Gains on Sales of Franchises Held Nonbusiness Income in Arkansas
Consistent with the decisions in several other states interpreting the Uniform Division of Income for Tax Purposes Act’s (“UDIPTA”) definition of nonbusiness income, an Arkansas Circuit Court concluded that gains from the sales of franchises constituted nonbusiness income since the company was not in the business of disposing of franchises. United States Beef Corp. v. Walther, Case No. 60 CV-22-2158 (Ark. Cir. Ct. Pulaski Cty. Mar. 10, 2025).[1]
The Facts: United States Beef Corporation (“US Beef”), an Oklahoma corporation, owned and operated fast food franchises in nine states, including Arkansas, for approximately 45 years. In 2018, it sold its franchises to two separate purchasers and liquidated its business. Prior to these sales, the company had not contemplated the sale of the franchises nor had it sold any other franchises.
The company filed refund claims in Arkansas on the basis that the gains constituted nonbusiness income, which the Department of Finance and Administration (“Department”) denied. The Department’s Office of Hearings & Appeals affirmed the denial, and the company appealed to the Circuit Court.
The Statute: Arkansas continues to use the original UDIPTA definitions of business income and nonbusiness income. As a result, business income is defined as “income arising from transactions and activity in the regular course of the taxpayer’s trade or business and includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer’s regular trade or business operations.” Ark. Code Ann. § 26-51-701. Nonbusiness income is all income that is not business income.
The Decision: Arkansas courts apply both the transactional test and the functional test to determine if income constitutes apportionable business income. The parties agreed the sales of the franchises were outside the regular course of US Beef’s business and, therefore, the transactional test was not satisfied.
The Court then had little difficulty in determining that the gains did not satisfy the functional test since, while US Beef may have been in the business of acquiring and operating franchises, it was not in the business of disposing of franchises.
Many states have amended their statutes to define business income as income from “the acquisition, management, or disposition of the property” or “the acquisition, management, and/or disposition of the property.” Other states have amended the definition of business income to define it as any income apportionable under the U.S. Constitution. This case demonstrates that in states that continue to use the original UDIPTA definition, the acquisition, management, and disposition of the property must all constitute integral parts of the taxpayer’s regular business operations for the gain from the sale of a business to be considered business income. Inasmuch as companies are not in the business of going out of business, gains from the sale of entire businesses (or even divisions) will often constitute nonbusiness income under such definition.
[1] While this article was pending publication, the Department of Finance and Administration initiated an appeal of the Circuit Court’s decision to the Arkansas Supreme Court. Watch for future updates as this matter continues.
Deli’s Party Platters Found Subject to Sales Tax Despite Customer Assembly Required
In the world of sales tax, the devil is often in the details. A recent decision from the New York State Tax Appeals Tribunal (“Tribunal”) serves as an example of how seemingly insignificant details can determine whether a sale is subject to tax. In the Matter of Todd A. Neupert, DTA No. 830368 (Feb. 13, 2025).
The Facts: Petitioner is the owner of a deli that sells a variety of prepared foods, as well as deli meat and other non-prepared items. The New York Division of Taxation audited the deli and determined that Petitioner improperly failed to charge sales tax on “party platters” sold by the deli resulting in a notice of determination for $12,579.62 in sales tax due. The party platters include pre-sliced meats and cheeses served on a deli tray with condiments and other accoutrements, such as lettuce, tomatoes, and banana peppers. Rolls are provided separately in a bag that accompanies the platters, and the customer is charged one price for all the items. Petitioner argued that the platters were not “prepared food” because the platters required assembly by the customer, i.e., making sandwiches.
At the administrative law judge (“ALJ”) level, the ALJ determined that the party platters were prepared foods subject to tax, relying on a Tax Bulletin issued by the Department of Taxation & Finance (“Department”) (TB-ST-283) which states that the sale of “cold cut platters” is taxable.
The Decision: While generally food sales are exempt from tax, if the food is “prepared” by the seller, it is taxable. Thus, the sole issue before the Tribunal was whether the party platters are considered “prepared foods” within the meaning of the sales tax law. The Tribunal found that the party platters were prepared because the Petitioner compiled a number of items in ready-to-eat form either as-is or through some further preparation such as by making a sandwich with the products provided. Petitioner’s preparation included separating the condiments into individual packaging and providing pre-sliced lettuce, tomatoes, and onions.
The Tribunal upheld the ALJ’s decision, rejecting Petitioner’s argument that “the opportunity for additional preparation, such as by making sandwiches…, negates his own preparation or the readily consumable nature of the foods provided.” The Tribunal noted that “[m]any foods that are ready to eat can be augmented in some fashion and so we decline to adopt [Petitioner’s] reasoning.” Following the ALJ’s lead, the Tribunal also relied on Tax Bulletin TB-ST-283, which explicitly states that cold cut platters are considered prepared food and are subject to sales tax.
The Takeaway: A rationale for not taxing unprepared food is to make basic food necessities more affordable. If Petitioner sold sliced cold cuts by weight but did not arrange them on a platter, the sale would not be taxable. Petitioner’s argument here—that the party platters were not prepared foods because the customer would make additional preparations—appears to have some merit, as the Department’s Tax Bulletin relied on by both the ALJ and the Tribunal defines prepared food as “ready to be eaten” and not requiring further preparation. While technically the cold cuts on the platter could be consumed as-is, it was contemplated that customers would prepare sandwiches.
Whether an item is taxable can hinge on seemingly trivial details. While the distinctions can seem absurd at times, they have real financial implications for businesses. Given the complexity and potential for costly mistakes, businesses must be vigilant about the details and should consult with a tax professional to ensure compliance. By staying informed and seeking professional advice, businesses can avoid unexpected tax liabilities. Understanding the rules can make all the difference.
