Rethinking University Research: Innovating the Innovation Ecosystem to Support Life Sciences and Personalized Medicine
Personalized medicine—tailoring treatments to individual patients based on their genetic makeup, lifestyle, and environment—is transforming healthcare. But this revolution didn’t begin in the private sector. It was sparked and shaped by decades of strategic investment from the U.S. government, especially the National Institutes of Health (NIH).
Genomics as the Foundation
The Human Genome Project, completed in 2003 with major NIH support, provided the genetic blueprint of human life. Follow-on initiatives like The Cancer Genome Atlas Program (TCGA), the Encyclopedia of DNA Elements (ENCODE), and the Genotype-Tissue Expression Project (GTEx) linked DNA variants to disease risk.
All of Us: A New Era of Data
NIH’s All of Us research program, aiming to enroll over one million participants, is creating one of the world’s most diverse and comprehensive health datasets. It’s enabling insights into how genes, the environment, and behavior intersect to shape health.
Pharmacogenomics in Practice
NIH’s Pharmacogenomics Research Network seeks to understand how individual genetic differences affect drug response, which can improve dosing precision and reduce adverse effects.
The Evolving Landscape of Federally Funded Research
While federal grants and investments have helped translate genomic insights into clinical impact, much of that foundational work begins in academic labs. Many fundamental discoveries take place in universities—long before they appear in clinical trials or investor pitch decks. Yet, the sustainability of this engine of innovation depends heavily on continued federal support. As funding pressures grow, especially in areas that don’t promise immediate commercial return, the need to protect and strengthen university research funding has never been more urgent.
The evolving financial landscape of university-led academic research was addressed by Dr. Julio Frenk at the 2025 LABEST Bioscience Conference. Overall, Dr. Frenk painted a hopeful picture of the future of academic research, encouraging universities to embrace change and seize opportunities for growth and success. His insights provide valuable guidance for navigating the evolving financial landscape and ensuring the continued advancement of knowledge and discovery.
A powerful idea was presented that challenges traditional notions of university research: the need to “innovate the innovation.” This concept, also described as meta-innovation, calls on research institutions to not only produce groundbreaking discoveries but to reimagine the entire process by which those discoveries are made, translated, and applied.
From Research to Real-World Impact
Universities have long been hubs of knowledge creation, but Dr. Frenk emphasized that in today’s complex world, that’s no longer enough. Academic institutions should drive research to link innovation with societal benefits.
A few of Dr. Frenk’s solutions include:
Dissolving the divide between basic and applied research. Universities should foster a more integrated approach that allows ideas to move more fluidly from theory to practical application.
Partner earlier and more intentionally with industry and philanthropic investors. Diversifying funding sources and collaborating sooner in the research cycle can speed up the path from concept to impact.
Redefine the university’s mission beyond knowledge creation to include translation—turning discoveries into technologies and evidence that inform policy and improve lives.
Build new physical and intellectual spaces, like the UCLA Research Park, that support interdisciplinary collaboration, entrepreneurship, and commercialization.
Embrace innovation in education and governance, ensuring the way the United States and academic institutions teach, organize, and evaluate research evolves alongside science itself.
The Future of Innovation is Integrated
This call to action urges universities to adopt agile, impact-focused systems instead of traditional academic models. By aligning excellence with relevance, and forging new types of collaboration, universities can remain at the forefront of solving humanity’s most urgent challenges.
In sum, the question isn’t just what we discover—but how we innovate to make that discovery matter.
House-Passed Budget Bill – the One Big Beautiful Bill Act – Includes Major Changes to Medicaid
On Thursday, May 22,2025, the U.S. House of Representatives narrowly passed the One Big Beautiful Bill Act, a budget reconciliation bill introduced by House Republicans, by a 215-214 vote. The bill extends key provisions of the 2017 Tax Cuts and Jobs Act, currently set to expire at the end of 2025, and allocates additional funding for defense and other federal priorities. It also includes reductions in government spending and revised eligibility requirements for several federal aid programs.
Among the provisions, the bill includes over $700 billion in proposed changes to Medicaid, the joint federal-state program that provides health insurance to low-income individuals and families, as well as certain people with disabilities and limited financial resources. These changes are intended to reduce federal outlays and are projected to significantly impact both Medicaid beneficiaries and the healthcare providers who serve them.
Key Medicaid Measures
The One Big Beautiful Bill Act proposes to achieve these savings through several policy changes. The estimated budget impact of each change over the next decade, as calculated by the nonpartisan Congressional Budget Office (CBO) and published here, is listed in parentheses below.
Community Engagement Requirements. Beginning in 2026, able-bodied adults would be required to complete 80 hours per month of work, volunteering and/or attending school to maintain eligibility for Medicaid, with certain exemptions (e.g., pregnant women and the elderly) (~$280B, which estimate was based on these requirements going into effect in 2029).
Increased Frequency of Eligibility Redeterminations. States would be required reverify Medicaid eligibility for expansion populations every six months, rather than annually (~$53.2B).
Moratorium and Limits on Provider Taxes. The bill would prohibit states from creating new provider taxes or expanding existing ones, and would restrict how provider taxes can be used to finance Medicaid. (~$123.9B combined).
Enrollment Streamlining Moratoriums. The bill would pause implementation of certain rules designed to streamline enrollment in Medicaid, the Medicare Shared Savings Program, the Children’s Health Insurance Program (CHIP), and the Basic Health Program (~$167.3B combined).
Enhanced Verification Standards. New address and documentation verification requirements would apply for Medicaid enrollment (~$17.4B).
Cost Sharing Requirements. States would be required to implement new cost-sharing charges for low-income individuals just above the poverty line ($16,000 per year for an individual) when they seek care. (~$13B).
Anticipated Impact on Coverage and Providers
Medicaid and CHIP currently provide health coverage for nearly 80 million people, making them the largest source of insurance coverage in the United States. According to earlier CBO estimates of a previous version of the bill, approximately 7.6 million people could lose coverage. The House-passed version would likely result in additional losses, given that certain provisions, such as the work requirements, would take effect earlier than previously modeled.
These coverage reductions could also affect healthcare providers, particularly those that serve communities with high Medicaid enrollment, as they may see changes in patient volumes.
What’s Next?
The bill now moves to the U.S. Senate, where it is expected to undergo further debate and potential revisions. While some senators have called for additional spending reductions, others, across the political spectrum, have raised concerns about the scale of the Medicaid-related changes. Republican leadership has expressed an intent to move the bill forward with the goal of delivering it to President Trump’s desk by July 4th.
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McDermott+ Check-Up: May 30, 2025
THIS WEEK’S DOSE
Senate Prepares to Take Up Reconciliation Bill. Discussions about the bill’s real-world implications continued during this week’s recess.
HHS Removes COVID-19 Vaccine Recommendations for Healthy Children, Pregnant Women. US Department of Health and Human Services (HHS) Secretary Kennedy announced the change without input from the agency’s independent advisory panel.
CMS Increases Oversight on States Providing Medicaid to Certain Immigrants. The Centers for Medicare & Medicaid Services (CMS) announced that it will take actions to ensure states are not using federal Medicaid funds to cover healthcare for ineligible individuals.
