Health Headlines – July 6, 2026

CMS Issues CY 2027 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System Proposed Rule

On July 2, 2026, CMS issued a proposed rule with updates to the Medicare payment rates for the Hospital Outpatient Prospective Payment System (OPPS) and the Medicare Ambulatory Surgical Center (ASC) payment system for calendar year 2027 (the Proposed Rule).  In the Proposed Rule, CMS proposes a significant reduction in payment for 340B-acquired drugs based on results of the OPPS Drug Acquisition Cost Survey, expands site-neutral payments to imaging without contrast services, proposes to implement the Consolidated Appropriations Act, 2026 requirements for off-campus outpatient department provider-based attestations, and continues the phase-out of the Inpatient Only list.  CMS also proposes that hospital Accrediting Organizations assess EMTALA compliance during accreditation surveys. Additionally, CMS issues a Request for Information on strengthening the standardization and comparability of hospital price transparency data.  This article provides an overview of CMS's proposals in the Proposed Rule. Comments are due by August 31, 2026.

Reduced Payments for 340B-Acquired Drugs Based on the Medicare OPPS Drug Acquisition Cost Survey

In the Proposed Rule, CMS proposes to change the rate that Medicare pays for 340B-acquired drugs from Average Sales Price (ASP) plus 6% to ASP minus 33.4%--a nearly 40 percent reduction. 

By way of background, the Medicare statute describes how Medicare will reimburse hospitals for covered outpatient drugs.  If CMS has conducted a survey of hospital acquisition costs, the Medicare payment rate can be based on the average acquisition cost for each drug as reflected in the survey.  But if CMS has not conducted a survey of hospital acquisition costs, Medicare must reimburse hospitals at ASP plus 6%. 

Prior to 2018, CMS had historically paid hospitals at ASP plus 6%.  That year, the agency reduced the rates for 340B hospitals to ASP minus 22.5 percent.  But CMS did not use a survey to come up with that number.  Instead, the agency based its estimate on findings from the GAO, OIG and MedPAC.  The agency implemented its rate cut in a budget-neutral manner by increasing total OPPS payments by 3.19 percent. 

Affected hospitals successfully challenged CMS’s 2018 rate cut for 340B-acquired drugs.  In American Hospital Association v. Azar, the Supreme Court held that the Medicare statute does not permit CMS to reduce rates for covered outpatient drugs without first conducting a survey.  The agency acquiesced to that decision and restored its former policy of payment for all covered outpatient drugs at ASP plus 6%.

Following the Supreme Court’s decision, CMS decided to conduct a voluntary survey of hospital drug acquisition costs across 4,494 hospitals.  The survey was conducted between January 1, 2026, through April 7, 2026.  Just under 30 percent of hospitals provided complete responses to the survey. 

Based on the reported data, CMS found that the acquisition costs for 340B-acquired drugs were between approximately 29.9 percent and 33.4 percent below ASP.  Based on that survey, in the Proposed Rule, CMS proposes to reduce the rate for all 340B-acquired drugs to ASP minus 33.4 percent.  CMS does not propose to set a specific rate for each covered outpatient drug based on hospital acquisition costs for that drug—raising a conflict with the statute. Non-340B drugs would continue to be paid at ASP plus 6%.  In cases where ASP is not available, CMS proposes that the rate would be Wholesale Acquisition Cost (WAC) minus 33.4 percent or, if WAC is not available, 59.69 percent of Average Wholesale Price (AWP). 

The agency proposes exempting Rural Sole Community Hospitals, children’s hospitals and PPS-exempt cancer hospitals from this policy. 

The Medicare statute requires that this policy be implemented in a budget-neutral manner; accordingly, the reduced 340B drug payments necessitate an increase in OPPS payments for non-drug services by an equivalent amount, estimated to be an 8.44% increase to non-drug service payments.

