Healthcare Preview for the Week of: May 5, 2025
Reconciliation Hits a Speedbump
This week will not be what was anticipated on Capitol Hill. Multiple committees, including the House Energy and Commerce Committee, reportedly had planned to spend this week marking up their reconciliation packages. However, after internal meetings with moderate Republicans and President Trump last week, it became clear that Speaker Johnson and Energy and Commerce leaders were facing speedbumps on the road to enacting the Medicaid reforms at the savings levels they had developed. Their markup has been delayed, and the new plan is for it to occur the week of May 12. Internal conversations will continue this week among Republicans on what the Energy and Commerce reconciliation package should include, with continued debate on Medicaid taking center stage, although energy and spectrum auction policies within the committee’s jurisdiction are also in the mix. Republicans may also turn to healthcare policies besides Medicaid to address concerns within the party and by President Trump surrounding Medicaid. Of course, the House could also choose to adjust the target of $880 billion in savings for the Energy and Commerce Committee, but they’re trying to avoid that.
The Agriculture Committee postponed its reconciliation markup of policy changes to the Supplemental Nutrition Assistance Program (SNAP) until next week. The proposals were designed to shift some of the SNAP costs to states – hitting state budgets and the same population as the proposed Medicaid policies. The Ways and Means Committee also delayed its markup until at least next week, as it seeks to obtain the scoring necessary to complete its policies and faces ongoing differences on key provisions. These delays may complicate Speaker Johnson’s plan to complete reconciliation in the House and Senate before the Memorial Day holiday. There is no magic around a Memorial Day deadline, however; if it slips, the work will move into June. The real deadline won’t be known until the US Department of the Treasury releases its estimate for when the federal government will hit the debt limit ceiling. If Republicans want to address the debt limit in reconciliation, that date will become the hard deadline. Current estimates indicate that the date will be in late summer or early fall.
Meanwhile in the Senate, health committees will focus on additional US Department of Health and Human Services (HHS) nomination hearings. The Senate Finance Committee will hold a hearing for James O’Neill, nominated for deputy HHS secretary, and Gary Andres, nominated for HHS assistant secretary for legislation. Later this week, the Senate Health, Education, Labor, and Pensions (HELP) Committee will consider Janette Nesheiwat, MD, nominated for surgeon general, along with O’Neill’s nomination.
On Friday, President Trump released his “skinny” budget proposal for fiscal year 2026. It includes a 26% cut in discretionary funding for HHS, including a $18 billion cut from the National Institutes of Health and a $3.6 billion cut from the Centers for Disease Control and Prevention. Congressional hearings with agency leaders on the budget proposal begin this week, and Secretary Kennedy is scheduled to testify about the budget proposal at the Senate HELP Committee on May 14. It will be his first appearance before Congress as secretary. Additional focus will likely be on the agency’s response to the measles outbreak and more broadly on vaccine development. There may also be significant questioning regarding HHS restructuring and its impact on health programs that individual senators may be concerned about.
Today’s Podcast
In this week’s Healthcare Preview, Debbie Curtis and Rodney Whitlock join Maddie News to discuss the delay of key reconciliation markups, including at the House Energy and Commerce Committee, and what comes next.
Physician and Health Care Noncompete Law: New Legislation in 2025
It has been a busy year for health care noncompete legislation. Multiple states have enacted legislation, set to take effect in 2025, banning or limiting noncompete agreements for physicians and other health care workers. Although this post only covers enacted legislation, many other states have proposed legislation pending.
Arkansas: On March 4, 2025, Arkansas enacted a law amending the state’s noncompete statute to ban physician noncompetition agreements. The term “physician” is defined to include any person authorized or licensed to practice medicine under the Arkansas Medical Practice Act and any person licensed to practice osteopathy in Arkansas. The law takes effect in the summer of 2025.
Louisiana: Louisiana enacted a law, effective January 1, 2025, limiting noncompetition agreements for physicians. Effectively, employers cannot have a noncompetition agreement with primary care physicians once they have been employed for three years or with any other type of physician after they have been employed for five years.
The law defines primary care physicians as those who predominantly practice “general family medicine, general internal medicine, general pediatrics, general obstetrics, or general gynecology.” For primary care physicians, the law prohibits a noncompetition provision longer than three years “from the effective date of the initial contract or agreement.” It also prohibits employers from including a noncompetition provision in “[a]ny subsequent contract or agreement between the employer and primary care physician executed after the initial three-year terms.” In the event a primary care physician terminates their employment during the initial three-year term, an employer may enforce a noncompete covenant that prevents the physician from carrying on or engaging in a business similar to that of the employer in the parish in which the primary care physician’s principal practice is located and no more than two contiguous parishes in which the employer carries on a like business. The parishes must be specified in the agreement, and the agreement cannot exceed a period of two years from the date of the physician’s termination.
The same limitations apply for all other types of physicians, except an employer may enforce a noncompetition agreement against a non-primary care physician if the employer terminates the physician’s employment within the first five years (as opposed to three for primary care physicians).
The law explicitly excludes certain physicians: specifically, physicians employed or under contract with a rural hospital or physicians employed or under contract with a federally qualified health care center. Furthermore, the law only applies to employment-based agreements. Louisiana’s statute specifically permits noncompetition and nonsolicitation agreements in the sale-of-business context. Louisiana Rev. Stat. § 23:921(C).
Maryland: Maryland enacted a law, which takes effect July 1, 2025, limiting noncompetition agreements for employees who (1) earn less than $350,000 per year, and (2) are either (i) required to be licensed under Maryland’s Health Occupations Article or (ii) are employed in a position that provides direct patient care. For such employees, a noncompete agreement must be limited to one year and cannot exceed ten miles from the primary place of employment.
