SPEAKERS CONTENTS INSERTS
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63–853
2000
REGULATORY FAIR WARNING ACT OF 1999
HEARING
BEFORE THE
SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
ON
H.R. 881
JUNE 29, 1999
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Serial No. 81
Printed for the use of the Committee on the Judiciary
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR S. SMITH, Texas
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
LINDSEY O. GRAHAM, South Carolina
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MARY BONO, California
SPENCER BACHUS, Alabama
JOE SCARBOROUGH, Florida
DAVID VITTER, Louisiana
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
THOMAS E. MOONEY, SR., General Counsel-Chief of Staff
JULIAN EPSTEIN, Minority Chief Counsel and Staff Director
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Subcommittee on Commercial and Administrative Law
GEORGE W. GEKAS, Pennsylvania, Chairman
LINDSEY O. GRAHAM, South Carolina
STEVE CHABOT, Ohio
ASA HUTCHINSON, Arkansas
SPENCER BACHUS, Alabama
MARY BONO, California
JOE SCARBOROUGH, Florida
JERROLD NADLER, New York
TAMMY BALDWIN, Wisconsin
MELVIN L. WATT, North Carolina
ANTHONY D. WEINER, New York
WILLIAM D. DELAHUNT, Massachusetts
RAYMOND V. SMIETANKA, Chief Counsel
SUSAN JENSEN-CONKLIN, Counsel
JAMES W. HARPER, Counsel
C O N T E N T S
HEARING DATE
June 29, 1999
TEXT OF BILL
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H.R. 881
OPENING STATEMENT
Gekas, Hon. George W., a Representative in Congress from the State of Pennsylvania, and chairman, Subcommittee on Commercial and Administrative Law
WITNESSES
Bolstridge, June, President, GAIA Corporation, Silver Spring, MD
Gellhorn, Ernest, Professor of Law, George Mason University School of Law, Washington, DC
Goodman, Steve, JSG Trading Corporation, Tinton Falls, NJ
Hahn, Robert, Director, AEI-Brookings, Joint Center for Regulatory Studies, Washington, DC
Somson, Barbara C., Deputy Legislative Director, United Automobile, Aerospace and Agricultural Implement Workers of America, UAW, Washington, DC
Sparks, David, Senior Vice President of Finance, Providence Hospital, Representing the American Hospital Association, Washington, DC
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LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Bolstridge, June, President, GAIA Corporation, Silver Spring, MD: Prepared statement
Gellhorn, Ernest, Professor of Law, George Mason University School of Law, Washington, DC: Prepared statement
Goodman, Steve, JSG Trading Corporation, Tinton Falls, NJ: Prepared statement
Hahn, Robert, Director, AEI-Brookings, Joint Center for Regulatory Studies, Washington, DC: Prepared statement
Somson, Barbara C., Deputy Legislative Director, United Automobile, Aerospace and Agricultural Implement Workers of America, UAW, Washington, DC: Prepared statement
Sparks, David, Senior Vice President of Finance, Providence Hospital, Representing the American Hospital Association, Washington, DC: Prepared statement
REGULATORY FAIR WARNING ACT OF 1999
TUESDAY, JUNE 29, 1999
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House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.
The subcommittee met, pursuant to call, at 10:01 a.m., in Room 2237, Rayburn House Office Building, Hon. George W. Gekas [chairman of the subcommittee] presiding.
Present: Representatives George W. Gekas, Joe Scarborough, Mary Bono, Melvin L. Watt, and William D. Delahunt.
Staff present: Raymond V. Smietanka, Subcommittee Chief Counsel; James W. Harper, Counsel; Sarah Zaffina, Staff Assistant; David Lachmann, Minority Professional Staff Member.
OPENING STATEMENT OF CHAIRMAN GEKAS
Mr. GEKAS. The hour of 10 a.m. having arrived, the committee will come to order. Pursuant to the rules of the House which govern the activities of each committee, a hearing of this type cannot proceed without a hearing quorum to be made up of two members. The Chair being the only member now present, we will have to recess until a second member should arrive. We have expectations that that will occur very shortly, so I will ask you to be patient along with the Chair pending the arrival of that second member. We stand in recess.
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[Recess.]
Mr. GEKAS. The time of the recess having expired, we note the presence of our colleagues, the gentleman from Massachusetts, Mr. Delahunt, and the gentleman from North Carolina, Mr. Watt. They together with the Chair constitute more than a hearing quorum required by the rules so we will proceed.
This is of course a revival of our interest in determining whether or not we should have statutory relief in the agency world where many of us believe that we ought to be codifying fair warning to individuals and entities across the Nation when dealing with Federal agencies in the myriad of problems and issues that arise on a daily basis.
The Chair was prompted into an inquiry on this whole realm of contentious questions by a New Jersey case that resulted in the Federal courts deciding that an agency had indeed not rendered fair warning to a particular citizen group and as a result, the sanctions that had been forced upon the individuals by an agency were set aside.
That meant to me that somewhere along the line the agencies were not paying strict attention to the needs as required by the Constitution and by simple common sense that the citizenry in acting on certain expectations should not be impeded in the following of their patterns of business and individual dealings, should not be impeded by arbitrary dealings on the part of the agencies, and this led to a whole list of anecdotes and other facets of evidence that came before us that made us feel even more resolute in revisiting this issue and to see whether or not we can reach an agreement on how best to codify the fair warning.
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The three elements that I wish the record would show, are that the bill that we would propose would prohibit the imposition of administrative civil or criminal sanctions if rules and regulations are not available to the public or known to the regulated community, if rules and regulations do not give fair warning of what is prohibited or required or officials have misled people about what rules and regulations prohibit or require. These are the bases for producing the witnesses that we have here today and I think because we are late in starting that we will, without objection, unless someone really wants to make an opening statement, we can proceed with the witnesses at hand.
[The bill, H.R. 881, follows:]
106TH CONGRESS
1ST SESSION
H. R. 881
To provide that under certain conditions no sanction shall be imposed on a person by an agency for a violation of a rule and no civil or criminal sanction may be imposed by a court for a violation of a rule.
IN THE HOUSE OF REPRESENTATIVES
MARCH 1, 1999
Mr. GEKAS (for himself, Mrs. BONO, Mr. BRYANT, Mr. BUYER, Mr. COMBEST, Mr. ENGLISH, Mr. GOODLATTE, Mr. GRAHAM, Mr. MCINTOSH, Mr. GARY MILLER of California, Mr. PICKETT, Mr. SESSIONS, Mr. SISISKY, and Mr. TALENT) introduced the following bill; which was referred to the Committee on the Judiciary
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A BILL
To provide that under certain conditions no sanction shall be imposed on a person by an agency for a violation of a rule and no civil or criminal sanction may be imposed by a court for a violation of a rule.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ''Regulatory Fair Warning Act of 1999''.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) Federal regulations advance many important goals, including protecting the environment and the health and safety of all Americans.
(2) For regulations to effectively protect the public and promote the public interest, the fact of their existence and what they mean must be available to the persons and entities willing to investigate what the law and regulations require.
(3) Fairness also requires that a person should be able to learn of regulations and of their meanings before they can be sanctioned for violating them.
(4) Fairness also should prevent a person from being sanctioned for violating a regulation if an official has misled the person as to what the regulation prohibits or requires and the person has reasonably relied upon such misleading information.
(5) The Due Process Clause of the Fifth Amendment gives Americans a right to have access to regulations and the opportunity to learn their meanings before such regulations can be the basis for depriving them of liberty or property.
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(6) Effective procedures for protecting this right can improve the effectiveness of regulation, foster the sense that regulations are fairly enforced, and ensure that the right to due process actually benefits Americans.
(7) Ensuring that agencies give Americans access to regulations, the opportunity to learn their meanings, and access to accurate information about them before any sanction can be imposed will encourage agencies to make regulatory requirements clearly known, will encourage people and entities to learn what regulations require of them, and will foster legality, fairness, and justice in the enforcement of Federal regulations.
SEC. 3. BAN ON IMPOSITION OF SANCTIONS BY AGENCIES IN CERTAIN CIRCUMSTANCES.
Section 558 of title 5, United States Code, is amended by adding at the end the following new subsection:
''(d)(1) No sanction shall be imposed on a person by an agency for a violation of a rule if the agency finds any one of the following:
''(A) The rule was not—
''(i) printed in the Code of Federal Regulations;
''(ii) printed in the Federal Register;
''(iii) known to the person; or
''(iv) knowable to a person who has engaged in a reasonable, good faith investigation of the rules applicable to the conduct that allegedly violated the rule.
''(B) The rule failed to give the person fair warning of the conduct that the rule prohibits or requires.
''(C) With respect only to a retrospective sanction, the person acted in reasonable reliance upon written representations about what the rule prohibits or requires which were issued by the agency or an official with actual or apparent authority to interpret, administer, or enforce the rule.
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''(2) For purposes of this subsection, an agency shall find that a rule gives fair warning of the conduct that the rule prohibits or requires if a reasonable person, acting in good faith, would be able to identify, with reasonable certainty, the standards with which the rule requires the person's conduct to conform.''.
SEC. 4. BAN ON IMPOSITION OF SANCTIONS BY COURTS IN CERTAIN CIRCUMSTANCES.
(a) IN GENERAL.—Chapter 111 of title 28, United States Code, is amended by adding at the end the following new section:
''§1660. Ban on sanctions for violations of agency rules in certain circumstances
''(a) No civil or criminal sanction may be imposed by a court for a violation of a rule if the court finds any one of the following:
''(1) The rule was not—
''(A) printed in the Code of Federal Regulations;
''(B) printed in the Federal Register;
''(C) known to the person; or
''(D) knowable to a person who has engaged in a reasonable, good faith investigation of the rules applicable to the conduct that allegedly violated the rule.
''(2) The rule failed to give the person fair warning of the conduct that the rule prohibits or requires.
''(3) With respect only to a retrospective sanction, the person acted in reasonable reliance upon written representations about what the rule prohibits or requires which were issued by the agency or an official with actual or apparent authority to interpret, administer, or enforce the rule.
''(b) For purposes of this section, a court shall find that a rule gives fair warning of the conduct that the rule prohibits or requires if a reasonable person, acting in good faith, would be able to identify, with reasonable certainty, the standards with which the rule requires the person's conduct to conform.
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''(c) For purposes of this section, the term 'rule' shall have the meaning given that term by section 551 of title 5.''.
(b) CLERICAL AMENDMENT.—The table of sections at the beginning of chapter 111 of title 28, United States Code, is amended by adding after the item relating to section 1659 the following new item:
''1660. Ban on sanctions for violations of agency rules in certain circumstances.''.
Mr. GEKAS. The first panel is made up of David Sparks, a certified public accountant who serves as Senior Vice President of Finance at Providence Hospital here in the District of Columbia. He earned a BA in English and BS in accounting from the University of Maryland and an MBA from Loyola College.
Steven Goodman is the founder and owner of JSG Trading Corporation, a produce company in Tinton Falls, New Jersey. He started the business in 1988 and has built it into a $35 million per year company with a number of employees.
June Bolstridge is President of the GAIA Corporation in Silver Spring, Maryland. She is certified as a qualified environmental professional and is an adjunct professor at Johns Hopkins University in the environmental engineering master's program. Ms. Bolstridge has a bachelor of science degree in botany and chemistry and a master's degree in environmental engineering.
We will begin the testimony with that of Mr. Sparks, whom I will ask to restrict the remarks to approximately 5 minutes, with the assertion that the written statement of all the witnesses will be accepted for the record without objection. So we will proceed with Mr. Sparks.
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STATEMENT OF DAVID SPARKS, SENIOR VICE PRESIDENT OF FINANCE, PROVIDENCE HOSPITAL, REPRESENTING THE AMERICAN HOSPITAL ASSOCIATION, WASHINGTON, DC
Mr. SPARKS. Thank you, Mr. Chairman. My name is David Sparks. I am Senior Vice President of Providence Hospital in Washington, D.C. Sister Carol, who is the Chief Executive Officer, regrets that she was unable to be here.
I am here as a member of the American Hospital Association, which represents 5,000 hospitals, health systems, networks, and other health care providers. We appreciate the opportunity to present our views on the Regulatory Fair Warning Act of 1999 and on due process, fair warning, and common sense in the enforcement of Federal rules and regulations.
I would like to focus on two examples that we, like many hospitals, have experienced. They reflect an experience routed in the assumption of guilt rather than innocence in twisting truth rather than finding it, and in confrontational tactics rather than honest and fair communication.
The first example of the need for this kind of legislation under consideration by this committee is the government's use of the False Claims Act in Medicare billing investigations.
I will focus specifically on what has become known as Operation Bad Bundle. Operation Bad Bundle is an investigation by the U.S. Department of Justice into whether hospitals billed Medicare individually for outpatient blood chemistry tests that DOJ alleges should have been grouped together at lower payment rates. On July 11, 1997, we received a letter from DOJ's Office of the Attorney General stating that they were conducting an investigation into Medicare and Medicaid claims submitted by our facility for outpatient laboratory tests. In addition, DOJ was investigating similar claims submitted under the Federal Employees Health Benefit Program. DOJ had determined and identified certain claims that may have been unbundled but refused to provide the details of their findings unless we agreed to a self-disclosure program within 14 days of the date of the letter from OIG. If we refused, OIG would proceed with requesting the ''review from your institution's activities and seek appropriate remedy.''
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This statement, of course, followed the U.S. Attorney's detailed description of the penalties for each false claim. The implications were clear. An $8 billing error could cost us triple damages plus penalties up to $10,000 for a total of $10,024 per claim. With our hospital laboratory Medicare outpatient test volume of 133,703 tests for the period in question, the potential liabilities and penalties could be devastating. An error rate of just 5 percent could result in potential damages and fines of approximately $67 million. With an annual net income stream of $6 million, which is projected to disappear in the year 2001 from the impact of the Balanced Budget Act, we really had no choice. We really had to succumb to DOJ's legalized fiscal coercion.
Many hospitals hired consulting firms to perform an audit required by DOJ. These consultants utilized statistical sampling of hospital data to estimate alleged inappropriate billings. We chose a somewhat different approach. Because our systems did not retain payment data in the CPT–4 code level, we requested DOJ to provide us a computer tape with the data for Medicare, Medicaid, and FEHBP. We received the Medicare data 13 months after the initial DOJ demand letter. From this data, I personally completed a review of every single claim for outpatient Medicare laboratory services for the years in question. The project took me over 20 man-days to complete. The results show that we were overpaid by 31,773.03. Of the 133,703 Medicare laboratory claims submitted, only 4,980, or 3.8 percent, contained errors. The average amount of the error was 24 cents per submitted claim or 1.6 percent of the average payment of $14.72. These results were sent to DOJ on January 29, 1999, and were reviewed by the DOJ auditors at our facility on May 11. Since then we have had no response from DOJ on this case.
Almost 2 years after the initial DOJ letter, we have not received any data on Medicaid or FEHBP. We have not had an opportunity to share in the findings from DOJ that we have requested on several occasions and we have not received a response to our attorneys' request for the underlying legal predicates upon which the action of DOJ was being taken. No formal answer has been received from DOJ on these issues.
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In addition, FEHBP, there are no regulations, no statutes, no guidelines, no manuals published by FEHBP or any of its insurers through whom they purchase insurance coverage for Federal employees. FEHBP based their case solely on the American Medical Association CPT–4 manual, claiming it as the industry standard. The AMA CPT–4 manual has not changed its foreword since it was first printed in 1966. It states that it is a ''listing of descriptive terms and identifying codes for reporting medical services and procedures performed by physicians.'' from 1966 to the mid-90's, no hospital billing operation used this as a billing guideline. It is not the industry standard as claimed. The DOJ has refused to separate the cases between Medicare and Medicaid and FEHBP.
Mr. GEKAS. Will the gentleman draw his testimony to a close.
Mr. SPARKS. We have also included in our testimony a second issue that deals with endoscopic procedures and the fact that agents of the Federal Government have not followed the Medicare rules and regulations and have undertaken an examination of endoscopic procedures which has cost us $10,000 in attorneys fees and $5,000 in reimbursement, and it is clear they have violated the rules and regulations as published by HCFA in the Medicare program. And this is an agent hired by HCFA to proceed with that.
In conclusion, I think AHA has demonstrated its willingness to continue to work with HCFA to improve ways to promulgate the rules and regulations. We know the size and complexity of the Medicare-Medicaid regulations is challenged and we are proud to have been able to help the agency and pledge to do all we can in that process. We believe that the Regulatory Fair Warning Act of 1999 can help achieve this goal and we support this legislation because it recognizes that clarity is a key ingredient in fairness.
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Thank you.
[The prepared statement of Mr. Sparks follows:]
PREPARED STATEMENT OF DAVID SPARKS, SENIOR VICE PRESIDENT OF FINANCE, PROVIDENCE HOSPITAL, REPRESENTING THE AMERICAN HOSPITAL ASSOCIATION, WASHINGTON, DC
Mr. Chairman, I am David G. Sparks, Senior Vice President of Providence Hospital in Washington, D.C. Providence is a full-service provider of health care to a diverse community, offering everything from inpatient and rehabilitation care to outpatient and long-term care. I am here as a member of the American Hospital Association (AHA), which represents 5,000 hospitals, health systems, networks, and other providers of care. We appreciate this opportunity to present our views on the Regulatory Fair Warning Act of 1999, and on due process, fair warning, and common sense in the enforcement of federal rules and regulations.
