Tariffs: Force Majeure and Surcharges — FAQs
As we navigate a turbulent tariff landscape for manufacturers, we want to help you with some of the most frequently asked questions we are encountering right now as they relate to force majeure and price increases:
1. What are the key doctrines to excuse performance under a contract?
There are three primary defenses to performance under a contract. Importantly, these defenses do not provide a direct mechanism for obtaining price increases. Rather, these defenses (if successful) excuse the invoking party from the obligation to perform under a contract. Nevertheless, these defenses can be used as leverage during negotiations.
Force Majeure
Force majeure is a defense to performance that is created by contract. As a result, each scenario must be analyzed on a case-by-case basis depending on the language of the applicable force majeure provision. Nevertheless, the basic structure generally remains the same: (a) a listed event occurs; (b) the event was not within the reasonable control of the party invoking force majeure; and (c) the event prevented performance.
Commercial impracticability (Goods)
For goods, commercial impracticability is codified under UCC § 2-615 (which governs the sale of goods and has been adopted in some form by almost every state). UCC § 2-615 excuses performance when: (a) delay in delivery or non-delivery was the result of the occurrence of a contingency, of which non-occurrence was a basic assumption of the contract; and (b) the party invoking commercial impracticability provided seasonable notice. Common law (applied to non-goods, e.g., services) has a similar concept known as the doctrine of impossibility or impracticability that has a higher bar to clear. Under the UCC and common law, the burden is quite high. Unprofitability or even serious economic loss is typically insufficient to prove impracticability, absent other factors.
Frustration of Purpose
Under common law, performance under a contract may be excused when there is a material change in circumstances that is so fundamental and essential to the contract that the parties would never have entered into the transaction if they had known such change would occur. To establish frustration of purpose, a party must prove: (a) the event or combination of events was unforeseeable at the time the contract was entered into; (b) the circumstances have created a fundamental and essential change, and (c) the parties would not have entered into the agreement under the current terms had they known the circumstance(s) would occur.
2. Can we rely on force majeure (including if the provision includes change in laws), commercial impracticability, or frustration of purpose to get out of performing under a contract?
In court, most likely not. These doctrines are meant to apply to circumstances that prevent performance. Also, courts typically view cost increases as foreseeable risks. Official comment of Section 2-615 on commercial impracticability under UCC Article 2, which governs the sale of goods in most states, says:
“Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section. (See Ford & Sons, Ltd., v. Henry Leetham & Sons, Ltd., 21 Com.Cas. 55 (1915, K.B.D.).)” (emphasis added).
That said, during COVID and Trump Tariffs 1.0, we did see companies use force majeure/commercial impracticability doctrines as a way to bring the other party to the negotiating table, to share costs.
3. May we increase price as a result of force majeure?
No, force majeure typically does not allow for price increases. Force majeure only applies in circumstances where performance is prevented by specified events. Force majeure is an excuse for performance, not a justification to pass along the burden of cost increases. Nevertheless, the assertion of force majeure can be used as leverage in negotiations.
4. Is a tariff a tax?
Yes, a tariff is a tax.
5. Is a surcharge a price increase?
Yes, a surcharge is a price increase. If you have a fixed-price contract, applying a surcharge is a breach of the agreement.
That said, during COVID and Trump Tariffs 1.0, we saw many companies do it anyway. Customers typically paid the surcharges under protest. We expected a big wave of litigation by those customers afterward, but we never saw it, suggesting either the disputes were resolved commercially or the customers just ate the surcharges and moved on.
6. Can I pass along the cost of the tariffs to the customer?
To determine if you can pass on the cost, the analysis needs to be conducted on a contract-by-contract basis.
7. If you increase the price without a contractual justification, what are customers’ options?
The customer has five primary options:
1. Accept the price increase:
An unequivocal acceptance of the price increase is rare but the best outcome from the seller’s perspective.
2. Accept the price increase under protest (reservation of rights):
The customer will agree to make payments under protest and with a reservation of rights. This allows the customer to seek to recover the excess amount paid at a later date. Ideally, the parties continue to conduct business and the customer never seeks recovery prior to the expiration of the statute of limitations (typically six years, depending on the governing law).
3. Reject the price increase:
The customer will reject the price increase. Note that customers may initially reject the price increase but agree to pay after further discussion. In the event a customer stands firm on rejecting the price increase, the supplier can then decide whether it wants to take more aggressive action (e.g., threaten to stop shipping) after carefully weighing the potential damages against the benefits.
4. Seek a declaratory judgment and/or injunction:
The customer can seek a declaratory judgment and/or injunction requiring the seller to ship/perform at the current price.
5. Terminate the contract:
The customer may terminate part or all of the contract, depending on contractual terms
For additional information, here is a comprehensive white paper we have written on the tariffs.
OSHA Terminates COVID-19 Emergency Temporary Standard for Healthcare Workers
Is COVID-19 still a thing, and does OSHA care about it? Yes and yes. We all know that COVID-19 is still around. On the OSHA front, the agency seems to be focused less exclusively on COVID-19 and plans to take a broader approach.
Refresher on OSHA’s Work During the Pandemic
On June 21, 2021, OSHA issued an Emergency Temporary Standard (ETS) to protect healthcare workers from COVID-19. The ETS also served as a proposed rule for a permanent standard to address COVID-19 exposure in healthcare settings. OSHA submitted a draft final rule to the Office of Management and Budget in December 2022. However, the COVID-19 pandemic evolved, and the resources needed to finalize a separate COVID-19 standard grew, which resulted in a House Joint Resolution terminating the national emergency and OSHA terminating the rulemaking.
Now What?
OSHA determined that a more effective strategy would be to create a broader infectious diseases standard for healthcare workers. This new standard will cover multiple infectious diseases, including COVID-19, offering more comprehensive protections for healthcare workers. As a result, effective January 15, 2025, OSHA has decided to terminate its COVID-19 rulemaking and focus instead on this broader infectious diseases standard, rather than a disease-specific approach. On February 5, 2025, OSHA issued a memorandum that it will not enforce the COVID-19 recordkeeping and reporting requirements.
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New York ALJ Upholds Convenience of Employer Rule Despite Employee Working Remotely Out-Of-State During COVID Lockdowns
In yet another challenge to New York’s so-called “convenience of the employer” rule, a New York Administrative Law Judge (“ALJ”) upheld the application of the rule against a Pennsylvania resident who worked remotely for a New York-based employer during the COVID-19 pandemic. In the Matter of the Petition of Myers and Langan, DTA No. 850197 (Jan. 8, 2025).
The Facts: Richard Myers, a resident of Pennsylvania, worked in New York for the Bank of Montreal (“BMO”) which provides a broad range of personal and commercial banking, wealth management, global markets, and investment banking products and services. Due to the COVID-19 pandemic, BMO temporarily closed its New York City office on March 16, 2020 and required employees to find alternative working arrangements. Mr. Myers worked from a BMO disaster recovery site in New Jersey on March 16 and March 17 and worked exclusively from his home in Pennsylvania for the remainder of the year. On his New York State nonresident income tax return, Mr. Myers claimed a refund of $104,182, which the New York Division of Taxation partially disallowed, leading to an audit and subsequent recalculation of his income allocation.
The Decision: The ALJ determined that Mr. Myers’ wages were correctly allocated to New York under the convenience of the employer rule. The rule provides that any allowance claimed for days worked outside New York for a New York-based employer must be based on the necessity of the employer, not the convenience of the employee. While there was an executive order in place requiring businesses to employ work from home policies to the maximum extent possible (the “Executive Order”), the order did not apply to essential businesses, including banks and related financial institutions, such as BMO. The ALJ found that BMO, as an essential business, was not legally mandated to close its New York office, and therefore, Mr. Myers’ remote work from out-of-state was deemed to be for his convenience rather than a necessity imposed by his employer. The ALJ noted that BMO’s decision to close its office did not qualify Mr. Myers’ remote work as a necessity for the company, and there was no evidence or explanation in the record as to why BMO closed its offices.
The Takeaway: The decision underscores the consistent application of the convenience of the employer rule by New York State Tax Appeals Tribunal ALJs, even during the unprecedented circumstances of the COVID-19 pandemic. The decision highlights the challenges nonresident employees face in proving that their remote work is a necessity for their employer. Unless there is clear evidence that the employer required the employee to work from a location outside New York, the convenience of the employer rule will apply, resulting in the allocation of income to New York. Employers need to be aware of the convenience rule, as well, as they may be required to withhold taxes in the state where the employer’s office is located, even if an employee works remotely out-of-state.