340B Remedy Offset

The 340B Final Remedy rule finalized changes to the calculation of the OPPS conversion factor applicable to non-drug items starting in CY 2026. That rule codified a 0.5% reduction in the OPPS conversion factor applicable to non-drug items and services that would remain in effect until the estimated aggregate payment reduction reached the $7.8 billion of increased non-drug item and services payments made from CY 2018 through CY 2022, which CMS estimated would occur in CY 2041.  In the CY 2026 OPPS Proposed Rule, CMS proposed increasing the annual offset from 0.5% to 2%, but did not finalize this increase in the CY 2026 Final Rule.

Now, CMS proposes to increase the 0.5% offset to 3%, for hospitals subject to the 340B remedy offset, effective in 2027.  Under this 3% reduction, CMS estimates the total offset amount of approximately $7.8 billion would be reached by the end of CY 2029, significantly accelerating the timeline compared to the original CY 2041 estimate.  CMS estimates the 340B remedy offset will reduce OPPS payments by approximately $2.3 billion in CY 2027.  As an alternative, CMS has also considered a 2% annual reduction, which would reach the total offset target by CY 2031.  Hospitals that enrolled in Medicare after January 1, 2018, remain excluded from the offset.

Updates to OPPS and ASC Payment Rates

The agency also proposes updating the OPPS payment rates by 2.4% for hospitals that meet applicable quality reporting requirements. This 2.4% update factor is based on the projected hospital market basket percentage increase of 3.2%, reduced by a reductivity adjustment of 0.8%. CMS estimates that these new payment rates would result in approximately $110.9 billion in total payments to OPPS providers for CY 2027, approximately $9.5 billion higher than CY 2026.

For CY 2027, using the hospital market basket update, CMS similarly proposes an update factor to the ASC rates of 2.4% for ASCs meeting relevant quality reporting requirements. This update is also based on the proposed hospital market basket percentage increase of 3.2%, reduced by a reductivity adjustment of 0.8%. CMS estimates that these rates will result in approximately $9.9 billion in total payments to ASCs in CY 2027, an increase of approximately $520 million compared to what was estimated in CY 2026.

ASC Market Basket Update 

The Proposed Rule extends the five-year market basket update that was proposed in CY 2019.  In the CY 2019 OPPS/ASC final rule with comment period, CMS finalized a proposal to apply the hospital market basket update to ASC payment system rates for an interim period of five years (CY 2019 through CY 2023) while CMS determined the impact of the higher update factor on the migration of services from the hospital outpatient setting to the ASC setting.  In light of the COVID-19 Public Health Emergency (PHE), CMS extended the application of the hospital market basket update an additional two years in the CY 2024 OPPS/ASC final rule with comment period, that is, through CY 2024 and CY 2025, so that CMS could analyze claims data further removed from the effects of the COVID-19 PHE. CMS extended its utilization of the hospital market basket again in the CY 2026 OPPS/ASC final rule while the agency continues to study the migration of outpatient surgical procedures.

CMS seeks to again extend its utilization of the hospital market basket update as the update factor for the ASC payment system one additional year, through CY 2027 to continue to review and evaluate hospital outpatient and ASC utilization data.

Expanding the Method to Control “Unnecessary Increases” in the Volume of Outpatient Services

CMS proposes to reduce the OPPS payment rates for imaging without contrast services provided at exempted off-campus provider-based departments (PBDs).  The new payment would be equivalent to the Medicare Physician Fee Schedule (PFS) rate for those services.  The agency claims this change is needed to control for unnecessary increases in the volume of these services in the hospital setting.

The OPPS statute authorizes CMS to develop “method[s] for controlling unnecessary increases in the volume of covered [outpatient department] services.”  The agency adopted its first volume control method in the CY 2019 OPPS rule by lowering the OPPS rate for evaluation and management services provided at exempted off-campus PBDs to a PFS equivalent.  Hospitals challenged that decision in federal court, but the D.C. Circuit ruled that it was a valid exercise of the agency’s authority to control for “unnecessary” increases in volume.  Am. Hosp. Ass’n v. Azar, 964 F.3d 1230 (D.C. Cir. 2020).  In the CY 2026 rule, CMS invoked the same statutory authority to reduce drug administration services in off-campus PBDs to the PFS rate.