Antitrust & Tech At The 2025 Antitrust Spring Meeting
Technology was a key focus of this year’s ABA Antitrust Spring Meeting, one of the largest gatherings of antitrust professionals in the world. Over a dozen panels focused on cutting-edge technology issues as it pertains to antitrust, consumer protection, and privacy. Below are 5 key technology-related takeaways.
1. 2024 was a busy year for Big Tech cases, and 2025 looks to be on the same path.
One topic of conversation was the Big Tech antitrust cases that had seen developments in 2024 and 2025. For example, Apple filed a motion to dismiss in the U.S. v. Apple case, which is currently pending. In the FTC v. Amazon case, the FTC’s Sherman Act Section 2 and FTC Act Section 5 claims survived Amazon’s motion for dismissal. Panelists opined that there is a trend towards more high litigation risk cases from the government.
For tech-related updates coming down the pike, the panelists noted that Judge Mehta is expected to issue the remedies order in the U.S. v. Google search monopolization case, and the U.S. v. Google adsearch trial will begin later this year. Panelists also noted that Chair Ferguson of the FTC has publicly expressed interest in ensuring innovation in “Little Tech.”
2. Increasing interest in regulating big data across the globe.
Big data was also on the mind as both a driver of innovation and a potential tool of market dominance. Panelists emphasized that data is not inherently valuable—it must be analyzed effectively; stale or contaminated data can impose real costs; and more data isn’t always better since errors can be introduced.
For antitrust specifically, the panel noted big data issues come up in two contexts: 1) anticompetitive conduct like self-preferencing and refusal to deal and 2) as an important input in markets where no data means no competing. Additionally, big data often comes up in the context of barriers to entry, especially for smaller firms, considering how incumbents benefit from network effects and lower marginal costs. Panelists noted that some businesses are making essential facilities arguments about data. As such, companies may run into problems if they block access to big data through artificial impediments.
Panelists also touched on increasing scrutiny from regulators around the globe. In the EU, deals like Google/Fitbit have required data separation. The EU’s Digital Markets Act (DMA) and the UK’s Digital Markets, Competition and Consumers Act (DMCC) introduce obligations around data interoperability and access. While these interventions aim to prevent foreclosures and level the playing field, some panelists cautioned that preemptive regulation could stifle innovation. In the U.S., the panelists discussed DOJ’s search monopolization case against Google, noting that one of the proposed remedies is that Google share certain data with competitors for decade.
3. Uncertainty about the benefits and harms of algorithmic pricing software.
Algorithmic pricing and machine learning tools continue to gain traction in all sorts of industries. These tools promise efficiency and competitive pricing, but also present potential risks of collusion allegations. One widely-attended panel moderated by Maureen Ohlhausen, who originally analogized algorithmic pricing software to a guy named “Bob,” focused on these issues.
A central discussion point was the standard that courts are using to analyze algorithm-related price fixing claims. The prevailing view on the panel seemed to be that the rule of reason should apply, with analysis depending on factors like whether the data is public, forward-looking, or shared among competitors. On the flip side, other panelists suggested that use of an algorithmic pricing software could be likened to a hub and spoke conspiracy. As far as using the algorithms goes, the panel opined that using public data to feed the algorithm is probably safe territory although not an absolute safe harbor. Some panelists also suggested that courts look at how the software is being used, such as whether the user is blindly accepting the pricing recommendations, how much of the strategy is put up front in the prompts and programming, etc.
The panel also discussed how some jurisdictions are already experimenting with regulation of algorithm pricing software. For example, Germany has introduced AI-assisted gasoline pricing. Some evidence suggests in oligopoly situations, use of the algorithm seemed to lead to higher prices. However, many of the panelists cautioned against imposing blanket remedies before more research is done to understand any potential economic harms algorithm pricing software use may have.
Algorithmic pricing software also came up at the close of the Meeting during the Enforcers Roundtable. Elizabeth Odette, current chair of the NAAG Multistate Antitrust Task Force, noted that there was interest in regulating algorithmic software at the state and local level. For example, she stated that there were 4 cities in the U.S. that had banned algorithmic price software used in the housing context. However, she also noted that there was a concern with imposing wide bills banning use that ignores benefits to some competitors.
4. Tech cases are leading the charge in reviving refusal to deal claims.
Refusals to deal remain a hotly contested area in antitrust law, particularly as platforms and data gatekeepers exert growing control over digital ecosystems. One of the Spring Meeting’s panels discussed the potential revival the doctrine, particularly in technology cases. Due to limitations in the doctrine, the panelists noted that plaintiffs increasingly frame alleged anticompetitive conduct under alternative theories, such as exclusive dealing or foreclosure, to varying degrees of success. Some panelists cautioned that plaintiffs cannot elevate form over economic realities to avoid refusal to deal doctrine.
5. Document preservation issues related to technology is keeping some attorneys up at night.
As digital communications and technology use diversify, so do the risks of spoliation and other discovery failures. Regulators are increasingly focused on how companies preserve (or fail to preserve) electronic records, especially when tools like Slack, ephemeral messaging, and generative AI complicate compliance. One of the panels, including an attorney from the FTC, focused on these issues.
Recent enforcement actions underscore the stakes. The panel flagged major gaps in recordkeeping in cases like the U.S. v. Google search monopolization case and the failed Kroger/Albertsons merger, where use of personal devices and auto-deletion policies hindered document production. The panel also noted that on April 1, 2025, a DOJ Antitrust Division press release revealed that an individual had pleaded guilty for deleting text messages after receiving a litigation hold notice in connection with an antitrust investigation.
The panel also noted the inevitability of discovery requests for AI-generated content or prompts. One panelist gave the example of potentially relevant evidence being a business person asking AI to generate an email to a competitor without the use of the word “competition” to show the person’s state of mind. Interrogatories may soon probe usage of large language models and related tools, especially in high-stakes investigations.
Europe: Central Bank of Ireland updates its UCITS Q&A on Portfolio Transparency for ETFs
In a move that will be welcomed by asset managers conducting ETF business in Ireland, or those who are hoping to move into the Irish ETF space, the Central Bank of Ireland has moved to allow for the establishment of semi-transparent ETFs by amending its requirements for portfolio transparency.
