HHS Finalizes Unprecedented Regulatory Reform through Retrospective Review

Today, the Department of Health and Human Services issued a final rule* to further democratic values of accountability and transparency. Specifically, the Securing Updated and Necessary Statutory Evaluations Timely (SUNSET) rule requires the Department to assess its regulations every ten years to determine whether they are subject to review under the Regulatory Flexibility Act (RFA), which requires regular review of significant regulations. If a given regulation is subject to the RFA, the Department must review the regulation every ten years to determine whether the regulation is still needed and whether it is having appropriate impacts. Regulations will expire if the Department does not assess and, if required, review them in a timely manner.

“For decades, Presidents have said agencies should retrospectively review their regulations. With the SUNSET rule, HHS is actually doing it,” said HHS Secretary Alex Azar. “Finalizing our SUNSET rule will deliver for the American people better, smarter, less burdensome regulations in the years to come.”

“By terminating burdensome regulations unless their necessity is publicly demonstrated to the American people, our SUNSET rule will prove the boldest and most significant regulatory reform effort ever undertaken by the federal government,” said HHS Chief of Staff Brian Harrison.

Under the final rule, any regulation issued by HHS, with certain exceptions, will cease to be effective ten years after it is issued, unless HHS performs a plenary assessment of the regulation and a more detailed review of those regulations that have a significant economic impact upon a substantial number of small entities.

That is, all HHS regulations, with certain exceptions (detailed below) will be subject to a two-step review: 1) assessing whether they have a significant economic impact on a substantial number of small entities, the standard set out under the RFA; and, if it qualifies for review under the RFA, 2) a more detailed review that will consider, as prescribed in the RFA, (i) the continued need for the rule, (ii) complaints about it, (iii) the rule’s complexity, (iv) the extent to which it duplicates or conflicts with other rules, and (v) whether technological, economic, and legal changes favor amending or rescinding the rule.

Rules issued by an HHS component that are more than ten years old need to be reviewed within five calendar years of the effective date of this final rule, making the effective date of considerable substantive significance because it starts the clock for reviews.  By providing five calendar years from the effective date, rather than two as proposed, private entities have over five years to become accustomed to, and participate in, the review process.

Retrospective review of the costs and benefits of federal regulations has long been a goal of Presidents and regulatory experts across the political spectrum.

When agencies impose regulations, they make projections about the regulation’s impact on the public. Once a rule has been in place, agencies should test those projections and see what real-world impact the regulation is having, and amend or rescind if appropriate. This proposed rule would incentivize HHS to conduct these performance reviews of its regulations to ensure that rules are delivering the benefits projected in view of the best available science, data, and evidence. An artificial-intelligence-driven data analysis of HHS regulations found that 85 percent of Department regulations created before 1990 have not been edited.

Certain regulations are exempt: certain Food and Drug Administration (FDA) device-specific, food standard, and over-the-counter drug specific regulations; regulations that are jointly issued with other agencies, regulations that legally cannot be rescinded, and regulations issued with respect to a military or foreign affairs function or addressed solely to internal management or personnel matters (two categories exempt from standard rulemaking requirements under the Administrative Procedure Act). Regulations that affect the regulations of other agencies will be reviewed in conjunction with those agencies.

This rule seeks to increase transparency, public participation, and democratic accountability. As part of the review process, the public can submit comments on the impacts of regulations.

Further Background

What are the key differences between the proposed and final rule?

The final rule (1) extends from two years to five years the deadline for assessing and reviewing regulations that are more than 10 years old, (2) allows the Secretary to extend the review deadline one time per regulation by up to one year, (3) exempts certain device, food, and OTC drug-specific regulations, (4) exempts the annual Notice of Benefit and Payment Parameters update rules, (5) requires the Department to announce in the Federal Register (not just on the HHS website) each month which new assessments and reviews it has begun, and (6) allows the public to comment on assessments and reviews via the regular Regulations.gov procedures. 

What authority does HHS have for this regulation?

The statutory authorities are the statutory authorities for the department’s existing regulations.  HHS is simply amending its regulations to add expiration dates unless the department periodically conducts the required assessment or review of its regulations or an exception applies. 

How will the public be able to comment on the many different regulations affected by this regulation?

When HHS begins assessments or reviews of regulations, the public can comment on those assessments and reviews on Regulations.gov via the normal public comment process. 

HHS will create dockets on Regulations.gov for each regulation being assessed or reviewed. The public can comment on those dockets, or comment on a general docket if it wants to remind the agency to begin a review.

To further increase transparency and aid the public, HHS is also creating a website that lists its regulations and when they were first enacted.

What historical precedent is there for this rule?

