FEATURED ARTICLE

DOJ’s New Corporate Fraud Enforcement Priorities

On October 1, 2026, Colin McDonald, Chief of DOJ’s National Fraud Enforcement Division, issued Directive 26-12 (Directive), outlining new measures to enhance the Fraud Division’s criminal corporate enforcement initiatives. The Directive expands on the April 2026 creation of the National Fraud Enforcement Division and the Corporate Fraud Enforcement Section, signaling a continued focus on fraud enforcement. It identifies four categories of enforcement priorities and establishes ten new factors for prosecutors to consider when deciding whether to bring charges against a corporation or when negotiating a resolution. Notably, the Directive does not apply to cases assigned to a District Fraud Counsel by a U.S. Attorney’s Office that are not also supervised by the Fraud Division.

The Directive instructs Fraud Division prosecutors to target the following categories of “fraud schemes”:

• Schemes involving the health care industry, including fraud, distribution of controlled substances, and violations of the Federal Food, Drug, and Cosmetic Act;
• Schemes involving the public trust or financial integrity of Americans and markets related to procurement, government contracts, and other government functions;
• Schemes involving significant evasion of internal or external revenue; and
• Schemes involving tariff evasion, importation of goods or services, or forced labor.

In addition to the factors in the Justice Manual, the Directive provides a non-exhaustive list of factors for prosecutors to consider when determining whether to bring criminal charges or negotiate a resolution:

• Whether corporate management knew of or participated in the fraud scheme;
• Efforts to conceal fraud from government agencies or auditors, or to impede or obstruct government functions or oversight;
• Conduct furthering the scheme that lasted three years or more;
• Conduct that threatens the safety or security of Americans, including military readiness;
• Conduct that causes substantial financial hardship to a taxpayer funded program or government function;
• Conduct that affects multiple taxpayer funded programs or government functions;
• Conduct that affects three or more federal districts;
• Conduct that results in financial harm to 25 or more victims, or $25 million or more in losses;
• Conduct that involves the exfiltration of American dollars to support foreign adversaries; and
• Conduct that involves immigration offenses.

The Directive signals a continued focus on whistleblowers by directing the creation of new policies and programs that “appropriately incentivize whistleblowers.”

Lastly, the Directive centralizes the relationship between Fraud Division prosecutors and the Corporate Enforcement Section. Within seven days of Directive’s issuance, prosecutors must report any ongoing corporate investigations to the Chief of the Corporate Enforcement Section and notify the Section of any new corporate investigations and major developments in ongoing cases.

The Directive signals that companies, particularly those in healthcare, government contracting, and international trade sectors, should expect heightened scrutiny. Organizations should proactively assess their compliance programs and internal controls to ensure they are positioned to address these enforcement priorities.

The full Directive can be found here.

Reporter, Morgan Cronin, Atlanta, + 1 404-572-2795, [email protected]

Federal Court Enjoins HHS From Cutting Medicaid Funding to Washington State for Certain Qualified Noncitizen SSI Recipients

On September 30, 2026, Judge Thomas Zilly of the United States District Court for the Western District of Washington issued a preliminary injunction barring HHS from terminating Medicaid coverage for nonemergent care provided to noncitizens who reside in Washington State and receive supplemental security income (SSI) benefits. The suit was filed after HHS informed all states earlier this year that certain classes of noncitizen SSI recipients would cease to qualify for nonemergent Medicaid coverage effective October 1, 2026. Washington State estimated that approximately 14,000 noncitizen residents were at risk of losing coverage absent a preliminary injunction.

In 1996, Congress enacted the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), which provides that a “qualified alien” who receives SSI benefits “shall be eligible for medical assistance under a State Plan under title XIX,” i.e., Medicaid. The statute defines “qualified aliens” as lawful permanent residents, asylees, refugees, people paroled for at least one year, Cuban or Haitian entrants, and people living in the U.S. under a Compact of Free Association.

The Medicaid statute separately provides coverage to noncitizens, but strictly for emergency services. Since PRWORA coverage is not limited to emergency services, it effectively expanded Medicaid coverage to include nonemergent services for qualified aliens receiving SSI.

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), which amended the Medicaid statute to provide that beginning October 1, 2026, Medicaid will only pay for the coverage of individuals who are U.S. citizens, lawful permanent residents, aliens granted the status of Cuban or Haitian entrants, and lawful residents under the Compact of Free Association.

