Wearable Technologies in the Workplace May Implicate Nondiscrimination Laws
The U.S. Equal Employment Opportunity Commission (EEOC) recently released a fact sheet that explains why employers need to be careful in using wearable technologies so they do not violate federal nondiscrimination laws.
Companies in the warehousing, package delivery, construction, manufacturing, and healthcare industries are most likely to rely on wearable technologies and be impacted by federal enforcement of nondiscrimination laws.
Quick Hits
An increasing number of employers are requiring workers to use wearables to track their movements and location for safety and productivity purposes.
A new fact sheet from the EEOC describes how the use of wearables in the workplace could violate federal nondiscrimination laws.
When relying on wearables, employers may need to make reasonable accommodations for workers with disabilities.
On December 19, 2024, the EEOC published “Wearables in the Workplace: Using Wearable Technologies Under Federal Employment Discrimination Laws” to help employers prevent legal challenges related to using wearables.
The EEOC fact sheet defines wearables as “digital devices embedded with sensors and worn on the body that may keep track of bodily movements, collect biometric information, and/or track location.” Wearables include GPS trackers, smart watches, smart rings, smart glasses, smart helmets, and proximity sensors. They may monitor eye movements, blood pressure, heart rate, body temperature, or physical location.
Collecting Medical Information
The fact sheet advises that using wearables to collect information about an employee’s physical or mental condition, or to conduct diagnostic testing, could constitute “medical examinations” under the Americans with Disabilities Act (ADA).
The fact sheet also advises that requiring workers to provide medical information in connection with using wearables could constitute “disability-related inquiries” under the ADA. The EEOC reminds employers that the ADA bars disability-related inquiries unless they are job-related and consistent with business necessity.
If an employer collects medical or disability-related data from wearable devices, the ADA requires the employer to store that data in separate medical files and treat it as confidential medical information.
The EEOC confirmed that an employer may violate federal nondiscrimination laws if it uses information collected from wearables to make decisions that have an adverse impact on protected classes. The EEOC’s examples include using wearables’ information to determine that an employee is pregnant and treat her differently because of the pregnancy, or to fire an employee with an elevated heartbeat that a heart condition causes.
Reasonable Accommodation Issues
The EEOC advised that employers may have to provide employees with the reasonable accommodation of excusing them from utilizing wearable devices. The EEOC posited that an employer might have to excuse workers whose religion prevented them from wearing the device, or make a reasonable accommodation based on pregnancy and/or disability.
Next Steps
Employers that rely on, or are considering using, wearable technologies may wish to review their policies and practices to ensure they comply with federal nondiscrimination laws, particularly the ADA’s requirement that collecting medical information and making disability-related inquiries must be job-related and consistent with business necessity.
Employers that use data from wearables in their employment-related decision-making may wish to examine whether their use adversely impacts individuals in protected groups.
Update: California State Assembly Passes AB 3129 Requiring State Approval of Private Equity Healthcare Deals
California’s AB 3129, which would require private equity firms and hedge funds to obtain prior approval to consummate certain healthcare-related transactions, is now one step closer to becoming law following the State Assembly’s May 22, 2024 passage of the pending legislation. The legislation is now being considered by the California State Senate, where approval must be obtained prior to the end of the legislative session in August if it is to be enacted into law this year.
As previewed in our prior blog post, if enacted, AB 3129 would require private equity firms and hedge funds to file an application with the state Attorney General at least 90 days in advance of a transaction involving the acquisition or change of control of healthcare facilities and provider groups and in most cases, await approval to close the transaction. Furthermore, the bill would place significant restrictions on the ability of private equity and other investors to implement “friendly PC-MSO” and similar arrangements, which are widely used today by stakeholders as an investment structure to avoid violating California’s prohibition on the corporate practice of medicine.
While the bill has not yet been enacted into law, the State Assembly’s passage of the bill does represent positive momentum for proponents of the legislation, and stakeholders should be aware of the legislation’s broad implications on the structuring and consummation of healthcare-related transactions in the state.
Massachusetts Aligns with National Trends and Enacts Sweeping Legislation to Regulate Pharmaceutical Benefit Managers
On the heels of a nationwide push to regulate pharmacy benefit managers (PBMs), Massachusetts enacted a landmark piece of legislation to increase transparency and oversight within the pharmaceutical supply chain, specifically targeting PBMs. Signed into law by Governor Healey on January 9, 2025, the comprehensive bill, titled “An Act Relative to Pharmaceutical Access, Costs and Transparency” (the Act), introduces a multifaceted approach that aims to reduce prescription drug costs, enhance data transparency, and impose stronger oversight of PBMs and pharmaceutical manufacturers.
Key Provisions of the Act
Patient Cost Sharing Limitations: The Act mandates that certain health plans, including those offered by MassHealth, offer limited or no cost-sharing for specific generic and brand-name drugs for chronic illnesses, such as diabetes or asthma. Specifically, health insurers must: (i) cover one generic medication for diabetes, asthma, and certain heart conditions with no cost-sharing requirements by patients (eliminating copays and deductibles), and (ii) cap copays for one brand-name medication per condition at $25 per 30-day supply. The Commissioner of Insurance may change the selection of drugs subject to this law, not more than annually. This requirement will go into effect on July 1, 2025.
PBM Licensing and Regulation: The Act established a licensing regime for PBMs and requires all PBMs to obtain a license from the Division of Insurance. The Division of Insurance is tasked with establishing the PBM licensing program by October 1, 2025, and PBMS are required to be licensed as of January 1, 2026. This oversight will enable the state to monitor PBM activities, ensure financial stability, and regulate the growing PBM market.
In addition, the Act takes aim at conflicts of interest within the PBM industry. The Act requires PBMs to disclose to its health plan clients any activity, policy, practice contract, or arrangement that directly or indirectly presents any conflict of interest in regard to the PBM’s relationship with, or obligations to, its client. The Act also specifically prohibits certain payments from PBMs to consultants and brokers whose services were obtained by a health benefit sponsor to work on the pharmacy benefit bidding or contracting process if the payment constitutes a conflict of interest. Interestingly, the Act does not explicitly define what constitutes a conflict of interest. Instead, it states that the determination of whether a payment constitutes a conflict of interest will be determined by the Commissioner of Insurance and instructs the Division of Insurance to adopt written policies and procedures or promulgate regulations to implement this requirement.
Transparency and Data Reporting: The Act requires PBMs and pharmaceutical manufacturers to submit detailed cost and pricing data to the Center for Health Information and Analysis (CHIA), including information on rebates, administrative fees, patient cost-share, and formulary decisions. This data will inform CHIA’s annual health care cost trends reports, which analyze key drivers of healthcare costs in the state. The Act also requires both PBMs and pharmaceutical manufacturers to participate in the Health Policy Commission (HPC)’s Cost Trends Hearings, by providing testimony on pricing practices, rebates, and access issues. The Act further establishes a new Office for Pharmaceutical Policy and Analysis within the HPC to monitor pharmaceutical trends using the information gathered through the hearings and reports to evaluate spending trends and recommend strategies to improve affordability.