A MAZE OF REGULATION
Because hospitals and health systems deal every day with the lives and health of people, we are among the most regulated fields in America. Our Medicare billings alone are subject to nearly 1,800 pages of law, nearly 1,300 pages of regulations interpreting the law, and more than 14,000 pages of manual instructions interpreting the regulations.
At the same time, hospitals, health systems and other care providers must comply with instructions from 43 different Medicare Part A fiscal intermediaries, and 28 Medicare Part B fiscal intermediaries—private insurance companies that contract with the Health Care Financing Administration (HCFA), which oversees Medicare, to process Medicare claims.
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This does not include the laws, regulations and instructions we are subject to under Medicaid, the Occupational Safety and Health Administration, the Environmental Protection Agency, the Centers for Disease Control, the Internal Revenue Service, and other regulatory agencies.
All of this adds up to a huge maze of complex and often conflicting rules, regulations and instructions with which hospitals must deal every day. There is a desperate need for clarity.
This need can be met if federal rules and regulations are issued in a timely manner, are made available to us, and are understood not just by those whom they regulate, but by those who enforce them as well.
THE REGULATORY FAIR WARNING ACT OF 1999
Legislation like H.R. 881, the Regulatory Fair Warning Act of 1999 introduced by Representative Gekas, can go a long way toward providing clarity and fairness, by requiring government agencies to issue regulations in a timely manner, and to make them available and understood by all parties. At the same time, it can help restore trust in our government's regulatory system.
The legislation would require federal agencies to give the regulated community adequate notice of the interpretation of an ambiguous rule. Agencies and courts would be barred from imposing penalties based on rules or policies that are not clearly known to the regulated community. The agencies would be subsequently encouraged to make known what is required or prohibited by their rules.
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Specifically, the act would prohibit a civil or criminal sanction from being imposed by an agency or court if a rule or regulation is not available to the public or known to the regulated community; if the rule or regulation does not give fair warning about what is prohibited or required; or officials have been misleading about what a regulation prohibits or requires.
It is critical that hospitals and health systems be provided with fair warning of what the law and regulations require of them. It is just as critical that hospitals and health systems that rely on these regulations, or on instructions from the agencies that enforce them, not be punished for doing so. This bill would help ensure fairness in a system that, currently, does not engender fairness.
THE NEED FOR CLARITY AND FAIRNESS
A perfect example of the need for this legislation is the government's use of the False Claims Act in Medicare billing investigations. I'll focus specifically on what has become known as ''Operation Bad Bundle.''
''Operation Bad Bundle'' is an investigation by the U.S. Department of Justice (DOJ) into whether hospitals billed Medicare individually for outpatient blood chemistry tests that DOJ alleges should have been grouped together at a lower payment rate. DOJ has conducted the investigation under the False Claims Act, which provides for triple damages plus fines of anywhere from $5,000 to $10,000 for each alleged misbilling. This means that a single misbilling of an $8 lab test could cost a hospital $10,024 in penalties.
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HCFA has a history of conflicting instructions to hospitals on this issue. For example, the agency has told hospitals to bundle, or group several tests for a single payment, at the same time that it has instructed them to unbundle lab tests before submitting them for payment. This went on even after many years of Congress ordering HCFA to issue clear regulations. The fiscal intermediaries—HCFA's contractors—have provided conflicting instructions as well. Yet, hospitals that followed these instructions, provided by agents of the government, are being prosecuted by DOJ under the False Claims Act.
Our contention is that DOJ's investigation is being used to prosecute Medicare billing errors instead of rooting out real fraud.
On July 11,1997, Providence Hospital received a letter from DOJ stating that they were conducting an investigation into Medicare and Medicaid claims submitted by our facility for outpatient laboratory services. In addition, DOJ was investigating similar claims submitted under the Federal Employees Health Benefit Program (FEHBP).
DOJ had identified certain claims that may have been unbundled, but refused to provide the details unless we agreed to self-disclosure within 14 days of the date of the letter from DOJ. If we refused, DOJ would proceed with what it called a ''review of your institution's activities and seek the appropriate remedy . . .'' This statement, of course, followed the U.S. Attorney's detailed description for each false claim. The implications were clear: each $8 billing error could cost us triple damages plus $10,000 for a total of $10,024 per claim. With our hospital laboratory Medicare outpatient tests volume of 133,703 for the period in question, the potential penalties would be devastating. An error rate of just 5 percent could result in damages and fines of nearly $67 million. With an annual net income of $6 million, which is projected to disappear in 2001 due to the Balanced Budget Act's Medicare reductions, we had no choice but to cave in to DOJ's legalized fiscal coercion.
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Many hospitals hired consulting firms to perform the audit required by DOJ. These consultants utilized statistical sampling of hospital data to estimate the alleged inappropriate billing. We chose a somewhat different approach. We asked DOJ to provide a computer tape of the data for Medicare, Medicaid and FEHBP. We received the Medicare data 13 months after the initial DOJ demand letter arrived. From this data I personally completed a review of every single claim for outpatient Medicare laboratory service for the years in question. The project took more than 20 days to complete. The results showed that we were overpaid by $31,773.03. Of the 133,703
Medicare claims submitted, only 3.8 percent contained errors, with the average error amounting to 24 cents per claim—1.6 percent of the average payment of $14.72 per test. These results were sent to DOJ on January 29, 1999, and were reviewed by DOJ's auditors at our facility on May 11. Since then we have had no response from DOJ.
Almost two years since the DOJ letter arrived, we have not received any data for Medicaid or FEHBP claims with which we could do an audit. We have not received a response to our attorney's request for the underlying legal predicates upon which the actions of DOJ were taken. And DOJ still has not shared its findings with us, despite several requests.
What is most frustrating about this two-year process is the total lack of a legal basis for pursuing this under the False Claims Act. Many hospitals have paid exorbitant settlements. Many were punished or threatened for doing what we all thought we were supposed to be doing. Because the government had never revealed a legal basis for its claims that tests must be bundled, the AHA commissioned a study by the law firm Jones, Day, Reavis & Pogue that looked into whether there was a legal basis for DOJ's investigations. The results say a lot about how difficult it is to discern what's wrong or right under the government's rules and regulations.
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NO BASIS FOR DOJ'S POSITION
The Jones Day report chronicles, from 1984 to 1998, numerous ambiguous and sometimes conflicting pronouncements on bundling from the various agencies involved in Medicare reimbursement. But the report is perhaps most striking for what it did not find: any statutory provisions or duly promulgated regulations that place the burden on hospitals to bundle their claims. Instead, the report shows that, until recently, HCFA guidelines concerning outpatient laboratory tests were payment guidelines for fiscal intermediaries, not billing guidelines for hospitals.
The report also reveals the following:
Medicare claims are not invoices. The report examines how Medicare reimburses hospitals for outpatient laboratory tests. It is crucial to recognize that claims submitted by hospitals are not tantamount to invoices that are paid in the amount submitted. Rather, Congress requires the HHS Secretary, through fiscal intermediaries, to determine the payment amount based on a number of different factors and comparisons. Accordingly, fiscal intermediaries and carriers are to make payment determinations on the basis set forth in the Medicare statute, regardless of the billing or coding practice of the provider.
The HHS Office of Inspector General (OIG) confirms that there is no obligation for hospitals to bundle tests. In its 1995, 1996 and 1997–98 editions of its guidelines (known as the Red Book), the OIG confirmed that hospitals were under no legal obligation to bundle. Rather, the OIG criticizes the fiscal intermediaries for failing to bundle blood chemistry tests that were submitted individually by hospitals.
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The Health Care Financing Administration (HCFA) also confirms that there is no obligation for hospitals to bundle tests. In its Intermediary Manual, HCFA instructed fiscal intermediaries to bundle blood chemistry tests submitted individually by hospitals. HCFA also instructed the intermediaries to use computers to detect unbundled lab claims and bundle them together for payment. These manuals do not instruct intermediaries to deny payment for unbundled tests or to investigate providers for fraud. On the contrary, they instruct intermediaries to perform the bundling themselves if doing so would lead to the lowest appropriate reimbursement.
Numerous fiscal intermediaries confirm that there is no legal obligation for hospitals to bundle tests. Fiscal intermediaries throughout the country advised hospitals that if they did not bundle blood chemistry tests, then the fiscal intermediaries would do it for them.
Manual provisions are not binding regulations. Intermediary and hospital manual instructions cannot serve as the basis for imposing substantive obligations on hospitals, nor subject them to liability beyond the recoupment of overpayments. These manuals were not promulgated pursuant to the Administrative Procedures Act and cannot legally serve as the basis for imposing substantive affirmative legal obligations upon hospitals. Thus, the mere violation of a manual provision does not constitute a violation of the False Claims Act.
Neither the OIG nor DOJ can point to any legal authority requiring bundling of laboratory test claims that has been violated by AHA member hospitals.
While the Jones Day report did not address the FEHBP, there are no regulations, statutes, guidelines, or manuals published by FEHBP or any of its insurers through whom they purchase the insurance coverage for federal employees. DOJ based its FEHBP case solely on the American Medical Association's (AMA) CPT–4 Manual, claiming it as the industry standard. The AMA's CPT–4 Manual has not changed its foreword since it was first printed in 1966. It states that it is ''a listing of descriptive terms and identifying codes for reporting medical services and procedures performed by physicians.'' From 1966 until the mid 1990s, no hospital billing operation used this as a billing guideline because it was not the industry standard. But, at least in Providence's case, DOJ has refused to separate the Medicare, Medicaid and FEHBP issues.
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MORE REVIEWS OCCURING
A new wave of reviews is being undertaken by HCFA since the agency has charged its intermediaries with doing payment reviews. HCFA also has contracted with 12 computer firms to check payments for errors.
Last August our intermediary, Blue Cross of Maryland, sent a letter indicating they had done a review of 14 claims for endoscopic procedures and denied about $5,000 in payments. The basis for the denials was threefold: First, they claimed there was improper coding based on an
Intermediary Provider Bulletin. However, that bulletin was in direct conflict with the instructions included in a HCFA Peer Review Organization letter, and with a Medicare intermediary manual.
Second, they claimed there was improper use of revenue codes on the bills. Revenue codes tell Medicare what services were provided, like supplies, radiology tests or lab tests. The accusation, however, was in direct conflict with HCFA's instructions to providers for billing ambulatory surgery. Our revenue codes are valid, legal, and absolutely necessary for cost reporting.
Finally, the intermediary claimed that certain cases were not medically necessary, though they offered no standards for how they determined medical necessity. Our board-certified chair of anesthesia provided a detailed justification for each case.
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We have sent an appeal to the intermediary and await a hearing date. Attorney's fees, currently more than $10,000, the administrative time wasted, and the cost of witnesses will be significant. Appealing 14 claims for a total of $5,000 may seem insignificant, but the intermediary demanded we audit and resubmit every claim for two years.
Given that HHS and HCFA are undertaking new efforts to review claims for appropriateness of payment, it is critical that those reviews be conducted by knowledgeable agents in a fair and objective manner.
CONGRESS RECOGNIZES THE PROBLEM
Hospitals and health systems across the nation made the case to their senators and representatives that this kind of treatment was unfair, and the result was the Health Care Claims Guidance Act (H.R. 3523/S.2007). This legislation would have required DOJ and HCFA to have evidence of intentional wrongdoing before using the False Claims Act to threaten hospitals with prosecution for Medicare billing errors. In response to a groundswell of congressional support for the legislation—it attracted more than 200 cosponsors in the House alone—DOJ and HHS OIG issued guidelines for the government's use of the False Claims Act. The guidelines recognize that there must be some proof of wrongdoing by hospitals before prosecution is threatened. We welcomed the guidelines, and we believe that they can be effective if strictly enforced.
The AHA has met with HHS Secretary Shalala and HHS Inspector General June Gibbs Brown to discuss the government's handling of anti-fraud activities. We have worked with them on a model compliance program to help hospitals better adhere to Medicare billing regulations. However, for hospitals to implement effective compliance plans, HCFA must clarify program rules so they can be better understood and followed. The General Accounting Office agreed, stating in a report on the False Claims Act that HCFA and other government agencies must provide ''clear and timely'' rules, regulations and instructions.
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We also want the federal government to ensure that fiscal intermediaries are issuing instructions to hospitals that comply with the intent of HCFA. Contradictory instructions often emerge from fiscal intermediaries as a result of confusing regulations.
The AHA supports improving the system through which HHS' concerns about Medicare billing are communicated to the hospital field by:
disseminating information to the field about billing practices that HCFA and OIG are concerned about
establishing an ''early warning system'' to notify hospitals directly and promptly about potential billing problems, rather than having them rely on fiscal intermediaries for information.
CONCLUSION
The AHA is ready and willing to continue our work with HCFA to improve the way rules and regulations are promulgated. We know the size and complexity of Medicare and Medicaid regulations is a challenge for HCFA. We pledge to do all we can to help HCFA make the regulatory system work better not just for hospitals and health systems, but also for the patients and communities we serve.
The Regulatory Fair Warning Act of 1999 can help us achieve this goal. We support this legislation because it recognizes that clarity is a key ingredient in fairness, and because it protects hospitals and other regulated entities from being punished for following the rules.
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Mr. GEKAS. Thank you, Mr. Sparks. We turn to Mr. Goodman. Five minutes.
STATEMENT OF STEVE GOODMAN, JSG TRADING CORPORATION, TINTON FALLS, NJ
Mr. GOODMAN. Good morning and thank you for allowing me to testify before this important committee. My name is Steven Goodman. I am the President of JSG Trading Corporation located in Tinton Falls, New Jersey. JSG is a small business licensed under the Perishable Agricultural Commodities Act, known as PACA, which is administered by the PACA branch of the Department of Agriculture. We have eight employees who work at JSG trading. Except for the matter I am here to discuss, I have had no problems with USDA. However, because of this matter, USDA threatens to end JSG's business and force myself and other JSG employees to find other work.
In 1993, the PACA branch filed an administrative action against JSG Trading for violating section 24 of the PACA for engaging in commercial bribery. In 1995, an administrative law judge ruled in favor of USDA and on appeal the judicial officer upheld his decision. During the entire course of the investigation and proceeding, USDA would consider no less sanction than license revocation.
For the first time in almost 7 1/2 years, my case was heard by someone other than those in the USDA regulatory system. Mr. Chairman, I truly believe that the system that is in place at USDA to investigate PACA violations is biased against those they investigate and prosecute. And I truly believe in my case the investigators, the prosecutors, the administrative law judge and the judicial officer were so used to supporting each other and adopting each other's arguments that they missed or misstated facts, ignored credible evidence and totally discounted my witnesses.
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One example. Both the ALJ and the JO determined that JSG unlawfully gifted Mr. Gentile a Mercedes in violation of PACA. The fact is that a legitimate company named Dirtbag Trucking signed the lease of the car for Mr. Gentile, who worked for and was an owner of Dirtbag Trucking. The ALJ decided that it made no business sense for Dirtbag to lease this expensive automobile for Mr. Gentile's use. The JO simply adopted the ALJ's findings on the issue.
In addition, I cannot understand how the ALJ in my case can come to the oral argument in the court of appeals and then immediately after the hearing join in a meeting of all USDA—of the USDA group in the lawyers lounge after the hearing knowing the case might go before the judicial officer. It doesn't seem right.
On May 25, 1999, U.S. Court of Appeals for the D.C. Circuit reversed USDA's decision to revoke JSG's license. The reasons given by a unanimous panel of this court through Chief Judge Edwards are pertinent to this hearing and strongly support the prompt passage of the Regulatory Fair Warning Act of 1999. The court reviewed the case under the arbitrary and capricious standard of the Administrative Procedures Act and found that the USDA's decision was arbitrary and capricious and abuse of discretion not in accordance with the law and unsupported by substantial evidence.
The court found that the central issue to my case was whether the agency applied the same commercial bribery standard in JSG Trading as it applied in two earlier cases and if not, whether it adequately explained its reasons for departing from prior agency precedent. My lawyers argued that USDA had in fact departed from all precedents on commercial bribery and applied a new per se standard for commercial bribery which had no legal basis. Incredibly, USDA's lawyer at oral argument conceded that the agency had applied this new test, conceded there was no legal precedent to support the new per se test and conceded that the judicial officer failed to make explicit findings with respect to the required elements of commercial bribery. USDA's lawyer argued that it was permissible to use this new per se test without first informing my lawyers, me, or anyone in the industry so that we could either change the way we did business before the PACA charge was filed or properly defend the case after a PACA complaint was filed. He also said that USDA did not issue any interpretive rule, warning, advice to the industry, or anything to tell the industry about USDA's new per se test. It was used for the first time against JSG Trading.
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Mr. Chairman, Chief Judge Edwards found that the conclusion reached by the judicial officer blatantly ignored the test for commercial bribery, that it was far fetched and that there was no precedent for how the agency defined commercial bribery. Further, the court found the judicial officer had created a novel theory of commercial bribery and the new per se test deviated substantially from the standard test previously used. In this situation, the court said USDA was obligated to articulate a principal rationale for departing from the test. The court found USDA failed to explain its abrupt departure from prior precedent.
Mr. Chairman, USDA's attorney went even further. The court asked, ''Now you don't think you can actually remove a person's license without telling him what his duty is in advance, or do you? You think you can make it up case by case what his duty is without any notice to the industry of what that duty might be.'' USDA's attorney responded, ''We have to be able to do that,'' to which the court replied, ''So, you give no clues, surprises are permitted and we can change tomorrow, whatever.'' Mr. Chairman, I would like to offer the transcript of the oral argument into the record from the court of appeals.
