Health Headlines – July 7, 2025

President Trump Signs Budget Reconciliation Bill with Significant Medicaid Changes into Law

On the afternoon of July 4, President Trump signed into law H.R. 1, the One Big Beautiful Bill Act – comprehensive budget reconciliation legislation that represents the core of President’s second-term domestic agenda and includes significant changes to Medicaid financing (the “Bill”). While the reconciliation package took months to negotiate, the final steps in the process occurred within a period of days. The Senate, by a vote of 51-50 with Vice President Vance casting the tie breaking vote, approved its modifications to the legislation on July 1.  On July 3, the House of Representatives voted 218-214 to accept the Senate amendments to the Bill.

The June 23 edition of Health Headlines covered key changes to the Medicaid program as proposed by the Senate Finance Committee. However, prior to final passage in the Senate, there were a number of amendments made to the Bill’s health care provisions to secure the votes needed for passage. Additionally, the Senate Parliamentarian ruled that several provisions violated the Senate budget reconciliation rule or the “Byrd rule” named after Senator Robert C. Byrd (D-WV). Such provisions may be struck from the Bill unless 60 Senators vote in support of a provision’s inclusion. 

Below is a summary of the key Medicaid financing and health care provisions contained in the Bill:

• Moratorium on and Reduction in Provider Tax Limits: Currently, states may impose provider taxes up to 6% of net patient revenue to help finance their Medicaid programs. In the final Bill, expansion states would see that cap gradually reduced starting in 2028, reaching 3.5% by 2032. Nursing facilities and intermediate care facilities are exempt from this phasedown, meaning that they can continue to be taxed up to 6% of net patient revenue. This provision also prohibits all states from increasing the rate of current provider taxes or broadening the base of the tax to include items or services that were not previously covered by the tax. The provider tax provision was initially identified as violating the Byrd rule and was redrafted to address the Parliamentarian’s guidance, including by removing the proposed moratorium on new provider taxes or increases to existing ones (though the phase-down of allowable tax rates through 2032 effectively negates that removal).
  
  
• Directed Payment Cap: Under current Medicaid Directed Payment Programs, hospitals are permitted to receive payments up to the average commercial rate. The Bill would direct CMS to cap Medicaid directed payments at 100% of Medicare rates for services delivered in expansion states. In the absence of published Medicare payment rates, the limit is the Medicaid fee-for-service payment rate. Existing payments exceeding this cap could be temporarily grandfathered but would phase down by 10% annually starting in 2028. The grandfathering provision only applies to payments submitted prior to the Bill’s enactment for rural hospitals and prior to May 1, 2025 for all other providers. Non-expansion states could continue to pay up to 110% of Medicare rates. 
  
  
• Medicaid Work Requirements: Beginning in 2027, states will be required to impose “community engagement” rules on beneficiaries as a condition of Medicaid eligibility. Community engagement includes working, community service, or attending an educational program for at least half-time.  The Bill exempts parents with dependent children aged 13 and younger, pregnant women, parents or caregivers of an individual with a disability, individuals with disabilities, and people who are in compliance with work requirements under the Temporary Assistance for Needy Families program or the Supplemental Nutrition Assistance Program.  CMS may exempt states from these new requirements until no later than December 31, 2028, if the state demonstrates a good faith effort to comply.  The Bill provides $200 million to states and $200 million to HHS in Fiscal Year 2026 for implementation.
  
  
• Medicaid Eligibility Checks: Current law requires states to conduct eligibility determinations for expansion population adults every 12 months.  Under the Bill, states are required to verify eligibility for Medicaid expansion beneficiaries every six months for renewals scheduled on or after December 31, 2026.
  
  
• Rural Health Funding: The Bill establishes the Rural Health Transformation Fund to provide $50 billion to rural health care providers between Fiscal Years 2026-2030. Critical access, sole-community, or Medicare-dependent hospitals in rural areas are eligible for funding.  Half of this funding will be equally distributed among states with an approved application; the remainder will be allocated based on factors such as rural population data, facility characteristics, and hospital data.
  
  
• Restricts Definition of Qualified Immigrant Eligibility: The bill restricts Medicaid, Medicare, and ACA subsidy eligibility to United States citizens, lawful permanent residents, certain Cuban and Haitian immigrants, and citizens of the Freely Associated States (COFA migrants) residing in states and territories.
  
