Congressional Review Act: Applicability to CMS Letter on State	 
Children's Health Insurance Program (15-MAY-08, GAO-08-785T).	 
                                                                 
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. 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 the Centers for Medicare &
Medicaid Services (CMS). On August 17, 2007, CMS issued a letter 
purporting to clarify statutory and regulatory requirements	 
related to preventing SCHIP substitution for other insurance	 
coverage in states wishing to cover children with effective	 
family incomes in excess of 250 percent of the federal poverty	 
level (FPL). The letter indicates that CMS will apply measures	 
identified in the letter to state proposals to cover these	 
children, as well as to states that already cover them, and may  
take corrective action against states that fail to adopt the	 
measures within 12 months. In response to a request from the	 
Chairman of the Subcommittee on Health Care, Senate Committee on 
Finance, and a member of that Subcommittee, GAO considered	 
whether the letter is a rule under the Congressional Review Act  
(the Review Act). This testimony is based on the resulting	 
opinion, Applicability of the Congressional Review Act to Letter 
on State Children's Health Insurance Program, B-316048, April 17,
2008.								 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-785T					        
    ACCNO:   A82123						        
  TITLE:     Congressional Review Act: Applicability to CMS Letter on 
State Children's Health Insurance Program			 
     DATE:   05/15/2008 
  SUBJECT:   Access to health care				 
	     Accountability					 
	     Administrative law 				 
	     Child health services				 
	     Children						 
	     Eligibility determinations 			 
	     Federal regulations				 
	     Health care cost control				 
	     Health care costs					 
	     Health care planning				 
	     Health care programs				 
	     Health insurance					 
	     Medicaid						 
	     Reporting requirements				 
	     Requirements definition				 
	     State-administered programs			 
	     Strategic planning 				 
	     State Children's Health Insurance			 
	     Program						 
                                                                 

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GAO-08-785T

   

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Testimony: 

Before the Subcommittee on Health, Committee on Energy and Commerce, 
House of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EDT: 

Thursday, May 15, 2008: 

Congressional review act: 

Applicability to CMS Letter on State Children's Health Insurance 
Program: 

Statement of Dayna K. Shah Managing Associate General Counsel Office of 
General Counsel: 

GAO-08-785T: 

GAO Highlights: 

Highlights of GAO-08-785T, a testimony before Subcommittee on Health, 
Committee on Energy and Commerce, House of Representatives. 

Why GAO Did This Study: 

The State Childrenï¿½s Health Insurance Program (SCHIP) finances health 
care to low-income, uninsured children whose family incomes exceed the 
eligibility limits under their stateï¿½s Medicaid program, but who cannot 
afford other health insurance coverage. 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 the 
Centers for Medicare & Medicaid Services (CMS). 

On August 17, 2007, CMS issued a letter purporting to clarify statutory 
and regulatory requirements related to preventing SCHIP substitution 
for other insurance coverage in states wishing to cover children with 
effective family incomes in excess of 250 percent of the federal 
poverty level (FPL). The letter indicates that CMS will apply measures 
identified in the letter to state proposals to cover these children, as 
well as to states that already cover them, and may take corrective 
action against states that fail to adopt the measures within 12 months. 

In response to a request from the Chairman of the Subcommittee on 
Health Care, Senate Committee on Finance, and a member of that 
Subcommittee, GAO considered whether the letter is a rule under the 
Congressional Review Act (the Review Act). This testimony is based on 
the resulting opinion, Applicability of the Congressional Review Act to 
Letter on State Childrenï¿½s Health Insurance Program, B-316048, April 
17, 2008. 

What GAO Found: 

The definition of ï¿½ruleï¿½ in the Congressional Review Act incorporates 
by reference the definition of ï¿½ruleï¿½ in the Administrative Procedure 
Act (APA), with some exceptions. The APA definition of rule includes 
three elements relevant to GAOï¿½s consideration of the SCHIP letter: 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. GAO concluded that the letter meets these criteria and that 
none of the exceptions in the Review Act apply. GAO found the letter to 
be of general 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 states that have already 
enrolled such children. In addition, GAO found it to be of future 
effect, that is, concerned with policy considerations for the future 
rather than the evaluation of past or present conduct. Finally, GAO 
found that the letter is designed to implement, interpret, or prescribe 
law or policy since 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. 