Pennsylvania: Last summer, Pennsylvania enacted the Fair Contracting for Health Care Practitioners Act (the “Act”), which became effective January 1, 2025. The Act, which is not retroactive, limits certain noncompetition provisions entered by licensed medical doctors, osteopaths, nurse anesthetists, registered nurse practitioners, and physician assistants. Specifically, outside the sale-of-business context, the Act only permits noncompete provisions for health care practitioners if (1) the provision does not exceed one-year post-employment, and (2) the employer seeking to enforce the provision notifies certain patients within 90 days of the health care practitioner’s termination.
Utah: Utah passed a law on March 26, 2025, effective May 7, 2025, that prohibits a “health care services platform” from requiring a health care worker to enter into a noncompetition agreement. The law defines “health care services platform” as “a person that operates or offers for use” an “electronic program, system, or application through which a health care worker may accept a shift to perform a health care service or role, as an independent contractor, at a health care facility.”
Arkansas, Louisiana, Maryland, Pennsylvania, and Utah are not the only states that impose heath care-specific limitations on noncompetition agreements. For instance, Texas, Florida, Colorado, Tennessee, and Washington, D.C., among other states, have long-standing limitations on physician-based noncompetition agreements. Most states impose some form of restrictions, ranging from very minor limitations to outright bans. Employers expecting to enter noncompetition agreements with health care employees should work with counsel to understand the state-specific limitations and requirements. We will continue to monitor and report on developments in this highly dynamic area of law.
Illinois Broadens Scope of Whistleblower Act, Strengthening Protections for Whistleblowers in the State
The Illinois Whistleblower Act (the “Act”) provides protections to employees who make reports of certain fraudulent and illegal conduct occurring in their workplaces. In the past legislative session, the Illinois General Assembly broadened and expanded these protections with the enactment of Public Act 103-0687 (the “Amendments”). The Amendments, which became effective on January 1, 2025, redefine key terms in the Act, expand the scope of conduct that is protected, and enhance the penalties and enforcement actions available for violations of the Act.
Redefinition of Employee
Most notably, the Amendments clarify the definition of an “employee” to which the Act applies. Specifically, “employees” covered by the Act exclude independent contractors. The Amendments adopt the stringent ABC test to determine whether a worker is an employee covered by the Act or is an independent contractor who is not covered.
The ABC test looks to whether (1) the worker is free from the control of the employer; (2) the worker performs work in the usual course of business of the employer; and (3) the worker is in an independently established trade or occupation.
The Amendments also redefine “employee” to include licensed physicians working at facilities that receive state funds.
Increased Scope of Protections
The Amendments increase protections related to employee disclosures. Employers may not take retaliatory action against an employee who discloses or threatens to disclose:
During an investigation, court proceeding, or an administrative proceeding, information related to the conduct of the employer if the employee has a good faith belief the employer has violated a law or regulation or poses a substantial and specific danger to employees, public health, or safety;
To a government or law enforcement agency, information related to the conduct of the employer if the employee had a good faith belief the employer has violated a law or regulation or poses a substantial and specific danger to employees, health, or safety; and
To a supervisor, principal officer, board member, or supervisor in an organization with a contractual relationship with the employer, information related to the conduct of the employer if the employee has a good faith belief that the employer has violated a law or regulation or poses a substantial and specific danger to employees, public health, or safety.
The Amendments similarly increase protections for employee refusals. To that end, employers may not take retaliatory action against an employee for refusing to participate in an activity that the employee has a good faith belief would result in a violation of law or regulations.
The Amendments further clarify what constitutes retaliatory action by an employer. Retaliatory action is defined as adverse action by an employer that would dissuade a reasonable worker from making a protected disclosure or refusal under the Act. Retaliatory action specifically includes, but is not limited to, action that would interfere with the employee’s future employment or action that constitutes an immigration-related practice prohibited by the Illinois Human Rights Act, as well as contacting or threatening to contact immigration authorities.
Heightened Penalties and Additional Enforcement
The Amendments impose heightened penalties for violations of the Act.
Specific additional penalties include the ability for employees to obtain injunctive relief; 9% yearly interest on their back pay; front pay; liquidated damages of up to $10,000; and a civil penalty of $10,000 payable to the employee. The Amendments also include a provision that allows the Illinois Attorney General to initiate civil actions against employers for violations of the Act.
Conclusion
Following enactment of these Amendments, employers who operate in Illinois must now navigate a broader scope of protected activities and ensure compliance with these enhanced protections against retaliation.
Illinois employers would be wise to review and revise their internal policies, training programs, and reporting mechanisms to align with these new protections. Employers should consult with counsel if they have questions as to the implications of these Amendments as well as their compliance with the Illinois Whistleblower Act.
The Northern District of Illinois Endorses “But For” Causation Standard for AKS-Premised False Claims Act Cases
A circuit split over the causation standard under the federal Anti-Kickback Statute (AKS) could grow wider after a recent Northern District of Illinois (NDIL) decision. In United States ex rel. Jeffrey Wilkerson & Larry Jackson v. Allergan Ltd., Case No. 22-CV-30130, Judge Lindsay C. Jenkins weighed in on the standard, ruling that “resulting from” in a 2010 amendment to the AKS requires “but for” causation in AKS-False Claims Act (FCA) cases. This opinion aligns with the First (2025), Sixth (2023), and Eighth (2022) Circuits, which deviated from the Third Circuit’s (2018) interpretation that “resulting from” requires some “link” between a kickback and the false claim short of but-for causation.
The Allergan opinion highlights circuit court disagreement regarding the AKS “but for” causation standard and the potential expansion of that split. The opinion also underscores the importance of this issue, as the Court provided detailed guidance as to the types of allegations it viewed as sufficient to show causation.
But-For Causation in the Seventh Circuit
In 2010, Congress amended the AKS to provide that “a claim that includes items or services resulting from [an AKS violation] constitutes a false or fraudulent claim for purposes of [the FCA].” The meaning of that simple phrase, “resulting from,” remains a divisive issue in courts across the country. While the Seventh Circuit has yet to address the 2010 amendment with respect to FCA cases, in 2024 the Court opined on the meaning of “resulting from” in Stop Illinois Health Care Fraud, LLC v. Sayeed. The Court concluded it requires “some causal nexus between the allegedly false claims and the underlying kickback violation.” Although the Seventh Circuit did not rule on what specific level of causation the AKS requires — whether “but-for causality or something less” — Sayeed proved instructive to Judge Jenkins’ decision in Allergan.