Critically, CMS is not proposing to implement this cut in a budget-neutral manner, which is consistent with how it implemented the cuts for evaluation and management and drug administration services.  While the OPPS statute generally requires CMS to apply rate cuts in a budget neutral manner, the agency’s position is the statute does not require that methods for controlling unnecessary increases in OPPS services be implemented in a budget-neutral manner.  The agency estimates that its proposed cut would reduce Medicare OPPS payments by $190 million in CY 2027. 

CMS is proposing to exempt rural sole community hospitals from the rate cut, as it did for the evaluation and management and drug administration rate cuts.  The agency explains that it does not believe that rural SCH site-of-service decisions for imaging without contrast services are driven by payment rate differentials, because SCHs are often the only source of care in their communities. 

Inpatient Only (IPO) List 

CMS is continuing to phase out the IPO list over a three-year period.  In CY 2026, CMS began by removing 285 mostly musculoskeletal procedures.  For CY 2027, CMS proposes removing an additional 637 services from the IPO list, spanning the auditory, digestive, endocrine, female genital, hemic and lymphatic, integumentary, male genital, maternity care and delivery, mediastinum and diaphragm, respiratory, and urinary clinical families.  The more complex procedures in the neurological, cardiovascular, and transplant clinical families are deferred to CY 2028 (the third and final phase of the phase-out).  Concurrently, CMS proposes adding 618 codes to the ASC Covered Procedures List (CPL) that were recommended by stakeholders or are proposed for removal from the IPO list for CY 2027.  This transition is intended to give physicians greater flexibility in determining the most appropriate site of service.

Off-Campus Provider-Based Requirements

CMS proposes to implement the new statutory off-campus provider-based requirements that were added in Section 6225 of the Consolidated Appropriations Act, 2026 (CAA), enacted February 3, 2026.  Section 6225 amends the OPPS statute to specify that beginning January 1, 2028, off campus outpatient PBDs must meet three conditions to receive OPPS payments:

1. The PBD must obtain and bill under a separate NPI
2. The main provider must, during the 2-year period ending on the date services are furnished, submit an initial provider-based attestation that the PBD complies with CMS’s provider-based rules in 42 C.F.R. § 413.65, and
3. The provider must submit a subsequent attestation within the timeframe specified by CMS.

CMS proposes updating its provider-based regulations to implement each of the new statutory requirements.  For existing PBDs, the agency proposes mandating that an initial attestation be submitted between January 1, 2026 and December 31, 2027.  (Providers that submit an initial attestation within this period would meet the requirements even if they do not receive a provider-based status determination from CMS by that date.)  For PBDs that begin furnishing services after that date, CMS proposes requiring the main provider to submit the initial attestation within the two-year period prior to when billed services are first delivered.  CMS proposes requiring subsequent attestations within a period not to exceed five years after the initial attestation. 

CMS also proposes to standardize the attestation process by establishing a standardized attestation form to replace the current MAC-specific templates.  Under this system, main providers would submit attestations through a centralized electronic system.  The attestation form would include identifying information for the main provider and the PBD, a list of the regulatory requirements, and a certifying statement affirming compliance signed by an authorized official. 

In the Proposed Rule, CMS identifies the documentation that hospitals may be required to produce in support of their attestations, such as documents supporting (1) that the PBD is within 35 miles of the main provider, (2) that the PBD operates under the same license as the main provider, (3) that the PBD is clinically integrated (e.g., professional staff privileges), and (4) that the PBD is financially integrated (same general ledger).

CMS proposes that a hospital will receive an approval notice if its attestation is accepted.  Otherwise, the hospital will receive a denial notice, and CMS will recover the difference between payments actually made and the amount that should have been paid in the absence of compliance.  Hospitals that fail to respond to requests for documentation within 60 days will be deemed non-compliant.  Determinations of non-compliance will be appealable to the Departmental Appeals Board. 