While there is some overlap between the OBBBA’s eligibility list and PRWORA’s definition of “qualified aliens,” there are notable exceptions. The OBBBA’s list does not include asylees, refugees or humanitarian parolees.

On April 8, 2026, HHS issued a letter to the State Medicaid agencies with guidance for implementing OBBBA’s eligibility restriction. In the letter, HHS stated that asylees, refugees and humanitarian parolees would cease to qualify for Medicaid coverage for nonemergent services effective October 1, 2026.

On August 25, 2026, Neighborhood House, an organization that provides case management to individuals who qualify for Medicaid, sued HHS under the Administrative Procedure Act (APA) challenging the agency’s decision to terminate nonemergent Medicaid coverage for asylees, refugees and humanitarian parolees. Mariia Matsai, a Ukrainian refugee who received SSI and Medicaid coverage for nonemergent care under PRWORA, was listed as a co-plaintiff in the suit.

In their complaint, the plaintiffs alleged that HHS misinterpreted OBBBA and that the guidance in the agency’s April 8, 2026, letter is unlawful. Plaintiffs argued that in enacting OBBBA, Congress did not intend to repeal or change the classes of individuals eligible for nonemergent Medicaid coverage under the PRWORA. Therefore, in the plaintiffs’ view, HHS was without power to cut coverage for asylees, refugees and humanitarian parolees.

HHS countered that PRWORA creates no payment obligation but only defines classes of noncitizens eligible for Medicaid, and that OBBBA defunded benefits for eligibility classes authorized under PRWORA that were not otherwise authorized under OBBBA.

In support of their motion for a preliminary injunction, the plaintiffs alleged that Matsai and other Neighborhood House clients would lose Medicaid-funded daily living assistance effective October 1, 2026. The government dismissed these harms as vague and speculative.

In its decision, the Court agreed with plaintiffs that OBBBA did not repeal the eligibility benefits provided under PRWORA. Turning to the government’s arguments, the Court rejected HHS’s “attempt to separate Medicaid eligibility from . . . funding.” The Court found that PRWORA coverage provides for “medical assistance,” which “means (1) federal funds; (2) to be spent in ‘payment of part or all of the cost’; (3) of certain services; (4) for or to” eligible Medicaid beneficiaries.

Concluding that the plaintiffs were likely to succeed on the merits, the Court granted the plaintiffs’ motion for a preliminary injunction, finding that the balance of equities and potential for irreparable harm weighed in favor of the plaintiffs. The Court included all of Washington State in the scope of the injunction because it recognized the State had an obligation to treat Medicaid beneficiaries alike.

A copy of the Court’s decision is available here.

Reporter, Alek Pivec, Washington, D.C., +1 202-626-2914, [email protected]

CMS Finalizes GLOBE Model to Tie Part B Drug Rebates to International Benchmarks

On September 30, 2026, CMS issued a final rule (CMS-5545-F, 42 C.F.R. Part 513) implementing the Global Benchmark for Efficient Drug Pricing (GLOBE) Model, a new mandatory Medicare payment model under Social Security Act (SSA) section 1115A administered by the CMS Innovation Center. The GLOBE model tests a new formula for calculating Part B drug inflation rebates under the Inflation Reduction Act (IRA) for certain separately payable Part B drugs. It aims to reduce costs for Original Medicare beneficiaries and the program while preserving quality.

GLOBE targets clinician-administered drugs that drive the most Part B spending: single source drugs and sole source biologicals in seven therapeutic categories, including antineoplastics, immunological agents, and ophthalmic agents, that exceed $100 million in annual Original Medicare Part B spending. In response to public comments, CMS excluded orphan-only drugs, plasma-derived products, and certain cell and gene therapies. A drug leaves the model once it faces generic or biosimilar competition or becomes subject to a negotiated maximum fair price. Units already exempt from inflation rebates, such as 340B units, are also carved out.