The decision suggests that if BMO were not exempt from the Executive Order as a bank or financial institution, the convenience of the employer rule would not apply, and Mr. Myers would be entitled to a refund. But, as discussed in a prior article I authored regarding application of the convenience rule, even in cases where the employer was not a bank or financial institution and was not exempt from the Executive Order, ALJs have still found that the convenience rule applies.
It remains to be seen whether appellate courts will step in to overrule ALJ decisions and find that when New York offices were closed during an unprecedented world-wide pandemic, employees were not working from their homes merely for their own convenience.
Where There’s Smoke, Is There Coverage? A Closer Look at Bottega, LLC v. National Surety and Gharibian v. Wawanesa
For policyholders, insurance is meant to provide peace of mind—a promise that when disaster strikes, they’ll have financial support to rebuild and recover. But as two recent cases show, the question of what qualifies as covered “direct physical loss or damage” can lead to drastically different outcomes in court.
In two recent California cases, both policyholders sought coverage after wildfire smoke and debris affected their properties. One court ruled in favor of coverage. Bottega, LLC v. National Surety Corporation, No. 21-cv-03614-JSC (N.D. Cal. Jan. 10, 2025). The other sided with the insurer. Gharibian v. Wawanesa General Insurance Co., No. B325859, 2025 WL 426092 (Cal. Ct. App. Feb. 7, 2025). These contrasting decisions highlight issues policyholders may encounter in securing coverage for smoke-related damage and the ongoing debate over what constitutes “direct physical loss or damage,” a key phrase in most property insurance policies.[1]
This article explores these cases, the influence of COVID-19 coverage litigation on the interpretation of “direct physical loss or damage,” and what policyholders can learn to better protect their rights.[2]
The Importance of “Direct Physical Loss or Damage” in Insurance Disputes
At the heart of both cases is a fundamental question: What does it mean for a property to suffer “direct physical loss or damage” under an insurance policy?
Insurance companies often take a narrow view, arguing that physical loss requires structural damage, like a collapsed roof. Policyholders, on the other hand, argue that contamination—such as smoke infiltration or toxic debris—permeates property and cannot simply be dusted off or ventilated, rendering property unusable for its intended use and qualifying as a covered physical loss.
Courts struggled with this question in the wake of the COVID-19 pandemic which sparked thousands of lawsuits over business closures and contamination claims. Some courts have ruled that lasting, tangible physical alteration of property is required, while others have found that loss of use due to presence of the virus in air or on surfaces was enough.
This debate played out in Bottega and Gharibian, with strikingly different results.
Bottega, LLC v. National Surety Corporation: A Win for the Policyholder
In Bottega, a Napa Valley restaurant faced significant disruptions after the 2017 North Bay Fires. Although the fires did not burn the restaurant itself, thick smoke, soot, and ash inundated the premises, forcing it to close for one day after the fire and for a week shortly thereafter. When it did reopen, for the next few months, it was limited to less than one-third of the seating temporarily because of the smell of the smoke, soot, and ash. Throughout this period, employees routinely cleaned the walls and upholstery to remove the smell and ultimately replaced the upholstery. The smell of fire remained for two years. The restaurant sought coverage under its commercial property insurance policy, which covered losses due to “direct physical loss or damage.”
The insurer, National Surety, initially made some payments under the policy’s civil authority provision but later denied broader coverage. The insurer argued that because the restaurant was still physically intact, it had not suffered a “physical loss” as required by the policy.
The court rejected National Surety’s narrow interpretation, ruling in favor of Bottega. The key findings were:
Smoke and soot contamination rendered the property unfit for normal use, meeting the standard for “direct physical loss.”
The restaurant had to suspend operations, triggering business income coverage under the policy.
The insurer’s own admissions confirmed that the premises had suffered smoke damage, undermining its argument against coverage.
Unlike many COVID-19 which relied on the issuance of stay-at-home orders to conclude that the virus did not cause loss or damage, the Bottega court found that the insured reopened during the state of emergency declared for the fire. It also described, in some depth, the nature and extent of the damage caused by the smoke. This decision aligns with prior rulings recognizing that contamination impairing the usability of a property—whether from smoke, chemicals, or other pollutants—can meet the threshold for physical loss. Courts have previously found that asbestos contamination, toxic fumes, and harmful mold all permeated property and constituted physical damage, even if the structure itself remains intact.
In Bottega, the policyholder’s success was largely due to strong evidence showing that smoke infiltration impacted business operations and required extensive remediation, causing the policyholder’s loss.
Gharibian v. Wawanesa General Insurance Co.: A Win for the Insurer
While Bottega marked a win for policyholders, Gharibian v. Wawanesa shows how courts can take a different approach, often to the detriment of policyholders.
Homeowners in Granada Hills sought coverage after the 2019 Saddle Ridge Fire deposited wildfire debris around their home. Although the flames did not reach their property, their property was covered in soot and ash, and plaintiffs asserted that smoke odors lingered within the home.
Their insurer, Wawanesa, paid $23,000 for professional cleaning services that plaintiffs never used, but later denied additional coverage, arguing that there was no “direct physical loss to property” because the home was structurally intact and that removable debris did not qualify.
The court sided with the insurer, emphasizing that:
The smoke and soot did not cause structural damage or permanently alter the property.
The debris did not “alter the property itself in a lasting and persistent manner” and was “easily cleaned or removed from the property.”
The plaintiffs’ own expert concluded that “soot by itself does not physically damage a structure” and that ash only creates physical damage when left on the structure and exposed to water, which didn’t appear to have happened. He also acknowledged that “the home could be fully cleaned by wiping the services, HEPA vacuuming and power washing the outside.” It followed that he could not establish that the property suffered lasting harm from the smoke.
The Long Shadow of COVID-19 Litigation: Raising the Bar for “Physical Loss or Damage”
Given the large volume of COVID-19 coverage cases, the courts’ experience doubtless has shaped how they interpret “physical loss or damage” in insurance policies, particularly concerning business interruption claims. Many businesses sought coverage for losses incurred due to (1) government-mandated shutdowns, arguing that the inability to use their properties constituted a direct physical loss, or (2) the presence of COVID-19 in air or on surfaces made properties unsafe for normal use. In the COVID-19 context, courts have largely rejected both arguments.
These decisions effectively raised the threshold for what constitutes “physical loss or damage,” making it more challenging for policyholders to claim coverage for intangible or non-structural impairments. This heightened standard has significant implications for claims involving smoke contamination from wildfires. The differing rulings in Bottega and Gharibian show the inconsistencies the standard yields.
In Gharibian, the court, in a case in which there was no evidence that the insured undertook any remediation yet the insurer still paid considerable monies, cited California Supreme Court precedent, which held that COVID-19 did not cause physical loss because (1) the virus did not physically alter property, and (2) it was a temporary condition that can be remedied by cleaning. Another Planet Entertainment, LLC v. Vigilant Insurance Co., 15 Cal. 5th 1106 (2024). Applying this logic, the Gharibian court determined that in that particular case, the evidence was (1) soot and char debris did not alter the property in a lasting and persistent manner, and (2) the debris was easily cleaned or removed from the property. Therefore, fire debris does not constitute “direct physical loss to property.”
Meanwhile, the Bottega court, with the benefit of a robust showing of how smoke permeated the property of a sympathetic plaintiff, cited another COVID-19 business interruption case, Inns-by-the-Sea v. California Mutual Ins. Co., 71 Cal. App. 5th 688 (2021), to reach the opposite conclusion. The court found that, whereas a virus like COVID-19 can be removed through cleaning and disinfecting, smoke is more like noxious substances and fumes that physically alter property.
To reconcile these results in their favor, policyholders must now provide compelling evidence that such contamination has caused tangible, physical alterations to their property to meet this elevated threshold. This development underscores the importance of thorough documentation and expert testimony in substantiating claims for non-visible damage.
Key Takeaways
These cases illustrate the fine line courts draw when assessing whether contamination rises to the level of a physical loss:
The nature of the damage matters – In Bottega, the insured proved that smoke infiltration rendered the property temporarily unfit for use. In Gharibian, the court saw the debris as a removable nuisance rather than a physical loss.