Holding in Allergan
The Relators in Allergan are former employees who allege that, during their employment at Allergan, the company “devised a scheme” to provide illegal kickbacks. These kickbacks, according to the Relators, were payments made to physicians across the country, who were hired to educate others about Allergan pharmaceutical products.
The Relators argued that because the physicians were being paid to speak about Allergan products, subsequent claims paid for those prescriptions violated the FCA. The court disagreed, noting the argument “is nothing more than the causation-less temporal standard rejected by the Seventh Circuit in Sayeed.” The court further ruled that “all that matters” for an AKS violation is a defendant’s “intent in paying the kickbacks,” not “whether any prescriptions were written as [a] result of the kickbacks.” Further referencing Sayeed, the court noted the Seventh Circuit was clear that “resulting from” requires some level of “actual causality” and agreed with the First, Sixth, and Eighth Circuits that it requires but-for causation rather than a mere link between payments and claims (as endorsed by the Third Circuit).
The court also explicitly discounted a differing Third Circuit opinion, Greenfield v. Medco Health Solutions, finding the concerns “animating the Greenfield court decision … not persuasive.” In doing so, the court highlighted that “all the other Circuits to directly address the question point in one direction — holding that ‘resulting from’ requires but-for causation for claims made under the 2010 Amendment.” After examining the text of the statute and the Seventh Circuit’s guidance in Sayeed, the Court agreed that but-for causation is the appropriate standard.
Applying that standard, the Court held that for all but a few physicians, the Relators’ claims failed because the Relators alleged only a mere correlation of “an uptick in prescriptions” and the speaker program payments. The Court explained that “Relators should present data that controls for other variables such that an increased number of prescriptions by” physicians who participated in the program “is likely attributable to Allergan’s payments.” The Court gave examples of allegations that would suffice, such as “identifying specific quid pro quos” or “comparing Speaker Bureau physicians’ prescription rates against prescription rates of doctors not receiving” Allegan payments.
Looking Ahead
Because some of the Relators’ allegations in Allergan survived the motion to dismiss, the case likely will not yet be appealed to the Seventh Circuit. However, Allergan provides a potential roadmap for arguments in the NDIL and sets the stage for another appellate decision on this issue. While Allergan falls in line with other circuit courts ruling in favor of but-for causation for AKS-premised FCA cases, a circuit split remains.
The Supreme Court declined to review the issue in 2023, but as more cases like Allergan progress, lower courts are likely to reach differing conclusions until the Supreme Court weighs in. Foley will continue to monitor developing case law and provide updates on this issue.
Ethylene Oxide Verdict in Georgia – $20 Million
Ethylene Oxide (EtO) is an industrial solvent widely used as a sterilizing agent for medical and other equipment that cannot otherwise be sterilized by heat/steam. EtO may also be used as a component for producing other chemicals, including glycol and polyglycol ethers, emulsifiers, detergents, and solvents. Allegations that exposure to EtO increases the risk of certain cancers has led to governmental regulation as well as private tort actions against companies that operate sterilization facilities that utilize EtO. The most recent example of the latter is a plaintiff verdict for $20 million handed down last Friday in Georgia.
Ethylene Oxide Trial History
The first ethylene oxide case to go to trial was the Kamuda matter, in which an Illinois jury awarded $263 million in September of 2022 against Sterigenics for ethylene oxide exposure from that company’s Willowbrook facility. A subsequent trial in the same jurisdiction against the same defendant resulted in a defense verdict. Ultimately, Sterigenics resolved its pending claims involving the Willowbrook plant in the amount of $408 million. In December of 2024, a Philadelphia Court of Common Pleas jury found the defendant B. Braun Manufacturing Inc. not liable on all counts. The plaintiff had alleged that her husband developed leukemia as a result of working at the defendant’s sterilization plant in Allentown, Pennsylvania for seven years. Notably, unlike the Illinois trials, the Philadelphia trial involved an employee at the sterilization facility as opposed to the Illinois plaintiffs who did not work at the Willowbrook plant but resided nearby.
In March of this year, a Colorado jury rendered a verdict in favor of defendant Terumo BCT Inc. (Isaacks et al. v. Terumo BCT Sterilization Services Inc. et al. in the First Judicial District of Colorado (docket number 2022CV031124). The plaintiffs are appealing. This was a bellwether trial that lasted six weeks, and involved four female plaintiffs. The jury determined that the defendant was not negligent in its handling of emissions from its Lakewood plant. The plaintiffs had sought $217 million in damages for their alleged physical impairment and also $7.5 million for past and future medical expenses as well as punitive damages. In light of the fact that the six person jury found the defendant Terumo not negligent, it did not need to consider damages or causation. All of the plaintiffs alleged that they had developed cancer as a result of ethylene oxide emissions from the Terumo facility. One plaintiff alleged breast cancer as a result of 23 years of exposure from the plant, while another alleged breast cancer after almost 35 years of exposure (these two plaintiffs were neighbors). Another plaintiff alleged multiple myeloma while the fourth plaintiff alleged Hodgkin’s lymphoma.
Notably, there remain hundreds more pending claims against Terumo in Colorado. In fact, plaintiffs’ counsel filed almost 25 more cases while the trial was in progress
Georgia Verdict
An EtO trial commenced against C.R. Bard in Georgia last month in the Walker case. On May 2nd, the jury awarded $20 million in compensatory damages. A second phase of the trial will begin today to determine punitive damages. At issue was the company’s medical equipment sterilization plant in Covington, Georgia. The plaintiff, who had been a truck driver, alleged that he would make pickups at the plant on a regular basis, and, coupled with the fact that he resided one and half miles from the plant, was exposed to EtO and developed non-Hodgkin lymphoma necessitating 10 rounds of chemotherapy and a stem-cell transplant after being diagnosed in June 2017 when he was 68 years old. The plaintiff alleged that the company failed to take appropriate steps to protect he and the community from EtO.