Mr. GEKAS. Without objection, the document will be admitted into the record.
Mr. GOODMAN. Thank you. Mr. Chairman, H.R. 881 would have prevented this abuse. The PACA regulates approximately 16,000 small businesses across the United States. The attorney representing USDA admitted during the oral argument that PACA rules are written in the broadest statutory language possible. For example, section 24 of PACA and its regulations refer to expressed and implied duties that must be complied with by the industry. However, USDA has chosen not to tell the industry that it regulates what these implied duties are. Instead, in my case USDA has arbitrarily chosen to revoke my license and without warning that it was applying a new test. With no written rules or policies, USDA's enforcement of this implied duty then became totally arbitrary and abuse of discretion.
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Further, the court noted that Congress recognizes the legality of promotional efforts when it passed the 1995 amendments to the PACA and that there was no reasoning offered to support the agency's decision that these payments at issue were not promotional devices. The court noted the agency has yet to advance coherent theory to support it. This is significant because by its own admission, USDA failed to give me and the entire industry notice that payments to a customer or his employee of more than a de minimis amount was a violation of the PACA. It was not a technical violation but a substance violation for which USDA demanded revocation of a PACA license. We were given no opportunity to adjust or change our practices. Had we known what USDA policies were, we would have stopped. USDA said gotcha. H.R. 881 would have prevented this. Specifically——
Mr. GEKAS. Would the gentleman bring his statement to a close?
Mr. GOODMAN [continuing]. The 1995 amendments to PACA mandate that the good faith offer, solicitation, payment, or receipt of collateral fees and expenses is not unlawful under PACA. Collateral fees and expenses include any promotional allowances, rebates, services or materials, fees paid or provided directly or indirectly in the connection with the distribution or marketing of any perishable commodity. This means that someone who has read the law and in good faith relied on what it says should not lose his license. He ought to be able to take his customer to an Orioles game and pay for his ticket and a hot dog without violating the PACA. That is what USDA said in my case. They said any payment more than de minimis equals commercial bribery and violates the PACA and they said it in the middle of litigation.
Acting in good faith to follow the law should not be grounds for losing my license, especially when the agency failed to tell me or anyone else in the industry that this would be a serious PACA violation.
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Mr. GEKAS. We will have to ask the gentleman to terminate the testimony. When the time that questions and answers arrive, some of the assertions you make will come to light.
Mr. GOODMAN. Thank you.
[The prepared statement of Mr. Goodman follows:]
PREPARED STATEMENT OF STEVE GOODMAN, JSG TRADING CORPORATION, TINTON FALLS, NJ
SUMMARY
H.R. 881 provides that under certain circumstances no sanction shall be imposed on a person by an agency for a violation of an agency rule and no civil or criminal sanction may be imposed by a court for a violation of a rule. J.S.G. Trading Corporation (JSG) supports the passage of this legislation because it would address the unfairness it has experienced at the hands of the U.S. Department of Agriculture (USDA). JSG urges the Committee to consider adding a provision to H.R. 881 which would allow an aggrieved party to sue an agency found to have violated the provisions of this bill and a provision which would mandate the review of an agency's actions where it has failed to fairly or adequately to warn individuals and small businesses of what the agency's rules require.
JSG is licensed under the Perishable Agricultural Commodities Act (PACA). In an administrative proceeding begun in 1993 JSG was accused by USDA of committing commercial bribery. JSG appealed an adverse decision against it, and last month the Court of Appeals for the District of Columbia Circuit unanimously reversed USDA's decision in part because USDA created a novel theory of commercial bribery and had deviated substantially from the standard test previously used. The Court found neither JSG nor anyone in the industry was given notice of the new standard being applied by USDA; nor was JSG or anyone in the industry given notice that promotional payments made in good faith reliance on the law were not in violation of the PACA. The standard applied by USDA would make any payment to a customer or his employee of more than a de minimis amount a violation of the PACA. The Court found this position ''blatantly'' ignored the legal test for commercial bribery.
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Good morning, and thank you for allowing me to testify before this important Committee. My name is Steven Goodman and I am the President of J.S.G. Trading Corporation (JSG) located in Tinton Falls, New Jersey. J.S.G. is a small business licensed under the Perishable Agricultural Commodities Act know as PACA, which is administered by the PACA Branch of the Department of Agriculture (USDA). We have 8 employees who work at J.S.G. Trading. Except for the matter I am here to discuss, I have had no problems with USDA. However, because of this matter, USDA threatens to end JSG's business and force myself and other JSG employees to find other work.
In 1993, the PACA Branch filed an administrative action against J.S.G. for violating section 2(4) of the PACA for engaging in commercial bribery. In 1995 an Administrative Law Judge ruled in favor of USDA and on appeal the Judicial Officer upheld his decision. During the entire course of the investigation and proceeding USDA would consider no less sanction than license revocation. Through my attorneys, in an effort to avoid high legal expenses, I attempted both before the hearing and after to negotiate a settlement. I offered to pay a fine, USDA refused. I offered to accept a suspension, USDA refused. I offer to pay a fine and a short suspension and again PACA officials refused. In desperation, I personally called the Deputy Administrator for Fruit and Vegetable Programs and begged for a negotiated settlement. He again refused any sanction less than license revocation which would cause the destruction of JSG Trading.
For the first time in almost seven and a half years, my case was heard by someone other than those in the USDA regulatory system. Mr. Chairman, I truly believe that the system that is in place at USDA to investigate PACA violations is biased against those they investigate and prosecute. And, I truly believe in my case the investigators, the prosecutors, and the judges (Administrative Law Judge (ALJ) and Judicial Officer (JO)) were so used to supporting each other and adopting each other's arguments that they missed or misstated facts, ignored credible evidence, and totally discounted any of my witnesses. One example: both the ALJ and the JO determined as fact that JSG unlawfully gave Mr. Gentile a Mercedes in violation of the PACA. The fact is that a legitimate company named, Dirtbag, Inc., signed the lease of the car for Mr. Gentile, who worked for and was an owner of Dirtbag. The ALJ decided that it made ''no business sense for [Dirtbag] . . . to lease this expensive automobile for Mr. Gentile's use.'' (Decision at 23). The JO simply adopted the ALJ's findings on this issue (JO Decision at 34). In addition, I cannot understand how the ALJ in my case can come to the Oral Argument in the Court of Appeals and then immediately after the hearing join in a meeting of all of the USDA group in the Lawyer's Lounge after the hearing. It doesn't seem right.
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On May 25, 1999, the U.S. Court of Appeals for the D.C. Circuit reversed USDA's decision to revoke JSG's license. The reasons given by a unanimous panel of this Court through Chief Judge Edwards are pertinent to this hearing and strongly support the prompt passage of the Regulatory Fair Warning Act of 1999. The Court reviewed the case under the arbitrary and capricious standard of the Administrative Procedure Act (APA) and found that the USDA's decision was arbitrary and capricious and an abuse of discretion, not in accordance with the law, and unsupported by substantial evidence.
The Court found that a central issue in my case was whether ''the agency applied the same commercial bribery standard in the instant case that applies in [two earlier cases], and, if not, whether it adequately explained its reasons for departing from prior agency precedent.'' (Decision at 12).
My lawyers argued that USDA had in fact departed from all precedents on commercial bribery and applied a new per se test for commercial bribery which had no legal basis. Incredibly, USDA's lawyer at Oral Argument conceded that the agency had applied this new test; conceded that there was no legal precedent to support the new per se test; and conceded that the Judicial Officer failed to make explicit findings with respect to the required elements of commercial bribery standard. The USDA's lawyer argued that it was permissible to use this new per se test without first informing my lawyers, me or anyone on the industry so that we could either change the way we did business (before PACA charges were filed); or properly defend the case after the PACA complaint was filed. He also said that USDA did not issue any interpretative rule, warning, advice to the industry, or anything to tell the industry about USDA's new per se test. It was used for the first time against JSG.
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Mr. Chairman, Chief Judge Edwards found that the conclusion reached by the Judicial Officer ''blatantly'' ignored the legal test for commercial bribery, that it was ''farfetched,'' and that there was no precedent for how the agency's defined commercial bribery.
Further, the Court found the Judicial Officer had created a ''novel'' theory of commercial bribery, and the new per se test ''deviated substantially'' from the standard test previously used. In this situation, the Court said USDA was obligated to ''articulate a principled rationale for departing from that test.'' The Court found USDA ''manifestly failed to explain its abrupt departure from prior precedent.''
Mr. Chairman, USDA's attorney went even further. The Court asked: ''Now you don't think you [USDA] could actually remove a person's license without telling him what his duty is in advance, or do you? Do you think you can make it up, case by case, what his duty is, without any notice to the industry of what the duty might be?'' (Oral Argument Tr. 26).
USDA's attorney responded: ''We have to be able to do that. . . .''
To which the Court replied: ''So, you give no clues. Surprises are permitted. We can change tomorrow, whatever.''
Mr. Chairman, H.R.881 would have prevented this abuse. The PACA regulates approximately 16,000 small businesses across the United States. The attorney representing USDA admitted during the oral argument that PACA rules are written in the broadest statutory language possible. For example, Section 2(4) of PACA and its regulations refer to express and implied duties that must be complied with by the industry. However, USDA has chosen not to tell the industry that it regulates what these implied duties are. Instead, in my case, USDA has arbitrarily chosen to revoke my license after the fact and without warning that it was applying a new test. With no written rules or policies, USDA's enforcement of this implied duty then became totally arbitrary and an abuse of discretion.
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Further, the Court noted that Congress recognized the legality of promotional efforts when it passed the 1995 amendment to the PACA and that there was ''no reasoning'' offered to support the agency's decision that the payments at issue were not promotional devices. The Court noted ''the agency has yet to advance a coherent theory to support it [promotional allowances].'' (Decision at 17–18). This is significant because by its own admission USDA failed to give me and the entire industry notice that payments to a customer or to his employee of more than a de minimis amount was a violation of the PACA. It was not a technical violation, but a substantive violation for which USDA demanded revocation of a PACA license. We were given no opportunity to adjust or change our practices. Had we known what USDA's policy was, we would have stopped. USDA said ''GOTCHA.'' H.R.881 would have prevented this.
Specifically, the 1995 amendments to PACA mandate that ''the good faith offer, solicitation, payment, or receipt of collateral fees and expenses'' is not unlawful under PACA. See 7 U.S.C. §499b(4). Collateral fees and expenses include ''any promotional allowances, rebates, service or materials fees paid or provided, directly or indirectly, in connection with the distribution or marketing of any perishable agricultural commodity.'' (7 U.S.C. §499a). This means that someone who has read the law and in good faith relied on what it says, should not lose his license. He ought to be able to take his customer to an Orioles game and pay for his ticket and a hot dog without violating the PACA. But that is exactly what USDA said in my case. They said any payment more that de minimis equals commercial bribery and violates the PACA, and they said it in the middle of litigation. Acting in good faith to follow the law should not be grounds for losing my license especially when the agency failed to tell me or anyone else in the industry that this would be an egregious PACA violation.
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Last year when I spoke before this Committee, I spoke of the Small Business Regulatory Enforcement Fairness Act (SBREFA), the Memoranda of the President, April 25,1995, 60 Fed. Reg. 20621, and Secretary of Agriculture's Memorandum 3031–1. These measures attempt to level the playing field between the harsh treatment given to small businesses in contrast to the more lenient treatment given to large companies for equal or greater violations of administrative law and duties. As an example, PACA did not attempt to revoke Sun Diamond's license for allegedly bribing the Secretary of Agriculture; nor, did it attempt to revoke the PACA license of Sysco Foods (traded on the New York Stock Exchange) for allegedly secretly over-charging its customers millions of dollars in a cost-plus scheme. Because these measures have an exclusion for violations that are willful, USDA has responded that these rules do not apply in my case. However, since the Court found (and USDA admitted) that USDA used a per se test, by definition, it is impossible for USDA to conclude my actions were willful. Given this result, USDA was under a legal obligation under PACA and the other measures cited above to settle my case. The Regulatory Fair Warning Act of 1999 (H.R.881) is needed to give meaning to these measures. PACA should not be in a position to label a violation willful that it has not made known or addressed to the industry.
Mr. Chairman, its hard to describe the helpless feeling that a person feels when the power of the United States government comes knocking at your door. JSG Trading has spent well over 300,000 dollars in legal expenses because of over zealous regulators who wouldn't settle this case, changed standards in the middle of my case, and failed to warn me and the industry that it was departing from the standard previously used.
Mr. Chairman, your bill would have prevented the USDA from doing this to me. Your bill would prohibit an agency or court from imposing a sanction. However, I would respectfully suggest that your bill include a provision, which would permit me to sue the agency that is unfairly prosecuting me for damages and for attorney's fees. A review of department official's conduct should also be considered. It's only fair, especially where the Court noted in my case that the agency admitted it provided no notice to me or to anyone in the industry.
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Mr. GEKAS. Ms. Bolstridge.
STATEMENT OF JUNE BOLSTRIDGE, PRESIDENT, GAIA CORPORATION, SILVER SPRING, MD
Ms. BOLSTRIDGE. Mr. Chairman, I want to thank you and the members of the subcommittee for the opportunity to express my views which focus on the Emergency Planning and Community Right-to-Know Act of 1996, known as EPCRA. I am an environmental engineer who specializes in EPCRA compliance assistance for industry and government agencies. I assisted EPA in preparing the original guidance documents and training for EPCRA, section 313, the toxic release inventory, or TRI reporting requirements. I have assisted many companies, including in aerospace, petrochemical, pharmaceutical, metals, mining, and leather industries. I have also assisted U.S. Department of Defense installations in complying with EPCRA as required by Executive Order 12856. However, I am speaking today to this committee as a private individual. My views and comments are solely my own based on 13 years of experience with EPCRA implementation and compliance.
EPCRA is a unique Federal law because instead of changing chemicals that industries are allowed to use and release, it requires facilities to know what materials are on site and to report if the amounts of certain chemicals exceed specific threshold limits. The EPCRA TRI program and the facilities' specific chemical release data that it generates have helped the public and environmental regulators and even the industrial facilities themselves to become more aware of the toxic chemicals in industrial wastes. EPCRA data are also often used by the Members of Congress in the development of environmental laws, such as the Clean Air Act amendments and the Pollution Prevention Act. In fact, TRI data offer one of the few opportunities that Members of Congress and their staffs have to evaluate the impacts on industrial constituencies of their home districts. However, all of the benefits derived from EPCRA TRI data are threatened by changes that EPA is making in the guidance.
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In December 1998, EPA revised the TRI questions and answers document and extensively modified or even reversed the requirements that have applied to industries since 1987. This Q and A document contains industry's questions and EPA's answers for applying the EPCRA requirements to real world industrial operations. Approximately 150 new Q and As were added to the document and hundreds more were rewritten, revised or reversed without any indication of where changes had occurred from the previous guidance document. TRI reporting changes resulting from this new 1998 Q and A document are extremely broad and include elimination of regulatory exemptions. For example, toxic chemicals generated in sewage from employees and motor vehicle exhaust will now require reporting. This document also contains EPA's first written guidance that each conversion between metal compounds, for example, from lead sulfate to lead oxide and then back to lead sulfate must be counted as manufacture.
The guidance also addresses the number of employees at a facility which affects each facility's requirement to report. According to the statute, TRI reporting is only required by facilities that have 10 or more full-time employees. A facility, as specified under the statute, is everything located on a contiguous property under one owner or operator. Therefore, only facilities with 10 or more employees on site have been required to report under EPCRA section 313. However, the new 1998 Q and A document directs facilities to include hours worked by company employees at other non-adjacent locations including employees who never set foot on the facility property. This guidance change caused one EPA region to attempt an enforcement action against a small manufacturing company with nine employees on site. EPA's inspector noted that the company had a sales staff working from an office building in another city. The sales staff are part of a different operating division of the company and also sold other companies' products, yet EPA said the manufacturing facility must count the sales staff toward the total employee hours worked on site because they ''support the manufacturing operations.''
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These are only a few of the changes that facilities will be required to make in evaluating toxic chemicals for reporting and in calculating release amounts. However, EPA's instructions to use the guidance before it is actually in effect will also be very damaging to the TRI program. The introduction to this new Q and A document says that it should be used beginning with the 1990 reporting year for reports due on July 1, 2000. But for months, this had been the only version available from EPA. Even the EPCRA hotline from EPA uses this document based on verbal authorization from EPA headquarters. On June 16, 1999, an EPA Federal Register notice repeated that this document is not effective until next year but stated that ''the agency would prefer that covered facilities use this document as guidance for the 1998 reporting year as well.'' So just 2 weeks before the 1998 reports are due from more than 21,000 facilities across the United States, EPA told them to use new guidance.
In conclusion, I would like to note that EPCRA is one of the most important and far reaching environmental statutes presently in effect. EPA is to be commended for their efforts to implement these complex data requirements. However, EPA's extensive revisions to the guidance will result in data inconsistencies that will damage the integrity of this program. Clearly if industries are to generate data that are usable and accurate, EPA must provide guidance that enables the regulated community to comply fully, consistently, and completely.
Thank you.
[The prepared statement of Ms. Bolstridge follows:]
PREPARED STATEMENT OF JUNE BOLSTRIDGE, PRESIDENT, GAIA CORPORATION, SILVER SPRING, MD
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Mr. Chairman,
I want to thank you and the members of the Subcommittee for the opportunity today to express my views, which focus on the Emergency Planning and Community Right-to-Know Act of 1986 (EPCRA).