Every President since Jimmy Carter has made efforts toward periodic retrospective reviews of regulations.

• President Carter: Executive Order No. 12044, in 1978, directed agencies to “periodically review their existing regulations,” requiring agencies to consider, among other things, whether “technology, economic conditions or other factors have changed in the area affected by the regulation.”
• President Reagan: Executive Order 12291, in 1981, ordered agencies to “review existing regulations” in view of cost-benefit principles and potential alternatives. Executive Order 12498, in 1985, ordered agencies to create an annual plan of review for existing regulations.
• President George H.W. Bush: The 1992 “Memorandum on Reducing the Burden of Government Regulation” instructed agencies to conduct a 90-day review “to evaluate existing regulations and programs and to identify and accelerate action on initiatives that will eliminate any unnecessary regulatory burden or otherwise promote economic growth.”
• President Clinton: Executive Order No. 12866 called for review of existing regulations to determine whether they have become “unjustified or unnecessary as a result of changed circumstances,” and “to confirm that regulations are both compatible with each other and [are] not duplicative or inappropriately burdensome in the aggregate” and requiring agencies to submit a plan to the White House Office of Information and Regulatory Affairs (OIRA) for period reviews.
• President George W. Bush: A report to Congress in 2001 reviewed how to assess the costs and benefits of existing federal regulations, including their aggregate costs.
• President Obama: Executive Order No. 13563 ordered agencies “[t]o facilitate the periodic review of existing significant regulations…to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.”

What policy reasons are there for retrospective review of regulations?

Across the political spectrum, experts have recognized the tremendous benefits from retrospective review.   

Cass Sunstein, President Obama’s OIRA administrator, has praised the value of retrospective. Professor Sunstein has written that “if it is firmly institutionalized, the requirement of retrospective analysis might well count as the most important structural change in regulatory policy since the original requirement of prospective analysis during the Reagan Administration.” Michael Greenstone, former chief economist on the Council of Economic Advisers under President Obama, has written, “[t]he single greatest problem with the current [cost-benefit analysis] system is that most regulations are subject to a cost-benefit analysis only in advance of their implementation. … This is the point when the least is known and any analysis must rest on many unverifiable and potentially controversial assumptions.”

Douglas Holtz-Eakin, former director of the Congressional Budget Office and staff economist on the Council of Economic Advisers under President George H.W. Bush, has said that “there needs to be a formal and systematic retrospective review of existing rules in order to, on a regular basis, answer the question, is this regulation still a good idea?”

The Organization for Economic Cooperation and Development has recommended that countries not only undertake retrospective review, but also consider the use of sunset clauses to incentivize it. Other countries and numerous states have also implemented retrospective review of regulations.

Despite widespread agreement that retrospective review yields tremendous benefits, HHS has not reviewed many significant regulations. This proposed rule would incentivize the Department to perform these reviews.

What are some examples of outdated regulations?

An artificial-intelligence-driven data analysis of HHS regulations found that 85 percent of Department regulations created before 1990 have not been edited; the Department has nearly 300 broken citation references in the Code of Federal Regulations (CFR), meaning CFR sections that reference other CFR sections that no longer exist; more than 50 instances of regulatory requirements to submit paper documents in triplicate or quadruplicate; and 114 parts in the CFR with no regulatory entity listed, 17 of which may be misplaced.

During the pandemic, HHS has suspended numerous regulations based on the judgment that they impose unnecessary costs impeding the response. Under this rule, these rules would have to be regularly reviewed to determine whether they make sense in ordinary times, too. Examples of these regulations include the types of communications technologies that are HIPAA-compliant and available for use in telemedicine; restrictions around the practice of medicine across state lines; and regulations on benefits and support hospitals can provide to their medical staffs, such as meals, laundry service for personal clothing, or child care, while staff are at the hospital and engaging in activities that benefit the hospital and its patients.

Some elements of HHS have conducted substantial and successful retrospective reviews under the Trump Administration. For instance, the Centers for Medicare & Medicaid Services has reduced the number of Medicare quality measures physicians are required to report by 18 percent since 2017 by eliminating measures where results were “topped out,” duplicative, or not meaningful enough to justify the cost.

What happens if a regulation is not reviewed within the timeframe required?

It expires. If the agency publishes a review concluding that a regulation should be rescinded or amended, the agency will have two years to rescind or amend the rule. When the review determines that a regulation should be amended or rescinded, the Department would also, on a case-by-case basis as appropriate, use enforcement discretion to not enforce the regulation or a portion of the regulation until it is amended or rescinded. Additionally, the Secretary may extend the review deadline one time per regulation by up to one year if required in the public interest.

Will this rule cut federal regulations?

