One of the hallmarks of Obamacare has been the sudden, ad hoc modifications of the law, outside the notice and comment process, through a series of executive memorandum, blog posts, and even oh-so-helpful FAQs. I’ve dubbed this administrative law workaround “regulation by blog post.”

And now, it seems, this process has caught up with the administration. D.D.C. has actually enjoined HHS from implementing on its website an FAQ that misstates the law, and results in Hospitals receiving inadequate Medicaid reimbursements!

This is an actual order from a federal court.

On page 18 of the 46 page memorandum, the district court explains why this regulation by blog post failed the APA’s notice-and-comment procedures. In short, the government could not identify the statutory or regulatory authority for FAQ #33, so the government claims the FAQ is the source of authority for the FAQ. Or something like that.

Plaintiffs argue that FAQ 33 was promulgated in violation of the Administrative Procedure Act and that it is contrary to the Medicaid Act. The defendants dispute this and also assert that plaintiffs are unlikely to succeed on the merits because they lack standing. Underlying these arguments is a more fundamental disagreement about the nature of this case: The parties agree that the defendants have a policy of requiring the inclusion of private-insurance payments for Medicaid services in the calculation of a hospital-specific limit, but they disagree on the legal basis for that policy. Plaintiffs assert that neither the Medicaid Act nor the 2008 Rule provides a basis for the policy, so FAQ 33 must be its source. The defendants maintain that FAQ 33 is not the source of the policy, but it took some time for them to identify what is the source. During the December 8, 2014 status hearing, the government could not do so.2 The government now contends that the 2008 Rule provides a legal basis for its policy.

2 See Transcript of Dec. 8, 2014 Hearing, ECF No. 13 at 20:2– 21:12. Defendants agreed that “[t]he agency’s position is essentially that which is in FAQ 33.” Id. at 20:16–17. They could not identify why, however, stating “[i]t may be that there are other documents that state that . . . principle which we believe to be longstanding.” Id. at 20:23–25. When asked by the Court “[w]ell, what is the final agency action?” the government had no answer. See id. at 21:10–12.

In the end, the court finds that the FAQ is the source for the FAQ and policy, and that it is likely “plainly erroneous.”

Accordingly, plaintiffs are likely to succeed in arguing that the Rule cannot support defendants’ policy and that FAQ 33 is the sole authority for it.

To be sure, the Court must “give substantial deference to an agency’s interpretation of its own regulations.” Thomas Jefferson Univ. v. Shalala, 512 U.S 504, 512 (1994). The government, however, has offered a “plainly erroneous interpretation,” id., which ignores a specific definition.

And finally, FAQ 33 is likely a final agency action, so it would be subject to the notice-and-comment provisions of the APA.

Because FAQ 33 makes a substantive change to the formula for calculating a hospital’s DSH limit, binds state Medicaid agencies, and effectively amends the 2008 Rule, it likely constitutes a final agency action that may be challenged pursuant to 5 U.S.C. § 704, and may only be promulgated in accordance with the notice-and-comment provisions of 5 U.S.C. § 553. There is no dispute that FAQ 33 was not subject to notice-and-comment procedures, so plaintiffs are likely to succeed in arguing that FAQ 33 must be set aside as unlawful.

As I followed the implementation of the ACA, I was stunned at how glibly law and policy was changed by updating an FAQ or posting a letter. For reasons I argued in King v. Burwell, such ad-hoc lawmaking that affects millions of people and billions of dollars is really, really troubling. This case made its way to court, as hospitals were receiving inadequate payments. But, for the most part, the government has been spending too much money, bestowing unappropriated benefits, and waiving mandates, in the absence of any statutory authority, standing was lacking.

H/T Andrew Grossman