An Illegal Transfer of Power?

Does the National Competitive Bidding Provision Violate “Separation of Powers” in the Constitution?




 “Separation of Powers” is one of the most profound political principles of the Constitution and its central protection against tyranny. Safety lies in power divided. It might seem surprising that the National Competitive Bidding provision could provoke a Constitutional debate over this doctrine, but that is exactly what this paper will demonstrate.


            First some background: The Constitution requires that the Legislative, Executive and Judicial branches exercise different powers. Legislative power rests with the Congress, executive powers with the President and judicial power with the Supreme Court. While these powers are difficult to define, this issue of separateness is often invoked when there is either an encroachment of one branch’s power by another branch OR a delegation of one type of power to another branch


            In the 1952 Steel Seizure Case, the Supreme Court ruled that President Truman overstepped his power by seizing the nation’s steel mills and exercising a power of the legislature. In  Bonsler V. Synar 1986, the Court struck down the Gramm-Rudman-Hollings Act because it believed Congress had violated Separation of Powers by assigning an executive power to a legislative branch official. The Comptroller General had been given the power to reconcile budget deficit estimates for the Office of Management and Budget, an executive branch agency. The controller’s recommendation, on which budget items to slash, would obligate the President to reduce the budget by those amounts. The Court decided that 1) Defining budget cuts is an Executive function. 2) The Comptroller General is not an Executive but a Legislative official, even though he is appointed by the President, because Congress retains the right to fire him. In 1983 the Court voided the Legislative Veto, which gave either house of Congress unilateral power to veto a rule, regulation or decision of an Executive branch agency. The Court ruled that Congress was acting legislatively in this case and must follow rules of Bicameralism and Presentment to the President.


            We should also bear in mind that, regrettably, the War Powers Act (enacted to prevent future Vietnam type conflicts) has never been invoked by Congress. This is because of the mere appearance that it impinges upon the power of the Executive Branch. There has never been a court test.


The Controversial Waiver


            How does all this tie into Section 302 of the 2003 Medicare Modernization Act (MMA), better known as National Competitive Bidding for Durable Medical Equipment?  The problem lies with a clause in Section 1847(a)(1)(c) of the MMA which authorizes the Secretary of HHS to waive any of the Federal Acquisition Regulations (FAR) which he deems necessary, except for those rules dealing with confidentiality, to maintain efficiency (an undefined standard) in the implementation of the program. In carrying this authority out, there is no requirement for a justifiable legal cause, or a time frame for the expiration of this power. In Section 302 we are told that this power is being interpreted to permit the Secretary to waive ALL PROVISIONS of the FAR, except those dealing with confidentiality, to implement the competitive bidding program. This presumption of blanket authority to waive an entire body of federal regulations is where the problem lies. Since there is no requirement for a justifiable legal cause, nor a time limit for expiration of this power (waivers are usually permanent and implementation can take years) this action is tantamount to an indefinite repeal.


Separation of Powers


            The power to waive a law for legal cause or revoke an unconstitutional law entirely has always rested with the Judiciary. Congress can amend, remove or suspend a law, but only if it does so legislatively, following due legislative process as mentioned earlier. As we saw in the above Supreme Court decisions, an act of the Legislature which delegates legislative or judicial power to a Cabinet Secretary (an Executive officer) to act either legislatively or judicially and entirely countermand a body of federal regulations certainly appears to be a violation of Separation of Powers in  the very essence of the term. If not, where in the Secretary’s authority does this power reside? A Cabinet Secretary is appointed by the President as his advisor; the Constitution gives him or her NO powers, and his role is defined by custom. He will also serve administratively as head of his department. While the Secretary does hold the customary power of an administrator to implement or modify departmental policies, this power clearly does not extend to unilaterally repealing federal regulations without any type of due process, especially for the projected sake of “efficiency.” 


            It is true that, in the modern regulatory state, there has been a history of delegation by Congress of various powers to help administrative agencies carry out their functions. These delegations do sometimes take on some legislative, executive or judicial powers. Administrative agencies have been permitted authority to issue rules with the force of statutes, conduct trial type proceedings and impose penalties. The 1946 Administrative Procedures Act (APA) lays out the rules and criteria for their actions. However, these actions are limited by the overarching requirements of the Constitution and other federal regulations and cannot take on powers reserved for the legislature or courts. Furthermore, administrative actions must serve a legitimate state interest such as preventing fraud and waste. Nowhere, do we see an executive officer given the power to arbitrarily discard federal statutes at his own discretion whether or not they have any relation to the task he is carrying out.


