PBM Legislation in the Reconciliation Bill is Far From Sweeping PBM Reform
Over the past few years, Congress has attempted to pass “federal PBM reform.” Members of Congress have held numerous hearings related to PBMs and introduced numerous bills seeking to regulate PBMs (we regularly track these federal actions through our quarterly PBM Policy and Legislative Updates). Despite the rhetoric in Washington about bipartisan support to regulate PBMs, Congress has not been able to pass meaningful PBM reform. This brings us to the One Big Beautiful Bill (Reconciliation Bill), which includes some PBM measures but remains far from the sweeping reform Congress previously introduced and from what we are seeing at the state level. The House passed the Reconciliation Bill on May 22, 2025, with a slim margin of 215 to 214. The Reconciliation Bill will now move to the Senate, where the Senate will need to approve it with a simple majority for it to become law.
The PBM provisions included in the Reconciliation Bill are unlikely to significantly impact the drug supply chain or PBMs’ practices. As discussed in further detail below, PBMs are generally already complying with many of the requirements set forth in the Reconciliation Bill. This blog will outline the key provisions of the Reconciliation Bill and their impact (or potential lack thereof) on PBM operations.
Definition of a PBM
The Reconciliation Bill defines a “pharmacy benefit manager” broadly to include “any person or entity that, directly or through an intermediary, acts as a price negotiator or a group purchaser …or manages the prescription drug benefits” on behalf of or provided by a state, managed care company, or “other specified entity,” regardless of whether the entity calls itself a PBM. The definition states that managing the prescription drug benefit may include processing claims, performing drug utilization review, processing prior authorizations, or contracting with pharmacies. The definition also states that a “pharmacy benefit manager” will include (i) “any entity that acts as a price negotiator (with regard to payment amounts to pharmacies and providers for covered outpatient drugs)” on behalf of a state, managed care entity, or other entity, or (ii) any entity that carries out one or more of the activities discussed in the prior sentence. This definition is intended to and will likely encompass entities beyond traditional PBMs, including rebate aggregators and utilization management entities.
Prohibition of Spread Pricing in Medicaid
The Reconciliation Bill requires that contracts between the state and (i) a PBM, or (ii) a Medicaid managed care entity (MCO) that includes drug coverage, be based on a pass-through pricing model prohibiting spread pricing. Under the pass-through pricing model:
Payments to pharmacies for drugs must be (i) limited to the ingredient cost of the drug and a professional dispensing fee that is not less than the professional dispensing fee a state would pay if the state were making the payment directly in accordance with the state Medicaid plan; (ii) equivalent to the amounts that the PBM charges the state or MCO for the drug such that the full amount of the payment to the PBM is “passed through” to the pharmacy dispensing the drug (with exceptions for state laws and regulations in response to FWA); and (iii) in a manner consistent with federal regulations specifying upper payment limits CMS will pay for drugs under the state Medicaid program.
Payment for administrative services is limited to an administrative fee that reflects FMV.
Upon request, the PBM or MCO must report to the state on a drug-level basis all costs and payments related to the covered outpatient drug and the accompanying administrative service fees.
The Reconciliation Bill would condition the federal match of Medicaid payments on the prohibition of “spread pricing.”
This prohibition of spread pricing in Medicaid is not a new practice and many states already prohibit it. Further, given several lawsuits and settlements with Medicaid MCOs in 2021 and 2022 stemming from spread pricing, Medicaid MCOs generally prohibit spread pricing as well. Therefore, it is unlikely the Reconciliation Bill will significantly change current practice in Medicaid.
Transparency Requirements in Medicare Part D
The Reconciliation Bill requires PBMs contracting with a Medicare Part D prescription drug plan sponsor (PDP Sponsor) to, among other things, (i) consistently and transparently define, interpret, and apply terms related to their performance of pricing guarantees or similar cost performance measurements related to rebates, discounts, price concessions, or net costs set forth in agreements between PDP Sponsors and PBMs, and (ii) annually report to HHS and the PDP Sponsor detailed information related to dispensed drugs, including, but not limited to, rebates received by manufacturers, and total manufacturer-derived revenue (including bona fide service fees retained by PBM and PBM affiliates).
“Delinking” PBM Payments
The proposed bill would prohibit PBMs from receiving income for services in any form other than a bona fide service fee (BFSF) defined as (i) a flat fee, (ii) consistent with fair market value (FMV), (iii) for services actually performed by the PBM or its affiliate on behalf of the PDP Sponsor that the PDP Sponsor would otherwise perform itself if not for the arrangement with the PBM, (iv) not based or contingent upon drug price, remuneration (such as rebates, discounts, and other fees), coverage decisions, formulary placement, the volume or value of referrals or business generated between the PBM and PDP Sponsor, or other criteria prohibited by the Secretary, and (v) not passed on to a client or customer (regardless of who takes title to the drug).
This definition of BFSF differs from the definition used in current Medicare Part D and Medicaid laws and creates immediate tension by requiring that the fee be flat and simultaneously FMV given that the volume of services to be provided is often unknown at the time agreements are formed. Further, the proposed bill indicates that “incentive payments” paid by PDP Sponsors to PBMs will be deemed BFSF so long as they meet the relevant BFSF requirements.
Rebates, discounts, and other price concessions received by a PBM from manufacturers, even if calculated as a percentage of a drug’s price, would not be in violation of this provision if such amounts are fully passed through to the PDP Sponsor and reported in accordance with applicable DIR requirements. PBMs would be required to pass through to the PDP Sponsor any remuneration in violation of the BFSF requirements; and further, PBMs would be required to enter into written agreements with their affiliates to require such affiliates to identify and pass through to the PDP Sponsor any remuneration beyond payments as described above (e.g., BFSF, permitted incentive payments and rebates, discounts, and price concessions). Finally, agreements between PBMs and PDP Sponsors would be subject to review by the Secretary of HHS for determination of FMV of remuneration.
Again, this provision will likely not materially change how PBMs operate in the Part D space today, as most PBMs already fully pass through rebates to the PDP Sponsors in Part D.
Conclusion
The Reconciliation Bill is not the broad, sweeping, PBM reform package that Congress has been working towards. Notably, the provisions discussed above are limited to Medicaid and Medicare. The Reconciliation Bill does not include PBM reforms applicable to commercial plans.
Big State, Big Scrutiny: Texas Steps into the Foreign Investment Review Arena
On March 13, the Texas House of Representatives introduced HB 5007, along with its companion bill SB 2117. The legislation—“Relating to the establishment of the Texas Committee on Foreign Investment to review certain transactions involving certain foreign entities; creating a civil penalty”—is currently under committee review. If enacted, the Lone Star State would become the first state to establish its own interagency committee to screen foreign investments, modeled in part on the federal Committee on Foreign Investment in the United States (CFIUS).
From our experience navigating CFIUS risks and filing obligations, preparing and submitting notices, negotiating Committee mitigation agreements, and authoring The CFIUS Book, 2nd Edition, we are preparing to support clients should they face a new layer of state-level scrutiny when the proposed Texas Committee on Foreign Investment (TCFI) become law.
