HHS Releases Report Alleging Widespread Billing Fraud in Pediatric Gender Medicine

On August 13, 2026, HHS released a report alleging that hospitals and healthcare providers engaged in potentially fraudulent billing practices to secure insurance coverage for gender affirming care furnished to minors, which the report refers to as “sex rejecting procedures.” The report, titled Wolves in White Coats: How Doctors and Hospitals Pushed and Profited from the Fraud of ‘Gender Medicine’ (Report), includes a nationwide claims-based analysis that identifies specific organizations by name and National Provider Identifier (NPI) whose billing patterns have been flagged for further investigation. Simultaneously, Vice President JD Vance, as Chairman of the White House Task Force to Eliminate Fraud, and HHS Secretary Robert F. Kennedy, Jr. referred hospitals and clinics identified in the report to the Department of Justice and the HHS Office of Inspector General, respectively, for possible violations of federal law. The Report is released amid an active federal enforcement environment that includes DOJ subpoenas, FBI tip solicitation, and state-level fraud settlements. 

Enforcement Landscape

The Report is released against the backdrop of an active and expanding federal enforcement posture. The DOJ has issued more than 20 subpoenas to doctors and clinics involved in providing gender affirming care to minors, including procedures and hormone therapy. The FBI has solicited tips regarding hospitals, clinics, or practitioners providing such care. The United States Attorney General issued a memorandum directing DOJ to prioritize investigations and enforcement actions related to providing gender affirming care to minors, including under the False Claims Act and the Food, Drug and Cosmetic Act. At the state level, the Report cites a $10 million healthcare fraud settlement announced in May 2026 involving a children’s hospital and references additional state attorney general lawsuits alleging use of fraudulent diagnosis codes to receive Medicaid reimbursement for interventions provided to minors.

Billing Practices Under Scrutiny

The central compliance concern raised by the Report involves the use of diagnostic codes that the Report contends are inaccurate proxies for gender-related diagnoses. Two categories are identified: (1) Endocrine Disorder, Unspecified (ICD-10 code E34.9), used in place of gender dysphoria codes (F64.x) when billing for puberty blockers and cross-sex hormones; and (2) Central Precocious Puberty (ICD-10 code E30.1), used to justify puberty blocker prescriptions for patients aged 13-17, well beyond the age at which precocious puberty is clinically diagnosed (before age 8 in girls or age 9 in boys).

The Report’s nationwide claims analysis found nearly $50 million billed for puberty blocking drugs in patients aged 9-17 with Endocrine Disorder diagnoses (excluding precocious puberty and gender-related diagnoses) and nearly $11 million billed for puberty blockers for patients aged 13-17 with a precocious puberty diagnosis. The Report cites a published study finding that among patients coded with E34.9, only approximately 5% had an actual endocrine condition. The Report also documents statements from medical providers and advocacy organizations that it characterizes as openly encouraging the use of alternative diagnosis codes to avoid insurance denials or to protect patient confidentiality.

The Report cautions that its claims data carries limitations: patient age is estimated from birth year only, some claims may record charges as null, and the Report characterizes all results as “directional signals rather than findings” that “require verification against the underlying records.” Notwithstanding these caveats, the data is now part of a government-commissioned report that federal and state enforcement authorities may use to identify targets for investigation.

False Claims Act Exposure

Providers should be aware that the use of inaccurate diagnosis codes to obtain reimbursement from federal healthcare programs (Medicaid and Medicare) may give rise to liability under the federal False Claims Act, which carries treble damages and per-claim penalties. The Report explicitly draws this connection, citing recent settlements in which healthcare systems paid $90 million and $98 million to resolve allegations of submitting unsupported or invalid diagnosis codes to Medicare. State false claims statutes and 18 U.S.C. § 1347 (healthcare fraud) may also apply. The Report recommends that state Medicaid programs conduct periodic reviews of claims associated with the flagged ICD codes and that managed care organizations implement similar internal controls.