Previously, the Central Bank’s UCITS Q&A 1012 provided that the Central Bank would not authorise an ETF unless arrangements were put in place to ensure that information is provided on a daily basis regarding the identities and quantities of portfolio holdings.
The revised Q&A however, while retaining the ability for ETFs to publish holdings on a daily basis, now provides flexibility in that “periodic disclosures” are now permissible, once the following conditions are adhered to:
appropriate information is disclosed on a daily basis to facilitate an effective arbitrage mechanism;
the prospectus discloses the type of information that is provided in point (1);
this information is made available on a non-discriminatory basis to authorised participants (APs) and market makers (MMs);
there are documented procedures to address circumstances where the arbitrage mechanism of the ETF is impaired;
there is a documented procedure for investors to request portfolio information; and
the portfolio holdings as at the end of each calendar quarter are disclosed publicly within 30 business days of the end of the quarter.
These new semi-transparent ETFs will be most attractive for active asset managers who have previously been dissuaded from establishing an ETF in Ireland due to their reluctance to share their proprietary information.
Mississippi Gaming Commission Meeting Report (April 2025)
The Mississippi Gaming Commission held its regular monthly meeting on Thursday, April 17, 2025, at 9:00 a.m. at the Jackson office. Executive Director Jay McDaniel and Chairman Franc Lee, Commissioner Kent Nicaud and Commissioner Jeremy Felder were all in attendance. The following matters were considered:
LICENSING
The Commission approved the issuance of a license to the following:
Tour Trader Pro, Inc., as a Manufacturer and Distributor
FINDINGS OF SUITABILITY
The Commission approved findings of suitability for the following persons:
James Lindsey Inman – Gulfside Casino Partnership d/b/a Island View Casino Resort
Robert Cresson Ritterhoff – American Gaming & Electronics, Inc.
Adan Castaneda-Cortez – American Gaming & Electronics, Inc.
Todd William Francis – American Gaming & Electronics, Inc.
Lisa Marie Whiteley – American Gaming & Electronics, Inc.
Michael Skura – Tour Trader Pro, Inc.
Timothy Allen Legendre – Tour Trader Pro, Inc.
Update: US Supreme Court Stays Lower Courts’ Orders Reinstating NLRB and MSPB Members, Removing Them Once Again (US)
For the first—but not last—time, the US Supreme Court weighed in on President Donald Trump’s removal of Gwynne Wilcox, a Biden-appointed National Labor Relations Board (NLRB) member (whose removal we discussed in a prior post), and Cathy Harris, a Biden-appointed Merit Systems Protection Board (MSPB) member. Chief Justice Roberts’ April 9 order temporarily stayed the D.C. Circuit’s en banc decision permitting Wilcox and Harris to resume their duties at their respective agencies, effectively re-removing them following their reinstatement by the D.C. Circuit. The most significant consequence of that action is that, once again, the NLRB lacks a quorum, and thus cannot decide cases.
Chief Justice Roberts’ order, which did not address the merits of the case, sets the stage for the Supreme Court to further clarify the scope of the President’s power to remove government officials of multi-member boards like the NLRB and MSPB. Such clarification will almost certainly require the Court to re-examine its 1935 decision in Humphrey’s Executor v. FTC, which held that Congress can impose for-cause removal protections on multi-member boards of independent agencies (in that case, FTC commissioners). The Court reasoned that such removal protections did not unconstitutionally interfere with executive power due to the FTC’s structure (e.g., the FTC’s board was designed to be non-partisan and act with impartiality; the FTC’s duties called for the trained judgment of experts informed by experience; and the commissioners’ staggered terms allowed for the accumulation of technical expertise while avoiding a wholesale change of leadership at any one time). But now, 90 years later, Humphrey’s Executor and its progeny find themselves within the Government’s crosshairs, as the Government insists that the President’s Article II obligation to “take Care that the Laws be faithfully executed” empowers the president to remove, at will, members of multi-member boards such as the NLRB and MSPB, notwithstanding the for-cause removal requirements embedded in the statutes governing those boards.
The Court’s resolution of these two conflicting views of presidential power could have sweeping implications. A decision overruling or paring back Humphrey’s Executor could call into question the constitutionality of the structure of even more independent agencies, such as the Federal Reserve and the National Transportation Safety Board. In such a scenario, for example, a win for the Government could give President Trump the green light to remove Jerome Powell, Chair of the Federal Reserve, about whom he recently commented that his “termination cannot come soon enough .”
We are closely monitoring this litigation and will track additional developments as it progresses through the court system.
What Do Employers Need to Know About the New DHS Alien Registration Requirement?
As further implementation of the January 20, 2025 Executive Orders, DHS recently published an interim final rule regarding the requirement that certain non-citizens register with the U.S. Department of Homeland Security (DHS). The new rule went into effect on April 11, 2025.
The rule is intended to encourage registration for non-immigrants who lack legal status in the U.S. The following non-citizens are considered pre-registered and no action is needed: permanent residents, those with Employment Authorization Documents (EADs), those on sponsored work visas who have an I-94, their family members who have a valid I-94, and a few other categories. See our checklist below for more details.
Employers do not need to take any action at this time other than to continue to have an I-9 on file for all new hires and reverify the I-9 of any employee that has expiring work authorization.
Sheppard Mullin Checklist – DHS Alien Registration Requirement (ARR)
Date: Effective April 11, 2025.
Main Purpose: The new online filing is intended primarily to track individuals who entered the U.S. without inspection.
Exempt from the Online Filing: The registration requirement is aimed only at individuals who are not in the country legally and are not otherwise registered with the U.S. Government. Therefore, exempt individuals include non-citizens who are lawful permanent residents (LPRs), those who have an I-94, those who have an EAD work permit, or those who have an EOIR Immigration Court case. These people were “registered” at the time they entered the U.S., received their EAD work permit, or were placed in removal proceedings.