A New Sheriff in Town: Texas Proposes Its Own CFIUS
The TCFI would be structured similarly to CFIUS. Just as the CFIUS Committee includes the heads of federal agencies, the TCFI would comprise senior officials from various Texas agencies—including the Attorney General (paralleling DOJ), the Comptroller (Treasury), and the heads of the Department of Public Safety and the Department of Information Resources (Defense analogues). In a move that reflects Texas-specific concerns, the Commissioner of Agriculture would also sit on the committee, highlighting growing attention to foreign ownership of farmland and food security.
Not Their First Rodeo: Texas Tweaks the Rules on Covered Transactions
Like CFIUS, the TCFI would apply to transactions that meet two criteria: (1) a governance threshold and (2) involvement in a sensitive sector. But Texas approaches both criteria differently:
Governance Threshold. While CFIUS uses a qualitative test (focusing on control or access rights rather than ownership percentage), HB 5007 would impose a quantitative test. A transaction would be subject to review if it exceeds a minimum dollar value or ownership percentage—thresholds to be set by the Governor.
Sensitive Sectors. The TCFI would apply to investments in “critical infrastructure” and “sensitive personal data.” These terms are borrowed from federal terminology but redefined under Texas law.
Critical infrastructure would cover a broader range than under CFIUS—extending to commercial facilities, emergency services, dams, food and agriculture, health care, and government buildings. This is significantly wider than both CFIUS definitions and Texas’s existing Lone Star Infrastructure Protection Act.
Sensitive personal data is defined not in terms of identifiability, but in terms of potential risks to public safety if accessed by a foreign entity. Though narrower in scope than CFIUS in some respects, this standard could be applied broadly in practice.
The bill would also add two new categories of covered sectors: Texas agricultural land and any “strategic industry or asset” identified by the Governor, allowing for future expansion.
Filing Deadlines and Legal Spurs: The Process and Enforcement Landscape
The process outlined in HB 5007 differs notably from the federal model. While CFIUS allows for voluntary and mandatory filings and may initiate its own reviews, HB 5007 would require mandatory pre-closing notification to the Texas Attorney General at least 90 days before closing. The Attorney General would then conduct an initial review within 30 days and, if needed, a secondary investigation within 45 days.
The TCFI would not conduct the review itself, but would receive findings and proposed mitigation terms from the Attorney General. If the committee rejects a proposed agreement, the Attorney General would be responsible for presenting a revised version. The Attorney General would also have enforcement authority—including injunctive relief and divestment—though the bill limits civil penalties to $50,000 per violation.
Foreign investors unfamiliar with Texas procedure may find the process deceptively straightforward—but, as any traveler making their way across the state knows, it pays to plan ahead, double-check the route, and occasionally pull off at the beaver for fuel, supplies, and a quick reset. The logistics of navigating parallel state and federal reviews may call for similar recalibration—especially when timelines, procedures, and enforcement mechanisms diverge.
Two-Lane Traffic: CFIUS, TCFI, and the Potential for Overlap
HB 5007 does not address how TCFI and CFIUS might coordinate when both claim jurisdiction—raising practical concerns for investors facing parallel notice and review processes. Navigating two regimes, potentially with different mitigation expectations, could introduce delays, friction, and uncertainty.
It remains to be seen whether future amendments will clarify jurisdictional boundaries, establish coordination mechanisms, or provide safe harbors. In the meantime, companies should be prepared to address both state and federal review obligations—requiring careful planning, aligned timelines, and coordinated strategy.
Tariffs and Alcohol Production Contracts: The New Trade Landscape
Since early 2025, U.S. alcohol manufacturers have found themselves on the frontlines of a fresh wave of trade disruptions. With the “Liberation Day” tariffs, core inputs such as cans, bottles, grain, labels, barrels are seeing their prices rise. For producers using imported goods, relying on contract production, or alternating proprietorship relationships, these cost shifts are no longer theoretical.
Craft alcohol manufacturers operate on thin margins and often lack leverage in global supply chains. For years, flexible terms and handshake understandings filled the gaps. But in today’s trade environment, producers need to tighten up their contracts. This starts with how manufacturers manage tariff risk.
Force Majeure Provisions are Usually Inapplicable
It’s a common misconception that rising costs from tariffs are a “force majeure” event. They’re not. Force majeure covers “acts of God” such as hurricanes, pandemics, and labor strikes; the kinds of events that make performance impossible. Tariffs, by contrast, just make performance more expensive. Courts generally do not excuse a party from paying or performing because of an unfavorable cost shift. Unless your force majeure clause expressly covers tariffs or government duties (and most don’t), you’re on the hook. This is why producers need a different set of tools, and that comes through good contract drafting.
Tighten up Your Contracts
To keep your margins intact and your relationships healthy, you need proactive language that deals with tariffs head-on. Many producers are now reworking their contractual agreements like alternating proprietorships and contract production deals—to include specific language that allows for tariff surcharges. These provisions enable the host producer or manufacturer to pass on new tariffs as a separate line item. Other agreements use broader “change in law” provisions to trigger pricing adjustments if newly enacted duties or government actions materially alter production costs. These mechanisms function quite differently from general hardship or material adverse change (MAC) clauses. While hardship clauses typically permit renegotiation in response to unforeseen circumstances, they often lack enforceable standards. Without clear financial thresholds or defined triggers, a court may still enforce the original pricing. By contrast, tariff surcharges and change-in-law provisions directly allocate costs and give parties a reliable structure for managing increases without creating ambiguity.
Even simple contractual language can go a long way. For instance, a sentence reserving the right to apply a “tariff surcharge equal to any new or increased import duties imposed after the effective date” keeps pricing transparent and ensures both sides know where they stand. Likewise, a well-drafted change-in-law clause can provide a formal mechanism for renegotiating terms in response to legislative or administrative actions—such as executive orders or international trade measures—that impact the cost of inputs.
In the alternating proprietorship and contract brewing contexts, tariff risk deserves even more attention. These agreements often require the host to secure and purchase certain ingredients and materials used in production. That includes imported items like glass, barrels, malt, specialty grains, or fruit. If tariffs are imposed on these goods during the term of the agreement and the contract is silent, the host may be left to “eat” those additional costs. Sometimes these agreements allow only for annual cost increases. Given the volatility of the new tariff policies, that’s not a sustainable model. For this reason, these agreements should explicitly state that the host is permitted to pass along any new or increased import duties associated with ingredients or materials sourced on behalf of the tenant.
Tariffs may go up or down, but what shouldn’t fluctuate is your contract’s ability to handle them. Rather than reaching for force majeure clauses ill-suited to cost increases, producers should plan ahead by including express surcharge rights, price adjustment mechanisms, and change-in-law protections. This way, if tariff rates spike again, your production doesn’t grind to a halt — and neither does your profit margin.
Remember, well-drafted agreements don’t just assign risk; they preserve relationships. When the rules of trade change over a single tweet, the best defense is a well-drafted contract.
Biopharmaceutical Patent Litigation: Regeneron’s Defense Against Biosimilar Launches
This case[1] involves an appeal from Regeneron Pharmaceuticals, Inc.’s (Regeneron) efforts to prevent defendants from marketing biosimilar versions of EYLEA®, a drug used to treat eye diseases, by asserting patent infringement. In particular, the Federal Circuit addressed issues of personal jurisdiction, preliminary injunctions, and patent validity.