We expect more EtO cases to go to trial in Georgia as there are hundreds of such claims pending in that jurisdiction against multiple companies including C.R. Bard (Sterigenics settled 80 cases in 2023 but still must contend with more claims).
Analysis
Recently, we’ve seen increased trial activity with respect to EtO trials. As set out above, there have now been cases taken to verdict in Illinois, Pennsylvania, Colorado and Georgia. There is also EtO litigation activity in California, though those cases are still in the discovery phase. As noted in previous postings, we expect that plaintiff firms will recruit new clients who allege some type of cancer as a result of residing in the vicinity of an ethylene oxide plant, particularly given this $20 million verdict in Georgia (and that’s before punitive damages are assessed). How long will it be until we see television advertisements run by plaintiff firms seeking new plaintiffs? We’ve seen this in asbestos, talc, contaminated water, firefighting foam, defective earplugs, and other types of litigation. It is not out of the realm of possibility to think that we will see this with ethylene oxide litigation at some point in the near future.
Navigating the Regulatory Crossroads: Chemical Policy in Trump’s First 100 Days
President Donald Trump’s initial 100 days in office during his second term have marked a significant shift in the United States’ approach to chemical regulation, emphasizing deregulation and industry facilitation over more traditional environmental and public health safeguards. President Trump’s actions, inactions, and policy choices during his first 100 days seem to have come at a cost, as polls show his approval rating has decreased to 39 percent, an 80-year low for a President’s first 100 days in office.
Deregulatory Initiatives and Industry Impact
Central to the Administration’s agenda is an aggressive deregulatory policy, notably the Executive Order (EO) requiring “that for each new regulation issued, at least 10 prior regulations be identified for elimination.” EO No. 14192, 90 Fed. Reg. 9065. This approach has led to considerable confusion and commercial uncertainty, neither of which appeals to the business sector. Regarding chemical regulation, what has been announced are reviews of Biden Administration work on chemical risk assessments and intended review actions, including extensions of comment periods on chemical assessments.
In March 2025, the U.S. Environmental Protection Agency (EPA) announced its decision to reconsider the regulation governing the review of chemicals already in commerce by initiating a rulemaking “that will ensure the agency can efficiently and effectively protect human health and the environment and follow the law.” This signals a plan that may result in changes to foundational assumptions in the risk assessment methods used in the previous four years.
The Department of Government Efficiency (DOGE) has not been as efficient in its first 100 days as it promised. Rather than saving the taxpayers a trillion dollars, as DOGE initially pledged to the American people, government spending is increasing. Spending increases are due in part to the haphazard way in which DOGE went about cutting whole departments before realizing who they were firing and what programs they were gutting, only to have to rehire employees back again — if they could figure out how to contact them at all, since they had already cut off employee access to federal e-mail accounts. DOGE’s February 2025 cuts to the National Nuclear Security Administration (NNSA) within the Department of Energy (DOE) made headlines, as the hundreds of locked-out employees included those undertaking some of the most sensitive jobs within the U.S. nuclear weapons enterprise.
As far as chemicals go, the premanufacture notice (PMN) review program delays and foundational review policies are under review. Given that the law requires a pre-market review, any program cuts would likely lead to even further decision delays. As a result, notwithstanding industry criticism of the program, there is broad support for adequate budget resources as part of the effort to increase the timeliness and predictability of program decisions.
PFAS Regulation: A Plan for Regulatory Reversal?
Per- and polyfluoroalkyl substances (PFAS), often referred to as “forever chemicals,” have been a focal point in discussions about chemical safety for some time now. The Trump Administration faces a pivotal decision on whether to uphold strict federal drinking water limits for PFAS established during the previous Administration. On April 28, 2025, EPA announced policy updates, including how it plans to “[i]mplement TSCA [Toxic Substances Control Act] Section 8(a)7 ‘to smartly collect necessary information, as Congress envisioned and consistent with TSCA, without overburdening small businesses and article importers’.” In the meantime, many states, most notably Maine, Minnesota, and New Mexico, have introduced robust PFAS restrictions and reporting requirements of their own in an effort to ensure that PFAS are not unnecessarily released into the environment, or found in high-contact products, regardless of federal decisions. While at this point any announcement regarding the fast-approaching July 11, 2025, start of the reporting cycle is welcome, the official update was short on detail.
Environmental Justice and Community Health Concerns
One program area that has so far seen significant and impactful change under this Administration are environmental justice (EJ) measures, such as former President Biden’s Environmental Justice 40 Initiative. The Administration has issued directives across all agencies, including EPA, eliminating Diversity, Equity, and Inclusion (DEI) and other programs and staff deemed “woke.” On President Trump’s first day, he issued the EO Ending Radical And Wasteful Government DEI Programs And Preferencing to begin this effort. EO No. 14151, 90 Fed. Reg. 8339.
Elimination of EJ programs will disproportionately affect minority communities. The termination of programs aimed at protecting these populations from pollution exposure can be expected to increase (or at least not reduce) health risks in areas like Louisiana’s “Cancer Alley,” where industrial emissions have long been a concern. At the same time, reducing and eliminating much of EPA’s climate action programs, designed to reduce the impacts and uncertainties of climate change, will hurt key industries such as agriculture and food production, while more intense storms could adversely affect chemical production facilities along the U.S. coast.
The first 100 days of President Trump’s tenure have ushered in a new era of chemical regulation, characterized by a strong emphasis on deregulation and a leaner federal infrastructure. While proponents argue this fosters economic growth and innovation, critics highlight the potential risks to environmental integrity, public health, and institutional knowledge. As the Administration continues to redefine regulatory frameworks, stakeholders must navigate this evolving landscape with vigilance and adaptability.
