Opinion · Court of Appeals for the Fifth Circuit
MD Anderson v. HHS
MD Anderson v. HHS, No. 19-60226, UP4651561 (5th Cir. Jan. 14, 2021)
- Type
- Opinion
- Court
- Court of Appeals for the Fifth Circuit
- Jurisdiction
- Federal
- Date
- 2021-01-14
- Topic
- employee-benefits-and-executive-compensation
Case: 19-60226 Document: 00515706891 Page: 1 Date Filed: 01/14/2021 United States Court of Appeals for the Fifth Circuit United States Court of Appeals Fifth Circuit FILED January 14, 2021 No. 19-60226 Lyle W. Cayce Clerk University of Texas M.D. Anderson Cancer Center, Petitioner, versus United States Department of Health and Human Services, Respondent. On Petition for Review of a Final Agency Decision of the U.S. Department of Health and Human Services Before Wiener, Engelhardt, and Oldham, Circuit Judges.
Citator
UpLaw has not yet analyzed MD Anderson v. HHS. The absence of a flag is not a finding that it is good law.
Case: 19-60226 Document: 00515706891 Page: 1 Date Filed: 01/14/2021
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
January 14, 2021
No. 19-60226 Lyle W. Cayce
Clerk
University of Texas M.D. Anderson Cancer Center,
Petitioner,
versus
United States Department of Health and Human
Services,
Respondent.
On Petition for Review of a Final Agency Decision
of the U.S. Department of Health and Human Services
Before Wiener, Engelhardt, and Oldham, Circuit Judges.
Andrew S. Oldham, Circuit Judge:
Employees of the University of Texas M.D. Anderson Cancer Center
(“M.D. Anderson” or “Petitioner”) lost patients’ data. In response, the
United States Department of Health and Human Services (“HHS” or the
“Government”) fined M.D. Anderson $4,348,000. After M.D. Anderson
filed its petition for review, HHS conceded that it could not defend a fine in
excess of $450,000. The Government’s decision was arbitrary, capricious,
and contrary to law. We grant the petition for review and vacate the penalty.
Case: 19-60226 Document: 00515706891 Page: 2 Date Filed: 01/14/2021
No. 19-60226
I.
Three unfortunate events set the stage for this lawsuit. First, back in
2012, an M.D. Anderson faculty member’s laptop was stolen. The laptop was
not encrypted or password-protected but contained “electronic protected
health information (ePHI) for 29,021 individuals.” Second, also in 2012, an
M.D. Anderson trainee lost an unencrypted USB thumb drive during her
evening commute. That thumb drive contained ePHI for over 2,000
individuals. Finally, in 2013, a visiting researcher at M.D. Anderson
misplaced another unencrypted USB thumb drive, this time containing ePHI
for nearly 3,600 individuals.
M.D. Anderson disclosed these incidents to HHS. Then HHS
determined that M.D. Anderson had violated two federal regulations. HHS
promulgated both of those regulations under the Health Insurance Portability
and Accountability Act of 1996 (“HIPAA”) and the Health Information
Technology for Economic and Clinical Health Act of 2009 (the “HITECH
Act”). The first regulation requires entities covered by HIPAA and the
HITECH Act to “[i]mplement a mechanism to encrypt” ePHI or adopt
some other “reasonable and appropriate” method to limit access to patient
data. 45 C.F.R. §§ 164.312
(a)(2)(iv), 164.306(d) (the “Encryption Rule”). The second regulation prohibits the unpermitted disclosure of protected health information.Id.
§ 164.502(a) (the “Disclosure Rule”).
HHS also determined that M.D. Anderson had “reasonable cause” to
know that it had violated the rules. 42 U.S.C. § 1320d-5(a)(1)(B) (setting out
the “reasonable cause” culpability standard). So, in a purported exercise of
its power under 42 U.S.C. § 1320d-5 (HIPAA’s enforcement provision),
HHS assessed daily penalties of $1,348,000 for the Encryption Rule
violations, $1,500,000 for the 2012 Disclosure Rule violations, and
2
Case: 19-60226 Document: 00515706891 Page: 3 Date Filed: 01/14/2021
No. 19-60226
$1,500,000 for the 2013 Disclosure Rule violations. In total, HHS imposed a
civil monetary penalty (“CMP” or “penalty”) of $4,348,000.