Accrediting Organization (AO) Deeming for EMTALA Compliance

CMS proposes that hospital Accrediting Organizations (AOs) with deeming authority under the Medicare program assess compliance with certain Emergency Medical Treatment and Labor Act (EMTALA) administrative requirements during their accreditation and reaccreditation surveys.  Specifically, CMS would amend 42 C.F.R. § 488.5(a) by adding a new provision requiring AOs to document the procedures used to inspect for EMTALA administrative violations under § 489.20 within their existing survey processes. This proposal is intended to integrate EMTALA compliance review into the existing accreditation process rather than relying exclusively on complaint-driven CMS surveys.

Potential Separate IPPS Payment for Domestic PPE and Essential Medicines

CMS is soliciting comments on a potential separate payment under the Inpatient Prospective Payment System (IPPS) for the domestic procurement of personal protective equipment (PPE) and essential medicines.  CMS is considering expanding beyond the existing OPPS policy providing separate payment for domestically produced N95 respirators to include other domestic PPE and essential medicines.  CMS is also considering sunsetting the existing OPPS N95 policy and exploring alternative outpatient payment approaches. 

Hospital Price Transparency (HPT)

Request for Information on Strengthening the Standardization and Comparability of HPT Data

Since 2021, CMS has required hospitals to provide clear and accessible pricing information about the items and services online via a comprehensive machine-readable file (MRF) and a consumer-friendly display.  Following a 2025 Executive Order affirming the administration's commitment to implementing a more aggressive price transparency agenda, CMS utilized the CY 2026 OPPS/ASC final rule to add additional data metrics required for the MRFs.  In the CY 2027 Proposed Rule, CMS is requesting information on ways to improve comparability and standardization of HPT information in MRFs and consumer-friendly displays.

First, CMS is seeking comments on standardizing the free text fields of the MRFs, particularly for outlier contracting provisions and additional contract terms.  The rule specifically mentions outlier payments, stop-loss provisions, rate tiering, and carve outs.  Additionally, CMS seeks information about additional categories of data fields that should be added to the MRFs.

In addition, CMS is interested in enhancing the requirements for consumer-friendly displays.  Specifically, CMS seeks information on whether to modify or revoke the current policy allowing internet-based price estimator tools.  CMS also requests information on updating the shoppable services list and whether to require shoppable services files.  Lastly, CMS requests ideas on how hospitals should present ancillary or bundled services or items.

The Proposed Rule highlights the specific questions interested parties should address. CMS is primarily concerned with the perceived consumer and competition benefits, but impacted providers should take the opportunity to emphasize the administrative burden of implementing additional data requirements and the efficacy of existing reporting tools.

Reporters, Robert Stenzel, Washington, D.C., +1 202 626 2643, rstenzel@kslaw.com; Alek Pivec, Washington, D.C., +1 202 626 2914, apivec@kslaw.com; Peyton Pedrozo, Washington, D.C., +1 202 626 9683, ppedrozo@kslaw.com

CMS Issues CY 2027 Home Health Prospective Payment System Proposed Rule, Revises Provisions Governing Revocation of Medicare Enrollment and Recoupments

On July 1, 2026, CMS issued the Home Health Prospective Payment System Proposed Rule for Calendar Year (“CY”) 2027 (the "Proposed Rule"), which CMS estimates would increase Medicare payments to home health agencies (HHAs) by approximately 2.4 percent, or $420 million, compared to CY 2026. The Proposed Rule also would expand CMS’ ability to disenroll or deny Medicare enrollment for home health providers and retroactively recoup payments. Comments are due August 31, 2026.

CY 2027 Payment Proposals

For CY 2027, CMS proposes a home health payment update of 2.1 percent (approximately $370 million) and an estimated 0.3 percent increase of the updated fixed-dollar loss (FDL) ratio used to calculate outlier payments due to unusual variations in the type or amount of medically necessary care.

In contrast with final rules for CYs 2023 – 2026, under the Proposed Rule, CMS is not proposing any additional permanent downward adjustments to base payment rates for CY 2027. In past years, CMS had provided such downward adjustments based on alleged differences between CMS’ predicted provider behavior in response to a 2018 revised home health payment model, and actual provider behavior. Under the Proposed Rule, CMS would, however, once again apply a -3.0 percent temporary adjustment to the CY 2027 national, standardized payment rate, continuing its effort to recoup $500 million of what it characterizes as $4.9 billion in overpayments from CYs 2020 through 2025.

