American Hospital Association v. Bowen

In American Hospital Association v. Bowen, 834 F.2d 1037, 1047 (D.C.Cir.1987) , the court recognized that "enforcement plans developed by agencies to direct their enforcement activity warrant considerable deference" and are typically exempt from notice and comment requirements. Id. at 1050. Consequently, the court held that two manuals issued by the Department of Health and Human Services to govern the manner in which "peer review organizations" monitored the activities of Medicare providers were procedural rules exempt from 5 U.S.C. 553. Id. at 1049-51. In American Hosp. Ass'n v. Bowen, 834 F.2d 1037 (D.C.Cir.1987), the D.C. Circuit addressed the issue of whether the Department of Health and Human Services (HHS) had to subject certain of its contracts to Administrative Procedure Act (APA) notice and comment. As part of the Medicare program, HHS was required to contract with "peer review organizations" (PROs), private organizations of doctors that would monitor the professional activities of Medicare service providers in their areas. Id. at 1041. Congress granted HHS great discretion to contract with each PRO as it saw fit, in order to tailor the service review process to local needs. Id. at 1053. The statute provided specifically that: Contracting authority of the Secretary under this section may be carried out without regard to any provision of law relating to the making, performance, amendment or modification of contracts of the United States as the Secretary may determine to be inconsistent with the purposes of this part. Id. (quoting 42 U.S.C. Sec. 1320c-2(e)). The D.C. Circuit held that this statutory language exempted HHS only from "the vast corpus of laws establishing rules regarding the procurement of contracts from the government," and did not exempt HHS from the "general restraints" of the APA. Id. at 1054. More specifically, the language did not "restore a broad exemption from all APA requirements that would allow HHS on its own to modify vitally important provisions of peer review." Id. The court found that since Congress had granted HHS very broad discretion to implement the peer review program through individualized contracts with PROs, the danger of HHS' "legislating" the program through contractual terms was too high unless those terms were subject to APA notice and comment. Id. The court concluded that "any contract provisions that are legislative are subject to Sec. 553's notice and comment requirements." Id. In American Hospital Ass'n v. Bowen, 834 F.2d 1037, 1045 (D.C.Cir. 1987) the D.C. Circuit defined substantive rules, as contrasted with interpretive rules, as those which "grant rights, impose obligations, or produce other significant effects on private interests, or which effect a change in existing law or policy." With respect to the distinction between procedural and substantive rules, Bowen suggested that substantive rules "encode a substantive value judgment or put a stamp of approval or disapproval on a given type of behavior." Id. at 1047.