Burden of proof is critical – The Bottega plaintiffs provided stronger evidence linking their loss to physical damage, while Gharibian plaintiffs could not show a lasting impact on their property (much less one the insured felt required remediation).
Challenge denials with expert testimony – Some insurers may argue that smoke and soot are “removable” and do not qualify as damage. Policyholders should counter this with expert evidence demonstrating how smoke contamination affects long-term usability and air quality.
Consider the forum for litigation – As seen in Bottega and Gharibian, which court hears the case can significantly affect the outcome. When possible, policyholders should seek a jurisdiction with favorable precedents or challenge insurers’ attempts to move cases to less policyholder-friendly forums.
Final Thoughts
Wildfires raise critical questions about insurance coverage for smoke and debris damage. The rulings in Bottega and Gharibian show the ongoing battle over what counts as “direct physical loss,” with courts reaching different conclusions.
While Bottega is a win for policyholders, Gharibian suggests that insurers will continue to push for restrictive interpretations and to analogize losses to COVID-19. Policyholders must be proactive—documenting their losses, seeking expert opinions, and being prepared to challenge denials.
Ultimately, courts and policymakers must recognize that insurance should protect against real-world risks, not just total destruction. Until then, policyholders must be prepared to fight for the coverage they deserve.
[1] While these policies did not expressly cover smoke damage, many property policies do and questions concerning whether the policies cover smoke-related damage would not be available to insurers. This underscores the importance of reviewing the policy wording and speaking with your insurance agents and policyholder side insurance counsel.
[2] Even when the insurance company acknowledges that their policy covers smoke-related damage, there may be disputes concerning the amounts they are obligated to pay. To assess the scope of the insurer remediation proposal, policyholders are encouraged to retain their own remediation consultants to provide their own proposals, which can then serve as the basis for ensuring an apples-to-apples comparison and negotiation.
End of an Era: Cal/OSHA’s COVID Non-Emergency Standard Sunsets
As of February 3, 2025, most of Cal/OSHA’s COVID-19 Prevention Non-Emergency Standards have officially come to an end. This marks a significant shift for California employers who have been navigating these regulations and their predecessor emergency temporary standards for the past four years.
Despite the expiration of most obligations under this standard, employers are required to comply with certain recordkeeping requirements under Title 8, Subsection 3205(j) until February 3, 2026. As a practical matter, what does this require? There is some ambiguity in how the regulation is drafted.
To set the stage: While the Non-Emergency Standards were in effect, employers were required to keep detailed records of all COVID-19 cases, including the employee’s name, contact information, occupation, workplace location, last day at the workplace, and the date of the positive COVID-19 test or diagnosis.
Going forward, the requirement that employers comply with recordkeeping requirements through February 3, 2026, could be interpreted in either of two ways:
First, the simplest reading is:
With respect to COVID-19 cases that occurred up to February 3, 2025, employers must maintain these detailed records for two years or until February 3, 2026, whichever date comes first.
Alternatively, a more conservative reading of the regulation leads to the following:
Employers must continue to record and track COVID-19 cases that occur through February 3, 2026. Records of COVID-19 cases must be kept for two years. For example, records of a COVID-19 case in January 2026 would need to be maintained through January 2028.
The second interpretation raises additional questions. For instance, why would employers need to record and track COVID-19 cases when all of the related requirements from the Non-Emergency Regulations have expired (such as notifying employees, providing testing, etc.)?
Absent further guidance on this point, the answer is unclear. Cal/OSHA could be expecting employers to keep track of COVID-19 trends and respond to safety concerns through California’s Injury and Illness Prevention Program (IIPP) requirement.
To that point, even though the specific COVID-19 prevention regulations have ended, employers must still adhere to general workplace safety requirements:
Employers are required to maintain a safe and healthful workplace as mandated by Labor Code section 6400.
Employers must continue to implement and maintain an effective IIPP as required by Title 8, California Code of Regulations, sections 1509 (Construction) and 3203 (General Industry).
If COVID-19 is identified as a workplace hazard, employers must evaluate and correct any unsafe conditions, work practices, or procedures associated with it.
While the end of Cal/OSHA’s COVID-19 Prevention Non-Emergency Standards signifies a return to pre-pandemic regulatory conditions, employers must remain vigilant in maintaining workplace safety and complying with ongoing recordkeeping requirements.
Vax On: Fourth Circuit Reinstates Plaintiff’s Religious Bias Suit in COVID Vaccine Mandate Case
On January 7, the United States Court of Appeals for the Fourth Circuit reversed and remanded a district court’s dismissal of a plaintiff’s Title VII religious bias suit—holding the case was sufficient to survive a motion to dismiss at the pleading stage. The matter, Barnett v. Inova Health Care Services, provides key insights and reminders for employers attempting to balance workplace policies with employees’ religious beliefs.
The matter concerned Inova’s COVID-19 vaccine policy. Inova’s policy mandated all employees receive the COVID-19 vaccine unless they had a religious or medical exemption. Barnett, the plaintiff, was a registered nurse and devout Christian. Inova first rolled out its COVID vaccine policy in 2021. At that time, Barnett requested a medical exemption based on lactation concerns but also objected on religious grounds. Inova granted Barnett’s exemption request. According to Barnett, later that year Inova revised its policy and required all employees with an existing vaccine exemption reapply under the new criteria. Barnett claims Inova then required all employees requesting a religious exception complete a questionnaire about their particular religious beliefs applicable to the COVID vaccine. The questionnaire—which Barnett attached to her lawsuit—requested the following information:
1. Describe the nature of your objection to the vaccine.
2. How would complying with the mandate burden your religious exercise?
3. How long have you held the religious belief forming the basis of your objection?
4. As an adult have you received any other vaccines?
5. If you do not religiously object to other vaccines, why do you object to the COVID vaccine?
6. Identify other medications/products you avoid because of your religious beliefs.
When completing the questionnaire, Barnett sought only a religious exemption. Therein, Barnett explained she was a devout Christian and made “life decisions after thoughtful prayer and Biblical guidance.” Barnett further claimed it “would be sinful for her” to take the vaccination having been “instructed by God” to abstain from it. Additionally, Barnett alleged that receiving the vaccine would be “sinning against her body.” Barnett’s stance on the vaccine did not arise directly from scripture but, instead, was “based on her study and understanding of the Bible and personally directed by God.” Inova ultimately denied Barnett’s exemption request—and discharged Barnett after briefly placing her on administrative leave.
According to Barnett, Inova effectively picked “winners and losers” from among those employees requesting an exemption. More particularly, Barnett claimed that Inova chose to exempt employees from more “prominent” or “conventional” religions, while denying Barnett’s request. Barnett claimed to practice a non-denominational form of Christianity.
In her lawsuit, Barnett brought one count of failure to accommodate and two counts of disparate treatment pursuant to Title VII of the Civil Rights Act. Barnett also brought overlapping state-law claims under the Virginia Human Rights Act.
Inova moved to dismiss Barnett’s complaint pursuant to Federal Rule 12 on the basis it failed to state a viable claim for relief. Primarily, Inova argued that Barnett’s concerns about the COVID vaccine were not sincerely religious in nature and, rather, amounted to personal preferences or fears. Inova claimed that Barnett’s reliance on “prayerful consideration” to make her vaccination decision—instead of scriptural authority—meant her choice was “untethered to a particular religious belief.” The district court sided with Inova and dismissed Barnett’s complaint on the pleadings. Barnett appealed that decision to the Fourth Circuit.
On appeal, the Fourth Circuit reversed and remanded the district court’s decision; wholly reinstating Barnett’s lawsuit. In its opinion, the Court of Appeals noted that to qualify for Title VII protection, a religious discrimination plaintiff must show her professed belief is (1) sincerely held and (2) religious in nature. The Fourth Circuit found Barnett met the first prong by alleging to be “a sincere follower of the Christian faith” who made “all life decisions” after “prayer and Biblical guidance.” Sincerity, the Court of Appeals noted, is “almost exclusively a credibility assessment” that can “rarely be determined on summary judgment, let alone a motion to dismiss.”
