[Federal Register Volume 84, Number 223 (Tuesday, November 19, 2019)]
[Rules and Regulations]
[Pages 63809-63811]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24384]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 75


Notification of Nonenforcement of Health and Human Services 
Grants Regulation

AGENCY: Office of the Secretary, HHS.

ACTION: Notification of exercise of enforcement discretion.

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SUMMARY: This notification is to inform the public that the U.S. 
Department of Health and Human Services (HHS) has determined that the 
rulemaking that resulted in the regulatory provisions promulgated on 
Dec. 12, 2016, regarding HHS's grant regulations, raises significant 
concerns about compliance with the Regulatory Flexibility Act. The 
provisions will not be enforced pending a repromulgation that complies 
with the Act.

DATES: November 19, 2019.

FOR FURTHER INFORMATION CONTACT: Richard Brundage at (202) 401-6107.

SUPPLEMENTARY INFORMATION: The Department of Health and Human Services 
has determined that the rulemaking which promulgated or amended 45 CFR 
75.101(f), 75.110(a), 75.300(c) and (d), 75.305(a), 75.365, 75.414(c) 
and (f), and 75.477, published at 81 FR 89393 (Dec. 12, 2016), raises 
significant concerns about compliance with the requirements of the 
Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq. The Department 
has accordingly determined to exercise its enforcement discretion not 
to enforce the regulations until they have been repromulgated with a 
proper RFA analysis.

I. Statutory Background

    The RFA generally requires that when an agency issues a proposed 
rule, or a final rule (after publishing a proposed rule) pursuant to 
section 553(b) of the APA or another law, the agency must prepare a 
regulatory flexibility analysis that meets the requirements of the RFA 
and publish such analysis in the Federal Register. 5 U.S.C. 603, 604. 
The RFA is a ``[p]urely procedural'' statute, but ``set[s] out precise, 
specific steps an agency must take.'' Nat'l Telephone Co-op Ass'n v. 
FCC, 563 F.3d 536, 540 (D.C. Cir. 2009) (internal quotation marks 
omitted). Specifically, the RFA normally requires agencies to describe 
the impact of a rulemaking on small entities by providing a regulatory 
impact analysis. Such analysis must address the consideration of 
regulatory options that would lessen the economic effect of the rule on 
small entities. The RFA defines a ``small entity'' as (1) a proprietary 
firm meeting the size standards of the Small Business Administration 
(SBA); \1\ (2) a nonprofit organization that is not dominant in its 
field; or (3) a small government jurisdiction with a population of less 
than 50,000. 5 U.S.C. 601(3)-(6).\2\ The requirement does not apply if 
the head of the agency ``certifies that the rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities.'' Id. section 605(b). The agency must, however, 
publish the certification in the Federal Register at the time of 
publication of the proposed or final rule, ``along with a statement 
providing the factual basis for such certification.'' Id. The RFA also 
requires the agency to provide the certification and the statement with 
the factual justification to the SBA Chief Counsel for Advocacy. Id.
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    \1\ Depending on the industry, SBA considers businesses to be 
small by virtue of having less than between $7.5 million and $38.5 
million in average annual revenue.
    \2\ The Department considers a rule to have a significant 
economic impact on a substantial number of small entities if at 
least 5% of small entities experience an impact of more than 3% of 
revenue.
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    If the agency head has not waived the requirements for a regulatory 
flexibility analysis in accordance with the RFA's waiver provision, and 
no other RFA exception applies, the agency must prepare the regulatory 
flexibility analysis and publish it in the Federal Register at the time 
of promulgation or, if the rule is promulgated in response to an 
emergency that makes timely compliance impracticable, within 180 days 
of publication of the final rule. 5 U.S.C. 604(a), 608(b).\3\ In 
addition, the RFA provides for judicial review of an agency's 
compliance with its provisions under some circumstances, which can 
result in a court ordering the agency to take corrective action by 
remanding the rule to the agency and deferring enforcement of the rule 
against small entities. Id. section 611(a)(4).
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    \3\ Section 608(b) provides that except as provided in section 
605(b), an agency head may not waive the requirements of section 604 
for final rules. An agency head may delay the completion of the 
requirements of section 604 of the title for a period of not more 
than one hundred and eighty days after the date of publication in 
the Federal Register of a final rule by publishing in the Federal 
Register, not later than such date of publication, a written 
finding, with reasons therefor, that the final rule is being 
promulgated in response to an emergency that makes timely compliance 
with the provisions of section 604 of the title impracticable. If 
the agency has not prepared a final regulatory analysis pursuant to 
section 604 of the title within one hundred and eighty days from the 
date of publication of the final rule, such rule shall lapse and 
have no effect. Such rule shall not be repromulgated until a final 
regulatory flexibility analysis has been completed by the agency. 5 
U.S.C. 608(b).
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II. Absence of RFA Analysis or Certification