Background
Regeneron holds a Biologics License Application (BLA) for EYLEA®, which contains a fusion protein called aflibercept that acts as a vascular endothelial growth factor (VEGF) antagonist. This drug is commonly used for treating angiogenic eye diseases through intravitreal administration. Regeneron also owns patents related to the formulation and use of this drug. In 2022, Samsung Bioepis (SB) and other companies filed for FDA approval of EYLEA® biosimilars, prompting Regeneron to file patent infringement lawsuits against SB and other defendants. The case was consolidated in the Northern District of West Virginia, where another defendant is incorporated.
In the district court, Regeneron sought preliminary injunctions against SB and other defendants to prevent the sale of biosimilars that allegedly infringed on Regeneron’s patents. The district court granted Regeneron’s motion for a preliminary injunction, finding that Regeneron was likely to succeed on the merits of its patent infringement claims. The court determined it had personal jurisdiction over SB based on SB’s filing of an abbreviated BLA (aBLA) and its plans for nationwide distribution of its biosimilar product. SB contested these findings, arguing against the court’s jurisdiction and the validity of the preliminary injunction. Subsequently, SB appealed the district court’s decisions to the Federal Circuit, challenging both the jurisdictional ruling and the grant of the preliminary injunction.
Issue(s)
Whether the West Virginia district court had personal jurisdiction over SB, a South Korean company, based on its interactions and agreements related to the U.S. market.
Whether Regeneron demonstrated a likelihood of success on the merits and the threat of irreparable harm, justifying the preliminary injunction against SB.
Whether SB raised substantial questions regarding the validity of Regeneron’s patents, particularly concerning obviousness-type double patenting and written description sufficiency.
Holding(s)
The Federal Circuit affirmed that the district court had personal jurisdiction over SB, as SB had established distribution channels for its biosimilar that included West Virginia.
The Federal Circuit upheld the preliminary injunction against SB, finding that Regeneron met all the necessary factors, including likelihood of success and irreparable harm.
SB did not raise a substantial question of invalidity under the doctrines of obviousness-type double patenting or lack of written description support.
Reasoning
Regarding personal jurisdiction, the Federal Circuit found that SB’s filing of an aBLA, coupled with its agreement with Biogen to distribute the biosimilar nationwide, constituted sufficient minimum contacts with West Virginia. The Court emphasized that SB’s plans for nationwide distribution, without excluding any states, further supported jurisdiction.
Regarding the preliminary injunction, the Federal Circuit evaluated the four relevant factors: likelihood of success on the merits, potential for irreparable harm, balance of hardships, and public interest. Regeneron demonstrated a likelihood of success given the strength of its patent claims and SB’s inability to present a substantial invalidity defense. The Court found that Regeneron would suffer irreparable harm through market share loss and price erosion if SB launched its biosimilar. The balance of hardships favored Regeneron because Regeneron would suffer significant market disruption and loss of goodwill if the biosimilar products were launched, whereas SB would not face comparable harm from a delay in entering the market, given that the injunction would only temporarily prevent their entry until the patent issues were resolved. And, finally, the public interest supported enforcing valid patent rights.
On the issue of obviousness-type double patenting, the Federal Circuit concluded the patent at issue was patentably distinct from the reference patent, particularly due to its specific stability and glycosylation limitations. Regarding written description, the Court held that the patent at issue’s specification adequately supported the claims, with sufficient disclosure of the claimed stability levels of glycosylation.
In conclusion, the Federal Circuit upheld the district court’s decision to grant a preliminary injunction against SB, affirming that personal jurisdiction was appropriate and that Regeneron was likely to succeed on the merits of its patent infringement claims. The Court found no substantial question of patent invalidity, reinforcing the strength of Regeneron’s patent rights against marketing biosimilar versions of EYLEA®. This decision underscores the importance of detailed patent specifications and robust patent rights in biopharmaceutical patent litigation.
FOOTNOTES
[1] Regeneron Pharms., Inc. v. Mylan Pharms. Inc., Amgen USA, Inc., Biocon Biologics Inc., Celltrion, Inc., Formycon AG, Amgen Inc., Samsung Bioepis (Defendant-Appellant) No. 2024-1965, 2024-1966, 2024-2082, 2024-2083 (Fed. Cir. Jan. 29, 2025)
And Now the Rest of the Story: Alabama’s New Hemp Restrictions Also Legitimize Segments of the Industry
They paved paradise and put up a parking lot. That’s been the tenor of what I’ve heard and read from stakeholders in the Alabama hemp industry in response to the enactment of comprehensive hemp reform legislation earlier this month. And for reasons I will explain below, I am extremely sympathetic to anyone whose livelihood was negatively impacted by the legislation (although some actors are probably more sympathetic than others).
But, I’ve had a couple of weeks since the close of the Alabama legislative session to think about the comprehensive hemp legislation that significantly reformed Alabama’s hemp policy. I’ve had numerous conversations with hemp operators. And I’ve had the good fortune to talk to the good ones, which brings with it the sad duty of informing them that many of their unsavory competitors in the space have created an ecosystem that may no longer allow them to survive in business.
I also had a chance to catch up with an old colleague and friend with rare intellect and deep connections to the cannabis industry. I’ll spare his name here because he would probably rather avoid the disrepute of being mentioned in these quarters of the internet, but he’s the smartest and most thoughtful cannabis lawyer and consultant I know. While we were talking about the legislation, he turned to me and said, “Do you realize how remarkable it is that in a state like Alabama you can now walk into a store and legally purchase 40 milligrams of THC?” And I had to admit I could not have imagined that being the case several years ago.
A quick rundown on the key points of Alabama’s hemp reform legislation:
The top line is that consumable hemp products were not banned, as many had hoped/feared.
The bill does, however, impose substantial limitations on how and where consumable hemp products can be manufactured and sold. For example, consumable hemp beverages may be sold at 21+ stores and certain licensed grocery stores and are limited to 10 milligrams per 12 ounce serving. Edible hemp products are also limited to 10 milligrams per single-serving doses and four doses per container. Of great significance to many, neither product can be sold at convenience stores (perhaps the largest point of sale for such products currently).
Smokable flower is prohibited.
A licensing regime has been put in place, and the Alcoholic Beverage Control Board has been tasked with regulating the manufacture and sale of consumable hemp products.
Consumable hemp products will be subject to similar types of age-gating, testing, packaging, labeling, and advertising, as will medical cannabis products.
So, let’s get a few key points straight:
Although nearly (if any) hemp operator was totally satisfied with the result given the fact that points of sale have been reduced, those hemp companies who are still allowed to operate should welcome the fact that they have moved from a regime where their product was “not illegal” to a statutory regime that expressly allows for the manufacture, distribution, and sale of their products under strict testing and labeling requirements. That change should, by itself, open up shelf space in retailers that previously had been reticent about selling hemp products. That’s a huge win for those companies, and hopefully retailers and consumers as well.
Anyone selling high-THC products definitely drew the short straw here. The fact is, however, that anyone purveying those products in a state like Alabama knew or should have known they were on borrowed time. For those closely following the political winds, it was always going to be a short-term money play that would almost certainly require those purveyors to pivot when the laws almost inevitably changed as they have recently. The same goes for companies selling smokable flower, although it was perhaps somewhat of a less foregone conclusion that smokable flower would be banned.
