HHS Finalizes SUNSET Rule, Placing Thousands of Regulations at Risk of Invalidation

On January 8, 2021, the United States Department of Health and Human Services (HHS) released the “Securing Updated and Necessary Statutory Evaluations Timely,” or “SUNSET,” final rule. As discussed in a prior alert following HHS’s proposal of the SUNSET rule, the rule requires HHS to assess and review covered regulations every ten years for the regulations to remain effective. In doing so, the SUNSET rule imposes de facto expiration dates on most HHS regulations—the final rule estimates only one percent of HHS’s active parts of the Code of Federal Regulations are exempt from the rule. If HHS does not complete an assessment and review of a regulation that HHS determines has a significant economic impact upon a substantial number of small entities, by the applicable deadline, then the regulation “shall expire.”

The final rule makes several material changes from the proposed rule discussed in our prior client alert. These changes include the announcement of additional exemptions to the rule, the extension of key deadlines, and revised review criteria. Yet despite these changes, the future of this rule is uncertain given the upcoming change in administrations and the rule’s near-universal unpopularity with stakeholders.

The SUNSET Rule’s Basic Approach

The SUNSET rule requires HHS to conduct a three-step retrospective review of covered regulations. First, HHS must “assess” a regulation to determine whether it has a significant economic impact on a “substantial number of small entities.” Second, HHS must “review” those regulations it finds have a significant economic impact on a substantial number of small entities to determine whether the Department wants to keep, amend, or rescind the rule. The SUNSET rule requires HHS to complete this assessment and review process decennially. Third, should HHS decide to amend or rescind the rule, the Department generally has an additional two years to complete the amendment or rescission proceedings.

Changes from the Proposed Rulemaking

• Additional exemptions: HHS added two more categories of regulations to the list of exemptions from the final SUNSET rule: Medicare’s annual payment update rules and Food and Drug Administration (FDA) regulations that specify characteristics of particular foods, devices, and over-the-counter drugs. Thus, the full list of SUNSET rule exemptions covers:
  • Regulations that HHS issues jointly with other agencies;
  • Regulations that HHS believes are legally required and thus cannot be rescinded;
  • Regulations that “involve a military or foreign affairs function of the United States;”
  • Regulations related solely to Federal Government procurement;
  • Regulations “addressed solely to internal agency management or personnel matters;”
  • Medicare’s annual payment update rules;
  • The FDA food, device, and over-the-counter drug regulations mentioned above; and
  • The SUNSET rule itself.
• Deadline for Review of Older Regulations Extended to Five Years: The final SUNSET rule established a five-year deadline, instead of the proposed two-years, to review regulations promulgated more than ten years before the effective date of the final rule.  
• Deadline Extension Provisions: The final rule added provisions giving the Secretary of HHS the ability to extend two types of deadlines related to the retrospective review process. First, the final rule gives the Secretary the ability to grant one-time, one-year extensions on a case-by-case basis to regulations that would otherwise expire. This authority is not delegable and may only be exercised by the Secretary or acting Secretary. Second, the final rule grants the Secretary the ability to extend the deadline for completing amendment or rescission proceedings following SUNSET review. Where amendment or rescission is not feasible within the normal two-year timeline, the rule permits the Secretary to grant one-year extensions up to three times. That allows HHS to take up to five years to complete amendment or rescission proceedings following a SUNSET review. Unlike the first extension provision, there is no comparable non-delegation provision covering amendment and rescission deadline extensions.
• Revised Review Criteria: The final rule removed the proposed rule’s catch-all review criterion, thereby limiting HHS’s review of regulation to the following factors: (1) the continued need for the regulation; (2) the nature of the “complaints or comments received” from the public; (3) the complexity of the regulation; (4) the extent to which the regulation is duplicative of other federal, state, and local rules; (5) the extent to which technological, economic, and other conditions have changed since the regulation’s promulgation or last review; and (6) whether the regulation complies with the applicable law.

