Health Law & Managed Care – Page 23

A Regulatory Haze of Uncertainty Continues as the Clock Ticks Toward Phase One of FDA’s LDT Final Rule

Clinical laboratories still face uncertainty and the difficult decision of whether to start the work needed to comply with the with Phase 1 expectations under FDA’s Laboratory Developed Tests Final Rule (the “LDT Final Rule”), which remain set to go into effect on May 6, 2025.
To be sure, the shift in priorities of the new administration has kept the health care industry on its toes for the last few weeks, especially as the leadership and messaging of the Department of Health and Human Services (“HHS”) has started to come into sharper focus. The theme of ‘deregulation’, particularly when it comes to the activities of the Food and Drug Administration (“FDA”), has sparked interest and discussion among stakeholders in the life sciences industry – including clinical laboratories that are weighing how to approach the upcoming May 6 deadline for compliance.
We discussed the details of the LDT Final Rule in a previous Insight, explaining that as of the May 6, 2025 Phase 1 deadline FDA will expect all laboratories that manufacture LDTs to comply with medical device reporting (“MDR”) requirements, correction and removal reporting requirements, and quality system (“QS”) requirements regarding complaint files.
As is often the case with a major regulatory landscape change, the LDT Final Rule has been subject to scrutiny and legal challenges since its publication in May 2024. Perhaps the most watched of these is the ongoing litigation in which the American Clinical Laboratories Association (“ACLA”) and the Association for Molecular Pathology (“AMP”) have challenged the FDA’s authority to regulate LDTs by way of the LDT Final Rule. The presiding federal district court just heard arguments on the parties cross-motions for summary judgment, and noted a decision on those motions would be issued soon, likely before the Phase 1 deadline. The outcome will have significant implications for labs in the U.S.
In addition to the ongoing litigation, there is a growing possibility that FDA could be instructed, whether by Congress or by leadership at HHS, to retract the LDT Final Rule or delay the implementation of Phase 1. Of note, during the previous Trump administration there was resistance to FDA’s authority to regulate LDTs, in that HHS publicly required continued enforcement discretion for LDTs during the beginning of the COVID-19 pandemic. Now, with the touted theme of deregulation and public calls by trade associations like ACLA to mitigate the impact of the LDT Final Rule, there is a chance that HHS under the new Trump administration could take a similar approach. All of this is coupled with currently mounting pressure on all federal agencies to reduce spending and regulatory oversight, which may make it increasingly difficult for FDA to enforce the rule as originally written.
Nonetheless, unless there is a definitive ruling that the LDT Final Rule is retracted, or that its implementation is delayed, laboratories developing LDTs remain subject to the Final Rule’s Phase 1 requirements at this time. Arguably, even if the outcome results in removal, delay, or a change to the LDT Final Rule, the political cycle could flip again with reinvigorated efforts to bring more regulation around LDTs, whether through Congress or again through the rulemaking process.
EBG will continue to monitor these developments closely, as well as the forthcoming court ruling, and any potential administrative actions that could significantly reshape the regulatory landscape for LDTs.

The Why Behind the HHS Proposed Security Rule Updates

In this week’s installment of our blog series on the U.S. Department of Health and Human Services’ (HHS) HIPAA Security Rule updates in its January 6 Notice of Proposed Rulemaking (NPRM), we are exploring the justifications for the proposed updates to the Security Rule. Last week’s post on the updates related to Vulnerability Management, Incident Response & Contingency Plans can be found here.
Background
Throughout this series, we have discussed updates to various aspects of the Security Rule and explored how HHS seeks to implement new security requirements and implementation specifications for regulated entities. This week, we discuss the justifications behind HHS’s move and the challenges entities face in complying with the existing rule.
Justifications
HHS discussed multiple reasons for this Security Rule update, and a few are discussed below:

Importance of Strong Security Posture of Regulated Entities – The preamble to the NPRM posits that the increase in use of certified electronic health records (80% of physicians’ offices and 96% of hospitals as of 2021) fundamentally shifted the landscape of healthcare delivery. As a result, the security posture of regulated entities must be updated to accommodate such advancement. As treatment is increasingly provided electronically, the additional volume of sensitive patient information to protect continues to grow.
Increase Cybersecurity Incident Risks – HHS cites the heightened risk to patient safety during cybersecurity incidents and ransomware attacks as a key reason for these updates. The current state of the healthcare delivery system is propelled by deep digital connectivity as prompted by the HITECH and 21st Century Cures Act. If this system is connected but insecure, the connectivity could compromise patient safety, subjecting patients to unnecessary risk and forcing them to bear unaffordable personal costs. During a cybersecurity incident, patients’ health, and potentially their lives, may be at risk where such an incident creates impediments to the provision of healthcare. Serious consequences can result from interference with the operations of a critical medical device or obstructions to the administrative or clinical operations of a regulated entity, such as preventing the scheduling of appointments or viewing of an individual’s health history.
The Healthcare Industry Could Benefit from Centralized Security Standards Due to Inconsistent Implementation of Current Voluntary Standards – Despite the proliferation of voluntary cybersecurity standards, industry guidelines, and best practices, HHS found that many regulated entities have been slow to strengthen their security measures to protect ePHI and their information systems. HHS also noted that recent case law, including University of Texas M.D. Anderson Cancer Center v. HHS, has not accurately set forth the steps regulated entities must take to adequately protect the confidentiality, integrity, and availability of ePHI, as required by the statute. In that case, the Fifth Circuit vacated HIPAA penalties against MD Anderson, ruling that HHS acted arbitrarily and capriciously under the Administrative Procedure Act. The court found that MD Anderson met its obligations by implementing an encryption mechanism for ePHI. HHS disagrees with whether the encryption mechanism was sufficient and asserted its authority under HIPAA to mandate strengthened security standards for ePHI. This ruling and lack of adoption of the voluntary cybersecurity standards by regulated entities has led to inconsistencies in the implementation of the Security Rule at regulated entities and providing clearer and mandatory standards were noted justifications for these revisions.

