'Here again the agency appears unfamiliar with its own regulations'

|The Volokh Conspiracy |

An interesting opinion from Judge Neil Gorsuch on the 10th Circuit, Caring Hearts Personal Home Services, Inc. v. Burwell—and, as usual with Judge Gorsuch's opinion, easy and enjoyable to read, even when it's about administrative law. An excerpt (some paragraph breaks added):

Executive agencies today are permitted not only to enforce legislation but to revise and reshape it through the exercise of so-called "delegated" legislative authority. The number of formal rules these agencies have issued thanks to their delegated legislative authority has grown so exuberantly it's hard to keep up. The Code of Federal Regulations now clocks in at over 175,000 pages. And no one seems sure how many more hundreds of thousands (or maybe millions) of pages of less formal or "sub-regulatory" policy manuals, directives, and the like might be found floating around these days.

For some, all this delegated legislative activity by the executive branch raises interesting questions about the separation of powers. For others, it raises troubling questions about due process and fair notice—questions like whether and how people can be fairly expected to keep pace with and conform their conduct to all this churning and changing "law."

But what if the problem is even worse than that? What happens if we reach the point where even these legislating agencies don't know what their own "law" is?

That's the problem we confront in this case. And perhaps it comes as little surprise that it arises in the Medicare context. Medicare is, to say the least, a complicated program. The Centers for Medicare & Medicaid Services (CMS) estimates that it issues literally thousands of new or revised guidance documents (not pages) every single year, guidance providers must follow exactingly if they wish to provide health care services to the elderly and disabled under Medicare's umbrella. . . .

How did CMS wind up confused about its own law? It began this way. Caring Hearts provides physical therapy and skilled nursing services to "homebound" Medicare patients. Of course, any Medicare provider may only charge the government for services that are "reasonable and necessary." But Congress hasn't exactly been clear about who qualifies as homebound or what services qualify as reasonable and necessary. So CMS has developed its own rules on both subjects—rules the agency has (repeatedly) revised and expanded over time. In a recent audit, CMS purported to find that Caring Hearts provided services to at least a handful of patients who didn't qualify as "homebound" or for whom the services rendered weren't "reasonable and necessary." As a result, CMS ordered Caring Hearts to repay the government over $800,000.

The trouble is, in reaching its conclusions CMS applied the wrong law. As we'll see, the agency didn't apply the regulations in force in 2008 when Caring Hearts provided the services in dispute. Instead, it applied considerably more onerous regulations the agency adopted only years later. Regulations that Caring Hearts couldn't have known about at the time it provided its services. Regulations that even CMS concedes bore only prospective effect. And as we'll see, Caring Hearts can make out a pretty good case that its services were entirely consistent with the law as it was at the time they were rendered. So this isn't (and never was) a case about willful Medicare fraud. Instead, it's a case about an agency struggling to keep up with the furious pace of its own rulemaking. . . .

This case has taken us to a strange world where the government itself—the very "expert" agency responsible for promulgating the "law" no less—seems unable to keep pace with its own frenetic lawmaking. A world Madison worried about long ago, a world in which the laws are "so voluminous they cannot be read" and constitutional norms of due process, fair notice, and even the separation of powers seem very much at stake.

But whatever else one might say about our visit to this place, one thing seems to us certain: an agency decision that loses track of its own controlling regulations and applies the wrong rules in order to penalize private citizens can never stand. Indeed, we would not be surprised if—should Caring Hearts bring an otherwise eligible application for costs and fees under the Equal Access to Justice Act—CMS were to accept on remand that its positions in this case were not "substantially justified." . . .

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