Funding and Broader Oversight: To fund CHIA’s and HPC’s expanded oversight and monitoring activities, starting in Fiscal Year 2026, the Act introduces financial assessments for PBMs and pharmaceutical manufacturers. The assessment amount will be between 5% and 10% of HPC and CHIA’s operating budgets, based on the entities’ market share within Massachusetts, ensuring the contribution is commensurate with their business in the state. Additional provisions adjust assessments for hospitals and non-hospital providers, requiring their contributions to fund health policy initiatives. For more details on the financial assessments imposed on PBMs and other entities, such as hospitals and non-hospital providers, see our analysis of the recently enacted “An Act Enhancing the Health Care Market Review Process.”
Key Takeaways
This comprehensive legislation positions Massachusetts alongside other states that have taken steps to regulate PBMs. However, the full scope and impact of this legislation will not be fully understood until the Division of Insurance promulgates the necessary regulations and establishes specific requirements for PBM licensing and operations. In addition, the efficacy of any regulations is unknown at this point, given that the successful implementation of the law will depend heavily on effective collaboration between the state agencies, PBMs, and health insurers. The Act’s aims require ongoing monitoring, evaluation, and potential adjustments based on the data collected and the observed impact on drug costs, patient access and the overall healthcare system. What is clear though, is that PBMs will face heightened scrutiny from regulators, requiring them to adapt to the new regulatory regime in the Commonwealth of Massachusetts.
Swing and a Miss: The Government Strikes Out in Pharmacy Executive Kickback Trial
Last week, the government submitted its decision to the federal court not to retry partially-acquitted pharmacy executive, Chad Beene, for conspiracy and illegal kickback allegations. At the end of last year, a New Jersey jury partially acquitted Mr. Beene on charges related to an alleged $34 million illegal kickback scheme. At trial, federal prosecutors alleged that Mr. Beene and his colleagues crafted an illegal scheme through which they paid several marketing companies illegal kickbacks for securing prescriptions of “medically unnecessary” and “exorbitantly priced” compounded medications. While three of the indicted alleged co-conspirators pleaded guilty, Mr. Beene took the case to trial and was found not guilty on six counts. The jury was unable to reach a verdict on nine additional counts. These remaining counts left the door open for prosecutors to retry the case against Mr. Beene in an attempt to secure a conviction.
A federal grand jury indicted Mr. Beene and his alleged co-conspirators in July of 2020 for allegedly using their positions as pharmacy executives at Main Avenue Pharmacy to identify the most expensive medications, such as compounded scar creams, pain creams, migraine medication, and vitamins, and create pre-written prescription pads to encourage doctors to write prescriptions that would result in the highest pharmacy reimbursement, even where the medications were not medically necessary. The defendants then allegedly disbursed the prescription pads nation-wide through their contacts with marketing companies. As part of the scheme, the marketers would pay telehealth companies and healthcare providers to authorize the prescriptions, which were then sent back to the conspirators’ pharmacy and filled. The defendants would then submit requests for reimbursement from patient’s private health insurance, Tricare, and Medicare. After receiving their reimbursements, the defendants allegedly paid kickbacks to the marketers for the prescriptions received.
Federal prosecutors argued that the signed contracts with the marketers laid out the illicit kickback arrangement with the pharmacy. In total, the defendants, along with Main Avenue Pharmacy, were alleged to have received almost $34 million in reimbursements.
Two of the defendants, Jeffrey Andrews, the former pharmacy Chief Financial Officer, and Adam Brosius, the former pharmacy Director of Business Development and President, pleaded guilty to charges of conspiracy earlier this year. The remaining defendant Robert Schneiderman had previously pled guilty in 2022 to conspiracy to commit health care fraud and conspiracy to violate the Anti-Kickback Statute. Sentencing is scheduled for June 2025.
Mr. Beene did not agree to a plea deal and proceeded to trial where he argued that there was insufficient evidence of an illegal conspiracy and that he acted in “good faith”, or, in other words, that in his honest opinion and belief his conduct was entirely legal. Mr. Beene acknowledged that he served as the National Sales Manager of the Main Avenue Pharmacy, where he used his skill and knowledge of graphic software to clean up pre-prepared prescription pads and developed marketing plans, but showed that he had no previous health care work experience. Based on his limited health care training and understanding, Mr. Beene claimed that he lacked the understanding that certain business practices, such as commission-based payments to marketers or insufficient oversight of prescription authorizations, could be considered unlawful. Witnesses against Mr. Beene included his alleged co-conspirators Brosius and Schneiderman, others who worked at the pharmacy, and pharmacy patients.
The trial record indicates that the jury intently reviewed the evidence and jury instructions, sending notes to the judge during deliberations asking for specific pieces of evidence or copies of relevant statutes. In their verdict, the jury acquitted Mr. Beene of all counts related to the allegations that he caused the pharmacy to submit allegedly fraudulent claims to Medicare and other health care plans. However, after five days of deliberations, the jury could not come to a conclusion on the counts of conspiracy to commit health care fraud or to violate the Anti-Kickback Statute and other alleged payments of illegal kickbacks. The government’s conspiracy theories rested on Mr. Beene entering into an agreement with others to commit the crimes. After the verdict was issued, a juror reached out to defense counsel offering to speak regarding the verdict offering to answer any questions about the case and stating “ . . . I want you to know your team did a fantastic job at trial . . . I wanted to ensure I exhausted all options in securing a Not Guilty verdict on all counts. We were so close . . . I am unsure of the chances for a retrial, but the government’s case is weak.”
Mr. Beene’s acquittal is a reminder that the government does not win every case it brings to trial, especially where the regulations are complex and intent is not easily proven. In heavily regulated industries like health care, it can be difficult for industry participants to parse through convoluted regulatory framework. For jurors without any health care industry experience, it can be even more difficult to understand or focus on the non-criminal intent behind convoluted business practices. While the Department of Justice continues to aggressively pursue health care fraud cases, Mr. Beene’s acquittal shows that proving illicit intent in the midst of the increasing complexities of regulatory compliance is difficult and a conviction is not a foregone conclusion simply because the government alleges that individuals “knew” that their conduct was improper. The government must prove knowledge beyond a reasonable doubt.
McDermott+ Check-Up: January 24, 2025
THIS WEEK’S DOSE
Senate Committees Continue Nomination Hearings. Senate-wide votes have begun as the confirmation process progresses.
House VA Committee Holds Oversight Hearing on Community Care. Members of the House Veterans’ Affairs (VA) Committee examined Congress’ role in improving veterans’ healthcare.
White House Revokes Biden-Era Healthcare EOs. The rescinded executive orders (EOs) relate to health equity, prescription drug costs, and artificial intelligence (AI).
Trump Pauses Regulatory Activity. The pause includes external communications for all agencies.