M.D. Anderson unsuccessfully worked its way through two levels of
administrative appeals. Then it petitioned our court for review. See 42 U.S.C.
§ 1320a-7a(e) (authorizing judicial review). After M.D. Anderson filed its
petition, the Government conceded that it could not defend its penalty and
asked us to reduce it by a factor of 10 to $450,000.
II.
The principal argument in M.D. Anderson’s petition is that a state
agency is not a “person” covered by HIPAA’s enforcement provision. See
42 U.S.C. § 1320d-5. For the sake of today’s decision, we assume that M.D.
Anderson is such a “person” and that the enforcement provision therefore
applies. The petition for review nonetheless must be granted for an
independent reason: the CMP violates the Administrative Procedure Act
(“APA”).
A.
The APA directs us to “hold unlawful and set aside” agency actions
that are “arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706
(2); see Windsor Place v. U.S. Dep’t of Health & Hum. Servs.,649 F.3d 293, 297
(5th Cir. 2011) (per curiam). To that end, we must “insist that an agency examine the relevant data and articulate a satisfactory explanation for its action.” FCC v. Fox Television Stations, Inc.,556 U.S. 502, 513
(2009) (quotation omitted). Our review is “searching and careful,” Marsh v. Or. Nat. Res. Council,490 U.S. 360, 378
(1989) (quotation omitted), and we only consider the reasoning “articulated by the agency itself,” Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,463 U.S. 29, 50
(1983). Post hoc rationalizations offered by the Government’s counsel are irrelevant. Seeibid.
3
Case: 19-60226 Document: 00515706891 Page: 4 Date Filed: 01/14/2021
No. 19-60226
In conducting arbitrary-and-capricious review, we must ensure that
the agency did not “entirely fail[] to consider an important aspect of the
problem” that it seeks to address. Id. at 43
. And we must reject “an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.”Ibid.
Put simply, we must set aside any action premised on reasoning that fails to account for “relevant factors” or evinces “a clear error of judgment.” Marsh,490 U.S. at 378
(quotation
omitted).
The Supreme Court also has “made clear, however, that a court is not
to substitute its judgment for that of the agency and should uphold a decision
of less than ideal clarity if the agency’s path may reasonably be discerned.”
Fox, 556 U.S. at 513–14 (quotation omitted). “Agencies . . . have expertise
and experience in administering their statutes that no court can properly
ignore.” Judulang v. Holder, 565 U.S. 42, 53
(2011). “Fundamentally, the argument about agency expertise is less about the expertise of agencies in interpreting language than it is about the wisdom of according agencies broad flexibility to administer statutory schemes.” Perez v. Mortg. Bankers Ass’n,575 U.S. 92, 129
(2015) (Thomas, J., concurring in the judgment).
But in this case, HHS steadfastly refused to interpret the statutes at
all. The administrative law judge (“ALJ”) began his opinion by emphasizing
that he would “not address” any of M.D. Anderson’s constitutional or
statutory arguments. The ALJ understood his authority to extend only to
enforcing HHS’s regulations—not to interpreting HIPAA, the HITECH
Act, any other statute, or any provision of the U.S. Constitution. As the ALJ
put it: “My authority to hear and decide this case rests entirely on a
delegation from the Secretary [of HHS]. Nothing in that delegation
authorizes me to find that the Secretary’s regulations are ultra vires.”
4
Case: 19-60226 Document: 00515706891 Page: 5 Date Filed: 01/14/2021
No. 19-60226
The ALJ likewise refused to consider whether the multi-million-dollar
CMP was arbitrary or capricious. In response to M.D. Anderson’s argument
that the CMPs in “other instances of ePHI loss . . . were far more lenient than
what [the agency] requested in this case,” the ALJ concluded: “I do not
evaluate penalties based on a comparative standard. There is nothing in the
regulations that suggests that I do so.”