President Trump Signs EO on Science Research. The executive order (EO) seeks to adopt new “gold standard” science principles.
CMS Requests Information From Hospitals on Gender-Affirming Care. The letter seeks data on certain hospitals’ provision of gender-affirming care to minors.
CONGRESS
Senate Prepares to Take Up Reconciliation. When the Senate returns from the Memorial Day recess next week, it starts a busy four-week stretch leading up to the Independence Day recess. During this period, leaders intend to advance the budget reconciliation package, the One Big Beautiful Bill Act, H.R. 1. As Senate Republican leaders consider their intraparty political balancing act (they can only lose three votes for the bill to still advance), expect changes to the House-passed bill, which Speaker Johnson (R-LA) advanced through his chamber by a narrow 215 – 214 margin just before Memorial Day.
In an updated analysis of the estimated revenue effects of H.R.1’s tax provisions, the Joint Tax Committee found that, in total, the bill loses $3.94 trillion in revenue. On the healthcare front, the House Ways and Means Committee’s changes to the Affordable Care Act (ACA) are estimated to save more than $150 billion in revenue. We do not have the Congressional Budget Office’s (CBO’s) final estimate of the coverage loss associated with these policy changes, but its preliminary May 18, 2025, analysis estimated that 2.1 million people would become uninsured as a result of the House Ways and Means Committee’s changes. These policies also interact with ACA policies included by the House Energy and Commerce Committee, so we await the updated CBO analysis to get a more complete picture of the combined impact of the bill’s provisions.
As discussion about the bill’s impact on state budgets continues, 20 Republican governors sent a letter to President Trump in support of the One Big Beautiful Bill Act; notably, the Republican governors of Florida, Nevada, New Hampshire, Ohio, Oklahoma, South Dakota, and Vermont did not sign on.
ADMINISTRATION
HHS Removes COVID-19 Vaccine Recommendations for Healthy Children, Pregnant Women. In a video posted on X, HHS Secretary Kennedy, alongside US Food and Drug Administration (FDA) Commissioner Makary and National Institutes of Health (NIH) Director Bhattacharya, announced that the Centers for Disease Control and Prevention’s (CDC’s) vaccine recommendations will no longer include the COVID-19 vaccine for healthy children and pregnant women. Normally, the Advisory Committee on Immunization Practices (ACIP) provides vaccine recommendations, and the CDC director is responsible for adopting them. Only then do the recommendations become official CDC policy. CDC previously adopted ACIP’s recommendation that all Americans six months and older, including pregnant women, get at least one updated COVID-19 vaccine. Kennedy’s announcement comes before ACIP’s scheduled meeting in June to make recommendations about fall shots, meaning the decision was made without input from the independent advisory panel.
CMS Announces Plans to Increase Oversight on States Providing Medicaid to Certain Immigrants. In a letter to states, CMS Administrator Oz clarified that federal Medicaid funding is only available for limited Medicaid coverage necessary for treatment of an emergency medical condition for individuals who meet all Medicaid eligibility requirements but are not lawful permanent residents. He announced that, in an effort to ensure states do not use federal Medicaid funds to cover healthcare for ineligible individuals, CMS will undertake the following actions:
Focused evaluations of select state Medicaid spending reports (CMS-64 form submissions).
In-depth reviews of select states’ financial management systems.
Assessment of existing eligibility rules and policies to close loopholes and strengthen enforcement.
CMS urges all states to immediately examine and update internal controls, eligibility systems, and cost allocation policies to ensure full compliance with federal law, and reminded states that any improper spending will be subject to recoupment of the federal share. Read the press release here.
President Trump Signs EO on Science Research. The EO, “Restoring Gold Standard Science,” directs:
The Office of Science and Technology Policy (OSTP) to issue guidance to agencies within 30 days for adopting new “gold standard” science principles, including that science is reproducible, transparent, collaborative, and without conflicts of interest.
Federal agencies to update their processes and report to OSTP within 60 days about implementation progress.
Federal agencies to ensure that employees do not engage in scientific misconduct, to publicly report certain data, and to communicate uncertainty within 30 days.
The EO states that the Biden administration politicized science by encouraging agencies to incorporate diversity, equity, and inclusion. The EO reinstates scientific integrity policies from the first Trump administration, encouraging US research organizations to adopt these standards. Read the fact sheet here.
CMS Requests Information From Hospitals on Gender-Affirming Care. A letter to certain hospitals requested information about quality standards adherence and federal funding related to gender-affirming care procedures for minors. This letter follows previous actions from the Trump administration regarding gender-affirming care for minors and reiterates concerns about the long-term risks of such care previously communicated in an executive order, a report reviewing best practices for gender dysphoria treatment, and a quality and safety special alert memo for hospitals. The letter requests certain information within 30 days, including the following, and does not cite the authority for requesting such data:
Information regarding informed consent protocols.
Planned changes to clinical guidelines in response to the gender dysphoria report.
Any adverse events in response to gender-affirming care.
Billing codes used for specified procedures.
Facility- and provider-level revenue, operating margins, and profit margins for each specified procedure.
Projected revenue forecasts for each service line.
A list of hospitals that received the letter has not been released. Read the press release here.
QUICK HITS
HRSA Revises CHGME Resident Count Methodology. The Health Resources and Services Administration (HRSA) finalized a previously proposed change to how Children’s Hospitals Graduate Medical Education (CHGME) full-time equivalent (FTE) residency slots are counted to align with the methodology CMS uses for the Medicare graduate medical education FTE resident cap.
CMS Innovation Center Adjusts KCC Model. The updates to the Kidney Care Choices (KCC) Model adjust financial methodology and participation options beginning in performance year 2026. The center also extended the model through 2027.
House Energy and Commerce Democrats Seek Answers on HHS Staffing Changes. The letter asked HHS Secretary Kennedy to answer questions sent in an April 2025 letter that have still not been answered, and posed additional questions about legal compliance, impacts of staff and grant terminations at FDA and NIH, and other issues. Read the press release here.
BIPARTISAN LEGISLATION SPOTLIGHT
Sens. Rounds (R-SD), Blackburn (R-TN), and Heinrich (D-NM) introduced S. 1399, the Health Tech Investment Act, which would create a Medicare reimbursement pathway for FDA-cleared AI-enabled devices. Read the press release here.
NEXT WEEK’S DIAGNOSIS
Congress will be back in session next week, and the FY 2026 appropriations process will get underway in earnest as the House Appropriations Committee begins its markups (see full schedule here). The committee intends to finish marking up all 12 of its annual spending bills by July 24, 2025, with the Labor-HHS bill scheduled as the final markup. Meanwhile, as noted above, the Senate is turning its attention to reconciliation.We anticipate more details on the president’s FY 2026 budget request may be released to Congress shortly, though reports indicate that the full FY 2026 request may not be unveiled until after the reconciliation package is completed. Congressional Republicans will use the request as they move through the appropriations process. We also expect the Trump administration to send a recissions package to Congress next week that is anticipated to include about $9 billion in clawbacks of already-approved funding for the current fiscal year. The recission process is a formal way for Congress to fast track recommended cuts in spending by the administration. Congress will have 45 days to consider the recission package. Congress can choose to approve it, delete some provisions, or not consider it at all, but Congress does not have the opportunity to add new policies to a recissions package. We wait to see if health policies are included in the package.
