Senate Begins Consideration of Regulatory Review with Analysis of President Trump’s Executive Order

In a Senate Commerce committee hearing, “A Growth Agenda: Reducing Unnecessary Regulation,” on Wednesday, February 1, Senate Democrats called the January 31 regulatory executive order “arbitrary” and “mindless” (learn more about the order here). Ranking Member Nelson (D-FL) criticized the order for its hyper focus on the costs and lack of attention to the benefits of regulations for public health and safety. Chairman Thune (R-SD) briefly commented on the order, calling its intention positive, although its form “blunt.” One witness, Professor Lisa Heinzerling of Georgetown University, echoed Senator Nelson and called the order “arbitrary” and remarked that the two for one ratio is a better “soundbite” than policy. Another witness, Rosario Palmieri of the National Association of Manufacturing, stressed the need to form a better balance in the regulatory process, emphasizing the analysis of the cost/benefit value of a regulation. The hearing did little to illustrate any clarifying aspects of the order, which is still greatly unexplained by the White House. The execution of the executive order, the implications on the various elements of the already strenuous review process, and the authority of the OMB Director remain unclear and will have to be explained soon or criticism from Congress is likely to grow. One thing is clear, without further guidance, regulatory personnel at all agencies will have a tough time getting work done even after the current regulatory freeze is lifted.

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Trump Takes First Step Toward Dismantling ACA and Buys Time with an Executive Order: Is it Substantive or Merely Symbolic?

Hours after taking the oath of office President Donald Trump signed a broadly worded executive order (“Order”) intended to minimize if not eliminate the impact of the ACA’s least popular provisions. With the Order President Trump can claim immediate action towards fulfilling a major campaign pledge while giving his administration and the Republican led Congress time to come up with a replacement plan.

The Order directs the secretary of HHS and other agency heads to, among other directives:

[E]xercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [ACA] that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications. [And] [t]o . . . exercise all authority and discretion available to them to provide greater flexibility to States and cooperate with them in implementing healthcare programs. [And] [t]o . . . encourage the development of a free and open market in interstate commerce for the offering of healthcare services and health insurance, with the goal of achieving and preserving maximum options for patients and consumers.

The Order makes it clear that any agency actions under the order must be within the confines of the law and its existing regulations, both of which remain in place at least for now. The agencies still have the option of amending or repealing ACA regulations but the Order gives them the authority to take some action before going through the regulatory approval process.

Apparently, the agencies will decide which stakeholders’ costs and “burdens” under the ACA will be reduced. This presents them with an interesting challenge given the opposing interests inherent in the broad group of stakeholders expressly targeted for relief under the Order. For example, if the scope of the individual mandate (likely the prime target of the Order) were reduced relieving some individuals of the cost of buying health insurance, it would likely skew the risk pool of the exchange plans to less healthy participants increasing the cost and burden on the exchange’s insurers and those individuals who want to purchase insurance through the exchanges. That action could also end up reducing overall insurance coverage increasing the uncompensated care hospitals and other providers would be required to deliver.

Perhaps the most interesting aspect to watch, however, will be whether the Order ultimately has any significant substantive effect or simply ends up being a symbolic gesture. Some observers have contended that significant delays to, or gutting of, a portion of the ACA’s tightly woven and inter-related pieces mid-year 2017 would create chaos in the affected programs, like the health insurance exchanges, which are already underway this year. Therefore, there has been speculation that actions under the Order are not likely to be effective until 2018. The question is whether any actions under the Order, which are expressly limited to those that are permissible under the ACA, will mean anything in 2018 when it is almost certain that the ACA will have already been repealed.

Whether substantive or symbolic, clearly the first step in the ACA’s dismantling has been taken and we will be watching very closely as the administration and Congress take many more.

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President Trump Signs Executive Order to Further Deregulation

On January 30th President Trump signed an executive order to curb what his campaign highlighted as burdensome regulations. The executive order requires federal agencies to repeal “at least two” current regulations when implementing one new regulation. The language of the order describes its intention “to manage the costs associated with governmental imposition of private expenditures required to comply with Federal regulations.” This coincides with President Trump’s belief that federal regulations have hampered American business’ ability to grow and prosper.