  
• Medicaid Cost-Sharing: Effective October 1, 2028, states are required to impose cost-sharing of up to $35 per service on expansion adults with incomes between 100-138% of the federal poverty level. Excluded services are primary care, mental health, substance use disorder services or services provided by a federally qualified health center, a certified community behavioral health center, or rural health clinic. Cost-sharing may not exceed 5% of a family’s income.

Several provisions included in earlier versions of H.R. 1 were found to violate the Byrd rule and were not included in the final legislation: 

• FMAP Reduction for Certain Populations: In states that offer comprehensive Medicaid coverage to undocumented immigrants after October 1, 2027, the federal medical assistance percentage (“FMAP”) for the expansion population would be reduced from 90% to 80%. The FMAP for emergency services provided to undocumented adults would be reduced to 50%.
  
  
• Banning Spread Pricing in Medicaid
  
  
• ACA Cost-Sharing Reduction Payments
  
  
• Prohibition on Federal Funding for Gender Affirming Care

The text of H.R. 1 can be found here.

Reporters, Dennis Mkrtchian, Los Angeles, + 1 213 218 4046, dmkrtchian@kslaw.com; Christopher Kenny, Washington, D.C., + 1 202 626 9253, ckenny@kslaw.com; Allison Kassir, Washington, D.C., + 1 202 626 5600, akassir@kslaw.com.

Trump Administration Revamps Working Group to Focus on False Claims Act

On Wednesday, July 2, 2025, HHS and DOJ announced a new working group focused on enforcement of the False Claims Act (“FCA”).  According to the announcement, the DOJ-HHS False Claims Act Working Group (“Working Group”) is a collaboration between the two agencies to combat healthcare fraud.  The Working Group is the second iteration of a similar effort established during the first Trump Administration.  According to the DOJ press release, the Working Group will prioritize both new and familiar areas of enforcement to the healthcare industry, leverage enhanced data mining for purposes of FCA investigations, and consider possible changes to agency policies concerning payment suspension and qui tam complaints.

Membership in the Working Group will include leadership from the HHS Office of General Counsel, CMS Center for Program Integrity, the Office of Counsel to the HHS-OIG, and DOJ’s Civil Division, with designees representing U.S. Attorneys’ Offices. The group will be jointly led by the HHS General Counsel, Chief Counsel to HHS-OIG, and the Deputy Assistant Attorney General of the Commercial Litigation Branch.

In addition to the subject areas prioritized in a June 11, 2025 memorandum by the Assistant Attorney General of the Civil Division, the Working Group’s announcement identified the following priority areas for FCA enforcement in the healthcare industry:

• Medicare Advantage;
• Drug, device, or biologics pricing, including arrangements for discounts, rebates, service fees, and formulary placement and price reporting;
• Barriers to patient access to care, including violations of network adequacy requirements;
• Kickbacks related to drugs, medical devices, durable medical equipment, and other products paid for by federal healthcare programs;
• Materially defective medical devices that impact patient safety; and
• Manipulation of Electronic Health Records systems to drive inappropriate utilization of Medicare covered products and services.

The announcement explains that the Working Group will include cross-agency efforts to expedite ongoing investigations in the above priority areas and identify new leads, including “by leveraging HHS resources through enhanced data mining and assessment of HHS and HHS-OIG report findings.”

The announcement also notes that the Working Group will discuss considerations bearing on whether HHS should implement a payment suspension pursuant to 42 C.F.R. § 405.370 et seq. or whether DOJ shall move to dismiss a qui tam complaint under 31 U.S.C. § 3730(c)(2)(A), consistent with Justice Manual Section 4-4.111.

Finally, the announcement states that the Working Group encourages whistleblowers to identify and report violations of the federal FCA involving priority enforcement areas.  The Working Group’s announcement is silent regarding the pending decision by the Eleventh Circuit concerning the constitutionality of the qui tam provision of the FCA, discussed here.  

Reporter Michael L. LaBattaglia, Washington, D.C., +1 202 626 5579, mlabattaglia@kslaw.com

Editors: Chris Kenny and Ahsin Azim

Issue Editors: Alana Broe and David Tassa