CMS Proposes to Close Perceived Loophole in Medicaid Health Care-Related Tax Regulations
On May 12, 2025, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would impose an additional requirement to federal Medicaid regulations in order for non-broad-based and uniform health care-related taxes to be allowed as a means of state financing of Medicaid services—a common strategy to increase provider reimbursement using primarily federal funds without a significant impact on state budgets.
According to CMS, the new requirement would disqualify eight current health care-related tax programs in seven states and would preclude additional tax programs that cannot meet the new requirement. The proposed rule represents just the latest action taken by the federal government to curtail funding mechanisms states use to maximize federal contributions it perceives as inappropriate and to curtail federal outlays for state Medicaid programs.
Background on Health Care-Related Taxes
State-administered Medicaid programs are jointly financed by the federal and state governments. States make payments for services, and the federal government then provides matching funds based on a specific formula that varies by state, eligibility group, and expenditure category. The federal government’s share, known as the federal financial participation (FFP) of a state’s Medicaid expenditures for services used by people other than non-disabled adults is at least 50 percent but can be higher for states with lower average per capita income (as high as 77 percent for one state in federal Fiscal Year 2026). Federal law similarly sets a minimum state contribution of 40 percent to the non-federal share for health care services, with states allowed to use other funds, including health care-related taxes, to raise the remaining 60 percent of the non-federal share. CMS had emphasized that a state’s responsibility for a substantial portion of the non-federal Medicaid program expenditures incentivizes the state to monitor and operate its program competently and efficiently.
States may finance their non-federal share through their general funds, revenue from health care-related taxes, provider-related donations, intergovernmental transfers from units of state or local governments, and certified public expenditures. Health care-related taxes are frequently used to fund the non-federal share of Medicaid expenditures to hospitals, nursing homes, and other providers under supplemental payment and directed payment programs that offset low Medicaid base rates or address federal and state policy goals, such as offsetting uncompensated care costs. In order to qualify for a matching FFP, health care-related taxes must meet certain regulatory requirements. These requirements are largely aimed at ensuring that such taxes are not derived to an inappropriate extent from the very taxpayers—such as health care providers with high Medicaid volumes—that benefit from the increased Medicaid reimbursement financed by those taxes. To the extent that nearly all impacted taxpayers receive Medicaid reimbursement that exceeds the taxes they pay to fund the non-federal share, the federal government is effectively financing as much as 100 percent of the Medicaid expenditures supported by the tax program, with little or no state contribution.
Under current regulations, health care-related taxes may be imposed on certain permissible classes of items or services, such as inpatient hospital services, outpatient hospital services, and nursing facility services. The taxes must be broad-based (i.e., imposed on all non-governmental providers in the permissible class) and uniform (i.e., the same amount or rate of tax must be applied across the permissible class), and may not have provisions that directly or indirectly guarantee to hold taxpayers harmless for all or any portion of the tax amount through increased reimbursement. For state tax programs that are not broad-based and uniform under these requirements, states may obtain a waiver from those two requirements if the net impact of the tax is nevertheless “generally redistributive.” CMS has historically interpreted “generally redistributive” to mean “the tendency of a State’s tax and payment program to derive revenues from taxes imposed on non-Medicaid services in a class and to use these revenues as the State’s share of Medicaid payments.”
Current Statistical Tests to Determine Whether a Tax Is “Generally Redistributive”
Federal regulations currently use statistical tests to determine whether a non-broad-based or non-uniform state tax program is “generally redistributive.” The so-called “P1/P2 test” is used to evaluate a tax that is not broad-based because it excludes certain providers in the permissible class, and the so-called “B1/B2” test is used to evaluate a tax that is non-uniform because it applies different rates to different tax rate groups of providers within the permissible class.
Under the P1/P2 test, the proportion of tax revenue applicable to Medicaid if the tax were broad-based and applied to all providers or activities within the class (P1) is divided by the proportion of the tax revenue applicable to Medicaid under the tax program for which the state seeks a waiver (P2). Although there are some exceptions, generally, this quotient must be at least 1 in order for a non-broad-based tax to be regarded as “generally redistributive.”
The B1/B2 test compares the slope of two linear regressions that measure the relationship between providers’ additional Medicaid units (i.e., the units that are subject to the tax, such as Medicaid bed-days, charges, or revenue) and the taxes they pay. The slope derived from the first linear regression (B1) shows the rate at which taxes increase with each additional Medicaid unit if the tax were broad-based and uniform. The slope derived from the second linear regression (B2) shows the rate at which taxes increase for each additional Medicaid unit for the tax program for which a waiver is sought. With certain exceptions, generally, if the B1/B2 quotient is at least 1, the non-uniform tax will be regarded as “generally redistributive.”
Perceived Loophole in Statistical Tests
In the proposed rule, CMS expresses concern that some states have been utilizing tax structures that are not sufficiently redistributive, even though they pass the B1/B2 test. In particular, CMS says that states have been able to manipulate B2 by selectively excluding a few large providers with high Medicaid utilization from a health care-related tax, but including them in the regression calculation, which then alters the slope of the line of the regression in a way that allows the state to pass the statistical test while simultaneously imposing outsized burden on the Medicaid program. CMS also identifies other means by which states have undermined the B1/B2 test, such as by imposing tax rates on Medicaid-taxable units that are much higher than comparable commercial taxable units.
CMS indicates that it is aware of seven states with eight tax programs that exploit the statistical loophole under the B1/B2 test. CMS reports that, in connection with some of the recently approved waivers for tax programs that exploit the statistical loophole, it has advised states of its concern, including through “companion letters” explaining why CMS believed that the tax programs did not meet the spirit of the law, and warning the states that it was contemplating rulemaking to address its concerns. CMS estimates that the current total annual tax collection by the programs that exploit the statistical loophole is approximately $23.6 billion, but also expresses concern about the potential proliferation of additional programs.
In a press release announcing the proposed rule, CMS identified California, Michigan, Massachusetts, and New York as among the seven states with tax programs it regards as problematic. In a fact sheet it released, CMS asserts that these seven states impose higher taxes primarily on the Medicaid business of managed care organizations (MCOs), although one such tax is on hospitals. CMS also claims in its fact sheet that these tax programs free up state money that is used for other purposes, pointing specifically to California’s funding to expand health care coverage for illegal immigrants.
Proposed Regulatory Changes
To address the statistical loophole, CMS proposes to add an additional requirement to demonstrate that a health care-related tax is generally redistributive. To obtain a waiver from the broad-based or uniform requirements, the tax would still have to meet the applicable statistical test described above, but under the proposed rule, it would also have to meet the additional requirement.