HHS’s Departmental Appeals Board agreed with the ALJ. It held that
M.D. Anderson is “free to make its ultra vires argument to a court, but we
may not invalidate a regulation.” And the Board likewise agreed with the ALJ
that the agency has no power to review penalties for arbitrariness or
capriciousness because “there is nothing in the regulations that suggests that
the ALJ evaluate penalties based on a comparative standard.”
Thus, with respect to M.D. Anderson’s APA arguments—whether
the CMP is arbitrary, capricious, or otherwise inconsistent with Congress’s
statutes—it is impossible for us to substitute our judgment for the agency’s.
See Fox, 556 U.S. at 513–14. That’s because the agency itself repeatedly
insisted that it was not offering a judgment at all. In accordance with HHS’s
steadfast insistence in the administrative record, our review of M.D.
Anderson’s statutory arguments is de novo.
Our review of M.D. Anderson’s regulatory arguments is also de novo.
As the Supreme Court recently emphasized, “a court should not afford Auer
deference unless the regulation is genuinely ambiguous.” Kisor v. Wilkie, 139 S. Ct. 2400, 2415
(2019). 1 HHS never suggests that its regulations are
1
The Supreme Court “has often deferred to agencies’ reasonable readings of
genuinely ambiguous regulations.” Id. at 2408
. It “call[s] that practice Auer deference, or sometimes Seminole Rock deference, after two cases in which [the Court] employed it.”Ibid.
(citing Auer v. Robbins,519 U.S. 452
(1997); Bowles v. Seminole Rock & Sand Co.,325 U.S. 410
(1945)).
5
Case: 19-60226 Document: 00515706891 Page: 6 Date Filed: 01/14/2021
No. 19-60226
ambiguous, nor does it even cite Auer. Therefore, each HHS regulation “just
means what it means—and the court must give it effect, as the court would
any law.” Ibid.
B.
The Government’s CMP order against M.D. Anderson was arbitrary,
capricious, and otherwise unlawful. That’s for at least four independent
reasons.
1.
Let’s start with the Encryption Rule. That Rule provides, in relevant
part, that a HIPAA-covered entity must “[i]mplement a mechanism to
encrypt and decrypt electronic protected health information.” 45 C.F.R. § 164.312
(a)(2)(iv) (emphasis added). 2 It is undisputed that M.D. Anderson
implemented “a mechanism.” For example, M.D. Anderson’s “Information
Resources Acceptable Use Agreement and User Acknowledgement for
Employees” specified: “If confidential or protected MDACC data is stored
on portable computing devices, it must be encrypted and backed up to a
network server for recovery in the event of a disaster or loss of information.”
M.D. Anderson furnished its employees an “IronKey” to encrypt and
decrypt mobile devices and trained its employees on how to use it. M.D.
Anderson also implemented a mechanism to encrypt emails. And M.D.
Anderson implemented various other mechanisms for file-level encryption in
2
The parties agree that the Encryption Rule does not require all entities to adopt
such “a mechanism.” Encryption is a so-called “addressable” requirement, which means
that a covered entity can “address” it by explaining why it’s not “reasonable and
appropriate” under that covered entity’s particular circumstances. See 45 C.F.R. § 164.306
(d). It’s undisputed that M.D. Anderson thought an encryption mechanism was
reasonable and appropriate, and that it attempted to adopt one that satisfied the Encryption
Rule. Therefore, for purposes of this opinion, we ignore the “addressability” carveout to
the Encryption Rule.
6
Case: 19-60226 Document: 00515706891 Page: 7 Date Filed: 01/14/2021
No. 19-60226
its ClinicStation software. Petitioner plainly implemented “a mechanism” to
encrypt ePHI.