Provider Enrollment Provisions

The Proposed Rule would expand the grounds upon which Medicare can deny or revoke a provider’s Medicare enrollment and increase CMS’ ability to retroactively recoup prior payment, which CMS estimates will save $82 million annually.

Retroactive Revocations. Currently, when a home health provider’s enrollment in Medicare is revoked due to noncompliance with certain Medicare requirements, the revocation takes effect 30 days after CMS mails notice of revocation to the provider. The Proposed Rule would make certain enrollment revocations retroactive to the date the alleged noncompliance began, allowing CMS to recoup payments made to the provider during periods when a provider was allegedly out of compliance.

New and Expanded Grounds for Revocation or Denial of Enrollment: The Proposed Rule would also expand the circumstances in which CMS can deny or revoke a provider’s enrollment:

• Change in Majority Ownership: Under the Proposed Rule, HHAs, hospices, and suppliers of durable medical equipment, prosthetics, orthotics, and supplies would have to reenroll in Medicare as a new provider following changes in majority ownership and participate in the accreditation process. Under the Proposed Rule, CMS could deny or revoke the provider’s enrollment if the provider fails to comply with this requirement following a change in ownership.
  
  
• Program or License Suspension/Termination: CMS currently may deny or revoke a HHA’s enrollment if a healthcare provider has a suspended or revoked license in another state or is terminated from Medicaid or another federal healthcare program. The Proposed Rule would expand this authority to revoke or deny a home health provider’s enrollment due to similar actions against the home health provider’s owners or managing employees or organizations.
  
  
• High-Risk Geographic Concentrations (§ 424.535(a)(24)): Under the Proposed Rule, CMS could revoke a home health provider's enrollment if it determines the provider presents a high risk of fraud, waste, or abuse because the home health provider is located within a “limited geographic area” with an “excessive number” of providers and suppliers, such as when multiple providers of the same type are operating within the same building, complex, or small cluster of city blocks. The Proposed Rule does not establish what an “excessive number” would be, but states that the terms “limited geographic area” and “excessive number” would carry their “ordinary, plain-language meanings.”
  
  
• Certain Misdemeanor Convictions (§§ 424.530(a)(16) and 424.535(a)(16)): Under the Proposed Rule, CMS could deny or revoke a home health provider’s enrollment if the provider, owner, managing employee, managing organization, officer, or director, was convicted of a federal or state misdemeanor related to sexual assault or financial misconduct within the past 10 years. Under the Proposed Rule, the revocation would be retroactive to the date of conviction.
  
  
• 10 Year Reapplication Bar: Under the Proposed Rule, if a provider’s enrollment is denied or revoked, CMS would have the authority to prohibit a provider from reapplying for enrollment for ten years. Under existing rules, this ten-year prohibition applied only for denials or revocations due to the submissions of false or misleading information.

The Proposed Rule is available on the Federal Register here. The CMS fact sheet is available here.

Reporter, William Mavity, Los Angeles, +1 213 218 4043, wmavity@kslaw.com

Nationwide Coalition Sues CMS Over Medicaid Work Requirements Rule, Alleging Unlawful Narrowing of Exemptions for Medically Frail

On June 29, 2026, a coalition of twenty-three states, two state governors, and the District of Columbia (the “Plaintiff States”) filed suit in the U.S. District Court for the District of Massachusetts challenging CMS’ implementation of new Medicaid work requirements under Section 71119 of the One Big Beautiful Bill Act (“OBBBA”). The complaint, Commonwealth of Massachusetts v. Oz, names CMS Administrator Mehmet Oz, M.D., HHS Secretary Robert F. Kennedy, Jr., CMS, and HHS as defendants. The Plaintiff States allege that the Interim Final Rule (“IFR”) titled “Community Engagement Requirement for Certain Individuals” unlawfully narrows Congressionally established exclusions for medically frail individuals, imposes burdensome administrative requirements on states, and threatens to strip Medicaid coverage from millions of eligible enrollees – with compounding consequences for hospitals and safety-net providers.