Takeaways
In 2021, Congress amended the HITECH Act, requiring HHS to assess whether an entity followed recognized cybersecurity practices in line with HHS guidance over the prior 12 months to qualify for HIPAA penalty reductions. In response to this requirement, HHS could have taken the approach of acknowledging recognized frameworks that offer robust safeguards to clarify expectations, enhance the overall security posture of covered entities, and reduce compliance gaps. While HHS refers to NIST frameworks in discussions on security, it has not formally recognized any specific frameworks to qualify for this so called “safe harbor” incentive. Instead, HHS uses this NPRM to embark on a more prescriptive approach to the substantive rule based on its evaluation of various frameworks.
HHS maintains that these Security Rule updates still allow for flexibility and scalability in its implementation. However, the revisions would limit the flexibility and raise the standards for protection beyond what was deemed acceptable in the past Security Rule iterations. Given that the Security Rule’s standard of “reasonable and appropriate” safeguards must account for cost, size, complexity, and capabilities, the more prescriptive proposals in the NPRM and lack of addressable requirements present a heavy burden — especially on smaller providers.
Whether these Security Rule revisions become finalized in the current form, a revised form, or at all remains an open item for the healthcare industry. Notably, the NPRM was published under the Xavier Becerra administration at HHS and prior to the confirmation of Robert F. Kennedy, Jr. as the new secretary of HHS. The current administration has not provided comment on its plans related to this NPRM, but we will continue to watch this as the March 7, 2025, deadline for public comment is inching closer.
Stay tuned to this series as our next and final blogpost on the NPRM will consider how HHS views the application of artificial intelligence and other emerging technologies under the HHS Security Rule.
Please visit the HIPAA Security Rule NPRM and the HHS Fact Sheet for additional resources.
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Examining Group Health Coverage Alternatives for Small Employers

Small employers have long struggled to offer comprehensive major medical coverage to their workers and families, mainly due to underwriting hurdles. Groups with fewer than 50 employees are often confined to state small group market plans, which can be costly. Even slightly larger groups, underwritten based on their own claims history, still face a significant lack of transparency. As a result, many of these employers are exploring alternative solutions, such as association-style plans, group medical stop-loss arrangements, level-funded products, and individual coverage Health Reimbursement Arrangements.
This Special Report delves into the challenges small employers face and the various options they can consider to provide group health coverage.
Access the report.

This Week in 340B: February 18 – 24, 2025

Find this week’s updates on 340B litigation to help you stay in the know on how 340B cases are developing across the country. Each week we comb through the dockets of more than 50 340B cases to provide you with a quick summary of relevant updates from the prior week in this industry-shaping body of litigation.
Issues at Stake: Contract Pharmacy; HRSA Audit Process; Rebate Model; Other

In one Health Resources and Services Administration (HRSA) audit process case, the government filed a memorandum in support of the government’s motion to dismiss.
In a case by a drug manufacture challenging a state law, the government filed a motion for judgment on the pleadings and the parties filed a joint motion for an amended protective order.In a Freedom of Information Act (FOIA) case, the government filed a response to a motion to strike the government’s motion for summary judgment.In a suit by a 340B covered entity against HRSA, the covered entity filed a notice of voluntary dismissal without prejudice.
In an appealed case challenging a proposed state law governing contract pharmacy arrangements, the appellees filed their opening brief.
A 340B covered entity filed a complaint against HRSA to challenge HRSA’s decision to allow a manufacturer’s audit.
In five cases against HRSA alleging that HRSA unlawfully refused to approve drug manufacturers’ proposed rebate models:

In four such cases, drug manufacturers filed a joint opposition to a motion to intervene and the intervenors filed a reply in support of their motion to intervene.
In one such case, the intervenors filed a reply in support of their motion to intervene.
In one such case, the plaintiff filed a motion for summary judgment.

Nadine Tejadilla also contributed to this article.