CONGRESS
Senate Committees Continue Nomination Hearings. The Senate VA Committee held a hearing for VA secretary nominee Doug Collins and subsequently voted for his confirmation with broad bipartisan support. His confirmation vote will now be scheduled for consideration by the full Senate. Russell Vought’s nomination for Office of Management and Budget (OMB) director advanced out of the Senate Homeland Security and Governmental Affairs Committee in an 8 – 7 vote along party lines earlier this week. The Budget Committee held another hearing for Vought’s nomination, where Democrats expressed concerns about potential cuts to Medicaid, especially for low-income and elderly individuals. Republicans focused on the importance of reducing waste, fraud, and abuse in healthcare and advocated against providing care to undocumented immigrants. The Senate Budget Committee will vote on Vought’s confirmation in the coming days, after which his confirmation should be scheduled for consideration by the full Senate.
House VA Committee Holds Oversight Hearing on Community Care. In the hearing, members agreed that Congress has a role to play in improving care for veterans and supporting community care, and expressed concern about the lack of access to VA facilities across the country. Many Democratic members emphasized the need for more hearings on this issue, particularly with witnesses from the VA and third-party VA administrators.
ADMINISTRATION
White House Revokes Biden-Era Healthcare EOs. President Trump was inaugurated on January 20, 2025, and he spent his first day issuing new EOs and revoking others signed into law by former President Biden, 12 of which were healthcare-related. Revoking these EOs has little immediate impact, because additional steps would be necessary to effectuate changes to current policy. The revocations may be indicative of future policymaking, however. Below is a summary of a few key rescinded EOs:
Strengthening Medicaid and the ACA. This EO directed the US Department of Health and Human Services (HHS) to consider creating a special enrollment period for the health insurance marketplace in response to COVID-19. It also directed HHS and the US Departments of Labor and the Treasury to examine and consider suspending or rescinding policies or practices that may undermine Medicaid, Affordable Care Act (ACA) coverage, or the Health Insurance Marketplace. The EO also revoked two first-term Trump Administration EOs: Minimizing the Economic Burden of the Patient Protection and ACA Pending Repeal, and Promoting Healthcare Choice and Competition Across the United States.
Lowering Prescription Drug Costs for Americans. This EO directed the Centers for Medicare & Medicaid Innovation Center to consider models that would lower drug costs and promote access to innovative drug therapies for beneficiaries enrolled in the Medicare and Medicaid programs, including models that may lead to lower cost-sharing for commonly used drugs and support value-based payment that promotes high-quality care.
Safe, Secure, and Trustworthy Development and Use of AI. This EO set forth principles that executive agencies should follow when utilizing AI, including requirements that AI be safe, secure, responsible, and equitable. The EO also established the White House AI Council, which consisted of the assistant to the president and deputy chief of staff for policy, and representatives from various agencies and departments, including HHS.
Through another EO, President Trump started the process of withdrawing the United States from the World Health Organization (WHO), citing mishandling of the COVID-19 pandemic and an inability to demonstrate independence from the political influence of WHO member states. The EO directs OMB and the US Department of State to pause transfer of funds to the WHO and recall any personnel working in any capacity at the WHO.
Trump Pauses Regulatory Activity. As part of the transition, the new Trump Administration issued an EO that paused regulatory activity, including issuance of new proposed rules unless an exemption is provided. While this is typical of a new Administration, memos from department heads have placed more restrictions on third-party and formal communications, even outside of the rulemaking process. For HHS, the “freeze” in regulatory activity is set to run until February 1, 2025.
QUICK HITS
MACPAC Holds January 2025 Meeting. The Medicaid and CHIP Payment and Access Commission (MACPAC) meeting included discussion related to home- and community-based services, opioid-use disorder treatment, residential services access for children and youth, external quality review for managed care organizations, the transition from pediatric to adult healthcare, and the All-Inclusive Care for the Elderly model.
President Trump Announces Investment in AI Infrastructure. The president announced the Stargate Project, which is a multibillion-dollar investment by private technology companies. The project’s goal is to create AI infrastructure in the United States and includes a focus on curing diseases.
NEXT WEEK’S DIAGNOSIS
We expect the new Administration to continue to release EOs and take additional actions on healthcare in the coming week. The House will be in recess next week, and the Senate will be in session, with confirmations expected to continue in committees and on the floor. HHS secretary nominee RFK Jr. will appear before the Senate Finance and Health, Education, Labor, & Pensions Committees next week. Other hearings include a Senate VA Committee hearing on the VA’s community care program, and a Senate Aging Committee hearing on fiscal policies related to seniors.
Alabama CON Report – January 2025
Bradley presents its January 2025 Alabama CON Review Board Update, prepared for the firm’s healthcare clients and other interested parties. The firm’s Certificate of Need practice utilizes a cross-disciplinary team approach, involving transactional, regulatory, and government relations attorneys. Firm attorneys monitor legislative, regulatory, judicial, and administrative developments related to health planning; routinely advise clients on how these developments affect clients’ healthcare businesses; and guide clients through the requirements and regulatory hurdles for client acquisitions, development, and expansions.
Read the Report Here
California SB 923: New Trans-Inclusive Healthcare Requirements for Health Plans
Beginning in the first quarter of 2025, California healthcare service plans, health insurers, Medi-Cal managed care plans, and PACE organizations must ensure that staff who have direct enrollee contact receive evidence-based cultural competency training focused on transgender-inclusive healthcare. This requirement arises from Senate Bill No. 923 (SB 923), a law passed by the California legislature in 2022. Provider directories must also be updated by March 1, 2025, to identify which in-network providers have previously offered gender-affirming services.
SB 923 is part of a broader effort by the California legislature to require healthcare entities to improve access to culturally competent gender-affirming care for transgender, gender diverse, and intersex (TGI) individuals. This legislation builds on prior mandates requiring physicians and surgeons to complete continuing medical education (CME) courses addressing cultural and linguistic competency. The legislation expanded existing cultural competency training requirements to now require CME programs to address TGI-related health needs, thus laying a foundation for the broader system-wide changes that SB 923 compels.
While the statute sets “no later than March 1, 2025,” as the outer deadline for compliance, the California Department of Managed Health Care (DMHC) All Plan Letter (APL) 24-018 imposes an earlier deadline – February 14, 2025 – for all full-service (and certain specialized) healthcare service plans under DMHC jurisdiction to complete the required training.
Below we outline the key requirements, summarize the CME obligations already in effect, consider initial feedback from early implementation, and offer steps to help affected entities prepare for upcoming deadlines.
In Depth
NEW REQUIREMENTS FOR HEALTH PLANS, INSURERS, AND MEDI-CAL MANAGED CARE ENTITIES
SB 923 requires healthcare service plans, health insurers, Medi-Cal managed care plans, and PACE organizations to engage in workforce cultural competency training. Key training elements include:
Adopting inclusive communication techniques by using TGI-inclusive terminology and ensuring respectful, affirming interactions with TGI patients.
Addressing health disparities by explaining how family and community acceptance influence TGI patient health outcomes and integrating this understanding into care practices.
Conducting refresher course training whenever a complaint is filed and upheld against a staff member for failing to provide TGI-inclusive care and administering additional courses more frequently if needed.
Training must be provided to staff who directly interact with enrollees. This includes frontline personnel such as call center representatives, nurses, and other staff members who have contact with patients. Exempt from this training requirement are specialized healthcare service plans providing only dental or vision services and Medicare Advantage plans. Currently, SB 923 does not include any exemptions or opt-outs for staff or providers based on religious, moral, or rights of conscience objections grounds.