2026 Inflation-Adjusted Health and Welfare Plan Limits
On May 1, 2025, the IRS released Rev Proc 2025-19 which updated for 2026 the limits applicable to certain health and welfare plans, including the following key limits:
2026 Limit
2025 Limit
Health FSA – Maximum contributions
$4,400 (self-only)
$8,750 (family)
$4,300 (self-only)
$8,550 (family)
HDHP – Minimum Deductible
$1,700 (self-only)
$3,400 (family)
$1,650 (self-only)
$3,300 (family)
HDHP – Maximum Out of Pocket
$8,500 (self-only)
$17,000 (family)
$8,300 (self-only)
$16,600 (family)
Maximum employer excepted benefit HRA contribution
$2,200
$2,150
These 2026 limits are effective for HSAs for calendar year 2026, and for excepted benefit HRAs for plan years beginning in 2026.
Similar Language But a Different Outcome: Medicare DSH Payments after Advocate Christ Medical Center v. Kennedy
Hospitals that serve a high number of indigent patients are faced with a dilemma: they must provide high-quality care but fixed Medicare reimbursement rates often do not take into account the higher operating costs that they incur when treating certain low-income patients.
That problem was made more difficult when the Supreme Court ruled 7-2 in favor of the Secretary of HHS in an appeal brought by over 200 hospitals that depend on disproportionate share hospital (“DSH”) payments. Advocate Christ Medical Center v. Kennedy, No. 23-715 (Apr. 29, 2025).
Congress recognized that hospitals that serve a high number of low-income or indigent patients may incur additional costs that are not captured in the regular Medicare inpatient prospective payments. Congress provided a remedy for these hospitals in the form of a complex formula that sums two fractions. The first fraction, known as the Medicare fraction, is the total of all of the hospital’s inpatient days attributable to “patients who (for such days) were entitled to benefits under part A of [Medicare] and were entitled to supplementary security income [SSI] benefits[under Title XVI of the Social Security Act]” and the denominator is the number of all inpatient days attributable to all Medicare beneficiaries. The DSH payment is made as a supplement to the Medicare DRG bundled payment for each discharge. The larger the numerator of the fraction, the larger the DSH payment.
These two elements use similar language, but what it means to be entitled to Medicare Part A or SSI for purposes of the DSH statute has generated considerable litigation. In Becerra v. Empire Health Foundation, 597 U.S. 424 (2022), the Supreme Court ruled that the phrase “entitled to [Medicare Part A] benefits” meant all Medicare Part A beneficiaries who were inpatients at a hospital, whether or not the Medicare program paid the hospital for that inpatient discharge. The Court did not address the second element in the numerator at that time.
The second element of the numerator did reach the Supreme Court in Advocate Christ. The Court found that the entitlement language did not have a single meaning; it agreed with the Secretary of HHS and lower courts that the Medicare Part A and SSI programs were distinct. Although Medicare Part A is an insurance program where eligibility is continuous once an individual is over age 65, blind, or disabled, SSI is a supplemental income program where an individual is eligible for a cash payment only during those months when their income and resources fall below a threshold. As a result, the Court ruled that SSI days that can be included in the numerator of the Medicare fraction are limited to those days during a month in which an individual received a SSI payment. The Court rejected the hospitals’ arguments that all inpatient days attributable to individuals entitled to SSI benefits should be counted, just like all of the Medicare Part A beneficiary days.
The Advocate Christ decision does not come as welcome news to hospitals that depend on DSH funds to close the gap between the cost of caring for patients without regard to their resources and the revenue that they receive from third parties. In many cases, it will result in a smaller numerator in the Medicare fraction and therefore smaller DSH payments. For some hospitals, the DSH payments are needed to avoid a negative operating margin based on the mix of payors.
The Court’s decision was rooted in a close textual reading of the DSH statute. Nevertheless, the decision highlights a tension between the text as interpreted by the Court and Congress’s intent to compensate hospitals that serve a high number of low-income patients. This was noted by the majority, but they concluded that they do not have the authority to amend the DSH statute. The remedy will lie with Congress.
Medicare Drug Price Negotiation Program: The Inflation Reduction Act “Pill Penalty” and Other IRA Reforms on the Horizon for 2026
When Congress adopted the Inflation Reduction Act (IRA) in 2022, creating the Medicare Drug Price Negotiation Program (MDPNP), the bill did not receive support from any Republican senators.
In 2025, the question remains what Congress and the current administration will do with the MDPNP, and we are starting to find out.
On April 15, 2025, President Trump issued Executive Order 14273, entitled “Lowering Drug Prices by Once Again Putting Americans First.” This comes on the heels of the release of the Final CY 2026 Part D Redesign Program Instructions (“Program Instructions”) by the Centers for Medicare and Medicaid Services (CMS) on April 7—concurrent with the CY 2026 Announcement of Medicare Advantage Capitation Rates and Part C and D Payment Policies (see our recent blog post on the latter.)
Executive Order 14273 includes a number of provisions addressing the IRA, including:
Within 60 days, the Secretary of the Department of Health and Human Services (HHS) shall propose and seek guidance on the MDPNP for 2028 and manufacturer effectuation of the Maximum Fair Price (MFP) under the program in 2026, 2027, and 2028.
HHS is also directed to work with Congress (no specified time frame) to align the treatment of small molecule prescription drugs, which are subject to an earlier negotiation time period, with that of biological products. This will end the so-called “pill penalty”, “ending the distortion that undermines relative investment in small molecule prescription drugs,” the executive order states.
Within one year, the Secretary is to develop a rulemaking plan and select for testing a payment model to obtain better value for high-cost prescription drugs and biologicals covered by Medicare, including those not subject to the MDPNP.
In an April 15 Fact Sheet, the White House says that the order “delivers lower drug prices for Medicare and the seniors who rely on it by…[improving] the Medicare Drug Pricing Negotiation Program in order to eclipse the 22 [percent] in savings achieved in the program’s first year.”
We discuss Executive Order 14273 and the Part D Redesign Program Instructions as they relate to the IRA, below.