The additional requirement is applied to each permissible class and includes provisions that test both those taxes that refer to Medicaid explicitly and those that do not refer to Medicaid explicitly, furnishing examples illustrating the application of the new requirement. For taxes that refer to Medicaid explicitly, CMS proposes that a tax would not be generally redistributive if the tax rate imposed on any taxpayer or tax rate group based upon its Medicaid taxable units is higher than the tax rate imposed on any taxpayer or tax rate group based upon its non-Medicaid taxable units.
CMS’s example of a non-redistributive tax that would violate this requirement is an MCO tax where Medicaid member-months are taxed $200 per member-month and non-Medicaid member-months are taxed $20 per member-month. In addition, for taxes that do not refer to Medicaid explicitly, CMS proposes that a tax would not be generally redistributive if the tax rate imposed on any taxpayer or tax rate group explicitly defined by its relatively lower volume or percentage of Medicaid taxable units is lower than the tax rate imposed on any other taxpayer or tax rate group defined by its relatively higher volume or percentage of Medicaid taxable units.
One example of a program not meeting this requirement is a tax on nursing facilities with more than 40 Medicaid-paid bed-days of $200 per bed-day, while nursing facilities with 40 or fewer Medicaid-paid bed-days are taxed $20 per bed-day. A second example describes a tax on hospitals with less than 5 percent Medicaid utilization at 2 percent of net patient service revenue for inpatient hospital services, while all other hospitals are taxed at 4 percent of net patient service revenue for inpatient hospital services.
For taxes that do not refer to Medicaid explicitly, CMS proposes that if the state tax program uses a substitute definition, measure, attribute, or the like as a proxy for Medicaid in order to impose a higher tax rate on Medicaid taxable units than on non-Medicaid taxable units, then the program would not be generally redistributive.
CMS articulates two examples of such non-compliant programs. The first example describes a tax on inpatient hospital service discharges that imposes a $10 rate per discharge associated with beneficiaries covered by a joint federal and state health care program and a $5 rate per discharge associated with individuals not covered by a joint federal and state health care program—without using the term Medicaid. The second example specifies that a tax on hospitals located in counties with an average income less than 230 percent of the federal poverty level of $10 per inpatient hospital discharge, while hospitals in all other counties are taxed at $5 per inpatient hospital discharge—which CMS says would be redistributive because a higher tax rate would be imposed on the tax rate group that is likely to involve more Medicaid taxable units, due to the use of a Medicaid eligibility criterion (income) to distinguish the tax rate groups.
Given that the new requirement would disqualify some existing health care-related tax programs, CMS proposes a transition period, but only for those states that did not obtain their health care-related tax waiver within a two-year cutoff period. States that did obtain the waiver within the last two years of the effective date of the final rule would not be eligible for the transition period, and any tax collections made under the applicable waiver after the effective date of the final regulations would not count toward the FFP match. States that obtained a waiver more than two years before the effective date would need to submit a new waiver proposal for a tax that meets the new requirement, with an effective date no later than the start of the first state fiscal year beginning at least one year from the effective date of the final regulations. CMS explains that states with more recently approved waivers are not entitled to a transition period because they were on notice regarding CMS’s concerns about the statistical loophole and therefore assumed the risk that CMS would issue corrective regulations. Despite the specifics of its transition proposal, CMS solicits comments on several aspects, including the length of the transition period, whether the two-year cutoff for transition period eligibility should be altered, and whether the transition period lengths should vary by permissible class.
Analysis and Recommendations
Although the proposed rule would affect health care-related tax programs in only seven states, it would also limit the flexibility of all states to design new programs to fund the non-federal share of Medicaid expenditures. The inability to design programs that comply with federal regulatory requirements may prevent states from adequately reimbursing health care providers for their services and jeopardize some health care providers’ sustainability.
Health care providers, individually or in concert with their trade associations, should consider providing input on the proposed rule. This is particularly true for providers in the seven states with health care-related tax programs that would be disqualified, although providers in other states could also be affected by their states’ inability to design new health care-related taxes that are permissible under current regulations. CMS will accept public comments until July 14, 2025.
Health care providers in the seven states with health care-related tax programs that would be disqualified by the proposed rule should also begin working with their state Medicaid agencies in designing adjustments to the tax programs that would enable them to meet the new requirement. Health care providers in other states should be cognizant of the proposed new requirement as they evaluate future health care-related tax proposals in their states.
Further, the proposed rule comes at a time when Congress is considering, through a budget reconciliation bill, significant cuts in Medicaid spending through work requirements, eligibility testing, a moratorium on all new health care-related taxes, and other means. The budget reconciliation bill that passed the House of Representatives on May 22, 2025, also includes provisions aimed at closing the statistical loophole that is the subject of the proposed rule. At a time when states and Medicaid providers face the possibility of severe reductions in Medicaid funding, closing the loophole, whether by statute or regulation, will make it more difficult for states to maintain or initiate certain tax programs needed to support their Medicaid programs and could therefore jeopardize funding for Medicaid services in those states. Medicaid providers will need to plan for the potential reductions in Medicaid funding, not only from those that may arise from the proposed rule, but also from Congressional action.
Medicaid providers should also continue to be vigilant in evaluating the financing mechanisms used to fund the non-federal share of expenditures under Medicaid programs in which they participate. The proposed rule represents just the latest action in CMS’s attempts to suppress arrangements used to finance the non-federal share of Medicaid expenditures that CMS considers inappropriate cost-shifting to the federal government.
For example, in February 2023, CMS issued an Informational Bulletin asserting that private redistribution arrangements among taxpayers violate the “hold harmless” restriction in the health care-related tax regulations and stating that CMS intends to investigate potential redistribution arrangements. (In a March 2024 Informational Bulletin, CMS said that, until January 1, 2028, it will not take enforcement action against states that have such arrangements in place as of the date of the Informational Bulletin.) Previously, in 2019, CMS issued a proposed Medicaid Fiscal Accountability Regulation (MFAR) that would have significantly tightened regulations concerning health care-related taxes (including addressing the statistical loophole), bona fide provider donations, intergovernmental transfers, and certified public expenditures. The MFAR was withdrawn in 2021, but CMS’s concern about inappropriate state financing arrangements has continued. In 2016, CMS disallowed the FFP for supplemental Medicaid payments made to certain private hospitals in Texas based on the state’s use of allegedly improper provider donations to fund the non-federal share of those expenditures. The state is challenging that disallowance in a federal court case that is still pending. Because a disallowance could lead to a recoupment of Medicaid reimbursement by the state, and because involvement in an improper arrangement to fund the non-federal share of a state’s Medicaid expenditure could lead to False Claims Act allegations, providers need to carefully evaluate the financing mechanisms used to fund such expenditures.
Stronger Workplaces for Nova Scotia Act Amendments in Effect in July and September 2025
On September 20, 2024, Nova Scotia’s Stronger Workplaces for Nova Scotia Act, which amended the Workers’ Compensation Act, the Occupational Health and Safety Act, and the Labour Standards Code, received Royal Assent. Portions of the Stronger Workplaces for Nova Scotia Act are already in effect. This article will review the changes coming into effect in July and September 2025.
Quick Hits
The Stronger Workplaces for Nova Scotia Act amends the Workers’ Compensation Act to include Section 89A, which outlines the duties of employers and employees regarding the early and safe return to work of injured workers. This change will come into effect on July 15, 2025.