New Challenges Loom for OSHA and OSHRC Amid Quorum Issues, Potential ALJ Removals, and Recent Supreme Court Jurisprudence

“The Times They Are a-Changin’” isn’t just a Bob Dylan song title—it is also a fairly accurate description of what has been happening in the arena of the Occupational Safety and Health Administration (OSHA) and the Occupational Safety and Health Review Commission (OSHRC) since early 2023.

Quick Hits

OSHRC, an independent federal agency that resolves disputes between employers and OSHA, has lacked a quorum on its three-person panel since April 2023, leaving pending cases unresolved. The current term of the Review Commission’s only member expires on April 27, 2025.
The Supreme Court’s Loper Bright Enterprises v. Raimondo and SEC v. Jarkesy decisions regarding administrative agencies’ statutory interpretations and adjudication processes may impact OSHA enforcement and OSHRC adjudicative procedures.
The Office of the Solicitor General recently announced that it would no longer defend certain protections for administrative law judges. This position could create opportunities for employers to challenge the authority of OSHRC ALJs.

Background on OSHRC
OSHRC is an independent agency that reviews and resolves disputes between employers and OSHA. OSHRC was created by Section 12 of the Occupational Safety and Health Act of 1970 (OSH Act). It is a three-person panel that requires two members to have a quorum. Without a quorum, OSHRC cannot act, though a quorum is not required to select a case for review.
OSHRC’s members are appointed by the president, subject to the advice and consent of the U.S. Senate. A contest of a citation is heard by one of OSHRC’s administrative law judges (ALJs). The ALJ’s decision becomes final within thirty days unless an OSHRC commissioner designates the case to be heard at the Commission level. If the case is not so designated, the employer can seek further review in one of the federal courts of appeal.
Since April 2023, OSHRC has not had a quorum, and as a result, the thirty cases pending review have remained in limbo—some for as long as four years. Until it has a quorum, those cases will remain in their current status without adjudication. The term for the one remaining member of OSHRC, Cynthia L. Attwood, expires on April 27, 2025.
Recent Supreme Court Jurisprudence Related to Administrative Agency Authority
At the end of the Supreme Court of the United States’ 2023–2024 term, the Court issued decisions in Loper Bright Enterprises v. Raimondo and SEC v. Jarkesy that significantly altered the landscape associated with administrative actions, including OSHA citations and subsequent litigation.
Loper Bright reversed decades of so-called Chevron deference to federal administrative agencies’ interpretations of ambiguous statutes, and Loper Bright’s reasoning can reasonably be expected to form the basis for challenges to OSHA’s application of Section 5(a)(1) of the OSH Act, also known as the General Duty Clause, among other applications. Jarkesy related to the constitutionality of the process for adjudication of administrative matters by the SEC and is proving to be the basis of a number of challenges to various administrative adjudicative bodies function, including the manner in which OSHA citations are adjudicated. One such example is Judge Sim Lake’s order enjoining the adjudication of citations by OSHRC ALJs.
The DOJ Weighs In on ALJs
In what appears to be an opening for even further challenges, on February 20, 2025, the U.S Department of Justice’s (DOJ) Office of the Solicitor General issued correspondence to Senator Charles E. Grassley (R-IA) concerning multilayer restrictions on the removal of administrative judges.
In that correspondence, Acting Solicitor General Sarah M. Harris stated that “the Department of Justice has concluded that the multiple layers of removal restrictions for administrative law judges (ALJs) in 5 U.S.C. 1202(d) and 7521(a) violate the Constitution, that the Department will no longer defend them in court, and that the Department has taken that position in ongoing litigation” (referencing a matter pending in the Third Circuit Court of Appeals).
The letter continued, stating:
In Free Enterprise Fund v. PCAOB, 561 U.S. 477 (2010), the Supreme Court determined that granting “multilayer protection from removal” to executive officers “is contrary to Article II’s vesting of the executive power in the President.” Id. at 484. The President may not “be restricted in his ability to remove a principal [executive] officer, who is in turn restricted in his ability to remove an inferior [executive] officer.” Ibid.
A federal statute provides that a federal agency may remove an ALJ “only for good cause established and determined by the Merit Systems Protection Board on the record after opportunity for hearing before the Board.” 5 U.S.C. 7521(a). Another statute provides that a member of the Board “may be removed by the President only for inefficiency, neglect of duty, or malfeasance in office.” 5 U.S.C. 1202(d). Consistent with the Supreme Court’s decision in Free Enterprise Fund, the Department has determined that those statutory provisions violate Article II by restricting the President’s ability to remove principal executive officers, who are in turn restricted in their ability to remove inferior executive officers.

Looking Ahead
Clearly, the new position espoused by the Office of the Solicitor General creates new opportunities for employers facing OSHA citations to challenge the process by which those citations are adjudicated. Most narrowly interpreted, this changed position offers employers an opportunity to challenge the ALJs appointed to hear their cases as being unconstitutional due to the multiple layers of protection afforded them. On a broader scale, this new position might give employers the opportunity to challenge the entirety of the OSH Act, or at least Section 12.
Whatever path employers take, it seems a near certainty that OSHA and employers will face a whole new world in the near future when it comes to their interactions and any issued or pending citations.

