TITLE: B-316048, Applicability of the Congressional Review Act to Letter on State Children's Health Insurance Program, April 17, 2008
BNUMBER: B-316048
DATE: April 17, 2008
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B-316048, Applicability of the Congressional Review Act to Letter on State Children's Health Insurance Program, April 17, 2008
B-316048
April 17, 2008
The Honorable John D. Rockefeller, IV
Chairman
Subcommittee on Health Care
Committee on Finance
United States Senate
The Honorable Olympia Snowe
Committee on Finance
United States Senate
Subject: Applicability of the Congressional Review Act to Letter on State
Children's Health Insurance Program
By letter of February 13, 2008, you asked whether an August 17, 2007
letter issued by the Centers for Medicare & Medicaid Services (CMS) to
state health officials concerning the State Children's Health Insurance
Program is a rule for the purpose of section 251 of the Contract with
America Advancement Act of 1996,[1] commonly referred to as the
Congressional Review Act (the Review Act). The Review Act is intended to
keep Congress informed of the rulemaking activities of federal agencies
and provides that before a rule can take effect, the agency must submit
the rule to each House of Congress and the Comptroller General.[2] For the
reasons discussed below and more fully explained in the enclosure, we
conclude that the August 17, 2007 letter is a rule under the Review Act.
Therefore, it must be submitted to Congress and the Comptroller General
before it can take effect.
BACKGROUND
The State Children's Health Insurance Program (SCHIP) finances health care
to low-income, uninsured children whose family incomes exceed the eligibility
limits under their state's Medicaid program, but who cannot afford other
health insurance coverage.[3] To participate in SCHIP, a state must submit
a plan that describes how its program meets applicable requirements and
must receive approval of the plan from CMS.[4] States are required to
amend their plans to reflect changes in federal law, regulation, or
policy, and changes in the operation of their programs, including, for
example, changes in eligibility criteria or benefits. [5]
As required by law, a state plan must describe the procedures used to
ensure that coverage under the plan does not substitute for coverage under
group health plans, generally referred to as "crowd out."[6] Regulations
promulgated by CMS require states to adopt "reasonable procedures" to
prevent crowd out.[7] Since CMS promulgated the regulations in 2001,
states have adopted a number of different measures to prevent crowd out,
which CMS has approved.
In its August 17 letter, CMS purports to clarify the statutory and
regulatory requirements concerning prevention of crowd out for states
wishing to provide SCHIP coverage to children with effective family
incomes in excess of 250 percent of the federal poverty level (FPL) and
identifies a number of particular measures that these states should adopt.
The letter indicates that CMS will apply the measures to states' proposals
to cover such children, as well as to states that already cover them.
According to the letter, CMS may take corrective action against states
that fail to adopt the identified measures within 12 months.
SUMMARY OF ANALYSIS
The definition of "rule" in the Review Act incorporates by reference the
definition of "rule" in the Administrative Procedure Act (APA), with some
exceptions. Our analysis of whether the August 17 letter is a rule under
the Review Act thus entails determining whether the letter is a rule under
the APA and whether it falls within any of the exceptions contained in the
Review Act. [8] The APA definition of rule has been said to include
"nearly every statement an agency may make."[9] It includes three elements
that are relevant here: an agency statement is a rule if it is of general
applicability; of future effect; and designed to implement, interpret, or
prescribe law or policy.
On its face, the August 17 letter meets these criteria. The letter is of
general, rather than particular, applicability since it extends to all
states that seek to enroll children with effective family incomes
exceeding 250 percent of the FPL in their SCHIP programs, as well as to
all states that have already enrolled such children.[10] In addition, it
is prospective in nature since it is concerned with policy considerations
for the future rather than the evaluation of past or present conduct.[11]
Finally, it purports to clarify and explain the manner in which CMS
applies statutory and regulatory requirements to states that want to
extend coverage under their SCHIP programs to children with effective
family incomes above 250 percent of the FPL and seeks to promote the
implementation of statutory requirements applicable to state plans.
Accordingly, it is designed to implement, interpret, or prescribe law or
policy.[12]
The history of the regulatory provision regarding substitution of coverage
discussed in the letter lends support to our view that the letter is a
rule. In the preamble to the proposed rule to implement SCHIP, CMS
indicated that it could not require states to adopt any particular
measures as part of the effort to prevent substitution of coverage,
stating that it did not have a statutory or empirical basis for doing
so.[13] CMS confirmed this interpretation in a final rule. [14] In its
August 17 letter, however, CMS states that its experience and information
derived from the operation of SCHIP programs have made it clear that the
potential for substitution is greater at higher income levels, and states
seeking to expand their SCHIP populations should implement specific
strategies as "reasonable procedures" to prevent substitution of coverage
(for example, a minimum 1-year period of uninsurance before receiving
SCHIP coverage). Thus, the letter amounts to a marked departure from the
agency's settled interpretation of the governing regulation, and case law
indicates that such a change may be made only by a rule.[15] Moreover, the
agency expressly relied on the letter to disapprove a request from the
state of New York to amend its SCHIP plan to cover children with family
incomes up to 400 percent of the FPL. The application of the letter to
deny New York's proposed plan amendment only serves to confirm that the
letter has binding effect and is, therefore, a rule.[16]
By letter of February 20, 2008, we requested the views of the General
Counsel of the Department of Health and Human Services on whether the
August 17 letter is a rule for purposes of the Review Act.[17] The
response from the Director of the Center for Medicaid and State Operations
within CMS did not directly address that issue. CMS indicated, however,
that the letter is a "general statement of policy that announces the
course which the agency intends to follow in adjudications concerning
compliance with requirements already set forth in regulations."
As a conceptual matter, general statements of policy would appear to fit
squarely within the definition of rule in the APA since they advise the
public prospectively of the manner in which an agency proposes to exercise
a discretionary power or what the agency will propose as policy,[18] and,
in fact, courts have referred to them as rules.[19] While some cases seem
to suggest that general statements of policy are not rules under the
APA,[20] the better reading of these cases, in our opinion, is that
statements of policy are not the type of rules for which the APA requires
notice and comment procedures because they are tentative statements of
future intent and by their nature do not have the force of law. Further,
even if these cases are read to mean that general statements of policy are
not rules under the APA, the August 17 letter does not have the
characteristics of a general statement of policy identified in case law.