Starting September 1, 2025, the act will also amend the Occupational Health and Safety Act to include psychological health and safety in the definition of “health and safety” and require employers to establish policies to prevent workplace harassment.
Employers may want to review and update their current policies on harassment, occupational health and safety, and safe return to work to comply with the new regulations and address the Nova Scotian government’s focus on preventing workplace harassment and psychological harm.
Changes Coming in July 2025
The Stronger Workplaces for Nova Scotia Act amends the Workers’ Compensation Act by adding Section 89A and changing Subsection 89(3), which provides the definitions for “alternative employment” and “suitable work,” to apply to Section 89A as well. These changes come into effect on July 15, 2025.
Section 89A essentially codifies an employer’s and employee’s duties and the actions when an employee is injured and returns to work. It states,
(1) The employer of an injured worker shall co-operate in the early and safe return to work of the worker by
(a) contacting the worker as soon as practicable after the injury occurs and maintaining communication throughout the period of the worker’s recovery and impairment;
(b) attempting to provide suitable work that is available and, where possible, restores the worker’s pre-injury earnings;
(c) giving the [Workers’ Compensation] Board such information as the Board may request concerning the worker’s return to work; and
(d) doing such other things as may be prescribed by the regulations.
(2) An injured worker shall co-operate in the worker’s early and safe return to work by
(a) contacting the employer as soon as practicable after the injury occurs and maintaining communication throughout the period of the worker’s recovery and impairment;
(b) assisting the employer, as may be required or requested, to identify suitable work that is available and, where possible, restores the worker’s pre-injury earnings;
(c) giving the Board such information as the Board may request concerning the worker’s return to work; and
(d) doing such other things as may be prescribed by the regulations.
(3) Where, in the opinion of the Board, an employer fails or refuses to comply with subsection (1), the Board may impose a penalty on the employer not exceeding the total of
(a) the full amount or capitalized value, as determined by the Board, of any compensation payable to a worker of the employer in respect of injuries that occurred to the employer’s workers during the period of non-compliance; and
(b) any other expenditures made by the Board in respect of injuries that occurred to the employer’s workers during the period of non-compliance.
(4) Where, in the opinion of the Board, a worker fails or refuses to comply with subsection (2), the Board may suspend, reduce, terminate or withhold the worker’s compensation during the period of non-compliance.
The definitions of “alternative employment” and “suitable work” in Subsection 89(3) are the following:
“Alternative employment” means employment that is comparable to the worker’s pre-injury work in nature, earnings, qualifications, opportunities and other aspects.
“Suitable work” means work which the worker has the necessary skills to perform, is medically able to perform and which does not pose a health or safety hazard to the worker or any coworkers.
However, only “suitable work” is used in Section 89A and not “alternative employment.” So, based on Subclause 89A(1)(b) the employer only needs to attempt to provide work which the worker has the necessary skills to perform, is medically able to perform, and does not pose a health or safety hazard to the worker or others, but does not need to be comparable to the worker’s pre-injury work.
Both employers and employees must follow Section 89A, or else the Workers’ Compensation Board of Nova Scotia can issue penalties against them. If an employer runs into issues where an employee is not communicating while recovering from their injuries or is not assisting in finding suitable work, it could remind the employee of his or her obligations under Subsection 89A(2) and that the Board could suspend, reduce, terminate, or withhold the employee’s compensation.
Changes Coming in September 2025
The act’s amendments to the OHSA focus on physical and psychological health and safety, and preventing harassment in the workplace. These changes come into effect on September 1, 2025.
The first change is that the act adds the definition of “health and safety” to Section 3 of the OHSA, which includes both physical and psychological health and safety. This could have significant impacts throughout the OHSA, as every mention of “health and safety” now includes psychological health and safety. For example, Section 13(1)(a) and Section 17(1)(a) state that employers and employees respectively shall take every precaution that is reasonable in the circumstances to ensure the health and safety of persons or themselves at or near the workplace, which now includes psychological health and safety.
The second change by the act adds Subsection (4) to Section 13 to the OHSA. Section 13 prescribes the employer’s precautions and duties, and Subsection (4) will add the following:
(4) Every employer shall, in accordance with the regulations, establish and implement a policy respecting the prevention of harassment in the workplace.
While it is not yet clear what employers need to include in this policy, we anticipate the Nova Scotia Occupational Health and Safety Division releasing the regulations and a companion guide by mid-summer 2025, to be in force by September 1, 2025.
We further anticipate the definition of harassment in the regulation to be similar to the language in the Workers’ Compensation General Regulations, which states,
“workplace harassment or bullying” means a single significant occurrence or a course of repeated occurrences of objectionable or unwelcome conduct, comment or action in the workplace that, whether intended or not, degrades, intimidates or threatens, and includes all of the following, but does not include any action taken by an employer or supervisor relating to the management and direction of a worker or the workplace:
(i) workplace harassment or bullying that is based on any personal characteristic, including, but not limited to, a characteristic referred to in clauses 5(1)(h) to (v) of the Human Rights Act,
(ii) inappropriate sexual conduct, including, but not limited to, sexual solicitation or advances, sexually suggestive remarks or gestures, circulating or sharing inappropriate images or unwanted physical contact.
Employers with comprehensive harassment policies may not need to make any changes until the regulations are out; however, if they do not have such policies yet, they may want to begin drafting them.
Impact of These Changes
Employers may want to consider what impact the Stronger Workplaces for Nova Scotia Act will have on their workplaces and review their current harassment, occupational health and safety, and safe return to work policies, especially because the Nova Scotian government is taking harassment and psychological harm in the workplace seriously.
DOJ’s Civil Rights Fraud Initiative: Key Considerations for Health Care Providers
The Department of Justice’s (“DOJ”) May 19, 2025 “Civil Rights Fraud Initiative” memorandum, issued by Deputy Attorney General Todd Blanche (the “Initiative”), marks a consequential policy shift for False Claims Act (“FCA”) enforcement. The Initiative instructs every U.S. Attorney’s Office to “aggressively pursue” compliance with federal civil rights laws, as those laws have been interpreted by the Supreme Court under the 2023 Harvard admissions decision. The effect of this order is to treat a recipient’s knowing violation of federal civil rights laws as a “false claim” whenever that recipient has certified, impliedly or expressly, that it would comply with those laws as a condition of receiving federal dollars.
Building upon the Trump administration’s Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, 90 Fed. Reg. 8633 (Jan. 21, 2025) (“EO 14173”), under the Initiative, prohibited diversity, equity and inclusion (“DEI”) programs will be treated like financial fraud — they will be investigated and, where warranted, litigated under the FCA’s treble-damages regime. The Initiative also “strongly encourages” qui tam filings, inviting private whistleblowers to report suspected violations to the DOJ.
Although the Initiative specifically takes aim at colleges and universities, health care providers (both academic and non-academic) should take stock of its potential implications.