The dispute in this case is whether M.D. Anderson should’ve done
more—either to implement a different mechanism or to better implement its
chosen mechanism. The Government adamantly argues yes. First, HHS
argues that M.D. Anderson’s internal documents show that Petitioner
wanted to strengthen its mechanisms for protecting ePHI. But it’s plainly
irrational to say that M.D. Anderson’s desire to do more in the future means
that in the past it “failed to encrypt patient data on portable media at all.”
Red Br. 48 (emphasis by HHS).
Second, the Government argues that the stolen laptop and the two lost
USB drives were not encrypted at all. That appears undisputed. But that does
not mean M.D. Anderson failed to implement “a mechanism” to encrypt
ePHI. It means only that three employees failed to abide by the encryption
mechanism, or that M.D. Anderson did not enforce that mechanism
rigorously enough. And nothing in HHS’s regulation says that a covered
entity’s failure to encrypt three devices means that it never implemented “a
mechanism” to encrypt anything at all.
For example, imagine that a covered entity has a million USB drives.
It pays millions of dollars for military-grade encryption of those drives, with
the expectation that they would be impervious to the most sophisticated
computer hackers on earth. Then the covered entity puts ePHI on the drives.
What happens if a new hacker nonetheless decrypts three of them? Or what
if someone in the factory accidentally fails to encrypt three USB drives, and
they get stolen? Under the Government’s theory, the covered entity violated
the Encryption Rule because the decrypted or unencrypted devices prove res
ipsa it could’ve done more. As the ALJ understood the Encryption Rule, it
7
Case: 19-60226 Document: 00515706891 Page: 8 Date Filed: 01/14/2021
No. 19-60226
“require[s] covered entities to assure that all systems containing ePHI be
inaccessible to unauthorized users.” Period. Full stop. No exceptions. 3
But that’s not the regulation HHS wrote. The regulation requires only
“a mechanism” for encryption. It does not require a covered entity to
warrant that its mechanism provides bulletproof protection of “all systems
containing ePHI.” Nor does it require covered entities to warrant that all
ePHI is always and everywhere “inaccessible to unauthorized users.” Nor
does the regulation prohibit a covered entity from creating “a mechanism”
by directing its employees to sign an Acceptable Use Agreement that requires
encryption of portable devices. Nor does it say that providing employees an
IronKey is insufficient to create a compliant mechanism. Nor does it say
anything about how effective a mechanism must be, how universally it must
be enforced, or how impervious to human error or hacker malfeasance it must
be. The regulation simply says “a mechanism.” M.D. Anderson
undisputedly had “a mechanism,” even if it could’ve or should’ve had a
better one. So M.D. Anderson satisfied HHS’s regulatory requirement, even
if the Government now wishes it had written a different one.
3
It’s no answer to say, as the Government does, that there’s a significant difference
between M.D. Anderson and the hypothetical herculean covered entity that pays millions
of dollars for military-grade encryption on some of its portable devices. As M.D. Anderson
points out, there’s ample evidence in the administrative record that Petitioner spent
considerable money and energy protecting ePHI and implementing improvements to its
ePHI protections. And in all events, the Encryption Rule does not contain a Herculean-
Efforts Exception that protects one covered entity and not another based on how hard they
try to encrypt ePHI. As relevant here, see supra note 2, the Rule requires all covered entities
to establish “a mechanism.” And a covered entity either satisfies that requirement by
creating “a mechanism” (as M.D. Anderson argues) or it faces strict liability for creating
no mechanism at all if three of its devices are unencrypted or decrypted (as HHS argues).
As explained above, we agree with M.D. Anderson. If HHS wants to police just how
herculean a covered entity must be in encrypting ePHI, the Government can propose a rule
to that effect and attempt to square it with the statutes Congress enacted.
8
Case: 19-60226 Document: 00515706891 Page: 9 Date Filed: 01/14/2021
No. 19-60226
2.
Next consider the Disclosure Rule. With exceptions not relevant here,
that Rule prohibits a covered entity from “disclos[ing]” ePHI. 45 C.F.R. § 164.502
(a). And the Rule defines “disclosure” to “mean[] the release, transfer, provision of access to, or divulging in any manner of information outside the entity holding the information.”Id.