Ninth Circuit Affirms ERISA Plan Administrator’s Decision, Validates Use of Industry Guidelines and Medical Evidence

On March 5, 2019, Magistrate Judge Joseph C. Spero of the U.S. District Court for the Northern District of California issued his opinion in Wit v. United Behavioral Health, in which he attempted to significantly change how Employee Retirement Income Security Act (ERISA)–governed health plans were administered, particularly third-party administrators’ reliance on medical necessity guidelines and the application of the abuse of discretion standard. The Ninth Circuit ultimately reversed the portions of the decision that were the most troublesome for ERISA plans and third-party administrators.
In K.K.; I.B. v. Premera Blue Cross, issued on February 6, 2025, the Ninth Circuit provided another indication that the approach taken by the district court in the Wit matter is in the past. There, the Ninth Circuit affirmed the district court’s grant of summary judgment in favor of the ERISA plan administrator and the self-funded plan.
Quick Hits

On February 6, 2025, the Ninth Circuit affirmed a lower court’s grant of summary judgment in favor of an ERISA health benefits plan administrator and the plan, concluding that the denial of benefits for a plaintiff’s treatment was reasonable and based on credible, contemporaneous medical evidence.
The Ninth Circuit’s decision underscores the importance of using validated medical necessity guidelines and supports plan administrators’ discretion in making benefits determinations under ERISA.
The Ninth Circuit emphasized that ambiguity and procedural irregularity in denying a claim do not alone constitute an abuse of discretion unless it affects a claimant’s ability to submit responsive evidence, reinforcing the principle that decisions must be based on reasonable application of plan criteria.

Background
K.K. and I.B., K.K.’s daughter, sued the plan and Premera under ERISA to recover benefits for treatment provided to I.B. at the Eva Carlston Academy (ECA) psychiatric residential treatment center. Premera concluded that the treatment was not medically necessary within the meaning of the plan.
I.B. was admitted to ECA shortly after completing a two-month stay at Pacific Quest, another in-patient treatment facility that provides a combination of therapeutic wilderness programs and residential treatment. Jason Adams, a Pacific Quest therapist, performed a psychological evaluation of I.B. and diagnosed her with nonverbal learning disorder, generalized anxiety disorder with obsessive-compulsive features, major depressive disorder, mild alcohol use disorder, and parent-child relational problems. He concluded that despite I.B.’s progress at Pacific Quest, it would be in her best interest upon discharge to enroll in a therapeutic residential treatment program. Tom Jameson, I.B.’s therapist at Pacific Quest, agreed with this assessment. Based on these recommendations, I.B. enrolled at ECA, where she remained for approximately one year.
K.K. did not seek pre-authorization for I.B.’s treatment at ECA and, in fact, only submitted her first claim for benefits under the plan in October 2017, more than nine months after I.B.’s admission to ECA. Premera denied this claim based on the conclusion that another round of residential treatment was not medically necessary under the terms of the plan. Premera concluded that after discharge from Pacific Quest, I.B. could have been effectively treated at a lower level of care, such as intensive outpatient or partial hospitalization.
The plaintiffs appealed this determination, which resulted in an independent medical review and an external review, as required under Washington State law. Those appeals upheld Premera’s denial determination. The district court concluded that Premera and the plan did not abuse their discretion in concluding that the treatment at ECA was not medically necessary under the terms of the plan. In other words, Premera’s decisions were reasonable.
The Ninth Circuit’s Analysis
In affirming this decision, the Ninth Circuit found that under the plan’s definition, treatment was medically necessary only if it was, among other things, “[i]n accordance with generally accepted standards of medical practice.” The plan provided a description of generally accepted standards, such as standards based on credible scientific evidence published in peer-reviewed medical literature generally recognized by the relevant medical community, physician specialty society recommendations and the views of physicians practicing in relevant clinical areas and any other relevant factors. The plan also provided that Premera had “adopted guidelines and medical policies that outline clinical criteria used to make medical necessity determinations.”
Pursuant to this provision, Premera used the InterQual guidelines—widely accepted guidelines for clinical decision support—which, according to the court, was reasonable, not an abuse of discretion, based on the credibility and validity of the criteria.
Quoting Winter ex rel. United States v. Gardens Regional Hospital & Medical Center, Inc., the court found that the InterQual criteria were “‘reviewed and validated by a national panel of clinicians and medical experts, and represent[ed] a synthesis of evidence-based standards of care, current practices, and consensus from licensed specialists and/or primary care physicians.’”
The court also relied on Norfolk County Retirement System v. Community Health Systems, Inc., where the court found that these criteria “‘were developed by independent companies with no financial interest in admitting more inpatients than outpatients’”; “‘were written by a panel of 1,100 doctors and reference 16,000 medical sources’”; and were used by “‘[a]bout 3,700 hospitals.’”
Having validated these criteria, the court then found that Premera’s decision that I.B.’s residential treatment was not medically necessary under these criteria also was reasonable. Premera concluded that I.B.’s condition had improved enough during her time at Pacific Quest that she no longer met the InterQual criteria for residential treatment when she entered ECA. Significantly, the court recognized that Premera’s decision was based on the “most contemporaneous assessments” of I.B.’s condition, assessments that took place a few weeks before I.B. was discharged from Pacific Quest and a psychiatric evaluation that took place within two weeks of I.B.’s admission to ECA.
Premera’s reliance on contemporaneous medical evidence was critical to rebut the plaintiffs’ argument that Premera had failed to specifically address letters of medical necessity from I.B.’s treating providers. Quoting the Supreme Court of the United States’ opinion in Black & Decker Disability Plan v. Nord, the court concluded that “‘courts have no warrant to require administrators automatically to accord special weight to the opinions of a claimant’s physician; nor may courts impose on plan administrators a discrete burden of explanation when they credit reliable evidence that conflicts with a treating physician’s evaluation.’”
The court went on to state that “[b]ecause I.B.’s treating providers wrote their letters of medical necessity one year after I.B.’s admission to Eva Carlston Academy and did not base them on firsthand evaluations of I.B. around the time of her admission, Premera did not abuse its discretion by rejecting their conclusions and instead reaching a contrary conclusion supported by the more contemporaneous, firsthand assessments of Dr. Adams and Dr. Simon.” In other words, even though Adams had recommended further treatment at ECA, Premera was not unreasonable in its conclusion that his clinical notes did not support medical necessity as that term was defined in the plan.
The plaintiffs also argued that Premera abused its discretion because it “failed to engage in a meaningful dialogue and instead only provided vague reasons for denying their claim.” In rejecting this argument, the court concluded that ambiguity alone was not enough to establish an abuse of discretion in this instance. The plaintiffs must also show that the ambiguities affected their ability to submit responsive evidence to perfect their claim, and, if the record were reopened, they could introduce favorable evidence that would call for a different result.
Conclusion
It is not possible to read an opinion addressing the mental health struggles of a child without empathy for the child and the parents who are seeking what they believe is appropriate care. Certainly, it is understandable that parents will want to provide residential treatment in which the child is supervised constantly.
At the same time, I.B. was in residential care for fourteen months. The court noted that the issue was whether I.B. could be treated at a lower level of care after leaving Pacific Quest. Typically, plan administrators offer intensive outpatient or partial hospitalization level of care for a child leaving residential treatment. The issue is not residential treatment or nothing; the issue typically is residential treatment, partial hospitalization, or intensive outpatient.
ERISA does not mandate the extent of the plans that employers can offer. Employers design plans that fit their needs, which often include discretionary language. Employers have to be able to enforce the terms of plans and make medical necessity decisions concerning the level of care to ensure the viability of the plans. The court’s recognition of the reasonableness of the application of the InterQual criteria is an important tool to help plans make this type of decision. After Wit, the finding that the application of such guidelines was reasonable is a welcome result.
In addition, the court’s willingness to uphold the decision based on contemporaneous clinical evidence affirms the importance of clinical facts and the reasonableness of relying on those facts rather than having to follow the opinion of the treating physician when the contemporaneous evidence does not support medical necessity, as defined in the plan.
Finally, the conclusion that an ambiguity alone is not enough—and that the ambiguity must be tied to the outcome of the claim—is significant because it ties the analysis back to where it should be: determining whether the decision was reasonable.