The Fourth Circuit also found Barnett’s complaint adequately demonstrated her beliefs were religious. In her lawsuit, Barnett alleged that getting the COVID vaccine would be “sinful…against her body”, defy instructions “by God”, and otherwise go against her “study and understanding of the Bible.” According to the Fourth Circuit, these allegations were “sufficient to show that Barnett’s belief is an essential part of a religious faith” and “plausibly connected” to her refusal to receive the COVID vaccine.
The Barnett opinion offers some important lessons. First, Rule 12 motions to dismiss are difficult to win, give plaintiffs a low bar to clear, and should be filed only when strategically appropriate; not as a matter of course. To survive a Rule 12 motion, a complaint need only plead facts that—taken as true—plausibly support a claim. In the context of discrimination suits, the Fourth Circuit noted that allegations offering a “reasonable inference” of discriminatory intent are sufficient. A plaintiff also does not need to establish a prima facie case to survive a Rule 12 motion. As the Fourth Circuit remarked, that is an “evidentiary standard, not a pleading requirement”.
Second, Barnett serves as a reminder that a religious belief need not be rooted in scriptural authority or dogma to form a viable discrimination claim. Similarly, a plaintiff’s theological interpretations need not be shared by their church’s leadership—or deemed valid by their employer—to qualify as religious in nature.
Third, at the pleading stage especially, courts give a wide berth to a plaintiff’s claim that their religious belief is “sincerely held.” As the Barnett court noted, whether a plaintiff’s religious belief is “sincere” is a credibility assessment that can rarely—if ever—be determined on the pleadings.
Fourth and finally, Barnett serves as a reminder that employers should consult experienced counsel before implementing any policies, procedures, or written questionnaires designed to evaluate whether employees may qualify for an exemption from vaccines or other workplace mandates. The plaintiff in Barnett attached Inova’s questionnaire as an exhibit to the publicly-filed complaint. Any business implementing these or other policies should seek advice from well-qualified outside counsel.
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Cal/OSHA COVID-19 Regulation Sunsets February 3, 2025
The last California Division of Occupational Safety and Health (Cal/OSHA) COVID-19 regulation came into effect on February 3, 2023, with provisions scheduled to sunset on February 3, 2025. There have been no further regulatory developments or new regulations adopted, so all but one of the features of the regulation will no longer be in effect for California employers.
Quick Hits
Most of the current Cal/OSHA regulation ends on February 3, 2025.
The only provision of the regulation that remains in effect for another year (until February 3, 2026) is subsection 3205(j), which provides for reporting and recordkeeping including keeping a record of and tracking all COVID-19 cases and retaining any COVID-19 notices.
Section 3205.1 governing outbreaks sunsets completely.
Section 3205.2 and 3205.3 governing employer-provided housing and transportation completely sunset also.
While California employers will want to continue evaluating COVID-19 hazards in the workplace, the specific provisions of the Non-Emergency COVID-19 Standard no longer apply, giving employers increased flexibility in addressing COVID-19 in the workplace. The only continuing recordkeeping requirement is for employers to keep a record of and track all COVID-19 cases with the employee’s name, contact information, occupation, location where the employee worked, the date of the last day at the workplace, and the date of the positive COVID-19 test and/or COVID-19 diagnosis. The record must be retained for an additional two years.
California Labor Code Section 6409.6, which had previously required COVID-19 notices to employees, ended on January 1, 2024. Therefore, the references to issuing notices to employees is no longer valid, and COVID-19 notices are not required. The California Department of Public Health last issued a COVID-19 directive on January 9, 2024, but continues to have authority, if required, to update orders for the state.
At Long Last, DEA’s Remote Prescribing Rules 2.0 Are (Really) Here! (Pending Further Consideration by the Incoming Administration . . .)
Remote prescribing via telemedicine continues to be a huge area of interest among prescribers and other health care providers.
After publishing a Notice of Proposed Rulemaking (“NPRM”) in March 2023 on the prescribing of controlled substances via telemedicine that was widely criticized for being far more restrictive than temporary waivers then in place under the COVID-19 public health emergency, the Drug Enforcement Administration (“DEA”) went back to the drawing board.
Additional time and a new year has brought renewed focus. Published January 17 in the Federal Register as one NPRM and two final rules (collectively referred to herein as the “DEA’s 2025 Rules”), the DEA’s 2025 Rules seek, as DEA indicates in its press release, to “focus[] on the patient to ensure telemedicine is accessible for medical care.”
Background
The Ryan Haight Online Pharmacy Consumer Protection Act of 2008 (“Ryan Haight Act”) amended the federal Controlled Substances Act (“CSA”) to generally mandate that dispensing controlled substances via the Internet requires a valid prescription, which includes at least one (1) in-person medical evaluation. In conjunction with establishing this general rule, however, the Ryan Haight Act created seven telemedicine exceptions that allow a practitioner to prescribe controlled substances to a patient without an in-person evaluation as long as the practice complies with applicable federal and state laws and meets other specific requirements. These exceptions apply when:
a patient is physically located at a DEA-registered hospital or clinics, and the remote prescribing practitioner is DEA-registered in the state in which the patient is located;
a patient is being treated by a prescribing practitioner, and in the physical presence of a DEA-registered practitioner in the state in which the patient is located;
the prescribing practitioner is an employee or contractor of the Indian Health Service, acting within the scope of the practitioner’s employment, who has been designated an Internet Eligible Controlled Substances Provider by the U.S. Department of Health and Human Services (“HHS”);
the prescribing activity takes place during a public health emergency (“PHE”) declared by HHS under Section 247d of Title 42;
the practitioner has obtained a Special Registration with DEA;
there is a medical emergency that prevents the patient from being in the physical presence of an employee or contractor of the Veterans Health Administration and one of its hospitals or clinics, and immediate intervention by the practitioner using controlled substances is required to prevent injury or death; or
any other circumstances that DEA and HHS have jointly determined to be consistent with effective controls against diversion and otherwise consistent with the public health and safety.
In Epstein Becker Green’s podcast, “The DEA Is Knocking at Your Door…Are You Prepared,” we explained that before the COVID-19 PHE, telemedicine prescribers were required to have at least one in-person visit with a patient before prescribing a controlled substance, with limited exceptions. In response to the PHE, the DEA granted temporary flexibilities to the Ryan Haight Act in an effort to prevent lapses in patient care and which permitted, in certain instances, the prescribing of controlled substances via telemedicine even when there had not been any prior in-person medical evaluation.
The March 2023 NPRM, “Telemedicine Prescribing of Controlled Substances When the Practitioner and the Patient Have Not Had a Prior In-Person Visit” (“2023 Proposed Rule”), received a record number of comments—more than 38,000—causing the agency to reconsider its positions (see our previous post on the 2023 Proposed Rule).
In May 2023, DEA temporarily extended the telemedicine flexibilities issued during the COVID-19 pandemic while sifting through the comments, and in September 2023 hosted public listening sessions to hear publicly from stakeholders. In October 2023, DEA and HHS jointly issued a second temporary extension of these flexibilities through the end of 2024.
More recently, in November 2024, DEA and HHS once again jointly issued a third temporary extension of these flexibilities through the end of 2025. DEA stated in the November 2024 temporary rule that “[t]his additional time will allow DEA (and also HHS, for rules that must be issued jointly) to promulgate proposed and final regulations that are consistent with public health and safety, and that also effectively mitigate the risk of possible diversion.”
In the latest rulemaking, DEA and HHS released the following guidance:
Proposed Rule Regarding Special Registration for Telemedicine Providers and Companies
Final Rule Regarding Access to Buprenorphine Treatment Via Telemedicine
Final Rule Regarding Veterans’ Access to Controlled Substances Via Telemedicine
DEA’s 2025 Rules
In DEA’s 2025 Rules, the agency is proposing the following:
DEA Proposed Rule Regarding Special Registration for Telemedicine Providers and Companies
DEA is proposing, in a Notice of Proposed Rulemaking, to establish a Special Registration process that will permit patients to receive prescribed controlled substance medications via telemedicine encounters without requiring the prescribing provider to conduct an in-person medical evaluation (the “Special Registration Proposed Rule”). The Special Registration Proposed Rule aims to expand patient access to controlled substances through telemedicine, while balancing the need to prevent misuse and diversion. Through the Special Registration Proposed Rule, the DEA seeks to modernize regulations, provide continuity for telemedicine-based care following the COVID-19 PHE, and align regulations with statutory requirements under federal law. The Special Registration Proposed Rule would implement requirements for registration, heightened prescription standards, recordkeeping, and state-level compliance, aiming to create a robust structure that supports the safe expansion of telemedicine. However, the Special Registration requirements would not apply to the practice of telemedicine authorized under the Ryan Haight Act, including buprenorphine treatment via telemedicine encounter and continuity of care via telemedicine for Veterans Affairs patient, as addressed by the new final rules discussed in further detail below.