§ 160.103. The ALJ seized on
the word “release” and concluded that a covered entity violates the
Disclosure Rule whenever it loses control of ePHI—regardless of whether
anyone outside of M.D. Anderson accesses it.
That interpretation departs from the regulation HHS wrote in at least
three ways. First, each verb HHS uses to define “disclosure”—release,
transfer, provide, and divulge—suggests an affirmative act of disclosure, not
a passive loss of information. One does not ordinarily “transfer” or
“provide” something as a sideline observer but as an active participant. The
ALJ recognized as much when he defined “release” as “the act of setting
something free.” But then he made the arbitrary jump to the conclusion that
“any loss of ePHI is a ‘release,’” even if the covered entity did not act to set
free anything. It defies reason to say an entity affirmatively acts to disclose
information when someone steals it. That is not how HHS defined
“disclosure” in the regulation. So HHS may not define it that way in an
adjudication. 4
4
That is not to say that a covered entity must knowingly act to disclose ePHI to
violate HIPAA. To the contrary, Congress specified penalties for unknowing violations. See
42 U.S.C. § 1320d-5(a)(1)(A) (prescribing penalties where the entity “did not know” it
committed a violation); cf. infra at 12 (discussing statutory penalties for “reasonable cause”
and “willful neglect” violations). One can affirmatively disclose something to someone
outside a covered entity and do so unknowingly—say, by emailing protected information
to the wrong “John Doe.”
9
Case: 19-60226 Document: 00515706891 Page: 10 Date Filed: 01/14/2021
No. 19-60226
Second, each of the regulation’s disclosure-defining verbs is
transitive. The Disclosure Rule prohibits the release, transfer, provision, and
divulging of a particular object—namely, “information.” 45 C.F.R. § 160.103
. And the Government nowhere explains how “information” can
be released, transferred, provided, or divulged without someone to receive it
and hence be informed by it. To the contrary, the regulation appears to define
“disclosure” in accordance with its ordinary meaning, which requires
information to be “made known” to someone. See Webster’s New
International Dictionary 743 (2d ed. 1934; 1950). HHS never
explains how someone could “disclose” a secret without actually making it
known to someone. Nor can we imagine a way.
Third, the Disclosure Rule does not prohibit disclosure to just any
someone. The ePHI must be disclosed to someone “outside” of the covered
entity. 45 C.F.R. § 160.103
. The Government’s loss-of-control standard means that a covered entity can be liable under the Disclosure Rule if one employee shares or steals another employee’s laptop. But that interpretation renders the word “outside” in § 160.103 meaningless surplusage. See Nat’l Ass’n of Home Builders v. Defs. of Wildlife,551 U.S. 644
, 668–69 (2007)
(rejecting an interpretation that “would render the regulation entirely
superfluous”). We therefore refuse to interpret § 160.103 to mean that HHS
can prove that M.D. Anderson “disclosed” ePHI without proving that
someone “outside” the entity received it. And the Government concedes it
cannot meet that standard.
The Government’s principal response is that it will be difficult for
HHS to enforce the Disclosure Rule if it must show that ePHI was disclosed
to someone, and harder still if it must show that ePHI was disclosed
“outside” of the covered entity. Maybe so, maybe not. But that’s precisely
the sort of policy argument that HHS could vet in a rulemaking proceeding.
10
Case: 19-60226 Document: 00515706891 Page: 11 Date Filed: 01/14/2021
No. 19-60226
It’s not an acceptable basis for urging us to transmogrify the regulation HHS
wrote into a broader one.
3.
Third, one of the most remarkable aspects of the ALJ’s order is its
insistence that the Government can arbitrarily and capriciously enforce the
CMP rules against some covered entities and not others. The ALJ insisted
that “I do not evaluate penalties based on a comparative standard. There is
nothing in the [HHS] regulations that suggests that I do so.” The
Departmental Appeals Board agreed with the ALJ’s legal reasoning.