The history of the regulatory provision regarding substitution of 
coverage supported the view that the August 17 letter is a rule. In 
issuing the proposed and final rules to implement SCHIP, CMS indicated 
that it could not require states to adopt any particular measures to 
prevent substitution of coverage, stating that it did not have a 
statutory or empirical basis for doing so. 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 
to prevent substitution of coverage. Thus, the letter amounts to a 
marked departure from the agencyï¿½s settled interpretation of the 
regulation regarding substitution of coverage, and case law indicates 
that such a change may be made only by rule. Moreover, the agency 
expressly relied on the letter to disapprove a state request to amend 
its SCHIP plan to cover children with family incomes in excess of 250 
percent of the FPL, confirming that the letter has binding effect and 
is, therefore, a rule. 

In response to GAOï¿½s inquiries, CMS stated that the letter is a general 
statement of policy announcing the course that the agency intends to 
follow in adjudications concerning compliance with requirements already 
set forth in regulations. The GAO opinion explained that statements of 
policy would appear to fit within the definition of rule in the APA and 
that courts have referred to them as rules. However, GAO also concluded 
that the August 17 letter does not have the characteristics of a 
statement of policy identified in case law. It evidences little, if 
any, of the tentativeness that is the hallmark of a policy statement, 
and the agency has relied on the letter to disapprove a state plan 
amendment, treating the letter as if it were a binding rule. 

To view the full product, click on [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-785T]. For more information, contact Dayna K. Shah at 
(202) 512-8208 or [email protected] 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

We appreciate the opportunity to participate in today's hearing on the 
August 17, 2007, letter issued by the Centers for Medicare & Medicaid 
Services (CMS) on the State Children's Health Insurance Program 
(SCHIP). My testimony focuses on GAO's April 17, 2008, opinion, which 
addressed whether the CMS letter is a rule for purposes of section 251 
of the Contract with America Advancement Act of 1996,[Footnote 1] 
commonly referred to as the Congressional Review Act (the Review 
Act).[Footnote 2] In that opinion, we concluded that the letter is a 
rule under the Review Act, which, consistent with the Act's 
requirements, must be submitted to Congress and the Comptroller General 
before it can take effect. 

Background: 

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.[Footnote 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.[Footnote 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.[Footnote 5] 

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, 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."[Footnote 6] Regulations 
promulgated by CMS require states to adopt "reasonable procedures" to 
prevent crowd out.[Footnote 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. For example, according to the letter, states should impose cost 
sharing in approximation to the cost of private coverage and establish 
a minimum of a 1-year period of uninsurance for individuals prior to 
receiving coverage. In addition, the letter states 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. The letter indicates that CMS will apply the measures to 
states' proposals to cover children with effective family incomes in 
excess of 250 percent of the FPL, as well as to states that already 
cover such children. According to the letter, CMS may take corrective 
action against states that fail to adopt the identified measures within 
12 months. 

Discussion: 

The definition of "rule" in the Review Act incorporates by reference 
the definition of "rule" in the Administrative Procedure Act (APA), 
with some exceptions. To determine whether the August 17 letter is a 
rule under the Review Act, we thus considered whether the letter is a 
rule under the APA and whether it falls within any of the exceptions 
contained in the Review Act.[Footnote 8] Section 551(4) of the APA 
defines the term rule in pertinent 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 . . . ."[Footnote 9] This definition of rule has been said to 
include "nearly every statement an agency may make."[Footnote 10] 

