HHS’s reversal of its Nixon-era policy will reduce valuable public participation in rulemakings.
Overshadowed in the blitzkrieg of orders and actions of the Trump Administration that are seemingly intended to assert complete presidential control over the executive branch was a recent rule issued by the U.S. Department of Health and Human Services (HHS) on March 3, 2025, signed by new Secretary Robert F. Kennedy, Jr.
HHS withdrew a longstanding rule—styled as a “statement of policy”—issued in 1971, in which the agency pledged to use the basic notice-and-comment rulemaking process even when its rule fit within the “proprietary exemption” of the Administrative Procedure Act (APA) for rules relating to “public property, loans, grants, benefits, or contracts.”
The framers of the 1946 APA included this exemption because they believed at that time that the functions mentioned were proprietary in nature and of little interest to the public. That assumption may have been true in 1946, but by the late 1960s, it was apparent that each of those functions had taken on much more importance and were of great interest to the public. This realization led the Administrative Conference of the United States to undertake a study that resulted in a 1969 recommendation urging the U.S. Congress to eliminate the exemption and—if Congress failed to act—urging agencies to foreswear invocation of the exemption voluntarily. Many agencies followed this recommendation by issuing rules doing so, including the U.S. Department of Agriculture (USDA), the U.S. Department of Defense, the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of the Interior, the U.S. Department of Labor, the U.S. Small Business Administration, and the U.S. Department of Veterans Affairs.
During the Reagan Administration, HHS proposed to narrow its voluntary waiver, but after receiving numerous negative comments, it did not act on the proposal. In 1992, HUD also proposed to withdraw its waiver. After receiving 77 comments, mostly opposing the change, HUD modified its proposal somewhat and requested a second round of comments in 1996. Shortly afterwards, Congress required HUD to maintain its existing rulemaking procedures, and HUD withdrew its proposal.
The only agency that did subsequently revoke its waiver was USDA. Without fanfare, USDA proposed to do so in 2013, and after receiving two comments—both in opposition—it revoked its waiver. The American Bar Association’s Section of Administrative Law and Regulatory Practice, in a letter to the Secretary of Agriculture at the time, strongly criticized USDA’s proposed action and asked the Secretary to reconsider, but the Secretary refused to do so. At the time, a USDA lawyer told me that USDA’s main concern with reinstating the waiver was that it had experienced delays in issuing new and amended rules relating to agricultural loan programs.
There is no question that HHS has the legal authority to withdraw its waiver—though one of its asserted justifications was simply incorrect: HHS claimed that its previous waiver was somehow “contrary to the clear text of the APA.” HHS also inappositely cited the U.S. Supreme Court’s 2015 decision in Perez v. Mortgage Bankers Association for the principle that the waiver imposed obligations on HHS that exceeded the maximum procedural requirements specified in the APA. As any student in my administrative law class knows, agencies themselves are free to grant additional procedural protections and opportunities for public participation beyond those required in the APA if they so desire.
But the fact that HHS can withdraw its waiver does not make it good policy, especially when Secretary Kennedy proclaimed in his confirmation hearings that his approach to HHS will be “radical transparency.”
So, what accounts for the sudden change? I suspect it was the fact that a district court enforced the waiver in a lawsuit filed on February 10 challenging a guidance document issued by the National Institutes of Health (NIH) and its parent department HHS. The guidance announced a far-reaching change in the reimbursement policy for NIH grants, imposing an across-the-board reduction in the reimbursement rate for “indirect costs” of medical research to 15 percent instead of allowing research institutions to negotiate these rates on an individual basis. This action, which was widely criticized as a way to “cripple” medical research, is legally questionable on many grounds, not least because it flouts an appropriations rider enacted by Congress to prevent HHS from using any funds “to develop or implement a modified approach” to such individual rate negotiations 2018 and retained in every HHS appropriations bill since.
One count in the complaint against HHS claimed that the guidance’s binding character required that it be issued only after notice and comment. Part of HHS’s defense to this procedural challenge was to argue that this was a grant-related rule that was within the proprietary exemption. In granting a preliminary injunction to prevent NIH from implementing the new rates, the court held that HHS’s waiver of that exemption—in force at the time of the issuance of the guidance—was binding and enforceable.
Whatever the reason is, HHS’s withdrawal of its waiver will have a massive practical impact on public participation in its rulemaking going forward. HHS is one of the leading agencies in issuing grant- and benefits-related rules. HHS’s Centers for Medicare & Medicaid Services (CMS) issues many major rules relating to reimbursement in its two programs that have a high degree of public interest but which could fall under the now-revived “benefits” exemption. To take just one example, a 2024 proposed rule relating to changes to the physician fee schedule and other changes to Medicare Part B payment policies received over 12,000 comments. The fall 2024 Regulatory Agenda for HHS lists 37 CMS rules alone—most of which would now arguably be exempt from public participation. HHS also issues numerous grant-related rules every year. One such rule, an earlier final rule related to the guidance document involved in the NIH litigation, “received well over 100,000 public comments” in a 30-day comment period.
It is unfortunate that HHS has backtracked on its commitment to public participation. HHS’s action, seemingly intended to shield itself from litigation over hasty changes in its rules, will likely lead to a drastic reduction in the public’s opportunity to comment on proposed rules that affect the health and well-being of millions of Americans.