Room for Improvement?
As a result of the IRA, Medicare negotiates directly with drug companies to improve access to Medicare Part B (medical benefit) and Part D (prescription drug benefit) covered drugs. Prices negotiated for the initial ten drugs are slated to go into effect on January 1, 2026. CMS announced in March that it has signed agreements with drug manufacturers for the next 15 drugs in the MDPNP, effective January 1, 2027.
While keeping the program in place, Executive Order 14273 requires that the guidance developed by the Secretary 1) improve MDPNP transparency; 2) prioritize the selection of prescription drugs with high costs to the Medicare program; and 3) minimize any negative impacts of the MFP on pharmaceutical innovation within the United States. The overarching policy is to optimize federal health care programs, intellectual property protections, and safety regulations “to provide access to prescription drugs at lower costs to American patients and taxpayers.”
The directive for the Secretary to work with Congress to end the pill penalty comes from a differential in the IRA’s price-fixing model: Small molecule drugs are eligible for selection to the MDPNP seven years after Food and Drug Administration (FDA) approval, and the price control goes into effect at year nine. Biologics, meanwhile, are eligible for selection 11 years after FDA approval, and the price control goes into effect at year 13.
Congressman Gregory F. Murphy, M.D. (R-NC) has already introduced bipartisan, bicameral legislation to address the problem. H.R. 1492, the “Ensuring Pathways to Innovative Cures (EPIC) Act” simply equalizes the negotiation period in the Social Security Act so that both small molecule drugs and biologics are eligible for selection after 11 years.
“According to a University of Chicago policy brief, due to the 9-13 disparity, 188 fewer small molecule medicines will come to market,” Murphy’s press release states, adding that small molecule funding has dropped by 70 percent since the IRA was introduced in 2021.
Even if the directive for the Secretary and Congress to work together to modify the MDPNP is a simple task, this work will be “coupled with other reforms to prevent any increase in overall costs to Medicare and its beneficiaries,” according to E.O. 14273.
Part D Redesign Program Instructions
The Final CY 2026 Part D Redesign Program Instructions provide guidance regarding 1) the implementation of IRA changes to the defined standard Medicare Part D drug benefit and 2) the successor regulation exception to the IRA that permits formulary substitutions for selected drugs, which relates to both the Part D program and the MDPNP.
The former includes, for 2026, an increased annual out-of-pocket (OOP) threshold of $2100 (up from $2000 in 2025); changes to the liability of enrollees, sponsors, manufacturers, and CMS; and the establishment of the selected drug subsidy program, which lowers Part D sponsor liability on the negotiated price of the selected drug. The IRA allows Part D sponsors to remove a selected drug from their formularies if removal would be permitted under § 423.120(b)(5)(iv) or any “successor regulation”; the Program Instructions identify updated provisions at §423.120(e)(2)(i), (f)(2), (3), and (4) as the “successor regulation.”
CMS has highlighted other key policies of the Program Instructions—including Prescription Drug Plan (PDP) meaningful difference thresholds (10 to 15 percent); a simplified creditable coverage determination methodology, and more—in a summary of key changes preceding the instructions and in a Fact Sheet of April 7, 2025.
Takeaways
The current administration’s defense of the MDPNP in a brief filed in February indicated a likelihood that President Trump was going to maintain the MDPNP while aiming to achieve even higher savings, to outshine the Biden administration. This has proven to be largely true. Interested parties should remain on the lookout for Secretary Robert F. Kennedy’s rulemaking seeking public comment on the MDPNP by June 15 and be prepared to comment if impacted.
McDermott+ Check-Up: May 2, 2025
THIS WEEK’S DOSE
House Committees Begin Reconciliation Markups. Non-health-related committees moved forward this week, with the House Energy and Commerce Committee tentatively scheduled to mark up its legislative text in the coming weeks.
House Energy and Commerce Committee Advances Health Bills. The bills include the SUPPORT Act reauthorization and other public health legislation.
Senate Appropriations Committee Examines Biomedical Research. Senators voiced broad bipartisan support for federal research funding.
House Oversight and Government Reform Subcommittee on Cybersecurity, IT, and Government Innovation Holds Hearing on IT Modernization. The hearing examined how information technology (IT) modernization could impact the efficiency and functionality of the federal government.
Administration Releases FY 2026 “Skinny” President’s Budget. The fiscal year (FY) 2026 budget request is abbreviated, or “skinny,” which is common in a new administration and will be followed by a full budget request at a later date.
Administration Publishes Report on Gender-Affirming Care. The report outlines action taken to comply with an executive order and was followed by a published review of evidence for the treatment of gender dysphoria and the associated ethical considerations.
SCOTUS Rules Against DSH Hospitals. The Supreme Court of the United States (SCOTUS) sided with the administration in a challenge to how Medicare disproportionate share hospital (DSH) payments are calculated.
CONGRESS
House Committees Begin Reconciliation Markups. Multiple committees in the House – although none in the healthcare space – advanced their “committee prints” this week, which include the provisions within their jurisdiction for the House’s budget reconciliation package. This process will continue into the week of May 12, when the House Energy and Commerce Committee is tentatively scheduled to hold its markup to finalize the $880 billion in savings across Medicaid, the Children’s Health Insurance Program, and Medicare. The Ways and Means Committee is also signaling that it may be ready to move a tax package forward the same week.
Several Republicans representing competitive seats have been discussing with committee and House Republican leadership their concerns about policies that they perceive as cutting Medicaid. Rep. Bacon (R-NE) has publicly stated that he will not support more than $500 billion in Medicaid savings. The components most widely expected to be included in the Energy and Commerce Medicaid package include work requirements, more stringent and frequent eligibility verifications, and repeal of Biden-era Medicaid eligibility regulations. In recent days, focus also has been on Medicaid provider tax changes and potentially converting the Medicaid expansion population to a per capita cap. The challenge facing Energy and Commerce is the need to get to $880 billion in savings across its jurisdiction. While the committee is expected to get some savings out of energy policy changes and spectrum auction, Medicaid is its largest target. Meanwhile, Energy and Commerce Democrats released a report showing how many individuals would lose coverage if national work requirements were implemented.