The goal of the rule is to ensure that regulations benefit the American people as intended. In some cases—the plurality of cases, in one OMB sample—the projected benefits of a regulation may be overstated. Retrospective review provides powerful ways to understand costs and benefits, as well as to assess cumulative costs from multiple regulations that may be difficult for regulators to anticipate in advance.

The Trump Administration and HHS leadership are committed to ending federal regulations that fail to deliver benefits to the American people in the least burdensome way possible and at minimum cost. At the same time, as demonstrated by efforts in areas like price transparency, HHS is committed to regulations that facilitate patient-centered markets to deliver more choice, better care, and lower costs, and to regulations that protect lives and promote independence.

Retrospective review helps determine whether those goals are being accomplished and whether regulations intended to accomplish them should be maintained, amended, or rescinded.

Why take this action now, while much of the administration and HHS are engaged in fighting COVID-19?

While many HHS employees are focusing on the COVID-19 response full- or part-time, the Department has also been able to continue moving forward on a range of priorities to enhance and protect the health and well-being of the American people.

Moreover, the first reviews are not due until 2026, which is expected to be long after the pandemic has subsided. 

For over 40 years, Presidents and Congress have been calling for retrospective review. HHS believes it is long overdue to begin implementing this intent. In May 2020, the President issued Executive Order 13924, directing all agencies to examine opportunities for regulatory reform to support the economic recovery from the recession caused by COVID-19. President Obama’s Executive Order No. 13610 similarly provided that retrospective review has particular relevance “[d]uring challenging economic times.”

Will reviewing regulations create unnecessary or impractical burdens on HHS agencies?

No. The rule explains how HHS can perform the required assessments and reviews at little cost. Agencies such as the Centers for Medicare & Medicaid Services already update significant amounts of regulations each year, including through annual payment rules. The Department estimates investing approximately $10 to $26 million in this effort over ten years.  HHS’ annual budget is more than $1 trillion.”

Why require review of all regulations, rather than just the regulations considered significant under the RFA?

This rule follows in the footsteps of the RFA. Without performing an initial assessment, the Department cannot know which regulations have or will have a significant economic impact upon a substantial number of small entities. Prospective analyses are imperfect and circumstances sometimes change.

Why use a sunset provision rather than some other incentive?

It is widely recognized that strong incentives are needed to institutionalize retrospective review.  For 40 years, other attempts short of a sunset provision have been largely unsuccessful at getting agencies to perform retrospective reviews.

A report by the Congressional Research Service concluded that, “[w]ithout some type of enforcement of the review requirement, agencies are unlikely to conduct many more reviews than have occurred pursuant to Section 610.” One analysis of regulation in all 50 states found that, for promoting active regulatory reform, “[t]he single most important policy in a state is the presence of a sunset provision.” New Jersey and Indiana, for instance, impose a seven-year sunset provision on regulations; North Carolina uses a ten-year period. Foreign nations such as the United Kingdom, Germany, France, and the Republic of Korea have also used sunset provisions.

Has HHS undertaken such reviews of its regulations before?

In addition to the regulatory reviews that have led to reforms under the Trump Administration, such as CMS’s Meaningful Measures Initiative and finalized changes to 42 C.F.R. Part 2, the Obama Administration undertook regular limited reviews of some HHS regulations in response to Executive Order 13563.

Why is HHS publishing this rule now?

The Department has been working for a long time to determine ways to better institutionalize retrospective review. After receiving public comments on the proposed rule, HHS has decided to finalize it with some amendments based on the comments.

How many regulations will the rule initially apply to during the five-year window? Would the proposed rule apply to every regulation issued by any HHS entity that is 10 years or older—except the regulations already identified as exempted? If so, how many is that?

Rules issued by an HHS component that are more than ten years old would need to be reviewed within five years. The rule explains how this can be done and the resources required for this effort.

Won’t the constant review of regulations create uncertainty for those subject to the regulations (which is often cited as a cost of regulation itself)?

Many States and other countries have versions of sunset rules, and they have not created uncertainty or wreaked havoc. To the contrary, they are an effective form of “spring cleaning.”  First, through public notices, the public will (a) be apprised of which rules are under review and, by extension, rules subject to expiration; (b) be allowed the opportunity to comment on the same; and (c) be able remind HHS to assess or review any rules that might be nearing expiration. HHS plans to set up a dashboard showing its progress on the reviews. Second, to the extent the Department revises or modifies a regulation after conducting an assessment or review under the proposed rule, then HHS would take reliance interests into account at that time.

Is this being done to hurt the next administration?

No. Regulatory experts across the spectrum have long called for institutionalizing retrospective review. Moreover, the first reviews are not due for five years, to allow the agency ample time to do them robustly.

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