Canadians: Canadians entering by land generally do not receive an I-94 and if they stay more than 30 days, they are subject to the rule.
How to File: Must file online using Form G-325R. The form asks a for detailed biographic history. See: https://www.uscis.gov/alienregistration
Fee: There is no filing fee, as reflected on the G-325R.
No Attorneys: Attorneys cannot use their online account to assist their clients with registering.
Biometrics: Registration will trigger a biometrics appointment, which does not incur a fee at this time.
Children: Parents must register on behalf of children under the age of 14.
Penalty: Failure to register or produce proof of registration can lead to a misdemeanor conviction, with up to six months of imprisonment and/or a civil fine of $5,000.
Change of Address: All non-citizens must update their address whenever they move. This can be done online at https://www.uscis.gov/addresschange. The same penalties that apply to failing to register, also apply to a non-citizen’s failure to update their address upon moving.
All Non-Citizens Must Carry Papers: Non-citizens who are 18 years of age and older and have an I-94 or EAD work permit must carry this proof on their person at all times, in the unlikely event they are asked by a DHS agent for proof of lawful status. While this requirement is not new, it is being enforced more aggressively.
Additional information about the new DHS alien registration requirement can be found on USCIS’s website: https://www.uscis.gov/alienregistration.
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Updates to the Updates of FHA’s Servicing, Loss Mitigation, and Claims Processes
At the tail end of the Biden administration, the Federal Housing Administration (FHA) published Mortgagee Letter 2025-06, which was tilted Updates to Servicing, Loss Mitigation, and Claims. The 251-page mortgagee letter outlines various changes to FHA’s servicing requirements in Handbook 4000.1, such as updated requirements for forbearances and extending the availability of COVID-19 Recovery Options to February 1, 2026. However, on April 15, 2025, FHA published Mortgagee Letter 2025-12, which replaced the content and implementation of Mortgagee Letter 2025-06.
Mortgagee Letter 2025-12 is titled Tightening and Expediting Implementation of the New Permanent Loss Mitigation Options. The title of the mortgagee letter is reflective of some of the major differences between it and Mortgagee Letter 2025-06. For example, FHA highlighted the following impacts of Mortgagee Letter 2025-12 in its announcement titled FHA INFO 2025-21:
Ending the availability of COVID-19 Recovery Options on September 30, 2025, as opposed to February 1, 2026;
Moving up the effective date of FHA’s new permanent loss mitigation options to October 1, 2025, as opposed to February 2, 2026;
Officially ending the FHA-HAMP option on September 30, 2025;
Limiting a borrower to one permanent loss mitigation option every 24 months, as opposed to 18 months; and
Reversing scheduled increases in borrower and/or servicer incentives related to certain loss mitigation options.
In addition to these published changes, there are some notable differences between Mortgagee Letters 2025-12 and 2025-06 that FHA did not highlight in its announcement. For example, Mortgagee Letter 2025-12 completely deletes the language accessibility requirements Mortgagee Letter 2025-06 proposed for Handbook 4000.1.III.A.1.a.ii.(D). The language accessibility requirements would have required mortgagees to include a disclosure on all notices sent to borrowers addressing the availability of language access services for borrowers with limited English proficiency (LEP). The LEP disclosure would have been required to be sent, at a minimum, in English and Spanish. Additionally, Mortgagee Letter 2025-12 removes any reference to discrimination based on “sexual orientation or gender identity” from the Nondiscrimination Policy in Handbook 4000.1.III.A.1.a.ii.(C).
From a mortgage servicer’s point of view, the biggest challenge in Mortgagee Letter 2025-12 is the faster deadline for phasing out COVID-19 Recovery Options. Servicers must adjust to updated FHA servicing rules more quickly and cannot offer certain COVID-19 Recovery Options after September 30, 2025.
Finally, looking ahead, it is important to note that FHA’s announcement of Mortgagee Letter 2025-12 appears to call into question the future of the Payment Supplement Program. While there is nothing definitive at this point, the announcement does state that FHA is conducting an “overall evaluation… to determine if it should remain a part of HUD’s loss mitigation program.” Given the current administration’s recent “tightening” of other aspects of the FHA servicing program through Mortgagee Letter 2025-12, it is likely that there are more FHA servicing changes to come.
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CMS Issues CY 2026 Medicare Advantage and Part D Final Rule
On April 4, 2025, the Centers for Medicare & Medicaid Services (“CMS”) released the contract year (“CY”) 2026 final rule for the Medicare Advantage (“MA”) program, Medicare Prescription Drug Benefit Program (“Part D”), Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly (the “Final Rule”). While CMS finalized several proposals of its Proposed Rule, it did not finalize many of its key proposals, including on anti-obesity medication (“AOM”) coverage, enhanced guardrails for artificial intelligence (“AI”), and various health equity related initiatives in MA and Part D.
Summarized below are some of the key provisions of the Final Rule.
MA and Part D Proposals Not Finalized
Perhaps most notable from the CY 2026 Final Rule are those proposals that CMS did not finalize. These include the following:
Part D Coverage of Anti-Obesity Medications (AOMs) and Application to the Medicaid Program—CMS declined to finalize a proposal to “reinterpret” the statutory definition of a covered Part D drug at section 1860D–2(e)(2) of the Social Security Act (SSA), which excludes coverage for certain drugs and uses, including those that may be excluded by Medicaid under SSA § 1927(d)(2) as ‘‘agents when used for . . . weight loss.’’ The proposal would have applied to both Medicare and Medicaid to allow coverage for AOMs when used for the treatment of obesity, with a hefty, estimated price tag of $25 billion in Medicare spending and $15 billion in Medicaid spending over the course of a decade. As the proposal was not finalized, the current policy remains in place—the Medicare and Medicaid programs will only cover AOMs when used to treat another medically accepted condition (e.g., type 2 diabetes or cardiovascular risk).