First Circuit Joins Sixth and Eighth Circuits in Adopting “But-For” Causation Standard Under the Federal Anti-Kickback Statute for False Claims Act Liability

In 2010, as part of the Affordable Care Act, Congress resolved a highly litigated issue about whether a violation of the Anti-Kickback Statute (AKS) can serve as a basis for liability under the federal False Claims Act (FCA).
Specifically, Congress amended the AKS to state that a “claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of the [FCA].”
This amendment, however, did not end the debate over the relationship between the AKS and the FCA. Over the last several years, multiple courts have been called upon to interpret what it means for a claim to “result from” a violation of the AKS. Courts across the country are split on the correct standard. On February 18, 2025, the U.S. Court of Appeals for the First Circuit joined the Sixth and Eight Circuits in adopting a stricter “but-for” standard of causation—while the Third Circuit has previously declared that the government must merely prove a causal connection between an illegal kickback and a claim being submitted for reimbursement.
In United States v. Regeneron Pharmaceuticals, the First Circuit acknowledges that while the Supreme Court has held that a phrase like “resulting from“ imposes a requirement of actual causality (i.e., meaning that the harm would not have occurred but for the conduct), this “reading serves as a default assumption, not an immutable rule.” At the same time, the First Circuit found that nothing in the 2010 amendment contradicts the notion that “resulting from” required proof of but-for causation.
The First Circuit agreed that the criminal provisions of the AKS do not include a causation requirement but observed that different evidentiary burdens can exist for claims being brought for purposes of criminal versus civil liability. The First Circuit concluded that while the AKS may criminalize kickbacks that do not ultimately cause a referral, a different evidentiary burden can and should be applied when the FCA is triggered. As a result, the First Circuit affirmed the lower court’s decision that “to demonstrate falsity under the 2010 amendment, the government must show that an illicit kickback was the but-for cause of a submitted claim.”
Although the U.S. Supreme Court denied a petition to review this specific issue in 2023, it may once again be called upon to weigh in on this issue, as there inevitably will continue to be a division in how the courts interpret this “resulting from” language. Look for our upcoming Insight, where we explore the First Circuit’s decision in detail.
Epstein Becker Green Attorney Ann W. Parks contributed to the preparation of this post.

