IRS Roundup May 15 – June 2, 2025
Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for May 15, 2025 – June 2, 2025.
IRS GUIDANCE
May 15, 2025: The IRS issued Notice 2025-29, providing guidance on the corporate bond monthly yield curve, corresponding spot segment rates under Internal Revenue Code (Code) § 417(e)(3), and the 24-month average segment rates under Code § 430(h)(2). The notice also provides guidance on the interest rate for 30-year Treasury securities under Code § 417(e)(3)(A)(ii)(II) (for plan years in effect before 2008) and the 30-year Treasury weighted average rate under Code § 431(c)(6)(E)(ii)(I).
May 15, 2025: The IRS issued Revenue Ruling 2025-12, providing prescribed rates for federal income tax purposes for June 2025, including, but not limited to:
Short-, mid-, and long-term applicable federal rates for June 2025 for purposes of Code § 1274(d)
Short-, mid-, and long-term adjusted applicable federal rates for June 2025 for purposes of Code § 1288(b)
The adjusted federal long-term rate and the long-term tax-exempt rate, as described in Code § 382(f)
The federal rate for determining the present value of an annuity, an interest for life, or for a term of years, or a remainder or a reversionary interest for purposes of Code § 7520.
May 19, 2025: The IRS released Internal Revenue Bulletin 2025-21. It includes Revenue Procedure 2025-19, which provides the 2026 inflation adjusted amounts for Health Savings Accounts (HSAs) as determined under Code § 223, as well as the maximum amount that may be made newly available for excepted benefit health reimbursement arrangements under Code § 54.9831-1(c)(3)(viii). Revenue Procedure 2025-19 is effective for HSAs for the 2026 calendar year and for excepted benefit health reimbursement arrangements beginning in 2026.
May 22, 2025: The IRS issued a notice to US taxpayers living or working abroad, encouraging them to file their 2024 federal income tax returns by June 16, 2025.
June 2, 2025: The IRS issued Notice 2025-27, providing interim guidance on the application of the corporate alternative minimum tax (CAMT), as well as relief from certain additions to tax for a corporation’s underpayment of estimated tax under Code § 6655. Among other things, this notice also provides an optional simplified method for determining applicable corporation status and waives certain additions to tax under Code § 6655 concerning a corporation’s CAMT liability under Code § 55. The US Department of the Treasury (Treasury) and the IRS also plan on issuing a notice of proposed rulemaking, revising the CAMT proposed regulations in § 2.02(2) of this notice to include a method for determining applicable corporation status.
The IRS also released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums, and Chief Counsel Advice).
TAX CONTROVERSY DEVELOPMENTS
On May 22, 2025, the US Tax Court issued its opinion in Facebook Inc. v. Commissioner.
THE “BIG, BEAUTIFUL BILL”
The “Big, Beautiful Bill” passed the US House of Representatives on May 22, 2025, and is now being deliberated in the US Senate. Changes are expected to be made, as adjustments to the tax-focused reconciliation bill is a key focus of senators.
DOJ Civil Rights Fraud Initiative Will Use the False Claims Act to Target Antisemitism and DEI Programs
At the end of May, the Department of Justice (DOJ) announced the formation of a Civil Rights Fraud Initiative to “utilize the False Claims Act to investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws.” In connection with the Initiative, we will see DOJ’s False Claims Act practitioners in the Civil Division and the U.S. Attorneys’ Offices pairing with DOJ’s Civil Rights Division to “identify and root out instances in which recipients of federal funds fail to uphold their basic obligations under federal civil rights laws.”
In particular, the Initiative will focus on companies or institutions that have, in DOJ’s view, tolerated antisemitism or engaged in “divisive” Diversity, Equity, and Inclusion (DEI) policies and efforts.
The new initiative
In some ways, this is a significant development and departure from prior DOJ practice:
The Civil Division (and its U.S. Attorney’s Office partners) and the Civil Rights Division have not done significant work together before. Although this is not the first time DOJ has formed an initiative to target its use of the FCA, this Initiative stretches the FCA into new realms. It relates directly to Executive Order 14173, which was issued on the first day of the current administration. While federal contracts already require compliance with anti-discrimination laws, the Executive Order requires recipients of federal funds to certify that they do not operate or maintain any DEI programs that violate applicable federal anti-discrimination laws. It also directs federal agencies to include terms in every federal contract or grant award that require government contractors to agree that compliance with applicable federal anti-discrimination laws is material to the government’s payment decisions.
Healthcare providers and payors are undoubtedly familiar with FCA challenges related to billing for services performed under certain federal programs. Now, under this Initiative providers and payors may face federal scrutiny not for the specific services performed or the payment received for such services or payments, but for internal HR policies and procedures.
The Initiative’s direct and pronounced call for whistleblowers, particular on a politically sensitive issue, is likely to lead to an increase in qui tam suits, potentially extending beyond healthcare providers and defense contractors to include non-traditional FCA defendants that receive federal funds.
At the same time, much remains unchanged:
The fraud in all FCA cases must still meet the “demanding” [i] test of being material to the government’s decision – meaning the alleged falsehood must have had some impact on the government’s choice to give funds to the defendant. Notwithstanding the language now required to be included within the contract itself, the government still must show that it would refuse payment based on the alleged violation, by making the showing that internal HR practices at a hospital or Medicaid managed care entity, for instance, are material to the provision of or payment for health care services that entity provides. In a concurring opinion a few weeks ago, Justice Thomas argued that exact point: “the contracts in this case were for bridge repairs, not minority hiring.”[ii]
Moreover, liability under the FCA still requires something knowingly “false” in the defendant’s conduct. The Supreme Court previously affirmed that an “honest mistake” is not a knowingly false claim.[iii] Instead, the government must show that the person submitting the claim subjectively believed and knew the claim to be false. Under the Initiative, therefore, the government must show both that: (1) the internal HR policies or DEI initiatives of a health care provider or payor (or other defendant) violated federal anti-discrimination laws; and (2) the healthcare provider or payor knew that those policies and initiatives were in violation of federal law.
What government-sponsored healthcare providers and payors need to know
Any recipient of federal funds is a potential target for an investigation or a qui tam lawsuit. In addition to the government’s own efforts, the traditional FCA bar is likely to heed DOJ’s call to action to find relators.
All providers and payors who receive federal funds, both large and small, should review their workplace policies and procedures for compliance with established law. This includes considering the potential risk that these policies and procedures may be evaluated based on the executive branch’s current interpretation of federal anti-discrimination requirements.
An FCA investigation is a serious matter. The FCA carries significant penalties and has a long statute of limitations, creating the possibility of staggeringly large liability. The government is aided in its search for fraud by incentives to whistleblowers (called relators) to file their own lawsuits on the government’s behalf. Even an investigation that concludes without any adverse findings or actions can be significant. The government can subpoena documents and depose employees, and the process can take months if not years. If you receive a Civil Investigative Demand, a phone call from DOJ, or informal outreach from any government entities, it is important to consider consulting legal counsel.
Footnotes
[i] Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. 176, 194 (2016).
[ii] Kousisis v. United States, 605 U.S. —, 145 S.Ct. 1382, 1401-02 (2025) (Thomas, J., concurring).
[iii] United States ex rel. Schutte v. Supervalu Inc., 598 U.S. 739, 752-53 (2023).
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False Claims Act Enforcement of Pharmacy Pricing & Prescribing Practices: The Walgreens Cases
The Department of Justice has launched a number of enforcement actions targeting pharmacies for alleged violations of the False Claims Act (FCA). Recently, Walgreens has been the subject of two noteworthy government settlements related to alleged FCA violations.