Enhancing Health Equity Analyses: Annual Health Equity Analysis of Utilization Management Policies and Procedures — CMS did not finalize its proposal to require Medicare Advantage organizations to conduct annual health equity analyses of utilization management policies. CMS stated that this proposal remains under review for potential future rulemaking in line with Executive Order 14192’s directive to ensure consistency and avoid unnecessary burden.
Guardrails for Artificial Intelligence (AI) / Ensuring Equitable Access to Medicare Advantage Services — CMS opted not to finalize proposals related to the use of AI and algorithmic decision-making in MA, including proposals requiring plans to utilize AI in a manner that preserves equitable access, to adhere to existing Medicare regulations prohibiting discrimination, and requiring disclosure of use of AI tools. In declining to finalize these proposals, CMS acknowledged strong stakeholder interest and stated that the agency would “consider the extent to which it may be appropriate to engage in future rulemaking in this area.”
Behavioral Health Parity — Although CMS acknowledged significant stakeholder concern regarding access to behavioral health care in MA plans, it did not finalize proposals to establish stricter parity protections or expand network adequacy standards in the Final Rule. The proposed behavioral health parity provisions would have applied new requirements to ensure equitable access to mental health and substance use disorder services in Medicare Advantage plans. CMS acknowledged ongoing concerns, especially in dual-eligible special needs plans, but stated that the proposed changes are still under review. Future rulemaking may revisit these policies in coordination with broader parity and access initiatives.
Prior Authorization — While CMS finalized prior authorization requirements applicable to inpatient admissions (discussed below), CMS did not finalize proposals to establish guardrails on the use of AI in prior authorization processes.
Agent and Broker Oversight — Despite recent scrutiny of agent and broker practices, CMS did not finalize key proposed marketing reforms. Among other things, these included broadening the definition of “marketing” to enhance agency oversight of materials submitted to CMS as well as promoting informed choice by requiring agents and brokers to provide more comprehensive information to potential enrollees, such as low-income assistance options and implications of switching to traditional Medicare.
Promoting Transparency for Pharmacies — CMS did not finalize or address a proposal to require Part D sponsors (or their FDRs) to allow pharmacies the right to terminate their network contracts without cause following the same notice period that Part D sponsors have for terminating contracts without cause. Had this proposal been finalized, it would have likely faced legal challenges for violating the Part D statute’s noninterference requirement.
Formulary Placement of Generics and Biosimilars — CMS did not finalize a proposal to include an additional step in the formulary review process to check that Part D sponsors provide broad access to generics, biosimilars, and other lower cost drugs. However, CMS noted that “may consider codifying additional requirements regarding formularies in future rulemaking if necessary.”
Administration of Supplemental Benefits through Debit Cards — CMS did not finalize its proposal to impose new requirements on the use debit cards to administer plan-covered benefits, including new guardrails to ensure that beneficiaries are fully aware of covered supplemental benefits and how to access those benefits.
Community-Based Services and In-Home Service Contractors — CMS did not finalize or directly address proposals related to improving transparency and beneficiary protections through expanded provider directory requirements. These proposals included codifying definitions for community-based organizations and in-home supplemental benefit providers, and requiring their inclusion in provider directories.
Part D Medication Therapy Management (“MTM”) Program — CMS deferred for subsequent rulemaking a proposal to expand the regulatory list of core chronic diseases used to identify Part D enrollees who have multiple chronic diseases for purposes of determining eligibility for Medication Therapy Management (“MTM”) enrollment to include other causes of dementia in addition to Alzheimer’s.
Moreover, CMS indicated that various currently effective regulations and policies are currently under review by the Trump Administration “to ensure consistency with the Executive Order 14192, Unleashing Prosperity Through Deregulation.” According to CMS, policies currently under review include the following:
Health Equity Index Reward for the Parts C and D Star Ratings
Annual health equity analysis of utilization management policies and procedures
Requirements for MA plans to provide culturally and linguistically appropriate services
Quality improvement and health risk assessments (“HRAs”) focused on equity and social determinants of health (“SDOH”)
FINALIZED MA AND PART D PROPOSALS
Covered Insulin Products and Vaccines
CMS finalized a proposal to codify a relatively modest expansion of the definition of a “covered insulin product” to include Part D coverage for drug products that are a combination of more than one type of insulin or both insulin and non-insulin drugs, which is consistent with existing CMS guidance. CMS also finalized proposals to eliminate cost sharing for both covered insulin products and for adult vaccines recommended by the Advisory Committee on Immunization Practices (ACIP) covered under Part D.
Medicare Prescription Payment Plan
CMS finalized regulatory requirements for the Medicare Prescription Payment Plan for 2026 and subsequent years, codifying provisions previously established in two-part guidance for 2025. The program, created under section 11202 of the Inflation Reduction Act, requires all Medicare Part D and MA-PD plan sponsors to offer enrollees the option to pay capped monthly installments on their out-of-pocket Part D drug costs, rather than paying the full amount at the point of sale. The goal is to ease financial pressure—especially for beneficiaries who incur high drug costs early in the year.
Most provisions from prior guidance were finalized without modification, including operational processes, election procedures, and outreach requirements. CMS also finalized several new provisions:
Automatic Renewal: Beginning in 2026, enrollees who participate in the program will be automatically re-enrolled the following year unless they opt out. A separate renewal notice must be sent after the end of the annual election period and include the plan’s upcoming terms and conditions.
Voluntary Termination: CMS adjusted its original proposal and will now require plan sponsors to process opt-out requests within 3 calendar days, rather than the initially proposed 24-hour timeframe, to reduce administrative burden.
Standardized Communications: New requirements were finalized for model and standardized materials, including the “likely to benefit” notice, voluntary and involuntary termination notices, and renewal notices. Part D sponsor websites must also display information about the program.
