This case is a challenge by psychiatric hospitals to a rule promulgated as a condition of participation (COP) in Medicare and Medicaid. The rule requires a physician or other licensed independent practitioner to evaluate all patients for whom physical restraints have been ordered. The evaluation must be in person and must be within one hour. Since many of these facilities do not have such practitioners on 24 hour call, this poses a substantial limit on their use of restraints. They contest this order on the grounds that the final rule is so different from the proposed rule that the notice and comment process was ineffective. They also argue that the secretary did not comply with the Regulatory Flexibility Act (RFA), which requires the secretary to analyze the impact of proposed rules on small business. The secretary moved to dismiss, arguing that Shalala v. Illinois Council on Long Term Care, 529 U.S. 1, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000) held that such appeals must go through the agency process first. In that case, the hospitals were subject to a minor administrative penalty, which could then be appealed to the courts without serious threat to their business. In this case, plaintiffs argued, and the court agreed, that they faced termination from Medicare/Medicaid - the administrative death penalty for health care providers. The court found that this was such as Draconian penalty as to preclude judicial review because no institution could afford to incur it in order to get the issue before the courts. Thus the court ruled that it did have subject matter jurisdiction.
Ironically for the DC Circuit, which is often very aggressive in overturning agency actions, the court was at pains to discuss how deferentially it must treat agency decisions, especially those involving scientific data. It is clear from the opinion that the court was more concerned about preventing improper restrictions than it was in holding the agency to the same standards for review of rulemaking as it has applied in other cases. (This may be justified if one accepts the agency's analysis of the potential harm caused by restraints and the reasonable requirement that a psychiatric facility at least have physicians on call who can see patient's with an hour.) The court found that the final rule, though much more specific than the proposed rule, was a logical extension of the proposed rule and thus was within the agency's discretion. The did find that the agency did not conduct a proper RFA analysis, but denied the plaintiff's request that the rule be enjoined until this could be done. The court based this holding on the vague requirements of RFA and real threat to patient safety addressed by the rule.
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