If you are upset that connivence stores and gas stations are no longer allowed to sell consumable hemp products, I will tell you there was very little chance that the Legislature was going to allow business as usual for all hemp products in those venues. If you are looking to place blame, I have two suggestions: (1) the high THC products so readily available at so many stores and often targeted to minors and (2) the failure of stakeholders most interested in sales in convenience store and gas stations (and that includes both the manufacturers and the retailers) to put together a meaningful advocacy team to educate lawmakers on how they could have addressed the issue with a scalpel and not a sledgehammer. I know from personal experience that many such stakeholders were looking to other type of hemp companies with different agendas to foot the bill for that effort.
Conclusion
There is just so much a government can do to limit hemp to responsible adult use under specific circumstances and at specific locations. Alabama’s Legislature didn’t get it entirely correct, but it took steps towards striking a balance and hopefully will use future sessions to do even better.
I’ll close with some words from perhaps an unlikely source: Sen. Ted Kennedy. In this context, he was eulogizing his brother Robert, but I think it may provide some solace and motivation to those who seek a better policy:
The work goes on, the cause endures, the hope still lives and the dreams shall never die.
Thanks for stopping by.
Listen to this article
An EEOC Victory Provides Lessons on Applicant Drug Testing Accommodations
A recent jury verdict reminds employers of their reasonable accommodation obligations for applicants under the Americans with Disabilities Act (ADA), in the context of drug testing. The U.S. Equal Employment Opportunity Commission (EEOC) sued a retirement community for denying employment to an applicant based on a failed drug test—one that the applicant warned the employer she would fail because of her medications. And, as the EEOC announced in a recent press release, a jury awarded her over $400,000 in damages.
Quick Hits
A jury awarded more than $400,000 in damages to an applicant who was denied employment due to a failed drug test—one that the applicant, a veteran, informed the employer she might fail because of legally prescribed medications she took for PTSD.
The EEOC successfully argued that the employer, a retirement community, violated the ADA by failing to allow the applicant to explain her non-negative drug test result.
The verdict serves as a reminder for employers of their reasonable accommodation obligations to applicants under the ADA, both before and after a conditional job offer, when an applicant discloses disability-related prescription drug use and/or has a non-negative test result.
Background
In EEOC v. The Princess Martha, LLC, an applicant interviewed for and was offered a position as an activities coordinator for a retirement community, pending the community’s standard background check and drug test. According to the EEOC’s complaint, during her interview, the applicant told the activities director that she was a veteran with post-traumatic stress disorder (PTSD), for which she took legally prescribed medications that would cause her to fail a drug test. The activities director responded that the position did not involve tasks that would be impaired by those medications and that the testing facility would take copies of her prescriptions.
When the applicant offered her prescriptions to the testing facility, however, she was told it was unnecessary because they would call her later to verify any foreign substances. But she did not hear back from them, or from the retirement community. Six days later, she called the activities director and was told that the human resources (HR) department should have contacted her. After being transferred to HR, the applicant left a voicemail, expressing concern that she had not received a drug test result and reiterating that her medications would cause a non-negative result. The next day, her offer of employment was rescinded.
The Jury Verdict
The applicant filed a charge of discrimination with the EEOC, and the EEOC subsequently sued the retirement community, asserting a failure to allow the applicant to explain the non-negative result and a failure to employ her. A jury agreed, awarding the applicant $5,083 in back pay, $50,000 in compensatory damages, and $350,000 in punitive damages.
What the ADA Requires
As set forth in the EEOC’s “Enforcement Guidance on Preemployment Disability-Related Question and Medical Examinations,” the ADA prohibits employers from asking an applicant to answer medical questions or take a medical exam prior to making a conditional job offer. This specifically includes questions about prescription drug use.
If an applicant has voluntarily disclosed a disability or noted a need for accommodation during the pre-offer stage, however, the ADA permits an employer to ask limited questions about what type of reasonable accommodation would be needed now or in the near future—but not about the underlying condition or accommodation needs in the more distant future. (This is what happened here—the applicant voluntarily disclosed her PTSD and use of prescription medication. The activities director appropriately responded that the prescriptions should be provided to the testing facility to explain the non-negative result. Unfortunately, the employer then took a wrong turn.)
After a conditional job offer is extended but before employment begins, an employer is free to ask any disability-related questions and require any medical examinations of an applicant, so long as it does so for all applicants entering the same job category. The questions and/or examinations do not have to be job-related. An employer may reject an applicant because of the applicant’s answer or results, however, only where it is “job-related and consistent with business necessity.”
There are special rules around drug testing. Because the current use of illegal drugs is not protected under the ADA, drug tests are not considered medical examinations. Nonetheless, the results of drug tests can implicate disabilities, triggering coverage by the ADA. In particular, the EEOC’s guidance contains the following question and answer (Q&A), in the context of a post-offer drug test:
May an employer ask applicants about their lawful drug use if the employer is administering a test for illegal use of drugs?
Yes, if an applicant tests positive for illegal drug use. In that case, the employer may validate the test results by asking about lawful drug use or possible explanations for the positive result other than the illegal use of drugs.
Example: If an applicant tests positive for use of a controlled substance, the employer may lawfully ask questions such as, “What medications have you taken that might have resulted in this positive test result? Are you taking this medication under a lawful prescription?”
Although the language in this guidance sounds permissive (“may”), other EEOC guidance suggests otherwise. For example, in the EEOC’s guidance on the “Use of Codeine, Oxycodone, and Other Opioids: Information for Employees,” the EEOC offers the following Q&A:
What if a drug test comes back positive because I am lawfully using opioid medication?
An employer should give anyone subject to drug testing an opportunity to provide information about lawful drug use that may cause a drug test result that shows opioid use. An employer may do this by asking all people who test positive for an explanation.
Accordingly, it seems that the EEOC believed that the employer in the current case had an obligation to ask those questions since the applicant had disclosed her use of legally prescribed medications that would cause her to fail the drug test. And this information was effectively a request for accommodation—to be excused from disqualification from employment based on the drug test results. The failure to ask those questions was, arguably, the employer’s first stumble.
Of course, once an applicant requests a reasonable accommodation, that may trigger the interactive process by which the employer may obtain more information (if necessary) to establish if there is a disability and to assess whether a reasonable accommodation can be provided without imposing an undue hardship on the employer. And here, the employer encountered a potential pitfall. Given that the activities director had stated that the responsibilities of the job would not be impacted by the applicant’s medication, it was hard to then argue that excusing the applicant from the drug test results would be an undue hardship.
Key Takeaways for Employers
This case reminds employers that there are specific rules with regard to the treatment of applicants under the ADA. The ADA and interpretive guidance promulgated by the EEOC delineate what employers can and cannot do if an applicant voluntarily discloses disability-related information before an offer is made, or if an applicant fails a post-offer/preemployment medical examination. And employers may not want to categorically disqualify an applicant who fails a drug test—particularly where the applicant has made clear that he or she may have a legal reason for doing so.
EC Announces Low- and High-Risk Countries under the EUDR
The European Commission (EC) released on May 22, 2025, the identity of the countries that present a low or high risk of deforestation in producing seven commodities (cattle, cocoa, coffee, palm oil, rubber, soy, and wood) that are “the most relevant in terms of driving global deforestation and forest degradation” under the European Union Deforestation Regulation (EUDR). The classification takes into account other criteria as listed in Article 29(4) of Regulation (EU) 2023/1115. The Regulation is scheduled to enter into force on the third day following its publication in the Official Journal of the European Union (May 26, 2025).