Allegations Related to Medicaid Billing for Generic Medications
In the first, on March 27, 2025, the U.S. Attorney’s Office for the District of Massachusetts announced that it had reached a $2.8 million settlement with Walgreens concerning allegations that the company overbilled Medicaid programs in Massachusetts and Georgia. Relators filed the qui tam case in 2019 and the government intervened for settlement purposes. The United States, Massachusetts, and Georgia alleged that, from 2008 to 2023, Walgreens submitted claims to MassHealth (Massachusetts’ Medicaid program) and Georgia Medicaid for certain generic medications that were higher than the customary price point for those drugs. Doing so, the government alleged, violated the federal FCA, as well as the states’ respective False Claims Acts.
Medicaid programs reimburse pharmacies for dispensing generic medications using the lowest of four reporting price points, one of which is the pharmacy’s “usual and customary price” as determined by the pharmacy. In this case, Walgreens submitted a higher price for the generic medications and failed to report the correct “usual and customary price,” causing the states’ Medicaid programs to overpay for those generic medications. Instead of the standard retail price (which is typically used to calculate the usual and customary price), Walgreens allegedly submitted the “gross amount due” when it was higher than the standard retail price. The extensive list of medications at issue included both over the counter and prescription generic medications. Notably, the claims against Walgreens in this case are similar to those brought in a pair of whistleblower FCA suits against retail drug pharmacies that reached the U.S. Supreme Court in 2023, a case we previously analyzed here that established the current scienter (knowledge) standard for potential liability under the FCA.
Of the $2.8 million settlement, roughly $1.4 million will go to the federal government, Georgia will receive $352,000, and Massachusetts will receive $1.1 million.
Allegations Related to Prescriptions of Controlled Substances
Less than a month later, on April 21, 2025, the government announced the second settlement. Under this settlement agreement, Walgreens will pay the federal government $300 million, with an additional $50 million owed if the company (or a significant portion of its assets) is sold, merged, or transferred to a non-affiliated entity before 2032. The settlement resolves allegations that, from 2012 to 2023, Walgreens filled millions of unlawful controlled substance prescriptions in violation of the Controlled Substances Act, and then sought payment for those prescriptions from federal programs in violation of the FCA.
In its complaint, the government alleged that Walgreens pharmacy staff knew that many of these prescriptions were likely to be unlawful (because they were not issued in the usual course of professional practice, or were not issued for a legitimate medical purpose, or both), and some had been issued by practitioners known to regularly prescribe controlled substances in an unlawful manner. The complaint alleged that Walgreens filled such prescriptions “without resolving the significant concerns those prescriptions raised.” For example, according to the government, many of the prescriptions were for opioids prescribed in excessive quantities, filled too early, or prescribed in a dangerous and commonly abused combination with other drugs – i.e., the “trinity” of drugs (which term refers to the combination of an opioid, a benzodiazepine, and a muscle relaxant, and which is viewed as a prescribing “red flag” by the government). Walgreens allegedly “systematically pressured” pharmacy staff to fill these prescriptions quickly, without allowing them sufficient time to verify their legitimacy and necessity and doing so despite “clear red flags.” The complaint described a corporate culture “wherein pharmacists who diligently observed their responsibility to verify the legitimacy of controlled-substance prescriptions were subject to reprimand.” Further, Walgreens compliance officials allegedly prevented these practices being curtailed by withholding prescriber information from pharmacists which would have allowed them to identify patterns of unlawful prescribing and warn one another about problematic practitioners.
The settlement stipulates several terms of payment, including one aimed at preventing employee bonuses from being used as a method of evading payment of the settlement with the government: If bonuses cumulatively exceed $400 million in a given year, the excess amount factors into the calculation of Walgreens’ annual payment amount. In addition to the settlement payment, Walgreens has agreed to several monitoring and oversight requirements going forward, including an agreement with the DEA to implement and maintain certain compliance measures for the next seven years. This agreement with the DEA requires Walgreens to establish and maintain policies requiring pharmacists to validate prescriptions for controlled substances and dispense them appropriately, provide annual training to pharmacy employees regarding their legal obligations relating to controlled substances and ensure appropriate pharmacy staffing. As part of the settlement, Walgreens is also under a five-year Corporate Integrity Agreement with HHS-OIG, which further requires a corporate compliance program.
Conclusion
These cases underscore the government’s focus on using the FCA to police fraud and abuse in pharmacy pricing and prescribing practices. It also continues to highlight a prudent approach for companies to monitor red flags and outliers and have a robust compliance program. We will continue to monitor pharmacy-related enforcement actions.
This post was co-authored with Ivy Miller, legal intern at Robinson+Cole. Ivy is not admitted to practice law.
EPA Extends Deadline to Report Health and Safety Data for 16 Chemicals
The U.S. Environmental Protection Agency (EPA) issued a final rule on June 9, 2025, that extends the reporting deadlines for a rule under Section 8(d) of the Toxic Substances Control Act (TSCA) requiring manufacturers (including importers) of 16 chemicals to report data from unpublished health and safety studies to EPA. 90 Fed. Reg. 24228. EPA notes that these health and safety studies “will help inform EPA’s prioritization, risk evaluation, and risk management of chemicals under TSCA. ” The reporting deadline in EPA’s December 13, 2024, final rule was March 13, 2025. In March 2025, EPA extended the reporting deadline to June 11, 2025, for vinyl chloride and to September 9, 2025, for the other chemicals covered under the rule. The rule extends the reporting deadlines for all 16 chemicals to May 22, 2026. According to EPA, the extension will provide it additional time to prepare final guidance for companies on issues related to complying with the rule, including those related to templates required for submissions containing confidential business information. The chemicals subject to the TSCA Section 8(d) rule are:
Acetaldehyde;
Acrylonitrile;
2-anilino-5-[(4-methylpentan-2-yl) amino]cyclohexa-2,5-diene-1,4-dione (6PPD-quinone);
Benzenamine;
Benzene;
Bisphenol A (BPA);
Ethylbenzene;
Hydrogen fluoride;
4,4-Methylene bis(2-chloraniline) (MBOCA);
N-(1,3-Dimethylbutyl)-N′-phenyl-p-phenylenediamine (6PPD);
Naphthalene;
Styrene;
4-tert-octylphenol(4-(1,1,3,3-Tetramethylbutyl)-phenol);
Tribromomethane (bromoform);
Triglycidyl isocyanurate; and
Vinyl chloride.
More information on EPA’s December 2024 rule is available in our December 23, 2024, memorandum.
Distinguishing Deceptive Trade Practices From Negligent Care: Exploring the Boundaries Between Consumer Protection and Medical Malpractice Claims
Hospitals and health systems are familiar with traditional medical malpractice cases, but as healthcare is increasingly seen as a business, healthcare providers need to understand the potential for, and limitations of claims brought under the guise of consumer protection laws.
Consumer protection laws can be tempting causes of action for individuals who believe they have been wronged by the healthcare system. Unlike medical malpractice claims, which require expert testimony and may include damages caps, consumer protection statutes often include treble damages, punitive damages, and attorneys’ fees. Consumer protection laws may also offer injunctive relief as a remedy, do not require a plaintiff to prove causation or damages, and have the potential for class action lawsuits. To prevent plaintiffs from reframing a negligence case to sidestep the limitations of medical malpractice cases, some courts and states have drawn boundaries between consumer protection and medical malpractice cases.
While each state has its own consumer protection laws, the statutes generally prohibit unlawful business or trade practices, which can be broadly defined. For example, Oregon’s Unlawful Trade Practices Act lists over 80 separate ways to violate the statute, including the use of “deceptive representations” in connection with a service or making false or misleading representations about the price of a service.[1] Other states, such as Texas, prohibit “unconscionable” actions, which includes taking advantage of “the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree.”[2]
Healthcare services are not traditionally viewed through a consumer protection lens but nevertheless pose a high risk for this type of claim. Patients necessarily rely on the specific knowledge, ability, and experience of a provider. Advertising and marketing by healthcare providers is ubiquitous. Moreover, the care is often removed or distant from the marketing and billing for the service. Traditionally, “learned professions” such as “practitioners of the healing arts” were not considered a “trade” subject to consumer protection laws.[3] Today, no such clear limitation exists.