It is a bedrock principle of administrative law that an agency
must “treat like cases alike.” 32 Charles Alan Wright & Charles
H. Koch, Federal Practice and Procedure § 8248, at
431 (2006); see also Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs.,
545 U.S. 967, 981
(2005) (“Unexplained inconsistency is . . . a reason for holding [agency action] to be . . . arbitrary and capricious . . . .”); Burlington N. & Santa Fe Ry. Co. v. Surface Transp. Bd.,403 F.3d 771, 776
(D.C. Cir. 2005) (“An agency must provide an adequate explanation to justify treating similarly situated parties differently.”); Wright & Koch, supra, § 8248, at 431 (“General principles of administrative law hold that an agency must be consistent . . . .”). This principle is an outgrowth of the old adage from State Farm that “an agency changing its course must supply a reasoned analysis.”463 U.S. at 57
(quotation omitted); accord Fox,556 U.S. at 515
(“[T]he requirement that an agency provide reasoned explanation for its action . . . ordinarily demand[s] that it display awareness that it is changing position. . . . [T]he agency must show that there are good reasons for the new [position].” (emphasis omitted) (citation omitted)); Jupiter Energy Corp. v. FERC,407 F.3d 346, 349
(5th Cir. 2005) (agency action is arbitrary and
capricious when it fails to “supply a reasoned analysis for any departure from
11
Case: 19-60226 Document: 00515706891 Page: 12 Date Filed: 01/14/2021
No. 19-60226
other agency decisions” (quotation omitted)); Comcast Corp. v. FCC, 526 F.3d 763, 769
(D.C. Cir. 2008) (“[A]n agency’s unexplained departure from
precedent must be overturned as arbitrary and capricious.”).
But in this case, M.D. Anderson proffered examples of other covered
entities that violated the Government’s understanding of the Encryption
Rule and faced zero financial penalties. For example, a Cedars-Sinai
employee lost an unencrypted laptop containing ePHI for more than 33,000
patients in a burglary. HHS investigated and imposed no penalty at all. The
Government has offered no reasoned justification for imposing zero penalty
on one covered entity and a multi-million-dollar penalty on another.
The Government’s only response is that it evaluates each case on its
individual facts. As it must. But an administrative agency cannot hide behind
the fact-intensive nature of penalty adjudications to ignore irrational
distinctions between like cases. See LeMoyne-Owen Coll. v. NLRB, 357 F.3d 55, 61
(D.C. Cir. 2004) (“[W]here, as here, a party makes a significant
showing that analogous cases have been decided differently, the agency must
do more than simply ignore that argument.”). Were it otherwise, an agency
could give free passes to its friends and hammer its enemies—while also
maintaining that its decisions are judicially unreviewable because each case
is unique. Suffice it to say the APA prohibits that approach.
4.
Fourth, the penalty amounts. The ALJ found that M.D. Anderson’s
violations of the Encryption Rule and the Disclosure Rule were attributable
to “reasonable cause” and not “willful neglect.” 42 U.S.C. § 1320d-
5(a)(1)(B). For such “reasonable cause” violations, Congress specified that
“the total amount imposed on the person for all such violations of an identical
requirement or prohibition during a calendar year may not exceed
$100,000.” Id. § 1320d-5(a)(3)(B). The ALJ and the Departmental Appeals
12
Case: 19-60226 Document: 00515706891 Page: 13 Date Filed: 01/14/2021
No. 19-60226
Board nevertheless determined that the per-year statutory cap was
$1,500,000. Then the agency determined that M.D. Anderson owed
$1,348,000 over the calendar years 2011, 2012, and 2013 for violating the
Encryption Rule and $3,000,000 for calendar years 2012 and 2013 for
violating the Disclosure Rule.