High-Risk Countries
Belarus, Democratic People’s Republic of Korea, Myanmar, and the Russian Federation.
Low-Risk Countries
Afghanistan, Albania, Algeria, Andorra, Antigua and Barbuda, Armenia, Australia, Austria, Azerbaijan, Bahamas, Bahrain, Bangladesh, Barbados, Belgium, Bhutan, Bosnia and Herzegovina, Brunei Darussalam, Bulgaria, Burundi, Cabo Verde, Canada, Central African Republic, Chile, China, Comoros, Congo, Costa Rica, Croatia, Cuba, Cyprus, Czechia, Denmark, Djibouti, Dominica, Dominican Republic, Egypt, Estonia, Eswatini, Fiji, Finland, France, Gabon, Georgia, Germany, Ghana, Greece, Grenada, Guyana, Hungary, Iceland, India, Iran (Islamic Republic of), Iraq, Ireland, Italy, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Kiribati, Kuwait, Kyrgyzstan, Lao People’s Democratic Republic, Latvia, Lebanon, Lesotho, Libya, Liechtenstein, Lithuania, Luxembourg, Madagascar, Maldives, Mali, Malta, Marshall Islands, Mauritius, Micronesia (Federated States of), Monaco, Mongolia, Montenegro, Morocco, Nauru, Nepal, Netherlands (Kingdom of the), New Zealand, North Macedonia, Norway, Oman, Palau, Palestine, Papua New Guinea, Philippines, Poland, Portugal, Qatar, Republic of Korea, Republic of Moldova, Romania, Rwanda, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Sao Tome and Principe, Saudi Arabia, Serbia, Seychelles, Singapore, Slovakia, Slovenia, Solomon Island, South Africa, South Sudan, Spain, Sri Lanka, Suriname, Sweden, Switzerland, Syrian Arab Republic, Tajikistan, Thailand, Timor-Leste, Togo, Tonga, Trinidad and Tobago, Tunisia, Türkiye, Turkmenistan, Tuvalu, Ukraine, United Arab Emirates, United Kingdom of Great Britain and Northern Ireland, United States of America, Uruguay, Uzbekistan, Vanuatu, Vietnam, and Yemen.
Standard-Risk Countries
If a country is not listed in the high-risk category or the low-risk category, the EC has assigned it a standard level of risk.
The EUDR, enacted on June 29, 2023, is intended to ensure that manufacturers do not produce goods from recently deforested areas or produce their goods in ways that contribute to deforestation. The Regulation explicitly applies to the seven aforementioned commodities and, importantly, to certain byproducts that contain feedstocks from the named commodities, to be “deforestation-free” if they are made available on or exported from the European Union (EU) market.
Just because a country has been designated as “standard risk,” or even “low risk,” under the EUDR does not mean that manufacturers looking to import products into the EU are exempt from having to complete due diligence statements. Manufacturers producing products in low-risk countries have reduced obligations as set forth in the simplified due diligence requirement, and are required to collect and report information on their supply chains, but do not have to assess and address deforestation risks under Articles 10 and 11 of the Regulation. Companies manufacturing products in low-risk countries face the same data collection obligations, although they must comply with fewer compliance checks.
Companies producing goods from high-risk and standard-risk countries will need to show when and where commodities were produced and provide “verifiable” information that they were not sourced from land deforested after 2020.
The Trump Administration Announces Trade Agreement With China
On Thursday, 8 May, shortly after the announcement of the trade agreement with the United Kingdom and the United States, US Trade Representative Jamieson Greer and Treasury Secretary Scott Bessent provided additional details on the trade “agreement” reached with representatives of the People’s Republic of China in Geneva. The agreement was realized in the 12 May executive order “Modifying Reciprocal Tariff Rates to Reflect Discussions with the People’s Republic of China.”
Both countries announced that they would lower the 125% tariffs that were put in place after 2 April to 10% for 90 days. China will also end its restrictions on rare earth and other exports of sensitive goods during the 90-day pause. The United States will retain its 20% tariffs related to fentanyl issues and all other tariffs and duties (including the Section 301 tariffs that have been in place since 2018 and the Section 232 tariffs on steel, aluminum, and automobiles/automobile parts, as well as antidumping/countervailing duties and normal customs duties). This temporary pause brings the minimum US tariff rate on imports from China to 30%.
President Donald Trump’s 12 May executive order also amends the duty rates for goods from China or Hong Kong that fall under the US$800 de minimis threshold that were raised in the 2 April executive order “Further Amendment to Duties Addressing the Synthetic Opioid Supply Chain in the People’s Republic of China As Applied to Low-Value Imports.” The new duty rates, effective 14 May, impose a 54% ad valorem duty rate or a flat specific duty rate of US$100 per package.
The two sides are continuing to negotiate, with the US delegation repeatedly emphasizing the “constructive” and “positive” tone in the negotiations and a “path forward” on the 20% fentanyl tariffs. Representatives from the Chinese trade delegation have also described the engagement with the United States as constructive but have not commented on the next steps in the negotiation, including a potential call between President Trump and China’s President Xi Jinping. Both countries have committed to establishing a “communication mechanism” to proceed with trade negotiations.1
The agreement, while demonstrating progress in the ongoing trade negotiations between the United States and China, is not a permanent deal and will require an extension or renegotiation before the end of the mutually agreed 90-day pause. As negotiations continue between the White House and global leaders, the trade and policy professionals at our firm remain actively involved in this area and are excited to help you navigate the fast-moving trade environment.
Footnotes
1 Anniek Bao, China calls U.S. trade talks ‘good’ but quiet on next steps, as Trump hints at Xi call, CNBC (May 16, 2025, 5:02 AM), https://www.cnbc.com/2025/05/16/china-calls-us-trade-talks-good-as-trump-hints-at-xi-call.html.
Additional Authors: Jasper G. Noble, Jeffrey Orenstein
Orange Book Listings: Republican Led FTC Picks Up Where Democrat Led FTC Left Off
Key Takeaways
The Federal Trade Commission (FTC), now under Republican leadership, has continued its scrutiny of Orange Book listings for device patents, signaling bipartisan concern over potential anti-competitive practices
Despite new Warning Letters, many of the questioned patents were already delisted or tied to discontinued products, suggesting limited immediate impact on generic competition
Both branded and generic drugmakers may need to reassess litigation strategies and patent listings as regulatory and enforcement dynamics evolve
During the past two years, we have reported on actions regarding the listing of certain patents in the U.S. Food and Drug Administration’s (FDA) Orange Book for drug/device products where the patents focus on the device aspect of the product.1 During the Biden Administration, the FTC, under Democratic-led leadership, started taking note of what it deemed to be “improper” Orange Book patent listings. With all of the changes being implemented by the Trump Administration and at FTC, an open question remained as to whether the FTC would remain active in this area. We now have at least a partial answer to this question – the propriety of certain Orange Book patent listings will remain a focus of FTC.
