Indiana Family & Social Services Adm. v. Walgreen (Ind.S.Ct. 5/28/02)
Shepard, C.J.
To address a Medicaid shortfall, FSSA conducted a rulemaking to reduce the drug dispensing fee. The permanent rule, first published 4/1/01, was effective 9/28/01. While the permanent rule was in the pipeline, FSSA adopted an emergency rule. FSSA signed an emergency rule that was substantively identical to the permanent rule, effective 8/27/01.
Walgreens obtained a temporary retraining order to delay implementation of the emergency rule and sought an injunction against implementation of both rules. Following a hearing, the trial court granted the permanent injunction on October 9. The Supreme Court accepted jurisdiction over the ensuing appear to expedite a resolution and reversed the trail court's order of a preliminary injunction.
The challenge to the emergency was particular to the FSSA, but the challenge to the permanent rule reviewed several issues of general interest to all involved in Indiana administrative rulemaking.
Walgreen argued that FSSA's failure to obtain preadoption Administrative Rules Oversight Committee (AROC, an interim legislative committee) review pursuant to IC 4-22-2-46 invalidated the rule. The Court, however, stated: "This statute plainly governs only the conduct of AROC, which is not a party to this action. FSSA did not violate the statute by adopting the rule without AROC's review."
Re IC 4-22-2-19.5, which requires that to the extent possible, a rule minimize expenses to those affected and "achieve the regulatory goal in the least restrictive manner", the Court concluded that "FSSA's failure to offer evidence of any formal analysis to satify this statute does not invalidate the permanent rule."
Re the requirements of IC 4-22-2-28(b), the Court said that:
... after an agency has preliminarily adopted any rule with an estimated economic impact on regulated entities exceeding $500,000, it must submit the proposed rule to the Legislative Services Agency (LSA) so that LSA can prepare a fiscal analysis on the effect of compliance on the state and the regulated entities. The analysis must include an estimate of the proposed rule’s economic impact and a quantification of any unfunded mandate. The agency “shall consider the fiscal analysis as part of the rulemaking process.”Posted by Marcia Oddi at March 20, 2003 05:36 PM
FSSA concedes that this was not done, but argues that this requirement only applies to rules that create unfunded mandates. This reading contradicts the explicit statutory language that requires “an estimate of the economic impact of the proposed rule and a determination concerning the extent to which the proposed rule creates an unfunded mandate ... .” IC 4-22-2-28(b) (emphasis added). FSSA also argues that the exclusive focus of the statute is increased regulatory burdens on businesses, and that this rule does not create such a burden. Again, however, nothing in the statutory language supports such a narrow construction.We agree with the trial court, therefore, that FSSA should have obtained an LSA fiscal analysis. The question then becomes, what is the proper remedy. Per IC 4-22-2-44, “A rulemaking action that does not conform with this chapter is invalid, and a rule that is the subject of a noncomplying rulemaking action does not have the effect of law until it is adopted in conformity with this chapter.” Before the permanent rule may take effect, therefore, FSSA must obtain LSA’s fiscal analysis.
Because the requirement does not attach until after preliminary adoption, FSSA need not go all the way back to square one. Rather, once it has obtained and properly considered an LSA fiscal analysis, it may resubmit the proposed rule to the Attorney General’s office and proceed toward permanent adoption should it so choose.