While SB 923’s statutory language sets an outer compliance deadline of no later than March 1, 2025, DMHC’s APL 24-018 specifies that all full-service healthcare service plans, regardless of size (and certain specialized plans other than dental or vision-only plans), must ensure that staff complete the required training by February 14, 2025. For health insurers regulated by the Department of Insurance or Medi-Cal managed care plans overseen by the Department of Health Care Services (DHCS), the statutory deadline remains March 1, 2025, unless their respective regulators issue further guidance.
In addition to initial training, DMHC’s APL requires that training be completed every two years thereafter, ensuring ongoing competency. Newly hired staff with direct enrollee contact must complete the training within 45 days of commencing employment. Health plans should also note that regulators may impose sanctions or penalties for noncompliance, reinforcing the importance of meeting these requirements.
UPDATED PROVIDER DIRECTORIES FOR GENDER-AFFIRMING SERVICES
By March 1, 2025, health plans, insurers, and Medi-Cal managed care plans must update their provider directories (as well as call center information) to identify which in-network providers have affirmed and previously provided gender-affirming services. These services might include hormone therapy, gender-confirming surgeries, gender-affirming gynecological care, or voice therapy.
ALREADY-IN-EFFECT CME REQUIREMENTS
Since 2006, curricula for CME courses in California have been required to include cultural and linguistic competency in the practice of medicine. Since 2022, CME course curricula also have been required to include the understanding of implicit bias. SB 923 amended the cultural competency portion of California’s Business and Professions Code Section 2190.1 to require that CME also include TGI health needs. The updated CME curricula should address:
Using correct names, pronouns, and gender-neutral language.
Avoiding assumptions about gender or sexual orientation.
Understanding the discrimination and barriers that TGI patients face, and how implicit bias may influence clinical decisions.
Implementing administrative changes, such as more inclusive intake forms, to create a welcoming care environment.
Cultural competency, including TGI-specific elements, and implicit bias training are not necessary for CME courses offered outside of California to California-licensed physicians and surgeons or as part of CME courses dedicated solely to research or other non-clinical issues lacking a direct patient care component.
IMPLEMENTATION STATUS OF SB 923 CME REQUIREMENTS
Since the TGI-focused CME requirements took effect in 2023, some larger health systems have begun integrating targeted training modules while smaller practices have struggled to find suitable specialized resources. According to the California Association of Health Plans, questions remain about how these training standards will align and be enforced across various health plans and delegated entities. Despite these uncertainties, incremental progress continues. As more healthcare organizations develop approved training resources and toolkits, accessibility and overall cultural competency likely will improve.
PRACTICAL STEPS FOR COMPLIANCE
For Healthcare Providers: Integrate the updated CME modules into existing physician education, revise administrative materials (intake forms, electronic medical records) to reflect inclusive language, and ensure all frontline staff are trained in respectful, TGI-inclusive communication.
For Health Plans and Insurers: Implement TGI-focused training as specified by DMHC: for full-service healthcare service plans, by February 14, 2025, and for other regulated entities, by the statutory deadline. Update provider directories to highlight gender-affirming providers by March 1, 2025, and establish effective complaint and grievance tracking to ensure accountability. With respect to ERISA-governed self-insured group health plans, SB 923 does not provide an express exception. However, ERISA typically preempts state laws that attempt to regulate employee benefit plans, although fully insured plans are generally subject to state insurance laws and would likely need to comply with SB 923. A plan that is not fully insured or regulated by the California DMHC would generally not need to comply. As of the publication date, we are unaware of any ERISA preemption challenges to SB 923. Some group health plan sponsors may wish to proceed with compliance and continue to watch for any updates.
For Medi-Cal Managed Care Plans and PACE Organizations: Follow guidance issued by regulators, such as the DHCS Policy Letter 24-03, to implement required training, keep provider directories current with gender-affirming providers, and report TGI-related complaints. In addition, remain alert for further instructions from regulators and prepare to incorporate the required standards.
LOOKING AHEAD
When SB 923 was initially debated, some stakeholders opposed the legislation based on religious liberty and rights of conscience grounds, arguing that SB 923’s training mandates amount to unconstitutional compelled speech. However, a recent decision by the US District Court for the Central District of California in Khatibi v. Hawkins suggests that courts may uphold SB 923 as a form of government speech. The case involved a challenge to the implicit bias training requirement because some CME lecturers felt that their First Amendment rights were being violated. The court observed that “[s]tate-mandated curriculum requirements for CME courses necessary for state licensure constitutes government speech because when physicians . . . choose to teach CME courses for credit, they ‘speak for the state.’” (Khatibi v. Hawkins, No. 2:23-cv-06195-MRA-E, 2024 WL 3802523 (May 2, 2024)). The matter is currently under appeal to the US Court of Appeals for the Ninth Circuit.
CONCLUSION
SB 923 represents continued efforts by California toward ensuring that TGI patients receive respectful, informed, and affirming healthcare. With CME requirements already in effect and a range of new mandates, including system-wide training for health plans, updated provider directories, complaint tracking, and eventual quality standards, entities face a multifaceted compliance landscape. DHCS Policy Letter 24-03 and DMHC APL 24-018 provide clarity and actionable guidance, and both reflect the recommendations issued by the Transgender, Gender Diverse, or Intersex Working Group convened under SB 923’s mandate. Formal regulations under SB 923 will be adopted by July 1, 2027, but as the February and March 2025 deadlines approach, stakeholders should proactively implement training, update administrative practices, maintain transparent patient engagement, and follow the newly issued DHCS and DMHC directives.
Navigating New York’s Proposed Cost Market Impact Review
In January 2025, New York Governor Kathy Hochul proposed legislation within her FY 2026 Executive Budget that could significantly reshape healthcare transactions in the state. This legislation introduces a “Cost Market Impact Review” (CMIR) process for material transactions involving healthcare entities, aiming to assess their effects on cost, quality, access, health equity, and competition. While the proposal has sparked conversations across the healthcare and private equity sectors, it offers a pivotal opportunity for strategic planning and collaboration if approached with foresight.
At its core, the CMIR process signals a broader regulatory shift prioritizing transparency and accountability in healthcare transactions. Under the proposed legislation, healthcare entities contemplating material transactions would face an extended pre-closing notice period, new annual reporting obligations, and the potential for lengthy delays due to comprehensive reviews by the New York Department of Health (DOH). For stakeholders, this represents both a challenge and an opportunity to align transactions with the state’s goals of improving healthcare outcomes and equity while ensuring compliance.
Understanding the Proposal’s Scope and Ambiguities
The legislation’s potential impact hinges on several undefined terms, such as what constitutes a “healthcare entity,” “material transaction,” and “de minimis exception.” Currently, healthcare entities broadly include physician practices, health systems, insurers, and management services organizations, among others. The law would apply to transactions that increase a healthcare entity’s gross in-state revenues by $25 million or more. However, how “in-state revenues” are calculated remains ambiguous, leaving room for interpretation.