Under the Biden Administration, the FTC issued two sets of Warning Letters (on November 7, 2023, and April 30, 2024) to multiple drug manufacturers and FTC commenced so-called patent listing dispute proceedings before FDA. Historically, however, the FDA has treated the listing of patents as an administrative matter and does not challenge the information submitted by the NDA holder. As we noted on July 17, 2024, those proceedings initiated by FTC had a minimal impact, as many of the patents remained in the Orange Book.
However, on December 20, 2024, the United States Court of Appeals for the Federal Circuit held that certain patents that were listed in the Orange Book for an asthma inhaler should have been delisted as the claims in question did not recite the active ingredient. Teva Branded Pharmaceutical Products R&D, Inc. et al. v. Amneal Pharmaceuticals of New York, LLC et al., (Fed. Cir Case 2024-1936, Dec. 20, 2024). On March 3, 2025, the Federal Circuit denied Teva’s petition for an en banc hearing. We have observed that in recent updates to the Orange Book, many device type patents have been delisted, presumably at the NDA holder’s request.
For certain products, the Teva decision could lead to additional patent listing disputes and the potential for antitrust counterclaims where patents focusing on the device aspect of drug/device patents are listed. Determining when this would be a potential strategy for generic companies involves an analysis of the competitive landscape, the timeliness of the FDA’s review, the types of patents the brand holds and what the expiration date is for each patent. But, with the significant changes brought about by the Trump Administration, it was an open question how active the FTC would be going forward, even after the Teva decision.
Specifically, on January 20, 2025, President Trump designated Andrew Ferguson to become the new Chairman of the FTC. Then, on March 18, 2025, President Trump fired the two remaining FTC Democratic Commissioners. All these changes begged the question as to whether a Republican-led FTC would continue to take aim at Orange Book listings? The answer to that question appears to be ‘yes’! On May 21, 2025, the new FTC leadership issued Warning Letters that were similar to the ones sent in 2023 and 2024 to seven companies, questioning the legitimacy of the listings for multiple products. Like the previous Warning Letters, FTC’s action was to institute patent dispute procedures at FDA.
In the May 21, 2025, FTC Press Release, Commissioner Ferguson stated:
The American people voted for transparent, competitive, and fair healthcare markets and President Trump is taking action. The FTC is doing its part, . . . . When firms use improper methods to limit competition in the market, it’s everyday Americans who are harmed by higher prices and less access. The FTC will continue to vigorously pursue firms using practices that harm competition.
We have reviewed each of the seven Warning Letters published by FTC (that cover 16 products) and a deeper dive indicates that Commissioner Ferguson’s proclamation may not have a significant impact on competition. Of the 16 brand products identified, seven have been discontinued by the brand, one of the products already has multiple generic competitors, the patents for two of the products will expire in roughly three months, and, for five others, the products in question have Orange Book listed patents whose legitimacy for listing was not questioned by FTC expiring later than those whose legitimacy was questioned. It appears that only one of the sixteen products appears to only list patents questioned by FTC. Moreover, at the time the FTC’s letters were sent, several of the patents in question had already been delisted from the Orange Book.
We also note that FTC has deferred action to the FDA, which is in the midst of significant staffing reductions that have led to slower response times. And, as discussed above, the FDA has traditionally taken the position that its role in patent listings is only ministerial. That being said, it will be interesting to see whether the new FDA leadership will take a different view.
While the new FTC has continued in its predecessor’s wake by sending out a series of Warning Letters relating to Orange Book patents, whether this action will create a more competitive landscape remains to be seen. And, both branded and generic companies may need to rethink their strategies in dealing with patents whose Orange Book listing is questionable. For example, for those products where there are both FTC questioned and unquestioned patents listed in the Orange Book, both the brand and generic company may desire legal certainty and the inclusion of both types of patents in a single lawsuit may be preferred to separate suits. Even if device patents are ultimately removed from the Orange Book, the possibility of litigation over these patents at some point in time still exists. The industry should certainly pay close attention to future developments in this area.
1] See Chad A. Landmon, Andrew M. Solomon, Federal Circuit Refuses to Rehear Case Involving Orange Book Listing of Device Patents, Polsinelli (Mar. 05, 2024), https://natlawreview.com/article/federal-circuit-refuses-rehear-case-involving-orange-book-listing-device-patents ; Court Ruling Alters the Calculus for Orange Book Patent Listings, Polsinelli (Jan. 23, 2025), https://www.polsinelli.com/publications/court-ruling-alters-the-calculus-for-orange-book-patent-listings; Federal Circuit Decides Case Involving Orange Book Listing of Device Patents, Polsinelli (Dec. 23, 2024), https://natlawreview.com/article/federal-circuit-decides-case-involving-orange-book-listing-device-patents; The FTC’s Challenge to the Listing of Device Patents in the Orange Book: What Challenge?, Polsinelli (Jul. 17, 2024), https://natlawreview.com/article/ftcs-challenge-listing-device-patents-orange-book-what-challenge
McDermott+ Check-Up: May 23, 2025
THIS WEEK’S DOSE
House Passes Reconciliation Package. The package now moves to the Senate, where substantive changes, including in healthcare, will likely be made.
HHS Secretary Kennedy, FDA Commissioner Makary Testify at Senate Appropriations Committee. The officials testified in separate hearings on the Trump administration’s fiscal year 2026 skinny budget request.
House Oversight Committee Examines IRA. The hearing focused on how the Inflation Reduction Act (IRA) has impacted healthcare innovation and prices.
HHS Releases MAHA Commission Report. The report explores four factors contributing to high rates of childhood chronic diseases and recommends 10 research initiatives.
HHS Begins Implementing Most-Favored-Nation EO. This quick action follows last week’s executive order (EO).
CMS Announces Plans to Increase MA Auditing. The announcement echoes the administration’s focus on addressing waste, fraud, and abuse.
Agencies Issue Guidance, RFIs on Healthcare Price Transparency. The actions across multiple federal agencies are in line with a February 2025 EO.
CONGRESS
House Passes Reconciliation Package. Here’s the play-by-play on how it happened. Regrouping after last week’s failure to advance the bill, the House Budget Committee advanced House Republicans’ reconciliation package late on May 18, 2025. The committee combined, without amending, the 11 committee prints that individual committees advanced over the past few weeks into a singular piece of legislation. The final vote to advance the package to the House Rules Committee was 17 – 16. All yes votes were Republicans, and all no votes were Democrats. Four hardline conservatives, Reps. Norman (R-SC), Roy (R-TX), Brecheen (R-OK), and Clyde (R-GA), who previously voted to stall the package in committee, voted present. Their present vote allowed the package to move to the Rules Committee while showing their continued strong reservations about the bill. They specifically urged House leaders to make changes that would expedite Medicaid work requirements, enact more cuts to Medicaid, and enact additional tax changes. Meanwhile, a key group of moderate Republicans from blue states continued to push for changes to the state and local tax (SALT) deduction provisions as a condition of their votes on the House floor.
The House Rules Committee met on May 21, 2025, in a marathon session to finalize the package and prepare it for a floor vote. While the Rules Committee was meeting, moderates and hardliners continued to urge Republican leadership to add provisions they support. Moderates reached a deal with Speaker Johnson to increase the SALT cap, prompting hardliners and members of the House Freedom Caucus to increase their push for more cuts to Medicaid. President Trump then met with the House Freedom Caucus and sent a statement of administration policy urging Republicans to support the package, stating that “failure to pass this bill would be the ultimate betrayal.”