Organizations Identified for Potential Investigation

The Report’s Appendix identifies three cohorts of claims that it flags for further investigation, listing organizations by name and NPI. Cohort A includes organizations that billed for puberty blockers for patients aged 9-17 with an Endocrine Disorder diagnosis but no gender-related or precocious puberty diagnosis on the claim. Cohort B includes organizations that billed for puberty blockers for patients aged 13-17 with a precocious puberty diagnosis. Cohort C includes organizations that billed for cross-sex hormone prescriptions for minors with a gender dysphoria diagnosis in states where such procedures were prohibited, on dates the prohibition was in force. The identification of these organizations in an HHS-commissioned report signals potential regulatory and enforcement exposure for institutions whose billing patterns match the flagged cohorts.

Broader Context

The Report also addresses the broader institutional environment that it contends enabled the expansion of gender affirming care to minors, including financial incentives created by the recurring-revenue model of pediatric gender medicine, actions taken during the Biden Administration to promote coverage of gender affirming care, and the influence of professional medical organizations in shaping clinical guidelines. The Report includes first-hand accounts from patients and families describing their experiences. These portions of the Report provide context for the enforcement-oriented sections but are not themselves the basis for legal exposure.

The Report represents a significant escalation in the federal government’s enforcement focus on pediatric gender medicine. Providers that have billed for gender affirming care to minors—particularly those using non-gender-specific diagnosis codes—should take note of the Report’s findings and assess their compliance exposure. 

The Report is available here, the Vice President’s referral letter to DOJ is available here, and HHS Secretary Kennedy’s referral letter to the HHS OIG is available here.

Reporter, Ahsin Azim, Washington, DC, +1 202 626 5516, aazim@kslaw.com 

CMS Finalizes Rule Prohibiting Federal Medicaid and CHIP Funding for Gender Affirming Care Furnished to Minors

On August 13, 2026, CMS published its final rule prohibiting Federal Medicaid and Children’s Health Insurance Program (CHIP) funding for gender affirming care furnished to minors, which the final rule refers to as “sex-rejecting procedures” (Medicaid Final Rule). The Medicaid Final Rule will take effect 60 days after publication (October 12, 2026). The rule implements Section 5(a) of President Trump’s Executive Order 14187, Protecting Children from Chemical and Surgical Mutilation. CMS is finalizing the rule largely as proposed, with two modifications: (1) the addition of a 6-month tapering period for beneficiaries already receiving cross-sex hormone therapy as of the effective date, and (2) a technical change replacing references to “child” in the definition of “sex-rejecting procedure” with individual, as the definition applies regardless of age. 

The Medicaid Final Rule

The Medicaid Final Rule prohibits Federal Financial Participation (FFP) in State expenditures for “sex-rejecting procedures” for children under age 18 in Medicaid and under age 19 in CHIP. States must submit State Plan Amendments reflecting the prohibition.

The rule defines “sex-rejecting procedure” as “any pharmaceutical or surgical intervention that attempts to align an individual’s physical appearance or body with an asserted identity that differs from the individual’s sex”—either by intentionally disrupting or suppressing normal biological development (including primary or secondary sex-based traits), or “by intentionally altering an individual’s physical appearance or body, including amputating, minimizing, or destroying” sexual and reproductive organs.

The definition excludes procedures undertaken: (1) to treat an individual with a medically verifiable disorder of sexual development; (2) for purposes other than aligning physical appearance with an asserted identity that differs from the individual’s sex; or (3) to treat complications caused or exacerbated by prior “sex-rejecting procedures.”

Carve-Outs from the Prohibition

The Medicaid Final Rule does not prevent States from covering these procedures using State-only funds outside the federally matched program. It does not prohibit providers from performing “sex-rejecting procedures” or restrict provider-patient communications. The rule does not affect FFP for mental health services, including psychotherapy, for children with gender dysphoria. It also does not remove any drug from Medicaid formularies—the same pharmaceuticals (e.g., GnRH agonists, cross-sex hormones) remain coverable for all other medically accepted indications (e.g., precocious puberty, cancer, endometriosis).

6-Month Tapering Period

In response to public comments, CMS added a limited tapering period that was not in the proposed rule. Specifically, for Medicaid and CHIP beneficiaries who are actively receiving cross-sex hormone therapy as of the effective date, State Medicaid and CHIP agencies may continue to claim FFP for those hormone therapy medications for a period of up to 6 months from the effective date. This tapering period does not apply to puberty blockers, surgical procedures, or new initiations of cross-sex hormones after the effective date.