Many courts have clarified that hospitals and healthcare providers are subject to the same consumer protection laws as any other business, but some guardrails still exist. Some states and courts have restricted the types of cases that may be brought against healthcare providers under the guise of consumer protection laws. Several states have statutes that expressly prohibit claims under the state consumer protection act if the case alleges personal injury resulting from negligence.[4] To determine whether the case alleges an injury resulting from negligence, Texas courts look to whether the cause of action refers to an applicable standard of care. In one case, a plaintiff alleged that the physician engaged in an unconscionable course of action when she went to a mental health facility seeking advice related to her medication but was then admitted without consent and not permitted to leave the facility.[5] Because the plaintiff’s claim was premised on an alleged departure from accepted standards of care relating to involuntary commitment, the claim sounded in negligence and could not be brought under the consumer protection act.[6]
Even where there is no statute precluding negligence-based claims, some courts look for a nexus between the claims at issue and the entrepreneurial or business aspect of practicing medicine.[7] The Appeals Court of Massachusetts applied consumer protection law to a class action case related to overcharging for medical records, noting that the service was an entrepreneurial element of the practice.[8] Others, such as the Kentucky Court of Appeals[9] or the Supreme Court of Montana[10] have declined to apply consumer protection laws to cases where there was no connection between the care and any improper financial relationship or incentive or where there was no connection to the entrepreneurial, commercial, or business aspects of running a medical practice.
Other courts have refused altogether to require a nexus between the care provided and the entrepreneurial aspect of medicine. The District of Columbia Court of Appeals rejected any such requirement, noting “concern that the line between [consumer protection law] claims and traditional medical malpractice claims will be blurred appears to be overstated.”[11] Similarly, the Western District of Pennsylvania noted that consumer protection law is to be “construed liberally,” and neither intent nor actual deception are required.[12]
Whether consumer protection laws will apply to a potential claim is a fact-intensive question that necessarily relies on state law. The broad spectrum of available damages, potential for class action, attorneys’ fee entitlement, and possibility of injunctive relief make consumer protection claims particularly disruptive for providers. Courts across the country have been skeptical of medical malpractice cases filed under the guise of consumer protection cases, but skepticism may be eroding as case law develops and marketing by providers increases.
Healthcare entities and providers alike need to be on the lookout for potential consumer protection risks. Entities should be aware of the potential application of consumer protection law in their jurisdiction and consider proactive strategies, such as evaluating marketing statements and educating providers about consumer protection pitfalls.
ENDNOTES
[1] ORS § 646.608.
[2] 2 Texas Business and Commerce Code § 17.45(5)
[3] Frankeny v. District Hospital Partners, LP, 225 A.3d 999, 1005 (2020) (analyzing the District of Columbia Consumer Protection Procedures Amendment Act).
[4] See, e.g., Texas Medical Liability Act (TMLA), Texas Civil Practices and Remedies Code § 74.004(a). See also Kansas Consumer Protection Act, Ks. St. 50-635(b).
[5] Loya v. Hickory Trail Hospital, L.P., 673 S.W.3d 1, 8-10 (2022).
[6] Id. at 10.
[7] See, e.g., Beauchesne v. New England Neurological Associates, P.C., 159 N.E. 3d 728 (2020).
[8] Id. at 729.
[9] Barnett v. Mercy Health Partners-Lourdes, Inc., 233 S.W.3d 723 (2007).
[10] Hastie v. Alpine Orthopedics & Sports Medicine, 363 P.3d 435 (2015).
[11] Frankeny, 225 A.3d at 1007 (noting that a medical malpractice claim has entirely different elements and uses different types of evidence, making potential crossover unlikely).
[12] Schiff v. Hurwitz, No. 12cv0264, 2012 WL 1971320, at *4 (W.D. Pa, June 1, 2012) (applying Pennsylvania’s Consumer Protection law to a claim against an institutional review board where the board did not consider the risk of injury and approved a medical device despite the fact that the Food and Drug Administration was neither aware of nor approved of the use of the device).
Healthcare Preview for the Week of: June 9, 2025 [Podcast]
Senate Continues Reconciliation Consideration
This week, Senate consideration of the reconciliation package will continue, and more text will be made public as the process begins to move out from behind closed doors. Senate committees of jurisdiction are unlikely to hold markups of updated legislative text and instead are releasing their text leading up to Senate floor consideration, targeted for the week of June 23, 2025.
Committees without health jurisdiction started this process last week, and this week we expect text from health committees. The Senate Health, Education, Labor, and Pensions Committee has some jurisdiction over the Affordable Care Act (ACA) and is likely to release its text as early as Tuesday. The Senate Finance Committee has jurisdiction over the bulk of the reconciliation package – including Medicare, Medicaid, the ACA, and taxes – and will likely be the last committee to release text, which could happen as early as this Friday, June 13 (we’re trying not to read into that).
Released text is still subject to change, as Senate Republican leadership works to whip votes in their own body while also trying to ensure that any changes made will still enable the House to pass the bill again before it can go to the president for his signature. The process of striking provisions that do not comply with the Byrd rule is also ongoing, but final Byrd rule decisions will not be made until the bill is on the Senate floor. Republicans have just three weeks to pass the updated package in the Senate and send it back for House consideration before their self-imposed deadline of July 4, 2025. If any step does not occur on time during these next three weeks, this timeline could slip into later July.
On the other side of Capitol Hill, the House will vote on the rescissions package sent by the White House last week that would rescind more than $9.4 billion of previously appropriated funding. Most of the rescinded funding targets global development and public broadcasting funding. The package would rescind $900 million of global health funding, including $400 million for the President’s Emergency Plan for AIDS Relief. The House Rules Committee will meet on Tuesday to consider the legislation, known as H.R. 4. On both the House and Senate floors, only a simple majority is needed to approve the rescissions, but the package has received more outspoken Republican criticism in the Senate, including from Senate Appropriations Committee Chair Collins (R-ME).
Fiscal year (FY) 2026 appropriations markups continue this week, with the House Appropriations Committee meeting to mark up the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Bill that advanced through subcommittee last week by a party line vote. The Labor, Health and Human Services, Education, and Related Agencies Bill will be considered in late July; the full schedule of markups is available here. National Institutes of Health (NIH) Director Bhattacharya will testify at the Senate Appropriations Committee on the President’s FY 2026 NIH budget request, although discussion likely will also focus on concerns about delays or cuts to FY 2025 grant funding.
Today’s Podcast
Debbie Curtis and Rodney Whitlock join Julia Grabo to discuss the busy week ahead of Congress, including where they are in the reconciliation, recissions, and appropriations processes.
The One Big Beautiful Bill Act’s Proposed Moratorium on State AI Legislation: What Healthcare Organizations Should Know
Congress is weighing a sweeping proposal that could significantly reshape how artificial intelligence (AI) is regulated across the United States. At the end of May, the United States House of Representatives passed, by a vote of 215-214, the One Big Beautiful Bill Act (OBBBA), a budget reconciliation bill with a provision imposing a 10-year moratorium on the enforcement of most state and local laws that target AI systems. If enacted, OBBBA would pause the enforcement of existing state AI laws and regulations and take precedence over emerging AI legislation in state legislatures across the country.
For healthcare providers, payors, and other healthcare stakeholders, the implications are substantial. While the moratorium could streamline AI deployment and ease compliance burdens, it also raises questions about regulatory uncertainty and patient safety, potentially undermining patient trust.