I am an environmental engineer who specializes in providing EPCRA compliance assistance to industries and government agencies. In the first three years of the EPCRA program, I assisted the Environmental Protection Agency (EPA) in preparing guidance documents for section 313, the Toxic Release Inventory (TRI) requirements of EPCRA. I developed the EPA's original training course and have trained EPA's EPCRA Hotline contractors, as well as EPA regional staff. I have assisted corporations within many industry sectors covered by EPCRA, including: aerospace, petrochemical, pharmaceutical, primary and secondary metals, coal and metal mining, leather, and other industries. I have also assisted the U.S. Air Force, Army, Navy, and Coast Guard in complying with EPCRA as required by Executive Order 12856.
However, I am speaking today to this Subcommittee as a private individual. My views and comments are solely my own, based on 13 years of experience in assisting industry, EPA, and other federal agencies in EPCRA implementation and compliance.
BACKGROUND ON EPCRA
My remarks focus on section 313 (42 USC 10023) of The Emergency Planning and Community Right-to-Know Act of 1986 (EPCRA) (Public Law 99–499). EPCRA is a Federal environmental statute that has changed the overall perception of industrial waste generation, and has focused industries' efforts on creating and releasing less waste. EPCRA is a unique federal law because, instead of changing the chemicals that industries are allowed to use and release, it requires facilities owners and operators to know what materials they have on-site, and to report to Federal EPA and the State if the amounts of certain chemicals exceed specific threshold limits.
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IMPORTANCE OF EPCRA TRI DATA
The EPCRA TRI program, and the facility-specific chemical release data that it generates are important to:
U.S. citizens. Citizens have been surprised to learn that toxic chemicals are required by local manufacturers to produce the products and foods that they purchase and consume. In some cases, public outcry and unfavorable press stories over the TRI data have driven changes in the amounts of chemicals released to the environment by neighboring companies.
Environmental regulators. Regulatory agencies have compared chemical releases reported by similar types of facilities, ranked states by total releases, and attempted to identify trends in the amounts of waste generated between reporting years. Violations have been identified by comparing EPCRA release data with facility reports filed under the Clean Air Act and Clean Water Act permits.
Industrial facilities. Corporations that are required to collect data on toxic chemical releases under EPCRA recently have become aware of the amount of toxic chemicals in their waste, some of which represent unused raw materials or lost product. CEO's have established internal policies for waste reduction, and hundreds of companies have participated in voluntary programs to reduce releases by tightening their operations, locating non-toxic substitute materials, or even selling what had been a waste, as a raw material for another industry.
Members of Congress. Members of Congress have extensively used TRI data in the development of new environmental laws, including the chemical and industry-control provisions of the Clean Air Act Amendments and the Pollution Prevention Act. In fact, TRI data offer one of the few opportunities that Members of Congress and their staffs have to evaluate independently the effects of new environmental regulations on the industrial constituencies of their home districts.
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EPCRA section 313 requirements and the resulting data have many uses and far-reaching applications; the information provides the most comprehensive data source on chemical releases by industrial operations within the U.S., and offers the opportunities to track trends in releases that occur over years. However, the benefits derived from TRI data are threatened by extensive changes that EPA is making in the guidance for facilities reporting under EPCRA.
CONCERNS REGARDING 1998 EPCRA TRI GUIDANCE
In December 1998, EPA revised a TRI guidance document in a way that extensively modified or even reversed the requirements that have applied to industries since 1987. The Q&A document contains the text of industries' questions and EPA's answers for interpreting how the EPCRA requirements apply to real-world industrial operations. Approximately 150 new Q&As were added to the document, and hundreds more were rewritten, revised, or reversed. These revisions were made to reflect new interpretations by the EPA program office. Those changes and reversals were then incorporated into an inch-thick document, and issued without any summary of the modifications or any indication of where the changes had occurred from the previous years' version of the same guidance document.
EXAMPLE EFFECTS OF THE REVISED 1998 TRI GUIDANCE
Number of employees at the facility and the requirement to report. According to the statute, TRI reporting is only required by facilities meeting specific criteria:
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That they have ten or more full-time employees;
That they are in Standard Industrial Classification Codes 20 through 39 (manufacturing sector); and
That they have manufactured, processed, or otherwise used a listed toxic chemical.
A 'facility' is defined under the statute as: ''all buildings, equipment, structures, and other stationary items that are located on a single site or on contiguous or adjacent sites and which are owned or operated by the same person (or by any person which controls, is controlled by, or under common control with, such person).'' (42 USC 11049, Sec. 329(4))
Therefore, under the statute, only facilities that had ten or more employees working on-site were required to develop data and report under EPCRA section 313. EPA's earlier guidance interprets this criterion to be met if the hours worked by employees and contractors operating on-site under the direction of the facility met or exceeded 20,000 hours in a year (10 employees X 2,0000 hours per year).
Under the revised guidance contained in the 1998 Q&A document, EPA is directing facilities to include hours worked by company employees at other, non-adjacent locations. Additionally, EPA's guidance requires companies to consider all hours worked to support the operation of the facility, including those worked by employees who have never set foot on the facility property.
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To illustrate the effect of this change in reporting guidance, let me describe the following situation: An EPA regional enforcement action was taken against a small manufacturing company, which has fewer than 10 employees on-site, because the EPA inspector said the company should include sales staff hours worked in an office building in another city. Those sales people never visited the manufacturing plant, reported to a different operating division of the company, and also sold other manufacturers' products to customers. Yet the EPA regional enforcement staff made the determination that the company must count the sales staff toward the total employee hours worked on-site. EPA also attempted to apply this guidance retroactively and would have held the facility in non-compliance for not submitting reports over the previous 5 years, despite the guidance not being effective until the following year.
In another similar determination, EPA's new guidance now requires companies to consider hours worked by corporate headquarters and other office personnel at remote locations toward the total hours worked ''on-site'' at a manufacturing plant if the effort supports the manufacturing operation. This means that all legal, accounting, employee relations, public relations, and other personnel working in an office building in another state will count toward the 10 or more employee threshold for each manufacturing plant operated by the company.
Regulatory exemptions were reversed. A number of TRI exemptions allow industrial facilities to exclude certain activities involving toxic chemicals. One of these exemptions applies to chemicals involved in employees' personal uses (40 CFR 372.38(c)(3). EPA previous guidance has exempted as employee personal use, the ammonia and nitrates manufactured while treating human sewage produced by facility employees. However, the 1998 guidance requires that these chemicals specifically be included as toxic chemicals (see Q246; Q247). Q246 is a complete and direct reversal of EPA's response to the same question in the 1997 Q&A, specifically Q161, which stated: ''The ammonia present in the sewage is derived from the employees working at the plant and is eligible for the personal use exemption (40 CFR Section 372.38(c)).''
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A similar reversal in guidance applies to the motor vehicle maintenance exemption (40 CFR 372.38(c)(4) and the chemicals manufactured in motor vehicle exhaust. In EPA's 1997 guidance, Q188 states only that the motor vehicle exemption ''would not apply in the case of an automobile manufacturing plant'' so that manufacturers of a motor vehicle would not exempt fuels and other chemicals incorporated into their manufactured vehicles. In the 1998 guidance document, in Q285, EPA repeated the entire text of 1997's Q188, but added the following sentence: ''Another example of a nonexempt activity would be the manufacture of combustion byproducts from motor vehicles.''
The addition of this simple sentence directly contradicts EPA's March 17, 1995 Federal Facilities Q&A document titled ''Compliance with EPCRA of 1986 as Required Under Executive Order 12856,'' which states the following:
Q83: ''Must a Federal facility include the quantity of toxic chemicals in vehicle exhaust emissions in annual facility release estimates under EPCRA section 313?''
A83: ''No. Toxic chemical used to maintain motor vehicles operated by the facility are exempt from threshold determinations and release estimations under the 'motor vehicle maintenance' exemption. The release or coincidental manufacture of toxic chemicals from an activity that meets the criteria for an exemption are themselves exempt. Therefore, vehicle exhaust emissions should not be counted toward threshold determinations or release calculations if the vehicle is operated by the facility.'' (Emphasis added.)
It is worth noting here the language contained in the EPA's Federal Facility Guidance, in Q&A70, which states that ''The exemptions listed under EPCRA section 313 apply to Federal facilities in exactly the same way as they apply to industry.''
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[Note: despite this requirement to consider motor vehicle exhaust, it is nearly impossible to drive the number of miles within a facility needed to generate 25,000 pounds of a TRI chemical. Facilities that otherwise meet the reporting threshold for the chemical must recognize that motor vehicle exhaust represents a release source; they must document that fact and the negligible effect on the overall facility emissions. Overlooking such sources of releases are considered by EPA to be significant errors under their penalty policy (EPA Office of Compliance Monitoring's Enforcement Response Policy for Section 313 of EPCRA, August 1992).]
Metal compound categories are not toxic chemical list entries as defined in the statute. The section 313 toxic chemical list contains more than 600 listed chemicals and chemical categories. Manufacture of a chemical on the list is one of the three reporting thresholds; therefore, generation of a chemical on-site determines whether reporting will be required for that chemical.
Listed chemical categories include groupings of chemicals that share a common characteristic. For example, lead compounds, chromium compounds, and copper compounds are all listed chemical categories under EPCRA section 313. The total amounts of all members of the chemical category are required to be added together for comparison the threshold. So a company would total the amounts of lead sulfate, lead oxide, and lead chromate used in their activities and compare the total amount to the 'otherwise use' threshold.
EPA has always said that conversion from a metal compound to the elemental metal represented 'manufacture' of a separately listed toxic chemical and, therefore, required consideration for reporting. For example, converting lead sulfate to lead represents manufacture of lead.
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In the 1990 Q&A document, Q&A156 stated that chrome compounds that had been counted against the manufacturing threshold should not be considered a second time when they are converted to other chrome compounds in on-site treatment because ''To do so would involve double counting.'' This text became 1998 Q&A138 and was repeated in a document referenced by 1997 Form R instructions (page H–2) and distributed by EPA as ''Section 313 Reporting: Issue Paper Clarification and Guidance for the Metal Fabrication Industry'' (p.28; Q&A138).
Additionally, Q&A205 in the 1998 guidance clearly states that an amount of a listed toxic chemical undergoing multiple activities within the same threshold should only be counted once:
Q205. How does a facility consider multiple activities within the same threshold activity, such as multiple repackaging steps, or blending followed by repackaging?
A205. Amounts of a listed toxic chemical undergoing multiple activities on-site within a single threshold activity are counted only once during the activity sequence. For example, if a facility receives a bulk quantity of a chemical that it then places in a storage container from which amounts are subsequently blended and placed in smaller containers that are sold, the facility has prepared for distribution in commerce the entire amount of the chemical, and therefore, the facility has ''processed'' the entire amount of the listed toxic chemical.
Prior to the 1998 Q&A document, EPA guidance had never considered conversion between chemicals in a listed metal compound category to be manufactured. However, in the new guidance, for the first time, EPA provided the following Q&A:
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Q415. Is the conversion from one metal compound to another metal compound within the same metal compound category considered ''manufacturing'' for purposes of threshold determinations and release and, other waste management calculations?
A415. Yes. The conversion of one metal compound to another metal compound within the same metal compound category is considered the ''manufacture'' of a metal compound, which must be considered toward threshold determinations. . . .
EPA's first discussion of conversion between chemicals in a listed category appeared in the proposed rule for adding industry sectors (61 FR 33601; 6/27/96). In response to that proposed rule, EPA received ''many'' comments that the conversion of metal compound category chemicals represented ''a new interpretation of 'manufacture' as defined in EPCRA section 313 that is inconsistent with previous guidance'' (62 FR 23849). EPA's only response was to state that the statutory definition of 'manufacture' includes coincidental manufacture (62 FR 23850), which was not an issue in question.
EPA is currently in litigation with Barrick Goldstrike Mines, Inc., in part to require EPA to reconsider this reinterpretation of conversions within metal compound categories.
Note that these are only a few of the extensive changes that EPA has made in the 1998 Q&A guidance document. Many other issues will impact the ways that industrial facilities are required to consider amounts of toxic chemicals involved in their activities, and to recalculate the amounts of chemicals released.
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EPA IS DIRECTING INDUSTRY TO USE GUIDANCE THAT DOES NOT YET APPLY
The most damaging aspect of the revised TRI guidance surrounds confusion over when the changes should be considered by reporting industries. EPA's revised 1998 Q&A document was released in early 1999 and the introduction page states:
''Use this document as guidance beginning with the 1999 reporting year for reports due July 1, 2000.''
This is understandable because the document was available only after data had been collected for 1998 calendar year activities. So it is not possible to reflect all of the changes in data that will be reported in July 1999 for Calendar Year 1998.
However, the 1998 document, which is not yet in effect, is the only one available. A 1997-dated Q&A document, applicable to the reports that industries are currently developing, is no longer available from EPA and has been removed from EPA's Internet site. Even EPA's EPCRA Hotline has been answering all TRI questions with references to the document that is not yet in effect, based on ''verbal authorization from EPA Headquarters,'' and despite what EPA put in print.
On June 16, 1999, EPA published a notice in the Federal Register (64 FR 32232) notifying industry that the 1998 Q&A document is now available. A full two weeks before the 1998 calendar year TRI reports were being prepared by more than 21,000 facilities across the U.S., EPA provided the following additional information:
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''The revised 1998 'EPCRA Section 313 Questions and Answers Document' and the six new industry guidance documents are effective beginning with the 1999 reporting year. However, to ensure consistency in reporting and the integrity of the data, the Agency would prefer that covered facilities use these documents as guidance for the 1998 reporting year as well.''
The Federal Register notice also identified 10 ''cases in which the answer has been modified from the original.'' Of the Q&A guidance changes that I have used above as examples, only the human sewage and motor vehicle exhaust were cited by EPA as ''modifications.'' EPA also prepared a table to identify the ''type of change'' made in the 1998 Q&A document. That table has been released on EPA's Internet site and identifies only 14 Q&A's that were marked as containing a ''clarification'' or ''substantive change.'' However, by my count, more than 75 Q&A's actually represent major changes that will impact the requirements and reported data.
EPA has directed their Hotline contractor to use next year's guidance. The Federal Register notice of two weeks ago will cause some reporting companies to use the 1998 Q&A; however, others can be expected to use the 1997 document. Future reviewers of the data will have no means of determining which guidance was used by reporting facilities.
EFFECTS AND FINAL CONSIDERATIONS
EPCRA is one of the most important and far reaching environmental statutes presently in effect. EPA is to be commended for their efforts to implement these complex and extensive data requirements. However, EPA's extensive revisions to the 1998 TRI guidance will result in data inconsistencies that will damage the integrity of the program. Clearly, if all manufacturing industries are to generate chemical release data that are usable and accurate, EPA must provide guidance that enables the regulated community to comply fully, consistently, and completely.
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Mr. GEKAS. We thank the lady. And now we will turn to that portion of the hearing which will allow members to pose questions. We will recognize the gentleman from North Carolina for 5 minutes for the purpose of asking questions.
Mr. WATT. Thank you, Mr. Chairman. I want to applaud the chairman for the introduction of his bill that is designed to address a serious problem but also raises some concerns, and, of course, the purpose of having hearings is to try to figure out where the balance should be. It seems to me that in each of the cases that the three witnesses have testified about, there were underlying legislative standards that the Congress had imposed and we have a tendency in Congress to impose a standard, pass the responsibility for giving content to that standard along to a governmental agency and then when the governmental agency has given content to our standard that we don't like, then we start throwing stones at the agency, which kind of puts the agency in a very, very difficult position.
There is a standard, I take it, under the False Claims Act. I am familiar with that. We all agreed when we worked our way through that process last year that the U.S. Attorneys probably—and the people who were implementing the standard HCFA, or whoever it was who was doing it, probably stepped out over the rim and we kind of pulled them back but there was a standard there. There is a standard for—there is a statutory standard for commercial bribery, I take it. I am not sure what the statutory standard is for this environmental issue. Did we just tell the EPA go and make some environmental regulations or did we impose some standard by statute when we passed the law? I mean, we don't have the authority as Congress just to tell the EPA to make up a law, do we?
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Ms. BOLSTRIDGE. No.
Mr. WATT. What is the underlying statutory provision that the EPA is giving content to when they did whatever they did that you say was so terrible?
Ms. BOLSTRIDGE. The underlying statute is the Superfund Amendments and Reauthorization Act, title III of SARA, which is EPCRA. It is a stand-alone piece of legislation.
Mr. WATT. We set a standard there that—some kind of standard that the EPA was then to go out and flesh out and make—give content to.
Ms. BOLSTRIDGE. Yes.
Mr. WATT. At base, every one of these problems is a problem that we started in Congress. I mean, it is not the administrative agencies of government that are starting from scratch and making up something. You all don't like what they made up in furtherance of our statutory authority but we gave them the statutory authority to do what they did I take it. Am I wrong about that?
Ms. BOLSTRIDGE. No, sir, you are not wrong. However, EPA has essentially stepped outside of the provisions of the statute and——
Mr. WATT. That is what each of you are claiming. They stepped—the agency stepped outside the authority that they were given. Now, in some cases I take it they step outside the authority that they are given or they set up—they pass a regulation to make something clear for the people to whom it will apply that will also provide a safe harbor to you. Am I mistaken about that? These regulations that HCFA promulgated, if you followed those regulations and you followed them to the T, you would have been absolutely protected by following them even though by promulgating those regulations, they—I mean, there is nothing in the statute that really tells what the standards should have been; isn't that right?