Relationship to the Hospital Conditions of Participation Proposed Rule

On December 19, 2025, CMS published both the proposed version of the Medicaid rule and a separate proposed rule titled “Hospital Condition of Participation: Prohibiting Sex-Rejecting Procedures for Children” (CMS-3481-P) (CoP Proposed Rule). The CoP Proposed Rule has not been finalized. CMS states in the Medicaid Final Rule that the two rules “operate independently of one another” and that the Medicaid Final Rule’s validity “rests independently” on its own statutory authorities. CMS notes that it “continue[s] to separately review comments received on the Hospital COP proposed rule.”

Whereas the Medicaid Final Rule withdraws FFP (a funding restriction), the CoP Proposed Rule would prohibit Medicare and Medicaid-participating hospitals from performing “sex-rejecting procedures” on children as a condition of participation—affecting all patients regardless of payor. Additionally, the Medicaid Final Rule expressly does not regulate the practice of medicine, while the CoP Proposed Rule takes the position that sex-rejecting procedures are “not healthcare.” 

Reporter, Ahsin Azim, Washington, DC, +1 202 626 5516, aazim@kslaw.com 

En Banc Fifth Circuit Affirms Vacatur of No Surprises Act QPA Methodology

On August 11, 2026, in Texas Medical Association v. HHS, commonly known as TMA III, the en banc Fifth Circuit held that the calculation methodology for No Surprises Act (NSA) Qualifying Payment Amounts (QPA) cannot (1) include non-negotiated “ghost rates” for services that providers do not actually provide or (2) exclude certain bonus and incentive amounts. Accordingly, the Fifth Circuit affirmed the vacatur of certain regulatory provisions providing otherwise. The Departments of Health and Human Services, Labor, and the Treasury (the Departments) have previously advised that they will extend their exercise of enforcement discretion as to the continued use of QPAs calculated pursuant to the vacated methodology for items or services before October 1, 2026, and issue further guidance on QPA calculations in light of the Fifth Circuit’s ruling. 

Background Leading Up to the En Banc Opinion

The NSA defines the QPA as a plan’s median in-network rate on January 31, 2019, adjusted for inflation. 42 U.S.C. § 300gg-111(a)(3)(E)(i)(I)-(II). The QPA is then used elsewhere in the NSA: patient cost shares for services subject to the NSA are calculated by reference to the QPA and certified Independent Dispute Resolution Entities (IDREs) are directed to consider the QPA during the dispute resolution process as one of many statutory factors.

The Departments issued the first set of implementing regulations for the NSA in July 2021 (the July Rule) as an interim-final rule without notice or comment. Subsequently, the Texas Medical Association (TMA) and other provider plaintiffs initiated a series of lawsuits challenging various implementing regulations, including a lawsuit, commonly referred to as TMA III, that challenged certain instructions in the July Rule’s instructions regarding the QPA methodology.

In August 2023, Judge Kernodle of the Eastern District of Texas granted partial summary judgment to the provider-side plaintiffs in TMA III in their challenge to aspects of federal rulemaking related to the method for calculating the QPA and certain provisions related to the processing and resolution of disputes involving air-ambulance claims under the NSA. King & Spalding reported on this decision, commonly referred to as TMA III, in a previous issue of Health Headlines.

The government partially appealed the TMA III district court decision. Subsequently, on October 30, 2024, a three-judge panel of the Fifth Circuit issued an opinion that largely reversed the district court. However, on May 30, 2025, the Fifth Circuit granted rehearing en banc, vacated its panel opinion, and reheard the appeal.

The En Banc Fifth Circuit Found in Providers’ Favor on Two of the Three QPA Issues

The QPA Cannot Include Ghost Rates: “Contracts between insurers and providers often include non-negotiated ‘ghost rates’ for services that providers do not actually provide” because insurers’ form contracts include “a default fee schedule for all covered services,” but providers often only “negotiate the rates for services that they plan to provide [and] leave untouched the rates for services they do not provide (or at least do not plan to provide).” TMA III, No. 23-40605, slip op. at 4 (5th Cir. Aug. 11, 2026) (en banc). The July Rule directed that the QPA should treat “‘each contracted rate for a given item or service’ as a ‘single data point when calculating a median contracted rate . . . regardless of the number of claims paid at that contracted rate’”—meaning that insurers subsequently calculated their QPAs based on ghost rates that were not actually used. The Fifth Circuit found that the July Rule’s instruction violated the NSA’s plain text regarding the QPA’s calculation; the statute limits the QPA to items or services that are “provided by a provider” and “furnished,” but ghost rates are for services that meet neither criterion. Id. at 6. Accordingly, the Fifth Circuit affirmed the district court’s vacatur as to the July Rule’s provisions related to ghost rates.