Waiver for LI NET: CMS confirmed that the Medicare Prescription Payment Plan requirements will not apply to the Limited Income Newly Eligible Transition (LI NET) program, consistent with prior guidance.
Election Processing and Real-Time Requirements: While CMS finalized the 24-hour processing requirement for election requests received during the plan year, it did not finalize a proposed real-time processing requirement for phone or web-based requests, citing stakeholder concerns about operational feasibility. CMS may revisit this in future rulemaking.
CMS stated that its approach was intended to limit disruption, reduce burden on plans, and give stakeholders time to gain experience with the program. The agency will continue to evaluate program implementation and consider refinements in future years.
Timely Submission Requirements for Prescription Drug Event (PDE) Records
CMS has finalized new regulatory requirements under § 423.325 to codify timely submission of Prescription Drug Event (PDE) records by Medicare Part D sponsors. These records are essential for payment accuracy and program integrity, especially for programs like the Coverage Gap Discount Program, the Manufacturer Discount Program, and the Medicare Drug Price Negotiation Program.
Previously guided by subregulatory policy, CMS now formalizes specific submission timelines:
General PDEs: Within 30 days of claim receipt.
Adjustments/deletions: Within 90 days of issue discovery.
Rejected PDEs: Resubmitted within 90 days of rejection notice.
Selected drugs (Negotiation Program): Initial PDEs due within 7 days to support timely Manufacturer Fair Price refunds.
Despite concerns about the 7-day timeline, CMS finalized it without changes, citing that most PDEs are already submitted within this window. The 90-day deadlines for adjustments and rejections remain unchanged. These timelines are now enforceable, and noncompliance may trigger CMS actions.
Medicare Transaction Facilitator Requirements for Network Pharmacy Agreements
CMS finalized the proposal requiring that Part D sponsors’ network participation agreements with contracting pharmacies, including any FDR contracts, require network pharmacies to be enrolled in the Medicare Drug Price Negotiation Program’s (‘‘Negotiation Program’’) Medicare Transaction Facilitator Data Module (‘‘MTF DM’’) and that such pharmacies certify the accuracy and completeness of their enrollment information in the MTF DM. According to CMS, the MTF DM will contain several key functionalities that are necessary and appropriate for administration of the Negotiation Program and the Part D program. Through each of these functionalities, the dispensing pharmacy’s enrollment in the MTF DM would help ensure continued access to selected drugs that are covered under Part D for beneficiaries and pharmacies and help maintain the accuracy of Part D claims information and payment. These functionalities are:
The MTF DM will provide pharmacies enrolled in the MTF DM with remittances or ERAs to reconcile Maximum Fair Price (“MFP”) refund payments when a Primary Manufacturer of a drug selected by CMS for price negotiation chooses to pass payment to the pharmacy through the MTF PM rather than prospectively ensuring that the price paid by the pharmacy entity when acquiring the drug is no greater than the MFP.
There will be streamlined access for pharmacies that are enrolled in the MTF DM to submit complaints and disputes within the MTF DM to help identify issues with timely MFP refund payment, supporting pharmacies to continue efficient operations and prevent undue financial hardship, while maintaining accuracy of Part D claims information and payment.
The MTF DM will serve as a central repository for information about pharmacies enrolled in the MTF DM that self-report that they anticipate material cashflow concerns due to the reliance on retrospective MFP refunds within the 14-day prompt MFP payment window.
CMS intends that pharmacies will be able to view the status of MFP refunds from Primary Manufacturers through the MTF DM.
The MTF DM will collect and share financial information belonging to pharmacies enrolled in the MTF DM with Primary Manufacturers that pay MFP refunds to pharmacies outside the MTF PM.
CMS published new guidance on its webpage on Tuesday, April 8th to provide pharmacies and other dispensing entities with resources for engaging with the new MTF system. Enrollment in the MTF is expected to begin in June 2025.
Clarifying MA Organization Determinations to Enhance Enrollee Protections in Inpatient Settings
In the Final Rule, CMS clarifies and expands the definition of “organization determinations” under § 422.566 to explicitly include decisions made while a beneficiary is receiving care, particularly inpatient services. The key reforms include the following:
Whether a decision is made before, during, or after a service is provided, it must be treated as a formal organization determination. This change is intended to prevent MA plans from not affording appeal rights by reclassifying care decisions as claims reviews.
MA organizations may not retroactively deny or downgrade previously authorized inpatient admissions, even based on clinical data collected after admission. The only exceptions are fraud or qualifying good cause.
The Final Rule also clarifies that a beneficiary’s financial liability does not attach until an MA plan has made a formal claim determination, aligning liability with appeal rights.
These finalized requirements are intended to eliminate surprise denials, ensure transparency for providers and beneficiaries, and create a consistent standard across MA plans for inpatient decision-making. The Final Rule also introduces certain limited protections for beneficiaries and providers navigating MA plans’ prior authorization (“PA”) processes, including several provisions that restrict a plan’s ability to retroactively deny care after initial approval. Beginning in 2026:
Approved services, including inpatient admissions, cannot be retroactively denied unless there is evidence of fraud or a valid reason under CMS’s “good cause” standard as defined in 42 CFR § 405.986.
All coverage decisions made during or after an inpatient stay must be treated as formal determinations, granting enrollees full appeal rights.
Plans must notify both providers and enrollees of all coverage decisions, and beneficiaries cannot be held financially responsible until a claims payment determination is made.
Non-Allowable Special Supplemental Benefits for the Chronically Ill (SSBCI)
In the Final Rule, CMS adopts new regulatory restrictions for SSBCI. With some modifications from the Proposed Rule, CMS finalized a non-exhaustive list of non-allowable SSBCI benefits, codified at 42 C.F.R. § 422.102(f)(1)(iii).