The proposed legislation also empowers the DOH to require extensive documentation during its preliminary review and potential CMIR. While these measures aim to protect patients and communities by fostering competition and health equity, they may add layers of complexity and delay to transactions, particularly for private equity sponsors and healthcare systems accustomed to more streamlined processes.
Strategic Planning Amid Heightened Scrutiny
Private equity firms, hospital systems, and other stakeholders must adopt proactive strategies to address these regulatory changes. Given the increased focus on healthcare transaction transparency, due diligence will need to evolve. It will no longer suffice to simply evaluate the financial viability and operational synergies of a deal. Instead, stakeholders must incorporate a detailed assessment of a transaction’s impact on access, quality, and equity, as perceived by regulators.
This requires tailoring transaction structures to align with New York’s healthcare priorities. For instance, parties might emphasize commitments to underserved communities, bolster access to primary care, or invest in workforce development as part of their transaction narratives. Doing so not only mitigates regulatory risk but also positions the transaction as a partnership with the state in achieving shared healthcare goals.
Implications for Private Equity and Healthcare Systems
For private equity firms, the proposed legislation underscores the importance of long-term planning in healthcare investments. Firms will need to engage legal and regulatory experts early to navigate the complexities of compliance. Moreover, these firms should be prepared to articulate how their transactions contribute to innovation and sustainability in healthcare delivery.
Healthcare systems, on the other hand, may face challenges balancing transaction timelines with regulatory compliance. However, this moment also presents an opportunity for hospital systems to demonstrate leadership in addressing cost and quality challenges. By proactively engaging with state regulators, healthcare systems can set a collaborative tone, shaping CMIR outcomes in their favor.
Opportunities Amid Challenges
While the CMIR process may lengthen transaction timelines and require more robust documentation, it also opens the door for stakeholders to differentiate themselves. Transactions that clearly address New York’s objectives—whether by improving access to care, addressing social determinants of health, or enhancing health equity—will likely stand out in the regulatory process.
Furthermore, the proposal encourages healthcare entities to think beyond traditional metrics of success. Transactions that integrate advanced data analytics, innovative care models, or population health initiatives may not only meet regulatory requirements but also unlock new avenues for growth and patient impact.
Looking Ahead
The proposed legislation reflects a growing trend across the U.S., where states are increasingly scrutinizing healthcare transactions to ensure alignment with public policy goals. Massachusetts and Indiana have introduced similar requirements, and other states may follow suit. As such, the New York proposal serves as both a cautionary tale and a roadmap for stakeholders navigating this evolving landscape.
For private equity firms, hospital systems, and other healthcare stakeholders, now is the time to adapt. This means not only preparing for regulatory compliance but also embracing a more collaborative approach to transactions. By aligning with state priorities, stakeholders can turn regulatory challenges into opportunities to drive meaningful, sustainable change in healthcare delivery.
The road ahead requires careful navigation, but the potential rewards—improved healthcare outcomes, stronger partnerships with regulators, and enhanced community impact—make the journey worthwhile.
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Massachusetts Expands Oversight of Private Equity Investment in Healthcare: Key Takeaways from House Bill 5159 Signed into Law by Governor Healey
On January 8, 2025, Massachusetts Governor Maura Healey signed House Bill 5159 (“H.5159”) into law, marking a notable expansion of the regulation of private equity investments within the Massachusetts healthcare sector. The legislation, set to take effect on April 8, 2025, introduces new measures to enhance transparency and accountability in healthcare transactions, focusing specifically on private equity firms, real estate investment trusts (“REITs”), and management services organizations (“MSOs”). This development also reflects a broader trend across the nation of increasing scrutiny of healthcare transactions and investments by private equity firms and other investors, as highlighted in our previous blog series on California’s Assembly Bill 3129.[i]
Key Provisions of H.5159
The enactment into law of H.5159 increases oversight of healthcare transactions in Massachusetts in several ways:
1. Expanded Definition of Material Changes Requiring Notice to the Massachusetts Health Policy Commission and Potential for Further Delays to Closing
Pre-existing Massachusetts law mandates that healthcare providers and provider organizations, including physician practices, healthcare facilities, independent practice associations, accountable care organizations, and any other entities that contract with carriers for the payment of healthcare services, with more than $25 million in Net Patient Service Revenue[ii] in the preceding fiscal year must submit a Material Change Notice (“MCN”) to the Massachusetts Health Policy Commission (“HPC”), Center for Health Information and Analysis (“CHIA”), and Office of the Attorney General at least 60 days prior to a proposed “material change” involving such entity.
Before H.5159 was enacted, the definition of “material change” already encompassed several types of transactions involving healthcare providers and provider organizations with more that $25 million in Net Patient Service Revenue, requiring them to submit an MCN to the Massachusetts HPC, CHIA, and Office of the Attorney General. These include:
A merger, acquisition, or affiliation between a healthcare Provider and an insurance carrier;
A merger, acquisition, or affiliation involving a hospital or hospital system;
Any acquisition, merger, or affiliation that results in an increase of $10 million or more in annual net patient service revenue, or grants the Provider or Provider Organization near-majority market share in a specific service or geographic area;
Clinical affiliations between two or more Providers or Provider Organizations with annual net patient service revenue of $25 million or more, excluding affiliations solely for clinical trials or medical education purposes; and
The formation of new entities such as joint ventures, MSOs, or accountable care organizations that contract with insurers or other administrators on behalf of healthcare Providers.
H.5159 notably broadens the definition of “material change” to include also:
Transactions involving a Significant Equity Investor that result in a change of ownership or control of a Provider or Provider Organization;
“Significant” acquisitions, sales, or transfers of assets, including, but not limited to, real estate sale-leaseback arrangements;
“Significant expansions” in a Provider or Provider Organization’s capacity;
Conversion of nonprofit Providers or Provider Organizations to for-profit entities; and
Mergers or acquisitions of Provider Organizations that will result in the Provider Organization having a dominant market share in a service or region.
The term “Significant Equity Investor” is broadly defined to include: (i) any private equity firm holding a financial interest in a Provider, Provider Organization, or MSO; and (ii) any investor, group of investors, or entity with ownership of 10% or more in such organizations. The definition specifically excludes venture capital firms solely funding startups and other early-stage businesses.
While the law expands the definition of “material change” to encompass the categories listed above, it does not explicitly define what constitutes a “significant acquisition,” “significant expansion,” or “change of ownership or control.” As of now, these terms are left to be clarified by the HPC through further regulation and guidance. Stakeholders should monitor future regulatory updates from the HPC to understand the specific thresholds for these types of transactions.
If the HPC determines within 30 days of receiving a complete MCN that a “material change” may significantly affect Massachusetts’ ability to meet healthcare cost growth benchmarks or impact market competition, the HPC can initiate a Cost and Market Impact Review (“CMIR”). This process requires detailed submissions from transaction parties and significantly extends the transaction timeline to close a deal.