Interestingly, the Fifth Circuit justified its decision on the “ghost rates” issue by discussing the current state of the IDR process—essentially saying that if the QPAs were not “artificially low,” the IDR process would not be in its current state:

The agencies’ error has upended the NSA’s dispute-resolution process. Congress intended the QPA to serve as a focal point of provider-insurer negotiations as to which party would cover the balance of a patient’s bill. See 42 U.S.C. § 300gg-111(c)(5)(C)(i)(I). Because the agencies directed insurers to include non-negotiated ghost rates, the resulting QPAs were artificially low. How do we know? For one, the number of arbitrations dwarfed the agencies’ expectations by a factor of 84. For two, providers prevailed in over 80% of arbitrations. And for three, arbitrators selected a reimbursement rate higher than the QPA in a whopping 85% of arbitrations. These statistics underscore that the agency’s inclusion of artificially low reimbursement rates is contrary to the statutory text.

Id. at 7-8.

The QPA Must Take Into Account Bonus and Incentive Payments: “The NSA requires that each contracted rate in the QPA calculation reflect the ‘total maximum payment’… for an item or service”; however, “the July Rule required insurers to exclude ‘risk sharing, bonus, penalty, or other incentive-based or retrospective payments or payment adjustments.’” Id. at 10. Reasoning that “total maximum payment” must include payments that “come in the form of bonuses or incentives or other adjustments,” the Fifth Circuit agreed with the plaintiffs that the July Rule’s exclusion of bonus and incentive payments “contravenes the plain text of the NSA and artificially deflates the QPA calculations.” Id. at 10-11. The Fifth Circuit was unsympathetic to the agencies’ arguments that the inclusion of bonus and incentive payments in the QPA calculation was “infeasible or impractical,” noting that “this is the sort of question that the agencies could have figured out in notice and comment” had the agencies offered providers an opportunity to comment rather than issuing the July Rule as an interim-final rule. Id. at 11-12.

The QPA Can Continue to Exclude Single-Case Agreements: The July Rule excludes single-case agreements from the QPA calculations; the Fifth Circuit agreed that such “one-off agreements… are not rates ‘recognized’ ‘under’ an insurer’s plan or coverage” and that “the agencies’ exclusion of single-case agreements from the rates contracted to under a health plan does not conflict with the statutory text.” Id. at 14. The Fifth Circuit noted that the QPA “serves to approximate the ‘median rate the insurer would have paid for the service if provided by an in-network provider or facility,’” but “single-case agreements involve out-of-network providers’ performing emergency services” that “do not factor into this calculus.” Id.

What’s Next: Enforcement Discretion Until Further Agency Guidance

The Fifth Circuit rejected arguments by the agencies and insurers that “vacatur will create a host of practical problems” due to “the considerable time it will take insurers to calculate new QPAs,” noting that “the agencies have been exercising enforcement discretion while their appeal from the district court has been pending, so they are more than capable of preventing immediate chaos.” Id. at 17. King & Spalding reported on the Departments’ past exercise of enforcement discretion as to the QPA methodology in a previous issue of Health Headlines.

The Departments have previously indicated that they would (1) exercise enforcement discretion and continue to permit health plans and issuers to calculate the QPA using the methodology provided under the July 2021 Rule for items and services before October 1, 2026, and (2) issue “further guidance on QPA calculation” once a “final decision has been reached in TMA III.” Accordingly, further agency guidance—potentially including continued enforcement discretion regarding the QPA calculation, particularly if a “final decision” in TMA III is delayed by an appeal to the Supreme Court—is anticipated.

Reporters, Christopher C. Jew, Los Angeles, +1 213 443 4336, cjew@kslaw.com and Alana Broe, Atlanta, +1 404 572 2720, abroe@kslaw.com.

