Gresham v. Azar

Originally published on March 2, 2020 by Harvard Law Review. Written by Jenny Samuels, HLPC student.

In 2018, the Centers for Medicare and Medicaid Services (CMS), a division of the Department of Health and Human Services (HHS), issued new guidance to states announcing the agency’s support for efforts to incorporate work requirements into state Medicaid plans.  Kentucky and Arkansas soon took up the agency’s offer and both submitted proposals that included work requirements.  The Secretary of HHS quickly approved the plans.  Recently, in Gresham v. Azar, the D.C. Circuit held that the Secretary’s approval of these projects was arbitrary and capricious, in violation of the Administrative Procedure Act (APA).  In doing so, the court protected tens of thousands of people from losing their health coverage and took a stand against the Trump administration’s flagrant abuse of administrative discretion.  The court’s reasoning makes clear that community participation in agency rulemaking during notice and comment is more than a mere formality — it can be the decisive factor in a court’s analysis of agency decisionmaking. 

The Medicaid provisions of the Social Security Act set certain national standards for the program.  In some cases, however, states can obtain a waiver to conduct “experimental” demonstration projects that don’t fit within Medicaid’s traditional parameters, but that otherwise are “likely to assist in promoting [Medicaid’s] objectives.”   

In the first few months of 2018, the Secretary of HHS approved Kentucky’s and Arkansas’ proposed demonstration projects, both of which included requirements that enrollees work, or take part in some other qualifying activity, for a minimum of 80 hours per month.  The plans also included coverage “lockouts”—that is, disenrolling beneficiaries for failure to comply with the program’s requirements—as well as severe limits on retroactive coverage, among other onerous provisions.  The agency’s approval letters stated CMS’s determination that each plan would be “likely to promote Medicaid objectives” by “improving health outcomes” and “strengthen[ing]” beneficiary engagement “in their personal health care.”  

Medicaid enrollees in both states sued.  D.C. District Court Judge James Boasberg heard both challenges, and in both cases found that the Secretary’s approval was arbitrary and capricious in violation of the APA.  Kentucky ultimately terminated its waiver request and withdrew from the litigation.

The D.C. Circuit affirmed.  Writing for the unanimous three-judge panel, Senior Circuit Judge Sentelle, joined by Judge Pillard and Judge Edwards, wrote that the Secretary is generally afforded substantial discretion in approving state demonstration projects, but that discretion operates only within the bounds of Congress’s intent.  The Secretary’s approval of Arkansas’ plan was arbitrary and capricious because it failed to account for how the plan would further Medicaid’s clear statutory purpose: “to provide health care coverage.”  Instead, the agency moved the target, identifying and focusing its analysis on the alternative aim of improving health outcomes.  In focusing on health outcomes, the Secretary failed to account for the loss of coverage that the state’s plan would entail.  Indeed, Judge Sentelle noted that in the first five months after the plan went into effect in Arkansas, over 18,000 state Medicaid beneficiaries, or a quarter of the total number subject to the work requirements, lost their health care coverage.  

The Secretary not only misidentified the primary objective of Medicaid, but also did not adequately respond to community concerns, raised in the notice-and-comment period, about loss of coverage.  The court described how the Secretary’s approval letter “note[d] the concerns” but then “dismiss[ed them] in a handful of conclusory sentences.”  “Nodding to concerns raised by commenters only to dismiss them in a conclusory manner,” Judge Sentelle wrote, “is not a hallmark of reasoned decisionmaking.”  Because the Secretary offhandedly dismissed these concerns and failed to address Medicaid’s primary statutory purpose, his approval of Arkansas’ program was arbitrary and capricious.

Thanks to the D.C. Circuit, Arkansas’ residents are safe for now from the Trump Administration’s attempts to scale back Medicaid.  In some ways, the decision was a conservative one, grounded in textual analysis and congressional intent.  But the broader implications warrant expounding: the judiciary has shown its willingness to electrify the APA’s procedural guardrails in response to the Trump Administration’s flouting of the rules.  In particular, courts have given teeth to the APA’s notice-and-comment requirements, indicating that community participation can have an enormous effect on legal outcomes. 

The Gresham court was quite explicit in its focus on the government’s failure to meaningfully respond to comments.  First the court cited estimates and concerns raised by commenters regarding the extent of health care coverage loss under Arkansas’ work requirements.  Then it highlighted the Secretary’s “conclusory” dismissal of those concerns, and described the agency’s failure to earnestly engage with the comments as a central aspect of the defective rulemaking.  As such, comments from concerned citizens and community groups became one of the central points of evidence on which the court based its decision.

Gresham was not the first case in which a court blocked a Trump administration attempt to skirt procedural rules.  The decisions at the district and appellate level in Pennsylvania v. Trump are instructive.  In 2017, responding to President Trump’s “Executive Order on Promoting Free Speech and Religious Liberty,” the Treasury, the Department of Labor, and the Department of Health and Human Services together issued two interim final rules to dramatically expand the exemptions and accommodations available to the Affordable Care Act’s Contraceptive Mandate.  By issuing the new regulations as interim rules, the three agencies sought to exempt themselves from normal APA requirements, and to have the rules go into effect prior to notice and comment.

The District Court for the Eastern District of Pennsylvania rejected the government’s arguments, and blocked the rules from going into effect.  While its appeal of the injunction was pending, the agencies issued new rules that purported to finalize the interim ones.  By then the comment period had concluded, and the government claimed that its final rules were responsive to the comments received and thus procedurally sound.  The District Court disagreed again, holding that the subsequent notice-and-comment period did not cure the fatal inadequacies of the interim rules.  The Third Circuit affirmed, explaining that the Agencies’ attempt to avoid notice and comment for the interim rule, and the fact that the final rule was nearly indistinguishable from the interim one, “suggest that the opportunity for comment was not a ‘meaningful’ one in the way the APA requires.”

It is no secret that a high volume of comments can at the very least slow down administrative rulemaking.  But both Gresham and Pennsylvania v. Trump indicate that comments might have significant force.  Comments build an administrative record to which, it is now clear, courts are unwilling to turn a blind eye.  Agencies may not “cursorily” dismiss commenters’ concerns, and they must ensure the final regulation reflects those concerns in a “meaningful” way. 

The Trump Administration’s eagerness to ignore community input and push the bounds of administrative discretion is troubling.  But it should provide no small amount of comfort that courts have pushed back, providing a significant check on the Administration’s actions.  Further, the courts’ singling out the agency’s lack of responsiveness to comments as a crucial aspect of compliance with the APA suggests that community participation in the rulemaking process is much more than a mere formality.  Community organizations should take to heart that their concerns do indeed have an impact, and might just prove to be the sand that brings an administration’s wheels to a grinding halt.

The views reflected in this blog are those of the individual authors and do not necessarily represent those of the Center for Health Law & Policy Innovation or Harvard Law School. This blog is solely informational in nature, and not intended as a substitute for competent legal advice from a licensed and retained attorney in your state or country.