Health-e Law Episode 16: Crossroads of Care: Navigating Executive Orders with Jonathan Meyer, former DHS GC and Partner at Sheppard Mullin [Podcast]

Welcome to Health-e Law, Sheppard Mullin’s podcast exploring the fascinating health tech topics and trends of the day. In this episode, Jonathan Meyer, a partner at Sheppard Mullin and Leader of the firm’s National Security Team, joins us again to discuss the early days of the new Trump administration and what might be on the horizon in terms of cybersecurity and data privacy.
What We Discussed in This Episode:

What can we expect from the new administration in relation to cybersecurity and data protection?
How do these concerns translate to healthcare, both in terms of managing our care and protecting our data?
What is Sheppard Mullin’s executive actions tracker, why it matters, and how can listeners use it?
How is healthcare struggling with privacy and immigration, and how does this impact national security?

Click Here to Read Transcript

Michigan Legislature Passes Last-Minute Amendments to Earned Sick Time Act, Minimum Wage Laws

Highlights

The Michigan Legislature recently made amendments to the state’s Earned Sick Time Act, which became effective Feb. 21, 2025
Large employers have until March 23, 2025, to comply with the statute’s notice requirements
The legislature also amended the states minimum wage laws, increasing from $10.56 to $12.48. However, the amendment salvages the tipped minimum wage, though it will increase to 50 percent of the minimum wage rate by 2031

The Michigan Legislature recently passed amendments to the Earned Sick Time Act and those amendments were signed into law by Gov. Gretchen Whitmer. Except for delays regarding notice requirements and the application of the law on certain small employers and some other minor changes, the amendments became effective Feb. 21, 2025. Required accruals of earned sick leave for large employers begin on that date. Large employers otherwise now have until March 23, 2025, to comply with the statute’s notice requirements.
Earned Sick Time
Sometimes procrastination pays. In the latest example, many employers across Michigan spent the last several months drafting policies and preparing for the Earned Sick Time Act (ESTA) to become effective following last summer’s Michigan Supreme Court decision in Mothering Justice v. Attorney General, only to wake up on Feb. 21 this year, the planned effective date, to learn many requirements of the law had changed. While the changes are not everything the employer community hoped for, the changes did offer some improvement.
The amendments eliminated some of the most problematic provisions of ESTA, including those creating presumptions of guilt and providing individual rights to bring a lawsuit and recover attorney fees if successful. However, ESTA remains one of the most aggressive paid leave statutes in the country and continues to contain unclarified ambiguities, and the amendments still are applicable (without delay) to most Michigan employers despite only a few hours’ notice.
As a result, despite the amendments effective Feb. 21, 2025, most employers in Michigan still are required to begin accruing for and provide their employees one hour of paid time off, which can be used for ESTA required purposes, for every 30 hours they worked. Salaried staff are still assumed to work 40 hours each week unless their normal workweek is less, in which case they are presumed to accrue time based on their normal workweek. However, the amendments revised the definition of who is an employee to confirm the following individuals are outside ESTA’s requirements:

Those employed by the U.S. government
Unpaid trainees and interns (under a rather strict and ambiguous definition)
Individuals employed in accordance with the Youth Employee Standards Act
An individual who works in accordance with a “self-scheduling policy” if both of the following conditions are met:

The policy allows the individual to schedule the individual’s own working hours and
The policy prohibits the employer from taking adverse personnel action against the individual if the individual does not schedule a minimum number of working hours

The state’s updated FAQs also confirm that, generally, elected public officials, members of public boards and commissions, and other similar holders of public office are not considered employees for ESTA purposes unless the entity treats those individuals as employees.
Small businesses (i.e., those who average 10 or fewer, previously was defined as fewer than 10, employees over any 20 or more calendar weeks in a calendar year) were likely the biggest beneficiaries of the recent amendments. For them, the application of ESTA is postponed until at least Oct. 1, 2025, and the amendments also limit their leave obligations to 40 hours of paid leave in a 12-month period, eliminating the prior requirement that they provide 32 hours of unpaid leave in addition to the paid leave requirements.
Lastly, for small employers who did not employ an employee before Feb. 21, 2022, they are not required to comply with ESTA until three years after the date the employer employs their first employee, which means that some small businesses will not be subject to ESTA until well after the Oct. 1, 2025 deadlines, and new small businesses will have the benefit of a three year grace period before ESTA applies.
In addition to these changes, the amendments also provided the following:

Confirms that all employers may frontload benefits to satisfy ESTA requirements and doing so removes any carryover obligations.