Because the letter establishes a deadline by which "affected States" need
to implement its measures or face the possibility of a corrective action
by the agency, the letter evidences little, if any, of the tentativeness
that is the hallmark of a policy statement.[21] Finally, as noted above,
the agency has relied on the letter to disapprove a state plan amendment,
treating the letter as if it were a binding rule.
CONCLUSION
The August 17 letter from CMS to state health officials is a statement of
general applicability and future effect designed to implement, interpret,
or prescribe law or policy with regard to SCHIP. Accordingly, it is a rule
under the Congressional Review Act. Therefore, before it can take effect,
it must be submitted to Congress and the Comptroller General.
If you have any questions concerning this opinion, please contact Dayna K.
Shah, Managing Associate General Counsel, at (202) 512-8208; Helen T.
Desaulniers, Assistant General Counsel, at (202) 512-4740; or Kevin C.
Milne, Deputy Assistant General Counsel, at (202) 512-4586.
Gary L. Kepplinger
General Counsel
Enclosure
cc: James Stansel, Esq.
Acting General Counsel
Department of Health and Human Services
Janice Hoffman, Esq.
Associate General Counsel
Centers for Medicare & Medicaid Services Division
Department of Health and Human Services
Herb Kuhn
Acting Director
Center for Medicaid and State Operations
Centers for Medicare & Medicaid Services
Department of Health and Human Services
Jennifer Luong
Counselor on Oversight to the Assistant Secretary
Office of the Assistant Secretary for Legislation
Department of Health and Human Services
B-316048 ENCLOSURE
Applicability of the Congressional Review Act to Letter on
State Children's Health Insurance Program
The Centers for Medicare and Medicaid Services (CMS) issued a letter dated
August 17, 2007 to certain state agencies concerning the State Children's
Health Insurance Program. For the reasons discussed below, we conclude
that the August 17 letter is a "rule" for the purpose of section 251 of
the Contract with America Advancement Act of 1996,[22] commonly referred
to as the Congressional Review Act (the Review Act). Therefore, in
accordance with the Review Act, the letter must be submitted to Congress
and the Comptroller General before it can take effect.
BACKGROUND
The State Children's Health Insurance Program
The State Children's Health Insurance Program (SCHIP), created in 1997,
finances health care to low-income, uninsured children whose family
incomes exceed the eligibility limits under their state's Medicaid
program, but who cannot afford other health insurance coverage.[23] Like
Medicaid, SCHIP is financed jointly by contributions from the federal
government and the states. Under Medicaid, the federal government matches
a portion of each state's Medicaid expenditures according to a matching
rate that is based in part on the state's per capita income relative to
the national average.[24] Under SCHIP, the federal government also matches
a state's SCHIP expenditures, but at a rate that is generally higher than
the Medicaid matching rate.[25]
To participate in SCHIP, a state must submit a state plan and must receive
approval of the plan from CMS.[26] A state plan is a comprehensive written
description of the operation of the state's SCHIP program, including
eligibility standards and benefits provided, in sufficient detail for CMS
to determine whether the plan meets applicable requirements.[27] The plan
also assures CMS that the state will administer its program in accordance
with those requirements.[28] Regulations require states to amend their
state plans whenever necessary to reflect changes in federal law,
regulations, policy interpretations, or court decisions, as well as
changes in the operation of their programs, including, for example,
changes in eligibility criteria or benefits. [29]
States have considerable flexibility under SCHIP in structuring their
programs. They may expand their existing Medicaid programs to provide
coverage to children who are eligible under SCHIP. Alternatively, they may
implement separate child health programs. In addition, a state may have a
combination of both a separate child health program and a Medicaid
expansion.[30]
State SCHIP programs are subject to a number of statutory provisions that
are designed to ensure that SCHIP coverage does not become a substitute
for other public or private coverage. For example, section 2102(b)(3)(C)
of the Social Security Act requires that a state plan include a
description of the procedures used to ensure that state SCHIP coverage
does not substitute for health insurance coverage under group health
plans.[31] Under section 2102(c)(2) of the Social Security Act, states
also must describe in their plans the procedures used to coordinate their
SCHIP programs with other public and private programs.[32]
CMS has promulgated regulations designed to implement the statutory
provisions to prevent substitution of coverage.[33] Among the regulations
promulgated, section 457.805 of title 42, Code of Federal Regulations,
requires that a state plan include a description of "reasonable
procedures" to ensure that coverage provided under the state plan does not
substitute for coverage provided under group health plans, referred to as
"crowd out" provisions. Over time, states have proposed, and CMS has
approved, a number of different measures to prevent substitution of
coverage.
The August 17, 2007 Letter
On August 17, 2007, CMS issued a letter to state health officials (SHO
#07-001) for the stated purpose of clarifying how CMS "applies existing
statutory and regulatory requirements" for states that want to extend
coverage under their SCHIP programs to children in families with effective
family incomes above 250 percent of the federal poverty level (FPL).
Specifically, the letter indicates that it is "clarifying that the
reasonable procedures adopted by States to prevent crowd-out pursuant to
42 C.F.R. 457.805 should include . . . five general crowd-out strategies
with certain important components." The five crowd out strategies
identified in the letter are:
1. imposing waiting periods between dropping private coverage and
enrollment in SCHIP;
2. imposing cost sharing in approximation to the cost of private
coverage;
3. monitoring health insurance status at the time of application;
4. verifying family insurance status through insurance databases; and
5. preventing employers from changing dependent coverage policies that
would favor a shift to public coverage.
In addition, the letter indicates that CMS "will expect" that these states
incorporate the following components into their strategies to prevent
substitution of coverage:
1. the cost sharing requirement under the state plan compared to the
cost sharing required by competing private plans must not be more
favorable to the public plan by more than 1 percent of the family
income, unless the public plan's cost sharing is set at the 5 percent
family cap;
2. the state must establish a minimum of a 1-year period of uninsurance
for individuals prior to receiving coverage; and
3. monitoring and verification must include information regarding
coverage provided by a noncustodial parent.
The letter also indicates that CMS will seek a number of assurances from
states, including an assurance that the state has enrolled at least 95
percent of the children in the state with family incomes below 200 percent
of the FPL who are eligible for SCHIP or Medicaid.