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Mr. GEKAS. Without objection, the gentleman will be accorded another 3 minutes.
Mr. SPARKS. Just to answer a little bit, what happened with HCFA in terms of Operation Bad Bundle is that the regulations that they published made it the responsibility of the intermediary, not the hospitals to combine the tests. There was no responsibility in the legislation or in the regulations for the hospitals to do that. OIG, even in their red book report, indicated that the providers did not have that responsibility, that it was the responsibility of the intermediaries.
Mr. WATT. Were there some regulations in there that you liked?
Mr. SPARKS. I am not sure I understand the question. We try to comply whether we like them or dislike them.
Mr. WATT. But there were some in there that you actually liked? I mean, you thought this was wonderful. If we do this, we will be presumed to have complied with the law and we won't have any problems.
Mr. SPARKS. We try to comply whether we like the law or dislike the law.
Mr. WATT. That is not what I am asking. Were there some regulations in there that you liked?
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Mr. SPARKS. I can say that we do like some regulations. We dislike others but we comply with all of them.
Mr. WATT. And the ones that you liked, they weren't necessarily sanctioned by the law that we passed either? There wasn't anything in the False Claims Act that gave the content to the one—to the regulations that you liked either? That is the point I am trying to make. You get some bad regulations; you get some good regulations. What we have done as a Congress is give these agencies authority to make these regulations and while—I mean, I am generally supportive of what Mr. Gekas is trying to do. There are some good things that come out of the way that we legislate this process also. I just don't want us to be outrageously beating up on the USDA. Every once in a while the USDA actually comes out with some regulations that we like. I take it there are some regulations that the USDA has written that you really like that don't necessarily—aren't necessarily sanctioned by the commercial bribery law that is on the books either.
Mr. GOODMAN. Previous to my case, there were two other USDA cases that were for commercial bribery and they very much mirrored other cases consistent with the United States. Secrecy, intent, those were basically the major elements.
Mr. WATT. So this might have been one of those situations where the USDA should have just stayed out of it and let the case law control.
Mr. GOODMAN. Well, the hearing, they told us—the precedent that they were using were these two previous cases but instead when we got into the hearing and the ALJ's decision, basically what he said was any payment to a produce licensee with or without the owner's consent more than de minimis in value would be considered commercial bribery. Now, this has never been heard before any place. That is basically why the court of appeals basically reversed their decision. If the USDA was to have their way, it would have been illegal for me to take a customer for dinner, a customer's employee for dinner, but what is interesting is under their rules, this per se rule, it also would have been equally commercial bribery for me to take the owner of the company to dinner and in the U.S. Court of Appeals the USDA testified that that is what shall now be considered commercial bribery under PACA. Now, there was no notice of that and it is not consistent with other laws in the United States.
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Mr. WATT. Well, this is a very interesting and complex area of the law and any time you are delegating authority to government agencies to basically give content to a general standard that we have promulgated as a Congress, such as fraud, false claims, commercial bribery, or even more so to implement a broad—or to bring it home to individuals more to—all we say is it is illegal to defraud the government in preparing your taxes. The IRS then gives content to certain things that will be presumed to be in defraud of the government. We can't in statute write every single circumstance that will apply. There is somebody who has to give this some more content and we have to be careful, I think, Mr. Chairman, not to resist the temptation to having given them the responsibility and authority to provide content to a general standard that we have set to resist the temptation to beat up on Federal Government agencies when they give content that we don't necessarily agree with. And, you know, if we are that dissatisfied with it, we might have a greater responsibility as Congress to reseize the reins and give more content to these general statutory standards ourselves.
Mr. GEKAS. We thank the gentleman and that is the purpose so we can exert some influence not with the content of each individual circumstance that we can dream up but rather a set of preliminary warnings that can go out to the public about what the impact of certain regulations will be. That is what the tone is. I thank the gentleman.
We now turn to the gentleman from Massachusetts for a period of questioning. I might mention the gentleman from Massachusetts was very active in the very issue that Mr. Sparks was enunciating here today and is one of the first to try to have the Department of Justice pull back its tentacles on this particular subject.
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Mr. DELAHUNT. Thank you, Mr. Chairman. Mr. Sparks, what kind of progress has been made in terms of the relationship between the Department and HCFA and the American hospitals? Are we heading in the right direction?
Mr. SPARKS. I think we are getting there. I think the jury is still out in terms of the guidelines that we are operating under with the Justice Department and the False Claims Act. The GAO report was not conclusive I don't think at this point. I think there is a larger threat in terms of the body of regulations. In my second example, we have agents—fiscal intermediaries are basically the people who process claims for the Medicare program and they now are charged with reviewing cases for overpayment and underpayment and in this instance, they have come up with what is now known as local medical review policies and the policy that they came up with was in direct violation of what is in the existing Medicare statutes and existing regulations. So we have HCFA with a set of regulations and now we have the fiscal intermediary making policy——
Mr. DELAHUNT. I think this is important to really understand, Mr. Chairman, because I think we can empathize with the position of a CFO or CEO of a hospital that has to make a choice between a fiscal intermediary that is contracted by the government to monitor the compliance with government regulations and another governmental agency or Federal statute which apparently seem to conflict.
Mr. SPARKS. That is correct.
Mr. DELAHUNT. Does this kind of sum up the problem? You know, I think the chairman knows that I am very sympathetic to this legislation because last year and again listening to these three witnesses here, it is clear that there is a problem. It is a problem in terms of the everyday world that American businesses and individuals operate in and whether they can rely on the rules and regulations or at least on interpretations as to what they mean. And I think I am correctly quoting the chair when he said that I certainly have no disagreement with the substance, if you will, of rules and regulations promulgated by a Federal agency. And if Congress has issue or takes issue, there are remedies under Federal statutes that provide for a resolution of disapproval if there is a disagreement as to substance. But the anecdotal information is simply overwhelming that there is a problem and I have read the minority memo in which issues have been raised as to whether this bill provides the best remedy to the problem in the enforcement and application of rules and regulations. Now we can talk about the problems with this bill, but I think in this case the chair is correct in attempting to deal with the issue and I think it is the responsibility of the minority to sit down and work out an approach that is satisfactory.
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Mr. GEKAS. Would the gentleman yield.
Mr. DELAHUNT. I yield.
Mr. GEKAS. Would the gentleman be willing to submit to the chair a copy of the minority memo for the purpose of letting us know where we can improve if we can the basic language of the statute?
Mr. DELAHUNT. Sure. I would be happy to. And this is just simply—I am just reading, for example, issues for consideration. ''The bill would allow defendants to search out a written statement from a wide range of employees in a relevant Federal or State agency to prove conduct that would otherwise violate Federal regulations.'' Well, maybe there ought to be in every Federal agency an individual or a division designated to do exactly that, to clear that particular issue up. What I am saying is my involvement with the hospitals and the health care industry in terms of the False Claims Act has lead me to the conclusion that unless we do something in this area, we are doing a disservice to the taxpayers and the consumers.
And I yield the rest of my time.
Mr. GEKAS. We thank the gentleman. We express our gratitude to the panel. But before you are dismissed, gently dismissed, Mr. Goodman, I think that you mentioned either in the oral or written statement or both that if we had had this statute in place at the time your troubles began, that those troubles might have been avoided; is that correct?
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Mr. GOODMAN. That is correct. The USDA speaks to us of implied duties. That is all that we are told. But they don't tell us what the implied duties are, only that we have to obey implied duties. They offer no explanations, no regulations, no guidance, nothing. Only after we might violate one of these implied duties, then they try to revoke our license. Now the produce business is made up of 16,000 people, most of them not national companies. They are mom and pop type of produce companies, retailers and wholesalers. I know over the years how much money it has cost me to be able to sit in this seat. The average person, for most of the produce people that I deal with who support why I am here, could not afford to be here. So when USDA comes against them for violation, they just fold up tent and leave because they can't afford it. There are many things that never get to your attention.
Mr. GEKAS. Would Mr. Sparks agree that if our legislation had been in place your worries might have been limited in the outcome of your issue?
Mr. SPARKS. I think that we would have a much better level playing field with knowing what the rules are so that we can comply with them. I don't think any hospital in this country is out to not comply with the law. I think this would help dramatically in that area. I think in terms of the false claims portion of it, we have done some work and will have to wait and see how that comes out. But this would help dramatically.
Mr. GEKAS. Ms. Bolstridge, the same question to you?
Ms. BOLSTRIDGE. I would also agree. I believe that there is a need for EPA to recognize the importance that their guidance changes have on industry. And if I could make the recommendation that if there is some way to incorporate the cost that industry faces through guidance changes and require that to be factored in just as any type of new regulation goes through a cost-benefit analysis and goes through an economic analysis. None of the changes that we see on the guidance side are focused into the regulatory cost, and so when industry comes up against these things, they come up against a new set of requirements every year. It is very difficult for them to understand why their people keep needing to go back and get retrained, and are needing new information each year. That is a cost that is faced by all of the firms trying to comply with environmental laws.
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Mr. GEKAS. We thank you. And now, we do gently dismiss the first panel with the gratitude of the committee. The written statements and particularly, Mr. Goodman, the court case document will be very interesting and helpful to all of us. We thank you.
We bring to the table the second panel, which is made of up of Robert Hahn, Director of the AEI-Brookings Joint Center for Regulatory Studies, a resident scholar at the American Enterprise Institute and a research associate at Harvard University. He has written numerous articles and frequently contributes to a number of general interest periodicals. Mr. Hahn is co-founder of the Community Preparatory School and Inner City Middle School in Providence, Rhode Island, that provides opportunities for disadvantaged youth to achieve their full potential.
Ernest Gellhorn is a George Mason University Foundation Professor of Law. He teaches antitrust law and an advanced administrative law seminar. He was chair of the ABA Section on Administrative Law and Regulatory Practice from 1990 to 1991 and the Rule Making Committee of the Administrative Conference in the United States 1986 to 1995. He has served as the dean of the Schools of Law at Case Western Reserve University, the University of Washington, and in Arizona State University. In addition to his numerous scholarly articles he has published a case book on administrative law.
Barbara Somson is a Deputy Legislative Director of the UAW's Washington's office. She previously served as counsel for the Committee on Government Operations for the District of Columbia Council. She earned a bachelor of arts degree from Boston University and her law degree from Catholic University.
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As we proceed here now, we will ask each witness to try to limit the testimony to 5 minutes. The written statements will be accepted for the record without objection and we will go from my left to my right with Professor Gellhorn.
STATEMENT OF ERNEST GELLHORN, PROFESSOR OF LAW, GEORGE MASON UNIVERSITY SCHOOL OF LAW, WASHINGTON, DC
Mr. GELLHORN. Good morning, Mr. Chairman. I think H.R. 881 could be called the Common Sense Act because basically all it really says is that agencies must tell the regulated party what they are permitted to do or not permitted to do; and that they are permitted to rely on written guidance given by a responsible agency official. This is also consistent with current law.
On the other hand, there is a provision in the bill that is totally unnecessary and that is the provision on notice, because it is already in the law in sections 553 and 552 of title 5. The notice section of H.R. 881 adds absolutely nothing. If I may, I would disagree with a future panelist, Ms. Somson, who says that we must read the three alternative notice provisions which are in the disjunctive as if it is a conjunctive. The notice provisions are stated A, B, C, or D. That means that any one of them is sufficient to provide notice. There is substantial case law supporting this point. But in any case, it is an unnecessary provision. It doesn't add anything. It is already in the law. Putting it in section 558 of the APA perhaps could add some confusion, so I would urge that it be eliminated.
Technically, the law is that the government cannot be estopped. As a practical matter if you go through the cases, however, the government is frequently estopped and written guidance, even sometimes oral guidance, binds the government. What this proposed legislation does and why I support it is it expresses Congress' clear intent and therefore will give further substance to the direction in which the law is moving.
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Indeed, much of this law is consistent with and would implement the president's executive order of June 1 of last year urging that agencies spell out their regulations in plain language. Indeed, the American Bar Association at its meeting in August has before its House of Delegates a proposal from the Administrative Law Section that suggests specifically that agencies should—and I'm now quoting—''clearly state the obligations and rights of persons affected as well as those of the agency.''
This language has been approved by the Vice President's office. I would suggest, in other words, that there is some endorsement of this bill implicit in the President's executive order and in the Vice President's concurrence with what the ABA is proposing to do.
So what this law would do is clarify the rules on when the government is estopped and express Congress' clear intent as guidance to the agency.
Now, I want to suggest a few things perhaps to improve the law. The first question whether Congress has done this before? The answer is yes. If you look at the Portal to Portal Act adopted by Congress in 1947, very similar language is in 29, USC, section 259. The Office of Price Administration during World War II specifically stated that those who received guidance from the agency could rely on it. And there are cases under OPA's regulations enforcing that provision.
The second point I would make, in addition to eliminating the notice provisions in the bill as redundant, is that you do not need the change to the Judicial Code in section 1660. A problem with that is it ignores title 5 USC Section 706(2), which provides for judicial enforcement of the Administrative Procedure Act and limits what courts can do. In other words, we have already in the Administrative Procedure Act all of the enforcement mechanisms that are needed. You don't add anything by throwing it also in to the Judicial Code except for one thing. It is more words in the Code. Unnecessary.
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What I would suggest you need to do, however, is take this language and put it in the rule making section of the APA because you are trying to change rule writing requirements. You are trying to change how agencies issue rules and enforce them. And the one statute that is on the books that tells the agencies how they ought to write rules is section 553 of title 5.
Now, you can make additions to section 558. What I have tried to do in my written statement is to give you precise language of how to achieve your objective consistent with the language of the Administrative Procedure Act. I would suggest there is an advantage in my language. It uses 100 words; H.R. 881 uses 400.
These are basically my points. I would be pleased to answer any questions.
[The prepared statement of Mr. Gellhorn follows:]
PREPARED STATEMENT OF ERNEST GELLHORN, PROFESSOR OF LAW, GEORGE MASON UNIVERSITY SCHOOL OF LAW, WASHINGTON, DC
SUMMARY
Informal rulemaking and explanatory agency advice play important roles in administrative regulation. Neither should be encumbered with requirements that discourage agencies from issuing clarifying rules or giving advice. On the other hand, it is equally important that such guidance be clear, consistent and reliable. H.R. 881 strikes a sensible balance to serve all of these objectives. It specifies that every substantive rule issued by an agency must clearly identify the conduct that the rule prohibits or requires, and that no sanction may be imposed by an agency or court where the regulated party acted in reasonable reliance upon a written representation by a responsible agency official.
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H.R. 881 is consistent with current law. The APA already requires advance notice of its rules (see 5 U.S.C. §552–53). Similarly, administrative law cases require reasoned decisions and generally uphold reasonable reliance by regulated persons on written advice. The advantage of H.R. 881 is that it would formally express Congress' intent that rules give fair warning and that affected persons may reasonably rely on written guidance by responsible officials.
However, the mechanism chosen in H.R. 881, to add a provision to section 558 of the APA (5 U.S.C. §558) and to insert a new section in the judicial code (28 U.S.C. §1660) is inconsistent with the structure of the APA and unnecessary with regard to the judicial code. Also, the text of H.R. 881's operative provisions are unnecessarily wordy and unclear. Thus, I urge that H.R. 881 be revised and its operative provisions read as follows:
Insert as 5 U.S.C. §553(e):(see footnote 1)
''A substantive rule shall give fair warning of the conduct that the rule prohibits or requires. For purposes of this section, ''fair warning'' shall mean that a reasonable person acting in good faith would be able to identify, with reasonable certainty, the conduct which the rule prohibits or requires.
Amend 5 U.S.C. §558 by adding §558(d)(1):
A sanction may not be imposed on a person for a violation of a rule if the person acted in reasonable reliance upon a written representation by the agency, or by an official with actual or apparent authority to interpret, administer, or enforce the rule, about what the rule prohibits or requires.
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STATEMENT
Mr. Chairman, thank you for the opportunity to participate in this hearing on H.R. 881, the Regulatory Fair Warning Act of 1999. It proposes to amend the Administrative Procedure Act, 5 U.S.C. §551 et seq. (and related provisions in the judicial code) to prevent enforcement of an agency rule that fails to give fair warning of its contents. Currently I am a professor of law at George Mason University. I have practiced law for ten years and been a law teacher or law school dean for twenty-five, and have written over 100 articles and four books in Administrative Law, Government Regulation and Antitrust Law. My practice has involved me in arguing cases on Administrative Law before Federal appellate courts, including the U.S. Supreme Court. I have served as a public member of the Administrative Conference of the United States and chaired its Rulemaking Committee from 1986 to 1995. I also have served as Chair of the Section of Administrative Law and Regulatory Practice of the American Bar Association in 1990–91 and am currently a delegate to the ABA House of Delegates.(see footnote 2)
Background: APA Rulemaking Requirements
Rulemaking plays a critical role in administrative regulation. It is more efficient than case-by-case adjudication because rules give regulated parties advance guidance and can address many issues in a single proceeding. A clear general rule can promote quick and uniform compliance and also provide affected persons and firms with protection against unknowing failure to conform. As the Supreme Court has said, ''[w]hen a government official is given the power to make discretionary decisions under a broad statutory standard, case-by-case decision making may not be the best way to assure fairness. . . . [The use of rulemaking] provides [affected parties] with more precise notice of what conduct will be sanctioned and promotes equality of treatment among similarly situated [persons].'' Dixon v. Love, 431 U.S. 105 (1977). In additional, the procedures of rulemaking proceedings can put all affected parties of notice of impending changes in regulatory policy, and give them an opportunity to be heard before the agency's position is final and enforceable.