The litigation¹Commonwealth of Massachusetts v. Oz, Case No. 1:26-cv-12962 (D. Mass. filed June 29, 2026). represents a significant legal challenge to the federal government’s implementation of Medicaid work requirements. With an implementation deadline of January 1, 2027, and state notice requirements triggering as early as August 31, 2026, the complaint²The Complaint uses the defined term “Plaintiff States” to encompass all of the plaintiff-entities, which are Massachusetts, California, New Jersey, Arizona, Colorado, Connecticut, Delaware, the District of Columbia, Hawai‘i, Illinois, the governor of Kentucky, Maine, Maryland, Michigan, Minnesota, Nevada, New Mexico, New York, North Carolina, Oregon, the governor of Pennsylvania, Rhode Island, Vermont, Virginia, Washington, and Wisconsin. raises immediate questions for hospital providers about the potential for large-scale coverage disruptions and increases in uncompensated care.

Background: OBBBA and the Medicaid Work Requirement

OBBBA enacted new “community engagement” requirements for certain adults aged 19 to 64 enrolled in Medicaid expansion populations. Under the statute, applicable individuals must demonstrate 80 hours per month of qualifying activities. These activities include employment, education, community service, or job training. Alternatively, an individual must meet equivalent income thresholds to maintain Medicaid eligibility.

Central to the litigation, Congress created categorical exclusions for “specified excluded individuals,” including those who are “medically frail or otherwise have special medical needs.” The statute defines this category broadly to include individuals who are blind or disabled, have substance use disorders, disabling mental disorders, physical, intellectual, or developmental disabilities that significantly impair daily living, or serious and complex medical conditions.³42 U.S.C. § 1396a(xx)(9)(A)(ii)(V). These exclusions were designed to protect the most vulnerable Medicaid enrollees from losing coverage due to an inability to meet work requirements. CMS was directed to issue an Interim Final Rule by June 1, 2026, to guide state implementation.

The CMS Interim Final Rule: Key Provisions at Issue

CMS released the IFR on June 1, 2026, several provisions of which form the basis of the Plaintiff States’ legal challenge. The central dispute concerns CMS’s definition of the “medically frail” exclusion, as the IFR defines the exclusion to cover only individuals whose condition “significantly impairs the individual’s ability to comply with the community engagement requirement.”⁴42 C.F.R. § 435.554(c)(5)(i). The Plaintiff States argue this “significant impairment” test is an extra-statutory requirement that significantly narrows the statutory definition.

Beyond the medical frailty definition, the Plaintiff States believe that the IFR raises several additional concerns. It limits self-attestation of medical frailty, narrows the emergency declaration exception, creates a gap in short-term hardship exceptions for new applicants, and carves out individuals with substance use disorders “in stable recovery” for five or more years from the exclusion.

What the Complaint Alleges

The complaint advances three counts against the federal defendants: Counts I and II allege violations of the APA (under “Contrary to Law” or “Arbitrary and Capricious” standards), while Count III alleges violation of the Spending Clause.

The Plaintiff States ask the court to stay the effective date of the challenged IFR provisions pending judicial review, declare the challenged provisions unlawful under both the APA and the Spending Clause, issue preliminary and permanent injunctive relief against implementation and enforcement of the challenged provisions, and vacate and set aside the challenged provisions. Notably, the Plaintiff States filed a motion for preliminary injunction on the same day as the complaint, signaling their intent to seek emergency relief before the August 31, 2026 notice deadline.

Why This Matters for Healthcare Providers

Regardless of the litigation’s outcome, the Medicaid work requirements and CMS’s IFR carry significant financial and operational implications for hospitals and health systems (particularly those serving safety-net and rural populations).