Before the Initiative was issued, the U.S. Department of Health and Human Services (“HHS”) Office for Civil Rights (“OCR”) began enforcement of EO 14173 by initiating investigations into medical schools and hospitals that receive HHS funding to determine whether such organizations “may operate medical education, training, or scholarship programs for current or prospective workforce members that discriminate on the basis of race, color, national origin, or sex.”1
Importantly, HHS’s National Institutes of Health (“NIH”) is the largest public funding source for biomedical research in the world.2 On April 21, 2025, NIH issued NOT-OD-25-090, which modified the terms and conditions for all NIH grants, cooperative agreements, and other transaction awards to incorporate EO 14173’s prohibition on DEI programs. As we noted in a recent blog post, when a federal funding recipient signs a grant agreement or accepts reimbursement through a federal benefits program, the recipient is required to “self-certify” compliance with federal civil rights laws. The Initiative explicitly characterizes such certifications as “claims for payment” under the FCA. If the recipient knows or acts in deliberate ignorance or reckless disregard of the truth or falsity of its certification, the DOJ will assert that the claim is “false.”
While all recipients of federal grant funds face some risk, the Initiative’s potential impact may be especially acute for community-based behavioral health care providers and other organizations that rely heavily on grants from the Substance Abuse and Mental Health Services Administration (“SAMHSA”). SAMHSA primarily supports these services through block grants awarded to States, which are then distributed through localities and non-profits.3
Moreover, the Initiative, like EO 14171, applies to “federal contractors” and “recipients of federal funds.” But it does not clarify whether it is intended to capture every provider that submits a claim for reimbursement from Medicare or Medicaid programs. In practice, each time a health care provider submits a claim for reimbursement to the Centers for Medicare & Medicaid Services, or a health plan, payor or contractor, they are required, much like recipients of federal grant awards, to certify compliance with all applicable federal laws, including, arguably, federal civil rights laws within the scope of the Initiative and EO 14171. As a result, Medicare and Medicaid providers receive no safe harbor; on the contrary, the sheer scale of the Medicare and Medicaid programs may make them targets for future enforcement.
Deputy Attorney General Blanche’s memorandum cements civil rights compliance as a core dimension of FCA liability and ensures that federal dollars will be conditioned not only on accurate financial claims, but also on the active fulfillment of anti-DEI mandates. Proskauer’s Health Care Group has significant experience at the intersection of the health care and FCA compliance and stands ready to assist stakeholders who are navigating the evolving regulatory landscape.
OCR clarified that its interpretation of EO 14173 encompassed “not only to student admissions at HHS-funded institutions but also to academic and campus life, including the operations of university hospitals and clinics.” See U.S. Department of Health and Human Services, HHS’ Civil Rights Office Clarifies Race-Based Prohibitions for Medical Schools to Advance Values of Initiative, Hard Work, and Excellence (May 6,2025), https://www.hhs.gov/press-room/guidance-med-schools-dear-colleague-letter.html. ↩︎
See National Institutes of Health, Grants & Funding, https://www.nih.gov/grants-funding. See also, Patrick Boyle, What’s At Stake When Clinical Trials Research Gets Cut, Association of American Medical Colleges (April 24, 2025), https://www.aamc.org/news/whats-stake-when-clinical-trials-research-gets-cut#:~:text=The%20NIH%20is%20the%20largest,on%20academic%20medical%20center%20campuses (“In 2024, more than 80% of the [NIH’s] $47 billion budget went to support research (including lab and clinical trials) at over 2,500 scientific institutions. Sixty percent of this extramural research occurred on academic medical center campuses.”).
See Congressional Research Service, Substance Abuse and Mental Health Services Administration (SAMHSA): Overview of the Agency and Major Programs (June 23, 2020), https://www.congress.gov/crs-product/R46426. ↩︎
Vermont Enacts Law Prohibiting Medical Debt Reporting and Funding Debt Relief Initiative
On May 16, Vermont Governor Phil Scott signed into law S. 27, a medical debt relief measure that prohibits the inclusion of medical debt on consumer credit reports and establishes a state-funded initiative to abolish qualifying medical debt held by Vermont residents.
Under the new law, scheduled to take effect on July 1, 2025, the State Treasurer is authorized to contract with a nonprofit entity to purchases and eliminate medical debts owed by Vermont residents. The legislation appropriates $1 million in FY2026 to support this effort. In addition to abolishing the debts, the contracted nonprofit must coordinate with credit reporting agencies to remove adverse credit information associated with the debt and provide written notice to affected individuals.
To be eligible, debtors must either have household income at or below 400% of the federal poverty level or owe medical debt amounting to at least 5% of their household income. Additionally, the debt must remain outstanding after standard collection efforts have concluded.
The legislation also introduces permanent changes to Vermont’s consumer credit reporting framework, including:
Medical debt reporting banned. Credit reporting agencies are prohibited from reporting or maintaining any information related to medical debt.
Nonprofit exemption for eligibility checks. Tax-exempt organizations may access consumer credit reports when determining eligibility for medical debt abolition.
Healthcare facility restrictions. Large healthcare facilities are prohibited from selling medical debt, except to qualifying nonprofits whose purpose is to cancel the debt.
Expanded notice and disclosure requirements. Updated credit disclosures will include a notice about Vermont’s prohibition on medical debt reporting and permitted nonprofit access.
Putting It Into Practice: Vermont’s new law barring the inclusion of medical debt on credit reports follows the CFPB’s recent repeal of its own rule that would have imposed similar restrictions at the federal level (previously discussed here). While the CFPB continues to roll back rules and guidance issued under prior administrations (a trend we previously discussed here), states are increasingly stepping in to fill the void by expanding consumer protection measures (previously discussed here, and here). Credit reporting agencies and debt collectors should actively monitor state credit reporting laws to ensure continued compliance as regulatory frameworks evolve.
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Reconciliation Bill Provisions Targeting Tax-Exempt Organizations Affect Hospitals
The budget reconciliation bill passed by the House of Representatives on May 22, 2025 (the “Reconciliation Bill”), contains a number of provisions targeting tax-exempt entities. While these provisions do not specifically target or call out hospitals, they may apply to tax-exempt and government hospitals.
Excise Tax on Compensation Expanded
Under current law, tax-exempt organizations and certain government entities are subject to a 21 percent excise tax on employee compensation that exceeds $1 million or that constitutes an excess parachute payment. The excise tax applies to amounts paid to the five highest compensated employees of the organization in the tax year and those who had been in that category since 2017 (“Covered Employees”).
Hospitals exempt from taxation under section 501(a) of the Internal Revenue Code of 1986 (the “Code”) and, in some cases, those owned by state or local governments are subject to this excise tax. However, compensation paid to licensed medical professionals for the performance of medical services does not count towards the $1 million trigger of the excise tax. Only the portion of a medical professional’s compensation for other services, such as research, teaching, or administrative or governance duties, are considered compensation for this purpose. Compensation paid by entities related to the tax-exempt or government entity, such as a for-profit or tax-exempt subsidiary or other affiliate, is included for this purpose.
Section 112020 of the Reconciliation Bill expands the scope of the excise tax by broadening the definition of Covered Employee to include all employees and former employees – not only those who are or have been one of the five most highly compensated. Tax-exempt and government hospitals entities and medical facilities affiliated with large hospital systems may be affected if they have large numbers of highly paid executives.