According to the August 17 letter, CMS will expect states that seek to
amend their SCHIP state plans and section 1115 demonstrations[34] to cover
children with effective family incomes above 250 percent of the FPL to
include these specific measures. Furthermore, the letter indicates that
CMS will apply the "review strategy" described in the letter to instances
in which SCHIP plans and section 1115 programs already include these
children. The letter indicates that states will be expected to amend their
SCHIP plans or section 1115 demonstration programs in accordance with the
provisions of the review strategy within 12 months or CMS "may pursue
corrective action."
DISCUSSION
The Review Act is intended to keep Congress informed about the rulemaking
activities of federal agencies and to allow for congressional review of
rules.[35] The Review Act provides that before a rule can take effect, the
agency promulgating the rule must submit to each House of Congress and the
Comptroller General a report containing a copy of the rule; a concise
general statement concerning the rule, including whether it is a major
rule; and the proposed effective date of the rule.[36] Among other things,
the Review Act sets forth a procedure for congressional disapproval of
agency rules, specifically a joint resolution of disapproval effective
upon signature by the President. The Review Act provides that no
determination, finding, action, or omission under the Review Act shall be
subject to judicial review.[37]
The definition of the term "rule" in the Review Act incorporates by
reference the definition in the Administrative Procedure Act (APA), with
some exceptions. Our analysis of whether the August 17 letter is a rule
under the Review Act thus entails determining whether it is a rule under
the APA and whether it falls within any of the exceptions contained in the
Review Act.[38] The APA definition of rule has been said to include
"nearly every statement an agency may make."[39] This definition is as
follows:
[T]he whole or a part of an agency statement of general or particular
applicability and future effect designed to implement, interpret, or
prescribe law or policy or describing the organization, procedure, or
practice requirements of an agency and includes the approval or
prescription for the future of rates, wages, corporate or financial
structures or reorganizations thereof, prices, facilities, appliances,
services or allowances therefor or of valuations, costs, or accounting,
or practices bearing on any of the foregoing[.][40]
Agency statements that create binding legal norms--those that, for
example, grant rights, impose obligations, or affect private
interests--are rules under the APA.[41] These rules--usually called
legislative rules--generally must be promulgated through notice and
comment rulemaking procedures under 5 U.S.C. sect. 553. Courts have found
that other agency pronouncements also are rules as defined in 5 U.S.C.
sect. 551, even if they do not create binding legal norms and are not
subject to notice and comment rulemaking requirements under section 553.
For example, agency guidance documents and manuals have been held to be
rules.[42] Agency documents that clarify or explain existing legal
requirements also have been held to be rules.[43] Whether a particular
agency pronouncement is a rule under section 551, therefore, does not turn
on whether the rule is subject to notice and comment rulemaking
requirements under section 553.
Legislative history of the Review Act confirms that the Review Act is
intended to include within its purview almost all rules that an agency
issues and is not limited to those rules that must be promulgated
according to the notice and comment requirements in section 553 of the
APA. In his floor statement during final consideration of the bill,
Representative McIntosh, a principal sponsor of the legislation, pointed
out that rules subject to congressional review are not just those rules
subject to APA notice and comment requirements:
Although agency interpretive rules, general statements of policy,
guideline documents, and agency policy and procedure manuals may not be
subject to the notice and comment provisions of section 553(c) of title
5, United States Code, these types of documents are covered under the
congressional review provisions of the new chapter 8 of title 5.
Under section 801(a), covered rules, with very few exceptions, may not
go into effect until the relevant agency submits a copy of the rule and
an accompanying report to both Houses of Congress. Interpretive rules,
general statements of policy, and analogous agency policy guidelines are
covered without qualification because they meet the definition of a
`rule' borrowed from section 551 of title 5, and are not excluded from
the definition of a rule.[44]
Our prior opinions on the status of agency pronouncements under the Review
Act reflect the breadth of the term "rule," applying a definition of the
term that reaches pronouncements beyond those that require notice and
comment rulemaking.[45]
The APA definition of rule includes three elements relevant to our
consideration of whether the August 17 letter is a rule: an agency
statement is a rule if it is of general applicability; of future effect;
and designed to implement, interpret, or prescribe law or policy. An
examination of the text of the letter itself indicates that it meets these
criteria. The letter is of general, rather than particular, applicability
since it extends to all states that seek to enroll children with effective
family incomes exceeding 250 percent of the FPL in their SCHIP programs,
as well as to all states that have already enrolled such children.[46] In
addition, it is of future effect since it concerns policy considerations
for the future rather than the evaluation of past and present conduct.[47]
Further, by its own terms, the letter purports to clarify and explain
statutory and regulatory requirements. The very first sentence explains
that the letter "clarifies how [CMS] applies existing statutory and
regulatory requirements" with regard to requests from states to extend
coverage under SCHIP to children with effective family incomes above 250
percent of the FPL. The letter also purports to explain the requirements
under 42 C.F.R. sect. 457.805 regarding state efforts to prevent
substitution of coverage and the measures that states seeking to cover
these populations should take to prevent substitution of coverage. In
addition, the letter indicates that the requested assurances help ensure
the coordination of SCHIP coverage with other coverage, thus indicating
that the assurances promote the implementation of one of the statutory
objectives for state plans.[48] In particular, it indicates that states
that already have included coverage under their SCHIP programs for
children with effective family incomes above 250 percent of the FPL are
expected to adjust their state plans accordingly. Because the letter
purports to provide an explanation of statutory and regulatory
requirements and to explain how the provisions adopted effectuate both
legal requirements and policy choices attendant to administration of
SCHIP, the document on its face is designed to implement, interpret, or
prescribe law or policy within the meaning of section 551(4) of the APA.
The history of 42 C.F.R. sect. 457.805, the regulation that the August 17
letter purports to clarify, supports our view that the letter is a rule.