Employers can frontload time for part-time staff based on the hours they are expected to work so long as if the individual works more than the hours expected, they provide additional leave in an amount no less than they would have earned under the normal ESTA accrual rates.

Confirms that an employer is not required to include overtime pay, holiday pay, bonuses, commissions, supplemental pay, piece-rate pay, tips or gratuities in the normal hourly wage or base wage upon which paid earned sick time compensation is based.
Caps carryover requirements at 72 hours (40 for small businesses) annually and allows an employer to avoid carryover obligations by paying the employee the value of any unused accrued paid sick time at the end of the year in which it was earned.
Maintains the ability for unforeseeable absences an employer can require employees to provide notice of an absence immediately after the employee becomes aware of the need for paid sick time so long as the employer:

Provides employees with a written copy of the policy requiring notice and setting for the procedures for providing notice of the need for leave (and any changes thereto within five days)
The notice requirement allows the employee to provide notice after they become aware of the need for ESTA qualifying leave

Absent satisfaction of these two requirements, ESTA continues to limit an employer’s ability to require notice of an absence to “as soon as practicable” and:

Allows an employer to require employees to return reasonably required documentation related to absences of more than three consecutive days within 15 days of the employer’s request.
Provides special rules for employers who are subject to a collective bargaining agreement that requires contributions to a multi-employer plan.
Allows an employer to require employees hired after Feb. 21, 2025, to wait up to 120 calendar days to use accrued benefits.
Reduces the period of time an employee can leave and be re-hired without obligating an employer to honor previously accrued benefits from six months to three months, and confirms that it is not required at all if an individual is paid the value of their accrued but unused benefits at the time of transfer or separation.
While employers are still prohibited from awarding attendance points for ESTA related absences, they can now undisputedly discipline employee who uses paid time for purposes other than those provided by ESTA. Not only does this change better allow employers to use a single bank of time, but it opens the door to allow employers to discipline staff who might be tempted to use paid leave fraudulently subject to adequate employer proof.
Confirms that employees covered by a collective bargaining agreement are only exempt from ESTA to the extent the collective bargaining agreement “conflicts with” the statute.
Maintains the requirement that successor employers honor the benefits accrued under predecessor employers, but removes that requirement if employees are paid the value of their accrued but unused benefits at the time of succession.
Confirms that individuals covered by an employment agreement (contract) that conflicts with ESTA and was in place before Dec. 31, 2024, are not subject to ESTA for the period of the agreement (up to three years) so long as the employer notifies the Department of Labor and Economic Opportunity of the existence of the agreement.
Gives employers the option to require employees use paid time off in one-hour increments or smaller increments used by the employer to account for absences.
Confirms that the state is solely responsible for enforcement and that employees must pursue complaints within three years from when they know of an alleged violation.
In addition to the prior civil remedies and fines provided, provides additional liability for civil remedies for any employer failing to provide earned sick time to an employee in an amount not more than eight times the employee’s normal hourly rate.

Minimum Wage and Tip Credit
The Michigan Department of Labor and Economic Opportunity has already updated the English version of the required notice postings, which can also be used for the individual notice required for all employees and new hires. However, the department has not yet completed the Spanish version or other documents related to ESTA. Employers subject to the act must post these notices and provide notice to employees and new hires, in both English and Spanish (as well as any other language spoken by 10 percent or more of its workforce), by March 23, 2025.
In addition to the ESTA amendments, the legislature also passed an amendment to Michigan’s Improved Workforce Opportunity Wage Act. In doing so, the minimum wage still increased from $10.56 an hour to $12.48 an hour on Feb. 21, 2025. However, the tipped minimum wage was retained, though it will increase by 2 percent each year beginning in 2026 until it hits 50 percent of the minimum wage in 2031.
The amendments also added a $2,500 fine for employers who fail to ensure tipped workers get paid at least minimum wages and increases the minimum wage to $13.73 effective Jan. 1, 2026, and $15 effective Jan. 1, 2027. Thereafter, annual increases to the minimum wage rate will occur based on inflation.
Takeaways
While these amendments would appear to finally put an end to the disputes related to ESTA which have occurred since signatures were initially submitted to put the provision on the ballot in 2018, we may not be done yet. Groups supporting the original ballot proposals have already announced plans for statewide referendums restoring the amendments. However, such an effort would require they gather signatures from over 223,000 Michigan voters to qualify for a spot on a future ballot.

Delays Ahead: Maryland DOL Proposes Pushing Back FAMLI Program Implementation by 18 Months

Takeaway

Payroll deductions for the state’s Family and Medical Leave Insurance program would begin on 1/1/27 and benefits would become available on 1/1/28 under the Maryland Department of Labor’s proposal.