Under existing regulations, SSBCI are not required to be primarily health related but must have a reasonable expectation of improving or maintaining the health or overall function of the enrollee, as established by the MA plan based on a bibliography of relevant acceptable evidence. In the Final Rule, CMS adopts a non-exhaustive list of non-primarily health related items or services that do not meet the standard of having a reasonable expectation of improving or maintaining the health or overall function of the enrollee. As finalized at 42 C.F.R. § 422.102(f)(1)(iii), examples of items or services that may not be offered as SSBCI include all of the following:
Procedures that are solely cosmetic in nature and do not extend upon Traditional Medicare coverage (for example, cosmetic surgery, such as facelifts, or cosmetic treatments for facial lines, atrophy of collagen and fat, and bone loss due to aging)
Hospital indemnity insurance
Funeral planning and expenses
Life insurance
Alcohol
Tobacco
Cannabis products
Broad membership programs inclusive of multiple unrelated services and discounts
Non-healthy food
Modifications from the Proposed Rule include the addition of “non-healthy food” to the non-allowable SSBCI list. According to CMS, the addition of non-healthy food addresses comments requesting clarification on how plans may provide “Food is Medicine” (an initiative of HHS’ Office of Disease Prevention and Health Promotion) within the parameters of supplemental benefit requirements. In addition, CMS did not finalize proposals to expressly incorporate as non-allowable SSBCI “cash and monetary rebates” (which are prohibited by SSA § 1851(h)(4)(A)) or “gambling items (e.g., online casino games, lottery tickets), firearms and ammunition.”
Improving Experiences for Dually Eligible Enrollees
CMS finalized its proposed requirements for certain dual-eligible Special Needs Plans (“D-SNPs”) to further streamline and integrate care delivery for dual eligible beneficiaries. Specifically, finalized proposals include:
Requiring integrated member ID cards for both Medicare and Medicaid plans. The proposal is limited to Applicable Integrated Plans (“AIPs”);
Requiring AIPs to conduct a single, integrated Health Risk Assessment (“HRA”) for both Medicare and Medicaid, replacing the separate HRAs currently utilized for each. However, CMS delayed the implementation date of this provision to January 1, 2027.
Codifying timeframes for all SNPs to conduct HRAs and develop Individualized Care Plans (“ICPs”), emphasizing active participation by enrollees or their representatives in the ICP development process. Specifically, CMS proposes to require that SNPs conduct the initial HRA within 90 days of the effective date of enrollment.
Establish new requirements for all SNPs related to outreach to enrollees regarding completion of the HRA. Specifically, SNPs make at least three non-automated phone call attempts, unless the enrollee agrees or declines to participate in the HRA before three attempts are made, on different days at different times. If the enrollee has not responded, the SNP must send a follow-up letter. The SNP must document attempts to contact the enrollee, and if applicable, the enrollee’s choice not to participate.
Require that SNPs update ICPs as warranted when there are changes in an enrollee’s health status or they have a healthcare transition.
Risk Adjustment Data
CMS finalized as proposed various technical changes to the definitions related to risk adjustment data, including a technical change to the definition of Hierarchical Condition Categories (HCCs) at § 422.2 to remove the reference to a specific version of the ICD to keep the HCC definition current as newer versions of the ICD become available and are adopted by CMS, as well as substituting the terms “disease codes” with “diagnosis codes” and “disease groupings” with “diagnosis groupings” to be consistent with ICD terminology. CMS also finalized its proposal to codify existing practice of requiring mandatory submission of risk adjustment data by PACE organizations and Section 1876 Cost plans, consistent with the risk adjustment data requirements applicable to MA plans.
Medical Loss Ratio (MLR) Reporting
In the Proposed Rule, CMS proposed a number of regulatory changes intended to improve the meaningfulness and comparability of the MLR across plan contracts, as well as align the MA and Part D MLR regulations with the regulations in the commercial and Medicaid MLR programs. However, in the Final Rule, CMS adopted only one MLR-related proposal — to exclude Medicare Prescription Payment Plan unsettled balances from the MLR numerator.
MLR related proposals that were not finalized include the following:
Requiring provider incentive and bonus arrangements are tied to clinical or quality improvement standards in order to be included in the MA MLR numerator;
Requiring administrative costs to be excluded from quality-improving activities in the MA and Part D MLR numerators; and
Codifying the current practice by which MA and Part D MLR reports include a description of how expenses are allocated across lines of business.
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EEOC Is Permanently Enjoined From Enforcing Portions of PWFA Final Regulations and EEOC’s Title VII Guidance On Harassment in the Workplace Against Catholic Employer Organization
On April 15, 2025, the United States District Court for the District of North Dakota issued its decision granting partial summary judgment to the Catholic Benefits Association, on behalf of its members and the Bismarck Diocese (collectively the CBA). The court found that the portions of the PWFA Final Regulations that require employers to reasonably accommodate limitations arising out of infertility, abortions, and in vitro fertilization violate the CBA’s rights under the Religious Freedom Restoration Act (RFRA). The court also found that the EEOC’s Guidance on Harassment in the Workplace violates the CBA’s rights under the RFRA to the extent the EEOC Guidance forces the CBA to “speak or communicate in favor of abortion, fertility treatments, or gender transition when such is contrary to the Catholic faith; refrain from speaking or communicating against the same when such is contrary to the Catholic faith, use pronouns inconsistent with a person’s biological sex; or allow persons to use private spaces reserved for the opposite sex.”
Because the court granted partial summary judgment and permanently enjoined the EEOC’s enforcement of the PWFA and Guidance On Harassment in the Workplace in this manner, the court declined to address the CBA’s other arguments including that the PWFA final regulations violate the Administrative Procedures Act.
What Does This Mean for Employers?
This ruling, and the court’s injunction, is limited to the CBA and its members. Moreover, the applicability of the court’s reasoning, other than the court’s discussion about whether the CBA had legal standing to bring the case, is limited to RFRA challenges to the PWFA regulations and EEOC Guidance on Harassment in the Workplace. While the EEOC could appeal the decision, it is entirely possible the agency will not do so since the EEOC has indicated its intent to revisit the breadth of the PWFA final regulations once the EEOC regains a quorum of commissioners and the Trump Administration has directed the EEOC to rescind the Guidance on Harassment in the Workplace.