The order only applies to executive branch departments and agencies, excluding independent agencies such as the Federal Communications Commission and the Federal Trade Commission. Regulations regarding the “military, national security and foreign affair functions” are exempt and the Office of Management and Budget (OMB) Director can waive the rule in certain instances at his discretion. Rep. Mick Mulvaney is awaiting his Senate confirmation vote for the position. The order will also create a process to set an annual cap on the cost of new regulations. For fiscal 2017 the cap will be zero sum, with new regulations required to be offset by the removal of existing rules.

This order follows a memorandum freezing regulations from the White House shortly after Trump’s oath of office on January 20th and is considered standard by incoming administrations. The memo from Chief of Staff Reince Priebus details the abilities of the OMB director to waive the order for emergency “situations or other urgent circumstances” and requests that no new regulations be sent to the Federal Register and to those already sent to be withdrawn. The memo postpones regulations that have been published by 60 days with exceptions. OMB’s acting director Mark Sandy also released a memo for agency heads outlining similar guidelines on January 24th.

The order, which is clear in its intent, creates a fair number of questions. It is unclear what the implications would be for sectors that have few regulations, such as cybersecurity. In that sector, the government is struggling to keep up with emerging technologies and the threat of intrusions. Government policy experts have said the rule will make it difficult to enact congressional legislation on a wide range of topics and will make the time-consuming process for regulations to undergo even longer. It would likely complicate the process of repealing and replacing of the Affordable Care Act which was greatly enacted through Department of Health and Human Services regulations.

What is clear is that this order has an upward battle. The complications of the already rigorous regulation process and the vaguely described waiver authority of the OMB director are all elements of uncertainty. Moreover, few, seemingly only those in the White House, know how this policy will actually be carried out. Meeting the objective of decreasing regulations will be more difficult than simply signing an executive order and will require much more additional guidance.

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Speaker Ryan Address Congressional Republican Agenda with Politico

On January 27th, Speaker of the House Paul Ryan sat down with Politico Playbook to outline Congressional Republicans’ policy agenda. Following the Republican retreat in Philadelphia, which featured a speech from the new president, and a flurry of executive orders, Paul Ryan launched what he called an “ambitious” 20- day agenda. The agenda which was presented to Republicans at the retreat contains deadline specific issues, such as the April CR expiration and policy promises like repealing and replacing Obamacare. Ryan did say they anticipated a funding supplement to come from the White House for the Southern border wall, which he referred to as an immediate concern of national security.

Tax reform was another hot topic, which during the discussion Ryan tied back to a retooling of U.S. trade policies citing the border adjustment tax as a possible offset. The Speaker also addressed Republicans’ plan for repealing and replacing Obamacare, which he stated the legislation should be accomplished within 2017, but that the policy enacting would take years to enact. But he stressed the importance of repealing and replacing quickly citing it as a “rescue mission.”

Speaker Ryan touched on the vacant Supreme Court seat saying he expects a Supreme Court pick to be announced this coming week and that congressional Republicans “like [Trump’s] list.” When asked about Vice President Mike Pence’s new role, Speaker Ryan expressed confidence in Pence, anticipating him be a strong Vice President because his knowledge of the system and his prior history with many members brings expertise to the White House.

The topic of torture and Russian sanctions was also queried. Speaker Ryan reiterated that torture is illegal and not a flexible standard for the United States. He also supported Senator John McCain who called for the Russian sanctions to remain, calling the sanctions “overdue,” despite Trump floating possible easing. In a bipartisan note, the Speaker did state that criminal justice reform is on the agenda and would be done with action from both sides to the aisle.

When asked by an audience member about the number of executive actions being directed form the White House, Ryan sresponded that they were intended to remove “bad” polices installed by the Obama Administration. He stated he expects those actions would be accompanied by congressional action and highlighted the eventual action Congress would do under the Congressional Review Act. Overall, Speaker Ryan put forward what he expects Congress to move on in the next 200 days, which will include several of President Trump’s campaign promises and an ambitious list of policy goals for Republicans.

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DOT Releases Proposed Rule on Auto Communications Technology

The Department of Transportation (DOT) released a proposed rule on Tuesday mandating Vehicle to Vehicle (V2V) communication technology be enabled in new cars and trucks by 2023. The rule intends to combat driving hazards by allowing cars to talk to each other and alerting drivers of potential hazards on the roads. The DOT stressed the value V2V communications would add in terms of safety mechanisms for passenger vehicles.  Already questions have been raised on how the mandate would be implemented with questions still open on how connected cars will share already limited spectrum.