Late on May 21, a manager’s amendment was released that included an increase in the SALT cap and modifications to other provisions, including health policies, to appease Freedom Caucus members. Changes included:
Expediting the Medicaid work requirement implementation from 2029 to December 31, 2026.
Expanding the ban on Medicaid funding for gender-affirming care from minors only to all Medicaid enrollees.
Providing non-expansion states more flexibility to implement state directed payments up to 110% of the Medicare cap.
After debating most of the night, the House passed the One Big Beautiful Bill Act in the early morning of May 22, 2025, by a 215 – 214 vote. Reps. Massie (R-KY) and Davidson (R-OH) joined Democrats in voting no. Rep. Harris (R-MD), chair of the House Freedom Caucus, voted present. Two Republicans, Reps. Garbarino (R-NY) and Schweikert (R-AZ), did not vote.
Now that the House has met Speaker Johnson’s goal of passage by Memorial Day, the bill moves to the Senate. Speaker Johnson stated that he wants the bill on President Trump’s desk by July 4, 2025. However, he no longer controls the timeline – the Senate does. And, if reports to date are accurate, the Senate will make changes to key provisions.
On May 20, 2025, the Congressional Budget Office (CBO) released a preliminary cost estimate for the reconciliation package as it was reported from the House Budget Committee, including scores for each provision. The CBO analysis does not reflect changes made after the bill passed out of the Budget Committee, nor does it incorporate all of the interactive effects across titles. CBO estimates that:
As a result of the Energy and Commerce Committee health provisions, 8.6 million individuals would become uninsured.
As a result of the Ways and Means Committee health provisions, 2.1 million individuals would become uninsured.
At the request of Democrats, CBO also released a letter with a preliminary distributional analysis finding that the reconciliation package will cause a decrease in household resources for the lowest 10% of the income distribution and an increase in household resources for the highest 10% of the income distribution.
HHS Secretary Kennedy, FDA Commissioner Makary Testify at Senate Appropriations Committee. US Department of Health and Human Services (HHS) Secretary Kennedy continued his string of congressional appearances by testifying in front of the Senate Appropriations Labor, Health and Human Services, Education, and Related Agencies Subcommittee. Questioning focused on the FY 2026 skinny budget request and HHS research funding. Republicans emphasized the importance of maintaining clinical trials and ensuring transparency in research funding and discussed the need to improve care delivery in rural communities. Democrats meanwhile pressed Secretary Kennedy on when a full budget will be released and expressed concern over reductions in National Institutes of Health (NIH) funding and the implications for Alzheimer’s disease, cancer, and rare disease research.
Later in the week, US Food and Drug Administration (FDA) Commissioner Makary testified in front of the Senate Appropriations Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Subcommittee. Republicans expressed concern about the FDA’s decision to loosen safety requirements for mifepristone, questioned Makary on the FDA’s artificial intelligence policies, and discussed the FDA’s work on improving infant safety. Appropriations Committee Chair Collins (R-ME) expressed concern about recent FDA staffing changes and the impact they could have on regulatory review. Democrats emphasized the importance of congressional collaboration and the expertise available within the committee to improve the FDA’s processes, particularly for diabetes treatments and COVID-19 boosters. Commissioner Makary emphasized that the goal of the FY 2026 budget is to rebuild the gold standard science at the FDA.
House Oversight Committee Examines IRA. The hearing was a joint Economic Growth, Energy Policy, and Regulatory Affairs Subcommittee and Health Care and Financial Services Subcommittee meeting. Republicans stated that the IRA has increased energy and healthcare costs for consumers and the federal government. Democrats focused on ongoing reconciliation efforts, stating their concern about any cuts to Medicaid and the expiration of the enhanced advanced premium tax credits. They stated that the IRA has improved healthcare access and created jobs.
ADMINISTRATION
HHS Releases MAHA Commission Report. A February 2025 EO created the President’s Make America Healthy Again (MAHA) Commission and directed the release of this report. The report explores four causes of increased rates of childhood chronic diseases: an increase in consumption of ultra-processed foods, chemicals in the environment, childhood behaviors in the digital age, and overmedicalization of children. The report does not include specific proposals and alludes to release of a strategy in August 2025. The report recommends 10 research initiatives, including research on long-term drug safety, the effects of whole foods compared to ultra-processed foods, and expansion of the NIH-Centers for Medicare & Medicaid Services (CMS) autism data initiative. There are 14 members of the MAHA Commission, including FDA Commissioner Makary and NIH Director Bhattacharya. The EO directed that the Centers for Disease Control and Prevention director also hold a position on the commission, but a director has not yet been sworn in.
HHS Begins Implementing Most-Favored-Nation EO. The EO, “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients,” was signed on May 12, 2025, and included a directive that HHS bring pharmaceutical drug prices in line with prices in comparable developed nations within 30 days. In a press release this week, HHS announced that it expects manufacturers to commit to aligning US prices for brand name products, without a generic or biosimilar, with the lowest price in a peer country that has a gross domestic product (GDP) per capita that is at least 60% of the US GDP per capita. As directed in the EO, if drug manufacturers don’t voluntarily comply, HHS will develop rulemaking to impose most-favored-nation pricing. With limited reason for voluntarily compliance, we anticipate additional rulemaking to follow. US Customs and Border Protection later released a statement reminding pharmaceutical companies that declaring incorrect values on import or export documentation is a trade evasion.
CMS Announces Plans to Increase MA Auditing. CMS intends to increase auditing of risk adjustment diagnoses submitted by Medicare Advantage (MA) plans. CMS says it will audit all eligible MA contracts annually moving forward and will invest additional resources to complete ongoing audits of contracts for payment years 2018 through 2024. To accomplish this, CMS outlines three actions it will take:
Enhancing technology to flag unsupported diagnoses and review medical records.
Increasing the number of medical coders working to verify flagged diagnoses from 40 to 2,000 by September 2025.
Moving from audits of about 60 contracts each year to audits of all contracts, and increasing the number of records audited in a contract.
CMS intends to collaborate with the HHS Office of Inspector General (OIG) to recover uncollected overpayments from audits conducted by the OIG.
Agencies Issue Guidance, RFIs on Healthcare Price Transparency. HHS and the US Departments of Labor and the Treasury jointly issued a request for information (RFI) to inform potential future rulemaking or guidance on prescription drug price transparency requirements for insurance plans. Previously, as part of its Transparency in Coverage final rule, HHS sought to implement transparency requirements for prescription drugs but ultimately deferred enforcement because of legal challenges. In this RFI, HHS requests comments on issues related to compliance with, and implementation of, the prescription drug machine-readable file disclosure requirements. Comments are due 30 days after publication of the RFI in the Federal Register. The agencies also updated frequently asked questions regarding implementation of schema version 2.0 transparency in coverage requirements for certain provisions of the Affordable Care Act.
Separately, CMS released new guidance and an RFI on hospital price transparency. The agency expects that for most contracting scenarios, hospitals’ payer-specific negotiated charges can be expressed as a dollar amount, not an estimate. The RFI seeks comment on whether and how CMS can improve hospital price transparency compliance and enforcement processes to ensure pricing information in the machine-readable file is accurate and complete. Comments are due by July 21, 2025.