Nature of the Federal Acquisition Regulations


            The importance of the Separation of Powers principle in this case becomes even more acutely evident when we consider the nature of the Federal Acquisition Regulations. This huge body of rules regulates every aspect of the federal acquisition process and delineates detailed procedures to prevent and detect possible fraudulent and other illegal activity within the business transactions of the government, e.g. kickbacks,  anti-trust violations, conflicts of interest, family business connections, excessive gratuities, etc. The power to arbitrarily waive these rules without legal cause would seriously obstruct efforts by the Department of Justice (another potential violation) to investigate or take enforcement action against suspected illegal activity in those cases, as compared to other cases where the federal rules are in effect. This hardly serves the cause of “efficiency” and can only serve to worsen fraud, abuse and waste.


We have already seen the effect of this abrogation in the first round of bidding in 2008, when a bid winner in nine states was later revealed to have been levied TWENTY FIVE MILLION DOLLARS in fines and charge-backs to Medicare for improper business practices, just prior to the bidding! Where was the oversight? If the FAR had been in effect, this bidder would have been screened out.


Checks and Balances et al


            Added to all this we can also raise concerns about the violation of the principle of “Checks and Balances” within the Constitution. This principle requires that for every power granted to a branch or official of that branch of the government, there must be a counterbalancing power granted to the other branch affected by this power. If an executive officer is granted emergency power to suspend a federal regulation under certain justified circumstances, then there must be inclusive in this grant a requirement that this power can be overridden by a counterbalancing power granted to the Judiciary. In regard to the waiver of the FAR, the MMA has no such provisions protecting Checks and Balances. 


         Furthermore, another provision within the MMA, which permits the Executive Branch to deny bidders the right to Judicial or Administrative Review of bid awards granted by the Department, exhibits all the same problems. Aside from the issue of violation of “Equal Protection” and “Due Process” rights, there is no counterbalancing law granted to the Judiciary, enabling it to review the legitimacy of the Executive Branch’s actions in awarding these bids. There will be more on Equal Protection in a follow up paper.


History of Section 302


            The history of the Competitive Bidding provision has been troubled from the beginning. The provision was literally slipped into the MMA in the middle of the night  by former Rep. Bill Thom as (an individual already known for his talent at placing lucrative federal projects in his home state while subjecting other projects to lengthy delays)  when the House session was sparsely attended. Many did not know they had voted for it until the Bill was passed under the pressure of impending holiday recess. Whether there was any violation of legislative protocol remains to be seen, but it was accepted into law. Initial results of its implementation in the test areas have already been controversial. 77% of the bidders were either disqualified or eliminated by the bid. This has confirmed  industry claims that millions of the aged, ill and disabled will see their access to home medical equipment and services severely cut in a quest for the “cheapest price.”  The “Inherent Reasonableness “ clause in the 1997 BBA  had already authorized Congress to lower DME reimbursements, so the question remains why such a legally and medically controversial program is even necessary. Clearly, a great deal more legal research is warranted to take these issues to the next level.


            As I write this, we are approaching another Memorial Day Holiday. While many will be taking to the road for a relaxing weekend, my mind and heart shall remain with those of our nation who have sacrificed and continue to sacrifice life and limb so our government and our Constitution can persevere.  As a refugee myself, and child of Holocaust survivors I have learned firsthand the power of individual rights and the importance of the dignity of every person. I know more than many what these soldiers fought for, and are still fighting to preserve. Let us not compromise the care of our injured, disabled and chronically ill citizens either now or in the future. Let us not permit overly ambitious individuals to bend or abuse the great laws and Constitution to expedite their own political aims.


                                                                        Herb Paserman

                                                                        Marketing Manager

                                                                        Jerry’s Drug and Surgical

                                                                        Bayonne  NJ



Please Note:  The purpose of this paper is to inform and stimulate further discussion and investigation. While I am not an attorney, I have researched this issue extensively. My hope is that these findings will be verified and carried forward to competent litigation to help preserve the well-being of our patients and protect our industry.


Update: Even as I submit this, we have learned that NJ’s Governor Christie had an executive order revoked by the courts, because he was exercising a power of the legislature in cancelling the legislatively guaranteed right of the state teacher’s union to make political contributions. Separation of Powers remains a powerful and living testament to the wisdom of our nation’s founders.

            Your comments are welcome.

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