The heart of the model is its international benchmark. CMS compares two methods for calculating the benchmark and use the higher: Method I, the lowest price among 19 economically comparable reference countries drawn from commercial data sources, and Method II, a volume-weighted average of the manufacturer’s own net prices in those countries if the manufacturer chooses to report them. Both are adjusted for differences in GDP and purchasing power. A manufacturer then owes a rebate equal to the greater of the gap between the U.S. price and that benchmark or the standard IRA inflation rebate, so the GLOBE rebate is never smaller than what the IRA already requires. Beneficiary coinsurance decreases accordingly, while the provider add-on payment remains at 6% of average sales price. CMS rejected arguments that the model imports foreign price controls, describing foreign prices as a proxy for payment levels manufacturers already accept. CMS sets GLOBE rebate amounts, and they are not appealable, though manufacturers may flag mathematical errors through a Suggestion of Error.

Participation is mandatory for manufacturers of covered drugs, which must pay GLOBE rebates, cooperate with monitoring and evaluation, and face civil money penalties for nonpayment. However, the model excludes drugs subject to the CMMI GENEROUS model, which is a Medicaid supplemental rebate model designed to make most favored nation (MFN) prices (measured using a different MFN benchmark) available through Medicaid. Since we understand that each of the companies that has negotiated an MFN Agreement with the White House has agreed to participate in the GENEROUS model, the GLOBE model effectively exempts each of those manufacturers from GLOBE MFN prices. As a result, we believe there will be five or fewer manufacturers actually impacted by the GLOBE model, which caused CMS to significantly reduce from the proposed rule the estimated savings from the model.

The GLOBE model begins January 1, 2027, when CMS will start collecting international net pricing data that manufacturers may submit voluntarily. Five performance years then run from April 1, 2027, through March 31, 2032, with rebate invoicing and reconciliation continuing through March 31, 2034. Using a randomized design, CMS will apply the model in selected geographic areas covering roughly 25% of Original Medicare Part B beneficiaries.

CMS projects $298 million in Original Medicare Part B savings, along with $288 million for Medicare Advantage and $39 million for Medicaid. This estimate assumes manufacturers will report international net prices where doing so lowers their obligations, reducing total rebates by about 60% by the end of the model test period.

A copy of the Final Rule is available here.

Reporter, Marcia Foti, Washington, D.C., +1 202 626 9543, [email protected]

Independence Blue Cross Settles Alleged False Claims Act Violations for $22.5 Million

On September 30, 2026, DOJ announced a settlement with Independence Blue Cross (IBX), which paid $22.5 million to resolve allegations that it violated the False Claims Act (FCA). The Philadelphia-based health insurer had allegedly retained overpayments from Medicare that were based on inaccurate and untruthful diagnosis codes for IBX’s Medicare Advantage Plan enrollees.

The Medicare Advantage (MA) Program allows Medicare beneficiaries to choose to enroll in private health plans offered by Medicare Advantage Organizations (MAOs) instead of traditional Medicare. When beneficiaries enroll in an MA plan, CMS pays MAOs a fixed monthly amount for each beneficiary. The amount is adjusted based on certain risk factors which affect the cost of care for that beneficiary. CMS uses medical diagnosis codes it receives from MAOs to adjust the payment per beneficiary, generally paying a higher amount for sicker beneficiaries.

In the FCA suit against IBX, the United States alleged that IBX submitted inaccurate diagnosis codes, falsely certified that the codes were accurate, and then failed to return overpayments CMS made based on those inaccurate codes. The specific scheme that IBX allegedly employed involved a nurse medical record review. After IBX reported diagnosis codes to CMS for risk adjustment purposes, IBX nurses reviewed medical records for payment years 2017-2021 to identify all additional diagnosis codes that the medical records could support. IBX then submitted additional diagnosis codes to CMS for payment based on the medical record reviews. What IBX allegedly failed to do, however, was correct the original diagnosis codes it submitted to CMS before the medical record reviews. Because those reviews did not support previously submitted diagnosis data and payments from CMS, CMS alleged that IBX was required to return overpayments premised on unsubstantiated diagnosis codes. In sum, IBX could not use its medical record reviews to seek additional payment and at the same time fail to return payments from CMS that the medical record reviews did not support.

The relator in the case received $3,825,000 of the $22.5 million settlement amount. The case, styled United States ex rel. Crawford v. Independence Blue Cross, No. 20-cv-5818, was filed in the U.S. District Court for the Eastern District of Pennsylvania. A copy of the settlement agreement is available here.

Reporter, Doug Comin, Atlanta, GA, +1 404 572 3525, [email protected]

UPCOMING EVENTS

King & Spalding Health Law & Policy Forum West

Wednesday, October 14, 8:30 A.M. – 6:15 P.M. 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.