In the Special Registration Proposed Rule, DEA has outlined not one, but three separate types of registrations that would be available:
A Telemedicine Prescribing Registration, which would be available to health care providers who, as part of their treatment plans for patients, need the ability to prescribe Schedule III through V controlled substances;
An Advanced Telemedicine Prescribing Registration, available for certain health care providers who are board certified in specific specialties, including psychiatry, and who need the ability to prescribe Schedule II controlled substances;
A Telemedicine Platform Registration, which would establish a new requirement applicable to telemedicine companies—specifically, the online platforms that facilitate connections between patients and health care providers that may result in the prescribing of these medications.
The different types of Special Registrations would make it possible for health care providers with prescribing authority—both physicians and non-physician practitioners—and the telemedicine companies that support the industry’s infrastructure to apply for one or more of these registrations in order to prescribe controlled substances via telemedicine without the need for an in-person evaluation of the patient.
As part of the Special Registration Proposed Rule, the DEA also would require the creation of a national prescription drug management program (“PDMP”) to provide greater visibility into a patient’s prescribed medication history for both prescribing providers and pharmacists. Regardless of the type of registration a provider or telemedicine company holds, the DEA would be establishing the added requirement of the provider or company needing to verify “the identity of the patient and [completing] a nationwide [PDMP] check of all 50 states and any U.S. district or territory that maintains its own PDMP.”[1]
Other highlights in the Special Registration Proposed Rule include:
Requiring, for prescriptions of Schedule II controlled substances: (a) that special registrants be physically located in the same state as the patient when prescribing the Schedule II medication via telemedicine; and (b) that telemedicine prescriptions of Schedule II controlled substances must, on average, make up “less than 50 percent of the total number of Schedule II prescriptions issued by the clinician special registrant in their telemedicine and non-telemedicine practice in a calendar month.”[2]
Requiring, with certain but limited exceptions, that special registrants use audio and video capabilities when prescribing controlled substances via telemedicine, regardless of whether the provider-patient encounter is an initial or follow-up visit.[3]
Requiring, during any initial visits between a special registrant and a patient, that a photo of the patient presenting federal or state identification is captured, as a means for confirming the patient’s identity.[4]
Requiring special registrants to maintain a State Telemedicine Registration for every state in which a patient is treated by the special registrant, subject to limited exceptions (g., the special registrant is an officer of the U.S. Armed Forces, the Public Health Service, or the Bureau of Prisons authorized to prescribe, or an employee or contractor of the U.S. Department of Veterans Affairs). The State Telemedicine Registration would be issued by the DEA, not the states, and function as an ancillary credential, contingent on the type of special registration held by the special registrant, and the special registrant’s authorization under state laws and rules to prescribe controlled substances within that state.[5]
The DEA has requested public comments on the Special Registration Proposed Rule, due no later than March 16, 2025.
Final Rule Regarding Access to Buprenorphine Treatment Via Telemedicine
Under this DEA and HHS final rule, effective February 18, 2025, the Departments are expanding access to buprenorphine treatment via telemedicine encounters (the “Buprenorphine Telemedicine Prescribing Final Rule”).
As background, during the COVID-19 PHE, when the DEA issued a waiver to temporarily loosen many of the restrictions on telemedicine prescribing controlled substances, the use of telemedicine prescribing for buprenorphine expanded dramatically as a means of treatment for patients with opioid use disorder (“OUD”).
The Buprenorphine Telemedicine Prescribing Final Rule diverges significantly from the 2023 Proposed Rule and codifies and extends many of the telemedicine flexibilities allowed during the pandemic with respect to treatment of patients with OUD. This will not only ensure continuity of care for patients who initiated buprenorphine treatment via telemedicine during the PHE, but also will allow new patients to access the same treatment without requiring an initial in-person visit.
Under the Buprenorphine Telemedicine Prescribing Final Rule, health care providers may prescribe buprenorphine for the treatment of OUD via a telemedicine encounter, including an audio-only telemedicine encounter, for up to six (6) months. To continue a patient’s treatment beyond six (6) months, the patient either can obtain an in-person medical evaluation or pursue other forms of telemedicine that are authorized under the Controlled Substances Act. Thus, this final rule permits patients to continue to receive telemedicine prescriptions for buprenorphine without ever receiving an in-person visit, as long as the patient visits conform to existing requirements for telemedicine modalities including audio-visual telemedicine, asynchronous telemedicine (store-and-forward), or remote patient monitoring.
Key requirements for providers to prescribe under the Buprenorphine Telemedicine Prescribing Final Rule include that the provider must be registered by the DEA to prescribe controlled substances, and the provider must review the patient’s prescription drug monitoring program data for the state in which the patient is located during the telemedicine visit. The Buprenorphine Telemedicine Prescribing Final Rule also adds a new requirement not included in the proposed rule that the dispensing pharmacist must verify the patient’s identity prior to filling the prescription.
In response to public comments DEA and HHS received regarding the 2023 Proposed Rule, the Buprenorphine Telemedicine Prescribing Final Rule significantly reduces or eliminates several of the barriers under the proposed rule that were most heavily criticized. In particular:
30-Day Supply: The 2023 Proposed Rule would have allowed only a thirty (30) day supply of buprenorphine to be prescribed via telemedicine before an in-person encounter would need to take place. Public comments to the 2023 DEA Proposed Rule argued that this short window vitiated the purpose of the statutory exception and was insufficient to meaningfully increase access to OUD treatment.
In-Person Assessment to Continue Treatment: The 2023 Proposed Rule would have required patients to obtain an in-person assessment at the end of the initial prescribing period in order to continue treatment. This requirement meant that access would not have materially improved for the large number of people in rural and underserved areas or who otherwise face barriers to accessing in-person treatment.
Recordkeeping: The 2023 Proposed Rule would have required providers to comply with a variety of record-keeping requirements, including maintaining a record of whether the encounter was conducted via audio-visual or audio-only means, why the patient chose an audio-only telemedicine encounter, and maintaining copies of all qualifying telemedicine referrals. These requirements would have increased the administrative burden of offering telemedicine services.
The Buprenorphine Telemedicine Prescribing Final Rule dramatically expands access to those who are seeking OUD treatment, allowing these patients to participate in a sustained program of treatment with buprenorphine by extending the prescribing period to six (6) months, allowing patients who initiate treatment via audio-only telemedicine to continue treatment via other forms of telemedicine without an in-person assessment, and eliminating some of the burdensome recordkeeping requirements.
DEA Final Rule Regarding Veterans’ Access to Controlled Substances Via Telemedicine
Under this DEA and HHS final rule, entitled “Continuity of Care via Telemedicine for Veterans Affairs Patients,” the Departments finalized parts of the 2023 Proposed Rule that specifically pertain to U.S. Department of Veterans Affairs (“VA”) practitioners and the VA patients they serve (the “VA Telemedicine Prescribing Final Rule”). This rule becomes effective February 18, 2025.
The VA Telemedicine Prescribing Final Rule will allow VA practitioners acting within the scope of their VA employment and professional practice to prescribe controlled substances via telemedicine to VA patients with whom they have not conducted an in-person medical evaluation, provided that another VA practitioner has previously conducted an in-person medical evaluation with the same patient. Practically speaking, this means that once a VA patient has received an in-person medical examination from a VA practitioner, the ongoing practitioner-patient relationship—including the ability to prescribe controlled substances—can be extended to all VA practitioners who engage with that patient via telemedicine.
The VA Telemedicine Prescribing Final Rule includes certain conditions that are similar to some being proposed in the Special Registration Proposed Rule. For example, VA practitioners will be required under the VA Telemedicine Prescribing Final Rule, prior to issuing a prescription via telemedicine for any Schedule II through V controlled substances, to review both the patient’s electronic medical record with the VA and the PDMP data for the state in which the VA patient is located at the time of the telemedicine encounter—provided the state has such data—to confirm the history of prescriptions for controlled substances that have been issued to the patient.