What OBBBA Would Do
Section 43201 of OBBBA prohibits the enforcement of any state or local law or regulation “limiting, restricting, or otherwise regulating” AI models, AI systems, or automated decision systems. OBBBA defines AI as a “machine-based system that can, for a given set of human-defined objectives, make predictions, recommendations, or decisions influencing real or virtual environments.” The definition of “automated decision systems” is similarly broad, encompassing “any computational process derived from machine learning, statistical modeling, data analytics, or AI that issues a simplified output (e.g., a score, classification, or recommendation) to materially influence or replace human decision making.”
As proposed, OBBBA would preempt several enacted and proposed restrictions on AI use in healthcare, including:
California AB 3030, which (with few exceptions) mandates disclaimers when generative AI is used to communicate clinical information to patients and requires that patients be informed of how to reach a human provider;
California SB 1120, which prohibits health insurers from using AI to deny coverage without sufficient human oversight;
Colorado Artificial Intelligence Act, which regulates developers and deployers of AI systems, particularly those considered “high risk”;
Utah Artificial Intelligence Policy Act, which requires regulated occupations (including healthcare professionals) to prominently disclose at the beginning of any communication that a consumer is interacting with generative AI; and
Massachusetts Bill S.46, which, as proposed, would require healthcare providers to disclose the use of AI to make decisions affecting patient care.
Importantly, however, OBBBA contains exceptions that will likely spark debate about the true scope of the moratorium. Under OBBBA, state AI laws and regulations will remain enforceable (and not preempted) if they fall under any one of the following exceptions:
Primary Purpose and Effect Exception. The state law or regulation has the “primary purpose and effect,” with respect to the adoption of AI or automated decision systems, of: (i) removing legal impediments; (ii) facilitating deployment or operation; or (iii) consolidating administrative procedures;
No Design, Performance, and Data-Handling Imposition Exception. The state law or regulation does not impose substantive design, performance, data-handling, documentation, civil liability, taxation, fee, or similar requirements on AI or automated decision systems, unless these requirements are imposed under federal law or are generally applicable to other models and systems that perform similar functions; or
Reasonable and Cost-Based Fees Exception. The state law or regulation imposes only fees or bonds that are “reasonable and cost-based” and imposed equally on other AI models, AI systems, and automated decision systems that perform comparable functions.
The last two exceptions, in particular, imply that the moratorium would affect only those state laws that treat AI systems differently from other systems. As such, laws of general application at the state and federal level would continue to regulate AI, including those concerning anti-discrimination, privacy, and consumer protection. However, even with this carve-out, the moratorium would undeniably transform the AI regulatory landscape, given the absence of robust federal regulation to replace state-level restrictions.
Why It Matters for Healthcare Stakeholders
The proposed moratorium is part of the Trump Administration’s broader emphasis on innovation over regulation in the AI space. Supporters argue that a single federal standard would help reduce compliance burdens on AI developers by eliminating the need to track and implement AI rules in 50 states. This would, in turn, encourage innovation and protect national competitiveness, as the U.S. races to keep pace with the European Union and China on AI development.
But for healthcare providers, the tradeoffs are complex. State-level regulation has its advantages. For example, patients may grow wary of AI-enabled care if transparency and oversight appear to be diminished, especially in sensitive areas like diagnosis, care triage, or behavioral health. Additionally, states often act as early responders to emerging risks. A moratorium could prevent regulators from addressing evolving clinical concerns related to AI tools, especially given the lack of comprehensive federal guardrails in this area.
Legal and Procedural Challenges
The moratorium also faces significant constitutional and procedural hurdles. For example, legal scholars and 40 bipartisan state attorneys general have raised concerns that OBBBA may infringe upon state police powers related to health and safety, potentially raising issues under the Tenth Amendment. Additionally, if enacted, the moratorium is expected to face legal challenges in court, given bipartisan opposition.
What Healthcare Organizations Should Do Now
Healthcare organizations should maintain strong compliance practices and stay abreast of laws of general application, such as HIPAA and state data privacy and security laws, as AI tools are likely to remain subject to such laws, despite uncertainties that may emerge if OBBBA is enacted. Even if the moratorium does not pass the United States Senate, Congress has clearly signaled a growing intent to regulate AI—whether through future legislation or agency-led rulemaking by entities such as the United States Department of Health and Human Services or the Food and Drug Administration. As such, healthcare organizations should have a clear vision on their organization’s policies and practices involving AI compliance, including the following:
Maintaining Compliance Readiness. Continue monitoring and preparing for state-level AI regulations that are currently in effect or soon to be implemented.
Auditing Current AI Deployments. Evaluate how AI tools are currently used across clinical, operational, and administrative functions, and continue to assess their alignment with broader legal frameworks, including, but not limited to, HIPAA, FDCA, FTC Act, Title VI, and consumer protection laws. As discussed, AI tools will continue to remain subject to many laws of general application even if the moratorium passes.
Engaging in Strategic Planning. Depending on whether the moratorium is approved by the United States Senate and survives legal scrutiny, organizations may need to recalibrate compliance programs.
Regardless of whether OBBBA is ultimately enacted, the proposed federal AI enforcement moratorium marks a pivotal moment in the evolving landscape of AI regulation in healthcare. Providers would be well served to remain proactive, well-informed, and prepared to adapt to evolving legal and regulatory developments.
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Nebraska Governor Signs Bill to Amend Healthy Families and Workplace Act
On June 5, 2025, Nebraska Governor Jim Pillen signed Legislative Bill (LB) No. 415 that clarifies and amends the Nebraska Healthy Families and Workplace Act (NHFWA) passed by voters in November 2024, which provides earned paid sick time (PST) to most Nebraska employees. The bill will become effective in time for the October 1, 2025, start date for the state’s PST requirement under the NHFWA.
Quick Hits
The Nebraska Healthy Families and Workplace Act requires most Nebraska employers to provide earned paid sick time, starting October 1, 2025.
On June 5, 2025, Nebraska Governor Pillen signed a bill that clarifies and amends the Nebraska Healthy Families and Workplace Act.
On November 5, 2024, Nebraska voters overwhelmingly approved Nebraska Initiative 436 (also known as the Healthy Families and Workplace Act), which requires employers to begin providing earned paid sick time (PST) to most Nebraska employees on October 1, 2025. On May 28, 2025, the Nebraska Legislature passed Nebraska LB No. 415, which clarifies and amends the NHFWA.
The Amended Nebraska Healthy Families and Workplace Act
Under the NHFWA, most Nebraska employers must provide earned paid sick time to employees starting October 1, 2025. The law exempts employers that are federal or state governments or political subdivisions of the state.
Under the NHFWA, employees earn one hour of paid sick time for every thirty hours worked. Employers with twenty or more employees can cap accrual and use of PST at fifty-six hours per year. Small employers (defined by the amendment to include employers with eleven to nineteen employees) can cap accrual and use at forty hours each year. Employees can carry over all unused PST at the end of the year, but carryover does not affect the annual accrual and use caps that are based on employer size.
LB-415 clarifies and amends the NHFWA as follows:
Exempt Employees. Seasonal and temporary workers employed in agriculture and employees under age sixteen are not eligible to earn PST.
Small Employers Exempt. Small employers with fewer than eleven employees do not have to provide PST.
Waiting Period for Accrual. Employees begin earning PST after working eighty consecutive hours in Nebraska, but employees can use PST as it accrues.
Existing Paid Time Off Policy. Employers are not required to provide additional paid time off under the law if they have a paid leave policy that meets the following requirements: the policy permits employees to take paid leave in an amount that equals or exceeds what is required by the NHFWA and that can be used as paid sick time. Employers are not required to allow accrual or carryover beyond their existing paid time off policies.