Assistant Attorney General Colin M. McDonald Issues Memorandum on National Fraud Enforcement Division’s Enforcement Priorities

On August 13, 2026, the Department of Justice’s National Fraud Enforcement Division (the Fraud Division) released a memorandum from Assistant Attorney General Colin M. McDonald detailing the Fraud Division’s enforcement priorities and organizational direction. The memorandum underscores healthcare fraud as a central pillar of the Fraud Division’s mandate and signals a continued escalation in prosecutorial resources and data-driven detection capabilities. Specifically, the Fraud Division intends to deploy advanced data analytics to proactively identify exploitative schemes across telemedicine, Medicare and Medicaid billing, controlled substance diversion, home health and hospice programs and companies and individuals engaged in deceptive marketing of unsafe healthcare products and services. The Fraud Division’s strategy builds on the historically successful Healthcare Fraud Strike Force model. 

The Fraud Division was established earlier this year following a directive from President Donald J. Trump. The Fraud Division emerged in response to Government Accountability Office estimates that the federal government loses between $233 billion and $521 billion annually to fraud. The organizational structure includes multiple specialized sections supported by asset recovery attorneys, investigators, appellate counsel, a privilege review team, corporate enforcement experts, data scientists, and advanced technology resources. The memorandum indicates that the Fraud Division will grow it 500 attorneys by August 24, 2026 and continue to rapidly grow for the next two years. 

The memorandum highlights healthcare fraud as a central priority.

The memorandum’s emphasis on data-driven detection, combined with the Fraud Division’s rapidly growing headcount and reorganized structure, suggests that healthcare entities should anticipate heightened scrutiny of billing practices, particularly in areas previously flagged through analytics. 

The memorandum can be found here.

Reporter, Priya Sinha, Atlanta, GA, +1 404 572 3548, psinha@kslaw.com 

Veloxis Pharmaceuticals Reaches Civil and Criminal Settlement with DOJ

On August 10, 2026 the Department of Justice (DOJ) announced that DOJ and drug manufacturer Veloxis Pharmaceuticals, Inc. (Veloxis), reached a settlement of approximately $46 million to resolve criminal and civil allegations of kickbacks to healthcare professionals to induce prescriptions of Envarsus, a kidney transplant immunosuppression drug. 

With respect to the criminal allegations, DOJ alleged that during the period of October 2016 through June 2023, Veloxis paid unlawful kickbacks to healthcare professionals specializing in kidney transplants to prescribe or recommend Envarsus. DOJ alleged that these kickbacks consisted of lavish meals, expensive resort stays, personal gifts, and payments under the pretext of consulting agreements. With respect to civil liability, DOJ alleged that Veloxis violated the False Claims Act by knowingly causing the submission of claims to Medicare, Medicaid and TRICARE for Envarsus prescriptions where Veloxis knowingly and willfully paid kickbacks. Veloxis acknowledged that because its reporting to CMS used falsified expense reports, Veloxis underreported the correct amounts of its payments, or value transfers, to healthcare professionals. Veloxis entered a three-year deferred-prosecution agreement (DPA) and agreed to pay a criminal penalty of $10.04 million along with a $34.45 million civil settlement and $1.55 million civil penalty to CMS. 

The full text of the settlement agreement is available here, and the full text of the DPA is available here. 

Reporter, Kasey Ashford, Washington, D.C., +1 202-626-2906, kashford@kslaw.com

UPCOMING EVENTS

King & Spalding Health Law & Policy Forum West

• Wednesday, October 14, 8:30 A.M. – 6:15 PM PT
• In-Person

Join our distinguished faculty and industry leaders for the annual Health Law & Policy Forum West on Wednesday, October 14th in Marina del Rey. As the healthcare industry continues to evolve in response to economic pressures, patient needs and accelerating technological advances, this full-day program will cover the trending topics that lawyers, executives, managers and investors need to know as they adapt to changes associated with the new administration and more. 

A keynote session will feature the Honorable Alex M. Azar II, the 24th U.S. secretary of health and human services (HHS) and a recognized leader in healthcare innovation. During his tenure, he led transformative efforts to modernize the U.S. healthcare system, expanding telehealth, advancing interoperability of health records, increasing healthcare transparency and accelerating the shift to value-based care. 

Attendees will also enjoy multiple networking opportunities, including a reception following the sessions. 

The registration fee for the full program is $95.

For questions or to request an invitation, contact the K&S Events Team.

Editors: Chris Kenny and Ahsin Azim

Issue Editors: Taylor Whitten and Hamilton Craig