    The rulemaking that promulgated and amended 45 CFR 75.101(f), 
75.110(a), 75.300(c) and (d), 75.305(a), 75.365, 75.414(c) and (f), and 
75.477, published at 81 FR 89393 (Dec. 12, 2016), raises significant 
concerns about compliance with the requirements of the RFA, 5 U.S.C. 
601 et seq. The Department neither performed the RFA analysis described 
in 5 U.S.C. 602-604, nor expressly certified that the rules ``will not 
. . . have a significant economic impact on a substantial number of 
small entities'' and provided a statement with the factual basis for 
such certification as provided for by section 605(b). See 81 FR 89393 
(Dec. 12, 2016). The rulemaking simply declared that it would ``not 
have a significant economic

[[Page 63810]]

impact beyond HHS's current regulations,'' without even mentioning 
small entities or grappling with the obvious interests of such entities 
that should have been protected by the RFA process. The Department is 
accordingly exercising its enforcement discretion and as such, these 
regulatory provisions will not be enforced, pending repromulgation.
    The Department failed to make the certification, and provide the 
factual statement, described by the statute.
    Where an agency engaged in notice and comment rulemaking pursuant 
to section 553 does not perform a RFA analysis, the head of the agency 
normally must certify that a rule will not have a significant impact on 
small entities, and the agency must ordinarily provide a statement that 
lays out the facts that support the certification. The agency's Federal 
Register publication must, thus, include a certification under section 
605(b) that discusses the impact of a rule on a substantial number of 
small entities and ``a statement providing the factual basis for such 
certification.'' While this is not a high bar, the Government must, at 
a minimum, show that it made a reasonable, good faith effort to 
consider at least some facts relevant to small entities impacted by the 
rule. Compare North Carolina Fisheries Ass'n, Inc. v. Daley, 16 F. 
Supp. 2d 647, 651-53 (E.D. Va. 1997) (finding that certification was 
noncompliant because it did not discuss any facts regarding the impact 
on small entities in the time period subject to the rule), with Nat. 
Women, Infants and Children Grocers Ass'n v. Food and Nutrition Serv., 
416 F. Supp. 2d 92, 108-09 (D.D.C. 2006) (holding that certification 
complied because it explained that the challenged rule applied to the 
states, which had varying market conditions), and Cactus Corner, LLC v. 
U.S. Dep't of Agric., 346 F. Supp. 2d 1075 (E.D. Cal. 2004) (finding 
that certification complied because it defined and discussed the small 
wholesalers impacted by the rule and made predictions about the likely 
impact of the rule).
    In the preamble to the December 12, 2016 final rules, the 
Department stated it had an obligation under the RFA to ``provide a 
final regulatory flexibility analysis or to certify that the rule[s] 
will not have a significant economic impact on a substantial number of 
small entities.'' 81 FR at 89394. It then listed a subset of the 
regulatory changes: Aligning the grants regulation at part 75 ``with 
various regulatory and statutory provisions,'' implementing Supreme 
Court decisions, and codifying long-standing policies. Without 
explaining whether or how these regulatory changes might apply to small 
entities, the Department simply concluded that, ``[i]n order to ensure 
that the public receives the most value, it is essential that HHS grant 
programs function as effectively and efficiently as possible, and that 
there is a high level of accountability to prevent waste, fraud, and 
abuse. The additions provide enhanced direction for the public and will 
not have a significant economic impact beyond HHS's current 
regulations.'' See 81 FR at 89394.\4\
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    \4\ The RFA discussion in the preamble to the proposed rule was 
virtually identical. See Health and Human Services Grants 
Regulation, 81 FR 45270, 45272 (July 13, 2016).
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    This statement in the Federal Register raises serious questions 
about compliance with the RFA's requirement that the agency head must 
certify that the rules will not have a significant economic effect on a 
substantial number of small entities. The statement fails to mention 
the economic impact on small entities in particular or to even 
acknowledge that the regulation would apply to small entities. 
Furthermore, there is nothing in the final rules that provides a 
factual basis for any inference that the rules would not have a 
significant economic impact on a substantial number of small entities. 
Indeed, if anything, there are indications that the rulemaking likely 
did have a significant economic impact on a substantial number of small 
entities. The absence of a factual basis for a required section 605 
certification, too, would be inconsistent with the requirements of the 
RFA. See 5 U.S.C. 605(b).
    The rules were not submitted to the SBA Chief Counsel for Advocacy.
    When a certification is required, the RFA further requires that the 
agency ``provide such certification and statement to the Chief Counsel 
for Advocacy of the Small Business Administration.'' 5 U.S.C. 605(b). 
The Chief Counsel for Advocacy of the SBA maintains records of the 
proposed and final rules submitted to it pursuant to the RFA. The 
Office of the Chief Counsel has informed the Department's General 
Counsel that it does not have a record of having received the rules 
pursuant to the RFA.
    The rules may have affected a significant number of small entities.
    The provisions in the final rules may have affected a significant 
number of small entities, which underscores why Congress prohibited 
agency heads from waiving the requirement to conduct an otherwise 
required regulatory impact analysis except in the narrow circumstance 
where an agency can provide the factual basis for a certification by 
the agency head that there is no significant economic impact on a 
substantial number of small entities.\5\ For example, Sec.  75.477(b) 
precludes a grantee from including as allowable costs those payments 
that it may make to the Internal Revenue Service in lieu of providing 
minimum essential coverage (MEC) to its employees. While nearly all 
large employers offer their employees MEC, in 2015, among companies 
with 50 to 199 employees, around 8 percent did not. The 8 percent 
equates to approximately 14,000 small businesses. See http://files.kff.org/attachment/report-2015-employer-health-benefits-survey at 
44; https://www.sba.gov/advocacy/firm-size-data (2014). Moreover, if an 
entity (including governmental or non-profit entities) with at least 50 
full-time employees failed to meet the MEC requirements, it could be 
assessed a penalty equal to the number of its full-time employees for 
the year (minus up to 30 employees) times $2,000 if at least one full-
time employee purchased health coverage with premium tax credits 
through the health insurance exchange. Any reasonable certification 
under section 605(b) necessarily would have had to reflect the 
potential impact on those 14,000 small businesses from this single 
provision.
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    \5\ Even in the case of an emergency, the agency must conduct a 
regulatory flexibility analysis. Congress simply gave the agency an 
additional 180 days to conduct the analysis in case of an emergency, 
underscoring how important Congress considered the regulatory 
flexibility analysis to be. See 5 U.S.C. 608(b).
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    A similar showing would have been sensible to perform with respect 
to the other regulatory provisions contained in the rulemaking that 
culminated in the December 12, 2016 final rules. Indeed, the data that 
existed at the time of the rulemaking revealed that various provisions 
could, in fact, affect a significant number of small entities. For 
example, Sec.  75.414(c) limits reimbursement for indirect costs on 
training grants to eight percent. The proposed rule (see 81 FR 45270 
(July 13, 2016)) indicated that the amendment to paragraph (c) 
reflected HHS's longstanding policy. However, under the Richardson 
Waiver (see 36 FR 2532 (Feb. 5, 1971)), such policy, absent rulemaking, 
is not binding. Thus, there was no valid, binding limit on 
reimbursement of indirect costs prior to the issuance of this rule, and 
no corresponding showing of the economic implications for small 
entities, including non-profits, of this new