Paid Leave Provided Between January 1, 2025 – September 30, 2025. Paid time off provided by an employer on or after January 1, 2025, that can be used for the reasons covered by the law will be counted toward the employer’s annual obligations to provide PST in 2025.
Payout of Unused PST. The law does not require employers to pay out unused PST at the time of separation.
No Private Right of Action. Employees do not have a private right of action under the law.
The amendment did not change most other key provisions of the NHFWA including:
Carryover. Employees may carry over all unused PST, but carryover does not affect applicable accrual and use caps based on employer size. An employer may avoid carryover by paying out all unused PST at yearend and frontloading the employee’s annual allotment of PST at the beginning of the subsequent year.
Rate of Pay. Employers must pay PST at the employee’s normal hourly rate and with the same benefits, including healthcare benefits and accrual of paid time off (including accrual of PST).
Reasons for Use. Employees may use PST for (1) their own or a family member’s mental or physical illness, injury, or health condition; or (2) closure of the employee’s place of business or child’s school due to a public health emergency.
Notice of Use. An employer requiring notice of use of PST must have a written policy outlining a reasonable procedure for providing notice.
Increments of Use. Employees may use PST in the smaller of one-hour increments or the smallest increment of time used to account for other types of absences.
Documentation. Employers can request documentation to support PST use when an employee uses PST for more than three consecutive days.
Administrative Penalties. Employers that violate the NHFWA can be subject to administrative penalties of up to $500 for a first violation and up to $5,000 in the case of a second or subsequent violation. An employer with an unpaid citation is not eligible to contract with the state until the citation is paid.
Employers must provide written notice of the NHFWA by September 15, 2025, and display a poster at the employer’s worksite thereafter. Employers can provide electronic notice to remote workers or if the employer does not maintain a physical worksite. Current employees who have worked at least eighty hours in Nebraska will begin earning PST on October 1, 2025. All other Nebraska employees will start earning PST once they have worked at least eighty hours in the state. The Nebraska Department of Labor issued guidance in the form of frequently asked questions (FAQs), which should be updated to incorporate updated guidance following the passage of LB-415.
Key Takeaways
Starting October 1, 2025, most Nebraska employers must allow employees who have worked at least eighty hours to start earning paid sick time at a rate of one hour for every thirty hours worked. Employers with fewer than eleven employees are exempt from the law. Employers with eleven to nineteen employees can cap accrual and use at forty hours per year. Employers with twenty or more employees can cap accrual and use at fifty-six hours per year. Employers with an existing paid leave policy need not provide additional paid leave under the NHFWA if the policy provides an amount of leave equal to or greater than that required by the law, and which can be used as paid sick time. Employers can count paid leave that was provided to employees between January 1, 2025, and September 30, 2025, toward their annual obligation for PST if the paid time off was available for use as paid sick time as provided by the NHFWA.
What Health Care Lawyers and Professionals Need to Know About Emerging Employee Benefit Issues
Employee benefits compliance has many traps for the unwary and is ever evolving. Below, we have provided a primer on current issues of importance in the employee benefits area to help in-house attorneys identify potential risks, mitigate them, and know when to call an outside ERISA lawyer.
1. What Is Old Is New: Get Your Health Plan Governance in Order
Employers that sponsor self-funded health plans have a host of complicated obligations. There are greater potential legal, regulatory, and fiduciary risks than in years past with managing health plans because of increased congressional legislation, increased Department of Labor (DOL) focus on group health plan compliance, and increased group health plan litigation, often by the same plaintiffs’ firms that have been suing 401(k) plans in fee litigation the past 20 years or more.
Employers should consider properly establishing a benefits committee, much like how they established committees for their retirement plans, that will serve to govern and oversee their employer-sponsored group health plans, especially those that are self-funded. A formal committee could help employers stay compliant, formalize their prudent decision-making process, and shift certain fiduciary liability to the benefits committee from the Board, thus insulating the Board from the underlying fiduciary decisions.
2. Stay Calm and Carry On: Mental Health Parity Non-Enforcement Policy Pauses Only Certain Requirements
Self-insured health plans must show that the plan does not include more restrictions on access to mental health benefits than on access to medical benefits. The law looks at both financial limits (e.g., coinsurance, copays, and deductibles) and other types of limits (e.g., pre-authorization requirements, provider network design, and prescription drug formulary design).
Beginning in 2021, plans were required to produce a written analysis of the non-financial limits, also known as non-quantitative treatment limitations (NQTLs), and the DOL has been actively auditing those analyses. Such audits have been time- and resource-intensive, given that the DOL has yet to approve an analysis without changes.
Late last year, the agencies released a final rule with details on the DOL’s expectations with respect to the NQTL analysis. They have since been sued for the rule, with the plaintiffs claiming overreach by the DOL. On May 15, 2025, the DOL stated that it would not enforce the final rule but would continue to enforce the statute and prior guidance.
Therefore, self-insured plans should continue to produce and update their NQTL analysis. We expect at least some continued audit activity, as well as the threat of private litigation.
3. To Report or Not to Report, That Is the Question: Florida Data Request to Self-Insured Plans Under Pharmacy Benefits Management Law
Several states have recently enacted laws designed to increase oversight of pharmacy benefit managers (PBMs) and limit certain PBM practices. Many of these laws impose reporting obligations on PBMs and the plans and employers with which they contract. While some of these laws exempt self-funded group health plans from their reach, recognizing that states are generally preempted from regulating such plans under ERISA, others explicitly include self-funded group health plans within their reach. For example, Florida’s Prescription Drug Reform Act includes “self-insured employer health plans” in its definition of “pharmacy benefits plan or program”—the category of plans to which the law applies.
This year, Florida’s Office of Insurance Regulation issued data requests under the PBM law, asking PBMs and group health plans to submit a broad range of prescription drug data, including participants’ names, dates of birth, prescriptions filled, and doctors visited. For sponsors of self-funded health plans, these data requests and similar requests made by other state agencies raise questions regarding both ERISA preemption and Health Insurance Portability and Accountability Act (HIPAA) obligations.
We expect that these questions may soon be answered through litigation, but in the meantime, employers with self-funded plans should work with counsel to evaluate these requests on a case-by-case basis. In some instances, the requested data may be minimal, and the state laws may fall outside of ERISA’s broad preemption protection. In other cases, where states request sweeping, specific data, such requests might be preempted by ERISA, especially where sharing the information would violate HIPAA.
4. If You Didn’t Document It, It Didn’t Happen: Takeaways from Cunningham v. Cornell University
On April 27, 2025, the U.S. Supreme Court ruled in Cunningham v. Cornell University that a plaintiff can allege that a transaction between a plan and a “party in interest,” such as a plan service provider, is a “prohibited transaction” under ERISA even if the plaintiff doesn’t directly allege that the transaction was unreasonable or unnecessary. Why did the Supreme Court conclude a plaintiff doesn’t have to allege something specifically wrong, especially where transactions between plans and plan service providers are common? The Court took a textualist approach and concluded that ERISA’s structure puts the burden on the plan fiduciary to prove the transaction was necessary and reasonable, and because of this, a plaintiff need not plead “unreasonableness” in its complaint. As the Court conceded, the result is that the bar to get past a motion to dismiss is lowered, making it more difficult for plans to avoid costly litigation for weak—if not downright meritless—prohibited transaction claims. Recognizing that this may be problematic for plans, the Supreme Court urged lower courts to use other tools at their disposal to weed out meritless claims sooner rather than later, such as additional pleadings or the threat of shifting plan legal fees to a plaintiff.
So, what can a prudent plan administrator take away from a case about technical ERISA pleading standards? The clearer a fiduciary’s prudent process for selecting and compensating a plan service provider, the better. Clear documentation of the fiduciary’s process, such as in committee meeting minutes (preferably, vetted by experienced counsel), makes it more likely that a court will see the prudence a fiduciary has exercised from the get-go, before individuals have to defend their efforts in depositions.
