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Late Trump-Era Health Rules Raise Legal Questions Over Timing

Jan. 23, 2021, 1:53 AM

The Biden administration could delay or rewrite three major health-care rules issued in the final weeks of the Trump administration after their effective dates were found unlawful by a federal watchdog agency.

Two of the rules provide broad new exceptions to the Stark Law and the Anti-Kickback Statute, which police fraud in the health-care sector. The third rule restructures how drugmakers pay pharmacy middlemen such that the rebates can’t fluctuate based on the price of a drug.

The Government Accountability Office found all three rules violate the Congressional Review Act, which requires that major rules take effect 60 days after publication in the Federal Register or after Congress receives them, whichever comes later.

Those findings could “serve as a defect” for the Biden administration to issue new effective dates, said James Segroves, a partner at Reed Smith LLP. “If the rule, as a matter of law, has not gone into effect, then maybe they then try to pause it, pursuant to Ron Klain’s memorandum.”

The final Stark Law and Anti-Kickback Statute rules were published in the Federal Register on Dec. 2, 2020, with an effective date of Jan. 19, 2021—one day before President Joe Biden took office. The Medicare rebate rule was published on Nov. 30, 2020, and is slated to take effect Jan. 29, 2021.

The Centers for Medicare & Medicaid Services told Bloomberg Law at the time that the final Stark Law rule “is effective 60 days from the display date,” pegging the Jan. 19 effective date to the agency announcement of the rule, not its publication in the Federal Register. According to the GAO and lawyers with regulatory expertise, that interpretation is flawed.

The Senate received the rebate and anti-kickback rules on Dec. 11, 2020, and the House received them on Dec. 16, 2020, the GAO found in separate reports. Both houses of Congress received the Stark Law rules on Dec. 2, it found.

“Congress didn’t get copies of the rules until after they were published in the Federal Register by a number of days,” Segroves said.

As a result, neither of the three final rules “have the required 60-day delay in effective date,” GAO managing associate general counsel Shirley Jones wrote.

Regulatory Freeze

The new anti-fraud rules would revamp the Stark Law, which prohibits physician self-referrals, and the Anti-Kickback Statute, which bars efforts to reward business referrals in federal health programs like Medicare and Medicaid.

Doctors, hospitals, and insurers say those laws’ strict provisions are outdated and have slowed the move to value-based care. That’s when patient outcomes and cost efficiency determine provider reimbursement rather than the volume of services provided.

The Medicare rebate rule was once the centerpiece of the Trump administration’s fight against high drug prices, but the HHS scrapped the rule last July because former President Donald Trump feared it would raise premiums for seniors. In a reversal, the HHS pushed the policy through two months before President Joe Biden took office.

In a Jan. 20 memo, Klain, President Biden’s chief of staff, ordered that all rules, guidances, or other agency actions that didn’t take effect prior to noon that day—be subject to review by the new administration before they can take effect. If the previous administration’s actions raise questions of “fact, law, or policy,” the designated officials now leading the agencies can further delay effective dates.

Segroves said “it’s no secret” why the Trump administration chose January 19—one day before Biden took office—as the effective date for several of the rules. “Because once the effective date passes, as a matter of administrative law, the agency would have to engage in a new notice-and-comment” period to change the rules.

“I’m on the lookout, as I suspect plenty of folks in the industry are on the lookout, to see if we see any kind of notice that comes floating in trying to ‘correct’ those effective dates in light of GAO’s determination that the Trump administration violated the Congressional Review Act” by setting premature effective dates, Segroves said.

—With assistance from Jacquie Lee

To contact the reporter on this story: Tony Pugh in Washington at tpugh@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloombergindustry.com; Alexis Kramer at akramer@bloomberglaw.com; Meghashyam Mali at mmali@bloombergindustry.com

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