Tiered Increase on Private Foundation Investment Earnings
Hospitals, particularly those reliant on financial support from private foundations, also should be aware of the proposed increase in the tax on private foundation net investment income – as the increase will, potentially, leave private foundations with fewer assets to distribute to tax-exempt hospitals and other charities. Tax-exempt private foundations are currently subject to an excise tax of 1.39 percent on net investment income. Section 112022 of the Reconciliation Bill would increase the tax rate for private foundations with assets of $50 million or more. The increased rates will be tiered as follows:
2.78% if assets exceed $50 million but are less than $250 million;
5% if assets exceed $250 million but are less than $5 billion; and
10% if assets reach $5 billion.
Assets of related entities generally are included for this purposes — though assets will not be taken into account with respect to more than one private foundation. (The Reconciliation Bill does not address how assets will be divided when the aggregated group of related entities includes more than one private foundation.) Further, assets of related organizations that are not intended or available for the use or benefit of the private foundation are not taken into account unless the related organization is controlled by the private foundation. Notably, asset valuation would take on greater significance under a tiered system where a single dollar could double a private foundation’s tax rate. While the Reconciliation Bill states that asset value will be based on fair market value as of the close of the taxable year, numerous questions related to this calculation not addressed which may be problematic given that, if passed, this provisions will apply to taxable years beginning after the date of the enactment.
Parking and Transportation Benefits Included in UBTI
The Tax Cuts and Jobs Act, adopted in 2018, imposed the unrelated business income tax on parking and qualified transportation benefits provided to employees by tax-exempt employers. The provision was repealed retroactively the following year due to the complexity of calculating the amount to be included as unrelated business taxable income (“UBTI”) and uncertainty and confusion surrounding the application of the tax generally.
Section 112024 of the Reconciliation Bill would restore the requirement that tax-exempt organizations treat amounts paid and costs incurred to provide parking and qualified transportation benefits (defined in Code sections 132(f) and 132(f)(5)(C) respectively) as UBTI. Reinstating this requirement would increase the taxable income of tax-exempt hospitals and require them to update their accounting systems and administrative procedures to ensure compliance. As currently drafted, the provision does not address or resolve the complexities that led to its repeal in 2019.
Florida Regulatory Action Highlights Need for Insurers to Use Licensed TPAs
Key Takeaways:
A Florida-based Health Maintenance Organization (HMO) was fined for contracting with a Third-Party Administrator (TPA) that was not licensed in Florida, violating its statutory obligation to ensure competent administration under Florida law.
The HMO entered into a Consent Order with the Florida Office of Insurance Regulation (OIR), was fined $10,000 and agreed that any future violations would be considered willful and could lead to more severe regulatory action.
This case underscores the importance of insurers and HMOs verifying the licensure status of all TPAs before entering into business arrangements.
A licensed HMO domiciled in Florida recently entered into a Consent Order with the OIR for doing business with an unlicensed Insurance Administrator in Florida.
On September 12, 2023, a Delaware incorporated TPA submitted its application to become licensed as an Insurance Administrator to the OIR. As a part of the application process, the TPA submitted an in-force Master Software Service Agreement between itself and the HMO, which disclosed the TPA had been administering business for the HMO in Florida for several years prior to the TPA’s submission of its Insurance Administrator application to the OIR.
The OIR found that the HMO was receiving administrative services for Florida residents from the TPA prior to the TPA becoming licensed as an Insurance Administrator in Florida. Based on this information, the OIR determined the HMO violated Section 626.8817(2), Florida Statutes, which provides that it is the sole responsibility of an HMO to provide for competent administration of its programs. Pursuant to the Consent Order the HMO entered into with the OIR, the OIR assessed the HMO with a $10,000 fine, pursuant to Section 641.25. Florida Statutes and the HMO agreed that any future violations of Section 626.8817(2) would be considered a willful violation and subject to action by the OIR pursuant to all administrative remedies provided by the Florida Insurance Code.
Companion Bills in U.S. Congress Would Expand OSHA Coverage for Public Employees
A bill introduced in the U.S. Senate on May 21, 2025, seeks to significantly expand the scope of the Occupational Safety and Health Act of 1970 (OSH Act) by extending its protections to public employees at the federal, state, and local levels. The bill, titled the “Public Service Worker Protection Act” (PSWPA), would amend the OSH Act to include employees of the United States, states, and political subdivisions of states within its definition of “employer,” thereby affording public-sector workers the same occupational safety and health protections currently available to private-sector employees. Companion legislation (H.R. 3139) was introduced in the U.S. House of Representatives earlier in May.
Quick Hits
The legislation would amend Section 3(5) of the OSH Act to explicitly include public employees, covering federal, state, and local government workers.
The amendment would take effect ninety days after the PSWPA’s enactment for most public employees.
For federal OSHA workplaces of states or political subdivisions, the amendment would take effect thirty-six months after the PSWPA’s enactment.
The legislation clarifies that it does not alter the application of Section 18 of the OSH Act, which governs state plans.
Currently, the OSH Act generally excludes public-sector employees from its coverage, unless they are employed in states with plans approved by the Occupational Safety and Health Administration (OSHA) that extend protections to public workers. This exclusion explains why, particularly in federal OSHA states, state and local government workers are often observed not wearing personal protective equipment (PPE) required by OSHA or engaging in what would be prohibited conduct if they were covered by OSHA. The proposed amendment would strike the existing exclusionary language in Section 3(5) and replace it with language that includes the United States, states, and political subdivisions as employers under the OSH Act.
The PSWPA provides for a phased implementation. For most public employees, the expanded coverage would become effective ninety days after the date of enactment. However, for workplaces in states or political subdivisions that are in federal OSHA states, the effective date is extended to thirty-six months post-enactment, allowing additional time for compliance and potential development of state plans.
The legislation includes a rule of construction stating that nothing in the PSWPA should be interpreted to affect the application of Section 18 of the OSH Act. Section 18 allows states to operate their own occupational safety and health programs, provided they are at least as effective as the federal program and are approved by OSHA.
If enacted, the PSWPA would represent a significant expansion of federal workplace safety protections, bringing millions of public-sector employees under the OSH Act’s regulatory framework. Public employers, particularly those in federal OSHA states, may want to monitor the progress of this legislation and begin assessing potential compliance obligations.
This Week in 340B: May 20 – 26, 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; Other; Rebate Model
In four cases challenging Utah state law governing contract pharmacy arrangements, amici filed a motion for leave to file an amicus brief.
In one case challenging Nebraska state law governing contract pharmacy arrangements, the plaintiffs filed an opposition to an amicus curiae brief and an opposition to defendants’ motion to dismiss.
A trade association of drug manufacturers filed a complaint challenging a Tennessee state law governing contract pharmacy arrangements.
A drug manufacturer filed a complaint challenging a Utah state law governing contract pharmacy arrangements.
In an appealed case challenging a Louisiana law governing contract pharmacy arrangements, the court denied the intervenor-defendant’s motion for leave to file a sur-reply to appellant’s reply brief.