In the preamble to the proposed rule to implement SCHIP, CMS considered
whether to require states to adopt a set of particular measures to prevent
substitution of coverage and expressly declined to impose such a
requirement. CMS concluded that, based on its interpretation of the
governing statute and evidence, it did not have a basis upon which to
require such measures. CMS explained its position as follows:
The other option that we considered was to require a set of specific
procedures that each State would have to use to address substitution [of
coverage]. We rejected this option because the statute authorizes States
to design approaches to prevent substitution, not the Federal
government. We also recognized that there is not substantial evidence
favoring any specific approach to reduce the potential for
substitution.[49]
CMS confirmed this interpretation in a final rule.[50] The August 17
letter, however, explains that CMS's experience and information derived
from the operation of SCHIP programs have made it clear that the potential
for substitution is greater at higher income levels. The letter further
states that CMS will expect states to undertake five specific measures,
include three components as part of those measures, and make three
additional assurances in order to cover children with effective family
incomes above 250 percent of the FPL under SCHIP. In this respect, the
letter amounts to a marked departure from the agency's interpretation of
the regulation regarding substitution of coverage in the preambles to the
proposed and final rules. Accordingly, because of this new regulatory
interpretation and because an agency may only change a settled
interpretation of its own rules through the promulgation of an amending
rule, the letter serves the same purpose as a rule.[51]
CMS's application of the August 17 letter only serves to confirm that the
letter has binding effect and is, therefore, a rule. In April 2007, the
state of New York requested permission from CMS to amend its SCHIP plan to
provide coverage to children with family incomes up to 400 percent of the
FPL. CMS expressly relied on the August 17 letter to deny the request. In
a letter dated September 7, 2007 to the state of New York, CMS stated, in
part, the following:
New York has not demonstrated that its program operates in an effective
and efficient manner with respect to the core population of targeted
low-income children. Specifically, it has failed to provide assurances
that the State has enrolled at least 95 percent of the children in the
core targeted low-income child population, those with family incomes
below 200 percent of the FPL. As outlined in an August 17, 2007, letter
to State Health Officials, such assurances are necessary to ensure that
expansion to higher income populations does not interfere with the
effective and efficient provision of child health assistance.
In explaining the applicable requirements under 42 C.F.R. sect. 457.805,
CMS went on to state additional grounds for its denial of New York's
request to amend its SCHIP plan:
At the high proposed family income eligibility levels, reasonable
procedures [to prevent substitution of coverage] should include a full
range of procedures to discourage substitution. New York's proposal does
not include procedures to prevent such substitution that include a
1-year period of uninsurance for populations over 250 percent of the
FPL. Additionally, New York's proposed cost sharing has not met the
requirement that cost sharing under the State plan compared to cost
sharing required by competing private plans not be more favorable to the
public plan by more than 1 percent of the family income, nor has the
State proposed to set its cost sharing at the 5 percent family cap. . .
.
For these reasons . . . I am unable to approve this [State Plan
Amendment] for expanding coverage. This disapproval is consistent with
the August 17, 2007 letter to State Health Officials discussing how
these existing statutory and regulatory requirements should be applied
to all States expanding SCHIP effective eligibility levels above 250
percent of the FPL.
CMS's action demonstrates that the letter represents the agency's decision
to bind itself to the application of the letter's terms and to give the
letter present and binding effect.[52]
By letter of February 20, 2008, we requested the views of the General
Counsel of the Department of Health and Human Services (HHS) on whether
the August 17 letter is a rule for purposes of the Review Act.[53] The
written response from the Director of the Center for Medicaid and State
Operations within CMS did not address this issue. The response stated that
it would be inappropriate to address legal issues related to the August 17
letter because the letter is the subject of a number of lawsuits.[54]
Nevertheless, CMS indicated that the August 17 letter is a "general
statement of policy that announces the course which the agency intends to
follow in adjudications concerning compliance with requirements already
set forth in regulations." The agency also referred us to a document
prepared by the Department of Justice, which asserted that the August 17
letter was a general statement of policy.
The agency's characterization of the August 17 letter as a general
statement of policy raises one issue relevant to our consideration:
whether a general statement of policy is a rule under section 551(4) of
the APA.[55] The term "general statements of policy" is not defined in the
APA or in its legislative history. The Attorney General's Manual on the
Administrative Procedure Act, which the United States Supreme Court has
frequently referred to as an authoritative source for interpreting
provisions of the APA,[56] defines the term as "statements issued by an
agency to advise the public prospectively of the manner in which the
agency proposes to exercise a discretionary power."[57] A statement of
policy, therefore, as the U.S. Court of Appeals for the District of
Columbia Circuit has stated, announces the agency's tentative intentions
for the future, and "what the agency seeks to establish as policy."[58] In
this way, the general statement of policy serves a number of useful
functions, including the facilitation of long range planning within the
regulated industry and the promotion of uniformity in areas of national
concern.[59]
Section 551(4) includes within the meaning of rule a statement of general
or particular applicability and future effect designed to implement,
interpret, or prescribe law or policy. As a device that provides
information on the manner in which an agency will exercise its authority
or what the agency will seek to propose as policy, a general statement of
policy would appear to fit squarely within this category. Further, in
discussing policy statements under the APA, courts have referred to them
as rules.[60]
Nevertheless, some court decisions seem to suggest that general statements
of policy are not rules under the APA, which would raise, of course, the
question whether they are rules under the Review Act.[61] The holdings of
these cases did not address whether the agency pronouncements were rules
for the purpose of section 551, but, instead, whether they were rules that
should have been promulgated according to notice and comment rulemaking
requirements under section 553 or whether they were subject to review. The
better reading of these cases, in our opinion, is not that general
statements of policy are not rules under 551, but that statements of
policy are not legislative rules because they are tentative statements of
future intent and by their nature do not have the force of law.
Even if general statements of policy are not rules for purposes of section
551, however, the August 17 letter does not qualify as a general statement
of policy. In determining whether a particular agency pronouncement is a
general statement of policy, courts begin with the language of the
document itself and the agency's own characterization of the
pronouncement.[62] Although courts give deference to an agency's
characterization, the label that an agency puts on the exercise of its
administrative power is not conclusive. [63] In general, if the language
of the pronouncement indicates that the agency's views are tentative or
simply a guide as to how the agency may exercise its authority, and the
agency in fact does not treat the statement as a binding norm, then the
document may be a policy statement. If, however, the document, either by
its terms or as applied by the agency, imposes requirements or
obligations, it would not be considered a general statement of policy.