The amended law also enhances the HPC’s information-gathering capabilities, authorizing the HPC to request detailed data on Significant Equity Investors, including financial data and capital structure information. Additionally, the HPC can now monitor and collect information on post-transaction impacts for up to five years following a material change. While nonpublic information submitted to the HPC remains confidential, the filed MCN and the completed CMIR report will be publicly available on the HPC’s website.
Although the HPC cannot directly prohibit a transaction or impose conditions, it can refer its CMIR findings to the Massachusetts Attorney General, Massachusetts Department of Public Health (“DPH”), or other state agencies for further action.
2. Investors May be Called as Witnesses at Annual Public Hearings
H.5159 authorizes the HPC to assess the impact of Significant Equity Investors, healthcare REITs, and MSOs on healthcare costs, prices, and cost trends. HPC is empowered to call a representative sample of these investors to testify at its annual public hearings under oath. The Attorney General may intervene in these hearings, ensuring rigorous oversight and accountability.
3. Annual Financial Reporting Requirements
Certain Provider Organizations are already required to register with the HPC (“Registered Provider Organizations”) and submit annual reports to the CHIA. To be subject to the registration requirement, a provider organization must meet at least one of the following criteria: (a) annual net patient service revenue from private carriers or third-party administrators of at least $25 million in the prior fiscal year; (b) a patient panel of more than 15,000 over the past 36 months; or (c) classification as a risk-bearing provider organization, regardless of revenue or panel size. This includes, but is not limited to, physician organizations, independent practice associations, accountable care organizations, and provider networks.
H.5159 expands reporting obligations for Registered Provider Organizations to include detailed information about the Registered Provider Organization’s Significant Equity Investors, healthcare REITs, and MSOs. It also clarifies that Registered Provider Organization financial statements must cover parent entities’ out-of-state operations and corporate affiliates. Additionally, the amended law authorizes the state to require quarterly submissions from Registered Provider Organizations with private equity involvement. These submissions may include audited financial statements, structure charts, margins, investments, and relationships with investor groups. Organizations must also report on costs, annual receipts, realized capital gains and losses, accumulated surplus, and reserves. The HPC will monitor prior transactions and investments for up to five years and notify organizations of future reporting deadlines as needed.
4. Penalties for Noncompliance with Reporting Requirements
H.5159 imposes stricter penalties for failing to submit required financial reports. Entities missing reporting deadlines may face fines of up to $25,000 per week after a two-week grace period, with no annual penalty cap. This is a substantial increase from prior penalties, which were capped at $50,000 annually.
5. Expanded Authority for the Attorney General
The Massachusetts Attorney General is authorized to review and analyze any information submitted to CHIA by a provider, provider organization, Significant Equity Investor, health care REIT, MSO or payer. The Attorney General may compel such entities to produce documents, answer interrogatories, or provide testimony under oath concerning healthcare costs, cost trends, and the relationship between provider costs and payer premiums.
The Attorney General may disclose such information during HPC annual public hearings, rate hearings before the Division of Insurance, and legal proceedings because the law deems such information to be in the public interest.
6. Expanded Massachusetts False Claims Act Liability
H.5159 amends the Massachusetts False Claims Act (the “MA FCA”), which is broader in scope than the Federal False Claims Act, to expand liability to entities holding an “ownership or investment interest” in a person or entity violating the MA FCA. Specifically, private equity owners and other investors who are aware of a violation and fail to report and remedy it within 60 days of discovery may be held liable. The law codifies this expanded accountability, explicitly including investor groups among those who can be held responsible for untimely reporting violations. Additionally, the amendments clarify the Attorney General’s authority to issue civil investigative demands to healthcare entities and investor groups.
Notable Exclusions from Earlier Proposals
H.5159 reflects several compromises that were made during the legislative process, resulting in a more moderate version compared to earlier proposals. The process began in May 2024 with the introduction of House Bill 4653, followed by Senate Bill 2871 in July 2024.[iii] Senate Bill 2871 included stricter requirements than those in House Bill 4653, but lawmakers struggled to reconcile the differences before the legislative session deadline on July 31, 2024. This stalemate led to renewed efforts in December 2024, which ultimately resulted in the passage of H.5159.
While H.5159 carries forward many of the provisions from the earlier bills, it also removes certain measures that stakeholders had identified as too burdensome, as outlined below. These exclusions include:
Restrictions on Practice Ownership and Clinical Decision Making: provisions explicitly codifying restrictions on healthcare practice ownership and prohibiting MSOs or other healthcare entities from exerting control over clinical decisions were omitted.
Boundaries Between MSOs and Physician Practices: H.5159 also excludes specific boundaries that were previously proposed to regulate the relationship between physician practices and MSOs, including restrictions on MSOs exerting ultimate control over the finances of healthcare practices and limitations on stockholders’ ability to transfer, alienate, or exercise discretion over their ownership interests in the practices.
Maximum Debt-to-EBITDA: A provision that would have allowed the Massachusetts HPC to set a maximum debt-to-EBITDA ratio for provider organizations with private equity investors was removed from the final bill that was signed into law.
Bond Requirements for Private Equity Firms: H.5159 does not include the previously proposed requirement that private equity firms deposit a bond with the DPH when submitting an MCN, including when acquiring a provider organization.
Conclusion
The passage of H.5159 represents a pivotal moment in Massachusetts’ efforts to regulate investment in health care. It also reflects, however, a compromise that did not impose even more stringent requirements that were set to impact providers, provider organizations, and investors.
Investors, including private equity firms, and healthcare providers and provider organizations, will need to adapt to the enhanced oversight mechanisms and implement more thorough due diligence practices to ensure transparency and avoid penalties for non-compliance. Pre-transaction, this includes ensuring thorough documentation and proactive engagement with regulatory authorities. Post-transaction, entities must implement systems to track and report required financial and operational data accurately and on time.
As H.5159 takes effect, we will continue to monitor and report on any further regulatory updates, particularly those concerning the HPC’s development of regulations to implement this law.
FOOTNOTES
[i] Update: Governor Newsom Vetoes California’s AB 3129 Targeting Healthcare Private Equity Deals | Healthcare Law Blog (sheppardhealthlaw.com), published October 2, 2024, Update: AB 3129 Passes in California Senate and Nears Finish Line | Healthcare Law Blog (sheppardhealthlaw.com), published September 6, 2024, California’s AB 3129: A New Hurdle for Private Equity Health Care Transactions on the Horizon? | Healthcare Law Blog (sheppardhealthlaw.com), published April 18, 2024, and Update: California State Assembly Passes AB 3129 Requiring State Approval of Private Equity Healthcare Deals | Healthcare Law Blog (sheppardhealthlaw.com), published May 30, 2024.
[ii] Net Patient Service Revenue refers to revenue received for patient care from third-party payers, net of contractual adjustments, with distinctions depending on the type of Provider or Provider Organization. For hospitals, it must comply with Massachusetts General Laws Chapter 12C, Section 8, requiring standardized reporting of gross and net revenues, including inpatient and outpatient charges, private sector charges, payer mix adjustments, and revenue from additional services. For other providers and provider organizations, it includes all revenue from third-party payers, prior-year settlements, and premium revenue (per-member-per-month payments for comprehensive healthcare services). 950 CMIR 7.00.