5. How Well Is Your Wellness Plan?
HIPAA’s wellness program rules provide an exception to its general rule that prohibits an employer from determining premiums or benefits based on a health factor. Employers offering wellness programs should be mindful of ongoing challenges to health-contingent programs. These programs require participants to satisfy a standard related to a health factor to earn a reward. Health contingent programs can be outcomes-based or activity-only programs. While many of the requirements apply to both programs, challenges—and litigation—focus on health-contingent programs that are outcomes-based. These programs require employers to allow a “reasonable alternative standard” for meeting the requirements, regardless of whether it is medically inadvisable for a participant to try to meet the standard, or if meeting the standard is unreasonably difficult due to a medical condition. Cases focus on the availability of, or communication related to, a “reasonable alternative standard.”
Employers offering these plans should review their communications ahead of open enrollment season to make sure reasonable alternative standards are disclosed in all printed and electronic communications. Employers should also ensure that they are, in fact, offering a reasonable alternative standard as well as ensuring payment is made for any retroactive periods while the standard is being met.
6. Don’t You Forget About Me: Cybersecurity Guidance Applies to All Employee Benefit Plans
In April 2021, in the wake of a rash of phishing and hacking incidents that resulted in the theft of retirement funds, the DOL issued cybersecurity guidance for plan sponsors, plan fiduciaries, record keepers, and plan participants. Recognizing the vast assets being held in private-sector pension and defined contribution plans without sufficient vigilance, protections, and accountability, these assets may be at risk from both internal and external cyber threats.
The guidance issued by the DOL includes Tips for Hiring a Service Provider, Cybersecurity Program Best Practices, and Online Security Tips. However, it was heavily focused on ways to protect retirement plan data and the financial assets in retirement accounts, leading many to the misconception that the guidance didn’t extend to the data maintained by the plan sponsors, plan fiduciaries, and the contractors and vendors for health and welfare plans.
As cybercrime evolved and hackers began to use malware and ransomware, health care data became an increasingly attractive target because the services that health care organizations and their IT systems support keep people alive and healthy. Hackers appreciated that there was little tolerance for allowing health care systems to remain offline, making it more likely a ransom will be paid, creating the perfect storm and magnifying the value of health care data to cybercriminals. Breaches by large vendors made it abundantly clear that, in a digital world, the need for strong cyber hygiene transcends all boundaries, prompting the DOL to issue an update in November 2024 to the cybersecurity guidance to confirm that it applies to all ERISA plans.
HIPAA Compliance Risks with AI Scribes in Health Care: What Digital Health Leaders Need to Know
AI scribes are quickly becoming the digital sidekick of modern health care. They promise to reduce clinician burnout, streamline documentation, and improve the patient experience. But as health care providers and digital health companies race to implement AI scribe solutions, one major concern keeps surfacing: What are the HIPAA risks?
The HIPAA risk is highly dependent on how the AI solution is trained, deployed, integrated, and governed. If your company is exploring or already using an AI scribe solution, pressure test the risk with this blog as your roadmap.
What is an AI Scribe?
AI scribes use machine learning models to listen to (or process recordings of) patient-provider encounters and generate structured clinical notes. These tools are marketed to seamlessly integrate into the electronic health record (EHR), reduce the need for manual charting, and allow physicians to focus more on the patient during visits.
Behind the scenes, AI scribes handle a high volume of protected health information (PHI) in real time, across multiple modalities (e.g., audio, transcripts, structured EHR data, etc.). As a result, AI scribes will be regulated by HIPAA.
HIPAA Pitfalls in the AI Scribe Lifecycle
Below are the most common HIPAA pitfalls we have encountered while advising digital health clients, health systems, and AI vendors rolling out scribe technologies.
1. Training AI on PHI Without Proper Authorization
Many AI scribes are “fine-tuned” or retrained using real-world data, including prior encounters or clinician-edited notes. That data typically contains PHI. Under HIPAA, using PHI for purposes beyond a covered entity health care provider’s treatment, payment, or health care operations generally requires patient authorization. As a result, use cases like model training or product improvement require a strong case that the activity qualifies as the covered entity health care provider’s health care operations — otherwise it will require patient authorization.
Risk: If an AI vendor is training its model on customer data without patient authorization or on behalf of the customer on a defensible treatment, payment, or health care operations basis, that use would need to be assessed as a potential HIPAA violation. Also consider any other consents that may be required to deploy this technology, such as consents for patients or providers to be recorded under state recording laws.
2. Improper Business Associate Agreements (BAAs)
An AI scribe vendor that accesses, stores, or otherwise processes PHI on behalf of a covered entity or another business associate is almost always a business associate under HIPAA. Yet we have seen vendor contracts that either (a) lack a compliant BAA, (b) contain overbroad indemnity disclaimers essentially eliminating liability for the vendor, or (c) fail to define permitted uses and disclosures or include uses and disclosures not permitted by HIPAA (such as allowing the vendor to train AI models on PHI without proper authorization or otherwise meeting a HIPAA exception).
Tip: Scrutinize every AI vendor agreement. Ensure the BAA or underlying services contract clearly defines: the data being accessed, stored, or otherwise processed, how the data may be used, including what data may be used for training, and whether data is de-identified or retained after service delivery.
3. Lacking Security Safeguards
AI scribe platforms are high-value targets for attackers. The platforms may capture real-time audio, store draft clinical notes, or integrate via APIs into the EHR. If those platforms are not properly secured, and a data breach occurs as a result, the risks include regulatory fines and penalties, class action lawsuits, and reputational damage.
HIPAA Requirement: Covered entities and business associates must implement “reasonable and appropriate” technical, administrative, and physical safeguards to protect PHI. HIPAA regulated entities must also update their risk analyses to include the use of AI scribes.
4. Model Hallucinations and Misdirected Outputs
AI scribes, especially those built on generative models, can “hallucinate” or fabricate clinical information. Worse, they can misattribute information to the wrong patient if transcription errors or patient mismatches occur. That is not just a workflow issue. If PHI is inserted into the wrong chart or disclosed to the wrong individual, that could be a breach under HIPAA and state data breach laws (and even potentially detrimental to the patient if future care is impacted by an erroneous entry).
Risk Management: Implement human-in-the-loop review for all AI-scribed notes. Make sure providers are trained to confirm the accuracy of notes before entry into the patient’s record.
5. De-Identification Fallacies
Some vendors claim their AI solution is “HIPAA-compliant” because the data is de-identified. However, vendors often fail to strictly follow either of the two permissible methods of de-identification under HIPAA at 45 C.F.R. § 164.514: the Expert Determination or the Safe Harbor method. If the data is not fully de-identified under one of those methods, the data is not de-identified under HIPAA.
Compliance Check: If a vendor claims their system is outside of HIPAA’s reach because only de-identified data is used, press for: the method of de-identification used, evidence of re-identification risk analysis, and credentials of the de-identification expert used (if applicable). Also, note that if the vendor is given PHI to de-identify, there must be a BAA in place with the provider and vendor for that de-identification.
Practical Next Steps for Health Systems and Digital Health Companies
For companies evaluating or already implementing an AI scribe, here are tips to mitigate risk without stifling innovation:
Vet vendors thoroughly
Build governance into your EHR workflows
Limit secondary use/training without authorization
Update your risk analysis
Train your providers
The Bottom Line
AI scribes are transforming clinical documentation. However, with great automation comes great accountability, especially under HIPAA. Vendors, digital health companies, and health systems must treat AI scribes not just as software, but as data stewards embedded into patient care. By building strong contractual safeguards, limiting use of PHI to what is permitted under HIPAA, and continuously assessing downstream risks, digital health leaders can embrace innovation without inviting unwarranted risk.