Once all House committees have passed their packages, the House Budget Committee will combine the legislative texts and vote on the entire package, followed by a vote on the House floor. (Note that the Budget Committee’s package does not need to directly resemble the packages passed out of each committee.) Then, it will be the Senate’s turn to act. Speaker Johnson’s (R-LA) goal is for the House to pass the package before Memorial Day, and to have it signed into law by July 4, 2025, although that timeline is not guaranteed. The biggest factor that would enforce a real deadline is if the US Department of the Treasury were to announce an earlier date than anticipated for the United States hitting the debt ceiling. That pronouncement was expected this week but appears to have slipped. There is no indication that the date will be earlier than late summer or early fall. This is directly relevant to reconciliation because Republicans hope to address the debt limit increase as part of that process.
House Energy and Commerce Committee Advances Health Bills. This week’s markup considered six pieces of healthcare legislation largely related to public health. All passed with broad bipartisan support, although two had some Democratic pushback:
H.R. 2483, the SUPPORT Reauthorization Act of 2025, would reauthorize certain programs that provide for opioid use disorder prevention, treatment, and recovery.
The bill passed 36 – 13. All Republicans voted aye. Democrats were almost evenly split, with opponents citing concerns about workforce cuts at the Substance Abuse and Mental Health Services Administration, the agency responsible for administering the legislation’s programs.
H.R. 2484, the Seniors’ Access to Critical Medications Act of 2025, would establish an exception to the physician self-referral prohibition for certain outpatient prescription drugs furnished by a physician practice under the Medicare program.
The bill passed 38 – 7. All Republicans and most Democrats voted aye. The seven Democrats who voted against the bill stated their concerns that the policy would increase healthcare consolidation.
For more information about the bills, view the markup memo.
Senate Appropriations Committee Examines Biomedical Research. During the hearing, members from both parties voiced their support for biomedical research. Democrats expressed concern over the implications of federal cuts and mass firings on future research, and Republicans acknowledged the importance of federal funding for lifesaving research.
House Oversight and Government Reform Subcommittee on Cybersecurity, IT, and Government Innovation Holds Hearing on IT Modernization. During the hearing, Democrats emphasized the essential role of a qualified modern IT workforce for the security, efficiency, and effectiveness of federal systems, and highlighted the negative impacts of replacing federal workers with artificial intelligence. Republicans focused on identifying the biggest barriers to change, such as procurement requirements, hiring processes, budget limitations, and bureaucratic hurdles. They stressed the importance of modernizing federal IT to improve overall government efficiency.
ADMINISTRATION
Administration Releases FY 2026 “Skinny” President’s Budget. The abbreviated budget request only includes discretionary items and, ultimately, is a document that sets forth the administration’s policy priorities. While the budget request is expected to provide guidance to Congress as it begins the FY 2026 appropriations process, the priorities and funding levels included in the document will not necessarily be the final levels that are approved by Congress. The budget requests a 22% cut to domestic spending overall, including large cuts to the US Department of Health and Human Services (HHS). Health-related highlights include:
$93.8 billion for HHS, a 26.2% decrease from the FY 2025 level of $127 billion. This includes cuts to various agencies, such as:
$3.6 billion from the Centers for Disease Control and Prevention
$18 billion from the National Institutes of Health
$674 million from the Centers for Medicare & Medicaid Services (CMS)
$500 million to support the Making American Healthy Again Commission.
The full elimination of several programs, including the Administration for Strategic Preparedness and Response Hospital Preparedness Program and the Community Services Block Grant.
The administration also released other facts sheets and supporting documents here.
Administration Publishes Report on Gender-Affirming Care. The report provides updates on actions taken by the administration to implement executive order (EO) 14187, “Protecting Children from Chemical and Surgical Mutilation.” Cited actions include:
HHS:
Began work on the required literature review of best practices to treat children with gender dysphoria. The report was also published this week.
Began reviewing data tools to ensure that federal data collection aligns with the administration’s definition of medically useful information.
Eliminated 215 grants to medical institutions that provide gender-affirming care.
CMS issued a quality and safety special alert memo entitled “Protecting Children from Chemical and Surgical Mutilation.”
The US Department of Defense and Office of Personnel Management have taken steps to exclude coverage of gender-affirming care for minors.
The US Department of Justice:
Prepared guidance to enforce laws outlawing female genital mutilation.
Initiated investigations of multiple entities that allegedly misled the public about long-term side effects of gender-affirming care.
Drafted and submitted for review legislation creating a private right of action for children who have received gender-affirming care and their parents.
Prepared to establish a Parental Rights Task Force.
COURTS
SCOTUS Rules Against DSH Hospitals. The 7 – 2 ruling sided with HHS in a case about how DSH payments are calculated. CMS only counts Medicare enrollees who received supplemental security income (SSI) cash payments during the same month they received hospital care as low-income patients for the purposes of DSH payment. The plaintiff hospitals argued that CMS should include all patients in the SSI system at the time of their hospitalization. SCOTUS found that CMS’s formula was adequate, meaning that DSH hospitals will receive lower payments than they believe they are entitled to.
QUICK HITS
Ways and Means Republicans Outline Priorities for CMS Innovation Center. In a letter led by House Ways and Means Committee Chair Smith (R-MO) and Health Subcommittee Chair Buchanan (R-FL), 25 Republican committee members asked CMS Administrator Oz and CMS Innovation Center Director Sutton to focus on payment models that save money and improve transparency, ensure solicitation of stakeholder feedback, and renew attention on improving rural healthcare.
CBO Explains Its Role in Budget Reconciliation Process. In a blog post and a letter to Reps. Pfluger (R-TX) and Westerman (R-AR), the Congressional Budget Office (CBO) outlined how it develops cost estimates during reconciliation and how CBO and the Joint Committee on Taxation collaborate during that process.