[[Page 63811]]

limitation on overhead reimbursement. A proper RFA analysis likely 
should have considered the effect that moving from a nonbinding policy 
to binding rule would have on small entities. Cf. Am. Federation of 
Labor v. Chertoff, 552 F. Supp. 2d 999, 1013 (N.D. Cal. 2007) (noting 
``serious questions [about] whether DHS violated the RFA'' when it 
refused to conduct a final flexibility analysis about a rule that ``as 
good as mandates costly compliance with a new 90-day timeframe''). 
There was also no showing concerning Sec.  75.300(c) and (d), which may 
impose compliance costs on recipients by subjecting the recipients to 
conflicting statutory and non-statutory requirements.
    The regulatory provisions promulgated in the final rules will not 
be enforced pending rulemaking.
    As described above, unless waived pursuant to section 605(b), the 
RFA generally requires an agency to prepare a final regulatory 
flexibility analysis. See 5 U.S.C. 604(a), 611(a). The preparation of 
such analysis may be delayed by up to 180 days after the publication of 
the final rule in cases of emergency. See 5 U.S.C. 608(b). Moreover, 
flawed RFA analyses have been the basis for judicial review of 
rulemakings.
    Because the Department has serious concerns about whether the RFA 
analysis performed here complied with the RFA, the Department is 
announcing that it will not enforce the regulatory provisions, pending 
repromulgation of the Rule. The majority of the Department's grantees 
are small entities,\6\ and the RFA process undertaken with respect to 
this Rule raises significant concerns about whether their interests 
were protected in the manner the statute prescribes. Rather than apply 
a nonenforcement policy only to small entities, however, the Department 
is exercising its discretion to not enforce the rules with respect to 
any grantees until the rules have been properly re-promulgated with an 
impact analysis that hews to the requirements of the RFA. Applying 
these rules differently to agency grantees depending on size would be 
unfair, create increased compliance costs for all entities as they seek 
to determine whether they are or are not still subject to the rules, 
and impose additional administrative burdens on the Department 
disproportionate to the benefit of enforcement.
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    \6\ See, e.g., https://taggs.hhs.gov/ReportsGrants/GrantsByRecipClass.
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    Accordingly, the regulatory actions, promulgated through the 
December 12, 2016 final rules, 81 FR 89393, namely, the additions of 45 
CFR 75.101(f), 75.300(c) and (d), 75.414(c)(1)(i) through (iii), and 
75.477, and the amendments to 45 CFR 75.110(a), 75.305(a), 75.365, and 
75.414(f), will not be enforced pending repromulgation.\7\
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    \7\ Elsewhere in this issue of the Federal Register, the 
Department publishes a notice of proposed rulemaking to begin the 
process of repromulgating, as appropriate, these rules.

    Dated: November 1, 2019.
Eric D. Hargan,
Deputy Secretary, Department of Health and Human Services.
[FR Doc. 2019-24384 Filed 11-18-19; 8:45 am]
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