One case in particular, cited by the Department of Justice in the
memorandum included in CMS's response to our request for the agency's
views, provides a useful explanation of the type of language typically
found in an agency general statement of policy. In Pacific Gas and
Electric Co. v. Federal Power Commission,[64] the United States Court of
Appeals for the District of Columbia Circuit determined that a Federal
Power Commission pronouncement was a general statement of policy exempt
from notice and comment rulemaking requirements. The pronouncement, styled
a "statement of policy," expressed the Commission's view of how deliveries
of natural gas should be prioritized during periods of shortage. The
pronouncement stated that the Commission intended to follow this priority
schedule unless a particular pipeline company demonstrated that a
different curtailment plan (governing allocation of available supply among
customers) better served the public interest. After the statement was
issued, a number of parties objected to the Commission's statement, most
of whom were the natural gas customers that had been assigned a low
priority under the priority schedule. Among their objections was the claim
that the statement was in effect a substantive rule, and not a statement
of policy.
In reaching its conclusion that the statement was indeed a statement of
policy, the court noted the tentative nature of the statement, as well as
the Commission's acknowledgment that any particular decisions on
curtailment could only be made in further proceedings. Specifically, the
court found it significant that the statement indicated it was the
curtailment policy that the Commission "proposes to implement" and the
"plan preferred by the Commission," which "will serve as a guide in other
proceedings." The Commission itself intended the statement only "to state
initial guidelines as a means of facilitating curtailment planning and the
adjudication of curtailment cases." In addition, the statement also
indicated that, although it informed the public of the types of plans the
Commission might approve, there was no assurance that any such plan would
be approved. Finally, the court noted that the statement indicated that
during subsequent proceedings to determine particular curtailments,
affected parties would have an opportunity not only to challenge the
merits of the proposed plan, but to demonstrate that the plan was
inappropriate in particular circumstances. In effect, the Commission
statement was a starting point to frame consideration of future proposals.
If we analyze CMS's August 17 letter using the criteria used by the court
to determine that the Commission's pronouncement was simply a statement of
policy, we conclude that the letter does not meet the criteria. The August
17 letter evidences little, if any, language of tentativeness or
inconclusiveness. The specific measures are not characterized as
"proposals" or measures that are under development or to be implemented or
adopted by later action. On the contrary, the letter sets forth specific
strategies that states seeking to expand their SCHIP populations should
implement as "reasonable procedures" to prevent substitution of coverage.
While states previously identified and adopted one or more of the
specified strategies, the August 17 letter indicates that all of them
should be included as "reasonable procedures." There is no indication that
the strategies are only guidelines that may or may not be applied in
subsequent proceedings. In addition, the letter contains no express
mention that exceptions will be considered in particular instances.
Finally, the time frame specified in the letter for states to conform to
the CMS "review strategy" evidences the agency's intention to give the
letter present and binding effect:
CMS will apply this review strategy to SCHIP state plans and section
1115 demonstration waivers that include SCHIP populations, and will work
with States that currently provide services to children with effective
family incomes over 250 percent of FPL. We expect affected States to
amend their SCHIP state plan (or 1115 demonstration) in accordance with
this review strategy within 12 months, or CMS may pursue corrective
action.
If the letter were simply precatory or tentative in nature, then there
would be no need to establish a deadline by which states would need to
implement the measures in the letter or face the possibility of a
corrective action by the agency.[65] The inference to be drawn from the
letter, therefore, is that states that do not conform to or adopt the
measures described in the letter will likely be found to be not in
compliance with SCHIP requirements.
In addition to the particular language of a statement, courts look to an
agency's actions in relation to the statement to determine whether it is a
general statement of policy. As a number of courts have noted, a critical
test of whether a rule is a general statement of policy is its practical
effect in a subsequent administrative proceeding. In subsequent
proceedings, if the agency relies solely on the pronouncement itself to
determine rights and obligations of others, the agency has treated the
policy statement as if it were a binding rule, not a general statement of
policy.[66] As we explained above, CMS's express reliance on the August 17
letter to deny the state of New York's request to amend its SCHIP plan
leads us to conclude that the letter is not a policy statement. Our
conclusion that the August 17 letter is not a general statement of policy
is reinforced by our observation that it reflects a significant change in
the agency's settled interpretation of 42 C.F.R. sect. 457.805, which
policy statements by their nature do not do.[67]
CONCLUSION
Based on our analysis of the August 17, 2007 letter to state health
officials, it is our opinion that the letter is a rule for the purpose of
the Review Act. The letter, as discussed above, is a statement of general
applicability and future effect designed to implement, interpret, or
prescribe law or policy with regard to the SCHIP program. Furthermore, we
do not believe that the August 17 letter comes within any of the
exceptions to the definition of rule contained in the Review Act.
We express no opinion on the applicability of any other legal
requirements, including, but not limited to, notice and comment rulemaking
requirements under the APA, or whether the August 17 letter would be a
valid interpretation of statutes or regulations. As a legal matter, the
resolution of such issues is not necessary to our determination whether
the August 17 letter is a rule for purposes of the Review Act.
Accordingly, given our conclusions above, and in accordance with the
provisions of 5 U.S.C. sect. 801(a)(1), the letter must be submitted to
Congress and the Comptroller General before it can take effect.
------------------------
[1] Pub. L. No. 104-121, sect. 251, 110 Stat. 847, 868-74, codified at 5
U.S.C. sections 801-808.
[2] 5 U.S.C. sect. 801(a)(1).
[3] See 42 U.S.C. sect. 1397aa.
[4] 42 U.S.C. sect. 1397aa(b). The authority vested in the Secretary of
Health and Human Services to approve and disapprove SCHIP state plans and
plan amendments has been delegated to the Administrator of CMS. State
Child Health; Implementing Regulations for the State Children's Health
Insurance Program, 64 Fed. Reg. 60882, 60895 (Nov. 8, 1999) (proposed
rule).
[5] 42 C.F.R. sect. 457.60.
[6] 42 U.S.C. sect. 1397bb(b)(3)(C).
[7] 42 C.F.R. sect. 457.805.
[8] The Review Act excepts the following from its definition of rule: (1)
rules of particular applicability, including a rule that approves or
prescribes for future application rates, wages, prices, services, or
allowances therefor, corporate or financial structures, reorganizations,
mergers, or acquisitions thereof, or accounting practices or disclosures
bearing on any of the foregoing; (2) rules relating to agency management
or personnel; and (3) rules of agency organization, procedure, or practice
that do not substantially affect the rights or obligations of non-agency
parties. 5 U.S.C. sect. 804(3). As discussed below, the letter is not a
statement of particular applicability; rather, it substantially affects
all states that seek to cover children with effective family incomes in
excess of 250 percent of the FPL, as well as those states that already
cover these children. The letter does not relate to agency management or
personnel, and it does not relate to "agency organization, procedure, or
practice" with no substantial effect on non-agency parties. Accordingly,
we do not believe that any of these three exceptions applies to the August
17 letter.