Agency statements that create binding legal norms--those that, for 
example, grant rights, impose obligations, or affect private interests-
-are rules under the APA.[Footnote 11] These rules--usually called 
legislative rules--generally must be promulgated through notice and 
comment rulemaking procedures under 5 U.S.C. ï¿½ 553. Courts have found 
that other agency pronouncements also are rules as defined in 5 U.S.C. 
ï¿½ 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.[Footnote 12] Agency documents that clarify or explain 
existing legal requirements also have been held to be rules.[Footnote 
13] 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 it is intended to include 
almost all rules that an agency issues and reaches far more than those 
that must be promulgated according to the notice and comment 
requirements of section 553.[Footnote 14] 

The APA definition of rule includes three elements relevant to our 
consideration of the SCHIP letter: 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. We concluded that the 
August 17 letter meets these criteria. We found the letter to be 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.[Footnote 15] In 
addition, we found it to be of future effect, that is, concerned with 
policy considerations for the future rather than the evaluation of past 
or present conduct.[Footnote 16] Finally, the letter 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, we found 
that the letter is designed to implement, interpret, or prescribe law 
or policy.[Footnote 17] 

The history of the regulatory provision regarding substitution of 
coverage supported our view that the August 17 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 to prevent 
substitution of coverage, stating that it did not have a statutory or 
empirical basis for doing so.[Footnote 18] CMS confirmed this 
interpretation in a final rule.[Footnote 19] 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 regulation regarding 
substitution of coverage, and case law indicates that such a change may 
be made only by rule.[Footnote 20] 

We also found it significant that CMS had expressly relied on the 
letter to disapprove a state's request to amend its SCHIP plan to cover 
children with family incomes above 250 percent of the FPL. 
Specifically, 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 denied New York's 
request with specific reliance on the terms of the August 17 letter. 
For example, CMS indicated that the state failed to provide assurances 
that it had enrolled at least 95 percent of the children with family 
incomes below 200 percent of the FPL and that "as outlined in an August 
17, 2007, letter, . . . 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." CMS also 
cited the fact that the state's proposal did not include a 1-year 
period of uninsurance for populations over 250 percent of the FPL. CMS 
concluded stating that its disapproval was "consistent with the August 
17, 2007, letter to State Health Officials discussing how . . . 
existing statutory and regulatory requirements should be applied to all 
States expanding SCHIP effective eligibility levels above 250 percent 
of the FPL." This application of the letter to deny New York's proposed 
plan amendment served to confirm that the letter has binding effect and 
is, therefore, a rule.[Footnote 21] 

During the course of our work, 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.[Footnote 22] 
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." 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. 

As discussed in our opinion, 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.[Footnote 23] Further, courts have referred to them 
as rules.[Footnote 24] While some cases seem to suggest that general 
statements of policy are not rules under the APA,[Footnote 25] the 
better reading of these cases, in our view, is that statements of 
policy are rules under section 551 of the APA but 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, we found that the August 17 
letter does not have the characteristics of a general statement of 
policy identified in case law. One case provided a particularly 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,[Footnote 26] the United States Court of Appeals for 
the District of Columbia Circuit considered a pronouncement, styled a 
"statement of policy," that expressed the Federal Power Commission's 
(Commission) view of how deliveries of natural gas should be 
prioritized during periods of shortage. The court held that the 
pronouncement was a general statement of policy, noting the tentative 
nature of the statement and the Commission's acknowledgment that any 
particular decisions on curtailment could only be made in further 
proceedings. Among other things, 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." In 
addition, 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 effect, the Commission 
statement was a starting point to frame consideration of future 
proposals. 

We analyzed CMS's August 17 letter under the criteria used by the court 
to determine that the Commission's pronouncement was simply a statement 
of policy and concluded that the letter does not meet the criteria. The 
specific measures identified in the letter 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. In addition, the letter contains no 
indication that the strategies are only guidelines that may or may not 
be applied in subsequent proceedings or express reference to exceptions 
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; 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.[Footnote 27] Because the letter 
establishes a deadline by which "affected States" need to implement its 
measures or face the possibility of corrective action, we found that it 
evidences little, if any, of the tentativeness that is the hallmark of 
a policy statement. 