[iii] See our prior blog for background on Senate Bill 2871: Massachusetts Senate Passes Bill to Increase Oversight of Private Equity Healthcare Transactions | Healthcare Law Blog
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New York’s Proposed Health Information Privacy Act Takes Aim at Digital Health Companies
The New York Health Information Privacy Act (NYHIPA), if enacted, could create a chilling effect on patient access and engagement to readily available digital health care services relied upon by New Yorkers. Digital health companies will likely struggle to maintain patient engagement and care coordination and will almost certainly face hurdles in improving their products and services due to the financial and operational burdens created by NYHIPA.
As of January 23, 2025, the NYHIPA had passed both the New York Senate and Assembly and will be routed to the Governor for possible signature. If enacted, the NYHIPA would significantly impact how digital health companies collect, disclose, and use consumer health information in New York.
Who is regulated?
As currently drafted, NYHIPA will be applicable to any health care organization with patients or customers that have a connection to New York.
Specifically, NYHIPA would apply to any entity that:
controls the processing of regulated health information of a New York resident,
controls the processing of regulated health information of an individual who is physically present in New York while that individual is in New York, or
is located in New York and controls the processing of regulated health information.
The entity-level exemptions are limited as compared to other consumer data privacy laws. HIPAA-covered entities are exempt but only to the extent the entity maintains patient information in the same manner as HIPAA-protected health information. Although traditional medical records maintained by HIPAA-covered entities will likely be exempt, personal information collected early in the user workflow will likely be governed by NYHIPA and subject to the strict authorization requirements discussed below prior to any processing by a regulated entity — unless the entity is a HIPAA-covered entity and treats that information as HIPAA- protected health information.
What information is regulated?
NYHIPA seeks to regulate any and all information that could be linked to health or wellness, including device data. The information regulated is any information that is reasonably linkable to an individual or a device, collected or processed in connection with the physical or mental health of an individual, including location or payment information that relates to an individual’s physical or mental health or any inference drawn or derived about an individual’s physical or mental health that is reasonably linkable to an individual or a device. HIPAA-protected health information and deidentified information would be exempt from regulation.
What are the processing restrictions?
“Processing” would need to be narrowly tailored to the specific product or service requested by an individual, unless an explicit authorization is obtained. Processing, as defined under NYHIPA, generally means any operation performed on health information, including the collection, use, disclosure, access, sale, sharing, creation, generation, or deidentification of health information.
Regulated entities cannot process health information unless:
the individual has provided an authorization; or
the processing is strictly necessary for certain enumerated purposes, including providing or maintaining a specific product or service requested by such individual or conducting the regulated entity’s internal business operations.
Most importantly, and what will surely cause angst within the digital health community, internal business operations expressly exclude any activities related to marketing, advertising, research and development, or providing products or services to third parties without explicit authorization from the individual authorizing such activities.
When can an authorization be obtained and what must the authorization include?
NYHIPA will prohibit an authorization from being obtained from an individual for 24 hours after account creation or first use of the product or service. Opt-in consent will not be enough, as individuals will be required to obtain explicit authorization for each activity not deemed strictly necessary to the products or services requested by the individual.
The authorization must
be made separately from any part of a transaction;
(ii) be made at least 24 hours after the individual creates an account or first uses the requested product or service; and
allow the individual to provide or withhold authorization separately for each category of processing activity, among other requirements.
For individuals who have an online account with the entity – which will be the case for most digital health companies – the regulated entity must provide, “in a conspicuous and easily accessible place within the account settings,” a list of all processing activities for which the individual has provided authorization and, for each processing activity, allow the individual to revoke authorization in the same place “with one motion or action.” Entities cannot make a product or service contingent on providing authorization and cannot discriminate against an individual for withholding authorization, such as by charging different prices for products or services, including through the use of discounts or other benefits.
Is a privacy notice required?
NYHIPA would require a privacy notice if a regulated entity processes health information for a permissible purpose without an authorization. The notice would need to include the information processed, the nature of the processing activity, the “specific purposes” for such processing, names or categories of service providers and third parties to whom information is disclosed and the purpose of the disclosure, and the mechanism by which the individual may request access to and deletion of their health information. Notably, if the regulated entity materially alters its processing activities, the regulated entity would need to provide a clear and conspicuous notice, separate from a privacy policy, terms of service, or similar document, that describes any material changes to the processing activities and provide the individual with an opportunity to request deletion of the individual’s health information. Note that unlike other consumer data privacy laws, the only exception to the deletion requirement under NYHIPA as proposed allows retention “to the extent necessary to comply with the regulated entity’s legal obligations.”
What are other key requirements digital health companies should be aware of?
NYHIPA will require service providers to segregate health information by regulated entity. Regulated entities would need to enter into a written agreement with service providers. The required terms for those agreements generally look similar to other consumer data privacy laws. However, NYHIPA also requires that the service provider:
not combine the health information which the service provider receives from or on behalf of the regulated entity with any other personal information which the service provider receives from or on behalf of another party or collects from its own relationship with individuals; and
(ii) notify the regulated entity “a reasonable time in advance” before sharing health information with any further service providers.
All websites and communications would need to be reasonably accessible to individuals with disabilities and available in languages in which the regulated entity provides information via its website and services.
When could this law be effective and what are the possible penalties?
NYHIPA would go into effect one year after the bill is signed into law.
The New York Attorney General would have authority to enforce the law, including civil penalties of the greater of $50,000 per violation or 20% of the revenue obtained from New York consumers within the past fiscal year, among other remedies. The Attorney General also has authority to promulgate implementing rules and regulations.
What are the practical impacts of NYHIPA?
NYHIPA will pose significant financial and operational hurdles to digital health companies. Regulated entities would be required to upgrade websites and user workflows for each of the processing activities for which the regulated entity would seek authorization from an individual, as well as any necessary upgrades to meet the new accessibility requirements. The 24-hour moratorium on requesting authorization will effectively create a barrier to activities that improve the patient experience, engagement, and education. Service providers will experience financial impact as a result of implementing the requirements to segregate each regulated entity’s health information. Finally, NYHIPA will require digital health companies to comply with yet another state consumer privacy law that materially differs from other state privacy laws.
What digital health companies should do next?
NYHIPA has passed both legislative houses and only awaits the Governor’s signature to become law. As noted above, the effective date for the law would be one year after signature by the Governor. That one-year period is an incredibly short time for digital health companies to implement the changes that would be required to comply with NYHIPA. Therefore, if enacted, digital health companies with patients or customers in New York should immediately begin planning for compliance with NYHIPA.
Health care data privacy continues to rapidly evolve. Thus, digital health companies should closely monitor any new developments and continue to take necessary steps towards compliance.
Supreme Court of Ohio Affirms Denial of Healthcare Service Provider’s Commercial Activity Tax Refund Claim
The Supreme Court of Ohio upheld the denial of Total Renal Care, Inc.’s (“TRC”) refund claim of Ohio Commercial Activity Tax (“CAT”) that it paid on services that it performed outside of Ohio. Total Renal Care Inc. v. Harris, Slip Op. No. 2024-Ohio-5685 (Ohio Dec. 9, 2024).