Automakers have already discussed the need for flexible regulations for autonomous cars, but this proposed rule would impact their commercial production in a much more profound manner.  In the release of the proposed rule,  the Department of Transportation referred to V2V technology as a prerequisite for the development of a ”fully autonomous vehicle fleet.” Auto makers have made no clear indications that this is a mutually held belief.  Automakers want regulations to allow the freedom to invocate and include safety features in production vehicles that not only provide a high level of safety but are cost effective and commercially viable.  Their public comments on the proposed rule will likely present a clearer picture of what the auto industry foresees for the inclusion of V2V in autonomous vehicles and will simultaneously provide insight into future safety systems.  The public comment period is open for 90 days, closing on March 13th, 2017.


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Commission on Enhancing Cybersecurity Report Calls for Greater Investment

On Friday December 2nd the President’s Commission on Enhancing Cybersecurity (“Commission”) released their long-awaited Report on Securing and Growing the Digital Economy. The nonpartisan Commission was created in April by President Obama with the objective of examining U.S. cybersecurity policy and the determining “actionable recommendations” to secure the increasingly interdependent cyber infrastructure.  Given the increasingly number of intrusions, disruptions, manipulations and thefts due to cyber vulnerabilities, the report is apt in its expression that technological advancement is outpacing U.S. cybersecurity practices and policies. President-elect Trump had pledged to adopt several cybersecurity policies, one being a commission, very much like the Commission on Enhancing Cybersecurity. Thus this report should be welcomed by President-elect Trump as a formative step in his cybersecurity reform.

The report offers 16 recommendations and 53 “associated actions.” The recommendations are broken down into six major categories, including, protecting and securing information infrastructure; building cybersecurity workforce capabilities; and ensuring an open, fair and secure global digital economy. Amongst the recommendations, two are notable for different reason: the creation and appointment of an Ambassador for Cybersecurity, “to lead U.S. engagement with the international community on cybersecurity strategies, standards and practices;” and a larger focus on training and hiring cybersecurity professionals. The recommendation for a cyber ambassador is a major acknowledgment that cyber issues know no boundaries and the interconnected nature of the global economy presents a serious and international threat to trade and businesses. Meanwhile, the Commission placed a premium on introducing new incentives and investments in innovation to attract new cyber security professionals, signifying its intention to increase U.S. capabilities. In specific numbers, the report recommended creating a national cybersecurity workforce program with the aim of training 100,000 new cybersecurity professionals by 2020.

These major recommendations are not specifically what the President-elect called for during the campaign, but the general tone regarding the importance of stepping up the United States’ cyber capabilities, is reflective of his proposals. Both the report and Trump have been clear that U.S. is not reaching its greatest cyber potential and needs to be if it seeks to maintain its position as a global leader. This report provides a comprehensive plan to increasing U.S. focus and capabilities on cybersecurity.

Overall the report calls for investment in cybersecurity mechanisms, greater attention to the foibles that plague current U.S. cybersecurity policy, and strengthening of public–private sector dialogues involving cybersecurity. The Commission, although an Obama administration installation, is geared towards gaining the attention of President-elect Trump. However, until his intentions are made clear, the report will remain simply recommendations.

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House Passes 21st Century Cures Act

On November 30, 2016, the House overwhelmingly passed (392-26) the 21st Century Cures Act (“Bill”). The Bill moves on to the Senate next week and it is projected to pass in the Senate as well. Notably, the Bill seeks to improve upon the federal regulatory structure regarding Federal Drug Administration (FDA) approval and expediting the development of new drugs. Under the Bill, FDA funding would increase by $500 million. The Bill also provides for the authorization of new National Institutes of Health research grant funding, in the billions, including funding for Vice President Biden’s “moonshot” to cure cancer. Importantly, a proposed provision regarding reporting under the Sunshine Act was removed from the Bill. Specifically, the proposed provision would have exempted from the reporting requirements of the Physician Payment Sunshine Act payments from drug and device manufacturers to physicians for speaking at continuing medical education events and for contributing to medical textbooks, or medical journals.