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 subsequent administrative 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.[Footnote 28] CMS's express reliance on the August 17 letter to 
deny the state of New York's request to amend its SCHIP plan led us to 
conclude that the letter is not a policy statement. This conclusion was 
reinforced by our observation that the August 17 letter reflects a 
significant change in the agency's settled interpretation of 42 C.F.R. 
ï¿½ 457.805, which policy statements by their nature do not do.[Footnote 
29] 

Conclusion: 

We concluded that the August 17, 2007, letter to state health officials 
is a rule for the purpose of the Review Act on the grounds that it is a 
statement of general applicability and future effect designed to 
implement, interpret, or prescribe law or policy with regard to SCHIP. 
Furthermore, we found that the letter does not come within any of the 
exceptions to the definition of rule contained in the Review Act. We 
expressed 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. 

Mr. Chairman, this concludes my prepared statement. I would be happy to 
respond to any questions that you or other Members of the Subcommittee 
may have. 

Contacts and Acknowledgments: 

For further information regarding this testimony, please contact Dayna 
Shah at (202) 512-8208 or [email protected]. Contact points for our Offices 
of Congressional Relations and Public Affairs may be found on the last 
page of this statement. Major contributors to this testimony were Helen 
Desaulniers and Kevin Milne. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 104-121, ï¿½ 251, 110 Stat. 847, 868-74, codified at 5 
U.S.C. ï¿½ï¿½ 801-808. 

[2] Applicability of the Congressional Review Act to Letter on State 
Children's Health Insurance Program, B-316048, April 17, 2008. The 
opinion is available at [hyperlink, 
http://gao.gov/decisions/other/other.htm]. 

[3] See 42 U.S.C. ï¿½ 1397aa. 

[4] 42 U.S.C. ï¿½ 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. ï¿½ 457.60. 

[6] 42 U.S.C. ï¿½ 1397bb(b)(3)(C). 

[7] 42 C.F.R. ï¿½ 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. ï¿½ 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 concluded 
that none of these three exceptions apply to the August 17 letter. 

[9] 5 U.S.C. ï¿½ 551(4). 

[10] Batterton v. Marshall, 648 F.2d 694, 700 (D.C. Cir. 1980) (citing 
5 U.S.C. ï¿½ 551(4)). 

[11] Id. at 700-02. 

[12] 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). 

[13] 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). 

[14] 142 Cong. Rec. H3005 (daily ed. Mar. 28, 1996) (statement of Rep. 
McIntosh) (noting that although agency interpretive rules, general 
statements of policy, guideline documents, and agency policy and 
procedure manuals may not be subject to notice and comment 
requirements, they are covered under the congressional review 
provisions of the new chapter 8 of title 5). 

[15] 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). 

[16] 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). 

[17] See A.D. Transport Express, Inc., 290 F.3d at 768 (order 
explaining agency regulation is an interpretative rule under the APA); 
Guardian Federal Savings and Loan Ass'n, 589 F.2d at 664 (agency 
statements that clarify laws or regulations are rules under the APA). 

[18] 64 Fed. Reg. at 60921-22. 

[19] 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). 

[20] 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). 

[21] 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 they must comply with the 
pronouncement's terms, it is a rule); 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). 

[22] 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). 

[23] See U.S. Dep't of Justice, Attorney General's Manual on the 
Administrative Procedure Act at 30, n. 3. 

[24] 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"). 

[25] 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). 

[26] 506 F.2d 33 (D.C. Cir. 1974). 

[27] Cf. Community Nutrition Institute v. Young, 818 F.2d 943, 947 
(D.C. Cir. 1987) (agency pronouncement instructing regulated entities 
to obtain "exception" from standard in announcement indicated 
pronouncement was intended to be binding). 

[28] See Public Citizen, Inc. v. United States Nuclear Regulatory 
Commission, 940 F.2d 679, 682-83 (D.C. Cir. 1991) (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). 

[29] 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). 

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