Nebraska’s New Sick Leave Law Explained
On June 4, 2025, Nebraska Governor Jim Pillen signed LB415, which amends the Nebraska Healthy Workplaces and Families Act (“HWFA”). Initially passed via ballot initiative in November 2024, the HWFA mandates paid sick leave for most employers and employees in the state—40 hours per year for employers with between 11 and 19 employees, and 56 hours per year for employers with 20 or more employees.
LB415 was an effort by the Nebraska Unicameral to provide some clarity to certain portions of the HWFA, though many issues relating to enforcement and compliance are still uncertain. Some of the key changes to the HWFA are outlined below.
Changes to the Scope of Coverage: As originally written, the HWFA excluded individuals who work in Nebraska for fewer than 80 hours in a calendar year, as well as employees who are subject to the federal Railroad Unemployment Insurance Act. As amended, the law will also exclude individual owner-operators, independent contractors, individuals who are employed in agricultural employment of a seasonal or other temporary nature, and individuals under 16 years of age.
Rather than accruing paid sick time from the commencement of employment, covered employees will begin accruing paid sick time after 80 hours of consecutive employment in Nebraska.
The amendments also slightly limit employer coverage under the HWFA. As amended, the definition of “employer” excludes employers with 10 or fewer employees.
Existing Policies: LB415 provides that employers with paid leave policies that meet or exceed the requirements of the HWFA (meaning the 40 hours per year for small employers and 56 hours per year for large employers) are not required to allow employees to carryover unused sick leave benefits beyond the limits of the employer’s current policy.
Most significantly, it also appears that employers with such existing leave policies already in place are relieved of other problematic provisions of the original HWFA (regarding notice, finding replacements, documentation, etc.).
Enforcement: The HWFA no longer includes a private cause of action. Instead, the Nebraska Department of Labor is responsible for enforcement of the law. The Nebraska Department of Labor still has the authority to issue administrative penalties for violations of the law, up to $500 for a first violation and up to $5,000 for any subsequent violation.
The Nebraska Department of Labor is in the process of updating its guidance on the HWFA.
Sick Pay Calculations: LB415 clarifies how employers should calculate paid sick time for certain workers with non-traditional compensation structures. Employees who are paid on a commission, piece-rate, milage, or fee-per-service basis should receive paid sick time based on an hourly rate using the average weekly rate calculation based on the state workers’ compensation statute.
Other Clarifications: LB415 also clarifies that employers are not required to pay out unused sick time upon separation from employment.
Under LB415, paid sick time provided to employees on or after January 1, 2025, and before October 1, 2025, is counted toward an employer’s paid sick time obligations for calendar year 2025.
Effective Date and Written Notice: LB415 will still take effect on October 1, 2025. Certain employers must provide written notice of the HWFA to employees by September 15, 2025, or at the commencement of employment, whichever is later.
McDermott+ Check-Up: June 6, 2025
THIS WEEK’S DOSE
Senate Begins Work on Reconciliation. Democrats prepared to file points of order to exclude certain provisions under the Byrd rule, while Republicans discussed key health provisions.
White House Sends Congress $9.4 Billion Rescissions Package. The package requests that Congress rescind $900 million in global health funding.
Senate HELP Committee Reviews Reauthorization of Over-the-Counter Monograph Drug User Fee Program. Discussion focused on layoffs at the US Food and Drug Administration (FDA) and how the agency can expedite over-the-counter medication development.
House Begins FY 2026 Appropriations Markups. The Subcommittee on Agriculture, Rural Development, FDA, and Related Agencies met to mark up its fiscal year (FY) 2026 bill.
HHS Releases FY 2026 Budget in Brief. The US Department of Health and Human Services (HHS) budget in brief requests $94 billion in discretionary funding, a $31 billion decrease from FY 2025.
CMS Rescinds 2022 EMTALA Abortion Guidance. The agency noted that the Emergency Medical Treatment and Active Labor Act (EMTALA) guidance did not reflect the current administration’s priorities.
FDA Declines to Appeal Ruling on LDT Regulation. A federal court previously struck down the laboratory-developed test (LDT) final rule, and the FDA declined to appeal within the given 60-day window.
Fired HHS Employees File Class Action Lawsuit. The federal case alleges that firings were based on incorrect personnel records.
CONGRESS
Senate Begins Work on Reconciliation. The Senate returned from its Memorial Day recess to begin consideration of HR 1, the One Big Beautiful Bill Act, the House-passed reconciliation package. Senate Majority Leader Thune (R-SD) aims to have a modified bill on the floor the week of June 23, 2025, with the goal of getting a final bill to President Trump’s desk by July 4, 2025. This week’s work occurred mostly behind the scenes. Senate committees of jurisdiction are not expected to hold markups; instead, committees of jurisdiction will release titles of the bill within their jurisdiction. The process started this week. The Senate Committee on Commerce, Science, and Transportation released its language that modifies the House’s artificial intelligence (AI) provisions, removing the 10-year state ban on AI regulation and amending funding language so that states would only be eligible for AI development grants if they do not enforce state laws regulating AI models. The Senate Finance Committee, with jurisdiction over Medicaid, taxes, and the Affordable Care Act (ACA), will likely be the last committee to release updated text. Majority Leader Thune noted that the Finance Committee title could be released as soon as next week.
Majority Leader Thune can lose no more than three Republicans to pass the bill. This week, more Republicans came out in opposition to certain Medicaid provisions, including the moratorium on provider taxes. Sens. Collins (R-ME), Murkowski (R-AK), Moran (R-KS), and Hawley (R-MO) are among those with concerns. On the conservative side, Sens. Paul (R-KY), Johnson (R-WI), Lee (R-UT), and Rick Scott (R-FL) continued to voice strong opposition unless the bill does more to cut federal spending and reduce the deficit. There has also been discussion about potentially including Medicare Advantage reforms to increase savings, although no explicit policies have been presented publicly. Senate passage will likely require a delicate balancing act, and afterward the bill must pass the House again. President Trump met this week with Senate Finance Committee Republicans, and Centers for Medicare & Medicaid Services (CMS) Administrator Oz is holding meetings in the Senate to hash out concerns and attempt to reach policies that can unite Republicans. The process to scrub the bill of provisions that don’t meet the Byrd rule is also ongoing. Republicans met with the Senate Parliamentarian this week, and Democrats likely will follow soon. (For a full explainer on the Byrd rule, read our +Insight).
On June 4, 2025, the Congressional Budget Office (CBO) released updated estimates for H.R. 1. CBO estimates that the bill would increase the deficit by $2.4 trillion. This figure is based on a $1.2 trillion reduction in federal spending offset by a $3.6 trillion decrease in revenue. CBO estimates that 10.9 million individuals would be uninsured in 2034. Of those, 7.8 million would lose Medicaid coverage, with others mainly losing coverage from changes to the ACA. CBO estimates that the ACA changes would result in gross benchmark premiums for ACA plans decreasing by an average of 12%. At the request of Senate Democrats, CBO released additional analysis that provides further details on health insurance loss and estimates that failure to extend the enhanced advance premium tax credits as part of H.R. 1 would lead to an additional 5.1 million Americans being uninsured in 2034.
White House Sends Congress $9.4 Billion Rescissions Package. The package asks for more than $9 billion of previously appropriated funding to be rescinded and is largely focused on foreign aid and the Corporation for Public Broadcasting. The package includes recissions of funding from health programs within the US Department of State and the US Agency for International Development (USAID). It requests rescission of $500 million in global health USAID funding that focuses on equity, family planning, and reproductive health within child and maternal health, HIV, and infectious disease activities. It also requests rescission of $400 million of President’s Emergency Plan for AIDS Relief (PEPFAR) funding. Congress has 45 days to act. Approval of the rescission package only requires a simple majority in the House, which will likely consider it next week. In the Senate, Appropriations Chair Collins (R-ME) has already stated concerns about PEPFAR cuts and noted her committee’s intention to examine the package.