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The basic rulemaking procedures set forth in Section 553 of the Administrative Procedure Act are simple and flexible. They impose three requirements on administrative agencies. First, the agency must give the public prior notice of the draft rule, which is usually accomplished by publication of the proposed rule in the Federal Register. The notice must contain ''either the terms or substance of the proposed rule or a description of the subjects and issues involved,'' as well as a reference to the legal authority for issuing the rule and information about the opportunities for public participation in its development. Second, after publication of the notice of the rulemaking, the agency must ''give interested persons an opportunity to participate'' through submission of written comments containing information, views or arguments. While the agency may take oral testimony, it is not required to do so. In practice agencies generally allow only written submissions, although the method for receiving comments varies among them and several provide for oral testimony in open hearings for their most important rules. Third, after the agency has considered the public comments, it must issue with the final rule a ''concise general statement of . . . [its] basis and purpose.'' Reviewing courts expect the agency to spell out in detail its reasons for issuing the rule and an explanation of why it accepted or rejected significant public comments. See Ernest Gellhorn and Ronald M. Levin, Administrative Law and Process 308–41 (4th ed. 1997).
Advice-Giving Practices and Problems
Advice-giving by federal agencies is common because it can be beneficial to both the regulators and regulated. No statute or agency rule can anticipate every problem or indicate clearly how the agency will deal with specific acts or practices. Advice provides information on an current interpretation of the law and possibly its enforcement intentions, that can guide private action. This can be particularly significant to small businesses that often lack the resources to master regulatory requirements and who may be more severely damaged by an enforcement action.
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Giving informal advice to the public often can help to the agency induce voluntary compliance at minimal cost because it is cheaper and faster than conducting a formal proceeding or an investigation after the fact. Advice-giving by agencies commonly involves having staff personnel provide information over the telephone or having them respond in writing to an inquiry. In some instances, the transaction or point of the law involved may be sufficiently important that either the agency or the private party will want a more formal statement of policy from a higher level of the bureaucracy. Some agencies have developed elaborate processes for rendering advisory opinions.
The Internal Revenue Service's revenue ruling procedure is the most prolific; it processes more than 20,000 rulings annually. The IRS distinguishes between two categories of written advice: (i) unpublished ''private letter rulings,'' which are issued by branch offices; and (ii) ''published rulings'' which are approved in the Commissioner's office. The former outnumber the latter by about a hundred to one. Published revenue rulings are official statements of agency policy, and the public may rely on them. However, the Service takes the position that a private letter ruling governs only the taxpayer to whom it is addressed; other taxpayers are warned that they should not rely on private rulings even if their situations are identical, because such rulings have not received thorough consideration at the agency's highest levels. By statute, they are not citable as precedent. 26 U.S.C. §6110(j)(3).
The IRS revenue ruling system illustrates some of the dilemmas an agency faces in trying to develop a sound advisory opinion practice. The IRS' refusal to be bound by private letter rulings has been criticized for allowing inconsistent treatment of similarly situated taxpayers and for discouraging reliance on administrative precedent. However, a policy of freely authorizing staff members to give binding advice to the public would create a risk that important policy issues would be decided by lower level employees without adequate analysis, investigation or review by supervisors. On the other hand, if the IRS undertook to submit more of its advisory rulings to thorough exploration of relevant policy, factual and legal issues, including high level review, this administrative function might become so cumbersome and costly that most of the advantages of speed and low cost would be eliminated. The agencies would become less willing to give advice, and private parties would less often be able to obtain a quick answer.
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Ideally, routine inquiries in areas of settled policy should be handled at the staff level, while unresolved issues of law or policy should be referred to higher levels of the agency. In practice, however, this distinction is difficult to determine; nor is it easy to decide who should have the responsibility for making the initial assessment.
A related question, which is directly within the focus of the Regulatory Fair Warning Act (H.R. 881), is whether the requesting party can confidently rely upon the advice received from the agency. In legal terms the issue is whether the agency is estopped from changing its position if the regulated party relies on advice that is later discovered to be in error. The Supreme Court's answer to this question has been almost totally negative. Liberal rules on equitable estoppel, the Court has warned, would undermine the rule of law, transfer control over the expenditures of public funds from the elected Congress to unelected bureaucrats, and ultimately could induce the government to provide less advice in the first place. E.g., Schweiker v. Hanson, 450 U.S. 785 (1981). Nonetheless, the Court has stopped short of saying that government can never be estopped on the basis of an official's erroneous advice. See OPM v. Richmond, 496 U.S. 414 (1990). To be applicable, the essential elements of estoppel—a definite misrepresentation of fact, resulting in reasonable detrimental reliance by the complaining party—are strictly construed when the government has given bad advice. Heckler v. Community Health Services, Inc., 467 U.S. 51 (1984).
The Supreme Court's strict rules on equitable estoppel have been criticized as too harsh and exceptions have sometimes been applied to avoid its inflexibility. In most circumstances, agencies avoid the problem by honoring reasonable reliance interests as they make enforcement decisions, even where the law does not require them to do so. See Michael Asimow, Advice to the Public from Federal Administrative Agencies 7–8 (1973). And where the regulation being applied is ''anything but explicit,'' reviewing courts have been more willing to hold the government responsible. Portmann v. United States, 674 F.2d 1155 (7th Cir. 1982)(graphic arts designer entitled to rely upon statement of postal clerk that commercial photographs were insured up to $50,000). A frequent result is that courts have pointed to incorrect advice by government agents as a factor in denying a government request for enforcement because the defendant was not given '' 'fair warning' of a regulatory prohibition and thus could not be penalized for violating it.'' Ernest Gellhorn and Ronald M. Levin, Administrative Law and Process 184–85 (4th ed. 1997)(citing United States v. Pennsylvania Ind. Chem. Corp., 411 U.S. 655 (1973) (criminal prosecution); General Electric Co. v. EPA, 53 F.3d 1324 (D.C. Cir. 1995 (action for civil fine)).
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Contribution of H.R. 881 to Administrative Procedure
The bill before your Committee, H.R. 881, seeks to improve the fairness and the efficiency of the regulatory process, first, by specifying that every substantive rule issued by an administrative agency must clearly identify the conduct that the rule prohibits or requires and, second, by prohibiting an agency or court from imposing any sanction for violation of a rule where the regulated person acted in reasonable reliance upon a written representation by an agency official with authority to interpret, administer or enforce the rule. It would codify the best elements of current law and provide express instruction to agencies and courts on the troublesome area of advice-giving by agencies to the public. The addition to current law would be to section 558 of the APA, 5 U.S.C. §558(d), and to the judicial code, 28 U.S.C. §1660. The changes, however, are identical in each section and the addition to title 28 apparently seeks to ensure that courts reviewing agency enforcement apply the standards imposed on the agencies by the amendments to title 5 (of the APA).
H.R. 881's principal effect is to add a subsection to the APA setting forth three requirements before a sanction can be applied against a private party under 5 U.S.C. §558: first, the rule must have been properly published or at least known to the person against whom it is enforced; second, the rule must give fair warning of the conduct that is prohibited or required; and third, the regulated party must not have been given a contrary representation in writing, on which it reasonably relied, by a government official with apparent authority.
All of these provisions are salutary. It is an elementary principle of the rule of law, codified in the notice provisions of the APA, that agency rules must be published in the Federal Register or CFR or known by the party against whom they are being applied. Ample precedent requires that an agency rule can be applied only insofar as the conduct being controlled was reasonably encompassed in the statement of the rule. In addition, the more recent cases recognize that the public generally has a right to reasonably rely upon written advice from an agency when made by an official with actual or apparent authority to interpret, administer or enforce the rule.
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These principles already are embodied in current law. Making them explicit by adoption of H.R. 881 should not increase agency burdens. To the extent that agencies have are not following these reasonable rules, they should be required to do so. For most agencies compliance should be simple and not burdensome. To be sure, adoption of this amendment to the APA will not solve all problems—what constitutes reasonable reliance is necessarily a fact-intensive, case-specific issue. On the other hand, one purpose of the APA is to provide express guidance to agencies on how they should conduct their operations, and this addition to the APA furthers that objective.
Recommended Revisions to H.R. 881
However, I believe that the current draft of H.R. 881 is both unnecessarily complex and unduly cumbersome. It makes changes to both the APA and the judicial code, whereas only an amendment to the APA is necessary. The APA imposes requirements on both agencies and reviewing courts. That is, requirements regarding publication, rulemaking and sanctions in sections 552, 553 and 558 of the APA already set forth the law that the agency must follow. And the provisions of section 706(2) of the APA provide for judicial enforcement of these standards. That is, section 706(2) provides that agency action shall be set aside if it is ''not in accordance with law,'' namely, as set forth in other sections of the APA. Thus, there is no warrant to revise the judicial code as H.R. 881 does in its amendment of chapter 111 of title 28 by adding new section 1660. I believe this section is superfluous. Nor is it desirable to make changes in the rulemaking procedures of the APA by amendment of §558 when the operative rulemaking requirements are set forth in §553. The primary changes specifying rulemaking procedures should be in §553.
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I also am concerned by the limiting provision in H.R. 881 that the agency must ''find[ ]'' that the required notice was not given or that reasonable reliance of written advice existed. If the agency flouts the law and makes no finding, does that mean that it has not violated the amended APA? I think the answer should clearly be no, but H.R. 881 introduces undesirable confusion on this point.
In addition, the notice provisions in H.R. 881 that would be added by subsection (A) are already in the APA. That is, the requirement in H.R. 881 that the rule be printed in the CFR or Federal Register already is required by 5 U.S.C. §552 and 553; §552 also imposes an index requirement that H.R. 881 arguably overrides if found to be inconsistent with the APA's publication provisions. The problem is created by H.R. 881's addition of requirements already in other sections of the APA. Since the new provisions are different, they seemingly override the current provisions.
Nor am I clear about the meaning of the word ''retrospective'' as used in subsection (C) of 558(d)(1) in H.R. 881. If no fair warning is given, the sanction cannot be imposed; if fair warning is given, it can. Failure to give a fair warning can only be retrospective so the addition of this adjective is superfluous and might lead a court to apply it narrowly.
The last point also illustrates my concern that H.R. 881, as currently drafted, is wordy and ambiguous. It takes hundreds of words to say what can be stated in a simple addition of two sentences to §553 and one sentence to §558. I would substitute the following for the substantive provisions in Sections 3 and 4 of H.R. 881. (I have previously shared these views with the Subcommittee staff which has labeled them for convenience as the ''Gellhorn Draft'').
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Insert as 5 U.S.C. §553(e):(see footnote 3)
''A substantive rule shall give fair warning of the conduct that the rule prohibits or requires. For purposes of this section, ''fair warning'' shall mean that a reasonable person acting in good faith would be able to identify, with reasonable certainty, the conduct which the rule prohibits or requires.
Amend 5 U.S.C. §558 by adding §558(d)(1):
A sanction may not be imposed on a person for a violation of a rule if the person acted in reasonable reliance upon a written representation by the agency, or by an official with actual or apparent authority to interpret, administer, or enforce the rule, about what the rule prohibits or requires.
Adoption of this language would accomplish everything that the operative provisions of H.R. 881 do except that this Gellhorn Draft takes 100 words to do what H.R. 881 uses over 400 to do. Economical use of words in statutes reduces the likelihood of the need for clarifying litigation and eases the task of interpretation. If H.R. 881 were drafted as recommended, it would not disrupt the current structure of the APA because it makes all changes in rulemaking procedures in §553 and restricts changes in §558 to conditions limiting the application of sanctions where other APA requirements have been met. The redraft does not change any of the operative words of H.R. 881. Finally, substitution of the Gellhorn Draft for the current language of H.R. 881 would avoid the interpretive problems previously identified in the current version.
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I therefore support H.R. 881 with the modifications suggested above. For your convenience, I have attached a copy of the Gellhorn Draft of the operative provisions of H.R. 881.
''GELLHORN DRAFT'' OF H.R. 881
Insert as 5 U.S.C. §553(e):(see footnote 4)
''A substantive rule shall give fair warning of the conduct that the rule prohibits or requires. For purposes of this section, ''fair warning'' shall mean that a reasonable person acting in good faith would be able to identify, with reasonable certainty, the conduct which the rule prohibits or requires.
Amend 5 U.S.C. §558 by adding §558(d)(1):
A sanction may not be imposed on a person for a violation of a rule if the person acted in reasonable reliance upon a written representation by the agency, or by an official with actual or apparent authority to interpret, administer, or enforce the rule, about what the rule prohibits or requires.
Mr. GEKAS. We thank you, professor, and we will get back to you during the question and answer period.
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Mr. Hahn.
STATEMENT OF ROBERT HAHN, DIRECTOR, AEI-BROOKINGS, JOINT CENTER FOR REGULATORY STUDIES, WASHINGTON, DC
Mr. HAHN. Thank you, Mr. Chairman and committee members. I think that most of you are sufficiently learned to remember ''The Graduate,'' in which Dustin Hoffman was told to consider the single word, ''plastics,'' as the key to success. I want to leave you with a similar idea—like Ernie's 200 words—and that is the notion——
Mr. GELLHORN. One hundred.
Mr. HAHN. One hundred, excuse me. And that is the notion of regulatory accountability. I work and also direct the AEI-Brookings Joint Center for Regulatory Studies. One of the things that we are very concerned about, and I think this bill does a reasonably good job at it, is helping to make law makers and regulators more accountable.
I want to talk a little bit about the act, but I also want to talk about the broader concept that you raised in your remarks, Mr. Chairman. That is, how do we begin to inform the public intelligently about the impacts of the regulations that are either imposed on them directly or indirectly by being imposed on the private sector?
First of all, with respect to the act. I agree with Professor Gellhorn. It essentially codifies what is common sense. That is to say, regulations should be accessible to affected parties, they should be able to get them easily and know what is expected of them. They should be understandable and they should also be able to rely on written communications with officials from regulatory agencies. I also think, to support Professor Gellhorn's remarks, that it is important to keep it simple. So if we can achieve what you had intended with your words, I am certainly in support of that.
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Let me now turn to the broader issue of how we can begin to make some headway toward trying to make regulators and law makers more accountable for regulations. When I say this, my remarks are in no way meant to denigrate the act because I support your act. But I would like to see some broader initiatives, some of which are already taking place here in Congress. The first, which my codirector and I support, is to create an independent or congressional agency that would be charged with replicating the analysis supporting major regulations before they are implemented. I think it is very important given that many of these regulations cost billions and billions of dollars, and have quite significant benefits as well, that we replicate the analyses that are done in the executive agency before we just glibly pass these regulations on and ask the private sector and the public to comply with them. There is a bill before the Congress. I don't know its status, but it is arguing for a congressional office for regulatory analysis. I think that is very important.
Secondly, I believe that it is important for Congress when passing legislation to allow regulators and the heads of agencies to consider costs and benefits of decision-making when they make regulatory decisions. You might be surprised to know or you might know all too well that certain regulations or certain laws prohibit agency heads from actually considering costs and benefits explicitly. As an economist, I see no reason why agency heads and regulators at lower levels should not be able to consider issues that are fundamental to regulating well.
Thirdly, along the lines of recommendations in your bill that regulations be accessible at a low cost to individuals, I also think that the analyses in support of regulations—and here I am speaking specifically with respect to major regulations, for example, those that might impose costs on the economy exceeding $100 million annually—I think that it is very important that the analyses and the data that support these regulations be available to people, and ideally I would like to see them on the Internet.
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So in conclusion, I think you are moving in the right direction. I think it is a very difficult issue and the watch words of the day should be improving regulatory accountability.
Thank you.
[The prepared statement of Mr. Hahn follows:]
PREPARED STATEMENT OF ROBERT HAHN, DIRECTOR, AEI-BROOKINGS, JOINT CENTER FOR REGULATORY STUDIES, WASHINGTON, DC
Robert W. Hahn is director of the AEI-Brookings Joint Center for Regulatory Studies, a resident scholar at AEI, and a research associate at Harvard University. A copy of this testimony can be obtained from the Joint Center's web site: www.aei.brookings.org. The author has benefited from the research assistance of Petrea Moyle and Amy Wendholt and the comments of Robert Litan. The views expressed here represent those of the author and do not necessarily reflect those of the institutions with which he is affiliated.
EXECUTIVE SUMMARY
Regulation is becoming increasingly important in many aspects of our economy. It is also becoming increasingly complex in many areas. The government has an obligation to make regulators and lawmakers more accountable for regulations by providing low-cost information on regulations to affected parties. At the same time, affected parties have an obligation to make a good-faith effort to comply with laws and regulations.
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The Regulatory Fair Warning Act would help promote regulatory accountability by banning the imposition of sanctions in cases where the government did not take reasonable efforts to inform citizens about the requirements of a regulation. The act would help ensure that parties affected by regulations have easy access to those regulations in formal publications, such as the Federal Register. That access is critical to the integrity of the regulatory process. So, too, is a provision that a ''reasonable person'' must understand what is needed to comply with a rule.
INTRODUCTION
I am pleased to appear before the committee to provide my views on the Regulatory Fair Warning Act (H.R. 881). I have studied and written about regulatory issues for over two decades. Recently, my colleague, Robert Litan, and I helped the two institutions with which we are affiliated—the American Enterprise Institute and the Brookings Institution—form a new Joint Center for Regulatory Studies. The Joint Center addresses several issues related to improving the regulatory process, including reviewing federal regulatory and legislative proposals.
