Wait Until Dark

When a federal regulatory agency foregoes open public rule making and deletes public documentation of its actions, something is afoot. “Under cover of darkness” is rarely a clear-cut indication of administrative confidence. Isn’t that right, CMS?

Recently, the Centers for Medicare and Medicaid Services (CMS) was literally taken to court (United States Court of Appeals for the District of Columbia, to be precise) to explain its creative definitions of fairness and transparency. The case, Row 1 Inc. D/B/A Regenative Labs v. Xavier Becerra, Secretary of Health and Human Services, just held oral arguments, and it’s one to watch because it can either result in appropriate sunshine – or an extended forecast of gloomy weather for the healthcare ecosystem.

When it comes to this case, you don’t need a weatherman to know which way the wind blows.

The particulars are very geeky. (All the details can be found in the Appellant brief and this recording of the oral arguments held on October 6, 2023.)  The gist of the case is that CMS decided Uncle Sam wasn’t going to pay for a certain class of products, which includes Wharton's Jelly Tissue Allografts (human connective tissue used to repair, replace, or supplement missing, damaged, or non-properly functioning tissues, manufactured by Regenative Labs).

Here's the fancy legal parlance:

“… when assessing claims, CMS’s role is dependent upon FDA’s role, not coextensive with it: FDA is the scientific authority that decides whether a product falls under the rubric of Section 361 or 351. CMS is neither authorized by Congress nor qualified by its agency expertise to make that decision, nor is it authorized to hold Section 361 products to more stringent Section 351 requirements.”

What that means is, in its decision-making process, CMS must use various on-the-books rules and guidances promulgated by the FDA. (“Promulgated,” is another one of those $50 words. It means, “formal proclamation or the declaration that a new statutory or administrative law is enacted after its final approval.”). The reason this is important, is that we’re not talking about vague or unwritten regulatory practice. We’re talking about what’s already on the books – literally the letter of the law. And feigning ignorance of the rules does not provide an excuse.

And, per the brief:

“Because CMS failed to engage in mandated notice-and-comment rulemaking, Regenative had no opportunity to provide comments on the Policy prior to implementation. Had CMS done so, it would have needed to provide a reasoned response to the concerns raised by Regenative in this lawsuit.”

And further:

“As this Court has held, Congress’ consistent use of the typically mandatory “shall” demonstrates that CMS had a clear duty to follow the required rulemaking process, including notice-and-comment … CMS is violating a clear duty to act.”

As all good Inside-the-Beltway watchers know, the cover-up is often worse than the crime.

This may seem like a small case of bureaucratic lassitude at best or over-reach at worst. It’s not. It’s a direct challenge from CMS to both the FDA’s pre-emptive authority to regulate medical products and to a manufacturer’s right to the fair and predictable application of federal regulations. To phrase it less politely, this small case is about a big issue -- whether it’s acceptable for the federal regulation of healthcare in America to be arbitrary and capricious where substantive actions are taken sub rosa rather than in view of the public eye, as Congress requires.

As with many other areas of CMS jurisdiction, peculiar bureaucratic intervention and lack of clarity are causing harm to the entire healthcare ecosystem. You need look no further than CMS’ recent decisions not to reimburse newly approved medicines for serious and life-threatening conditions (such as Alzheimer’s Disease and ALS) because they didn’t like the way the FDA handled the review process. When “regulatory creep” reaches this magnitude, patients suffer – as does the inclination for medicines developers to invest in research and development programs that save lives. And, for those following the legal battle as to whether certain codicils in the Inflation Reduction Act pertaining to CMS’ authority to impose de facto pharmaceutical price controls are constitutional, it’s time to think small in order to win big.