More than half-a-dozen lawsuits have been filed by private employers and a number of states challenging the EEOC’s authority to enact portions of the PWFA Final Regulations. We are continuing to monitor these developments. Please reach out to your Jackson Lewis attorney with any questions about this decision or the other pending cases challenging the PWFA final regulations or the EEOC’s Guidance on Harassment in the Workplace.
The CFPB Shuts Down Controversial “Regulation Through Guidance” Practices
The acting head of the Consumer Financial Protection Bureau (CFPB) continues to winnow out regulatory tools used by agency staff under the prior administration. Just a month after revoking certain interpretative rules and announcing the deprioritized enforcement of others, the CFPB has now reportedly discontinued the Bureau’s longstanding practice of “regulation through guidance.”
An internal agency memorandum circulated last week by Acting Director Russell Vought apparently did not mince words in criticizing the Bureau’s prior use of “guidance” to effectuate backdoor rulemaking: “For too long this agency has engaged in weaponized practices that treat legal restrictions on its authorities [to engage in rulemaking] as barriers to be overcome rather than laws that we are oath-bound to respect. This weaponization occurs with particular force in the context of the Bureau’s use of sub-regulatory ‘guidance.’” Vought’s concern: “[G]uidance materials [have been used] improper[ly] where they impose rights or obligations on private parties outside of the notice-and-comment process prescribed by the Administrative Procedure Act [APA].” That is, to create new regulatory rules, the APA—5 U.S.C. § 553—requires federal agencies like the CFPB to first publish a Notice of Proposed Rulemaking in the Federal Register and to allow the public an opportunity to comment “through submission of written data, views, or arguments.” The prior CFPB regime’s practice of publishing informal “guidance” to impose de facto rules and obligations on covered parties, without prior notice, did not comply with these statutory requirements. Much of the CFPB’s prior guidance left ambiguous their non-binding nature and whether non-compliance would trigger enforcement action by the CFPB. Vought seeks to remedy that concern.
Importantly, the CFPB directive last week seeks more than just a prohibition of future guidance that “purport[s] to create rights or obligations binding on persons or entities outside the Bureau.” The CFPB is also reportedly committed to “rescind[ing] all ‘guidance’ that has unlawfully regulated private parties in the past.” As the agency’s comprehensive internal review concludes in the coming weeks, the CFPB is expected to ultimately renounce significant existing guidance—from advisory opinions to blog posts—that contravene the APA and the Bureau’s constitutional authority for regulatory rulemaking.
Vought’s internal messaging at the CFPB notably occurred on the same day last week that the White House published its own “Memorandum for the Heads of Executive Departments and Agencies.” See Directing the Repeal of Unlawful Regulations, Presidential Memoranda (Apr. 9, 2025). In that Memorandum, the administration instructed agency heads to review and repeal all “facially unlawful regulations” within the next 60 days that do not conform with the recent Loper Bright decision and nine other Supreme Court opinions. With the assistance of its agency heads, including at the CFPB, the executive branch thus continues its path forward to deregulate.
To Some, It’s About ERISA—to Everyone, It’s About Not Having to Plead Affirmative Defenses – SCOTUS Today
Notwithstanding its mounting backlog, the U.S. Supreme Court resolved only one case today, an unsurprising unanimous decision in Cunningham v. Cornell University.
The case concerns pleading causes of action under the Employee Retirement Income Security Act of 1974 (ERISA), but provides a useful reminder to litigants more generally.
ERISA prohibits plan fiduciaries from causing a plan to engage in certain transactions with parties in interest. 29 U.S.C. §1106. However, another provision, §1108(b)(2)(A), provides an exemption for transactions that involve “[c]ontracting or making reasonable arrangements with a party in interest for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor.”
The question considered by the Court is whether a viable claim under §1106 requires a plaintiff to plead that §1108(b)(2)(A) does not apply to an alleged prohibited transaction. A unanimous Court, led by Justice Sotomayor, held that a plaintiff is not required to do so.
The case involved a suit by present and former employees of Cornell University, claiming that plan fiduciaries caused prohibited transactions for recordkeeping services by paying excessive fees. The U.S. Court of Appeals for the Second Circuit, affirming the dismissal of the suit by the U.S. District Court for the Southern District of New York, had held that §1108(b)(2)(A) is incorporated into §1106(a)’s prohibitions, thus requiring plaintiffs to plead that a transaction was “unnecessary or involved unreasonable compensation.”
Reversing the Second Circuit, the Supreme Court held that “[t]o state a claim under §1106(a)(1)(C), a plaintiff need only plausibly allege the elements contained in that provision itself, without addressing potential §1108 exemptions.”
While Justice Sotomayor wrote for the entire Court, Justice Alito filed a concurring opinion, which Justices Thomas and Kavanaugh joined. Notwithstanding Justice Sotomayor’s lengthy disquisition on the statutory text and its background, I am sympathetic to Justice Alito’s more succinct analysis. Insofar as all the Justices agreed that the statute’s “exemptions” functioned as affirmative defenses, it was useful for Alito to point out that “it is black letter law that a plaintiff need not plead affirmative defenses. . . . Here, . . . §1108 sets out a long list of affirmative defenses, and it would make no sense to require a complaint to anticipate and attempt to refute all the affirmative defenses that a defendant might raise.”
The concurrence also reluctantly predicts that this otherwise proper textual resolution of the case is likely to lead to an unfortunate number of cases in which protracted litigation will be required to dispose of meritless complaints. To counter this (which had also been a concern of the Second Circuit), Justice Alito suggests a potential remedy that might be effectuated by trial court orders at the outset of the case—i.e., a trial court could insist that a plaintiff file a reply to an answer that raises one of the §1108 exemptions as an affirmative defense.