I believe that the Regulatory Fair Warning Act is a good bill and Congress should adopt it, with some modifications. The bill would help ensure that parties affected by regulations have easy access to those regulations in formal publications, such as the Federal Register. That access is critical to the integrity of the regulatory process. So, too, is a provision that a ''reasonable person'' must understand what is needed to comply with a rule. While the bill represents a step in the right direction of promoting better accountability and more transparency in the regulatory process, more congressional attention needs to be paid to other issues that would enhance regulatory accountability. After analyzing the bill, I address some of those broader concerns.
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THE REGULATORY FAIR WARNING ACT
The Regulatory Fair Warning Act highlights three important themes that would promote regulatory accountability:
Regulations should be readily accessible to affected parties: The act would require that regulations be printed in the Code of Federal Regulations or the Federal Register before a sanction could be applied.
Regulations should be understandable: The act would require that a reasonable person making a good-faith effort could understand what the rule requires and that the rule be known to that person before a sanction could be applied.
Affected parties should be allowed to rely on written communications of agencies in attempting to comply with regulations: The act would invalidate retrospective sanctions if a person reasonably relied on written communications issued by the regulatory agency.
In principle, those ideas make sense and would hold regulators more accountable. The issue is how they would be applied in practice.
EVALUATION OF THE ACT
Agencies have a great deal of discretion in how regulations are implemented. While I believe that some discretion is desirable (e.g., for situations in which the underlying science is changing, or for dealing with unforeseen emergencies), the day-to-day business of regulating should be designed to promote transparency and trust in the system. Trust can be promoted by making it easy for people affected by regulations to know what is required of them to comply.
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In addition to promoting trust in the regulatory process by requiring that the rules of the game be clearly defined, this act could also promote economic efficiency. The reason is that it would limit the discretion of regulators to change rules and interpretations of rules without first complying with certain guidelines. To the extent regulated parties know the rules and how they will change, they will be more certain about their property rights and be more inclined to make investments that would improve the return on their property.
While I believe that the act has many desirable features, I strongly recommend deleting the parts of the act that would require that the terms of the regulation be ''known to the person'' before a sanction could be applied. The government does have a responsibility to make the regulations clear and easily accessible, but citizens have a responsibility to find out which regulations directly apply to them.
ADDRESSING OBJECTIONS TO THE ACT
In previous testimony, several objections have been raised to the act. Here, I address a few of the more important ones.
Objection 1: The act will expand the defenses for willful violators of regulations.
Response: The Act could expand the defenses for willful violators; however, it need not if the government adequately informs individuals of what they are required to do. Moreover, the act could also serve to promote higher levels of compliance by forcing regulators to write regulations that are clearer and by promoting greater trust in the system.
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Objection 2: The act could weaken environmental, health, and safety regulation.
Response: To the extent that regulators currently use a great deal of discretion in implementing environmental, health, and safety regulation, regulators would need to change their behavior to ensure appropriate outcomes. In particular, they would be asked to make the regulatory process more transparent for regulated entities. I believe that regulators could adapt to the new law while continuing to maintain strong protections for the environment, health, and safety of citizens.
Objection 3: The act would encourage more litigation.
Response: In principle, the act could encourage more litigation. That is a clear potential cost of the act; over the longer run, however, the act could actually reduce litigation and legal costs by forcing regulators to make the regulatory process more transparent.
Objection 4: There are better ways to achieve the goals of the act.
Response: The truth is that policymakers have not been very successful at making regulations simple and clear for the regulated community. Many interest groups, including lawyers, lawmakers, regulators, and the regulated community, often have an interest in making laws and regulations complicated and ambiguous. I applaud attempts by Congress, including this act, that recognize the severity of the problem and attempt to develop constructive solutions. Until such approaches are tried, it is difficult to assess their effectiveness.
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OTHER ISSUES RELATED TO PROMOTING REGULATORY ACCOUNTABILITY
The Regulatory Fair Warning Act addresses only one issue—the imposition of sanctions—in a way that could hold regulators and lawmakers more accountable for regulation. Here, I address some broader concerns related to improving regulatory accountability and offer three recommendations. The essence of my approach is to improve the quality of economic information on the benefits and costs of regulation and to make the analyses and data supporting regulations more widely available.
Recommendation 1: Congress should create an independent or congressional agency to replicate the analysis supporting major regulations before they are implemented. Such an agency should also provide information to Congress on the benefits and costs of individual regulations and regulatory programs.
Discussion: The Congressional Office of Regulatory Analysis, which Robert Litan and I support, could implement that recommendation.
Recommendation 2: Congress should allow regulators to consider the costs and benefits of decisionmaking when they make regulatory decisions.
Discussion: Frequently, laws do not allow regulators to weigh costs and benefits. Such prohibitions should be removed.
Recommendation 3: Government assessments of major regulations should be readily available on the Internet. In addition, the public should be provided with greater access to data underlying major regulations.
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Discussion: Just as the Regulatory Fair Warning Act would require greater transparency in final regulations, the process that led to those regulations should have greater transparency. Making analysis supporting major regulations (i.e., regulatory impacts analyses) readily available on the Internet would be a useful and doable first step. In addition, efforts should be made to provide the public with greater access to data supporting regulatory analyses.
CONCLUSION
Regulation is becoming increasingly important in many aspects of our economy. It has an important effect on our quality of life and the costs of goods and services; it also affects the ability of firms to compete in an increasingly global economy.
The Regulatory Fair Warning Act, if passed, will help enhance regulatory accountability. I support this act, provided it still holds individuals responsible for compliance when regulations are clear. But even if this act passes, more work is needed to improve the regulatory process.
Congress has traditionally paid much less attention to the benefits and costs of regulation than to directly budgeted expenditures. That imbalance needs to be rectified.
Congress needs to have better information on the likely benefits and costs of regulations that flow from the laws it passes. In addition, American citizens have a right to know how regulations are likely to affect them in everyday life.
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RELATED READINGS
AEI-Brookings Joint Center for Regulatory Studies. 1998. Conference Summary: Changing the Way We Think about Regulation. www.aei.brookings.org.
AEI-Brookings Joint Center for Regulatory Studies. 1999. Conference Summary: Should Scientists Be Required to Share Data? An Analysis of the OMB's Proposed Regulation. www.aei.brookings.org.
Cohen, Linda R. and Robert W. Hahn. 1999. Should Researchers Be Required to Share Data Used in Supporting Regulatory Decisions? Working Paper 99–1. Washington, D.C.: AEI-Brookings Joint Center for Regulatory Studies. May.
Crandall, Robert W., Christopher DeMuth, Robert W. Hahn, Robert E. Litan, Pietro S. Nivola, and Paul R. Portney. 1997. An Agenda for Federal Regulatory Reform. Washington, D.C.: AEI Press and Brookings Institution.
Hahn, Robert W. and Robert E. Litan. 1997. Improving Regulatory Accountability. Washington, D.C.: AEI Press and Brookings Institution.
Hahn, Robert W. and Robert Litan. 1999. The Regulatory-Right-to-Know Act and the Congressional Office of Regulatory Analysis Act, Testimony 99–1. Washington, D.C.: AEI-Brookings Joint Center for Regulatory Studies. April.
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Lutter, Randall and Christopher DeMuth. 1999. ''The Wizards of Ozone.'' The Weekly Standard 4: 17–19. June.
Onek, Joseph. 1998. Testimony of Joseph N. Onek Principal Deputy Associate Attorney General U.S. Department of Justice before the Subcommittee on Commercial and Administrative Law Judiciary Committee United States House of Representatives concerning H.R. 4049, the Regulatory Fair Warning Act. July 23.
Troy, Daniel. 1998. Testimony of Daniel E. Troy, Associate Scholar of Legal Studies, American Enterprise Institute for Public Policy, Partner, Wiley, Rein & Fielding, before the Subcommittee on Commercial and Administrative Law concerning the Regulatory Fair Warning Act of 1998 (H.R. 4049). July 23.
Vladeck, David C. 1998. Statement of David C. Vladeck, Esq., Director, Public Citizen Litigation Group before the House Committee on the Judiciary Subcommittee on Commercial and Administrative Law on H.R. 4049—The ''Regulatory Fair Warning Act of 1998.'' July 23.
Robert W. Hahn is director of the AEI-Brookings Joint Center for Regulatory Studies, a resident scholar at the American Enterprise Institute, and a research associate at the John F. Kennedy School of Government, Harvard University. Before that he worked for two years as a senior staff member of the President's Council of Economic Advisers. Mr. Hahn frequently contributes to general-interest periodicals and leading scholarly journals including the New York Times, the Wall Street Journal, the American Economic Review, and the Yale Law Journal. His most recent book, Reviving Regulatory Reform: A Global Perspective, will be published by AEI and Brookings later this year. Mr. Hahn has served as a consultant to government and industry on a wide variety of issues including regulatory reform, privatization, and antitrust. In addition, he is a cofounder of the Community Preparatory School, an inner-city middle school in Providence, Rhode Island, that provides opportunities for disadvantaged youth to achieve their full potential.
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Mr. GEKAS. We thank the gentleman. We turn to Ms. Somson.
STATEMENT OF BARBARA C. SOMSON, DEPUTY LEGISLATIVE DIRECTOR, UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA, UAW, WASHINGTON, DC
Ms. SOMSON. Good morning, Chairman Gekas. Good morning, Congressman Delahunt. It is a pleasure to be here. My name is Barbara Somson. I am a Deputy Legislative Director of the United Auto Workers. I am especially pleased to be here when I realize I am the only person who is testifying against the bill, and I appreciate the opportunity to be heard in opposition.
I am testifying on behalf of the 1.3 million members of the United Auto Workers, that is retired and active members. It is popular these days in Washington to be critical of regulations. Regulations are frequently characterized as burdensome, cumbersome, costly. They are referred to as ''red tape.'' Regulatory agencies are criticized by business lobbyists and some Members of Congress as being overzealous, overreaching, litigation happy. ''Regulatory reform'' is the battle cry of the day. I would like to take a few minutes to talk to the subcommittee about how our members feel about Federal regulations, how people outside the Beltway feel about Federal regulations—on shop floors, on construction sites, in coal mines.
Specifically, I would like to talk about the Federal regulations issued by the Occupational Safety and Health Administration, OSHA. First, it bears repeating that 60,000 workers die every year from occupational illnesses and injuries. That is over 160 workers dying from work each day, 365 days a year. And millions more each year are injured on the job or debilitated by diseases contracted at work. Within the UAW nearly 100,000 of our members suffer an occupational illness or injury each year.
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Earlier this year we lost six members to an explosion at the Rouge Ford Foundry in Dearborn, Michigan, and Ford is a good company. I know that there are a lot of Members of Congress who feel that there are bad companies, bad actors, and we need to pass a law because we need to lean on the bad actors. Nobody would say that Ford was a bad actor. Ford has gone a long way toward improving the occupational health and safety of its members and yet we had a tragic accident at Ford Motor Company.
I know that some business groups and Members of Congress see OSHA and regulations as burdensome, but UAW members see them as protections. Consider these facts. Before OSHA acted, brown lung disease disabled or claimed the lives of tens of thousands of textile workers. Today because of OSHA regulations the disease has been virtually eliminated in American textile mills. Before OSHA acted, hundreds of Americans died from cancer caused by exposure to vinyl chloride on the job. Today, because of OSHA regulations, few, if any, workers die from exposure to vinyl chloride. Before OSHA acted, hundreds of workers died or were mutilated in grain elevator explosions each year. Now, because of OSHA regulations, grain elevator explosions are rare occurrences. Before OSHA acted, the leading cause of fatalities among UAW members was maintenance workers being crushed to death while repairing heavy machinery. Now, because of OSHA energy lockout regulations, these fatalities have ceased to occur among UAW members.
The UAW believes it is fair to say that had the provisions of H.R. 881 and other regulatory reform legislation been in effect for the last 20 years, these OSHA successes would not have been so great. Our members don't believe that American businesses are overregulated or that regulatory agencies are overzealous, not when it takes an average of 10 years for OSHA to issue a major rule and not when the UAW has been waiting for a final decision from OSHA in a contested violation involving a fatality at a General Motors plant, a fatality that occurred 9 years ago. I might remind members of the subcommittee that under the OSHA Act, when an employer contests a regulation, the penalty is suspended and the violation does not have to be abated during appeal.
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The UAW is opposed to the Regulatory Fair Warning Act because we see its potential for abuse. In my opinion, the bill as drafted would permit a business to escape a sanction for violating a public safety regulation if the business did not know about the regulation. It would provide law breakers with additional defenses, encouraging more of them to contest OSHA violations. It would permit employers to escape sanctions under Federal OSHA laws if they were given incorrect advice by State officials without actual authority to interpret Federal law.
In conclusion, we believe this legislation would undermine enforcement of existing health and safety and other government protections and would cause additional strains on the already limited resources of protective agencies such as OSHA.
Thank you for giving me the opportunity to testify.
[The prepared statement of Ms. Somson follows:]
PREPARED STATEMENT OF BARBARA C. SOMSON, DEPUTY LEGISLATIVE DIRECTOR, UNITED AUTOMOBILE, AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA, UAW, WASHINGTON, DC
Mr. Chairman and members of the Subcommittee, thank you for the opportunity to testify this morning on H.R. 881, the Regulatory Fair Warning Act of 1999. My name is Barbara Somson, Deputy Legislative Director of the International Union, United Automobile, Aerospace, and Agricultural Implement Workers of American (UAW), and I am testifying on behalf of nearly 1.3 million active and retired UAW members and their families.
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Too often the debate over regulatory ''reform'' gets lost in a discussion of technical detail. Modification of our administrative governance laws—where a change in one word can have significant and lasting ramifications—does require great precision, and details are important. But as we discuss these technicalities, we often forget what is most important, the millions of people who rely on federal regulations to assure them safe food to eat, unpolluted air to breathe, uncontaminated drinking water, safe air travel, and workplaces free of serious hazards to their lives and limbs.
Each year nearly 60,000 U.S. workers die from work-related injury or illness, more than the total number who died during the war in Vietnam. And although UAW members are among the best protected American workers, nearly 100,000 of our members suffer an occupational injury or illness every year. Clearly, much more needs to be done to improve workplace safety and health. But rather than building on past successes to promote greater occupational health and safety for American workers, we believe the ''Regulatory Fair Warning Act'' (H.R. 881) would move in exactly the wrong direction and dramatically undermine enforcement of existing protections.
We agree with you, Mr. Chairman, that agencies should be fair in enforcing federal standards. But the Constitution already provides due process for those accused of wrongdoing and current law already forbids punishment where there has not been adequate public notice. H.R. 881, however, goes well beyond existing law to place onerous new burdens on agencies and to give lawbreakers new defenses, all at the expense of the public and American workers.
CURRENT LAW ALREADY PROVIDES FOR FAIR WARNING
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H.R. 881 appears to be based on a misapprehension of existing law. Reading H.R. 881, one would conclude that current law permits individuals and corporations to be sanctioned for violations of law in cases where an agency failed to clearly and publicly articulate the governing substantive legal standards or affirmatively misled the accused as to the appropriate standards of conduct. Neither of these propositions is true.
The Administrative Procedure Act requires agencies to publish in the Federal Register all ''substantive rules of general applicability.'' 5 U.S.C. 552(a)(1)(D). Failure to publish renders a final rule unenforceable against any person not having actual and timely notice of its terms. Id. 552(a)(1). The Supreme Court has long held that it will not condone the government's use of unpublished regulations or ''secret law'' to adversely affect the substantive rights of individuals. Morton v. Ruiz, 415 U.S. 199 (1974). In explaining the policy underlying section 552(a)(1), the Court in Morton emphasized that ''[t]he [APA] was adopted to provide, inter alia, that administrative policies affecting individual rights and obligations be promulgated pursuant to certain stated procedures so as to avoid the inherently arbitrary nature of unpublished ad hoc determinations.'' Id. at 232. The lower courts have consistently invalidated agency actions when an agency failed to observe the APA's publication requirements.
Nor have the courts condoned efforts by an agency to impose sanctions against individuals or corporations where the agency's own conduct has created ambiguities about regulatory requirements. For example, in NI Industries, Inc. v. United States, 841 F.2d 1104 (Fed. Cir. 1988), a government contract case in which the plaintiff had been denied—based on an unpublished rule—a share of the government's savings from an engineering change, the government was barred from applying the rule because of its failure to give adequate notice.
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More recently, in Chamber of Commerce v Herman, (slip op. 98–1036, decided April 9, 1999), the D.C. Court of Appeals gave a very broad interpretation to the types of agency action that are subject to the notice and comment provisions of the APA. In that case, the court struck down the Cooperative Compliance Program (CCP) announced by the Occupational Safety and Health Administration (OSHA) because it had not been subject to notice and comment, even though the CCP was entirely voluntary and made no requirements of businesses.
Thus it is clear that existing law already satisfies the stated goal of H.R. 881—to ensure that agencies adequately inform regulated persons of their obligations and responsibilities before any sanction is imposed. This bill would instead make it much more difficult, and in some cases impossible, for the government to enforce federal laws and would depart from long-held understandings of fair warning established by years of case law, as well as numerous regulatory actions.
INCENTIVES FOR IGNORANCE
Most non-lawyers are familiar with the expression, ''Ignorance of the law is no defense.'' It is a fundamental principle of American jurisprudence. H.R. 881 stands this principle on its head and substitutes a different one: ''Ignorance is bliss!''