Projected Enrollment Losses and Uncompensated Care

CMS’s own regulatory impact analysis projects that enrollment will be reduced by 2.3 million individuals in FY 2027, rising to between 3.1 and 3.3 million by FY 2036.⁵CMS Regulatory Impact Analysis, 91 Fed. Reg. at 33461. CMS also acknowledges that 7 percent of applicable individuals who qualify for coverage will lose it “due to administrative or procedural reasons” such as paperwork failures and system errors.⁶Id. at 33460. The complaint alleges that when these newly uninsured individuals have medical emergencies, “public hospitals—whom federal law requires to treat patients regardless of ability to pay—will be forced to absorb the costs.”⁷Compl. ¶¶ 186, 202.

Safety-Net and Rural Hospitals

The complaint alleges that the IFR “will cause rural hospitals to be even more likely to shutter.” A Commonwealth Fund analysis projects that rural hospital revenue could drop by as much as 9.6% on average as a result of the coverage losses, and more than 20% of rural hospitals are already at risk of closing.⁸Commonwealth Fund, “Why Rural Hospitals Are Facing a Funding Crisis — and How It Could Get Worse” (2026). The complaint also notes that the IFR will “further strain safety net providers, lead to more uncompensated emergency care, and raise other costs associated with newly uninsured, medically frail residents.”

Provider Burden and Medical Frailty Determinations

The IFR may require physicians to evaluate patients’ ability to comply with work requirements as part of medically frail determinations. For instance, past experience in New Hampshire showed that “primary care providers resisted signing forms declaring that their patients were unable to work,” creating friction between providers, patients, and state agencies.⁹Compl. ¶ 175. If the IFR’s “significant impairment” standard stands, hospitals may face increased requests from patients and state Medicaid agencies for clinical documentation supporting medical frailty determinations.

Conclusion

The lawsuit adds an additional layer of uncertainty, as providers must prepare for both a world in which the IFR is enjoined and one in which it takes effect as written. The comment period on the IFR closes July 31, 2026. 

Reporter, K. Tyler Dysart, Atlanta, +1 404 572 3532, tdysart@kslaw.com

AstraZeneca and Texas Reach Settlement on Kickback Allegations

AstraZeneca Pharmaceuticals LP has agreed to pay $33,998,000 to the State of Texas to resolve allegations that the company provided illegal remuneration to healthcare providers in connection with prescriptions for certain of its drugs that were covered by the state’s Medicaid program.

In June 2026, the Office of the Attorney General for the State of Texas, the Texas Health & Human Services Commission, AstraZeneca Pharmaceuticals LP, counsel for AstraZeneca, and two relators and their counsel signed the Settlement Agreement and Release, which resolved all allegations brought in a lawsuit filed in Travis County District Court (The State of Texas, ex rel. SCEF, LLC v. AstraZeneca Pharmaceuticals LP, Cause No. D-1-GN-25-011002).

In that case, citing the Texas Health Care Program Fraud Prevention Act (Tex. Hum. Res. Code ch. 36) and the Texas Anti-Kickback Statute (Tex. Hum. Res. Code § 32.039), two relators and the Texas Attorney General’s Office alleged that AstraZeneca operated three programs that constituted illegal renumeration designed to induce prescriptions for AstraZeneca products covered by Texas Medicaid: (1) a “Free Nurse Program” – the alleged offer and/or provision of free nursing services or patient management services to prescribers, healthcare professionals, and patients as in-kind renumeration; (2) a “Support Services Program” – the alleged assumption of reimbursement and administrative support services that prescribers perform for their patients; and (3) a “White Coat Marketing Program” – the alleged provision of renumeration to third parties to deploy clinical nurse educators and other healthcare professionals to recommend AstraZeneca products to prescribers, healthcare professionals, and patients.

AstraZeneca denied these characterizations, the naming conventions of the programs at issue, all allegations, and any wrongdoing.

Reporter, Jenna Anderson, Palo Alto, +1 650 422 6719, janderson@kslaw.com

Editors: Chris Kenny and Ahsin Azim

Issue Editors: Christopher Jew and Marcia Foti

Additional Contributors: Peyton Pedrozo