[9] Batterton v. Marshall, 648 F.2d 694, 700 (D.C. Cir. 1980) (citing 5
U.S.C. sect. 551(4)). Section 551(4) of title 5, United States Code,
defines the term "rule" in relevant part as "[t]he whole or a part of an
agency statement of general or particular applicability and future effect
designed to implement, interpret, or prescribe law or policy or describing
the organization, procedure, or practice requirements of an agency . . .
."
[10] Cf. U.S. Dep't of Justice, Attorney General's Manual on the
Administrative Procedure Act 13 (1947) (the term "rule" includes
statements of particular applicability applying either to a class or to a
single person).
[11] See Bowen v. Georgetown University Hospital, 488 U.S. 204, 216 (1988)
(Scalia, J., concurring) ("future effect" means that agency statement will
have legal consequences for the future); see also U.S. Dep't of Justice,
Attorney General's Manual on the Administrative Procedure Act at 14
(rulemaking regulates the future conduct of either groups of persons or a
single person and is essentially legislative in nature because it operates
in the future and is primarily concerned with policy considerations, while
adjudication is concerned with the determination of past and present
rights and liabilities).
[12] See A.D. Transport Express, Inc. v. United States, 290 F.3d 761, 768
(6th Cir. 2002) (order explaining agency regulation is an interpretative
rule under the APA); Guardian Federal Savings and Loan Ass'n v. Federal
Savings and Loan Insurance Corp., 589 F.2d 658, 664 (D.C. Cir. 1978)
(agency statements that clarify laws or regulations are rules under the
APA).
[13] 64 Fed. Reg. at 60921-22.
[14] See State Child Health; Implementing Regulations for the State
Children's Health Insurance Program, 66 Fed. Reg. 2490, 2601-05 (Jan. 11,
2001) (final rule).
[15] See SBC Inc. v. Federal Communications Commission, 414 F.3d 486, 498
(3d Cir. 2005) (if agency's present interpretation of regulation is a
fundamental modification of previous interpretation, the modification can
only be accomplished through notice and comment rulemaking); Shell
Offshore Inc. v. Babbitt, 238 F.3d 622, 629 (5th Cir. 2001) (settled
policy of an agency is binding on the agency and may be changed only
through a rule); Alaska Professional Hunters Ass'n v. Federal Aviation
Administration, 177 F.3d 1030, 1033-34 (D.C. Cir. 1999) (an agency is
bound by settled interpretation given to its own regulation that agency
can change only by rulemaking).
[16]See Appalachian Power Co. v. Environmental Protection Agency, 208 F.3d
1015, 1020-21 (D.C. Cir. 2000) (if an agency treats a pronouncement as if
it were controlling, if it bases enforcement actions on the policies in
the document, and if it leads private parties or states to believe it must
comply with the pronouncement's terms, it is a substantive rule, not a
general statement of policy); Guardian Federal Savings and Loan Ass'n, 589
F.2d at 666 (in subsequent administrative proceeding, agency cannot claim
that prior statement of policy itself resolves contested issues).
[17] In documents filed in related litigation, the Department of Justice
has characterized the August 17 letter as a rule. See New York v. United
States Dep't of Health and Human Services, No. 07 Civ. 08621 (S.D.N.Y.
filed Oct. 4, 2007) (Def's Mem. Supp. Mot. Dismiss, p. 33).
[18] See U.S. Dep't of Justice, Attorney General's Manual on the
Administrative Procedure Act at 30, n.3.
[19] See, e.g., Chrysler v. Brown, 441 U.S. 281, 301 (1979) ("the central
distinction among agency regulations found in the APA is that between
`substantive rules' on the one hand and `interpretive rules, general
statements of policy, or rules of agency organization, procedure, or
practice' on the other"); Noel v. Chapman, 508 F.2d 1023, 1030 (2d Cir.
1975) (general statement of policy is a rule directed at agency staff on
how it will perform discretionary function); Guardian Federal Savings and
Loan Ass'n, 589 F.2d at 666 (describing test for determining whether "a
rule is a general statement of policy").
[20] See, e.g., Sugar Cane Growers Cooperative of Florida v. Veneman, 289
F.3d 89, 95 (D.C. Cir. 2002) (some agency pronouncements lack the firmness
of a prescribed standard to be considered rules); Syncor International
Corp. v. Shalala, 127 F.3d 90, 94 (D.C. Cir. 1997) (the primary
distinction between a rule and a general statement of policy is whether
the agency intends to bind itself to a legal position); Pacific Gas and
Electric Co. v. Federal Power Commission, 506 F.2d 33, 37 (D.C. Cir. 1974)
(suggesting that policy statements are not rules under the APA).
[21] See Pacific Gas and Electric Co., 506 F.2d at 36-45 (discussing the
language of a "statement of policy" and noting that such a statement
announces tentative intentions for the future); cf. Community Nutrition
Institute v. Young, 818 F.2d 943, 947 (D.C. Cir. 1987) (agency prescribed
standard from which regulated entities could obtain "exception" or risk
enforcement action indicated standard was binding).
[22] Pub. L. No. 104-121, sect. 251, 110 Stat. 847, 868-74, codified at 5
U.S.C. sections 801-808.
[23] See 42 U.S.C. sect. 1397aa. Medicaid finances health care for certain
low-income families, children, pregnant women, elderly persons, and
persons with disabilities. In general, under SCHIP, a state is allowed to
cover children in families with incomes up to 200 percent of the federal
poverty level or 50 percentage points above the state's Medicaid income
eligibility limit as of March 31, 1997. See 42 U.S.C. sections1397jj(b)(1)
and (c)(4).
[24] 42 U.S.C. sections 1396b(a), 1396d(b).
[25] See 42 U.S.C. sect. 1397ee(a).