Notable Comment Responses

The final SUNSET rule also offered responses on two points raised in our initial client alert on the proposed rule—namely, that the rule does not provide clear guidance on HHS’s review methodology and the rule’s compliance with the Administrative Procedure Act (APA):

• Retrospective Review Methodology: HHS received comments urging the Department to adopt particular methodologies or baselines for its retrospective review. But HHS “decline[d] to adopt in the[e] final rule a single method for conducting retrospective reviews.” Despite this apparent refusal to adopt a particular methodology, HHS also said its regulatory reviews would involve holistically balancing all factors required by the SUNSET rule and that “[n]o one factor by itself [would be] dispositive” unless the reviewed regulation “does not comply with applicable law.”
• APA Compliance: According to the final rule, a “large number of commenters” suggested the SUNSET rule would violate the APA because it allows HHS to revise or rescind thousands of regulations at once rather than conducting notice and comment rulemaking on each existing rule. One commenter further noted it would be arbitrary and capricious for an agency to allow a regulation to expire without engaging in notice-and-comment rulemaking on the rule’s expiration. HHS responded that by engaging in this rulemaking, it “is going through notice-and-comment rule making [sic] to amend its regulations to apply expiration dates unless certain conditions are satisfied.” To that end, HHS “reject[ed] the argument that it cannot revise many regulations in one rule making, but instead must conduct notice-and-comment rule making [sic] on each individual regulation it seeks to amend or rescind.” In support of its argument, HHS observed that the revision of some individual regulations can effectively change the meaning of many other regulations. To require individual rulemakings to add conditional expiration dates to every single rule, HHS argued, would be unnecessarily cumbersome.

An Uncertain Future

As discussed in our previous client alert, the future of this rule is uncertain. The rule has not yet been published. And even if it is published before the end of the Trump Administration, it will not go into effect until 60 days after its publication in the Federal Register—well after President Biden has taken office.

Moreover, the SUNSET rule has been almost universally panned. For example, during the comment period on the SUNSET rule, HHS held a public hearing on the proposed rule. According to the final rulemaking, “[t]he speakers at the public hearing all either expressed concerns about the proposed rule, opposed it, or requested that the Department withdraw it.” The limited support for the rule was similarly reflected in the written comments—according to the final rule, only “[a] few commenters” wrote to support the rule.

The Biden Administration has already announced plans to issue a regulatory delay memorandum shortly after inauguration that, as discussed in another recent client alert, likely will direct agency heads to withdraw any final rules not yet published in the Federal Register and delay for 60 days the effective dates of any published final regulations not yet in force. If the Biden Administration extends the SUNSET rule’s effective date by 60 days, the administration likely will use that time to evaluate whether it wants to rescind or amend the rule. And given the SUNSET rule’s unpopularity, there is a significant chance the Biden Administration will then act to rescind or amend the rule.

It is also possible that the new Democrat-controlled Congress will pass a joint resolution under the Congressional Review Act overriding the SUNSET rule. Should Congress do so, HHS would be prohibited from issuing a rule that is “substantially the same” as the SUNSET rule. HHS then would only be able to issue a similar rule if Congress passes a statute specifically authorizing HHS to issue the rule.

Should the regulation ultimately take effect, however, HHS has committed to setting up several web pages to allow interested parties to track review proceedings and submit comments requesting review of particular regulations. Specifically, by the date the final rule is published in the Federal Register, HHS will set up web pages listing: (1) the dates on which all HHS’s rulemakings were promulgated and (2) the rulemakings which contain regulations HHS has decided to review. It will also create a docket on Regulations.gov for the public to submit comments requesting HHS assess or review particular regulations.

Given the uncertainty, we generally recommend that health care organizations and others subject to HHS regulations watch the actions of the Biden Administration before taking action in response to these rules. We are available to advise on the impact and legal issues raised by the SUNSET rule or to counsel on federal policy advocacy efforts.