ASTP/ONC Takes Deregulation Actions. The Assistant Secretary for Technology Policy/Office of the National Coordinator for Health IT (ASTP/ONC) clarified that it is using its nonenforcement discretion in relation to insights condition and maintenance of certification reporting requirements and USCDI v3 data elements related to sexual orientation and gender identity.
HHS Announces Universal Vaccine Technology. Generation Gold Standard was developed by the National Institute of Allergy and Infectious Diseases and aims to protect against multiple strains of the same virus, including influenza and coronaviruses.
GAO Releases Reports on Prescription Drugs. In a statutorily required report, the US Government Accountability Office (GAO) described CMS’s implementation of the Inflation Reduction Act Medicare drug negotiation program and inflation rebate program. An additional report included findings on the market presence of nonprofit drug companies.
GAO Releases Additional Reports on Human Genomic Data, Nursing Homes. GAO urged HHS to systemically track the use of foreign testing labs and strengthen oversight of security measures, and recommended that the US Department of Veterans Affairs identify additional enforcement actions to ensure that nursing homes comply with quality standards.
Senators Introduce Resolution to Reinstate Richardson Waiver. Sens. Wyden (D-OR), Markey (D-MA), and King (I-ME) led 16 senators in introducing a resolution to reinstate the Richardson Waiver, which directed government agencies to use the more formal rulemaking process for rules regarding “public property, loans, grants, benefits, or contracts.” In February, HHS issued a policy statement rescinding the waiver. Read the senators’ press release here.
NEXT WEEK’S DIAGNOSIS
Both chambers will be in session next week, with healthcare activity expected at the committee level, including:
A House Oversight and Government Reform Committee hearing on the welfare state.
Senate Finance Committee and Senate Health, Education, Labor, and Pensions (HELP) Committee nomination hearings for James O’Neill to be deputy HHS secretary (both committees), Gary Andres to be an assistant HHS secretary (Finance Committee), and Janette Nesheiwat to serve as Medical Director in the Regular Corps of the Public Health Service and Surgeon General of the Public Health Service (HELP Committee).
The House Energy and Commerce Committee will tentatively hold a markup of their reconciliation package the week of May 12.
Constitutional Reform Initiative Regarding Pharmaceutical Sovereignty and Safety
On April 22, 2025, a proposal was submitted to the Deputies Chamber proposing to reform articles 4, 25 and 28 of the Mexican Constitution, regarding pharmaceutical sovereignty and security.
The proposal appoints the modification of the legal framework at the constitutional level so that the State is required to guarantee pharmaceutical sovereignty and security, which in turn is intended to allow the subsequent adaptation of secondary laws, programs and budgets with a long-term vision.
This reform mainly states the following:
The State will guarantee access to biological medicines, vaccines and medical devices by promoting the national production, storage and distribution of essential health products.
Pharmaceutical sovereignty and security will be fundamental principles to ensure the timely supply of such products, especially those of public interest and high impact on health.
The State will promote the development and strengthening of the national pharmaceutical industry, through public policies that encourage research, production and distribution of medicines recognized by law and that are strategic for the population, guaranteeing the reduction of external dependence in the acquisition of critical products for health.
It defines as functions of strategic areas the production, storage and distribution of medicines, biologicals, vaccines and medical devices essential for public health and therefore exempts them from being considered as monopolies, with the objective of guaranteeing universal access to indispensable treatments.
If approved, this initiative would undoubtedly have an impact on Mexican health legislation and, of course, would imply the modification of processes for the evaluation and approval of health products, as well as the authorization of activities in establishments focused on the production, manufacture, storage and distribution of health products.
In other words, the effects of this proposal translate into drastic changes in the system of production of health products that are known today, so that if it is not analyzed harmoniously with the applicable legislation and the international treaties, in cooperation with the institutions and entities involved in the corresponding processes, as well as the subjects involved in the health system, it could complicate the due access to health products to the detriment of the patients.
OCR Reaches Settlement with Health Care Network Health Over HIPAA Violations Stemming from Phishing Attack
On April 23, 2025, the Department of Health and Human Services’ Office for Civil Rights (“OCR”) announced a HIPAA enforcement action against PIH Health, Inc. (“PIH”), a California-based health care network, following a phishing attack that exposed patients’ electronic protected health information (“ePHI”). The settlement highlights OCR’s continued focus on ensuring that covered entities implement robust security programs capable of identifying and mitigating threats to ePHI.
The investigation stemmed from a breach report submitted by PIH in January 2020, which disclosed that in June 2019, a phishing attack had compromised the email accounts of 45 employees. The attack resulted in the unauthorized disclosure of unsecured ePHI belonging to 189,763 individuals, including names, addresses, dates of birth, driver’s license numbers, Social Security numbers, medical diagnoses, lab results, medications, treatment and claims information, and financial data.
OCR’s investigation uncovered multiple potential violations of the HIPAA Privacy, Security and Breach Notification Rules, including PIH’s failure to (1) use or disclose PHI as required by the Privacy Rule, (2) conduct an accurate and thorough risk analysis of security vulnerabilities affecting ePHI, and (3) provide timely breach notification to affected individuals, HHS, and the media.
To resolve the matter, PIH agreed to a $600,000 monetary settlement and to implement a two-year corrective action plan. Under the corrective action plan, PIH is required to conduct a comprehensive HIPAA risk analysis, develop and implement a risk management plan to address identified vulnerabilities, revise and maintain HIPAA-compliant policies and procedures, and provide workforce training on HIPAA requirements for safeguarding PHI.
This enforcement action underscores OCR’s expectation that covered entities proactively assess and strengthen their HIPAA compliance programs to address evolving cybersecurity threats such as phishing attacks. It also follows two recent additional settlements announced by OCR involving failures to implement basic safeguards under the HIPAA Security Rule, reinforcing the agency’s continued emphasis on holding regulated entities accountable for cybersecurity-related compliance lapses.