[26] 42 U.S.C. sect. 1397aa(b). The authority vested in the Secretary of
Health and Human Services to approve and disapprove SCHIP state plans and
plan amendments has been delegated to the Administrator of CMS. State
Child Health; Implementing Regulations for the State Children's Health
Insurance Program, 64 Fed. Reg. 60882, 60895 (Nov. 8, 1999) (proposed
rule).
[27] 42 C.F.R. sect. 457.50.
[28] Id.
[29] 42 C.F.R. sect. 457.60.
[30] 42 U.S.C. sect. 1397aa(a); 42 C.F.R. sect. 457.70.
[31] 42 U.S.C. sect. 1397bb(b)(3)(C). CMS explained in the preamble to a
final rule implementing SCHIP that the potential for substitution of SCHIP
coverage for private coverage exists because SCHIP coverage may be less
expensive than private coverage or provide better coverage than some
individuals or employers could purchase with their own funds. See State
Child Health; Implementing Regulations for the State Children's Health
Insurance Program, 66 Fed. Reg. 2490, 2602 (Jan. 11, 2001) (final rule).
[32] 42 U.S.C. sect. 1397bb(c)(2).
[33] See 64 Fed. Reg. at 60921-23; 66 Fed. Reg. at 2601-2610.
[34] Section 1115 of the Social Security Act authorizes the Secretary of
Health and Human Services to conduct demonstration programs likely to
assist in promoting the objectives of specified programs. 42 U.S.C. sect.
1315; 42 U.S.C. sect. 1397gg(e).
[35] See 142 Cong. Rec. H3005 (daily ed. Mar. 28, 1996) (statement of Rep.
McIntosh); see also New York v. American Electric Power Service Corp.,
Nos. 2:04 CV 1098, 2:05 CV 360, 2006 WL 1331543, at *13 (S.D. Ohio Mar.
21, 2006); United States v. Southern Indiana Gas and Electric Co., No.
IP99-1692-C-M/S, 2002 WL 31427523, at *3 (S.D. Ind. Oct. 24, 2002); Texas
Savings & Community Bankers Ass'n v. Federal Housing Finance Board, No. A
97 CA 421 SS, 1998 WL 842181, at *7 (W.D. Tex. June 25, 1998).
[36] 5 U.S.C. sect. 801(a)(1). On the date the report is submitted, the
agency also must submit to the Comptroller General and make available to
each House of Congress certain other documents, including a cost-benefit
analysis, if any, and agency actions relevant to the Regulatory
Flexibility Act and the Unfunded Mandates Reform Act of 1995, and any
other relevant information or requirements under any other legislation or
any relevant executive orders. 5 U.S.C. sect. 801(a)(1)(B)(i)-(iv). For
rules that federal agencies identify as major rules, the Comptroller
General is required under the Review Act to provide a report to the
committees of jurisdiction in each House on whether the agency complied
with certain procedural requirements. 5 U.S.C. sect. 801(a)(2)(A).
[37] 5 U.S.C. sect. 805. A number of federal courts have concluded that an
agency's failure to submit a rule in accordance with the Review Act is not
reviewable. See American Electric Power Service Corp., 2006 WL 1331543, at
*13; United States v. American Electric Power Service Corp., 218 F. Supp.
2d 931, 949 (S.D. Ohio 2002); Texas Savings & Community Bankers Ass'n,
1998 WL 842181, at *7. One court has ruled that the Review Act does not
preclude review of the agency's failure to submit a rule as required by
the Review Act. See Southern Indiana Gas and Electric Co., 2002 WL
31427523, at *5-*6.
[38] The Review Act excepts the following from its definition of rule: (1)
rules of particular applicability, including a rule that approves or
prescribes for future application rates, wages, prices, services, or
allowances therefor, corporate or financial structures, reorganizations,
mergers, or acquisitions thereof, or accounting practices or disclosures
bearing on any of the foregoing; (2) rules relating to agency management
or personnel; and (3) rules of agency organization, procedure, or practice
that do not substantially affect the rights or obligations of non-agency
parties. 5 U.S.C. sect. 804(3). As discussed below, the letter is not a
statement of particular applicability; rather, it substantially affects
all states that seek to cover children with effective family incomes in
excess of 250 percent of the FPL, as well as those states that already
cover these children. The letter does not relate to agency management or
personnel, and it does not relate to "agency organization, procedure, or
practice" with no substantial affect on non-agency parties. Accordingly,
we do not believe that any of these three exceptions applies to the August
17 letter.
[39] Batterton v. Marshall, 648 F.2d 694, 700 (D.C. Cir. 1980).
[40] 5 U.S.C. sect. 551(4).
[41] Batterton, 648 F.2d at 700-02.
[42] See Reno v. Koray, 515 U.S. 50, 60-61 (1995) (internal agency
guideline was a rule under the APA); Shalala v. Guernsey Memorial
Hospital, 514 U.S. 87, 99-100 (1995) (provision of the Medicare Provider
Reimbursement Manual was a rule under the APA); Appalachian Power Co. v.
Environmental Protection Agency, 208 F.3d 1015, 1021-22 (D.C. Cir. 2000)
(agency guidance document can be rule under the APA); Professionals and
Patients for Customized Care v. Shalala, 56 F.3d 592, 601-02 (5th Cir.
1995) (FDA Compliance Policy Guide was a rule, but was exempt from notice
and comment procedures as a statement of policy or interpretative rule).
[43] See, e.g., A.D. Transport Express, Inc. v. United States, 290 F.3d
761, 768 (6th Cir. 2002) (order explaining agency regulation is an
interpretative rule under the APA); Guardian Federal Savings and Loan
Ass'n v. Federal Savings and Loan Insurance Corp., 589 F.2d 658, 664 (D.C.
Cir. 1978) (agency statements that clarify laws or regulations are rules
under the APA).
[44] 142 Cong. Rec. H3005 (daily ed. Mar. 28, 1996) (statement of Rep.
McIntosh).
[45] See, e.g., B-287557, May 14, 2001 ("record of decision" issued by the
Fish and Wildlife Service of the Department of Interior in connection with
a federal irrigation project was a rule); B-274505, September 16, 1996
(memorandum issued by Secretary of Agriculture in connection with the
Emergency Salvage Timber Sale Program was a rule).
[46]Cf. U.S. Dep't of Justice, Attorney General's Manual on the
Administrative Procedure Act 13 (1947) (the term "rule" includes
statements of particular applicability applying either to a class or to a
single person).