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November 2016 Update on Significant DOT, FAA and Other Federal Agencies’ Aviation-Related Regulatory Actions

The most recent edition of the Cozen O’Connor Aviation Regulatory Update discusses DOT’s recently issued consumer protection rules and initiatives, the GAO’s report on air traffic control reorganization, DOT’s tentative approval of antitrust immunity for the Delta Air Lines/Aeromexico alliance, the FAA’s rulemaking on airline pilot professional development, DOT’s agreement with Southwest Airlines regarding the accessibility of the carrier’s airport kiosks, the DOT Inspector General’s reports on the effects of DOT’s tarmac delay rule on airline flight cancellations and the FAA’s progress in implementing NextGen, OFAC and BIS amendments to Cuba sanctions-related regulations and export controls, and the latest DOT and FAA enforcement actions.

Read the full update here.

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Understanding the Role of Connected Devices in Recent Cyber Attacks

On November 16, 2016 the House Committee on Energy and Commerce’s Subcommittee on Commerce, Manufacturing, and Trade and the Subcommittee on Communications and Technology held a hearing on “Understanding the Role of Connected Devices in Recent Cyber Attacks.” The hearing was in response to the unprecedented distribution denial of service (DDos) on October 21, 2016 which saw consumer websites such as Netflix, Twitter and CNN as well as others go down following a botnet attack directed from malware in millions of American devices. The hacked devices used maliciously, (known as bots or collectively as botnets) flooded these websites with junk traffic, overwhelming the sites and preventing them from being able to distinguish from legitimate traffic. The hearing focused on what vulnerabilities are present, possible solutions, possible ramifications of attacks on consumer devices, critical infrastructure and public safety mechanisms from a wide array of malicious actors.

The witnesses were industry experts, Dale Drew, of  Level 3 Communications; Kevin Fu, of  Virta Labs, and the University of Michigan; and Bruce Schneier, from the Berkman Klein Center, at Harvard University.

Chairman Greg Walden began the hearing highlighting the increasing use of technology in Americans daily lives, the dependence of Americans on the internet of things, devices that allow them to control elements of their lives, such as applications and devices that remotely unlock doors, baby monitors, and smart appliances. Many members of the subcommittee remarked how the DDoS attack stressed the importance to secure these devices without losing the benefits, the balance between functionality, innovation and security. Representative Marsha Blackburn made the important point that the internet of things is growing extremely quickly, the average American has more than three devices. This illustrates the widening gap of insecurity.

The expert witnesses were firm in their recommendations that while the DDoS attack in October 2016 was just on popular websites and not critical elements, that attacks towards critical apparatuses such as public safety mechanisms, hospital systems, and critical infrastructure points are highly likely. The internet of things devices have major security flaws that do not have built in security updates or patch mechanisms and consumers are greatly unaware of the threat posed by their devices. Mr. Schneier pointed out that many of these devices are the same, having the same basic configuration which, limits consumer control. He also pointed out the various elements that need to be secure, from software to hardware to internet communications. All three panelists discussed the lack of incentives for manufacturers to secure the devices or integrate security mechanism into the production. The panelist urged action for oversight due to the growth of the issue and inevitable nature of growth in vulnerabilities.

Mr. Fu added that regulations, standards and liabilities for security need to be “built in, not bolted on.” All panelists stressed the importance of addressing the vulnerabilities posed by the internet of things and the unprecedented threat that the United States faces. As in almost every cybersecurity field the government is clearly very far behind. As experts point out vulnerabilities in basic systems have and will only grow exponentially fast. The government is behind addressing these issues, these vulnerabilities. Greater oversight is called for because of the critical consequences attacks can and will have on both the public and private sectors.

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Post-Election Projections

I recently shared my reaction to how President-Elect Donald Trump may govern with the Philadelphia Business Journal in a post-election piece, “Greater Philadelphia business leaders react to Trump’s victory.” I said that the country can expect substantial shifts in policy “from health care to energy to financial services issues.” I added, “Everything is on the table and it creates opportunity to roll back some of the things that have been coming out of Washington that business feels are unfriendly.” I also was sure to note that while President-Elect Trump will have to learn how to work with Congress, there are also changes he can accomplish unilaterally through his executive power. “An example [of this] would be labor policy. The overtime rule that raised the standard for which employees could receive time and a half pay. That’s within the realm of the executive branch and he will have the business community in his face trying to influence him to make those type of changes and I think he will,” I explained. View the full article here.

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For many businesses, nothing seems more remote than the maneuvering of Beltway insiders. But what happens in Washington and in state and local government is critically important to your company and your industry. With government more involved in business than at any time since the 1930s, organizations that can negotiate the government labyrinth of politics, policy, and process will come out on top.
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