As drafted, H.R. 881 would prevent the federal government from sanctioning any business for the violation of a federal regulation if an agency or court found that the rule was not known to the business. It is possible that our reading of the bill's language is not the reading intended by the bill's sponsors. But if one applies the standard rule of construction that enumerated provisions separated by an ''or'' are read separately, the relevant provision in Section 3 of the bill (starting on page 3, line 16) would read as follows: ''(d)(1) No sanction shall be imposed on a person by an agency for a violation of a rule if the agency finds any one of the following: (A) that the rule was not . . . (iii) known to the person.''
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It is unclear from the legislation whether proof of ''knowledge'' would be the burden of the agency or is intended to be raised as an affirmative defense by the regulated entity. But it really doesn't matter. Either way, the effect is the same—the legislation would reward employers for not making the effort to learn how to make their workplace safer and healthier.
It is possible that the bill is simply inartfully drafted, as suggested by the legislation's summary, and that it is not intended to require knowledge of a rule by an regulated entity. We note, however, the testimony of a witness before this Subcommittee last year, an associate scholar of legal studies at the American Enterprise Institute who was testifying on behalf of similar legislation last session, H.R. 4049. Daniel Troy testified that the bill ''. . . ought to be amended so as to remove the following language . . . : 'No sanction shall be imposed on a person by an agency [or a court] for a violation of a rule if the agency [or court] finds that the rule was not . . . known to the person. . . .'' Mr. Troy continued, ''This language would seemingly exonerate regulated entities and persons who were ignorant of the law, even though such ignorance was not reasonable or in good faith. . . . Since the purpose of the [bill] is to better inform regulated entities, not to further hamstring the functioning of administrative agencies, the aforementioned language ought to be excised.''
But the language was not excised in this session's version of the Fair Warning Act. Are we to conclude that the purpose of this bill may, indeed, be to ''further hamstring the functioning of administrative agencies''? If not, the bill needs to be redrafted or it will most surely spawn a host of litigation.
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It bears repeating that the underlying purpose of these federal rules and regulation is to protect Americans. In the case of the Occupational Safety and Health Act (OSHAct), the goal is to ensure that employers provide their employees a workplace that is as safe and healthy as feasible. Experience shows that many work-related injuries and illnesses can be avoided, or their seriousness greatly reduced, when employers adhere to federal safety regulations.
Before OSHA acted, brown lung disease disabled or claimed the lives of tens of thousands of textile workers. Now, because of OSHA regulations, the disease has been virtually eliminated in American textile mills.
Before OSHA acted, hundreds of American died from cancer caused by exposure to vinyl chloride on the job. Today, because of OSHA regulations, few if any workers die from exposure to vinyl chloride.
Before OSHA acted, hundreds of workers died or were mutilated in grain elevator explosions every year. Now, because of OSHA regulations, grain elevator explosions are rare occurrences.
Before OSHA acted, the leading cause of fatalities among UAW members was the crushing to death of maintenance workers while repairing heavy machinery. Now, because of OSHA energy lockout regulations, these fatalities have ceased to occur among UAW members.
I believe it is fair to say that had the provisions of H.R. 881 been in effect for the last twenty years, these OSHA successes would not have been so great. If employers could claim ignorance as a defense, they would have an incentive not to know the OSHA rules and regulations, and not to implement them to improve their workplaces. If the government had the burden of proving that each employer had actual knowledge of each regulation, OSHA personnel would have to visit each workplace and inform the appropriate employer agents of the rules and regulations to assure such knowledge. This, of course, is impossible: there are more than 6 million workplaces and only 2000 OSHA employees!
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ADDITIONAL DEFENSES, EVEN MORE LITIGATION
The UAW has serious concerns about two other provisions in the legislation. First, the bill would prevent sanctions from being imposed if ''the rule failed to give the person fair warning of the conduct the rule prohibits or requires.'' While it is, again, unclear how this language would be interpreted, it is certain that many law-breakers would seize upon it to litigate and appeal any sanctions they incur.
This provision is particularly worrisome because most federal regulations do not prohibit or require specific conduct. Indeed, where OSHA has issued prescriptive regulations—such as the one that fire extinguishers must be 36'' from the floor—industry has argued that the regulations should instead be ''performance oriented'' and state the objective—such as that the fire extinguisher be visible and easily accessible to employees.
OSHA is now trying, in response to industry complaints about ''command and control'' regulations, to make regulations less prescriptive and more outcome-based. The proposed ergonomics standard, for example, does not tell an employer that employees may not lift an object heavier than, let's say, 100 pounds. Rather, it tells an employer that if an employee is injured lifting a 100 pound object on the job, the employer is responsible for coming up with a solution that will keep such an injury from reoccurring. It will be for the employer to decide, for example, whether to lower the weight limit, to provide an assisted lifting device, to require two employees to do the task, or to oufit employees with back supports. But, if H.R. 881 were enacted, OSHA might have to promulgate a highly prescriptive ergonomics standard with a ''one-size-fits-all'' approach so objectionable to most businesses.
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Our second concern is with the provision that a sanction could not be imposed on a law-breaker if ''the person acted in reasonable reliance upon written representations about what the rule prohibits or requires which were issued by the agency or an official with actual or apparent authority to interpret, administer, or enforce the rule.'' Although this section is less vague than a similar section in H.R. 4949, it is still fraught with problems. It does not adequately define an ''official.'' It would generate litigation over the meaning of ''reasonable reliance.'' And, most disturbingly, it would reverse the long-accepted principle that estoppel does not run against the government.
If these two provisions were to become law, more law-breakers would litigate their sanctions, straining already limited agency resources. Moreover, the practical effect on enforcement would be to shift the focus from the party accused of violating the law to the federal agency and its employees. This is not what our members and their families want or deserve.
CONCLUSION
The UAW agrees that businesses should be given notice, or fair warning, of new federal requirements, as is already required under current law. H.R. 881, however, would require something much different than a fair warning. Most significantly, it would shift the burden of proof away from establishing unlawful conduct, which is subject to objectively verifiable facts, to highly subjective defenses involving the state of mind of individuals or entities accused of misconduct, their ''good faith,'' or the reasonableness of their reliance on agency pronouncements. Put simply, H.R. 881 invites law-breakers to evade responsibility for their misdeeds by pointing fingers at agency officials or reading ambiguities into agency policy statements. This sort of immunity for law-breakers would put law-abiding businesses that care about worker health and safety at a competitive disadvantage and seriously endanger the safety of the workforce.
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The UAW respectfully urges Members of the Committee who are truly interested in extending fair warning of the requirements of the Occupational Safety and Health Act to employers who may need assistance to support OSHA's FY 2000 budget request, which includes funding for 67 new FTEs to expand the agency's education and outreach activities. Providing funding for these positions will go a long way toward giving ''fair warning'' and other assistance to employers.
In conclusion, the UAW strongly opposes the proposed Regulatory Fair Warning Act of 1999 (H.R. 881). We believe this legislation would undermine enforcement of existing health and safety and other government protections. The UAW appreciates the opportunity to testify before this Subcommittee to present our views in opposition to H.R. 881. We urge the Members of this Subcommittee to join us in opposing this unnecessary, burdensome legislation.
Mr. GEKAS. We thank the lady. We yield to the gentleman from Massachusetts, a customary period of 5 minutes for questions.
Mr. DELAHUNT. Thank you. I am sure, Ms. Somson, you know that I am a vigorous advocate of OSHA.
Ms. SOMSON. I do, sir.
Mr. DELAHUNT. Also, how shall I say, I have been critical in the past of the NLRB because of its lack of alacrity in certification of elections in regards to collective bargaining. We just see this particular issue differently. You are right to ask if OSHA and the rules and regulations that are promulgated under the act did not concur, what would be the status of conditions in the workplace?
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I don't think that is where this bill is going. I really don't. And I disagree with Mr. Hahn because I don't think this is about a cost-benefit analysis. I find myself surprisingly in agreement with Professor Gellhorn, not because—I just think that we probably find ourselves in different places in terms of the political spectrum. I think this is really simple. I mean, I want compliance with the substantive provisions of OSHA. And I think to ensure that compliance is effective, we have to tell the company being regulated what it is we expect of them. I think that is really what this is about. And I presume there would be a reduced cost of doing business because the answers would be more timely. In other words, if I know what I am supposed to do, then I can make a decision as to whether I am willing to proceed with a particular initiative or undertaking within my business plan or not. At least I can make those decisions in a thoughtful way. But when I am uncertain and I have to wait years for clarification and for guidance, nobody benefits and I think we create an inefficient system. We all lose, all segments of the community.
I think Professor Gellhorn is right—this is common sense. As I indicated earlier, the minority memo raises this as a potential issue of concern. I think it is of concern, but I think there is an answer we can arrive at without establishing a new independent agency to replicate what is already going on. ''The bill would allow defendants to search out a written statement from a wide range of employees in a relevant State or Federal agency to approve conduct that would otherwise violate Federal regulations.'' You alluded to that in your testimony. I think that is something to think about and be concerned about. But I really do think it is addressable. It is resolvable. Maybe in each agency, you need a designated person, like a designated hitter on a baseball team. It is common sense.
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This, I would suggest would also serve not just the regulated enterprise, but also the consumer, whether it be an employee in the workplace or a person who can't wait 9 years for an answer. There are just too many conflicting rules and regulations, at least on a reasonable reading, everywhere. I particularly have seen that in the area of HCFA, with 47,000 rules and regulations.
I am just offering this as a solution. But I don't think that the Chair and the cosponsors of this bill intended in any way to challenge the rules and regulations that you have expressed concern about. I do think it is much more simple than that. It is just trying to make it more clear. And I yield.
Mr. GEKAS. We thank the gentleman. The Chair agrees with the gentleman from Massachusetts that the purpose of our legislation is rather startingly simple. It is commonly understood by everyone engaged in both ends of the regulation process, in my judgment.
Professor Gellhorn, I sort of received the impression from your testimony that you did not think that our bill was amending the rules, the APA statute. You recommended that we amend the APA statute. I thought that is what we were doing. But I think that you wanted to distill it even further, is that it?
Mr. GELLHORN. You are amending section 558. 558 addresses only sanctions. But in fact, you are giving instructions to the agencies as to how to write their rules. That instruction is currently contained in section 553.
So my suggestion is to amend the APA by making an addition 553 to put the instructions in. Then the implementing section is 558 under sanctions and enforced by courts under section 706. Mine is an administrative drafting technique. What I am trying to do is say the APA is a simple statute. Let's keep it simple, and amend only those provisions which directly address your concern. And the concern here is to tell the agencies to write regulations in a way in which they can be understood, to tell the regulated party what it can and cannot do. That is section 553. It tells the agencies that they must give notice. It further tells them that all rules must be supported by a concise statement and basis of purpose so that people can understand the agency is are talking about.
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I am saying add your sections, your information to 553. Then I am not disagreeing with putting the additional information in section 558. I am not certain it is necessary, but it is harmless and may be beneficial. Then my third point is, don't add the language on notice. It is already in the act in the disjunctive. And it doesn't add anything here. It might be confusing to a court because the court is going to say that Congress must have had something in mind. Why did they do this when it was already there.
So you have the opportunity for mischief and I don't think that you want to do that. Likewise, there is no reason to add to the Judicial Code an enforcement provision that is redundant because it is already in the Administrative Procedure Act. These are technical amendments. Maybe it is the disadvantage of spending 30 years working in an area, you see things differently from others, but I am trying to react how would a court read this, how would a court apply it. By adding words and adding unnecessary sections, you create uncertainty in terms of the impact of the statute.
I think they are easily resolved. I came up with some language. Indeed, sitting here listening to the testimony, I have some additional language that I would strip out of what I propose to make it even simpler. I will offer it to the staff after the hearing.
Mr. GEKAS. We appreciate that and we will rely on that assertion on your part because we want to do the best possible wordsmithing possible.
Mr. GELLHORN. I would suggest that the Administrative Procedure Act is itself regulation neutral. What it says is that regulations must be written simply and clearly. It doesn't say we can't have regulation. It just says if we are going to have regulation, here is a process that is to be used in drafting and applying it. That is seems to me is exactly what this legislation is designed to do; it is trying to add to it a sensible provision. It doesn't encumber rulemaking; it doesn't tell the agency what it cannot do. It is not going to add one more ounce of strength to OSHA's regulations but it is not going to take away anything, either. That ought to be handled in direct legislation by Congress addressed to OSHA by definition.
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Mr. GEKAS. I will yield the balance of my time, the Chair's time, to counsel for Mr. Nadler to pose any question that he might wish to do.
Mr. LACHMANN. Thank you, Mr. Chairman. We are reverting to an old committee custom which has fallen into disuse, but I appreciate it.
Professor Gellhorn, in terms of any additional language to APA, I direct you to page 3 of the bill at line 16(b)(1).
''no sanction may be imposed on a person by an agency for violation of the rule if the agency finds any one of the following,'' and then it provides a list with the disjunctive at the end.
Would that in any way alter how the APA would be read currently?
Mr. GELLHORN. No, I think not. Because it says if they haven't given notice, that is number one, then the rule is not effective. If they haven't given fair warning, the rule is not effective. And if there has been reasonable reliance on a contrary interpretation, the rule is not effective. It is one of the three. You can violate it at any point.
The testimony or statement that I was objecting to was the conclusion that all four notice provisions had to be satisfied. That is incorrect. All that the agencies have to do was satisfy one of them. It depends on whether we are writing something affirmatively or negatively. In terms of the requirements being set forth under section 558 here, it says that a rule is effective but for one of these three things: If they didn't give notice, if they didn't write it so that a person could reasonably understand what they shouldn't do or if they received advice and relied on it. I don't think there is a technical problem there.
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Mr. LACHMANN. So in fact, it could be published in the Federal Register. It could be in the CFR. It could be knowable to a person but the person could claim they didn't know it and, therefore, the rule did not apply?
Mr. GELLHORN. No. If the person should have known it—let's say the person knew it but it was also in the Federal Register. One of them is enough. That is language that is already in the Administrative Procedure Act. There is nothing here that is new. This is already in sections 553 and 552 and it says that. There is one slight difference. H.R. 881 makes reference to the Code of Federal Regulations but is not referred to in the Administrative Procedure Act. I think it is unnecessary because notice is provided by the Federal Register. What the CFR does is collect all on-going rules in a permanent volume. But for example, the Department of Transportation regulates speedboat races on rivers for particular days. They have got to pass a rule in order to do it pursuant to the statute. But good heavens, you don't want that included in the Code of Federal Regulations. It is good for 1 day only. And so the Office of Federal Register has set up a sensible mechanism to separate the two out. There is nothing wrong with that. The notice requirements of the APA are working.
Mr. LACHMANN. Mr. Hahn, your objection to some of the regs that we have put forward were that there was no independent review of the agencies, the agencies' internal review of the regulations. Do you believe there is fair opportunity during the publication of the comment period for outside entities to provide their input for congressional panels to review through their oversight authority of those regulations to the Congressional Review Act, et cetera?
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Mr. HAHN. I think there is a fair opportunity for outside groups to provide comments. Often they don't have access to the kind of data that you would need to actually replicate an agency's analysis. So that is why I was suggesting a need for another agency.
I wanted to be clear about this with respect to a point that you raised, Congressman Delahunt. I am supportive of this bill with the kinds of amendments that we are talking about today. I think it moves us an important step forward in adding some common sense to regulations along the lines that Phil Howard talked about in his book, ''The Death of Common Sense.'' The simple idea, as you pointed out, that a business person or a consumer should know what they need to comply with is an important idea. And to my mind, it could very well increase the level of compliance, for example, with OSHA regulations.
I also believe that law makers and regulators need to be held more accountable for regulations. It is not a part of this bill but I think it is important, for example, to allow agency heads to consider costs and benefits explicitly in their decision-making. They do that implicitly anyway. So why not allow them to do it? I recognize that it may not be part of the discussion.
Mr. DELAHUNT. If the counsel would yield for just a moment.
Mr. GEKAS. The Chair yields to the gentleman from Massachusetts.
Mr. DELAHUNT. That is the point that I want to stress, this bill is very limited and very focused. I wanted to clarify that in regards to the points and the concerns that were articulated by Ms. Somson. We could get into a whole other debate in terms of the adequacy of input and comment. But this doesn't go to that. I yield back. At least that is my read of it.
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Mr. GEKAS. The time of the Chair has expired and the time of the entire hearing has expired. Before we gently dismiss the panels, I want to express our gratitude. Believe me, the suggestions for changing the tone and the structure of the bill will be taken into consideration. I want the best possible vehicle and that is what we are attempting to do.
Mr. Delahunt has indicated his feeling that we ought to fine tune this piece of legislation. We thank the panel. We dismiss them gently. We ask unanimous consent that all members have five legislative days to submit questions and materials for the record.
This hearing stands adjourned.
[Whereupon, at 12:08 p.m., the subcommittee was adjourned.]
(Footnote 1 return)
The current subsection 553(e) would be renumbered as 5 U.S.C. §553(f).
(Footnote 2 return)
Per House Rule XI, cl. 2(g)(4) a cv is attached and I hereby certify that no federal grant, contract, or subgrant has been received by me in the current or preceding two fiscal years.
(Footnote 3 return)
The current subsection 553(e) would be renumbered as 5 U.S.C. §553(f).
(Footnote 4 return)
The current subsection 553(e) would be renumbered as 5 U.S.C. §553(f).