In a case by a covered entity against the government, the covered entity filed a motion for leave to file a response to the intervenors’ amicus brief.
In two cases against the government related to rebate models, the plaintiff filed an appeal to the circuit court.
DOJ Focuses on FCA Enforcement for Federal Healthcare Programs
On May 12, 2025, the Criminal Division of the Department of Justice (“DOJ”) published a memorandum to all Criminal Division personnel with the subject “Focus, Fairness, and Efficiency in the Fight Against White-Collar Crime.” The memo sets forth the priorities for DOJ enforcement of corporate crime. The number one priority listed in the memo is a focus on waste, fraud, and abuse, including health care fraud and federal program and procurement fraud. The government’s primary vehicle for prosecuting such misconduct and recovering fraudulently obtained funds is the False Claims Act (“FCA”), which permits whistleblowers (called “relators”) to initiate a lawsuit on the government’s behalf, provides a portion of recovery to the relator, and carries the potential for treble damages for companies that have committed fraud against the government.
The DOJ memorandum also referenced the Criminal Division’s update of its “Corporate Enforcement and Voluntary Self-Disclosure Policy.” The updated policy includes a focus on encouraging corporate self-reporting and self-remediation efforts through a policy of automatic declinations for cooperating companies. According to the memo, “[i]t is critical to American prosperity to promote policies that acknowledge law-abiding companies and companies that are willing to learn from their mistakes,” specifically companies that self-report potential misconduct to the DOJ.
This DOJ guidance and recent enforcement actions, including a $202 million settlement of an FCA lawsuit against Gilead Sciences, provide a reminder that corporations operating in the health care industry must continue to ensure their compliance standards conform to corporate best practices and are consistent with all applicable laws. While the risk of FCA cases brought by DOJ and by relators for healthcare fraud has not abated, DOJ’s willingness to deal favorably with cooperating companies as expressed in the newly announced policies provides potential opportunities to bring any non-compliant behavior into compliance without risk of prosecution.
Medical Speaker Programs
One recent area of focus for DOJ FCA enforcement relates to medical speaker programs, which are programs in which medical professionals provide presentations and information on specific medical topics—often related to specialized prescription medications—to other healthcare professionals. These programs are commonly used by pharmaceutical and medical device companies to educate and engage with physicians and other healthcare providers. For such programs to comply with the federal Anti-Kickback Statute and avoid FCA risk, such programs cannot constitute renumeration in exchange for referring patients or services that are reimbursable by federal healthcare programs. That is, compliant medical speaker programs cannot use financial incentives to encourage clinical decision-making.
On April 29, 2025, the DOJ announced a $202 million FCA settlement with Gilead Sciences in connection with a relator’s allegations that Gilead used speaker programs to pay illegal kickbacks to doctors to induce them to prescribe Gilead’s drugs. According to the DOJ, as part of its marketing efforts, and to increase sales, Gilead conducted a medical speaker program in which it would pay a physician to present a slide deck (prepared by Gilead) and facilitate discussion with other healthcare providers about one of the drugs manufactured by Gilead. While the speaker programs were supposed to be educational in nature and the cost of any meals provided was supposed to be modest, DOJ considered the program to constitute illegal renumerations because the speaker events were held at high-end restaurants, Gilead permitted attendees to attend the same event multiple times despite a lack of educational need, and Gilead provided free travel to physicians and their families to speak at desirable locations, among other allegations. The speaker program did not comply with Gilead’s internal compliance policy, which is often a significant red flag. Gilead admitted responsibility for the alleged misconduct.
Compliance, Reporting, and Voluntary Self-Disclosure
In addition to articulating the Department’s enforcement priorities, the DOJ’s memorandum also referenced the Criminal Division’s update of its “Corporate Enforcement and Voluntary Self-Disclosure Policy,” which provides, under certain circumstances, a “presumption that [a cooperating] company will receive a declination absent aggravating circumstances involving the seriousness of the offense or the nature of the offender.”
The Corporate Enforcement and Voluntary Self-Disclosure Policy reflects the DOJ’s “first priority” of prosecuting the individuals who actually perpetrate a crime, “often at the expense of shareholders, workers, and American investors and consumers.” Before prosecuting a company, the DOJ policy requires the consideration of factors “including whether the company reported the conduct to the Department, its willingness to cooperate with the government, and its actions to remediate the misconduct.” Cooperation in this context requires companies to enter “into agreements with the Criminal Division [to] agree to implement corporate compliance programs, report relevant misconduct, cooperate with the government, and more.” Cooperating companies must also “pay all disgorgement/forfeiture, and/or restitution/victim compensation payments resulting from the misconduct at issue.”
Absent aggravating circumstances, such as “involvement by executive management of the company in the misconduct; egregiousness or pervasiveness of the misconduct within the company; or criminal recidivism,” cooperating companies should expect to receive automatic declinations of prosecution under the policy. And even if aggravating circumstances are present, “prosecutors may nonetheless determine that a declination is an appropriate outcome if the company demonstrates to the Criminal Division that it has met” certain requirements, including voluntary self-disclosure, an effective compliance program and internal accounting controls, and “extraordinary remediation.”
In the event that corporate prosecution is warranted, the DOJ has expressed a preference for recommending fine reductions and avoiding long-term corporate monitoring regimes where companies have voluntarily self-disclosed and remediated their misconduct.
Key Takeaways
Companies that promote medical speaker programs should be reminded that speaking fees for physicians must be consistent with the market value of the speaker’s time. Speaker programs must also meet an actual educational need, meaning that providers cannot attend the same educational program multiple times, and health care companies cannot offer lavish food and drink amenities during the programs. Likewise, any other perks given to health care providers must take into account the total value being transferred, including the cost of traveling to conferences, accommodations, appearing on advertisements, and the like. Family members of health care providers should never receive benefits of any kind. Significantly, the best practice is for medical speaker programs to be coordinated by a company’s medical educational group rather than its salespeople.
Moreover, with the DOJ’s increased focus on combatting fraud against the government, companies should review their internal guidelines and ensure that company policies are consistent with current best practices and are actually implemented and adhered to by the company and its employees. The DOJ’s updated self-reporting policy provides potential opportunities to bring any non-compliant behavior into compliance without risk of prosecution. Self-monitoring of internal compliance is particularly important due to the DOJ’s focus on whether companies are complying with their own guidelines, and whether those guidelines are consistent with the law. Due to the updated incentives for companies with compliance and self-reporting programs in place, companies should ensure that they have implemented an adequate compliance program, provided internal reporting mechanisms, and have policies in place to encourage whistleblowers and protect whistleblowers from retaliation. Self-investigating and self-reporting to the DOJ any deviations from company policy or other violations of the law will best position the company to be protected under the voluntary self-disclosure program.
Footnotes
1) https://www.justice.gov/criminal/media/1400046/dl?inline.
2) https://www.justice.gov/criminal/criminal-fraud/file/1562831/dl?inline=.
3) https://www.justice.gov/usao-sdny/pr/us-attorney-announces-202-million-settlement-gilead-sciences-using-speaker-programs.
4) https://www.justice.gov/criminal/criminal-fraud/file/1562831/dl?inline=.