Lawsuit Alleges FDA Has Unduly Delayed Response to PFAS Petition

Last month a lawsuit filed by plaintiffs including the Tucson Environmental Justice Task Force (TEJTF) filed suit against FDA and now former FDA commissioner Robert Califf alleging that FDA had unduly delayed in responding to a petition filed by TEJTF in 2023 which had requested that FDA set tolerances for 30 types of PFAS in lettuce and blueberries and 26 types of PFAS in bread, milk, eggs, salmon, clams, and corn silage.
The lawsuit argues that FDA has unduly delayed because it has not acted consistent with its statutory mandate to “promote public health by promptly and efficiently reviewing clinical research and taking appropriate action on the marketing of regulated products in a timely manner” (21 USC § 393) and the delay allegedly is to the determinant of the public health. The lawsuit argues that prior decisions holding that courts should defer to FDA on whether to promulgate tolerances is no longer good law post-Chevron and that the “only discretion FDA may exercise for such chemicals [harmful substances] is the level of tolerance to be set.”
We will continue to monitor and report on the regulation of PFAS and other chemicals, including any changes in approach that may be implemented by the new administration.

Key Changes in the Revised Earned Sick Time Act for Michigan Employers

Just as the Michigan Earned Sick Time Act was set to go into effect on February 21, 2025, the Michigan Legislature came to an agreement to revise the Act. The Bill (HB 4002) was promptly signed by Governor Whitmer and became effective February 21. The Act still provides guarantees to Michigan workers for paid sick time while also providing employers with improved flexibility in implementing their paid sick time policies. There are, however, several changes in the revised Act compared to its prior iteration of which employers should be aware.
One notable change is to the definition of covered “employee,” which now includes several exclusions. Specifically, the following individuals are now expressly excluded from the Act’s coverage:

an individual employed by the federal government;
an individual who works under a policy where both of the following conditions are met: (a) the policy allows the individual to schedule the individual’s own working hours; and (B) the policy prohibits the employer from taking an adverse employment action if the individual does not schedule a minimum number of hours;
an unpaid trainee or intern; and
an individual employed under the youth employment standards act.

The definition of covered “employer” was also revised and no longer includes in its definition the term “nonprofit agency.” However, nonprofit agencies are not expressly excluded from the definition, creating an ambiguity as to whether they are subject to the Act.
Small businesses, which continue to be defined as an employer with less than 10 individuals working for compensation in a given week, have until October 1, 2025, to comply with the Act’s requirements. Additionally, newer small businesses which did not employ any employees prior to February 21, 2022, are not required to comply with the Act until 3 years after the first employee is hired.
The revised Act presumes that employers who provide employees with 72 hours of paid earned sick time at the beginning of the employer’s chosen benefit year to be compliant with the minimum sick time accrual requirements. Otherwise, covered employees are entitled to accrue paid earned sick time at the rate of one hour for every 30 hours worked. The revised Act does not require an employer that frontloads sick leave at the beginning of the year to: (1) allow an employee to carry over any used paid sick time from one year to the next; (2) calculate and track accrual of paid sick time; or (3) pay the employee the value of unused accrued paid sick time at the end of the year. For employers that choose to use the calendar year as their 12-month period, the Act does not expressly state whether the frontloaded amount can be prorated for 2025 (starting February 21) or whether employers who choose to frontload are required to provide the full 72 hours for 2025.
When the new changes are effective, small businesses are permitted to frontload a minimum of 40 hours of paid earned sick time at the beginning of the year without having to track the employee’s accrual of earned sick time. The revised Act removes the requirement for small businesses to allow employees to use up to an additional 32 hours of unpaid leave that was afforded in the previous version of the Act.
Additionally, the revised Act allows employers who employ part-time employees to provide their yearly balance of paid earned sick time at the beginning of the employer’s year so long as: (1) they also provide written notice of the employee’s anticipated hours worked for the given year; (2) the amount of earned sick time to be provided for that year is proportionate to the amount of sick time that the employee would accrue if they worked all the anticipated hours; and (3) the employer provides additional paid earned sick time hours should the employee work more hours than anticipated.
The medical documentation requirements had only minor changes, while there are additional provisions to the notice requirements. Specifically, employers may request reasonable documentation within 15 days but can only require it when an employee takes more than three (3) consecutive days of sick leave. The documentation should only require a signature by a health care professional confirming the use of sick time was for a purpose listed under the Act. If an employer requires documentation, the employer must pay “all out-of-pocket expenses the employee incurs in obtaining the documentation.” The employer is also responsible for paying “any costs charged to the employee by the health care provider for providing the specific documentation required.” The revised Act, however, does not explain what is included in either “out-of-pocket expenses” or “costs.”
For notice purposes, when the use of sick leave is not foreseeable, an employee only needs to give notice as soon as practicable or in accordance with the employer’s written policy related the request to use sick time. When the use of sick is foreseeable, an employer can require notice of the use of sick leave up to seven (7) days before the employee intends on initiating sick leave.
The Act prohibits an employer from treating an employee’s use of earned sick time as an absence that may lead to adverse employment actions. Thus, employers should be careful when enforcing their time and attendance policies to avoid any potential conflicts with the Earned Sick Time Act.
Employees who believe their employer violated the Act may file a claim with the Department of Labor and Economic Opportunity within three years. The revised Act, however, no longer permits an employee to directly file a lawsuit.