The Facts: TRC, a subsidiary of DaVita, Inc., provides dialysis to patients with kidney disease and end-stage renal disease. Dialysis treatments are administered at locations throughout the United States, including in Ohio. In addition to dialysis services, TRC provides laboratory testing services and administrative services, such as back-office support, data processing, and procuring medical equipment and supplies. TRC conducts these services in a number of states outside of Ohio.
For the years at issue, TRC originally paid CAT on all gross receipts it received from locations in Ohio where dialysis was provided. TRC subsequently filed refund claims and asserted that a portion of those gross receipts were related to its laboratory and administrative services, which were performed outside of Ohio.
The Ohio Tax Commissioner denied TRC’s refund claims, and the Ohio Board of Tax Appeals (the “Board”) affirmed. TRC appealed the Board’s decision to the Supreme Court of Ohio.
The Law: The CAT is imposed on “each person with taxable gross receipts for the privilege of doing business in [Ohio].” The statute defines “taxable gross receipts” as receipts with an Ohio situs and provides that receipts from services are sitused to Ohio in the proportion that the purchaser received the benefit of the service in Ohio.
Ohio’s Administrative Code governing situsing receipts provides “the physical location where the purchaser ultimately uses or receives the benefit of what was purchased is paramount in determining the proportion of the benefit received in Ohio.” The Administrative Code lays out a standard specific to healthcare services, which indicates that gross receipts from healthcare services are sitused to Ohio if the healthcare services are performed there.
The Decision: The Supreme Court of Ohio ultimately affirmed the Board’s decision, concluding that patients who received TRC’s dialysis treatment in Ohio received the benefits of such treatment there. The court focused its analysis on TRC’s provision of dialysis because TRC conceded that “the only service it provides to its patients is dialysis[.]” And it admitted that the laboratory and administrative functions “exist solely for its provision of dialysis services to patients in Ohio.” The court found that TRC’s laboratory and administrative services were not provided on a stand-alone basis and were only ancillary to providing dialysis treatment. Thus, the court concluded that the gross receipts at issue were from the provision of dialysis services, not the provision of dialysis, laboratory, and administrative services.
The court analyzed the facts under both the statutory language and the administrative rules and concluded, under either application, the result was the same. In applying the statute, the court stated “[w]hen determining the location to which gross receipts should be sitused, the taxing authority must look at the location where the purchaser benefited from the purchased service,” and indicated that the purchaser’s physical location is “paramount” to this inquiry. Applying this interpretation to TRC’s facts, the court held that patients who received dialysis in Ohio benefited from such treatment there. In applying the administrative rules, the court stated “if a healthcare service is provided entirely in Ohio, then the entirety of the receipts for that service are sitused to Ohio.” Applying this interpretation to TRC’s facts, the court held that the healthcare service TRC provided was dialysis and such service was provided entirely in Ohio.
Accordingly, the court held that TRC’s gross receipts it received from locations in Ohio where it provided dialysis should be sitused entirely to Ohio.
A Primer on Executive Orders and a Preview of the Road Ahead
On January 20, 2025, a new administration took control of the Executive Branch of the federal government, and it has signaled that it will make aggressive use of executive orders.
This would be a good time to review the scope of executive orders and how they may affect employers and health care organizations.
Executive orders are not mentioned in the Constitution, but they have been around since the time of George Washington. Executive orders are signed, written, and published orders from the President of the United States that manage and direct the Executive Branch and are binding on Executive Branch agencies. Executive orders can be used to implement or clarify existing federal law or policies and can direct and manage the way federal agencies interact with private entities. However, executive orders are not a substitute for either statutes or regulations.
The current procedure for implementing executive orders was set out in a 1962 executive order that requires that all such orders must be published in the Federal Register, the same publication where executive agencies publish proposed and final rules. Once published, any executive order can be revoked or modified simply by issuing a new executive order. In addition, Congress can ratify an existing executive order in cases where the authority may be ambiguous.
Although the President has extensive powers under Article II of the Constitution, that does not necessarily mean that executive orders can be issued and enforced on a whim. Over time, federal courts have reviewed executive orders and typically base their decisions on three questions: (1) has Congress delegated any authority to the President to act through an executive order?; (2) if so, what is the scope of any delegation?; and (3) did the President act within the scope of that delegation?
In a seminal case, Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952), the Supreme Court reviewed an executive order signed by President Truman directing the Secretary of Commerce to take possession of and operate most of the nation’s steel mills to prevent a strike from disrupting steel production during the Korean War. On appeal, the Court ruled that the executive order was not authorized under the Constitution or any statute, and that the President lacked any legislative power. It also rejected the argument that the President had an implied authority to issue the executive order under the military powers delegated to the President, as that did not extend to labor disputes.
More recently, during the COVID-19 pandemic, an executive order used the authority delegated in the Defense Production Act to address potential national defense and food supply disruptions. Nevertheless, deference to an executive order should not be presumed. Yet, even at the height of the pandemic, the Sixth Circuit ruled that the President lacked the authority to issue an executive order mandating that federal contractors be vaccinated against the COVID virus. In Kentucky v. Biden, 23 F.4th 585 (6th Cir. 2022), the Sixth Circuit ruled that the President’s reliance on the Federal Property and Administrative Services Act of 1949 (“FPASA”) was misplaced and did not authorize issuing an executive order binding on federal contractors; it determined that the act’s goal of improving economy and efficiency in federal procurement of property and services applied to the government itself and did not extend to issuing directives that may “improve the efficiency of contractors and subcontractors.”
The question of a delegation of authority to a President is not necessarily solved with an executive order directing an agency to issue regulations. For example, President Biden signed an executive order directing the Secretary of Labor to publish regulations setting a minimum wage of $15 per hour for federal contractors, based on his reading of FPASA. The regulations were challenged, and two Courts of Appeal reached opposite conclusions. In Bradford v. U.S. Dep’t of Labor, 101 F.4th 707 (10th Cir. 2024) the Tenth Circuit ruled that Congress had delegated broad authority under FPASA to the President in the language setting out the act’s purpose, and that he was justified in determining that a $15 minimum wage was consistent with the act’s goals. Nevertheless, in State of Nebraska v. Su, 121 F.4th 1 (9th Cir. 2024), the Ninth Circuit determined that the minimum wage mandate did exceed the authority granted to the President and the Department of Labor. That decision relied on a narrow reading of FPASA, and concluded that the intent of the statute was limited to ensuring that the federal government received value in contracts with private entities, and that setting a minimum wage for the employees of those contractors fell outside the reach of FPASA. Although there was a clear split among the circuits, the Supreme Court declined to resolve the matter. For now, disputes involving executive orders may have to be resolved on a case-by-case basis.
In the future, employers and health care organizations that supply goods or services to federal agencies or federally-funded programs should be concerned that if there are executive orders that affect their business, those orders should be examined carefully to evaluate not only the content of those orders, but whether they are authorized by law. EBG intends to monitor these developments along with any relevant rulemaking by federal agencies.