[47] See Bowen v. Georgetown University Hospital, 488 U.S. 204, 216 (1988)
(Scalia, J., concurring) ("future effect" means that statement will have
legal consequences for the future); see also U.S. Dep't of Justice,
Attorney General's Manual on the Administrative Procedure Act at 13-14
(rulemaking regulates the future conduct of either groups of persons or a
single person and is essentially legislative in nature because it operates
in the future and is primarily concerned with policy considerations, while
adjudication is concerned with the determination of past and present
rights and liabilities.)
[48] Among the statutory provisions that the letter expressly refers to is
section 2101(a) of the Social Security Act, which provides, in pertinent
part:
Purpose.-The purpose of this title [XXI] is to provide funds to States
to enable them to initiate and expand the provision of child health
assistance to uninsured, low-income children in an effective and
efficient manner that is coordinated with other sources of health
benefits coverage for children.
42 U.S.C. sect. 1397aa(a).
[49] 64 Fed. Reg. at 60921-22.
[50] See 66 Fed. Reg. at 2601-05.
[51] See SBI Inc. v. Federal Communications Commission, 414 F.3d 486, 498
(3d Cir. 2005) (if an agency's present interpretation of a regulation is a
fundamental modification of a previous interpretation, the modification
must be accomplished through notice and comment rulemaking); Shell
Offshore Inc. v. Babbitt, 238 F.3d 622, 629 (5th Cir. 2001) (a settled
policy of an agency is binding on the agency and may be changed only
through a rule); Alaska Professional Hunters Ass'n v. Federal Aviation
Administration, 177 F.3d 1030, 1033-34 (D.C. Cir. 1999) (an agency is
bound by settled interpretation given to its own regulation that the
agency can change only by rulemaking).
[52] See Appalachian Power Co., 208 F.3d at 1020-21 (if an agency treats a
pronouncement as if it were controlling, if it bases enforcement actions
on the policies in the document, and if it leads private parties or states
to believe it must comply with the pronouncement's terms, it is a rule);
Public Citizen, Inc. v. United States Nuclear Regulatory Commission, 940
F.2d 679, 682 (D.C. Cir. 1991) (where language and context of a statement
are inconclusive, court will turn to agency's actual application to
determine nature of agency pronouncement); McLouth Steel Products Corp. v.
Thomas, 838 F.2d 1317, 1321 (D.C. Cir. 1988) (because agency used policy
statement to determine regulated entities' obligations, policy statement
is, therefore, a rule); Guardian Federal Savings and Loan Ass'n, 589 F.2d
at 666 (form of a regulation is not controlling; substance and effect will
determine whether agency statement is a rule).
[53] See GAO, Procedures and Practices for Legal Decisions and Opinions,
GAO-06-1064SP (Washington, D.C.: Sept. 2006), available at
www.gao.gov/legal/resources.html.
[54] In documents filed in litigation, the Department of Justice has
characterized the letter as an interpretative rule. See New York v. United
States Dep't of Health and Human Services, No. 07 Civ. 08621 (S.D.N.Y.
filed Oct. 4, 2007) (Def's Mem. Supp. Mot. Dismiss, p. 33).
[55] "General statements of policy" are expressly excepted from notice and
comment rulemaking requirements under section 553 of the APA. In court
filings submitted by the Department of Justice in separate litigation, HHS
contends that the August 17 letter is not subject to notice and comment
rulemaking requirements.
[56] See, e.g., Guernsey Memorial Hospital, 514 U.S. at 99; Georgetown
University Hospital, 488 U.S. at 218.
[57] U.S. Dep't of Justice, Attorney General's Manual on the
Administrative Procedure Act at 14.
[58] See Pacific Gas and Electric Co. v. Federal Power Commission, 506
F.2d 33, 38 (D.C. Cir. 1974).
[59] Id.
[60] See, e.g., Chrysler v. Brown, 441 U.S. 281, 315 (1979) ("the central
distinction among agency regulations found in the APA is that between
`substantive rules' on the one hand and `interpretive rules, general
statements of policy, or rules of agency organization, procedure, or
practice' on the other"); Professionals and Patients for Customized Care,
56 F.3d at 596 (discussing whether policy statement at issue is
interpretative rule or legislative rule); Noel v. Chapman, 508 F.2d 1023,
1030 (2d Cir. 1975) (general statement of policy is a rule directed at
agency staff on how it will perform discretionary function); Guardian
Federal Savings and Loan Ass'n, 589 F.2d at 666 (describing test for
determining whether "a rule is a general statement of policy").
[61] See, e.g., Sugar Cane Growers Cooperative of Florida v. Veneman, 289
F.3d 89, 95 (D.C. Cir. 2002) (some agency pronouncements lack the firmness
of a prescribed standard to be considered rules); Syncor International
Corp. v. Shalala, 127 F.3d 90, 94 (D.C. Cir. 1997) (the primary
distinction between a rule and a general statement of policy is whether
the agency intends to bind itself to a legal position); Pacific Gas and
Electric Co., 506 F.2d at 37 (suggesting that policy statements are not
rules under the APA).
[62] Professionals and Patients for Customized Care, 56 F.3d at 596.
[63] See id. (what the agency in fact does in relation to an agency
statement is dispositive); United States Gypsum Co. v. Muszynski, 209 F.
Supp. 2d 308, 309-10 (S.D.N.Y. 2002) (an advisory memorandum that was
applied by agency as a rule was a rule).
[64] 506 F.2d 33 (D.C. Cir. 1974).
[65] Cf. Community Nutrition Institute v. Young, 818 F.2d 943, 947 (D.C.
Cir. 1987) (agency prescribed standard from which regulated entities could
obtain "exception" or risk enforcement action indicated standard was
binding).
[66]See Public Citizen, Inc., 940 F.2d at 682-83 (courts look to agency's
actual application of statement to determine its nature if language and
context of agency statement are not conclusive); Guardian Federal Savings
and Loan Ass'n, 589 F.2d at 666 (in subsequent administrative proceeding,
agency cannot claim that prior statement of policy itself resolves
contested issues).
[67] See Syncor International Corp., 127 F.3d at 94 (a general statement
of policy does not impose, elaborate, or interpret a legal norm, but
explains the agency's manner of enforcing the existing legal norm).