DEA states in the VA Telemedicine Prescribing Final Rule that the agency’s basis for creating a separate, VA-specific rule has been done in response to “the evolving landscape of the healthcare needs of VA patients, advancements in telemedicine, and DEA’s capacity to implement safeguards that protect against potential misuse.”[6] DEA describes its intended approach as being responsive to and possible because of the specialized health care needs of veterans and the unique structure of the VA health care system. The VA Telemedicine Prescribing Final Rule will ensure that veterans have more consistent and flexible access to care, regardless of their geographic location, while still maintaining oversight and continuity of care through the VA system.
Regulatory Freeze Pending Review
As anticipated, in connection with the transition between Administrations, President Donald Trump implemented a “regulatory freeze” by memorandum issued on January 20, 2025. The freeze applies differently depending on whether or not a rule (including a NPRM) has been published in the Federal Register – contrasted with rules not yet submitted, or rules submitted to the Office of the Federal Register, but not yet published. For rules that have been published to the Federal Register, such as the DEA’s 2025 Rules, the White House requires executive departments and agencies to “consider postponing” the rule’s effective date until at least March 21, 2025 (sixty (60) days from the issuance of the memorandum), to allow review of any questions of fact, law, and/or policy raised by the rule, and to “consider opening” a comment period for stakeholders to comment on those questions. Executive agencies are also directed to “consider reevaluating” pending petitions involving such rules, which may result in effective dates being further delayed beyond the 60-day period.
As directly applicable here, the two final rules, as published in the Federal Register, are set to be effective February 18, 2025. The comment period for the NPRM ends March 16, 2025. What exactly happens next, and on what timeline, depends on how the DEA administrator exercises the agency’s discretion to “consider postponing” the DEA’s 2025 Rules. In the meantime, DEA registered prescribers can continue operating under the telemedicine prescribing flexibilities issued during COVID-19 (though December 31, 2025).
Takeaways
The DEA’s 2025 Rules offer, on the one hand, clarity that many practitioners and telemedicine companies have been eagerly awaiting in the wake of the PHE. However, the DEA’s 2025 Rules also suggest that the industry has its work cut out for it.
Telemedicine providers and companies should begin preparing for the potential regulatory changes that would be imposed by the Special Registration Proposed Rule. Although the rulemaking process may be delayed because of the recent regulatory freeze issued by the Trump Administration, it is never too early to begin thinking about the related operational changes and administrative oversight that may be required to obtain the applicable registration(s).
In the case of the final rules regarding buprenorphine prescribing and veterans, telemedicine providers must begin making plans for how to achieve operational compliance, though the effective date of such regulations may also be delayed.
Epstein Becker Green Attorneys Ann W. Parks and Erin Sutton contributed to the preparation of this post.
ENDNOTES
[1] 90 Fed. Reg. 6541, 6543 (Jan. 17, 2025).
[2] Id. at 6556.
[3] Id. at 6554. Note that the Expansion of Buprenorphine Treatment via Telemedicine Encounter final rule allows an exception for buprenorphine and other controlled substances used to treat opioid use disorder, discussed in more detail below.
[4] Id. at 6557.
[5] Id. at 6551.
[6] 90 Fed. Reg. 6523, 6527 (Jan. 17, 2025).
DEA Tightens Buprenorphine Telemedicine Prescribing Rules
The Drug Enforcement Administration (DEA) and the U.S. Department of Health & Human Services (HHS) just finalized their March 2023 proposed rule regarding telemedicine prescribing of buprenorphine. The final rule, effective February 17, 2025, allows DEA‑registered practitioners to prescribe Schedule III-V controlled substances, i.e., buprenorphine, to treat opioid use disorder (OUD) through audio-video visits and through audio-only visits in specific circumstances after certain requirements are met. Although these practices are currently allowed under the COVID-era telemedicine prescribing flexibilities through the end of the 2025, the final rule introduces additional requirements for these prescriptions.
Requirements of the Final Rule
PDMP Check
Before prescribing a Schedule III-V controlled substance approved by the U.S. Food & Drug Administration (FDA) to treat OUD via telemedicine (currently limited to buprenorphine), DEA-registered practitioners must review the prescription drug monitoring program (PDMP) database of the state in which the patient is located at the time of the encounter.
Scope of Review: Practitioners must check PDMP data for any controlled substances issued to the patient within the past year. If less than a year of data is available, practitioners must review the entire available period.
Initial Prescription:
After reviewing the PDMP data and documenting the review, practitioners may issue an initial six-month supply of buprenorphine, which may be divided across several prescriptions, totaling six calendar months.
If the PDMP data is not available but the attempt to access it is documented, practitioners may prescribe only a seven-day supply of buprenorphine. Practitioners must continue to check the PDMP database to issue subsequent prescriptions. If, after checking, the PDMP remains unavailable and access attempts are documented, practitioners may prescribe subsequent seven-day supplies, up to the six-month limit.
Follow-Up Prescriptions
After the initial six-month supply, practitioners may issue additional prescriptions if they either:
Conduct an in-person medical exam; or
Meet one of the seven narrow exceptions under the Ryan Haight Act (discussed below) for telemedicine practitioners.
Once an in-person medical exam has been conducted, the practitioner and patient are no longer considered to be engaged in the practice of telemedicine, and the obligations outlined in the final rule will no longer apply.
Pharmacist Verification
Before dispensing these prescriptions, pharmacists must verify the identity of the patient using one of the following:
A state government-issued ID;
A federal government-issued ID; or
Other acceptable documentation, such as a paycheck, bank or credit card statement, utility bill, tax bill, or voter registration card.
A Brief History
The rules stem from the Ryan Haight Act, which amended the Controlled Substances Act to restrict practitioners from prescribing controlled substances unless the practitioner conducts an in-person examination of the patient. The Ryan Haight Act (at 21 U.S.C. § 802(54)) outlines seven exceptions under which practitioners may prescribe controlled substances via telemedicine without an in-person exam. The fifth exception involves practitioners who have obtained the long-awaited special registration. (Stay tuned for our discussion on the DEA’s proposed rule establishing a special registration.) The seventh exception involves other circumstances specified by regulation.
During the COVID-19 Public Health Emergency (PHE), the DEA issued letters on March 25, 2020, and March 31, 2020, granting temporary exceptions to the Ryan Haight Act and its implementing rules that enabled DEA-registered practitioners to prescribe controlled substances without an in-person exam and with a DEA registration in only one state. These telemedicine flexibilities enabled practitioners to prescribe Schedule II-V controlled substances through audio-video visits and audio-only visits. Audio-only visits are permitted if the practitioner has the capability to use audio-video, but the patient is either unable to use video or does not consent to it.
In March 2023, in anticipation of the PHE ending, the DEA issued a proposed rule regarding the expansion of telemedicine prescribing of buprenorphine, which received significant criticism from stakeholders. In response, the DEA quickly rescinded the proposed rule and extended the COVID-era flexibilities in May 2023. The flexibilities were subsequently extended in October 2023 and November 2024 and are now set to expire on December 31, 2025. (For more details, see our previous discussions on the DEA’s proposed rules for telemedicine prescribing of controlled substances and the first, second, and third temporary rules extending COVID-era flexibilities.) Now, in an effort to not lose ground on the expansion of telemedicine prescribing of buprenorphine, especially if the telemedicine flexibilities expire with the incoming Trump administration, the DEA and HHS have revised and finalized their proposed buprenorphine rule.
Comparing the Proposed and Final Rules
The final rule introduces several changes to the proposed rule, some of which are described below:
Supply Limitation: The initial 30-day prescription supply limitation via audio-only was increased to a six-month supply.
In-Person Medical Evaluation: The requirement to have an in-person medical evaluation, with three options for conducting it, to prescribe more than the initial supply of buprenorphine was removed.
Recordkeeping: The detailed recordkeeping requirements for each prescription a practitioner issues through a telemedicine encounter, such as whether the encounter was conducted via audio-video or audio-only, were removed.
PDMP Review: Although reviewing the PDMP database of the state in which the patient is located at the time of the encounter is still required, the specifications and recordkeeping requirements for the review were changed.