Senate HELP Committee Reviews Reauthorization of Over-the-Counter Monograph Drug User Fee Program. During the hearing, Democrats focused on how workforce reductions at the FDA will impact agency operations, while supporting the development of over-the-counter (OTC) drugs. Republicans advocated for a more streamlined and efficient transition from prescription drugs to OTC medications, emphasized the need for regulatory oversight of international facilities, and encouraged use of an online dashboard to track the FDA’s progress. Jacqueline Corrigan-Curay, MD, acting director of the FDA’s Center for Drug Evaluation and Research, expressed her commitment to working with Congress to streamline the transition from prescription drugs to OTC medications.
House Begins FY 2026 Appropriations Markups. The House Appropriations Committee began subcommittee markups this week to discuss spending bills for FY 2026. The Subcommittee on Agriculture, Rural Development, FDA, and Related Agencies held its markup, during which it advanced its bill to the full committee by a party line vote. During the markup, Republicans stated that the bill would help reduce the federal deficit, while Democrats criticized the bill for cutting funding for the FDA and the Supplemental Nutrition Assistance Program. The full schedule of subcommittee and full committee markups can be found here.
ADMINISTRATION
HHS Releases FY 2026 Budget in Brief. Late on May 30, 2025, HHS released its budget request for FY 2026, known as a budget in brief. Some agencies and divisions within HHS also released congressional justifications that provide more information on funding requests. Additional justifications from other agencies and divisions are said to be forthcoming. The budget in brief follows the earlier release of the “skinny” budget and provides more detail on HHS priorities, including the agency’s restructuring. The document only includes discretionary funding requests and does not include legislative proposals that would impact mandatory programs such as Medicare or Medicaid. Administration officials indicate that mandatory funding requests are unlikely to be released before reconciliation is complete.
Highlights for HHS discretionary funding requests include:
$95 billion for HHS, a $31 billion decrease from FY 2025.
$14 billion for the new Administration for a Healthy America (AHA), which HHS estimates to be a $6 billion cut from current funding levels for all the programs that will be transferred to AHA. The budget in brief includes an overview of the programs from the Health Resources and Services Administration, the Centers for Disease Control and Prevention (CDC), the Substance Abuse and Mental Health Services Administration, and the Office of the Assistant Secretary for Health that would be part of AHA.
$3.1 billion for FDA, a $409 million cut compared to FY 2025.
$4.1 billion for CDC, a $550 million cut compared to FY 2025.
$27.5 billion for NIH, a $17 billion cut compared to FY 2025.
The budget notes that NIH would cap indirect cost rates for grants at 15%, a policy that NIH pursued earlier this year, is subject to ongoing litigation, and is likely to face scrutiny from lawmakers on both sides of the aisle.
$3.5 billion for CMS, a $673 million cut compared to FY 2025.
Read more in our +Insight.
CMS Rescinds 2022 EMTALA Abortion Guidance. The Biden administration released the HHS guidance in July 2022 in the wake of the US Supreme Court Dobbs decision that left regulation of abortion to the states. The now-rescinded guidance stated that EMTALA protects healthcare providers’ clinical judgement and any action they take to provide stabilizing care for emergency medical conditions, including ectopic pregnancy, complications of pregnancy loss, or preeclampsia. In a press release, CMS noted that it will continue to enforce EMTALA, including in emergency medical situations where the health of a pregnant woman or her unborn child are at risk, and indicated that the agency will rectify any legal confusion on this issue.
COURTS
FDA Declines to Appeal Ruling on LDT Regulation. In late March 2025, the US District Court for the Eastern District of Texas struck down the regulation finalized in May 2024 under the Biden administration that gave the FDA the authority to regulate LDTs. The district court found that the rule violated the Loper Bright standard because the FDA exceeded its statutory authority. The FDA was given a 60-day window to appeal the decision, which it declined to do. Therefore, the final rule remains without force. Although the FDA did not issue a statement on its decision, it follows previous actions by the Trump administration to limit agencies’ regulatory power outside of statutory authority. Read more about the March court decision here.
It remains to be seen if the Trump administration will take a new approach to LDT regulation or if lawmakers will re-introduce the VALID Act, which received bipartisan support in previous session of Congress and would require the FDA to regulate LDTs and other in vitro diagnostics.
Fired HHS Employees File Class Action Lawsuit. In yet another challenge to the HHS reductions in force, seven former HHS employees filed a case in the US District Court for the District of Columbia. The lawsuit claims that the personnel files used to justify firings had errors and inaccuracies, which HHS Secretary Kennedy has attributed to siloed human resources departments across the agency. The lawsuit notes that most employees fired during the April 2025 reduction in force could be eligible for this class action.
QUICK HITS
FDA Begins Agency-Wide AI Tool Use. FDA employees are using the generative AI tool Elsa in various internal projects, including clinical protocol reviews and scientific evaluations. The tool was launched before the original deadline of June 30, 2025, and FDA will expand the tool over time.
HHS Announces Heads of ASTP, OCR. Thomas Keane, MD, a radiologist, will serve as the assistant secretary for technology policy (ASTP) and national coordinator for health information technology. Paula Stannard worked for HHS during the first Trump administration and will serve as director of the HHS Office of Civil Rights (OCR).
FBI Opens Tipline for Reports of Gender-Affirming Care for Minors. The tipline seeks reports of any hospitals or clinics performing gender-affirming care for minors and follows HHS tips for whistleblowers.
CMS Announces Health Technology Initiatives. In line with CMS’s request for information on the healthcare technology ecosystem, the initiatives include building an interoperable national provider directory and modernizing Medicare identification processes.
House Passes SUPPORT Act Reauthorization with Bipartisan Support. The legislation would modify HHS substance use and mental health disorder programs and reauthorize various grant programs through FY 2030. It passed by a vote of 366 – 57, with the nays mostly from Freedom Caucus Republicans and Energy and Commerce Democrats.
James O’Neill Confirmed as HHS Deputy Secretary. The Senate confirmed O’Neill by a 52 – 43 party line vote. Once sworn in, he will be second in command at HHS.
House Oversight Committee Ranking Member Questions AI Use in MAHA Report. Acting Ranking Member Lynch (D-MA) requested information from HHS Secretary Kennedy by June 16, 2025, to assess whether the agency used AI to write the recently released MAHA report.
GAO Releases Report on Diagnostic Testing for Pandemic Threats. The US Government Accountability Office (GAO) report summarizes insights from a roundtable of 19 experts. GAO recommends that HHS develop and periodically update a national diagnostic testing strategy for infectious diseases and establish a national diagnostic testing forum.
NIH Requests Information on Agency AI Strategy. NIH requests information about specific topics and notes that there is a need for a unified, Office of the Director-level AI structure to build synergy across program silos, improve transparency, and accelerate research and development. Comments are due July 15.
CMS Rescinds Biden-era Medicaid SOGI Data Guidance. The now-rescinded guidance aimed to help states with collecting sexual orientation and gender identity (SOGI) information in Medicaid applications. The rescission notes that CMS no longer intends to collect this data from states.
NEXT WEEK’S DIAGNOSIS
Both chambers of Congress will be in session next week, with work on reconciliation expected to continue in the Senate. The Senate Appropriations Committee will discuss the NIH FY 2026 budget, and the House Energy and Commerce Health Subcommittee will examine US-made medicine and domestic supply chains. The House Committee on Appropriations will consider the Agriculture, Rural Development, FDA, and Related Agencies appropriations bill that advanced from the subcommittee this week.