Fading into the sunset: The last of the Sunset Rule (for now)

Effective July 26, 2022, the US Department of Health & Human Services (HHS) withdrew the Securing Updated and Necessary Statutory Evaluations Timely Rule (the Sunset Rule). 

Finalized on January 19, 2021, the Sunset Rule, if implemented, would have added automatic expiration dates to approximately 18,000 HHS regulations. Since its inception, the Sunset Rule has faced substantial opposition from various stakeholders and the public, including a lawsuit filed in March 2021 by, among others, the County of Santa Clara, California. 

In an action based largely on the allegations raised in the Santa Clara lawsuit as well as public comments, HHS reexamined the Sunset Rule and concluded it was inconsistent with the department’s statutory obligations and mission to promote and protect the public health. Specifically, HHS determined that the Sunset Rule violated the Administrative Procedure Act (APA), was inconsistent with the Regulatory Flexibility Act (RFA), lacked an adequate public health or welfare rationale, and was predicated on baseless legal and factual assumptions. 

About the Sunset Rule

The Sunset Rule was proposed during the Trump Administration. HHS explained that the “Trump Administration and HHS leadership are committed to ending federal regulations that fail to deliver benefits to the American people in the least burdensome way possible and at minimum cost.” HHS proposed the Sunset Rule specifically to put in place periodic retrospective reviews expressed in the RFA and Executive Orders and to ensure that regulations were not outdated.

The Sunset Rule set out automatic expirations that could be triggered if agencies did not review regulations within specified timeframes. Generally, the Sunset Rule provided that unless a regulation expires earlier or is rescinded, all sections (with some exceptions) would expire at the end of:

• Five calendar years after the year that the Sunset Rule becomes effective
• Ten calendar years after the year of the regulation’s promulgation or
• Ten calendar years after the last year in which HHS assessed and (if required, reviewed) the regulation, whichever is latest. 

Thus, potentially tens of thousands of regulations would automatically expire unless HHS assessed and, if required, reviewed regulations within the listed timeframes. Following review, if HHS determined that the regulation should be amended or repealed, HHS would be required to act within a specified timeframe, generally within two years.

The Sunset Rule provided a maximum one-year continuation period for regulations set to expire if HHS determined that the regulation should continue. Additionally, HHS was required to announce on its website when it was commencing regulation review for public comment, and to publish the results of all assessments and reviews in the Federal Register.

At the time the Sunset Rule was finalized, commenters had relayed numerous concerns, including that the Sunset Rule would cause significant regulatory uncertainty in the healthcare industry. Commentors feared that potential regulatory changes could create additional compliance and regulatory costs for healthcare providers and force them to adapt to a changing regulatory framework. 

For example, the uncertainty created around the expiration of regulations, including those that guide eligibility for participation in Medicare and Medicaid, provider reimbursement, and certification of hospitals and clinics, could disrupt the efficient operation of critical safety-net programs, create regulatory gaps and inconsistent application of the law, and make accessing safety-net services for vulnerable populations even more complicated and difficult than it is today. Other commenters feared that it would be difficult to advise clients on how to comply with HHS regulations, given the risk for withdrawal.

In response, HHS explained that regulations could always be amended or rescinded, even absent the Sunset Rule; HHS also felt that the regulated community had five years to adjust to the changes. 

While the Sunset Rule was scheduled to take effect on March 22, 2021, HHS subsequently extended the effective date to March 22, 2022, pending judicial review in the Santa Clara lawsuit, and then again to September 22, 2022. HHS published a notice of proposed rulemaking to withdraw or repeal the Sunset Final Rule on October 29, 2021. 

Withdrawal of the Sunset Rule

On May 27, 2022, HHS issued its final rule to withdraw the Sunset Rule in its entirety. HHS justified this policy about-face by explaining that the Sunset Rule was “expansive in scope and impact, faced considerable opposition from stakeholders (and very little support), and lacked a public health or welfare rationale for expediting rulemaking.” 

In criticizing the Sunset Rule’s “flawed assumptions and analysis,” HHS determined that scheduling the expiration of regulations based on the department’s failure to conduct a small-entity analysis, without any corresponding notice regarding or evaluating the public health importance of the individual regulations or the public’s reliance on them, was “unsound and in [its] view unlawful”; inconsistent with the purpose and intent of the RFA; and violated the APA. 

Inconsistent with RFA intent. Under the RFA, agencies are required to publish plans to conduct periodic regulation reviews; the RFA focuses on review of only those rules that have or will have a significant economic impact upon a substantial number of small entities (SEISNOSE). However, HHS determined that the Sunset Rule’s requirements exceeded the RFA’s statutory reach, since the rule applied the RFA review standard to all regulations rather than just those that have or will have a SEISNOSE. By withdrawing the Sunset Rule, HHS would remain in compliance with the RFA.

Violation of the APA. As to the APA, HHS supported its argument by citing FCC v. Prometheus Radio Project, 141 S. Ct. 1150, 1158 (2021), which noted that the “APA’s arbitrary and capricious standard requires that agency action be reasonable and reasonably explained.” Since the Sunset Rule would have amended thousands of regulations and scheduled their expiration without any consideration of the regulations subject to expiration or the facts and circumstances underlying the regulations, HHS doubted a court would find the expiration requirements under the Sunset Rule were reasonable and reasonably explained.

Finally, HHS concluded that the Sunset Rule was contrary to several policy goals of the Biden Administration. The Sunset Rule could not equip executive departments and agencies with flexibility to use robust regulatory action to confront national challenges; in fact, the Sunset Rule would prevent federal agencies from pursuing a comprehensive approach to advancing equality for all people. HHS believes that if implemented, the Sunset Rule would negatively impact diverse groups of stakeholders, including historically underserved, marginalized, and adversely affected communities, thereby undermining the public health mission of HHS.

Key takeaways

This is likely not the last time we will see HHS introduce a version of the Sunset Rule. The repeal of the Sunset Rule is one more example of the divergence between the Trump and Biden Administrations, reflecting the significant impact presidential administrations and priorities can have on regulated industries. As HHS indicated when it published the Sunset Rule in 2021, what the Sunset Rule is proposing is not new; there are already executive orders, state laws, and other policies in place that allow the retrospective review of regulations. Retrospective review of laws and agency policies can provide various economic, social, and practical benefits. Through retrospective review, outdated laws and policies may be amended, improved, or eliminated, which may lead to cost savings and reductions in regulatory burdens. HHS under another administration may bring another retrospective review rule back to support its legislative priorities.

What is unique about this Sunset Rule is how quickly HHS completed the rulemaking; the process, from proposed to final rule, took less than three months. As noted in the Santa Clara lawsuit, the Sunset Rule “require[s] a resource-intensive and time-consuming effort on par with full notice-and-comment rulemaking, but at a pace 20 times faster than the Department has ever conducted retrospective review in the past – all without any guarantee that the Department will conduct such review.” 

The speed of this rulemaking also shows the importance of stakeholder contribution during the notice and comment period: the ultimate repeal of the Sunset Rule was substantially driven by the overwhelming pushback to the rule. Stakeholder input is key to ensuring that an agency consider all advantages and pitfalls prior to being finalized.