 1,101 responders may expect the total annual compliance burden to be approximately 332,123 hours of company personnel time and approximately $144,967,250 for the services of outside professionals.  The SEC Final Regulatory Flexibility Analysis estimates that 196 small entities will be affected; the SEC grants them no leniency in light of the Regulatory Flexibility Act (RFA).  Robert Wild and Andrew Halbert provide a good explanation of the substance.