The DEA and HHS state that these changes are likely to address and alleviate many of the concerns raised by commentors, acknowledging that some of the previously proposed requirements would have placed undue burdens on both patients and practitioners.
Conclusion
We anticipate that many stakeholders will be dissatisfied with the final rule, particularly with the six-month duration for an initial supply, which may still be too short, and the nationwide PDMP check requirement, which is overly burdensome given the absence of a nationwide PDMP database — a burden the DEA continues to underestimate.
If the COVID-era telemedicine prescribing flexibilities expire without further extension, the final rule offers protection for prescribing buprenorphine to treat OUD. However, that protection is contingent on establishing a legitimate special registration process, which the DEA has yet to propose or implement. Given the uncertainty surrounding the incoming Trump administration’s priorities and its views on telemedicine prescribing of controlled substances, it is unclear whether the final rule will be withdrawn or left as-is. There is also uncertainty about whether the telemedicine prescribing flexibilities will expire after 2025.
EnforceMintz — Long Tail of Pandemic Fraud Schemes Will Likely Result in Continued Enforcement for Years to Come
In last year’s edition of EnforceMintz, we predicted that 2024 would bring an increase in False Claims Act (FCA) enforcement activity related to COVID-19 pandemic fraud. Those predictions proved correct. The COVID-19 Fraud Enforcement Task Force (CFETF), in conjunction with five COVID Fraud Enforcement Strike Forces and other government agencies, has resolved many significant criminal and civil pandemic fraud cases over the past year. In April 2024, the CFETF released a COVID-19 Fraud Enforcement Task Force 2024 Report (the CFETF Report) describing the CFETF’s recent efforts and including a plea for more fraud enforcement funding, which suggests that additional enforcement activity is on the horizon. While that funding request has thus far gone unheeded, we expect more civil pandemic fraud enforcement actions (and continuing criminal actions) in 2025.
Civil and Criminal Paycheck Protection Program (PPP) Fraud Enforcement
Since 2020, criminal PPP fraud has dominated COVID-19 fraud enforcement headlines, and 2024 was no different. Criminal fraud schemes have concerned common fact patterns involving fraudsters who (i) obtained funding to which they were not entitled, (ii) submitted false certifications or inaccurate information in a loan application, or (iii) submitted false certifications or inaccurate information in seeking loan forgiveness. However, in the past year, civil PPP fraud enforcement has begun to evolve.
In 2024, criminal PPP fraud enforcement broke up multiple COVID-19 fraud rings involving actors who fraudulently obtained loans for fictitious businesses, packed PPP applications with false documentation (provided in exchange for kickbacks), and falsely certified information regarding the number of employees and payroll expenses that would entitle them to PPP funding. Typical charges in these cases included wire fraud, bank fraud, making false statements to federally insured financial institutions, conspiracy, and money laundering.
On the civil side, PPP fraud enforcement seemed to increase in 2024. Interestingly, some civil PPP fraud cases involved schemes similar to criminal actions. Often the government’s decision to pursue such cases as civil, criminal, or both depends on the evidence of intentional fraud. For example, in January 2024, a clinic and its owners agreed to a $2 million judgment in connection with multiple fraudulent acts, including PPP fraud arising from their certification that they were not engaged in illegal activity and that their business suffered quarterly or year-over-year losses, therefore entitling them to PPP funding. In October 2024, one FCA recovery totaling $399,990 involved a home health agency and its owner who received two PPP loans after certifying that the company would receive only one. More recently, in December 2024, a private asset management company and its owner agreed to pay $680,000 to settle FCA allegations brought by a relator. The company and its owner allegedly falsely certified that PPP loans were economically necessary and included false statements in the information submitted when seeking forgiveness for the loan. Cases of this nature apparently did not rise to the level of criminal wrongdoing, in the government’s view.
A number of civil PPP fraud FCA cases from the past year involved increasingly complex theories and allegations. These more complicated fact patterns require years of investigation and are expensive. As a result, such fraud enforcement actions may have a “long tail” and continue for years to come.
For example, in May 2024, a private lender of PPP loans agreed to resolve allegations that it knowingly awarded inflated and fraudulent loans to maximize its profits, then sold its assets and bankrupted the company. The lawsuit was initiated by whistleblowers (known under the FCA as “relators”), including an accountant and former analyst in the lender’s collection department. As part of the settlement with the lender, the United States received a general unsecured claim in the bankruptcy proceeding of up to $120 million.
More recently, in December 2024, the United States intervened in a complaint against certain former executives of the lender who allegedly violated the FCA by submitting and causing the submission of false claims for loan forgiveness, loan guarantees, and processing fees to the Small Business Administration (SBA) in connection with lender’s participation in the PPP. When we discussed this case previously, we noted that we expected to see similar cases in the future brought against private lenders who failed to safeguard government funds. More broadly, we expect the trend of increasingly complex civil PPP fraud actions will continue in 2025.
Fraud Enforcement Involving Programs Administrated by the Health Resources and Services Administration (HRSA)
Provider Relief Fund (PRF) and Uninsured Program (UIP) fraud enforcement picked up in 2024. As described in the CFETF Report, the CFETF has leveraged an interagency network to make strategic improvements in how it investigates fraud. (Interagency collaboration is another theme from 2024, which we discuss more here.) The CFETF Report also describes a department-wide effort by the Department of Justice (DOJ) to roll out database tools to all US Attorney’s Offices to detect and investigate fraud. According to the CFETF Report, DOJ has analyzed more than 225 million claims paid by HRSA, the entity that dispensed PRF and UIP loans during the height of the pandemic. Closer investigatory scrutiny has led to increased enforcement actions.
PRF Fraud
Criminal PRF fraud enforcement resembled PPP enforcement from prior years, which was often based on theft or misappropriation theories. These enforcement actions often include charges against PRF recipients who either (i) retained funds to which they were not entitled or (ii) used PRF funds for ineligible expenses, like luxury goods. For example, in April 2024, a defendant who operated a primary care clinic pleaded guilty to theft and misappropriation of PRF funds. The defendant had certified that PRF funds would be used by the clinic only to prevent, prepare for, and respond to COVID-19. Despite making this representation, the clinic operator used the PRF funds for personal purposes, including cash withdrawals and the purchase of personal real estate, a luxury vehicle, a boat, and a trailer.
UIP Fraud
There were a number of noteworthy criminal UIP enforcement actions in 2024. In March 2024, a defendant was charged with filing fraudulent COVID-19 testing reimbursement, through the laboratory he managed, for COVID-19 testing that was never provided. The defendant allegedly obtained and used the personal identifying information of incarcerated or deceased individuals in connection with those claims. The indictment alleged that the defendant received $5.6 million in reimbursement and used those UIP funds to purchase property in South Florida.
Enforcement actions involving UIP funds involved significant alleged losses by the government. In February 2024, a defendant pleaded guilty to mail fraud and identity theft charges in what the government called “one of the largest COVID fraud schemes ever prosecuted.” The defendant and her co-conspirators filed more than 5,000 fraudulent COVID-19 unemployment insurance claims using stolen identities to unlawfully obtain more than $30 million in UIP fund benefits. To execute the scheme, the defendant and others created fake employers and employee lists using the personally identifiable information of identity theft victims. The defendant was sentenced to 12 years in prison, and seven co-conspirators have also pleaded guilty in connection with this large fraudulent scheme.
In one major civil FCA resolution, in June 2024, a group of affiliated urgent care providers agreed to pay $12 million to resolve allegations that they submitted or caused the submission of false claims for COVID-19 testing to the HRSA UIP. The government alleged that the providers knew their patients were insured at the time of testing (and in some instances had insurance cards on file for certain patients), yet they submitted claims (and caused laboratories to submit claims) to HRSA’s UIP for reimbursement. The resolution is noteworthy because the providers received a relatively low FCA damages multiplier as credit for cooperating with the government in its investigation under DOJ’s Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters. More information on DOJ’s efforts to encourage voluntary self-disclosure can be found in our related EnforceMintz article here.
