Similar to what can happen at smaller financial institutions, this is likely the result of someone simply marking the wrong checkbox on a form. HFDs are ordinary IRA distributions, not rollovers, but with the requirement that the distribution be paid directly to the HSA.
If Vanguard won't correct the reporting, you'll need to enter a substitute Form 1099-R (Form4852) with the correct code (1 or 7, depending on your age), box 2a equal to box 1, box 2b Taxable amount not determined marked, and the IRS/SEP/SIMPLE box marked.