Again, that’s arbitrary, capricious, and contrary to law. Congress
specified that the per-year cap for all reasonable-cause violations is
$100,000—not $1,500,000. See 42 U.S.C. § 1320d-5(a)(3)(B); cf. Util. Air
Regul. Grp. v. EPA, 573 U.S. 302
, 328 (2014) (holding agency has no power to rewrite numerical thresholds imposed by Congress). Two months after the Departmental Appeals Board’s decision in this case, HHS conceded that it had misinterpreted the statutory caps. And it published a “Notice of Enforcement Discretion Regarding HIPAA Civil Money Penalties” to explain its mea culpa. See84 Fed. Reg. 18,151
, 18,153 (Apr. 30, 2019). In its mea culpa, HHS said that “[u]pon further review of the statute by the HHS Office of the General Counsel,” it would exercise “enforcement discretion” to follow the statutory caps in 42 U.S.C. § 1320d-5(a)(3)(B). Ibid. (citing Heckler v. Chaney,470 U.S. 821, 831
(1985)). 5
5
Section 1320d-5(a)(1)(B) says that reasonable-cause violations shall incur “a
penalty for each such violation of an amount that is at least the amount described in
paragraph (3)(B) but not to exceed the amount described in paragraph (3)(D).” Paragraph
(3)(B) in turn imposes a per-violation amount of $1,000, and paragraph (3)(D) imposes a
per-violation amount of $50,000. It is quite obvious from that statutory text that each
reasonable-cause violation can be penalized from $1,000 to $50,000—but the total of all
reasonable-cause violations for a calendar year cannot exceed $100,000. In the ALJ’s CMP
order and the Departmental Appeals Board’s decision, however, HHS said each
reasonable-cause violation can be penalized from $1,000 to $50,000 up to the calendar-
year limit of $1,500,000 that applies to uncorrected willful-neglect violations. See 42 U.S.C.
§ 1320d-5(a)(1)(C)(ii). In addition to nonsensically conflating the fault levels specified by
Congress, HHS’s interpretation rendered meaningless surplusage the statutory cap for
13
Case: 19-60226 Document: 00515706891 Page: 14 Date Filed: 01/14/2021
No. 19-60226
We take the opportunity to reiterate what we’ve said before: neither
“enforcement discretion” nor Heckler v. Chaney empowers an agency to
disregard Congress’s statutes. See Texas v. United States, 809 F.3d 134
, 152 n.34 (5th Cir. 2015) (citing Heckler,470 U.S. at 831
), aff’d by an equally divided Court,136 S. Ct. 2271
(2016) (per curiam). And the fact that HHS
later recognized its error in a notice of “enforcement discretion” does
nothing to change the text of the regulations HHS promulgated through
notice and comment. Nor does it cure the erroneous premises of the
decisions by the ALJ and the Departmental Appeals Board.
Those erroneous premises are particularly problematic because they
tainted other parts of HHS’s decision. For example, HHS’s own regulations
require it to consider the following factors (among others) in assessing a
CMP:
(1) Whether the violation caused physical harm;
(2) Whether the violation resulted in financial harm;
(3) Whether the violation resulted in harm to an individual’s
reputation; and
(4) Whether the violation hindered an individual’s ability to
obtain health care.
45 C.F.R. § 160.408
(b). It’s undisputed that HHS can prove none of these. But the ALJ justified ignoring them because “the penalties that I determine to impose are but a small fraction of the maximum penalties that are reasonable-cause violations. But see Corley v. United States,556 U.S. 303, 314
(2009)
(emphasizing “one of the most basic interpretive canons, that a statute should be construed
so that effect is given to all its provisions, so that no part will be inoperative or superfluous,
void or insignificant” (quotation omitted)). The indefensibility of its prior interpretation
presumably explains HHS’s notice of “enforcement discretion.”
14
Case: 19-60226 Document: 00515706891 Page: 15 Date Filed: 01/14/2021
No. 19-60226
permitted by regulation”—a regulation that HHS now concedes in its
“enforcement discretion” is unlawful.
* * *
The Government has offered no lawful basis for its civil monetary
penalties against M.D. Anderson. The petition for review is GRANTED.
The CMP order is VACATED. And the matter is REMANDED for
further proceedings consistent with this opinion.
15