Fraud Schemes Involving Respiratory Pathogen Panels
Fraud involving expensive respiratory pathogen panels (RPPs) has been in the spotlight since the beginning of the pandemic. In 2022, the Office of Inspector General for the Department of Health and Human Services (OIG) warned about laboratories with questionably high billing for tests submitted for reimbursement alongside COVID-19 tests, including RPPs. The OIG deemed this scenario as deserving of “further scrutiny.” Medicare reimbursed some outlier laboratories approximately $666 dollars for COVID-19 testing paired with other add-on tests while Medicare reimbursed approximately $89 for this same testing to the majority of laboratories. The trend in RPP fraud enforcement that we discussed last year continued in 2024: enforcement actions involved a mix of criminal and civil RPP fraud cases involving significant damages.
One laboratory owner was criminally charged with submitting $79 million in fraudulent claims to Medicare and Texas Medicaid for medically unnecessary RPP tests. The laboratory owner used the personal information of a physician — without the physician’s knowledge — to submit the claims even though the physician had no prior relationship with the test recipients, was not treating the recipients, and did not use the test results to treat the recipients. The government seized over $15 million in cash from this defendant.
In another case involving both criminal and civil charges, a Georgia-based laboratory and its owner agreed to pay $14.3 million to resolve claims that they paid independent contractor sales representatives volume-based commissions to recommend RPP testing to senior communities interested only in COVID-19 testing. The independent sales contractors used forged physician signatures and sham diagnosis codes to add RPP testing to requisition forms ordering only COVID-19 testing. The whistleblower in this case — the laboratory’s manager — is set to receive $2.86 million of the recovery.
As the government continues to deploy data analytics to identify outlier cases, we suspect enforcement actions involving COVID-19 companion testing will continue.
Future of COVID-19 Enforcement
Over four years from the enactment of the CARES Act, COVID-19 fraud enforcement continues to evolve. Since the beginning, the government has consistently pursued criminal cases involving misused or fraudulently obtained funds, fake COVID cures, and fake COVID testing. In 2022, the government extended the statute of limitations for PPP fraud from five to ten years, recognizing that more time was needed to investigate and prosecute fraud on these programs.
This past year, a broader range of pandemic fraud schemes were prosecuted criminally and civilly. These often data-heavy or analytics-based cases require a significant investment of time and resources. Recognizing the resources required for these more complicated matters, the CFETF called for increased funding and an extension of the statute of limitations for all pandemic-related fraud in the CFETF Report. As of the date of this publication, that request has not yet been answered. It thus appears the funding request will be determined by the new administration.
Despite uncertainty around future funding for COVID-19 fraud enforcement, we anticipate more criminal and high-dollar civil enforcement actions in 2025. The CFETF Report described 1,200 civil pandemic fraud matters pending as of April 1, 2024, for which DOJ had obtained more than 400 judgments or settlements totaling over $100 million. This leaves approximately 800 pending civil matters, and untold billions in fraudulently obtained funds still in the hands of fraudsters. Despite uncertainty around future fraud enforcement funding, as a general matter, fraud enforcement has bipartisan support. Either way, employees, related parties, and patient relators — with the support of sophisticated relator’s counsel — will likely continue to bring pandemic fraud cases in the coming years. Overall, COVID-19 fraud enforcement is unlikely to slow down in 2025.
The Telehealth Extension Has Ended…For Now
During the COVID-19 crisis, newly-created relief allowed first dollar coverage for telehealth services under a high deductible health plan (HDHP) without ruining health savings account (HSA) eligibility. That relief was extended for plan years beginning prior to January 1, 2025. You can read our articles regarding the initial relief and subsequent extensions here, here, and here.
An earlier version of the 2025 budget bill included a two-year extension of this HSA telehealth safe harbor relief. However, that provision did not make it into the slimmed down version of the budget bill that was signed by President Biden in late December. The slimmed down budget bill was intended to serve as a stop gap to keep the Federal government running through March 14, 2025. Industry members are hopeful that when budget talks resume, a telehealth extension will be a part of that discussion.
For now, the telehealth relief has ended. For plan years beginning on or after January 1, 2025, pre-HDHP deductible coverage for telehealth services will disqualify an individual from contributing to an HSA unless another exception applies.
Fourth Circuit Allows Nurse’s Religious Discrimination Suit Over COVID-19 Vaccine Mandate
On January 7, 2024, the U.S. Court of Appeals for the Fourth Circuit reversed the dismissal of a complaint by a Christian nurse who alleged religious discrimination after being discharged over her refusal to comply with a Virginia hospital system’s mandatory COVID-19 vaccination policy. The ruling sends the claims back to the lower court for further consideration on the merits.
Quick Hits
The Fourth Circuit reinstated a religious discrimination lawsuit by a nurse who alleged wrongful discharge after her request for a religious exemption from a COVID-19 vaccination mandate was denied by her employer.
This ruling underscores that sincerely held religious beliefs conflicting with employer policies and job requirements can be a valid basis for religious discrimination suits over a failure to accommodate.
In Barnett v. Inova Health Care Services, the Fourth Circuit disagreed with the trial court that the lawsuit could be immediately dismissed at the start. The court of appeals found that a former registered nurse had sufficiently alleged religious discrimination claims against her former employer, Inova Health Care Services—at least enough to survive an early motion to dismiss.
The court revived all three claims that alleged Inova failed to provide a reasonable accommodation under Title VII of the Civil Rights Act of 1964 and subjected her to disparate treatment under both Title VII and the Virginia Human Rights Act (VHRA) based on her religious beliefs.
The case centers on a COVID-19 vaccine policy Inova first implemented in July 2021 to comply with the U.S. Centers for Medicare and Medicaid Services’ (CMS) former vaccine mandate for healthcare facilities. Inova’s policy required employees to receive the vaccine unless they had a religious or medical exemption.
Kristen Barnett, who was a registered nurse and the pediatric intensive care unit supervisor for INOVA, initially requested and was granted a medical exemption from the vaccine mandate related to lactation and nursing. In December 2021, when Inova required employees to reapply for exemptions, the nurse then requested a religious exemption, citing religious objections based on her beliefs as a devout Christian.
According to the decision, the nurse had explained that “[w]hile she was not ‘an anti-vaccine person’ and believed ‘there is a place in this world for both Science and Religion,’ she nonetheless believed ‘it would be sinful for her to consume or engage with a product such as the vaccination after having been instructed by God to abstain from it.’” Among Barnett’s religious objections was that her body is a “temple,” an argument seen by many employers with some frequency during and since the pandemic. However, after multiple requests, Inova denied her religious exemption and eventually discharged her in July 2022 for noncompliance with the policy.
Barnett also alleged that the body Inova tasked with analyzing exemption requests, the “Exemption Committee,” essentially “pick[ed] winners and losers” from the employees who sought exemptions based on whether it thought the “religious beliefs were legitimate.” She further alleged the committee favored more “prominent” or “conventional” religious beliefs in granting exemption requests and treated “certain religious beliefs as sufficiently acceptable to qualify for a COVID-19 policy exemption, while rejecting others.”
With respect to the Title VII religious accommodation claim, the district court immediately dismissed the claim after finding, among other things, that Barnett’s body-is-a-temple argument “amounted to a ‘blanket privilege … that if permitted to go forward would undermine our system of ordered liberty[.]’”
However, the Fourth Circuit reversed the dismissal of Barnett’s claims and remanded the case back to district court on the basis of having sufficiently pled facts to support plausible religious discrimination and accommodation claims. Importantly, however, the court noted that it was “take[ing] no position as to whether Barnett’s religious discrimination claims will ultimately succeed.” Basically, the court only found that she had sufficiently alleged a sincerely held religious belief, alleging that she was a “devout Christian” and that her refusal to get the vaccine was based on her religious beliefs.
Key Takeaways
With the Barnett decision, the Fourth Circuit joins a growing number of circuit courts that have not allowed early dismissal of these claims and are requiring employers to do more to demonstrate that an employee’s allegedly sincere religious belief is either not sincere or not religious. This makes handling the reasonable accommodation process more complicated and requires sufficient investigation and documentation before a religious belief can be discounted or an accommodation denied.
Still, the decisiondoes not represent a sea change in how courts will ultimately address the myriad pending religious accommodation cases working their way through the courts. While the Fourth Circuit sent the claims back to the district court for further consideration on the merits, it is yet to be seen whether Barnett’s claims will ultimately survive summary judgment or prevail at trial. However, employers may want to take note of the trends in how courts are evaluating religious discrimination and accommodation claims so they know how to best handle and resolve religious accommodation requests from employees.