QUICK HITS
FDA Modifies State and Tribal Drug Importation Request Process. The FDA will now allow states and tribes to submit a draft Section 804 importation program proposal and receive FDA feedback before final submission to assist them in importing prescription drugs from Canada. The action was a directive in the April 2025 EO “Lowering Drug Prices by Once Again Putting Americans First.”
FTC Sends Warning Letters to Drug Companies Alleging Anticompetition. The Federal Trade Commission (FTC) alleged that more than 200 patent listings for brand name drugs in the FDA’s Orange Book are inappropriate and therefore limit competition by delaying generic market entry. This is the third round of FTC patent disputes, following previous challenges in 2023 and 2024.
Senators Welch, Baldwin Host Forum with Former Biden HHS Officials. The forum focused on the impact of the Trump administration’s restructuring of HHS and included former FDA, NIH, and CMS officials.
BIPARTISAN LEGISLATION SPOTLIGHT
Senators Marshall (R-KS) and Warner (D-VA) and Representatives DelBene (D-WA), Kelly (R-PA), Bera (D-CA), and Joyce (R-PA) reintroduced the Improving Seniors’ Timely Access to Care Act. The legislation would codify most provisions from the 2024 CMS Interoperability and Prior Authorization Final Rule to streamline the MA prior authorization process and increase transparency. The legislation passed the House unanimously in 2022. Read the press release and legislation here.
NEXT WEEK’S DIAGNOSIS
After the House passed the reconciliation package, both chambers left town for the Memorial Day recess. The Senate will return on June 2, 2025, and the House on June 3, 2025. The next step in the reconciliation process is Senate consideration. The Senate is likely to make substantive changes to the House-passed package to appease more moderate Republican Senators, and Democrats will likely raise Byrd rule challenges to strike certain lines or provisions that are extraneous to the CBO score of that policy.
Bipartisan Bill Would Expand Biofuels and Biobased Manufacturing Innovation
On May 7, 2025, Representatives Nikki Budzinski (D-IL) and Zach Nunn (R-IA) introduced the Agricultural Biorefinery Innovation and Opportunity Act (Ag BIO Act) (H.R. 3253), a bipartisan bill that would support the biofuel economy. According to Budzinski’s May 8, 2025, press release, the bill would update the U.S. Department of Agriculture’s (USDA) Section 9003 program to expand access to grants, streamline loan guarantees, and provide $100 million in mandatory funding over five years. The press release states that the bill would strengthen the USDA Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program by:
Providing $100 million in mandatory funding through fiscal year 2030;
Updating the loan guarantee program to include year-round applications and waive feasibility studies for proven technologies;
Establishing a new competitive grant program to help build and expand biorefineries focused on producing ultra-low-carbon and zero-carbon bioethanol, renewable chemicals, and other advanced bioproducts;
Creating a priority scoring system for grant applications that evaluates environmental impact, rural economic development, scalability, and contributions to domestic energy security; and
Ensuring a 60/40 federal cost-sharing model to encourage private investment in materials, research, and development of new bioproducts.
U.S. District Judge Upholds Federal Preemption Over Minnesota State Drug Testing Law
The U.S. District Court for the District of Minnesota recently sided with a natural gas distribution company in a lawsuit by an employee in a safety-sensitive position who alleged his discharge following a failed random drug test violated the Minnesota Drug and Alcohol Testing in the Workplace Act (DATWA). The court found federal statutes and U.S. Department of Transportation (DOT) drug and alcohol regulations for safety-sensitive positions preempted the state law.
Quick Hits
The U.S. District Court for the District of Minnesota ruled in favor of a natural gas distribution company that discharged an employee who failed a random drug test.
The court found that federal laws, including the Natural Gas Pipeline Safety Act, the Hazardous Liquids Pipeline Safety Act, and DOT drug and alcohol testing regulations preempted DATWA’s employment protections regarding drug testing.
The decision underscores the significance of federal preemption in workplace drug testing, emphasizing the necessity for employers to align their policies with federal regulations when conflicts arise with state laws.
U.S. District Judge Nancy Brasel granted summary judgment for Minnesota Energy Resources Corporation (MERC) in a lawsuit by a discharged employee who alleged the company violated DATWA. The employee, who worked as a gas distribution system designer, alleged the company violated DATWA in part by requiring the employee to submit to a random drug test and failing to provide him with required notices.
However, the court found that it was impossible for the company to comply with both the federal DOT regulations, which require random drug testing and immediate removal after positive results, and Minnesota’s DATWA, which provides employment protections regarding employer drug tests. Thus, the court ruled that the federal regulations preempt DATWA and dismissed the employee’s claims.
Background
The lawsuit was brought by an employee who was discharged after he tested positive for tetrahydrocannabinol, the primary psychoactive compound in marijuana or cannabis, in a random employer drug test.
The company is subject to the DOT regulations for companies transporting hazardous materials, which require employers to maintain a drug and alcohol testing program. The employer maintained a drug and alcohol testing policy that required employees in safety-sensitive positions who perform “covered functions” to submit to random drug testing.
Following his discharge, the employee and his union filed a grievance. An arbitrator determined that the employee was subject to random drug testing under federal law and that the company acted with just cause in discharging him for failing the drug test. The arbitrator did not address whether the employee was in a safety-sensitive position under DATWA or adjudicate any of the DATWA claims.
The employee then filed a lawsuit against the company, alleging he was not supposed to be subject to random testing and that the employer had failed to provide the required notices under DATWA. Specifically, the employee alleged the company violated DATWA by: (1) requiring him to submit to a random drug test, (2) failing to inform him of his rights in writing, (3) failing to offer counseling or rehabilitation before discharging him, and (4) disclosing his positive test result to a federal agency without a confirmatory test.
Federal Preemption
The district court found that the federal DOT regulations expressly preempt the employee’s DATWA claims because complying with both DATWA and the applicable federal regulations would be impossible or impede the execution of federal drug testing procedures.
DATWA includes many employment protections for employees regarding drug testing. The law requires employers to inform employees in writing of their rights to testing and to a confirmatory test, prohibits employers from discharging employees without first providing them with an opportunity to participate in a counseling or rehabilitation program, and restricts the disclosure of a positive test result.
Also, DATWA contains a preemption clause that exempts employees who are subject to drug and alcohol testing under “federal regulations that specifically preempt state regulation of [such] testing with respect to those employees.”
On the other hand, the applicable DOT regulations state that they preempt state or local requirements where compliance with both “is not possible.” The regulations also require mandatory random drug testing for employees in safety-sensitive positions, require immediate removal from such positions upon a positive test result, require the medical review officer (not the employer) to take certain actions, and further outline specific procedures for notifying employees of positive test results.
“DOT regulations expressly preempt DATWA because compliance with both federal regulations and DATWA is either impossible or an obstacle to the accomplishment and execution of DOT requirements,” the court said.
Alternatively, the court further determined that the company had met the burden of showing that the federal regulations preempt DATWA under a theory of conflict preemption for the same reasons.
Next Steps
The court’s decision in favor of the employer highlights the importance of federal preemption in workplace drug testing. Employers must adhere to federal regulations, which can override state laws when there is a conflict. This ruling serves as a critical reminder for employers to ensure their drug testing policies comply with federal standards, particularly for employees in safety-sensitive positions.