Health Headlines – June 2, 2025

GAO Publishes Findings Regarding Prior Authorization of Behavioral Health Services

Last week, the Government Accountability Office (GAO) published a report determining that there is a nontrivial risk that prior authorization requirements, together with internal coverage criteria, may undermine the Medicare Advantage population's access to necessary health care services. GAO drafted this report pursuant to a mandate in the Consolidated Appropriations Act of 2023 that requires GAO to review the use of prior authorization requirements in the traditional-Medicare and Medicare Advantage programs. Despite these concerns, HHS was not particularly receptive to GAO’s recommendation that CMS “target behavioral health services in its program audit reviews of prior authorization denials and planned reviews of internal coverage criteria.”

Medicare Coverage of Behavioral Health Services

Though Medicare does not cover all levels of behavioral health care, such as some types of residential care, Medicare does broadly cover both inpatient and outpatient behavioral health services when the services “are reasonable and necessary for diagnosis or treatment of a behavioral health condition.” GAO emphasized that failing to treat behavioral health conditions can lead to consequences, such as “worsening health, frequent emergency department visits, hospitalizations, or premature death.” However, despite these severe consequences of under-treating behavioral health conditions, HHS estimates that approximately one-in-five U.S. adults aged 50 and older had a behavioral health condition, but that only “3 percent of MA enrollees received treatment from a behavioral health provider in 2023.” GAO speculates that this is the product of “barriers to accessing behavioral health services” and that the prior authorization process may be one of these barriers.

Prior Authorization Requirements

Medicare Advantage organizations sometimes require providers to receive “prior authorization” before providing certain services. This typically involves providers needing to “submit documentation, such as a diagnosis or description of current symptoms, to the MA organization[.]” Sometimes, this would involve Medicare Advantage organizations imposing their own “internal coverage criteria to make decisions.” Even though “CMS does not currently require prior authorization for any behavioral health services in traditional Medicare[,]” CMS does permit Medicare Advantage organizations to require prior authorization before treating patients and even allows these organizations to create their own internal criteria, so long as “the criteria ... not be more restrictive than Medicare coverage criteria.”

Per GAO, CMS posited that prior authorization helps to minimize unnecessary services, and GAO agreed, finding in 2018 “that expenditures for services subject to prior authorization were lowered by $1.1 to $1.9 billion compared with what would have been expected had the programs not been implemented, resulting in savings for the Medicare program.” However, after analyzing studies covering the issue, GAO is concerned prior authorization requirements may hinder beneficiaries from accessing care. GAO expressed concern that this process is often imperfect at making sure the entire population is treated, as HHS OIG found in an April 2022 report that “13 percent of care requests denied by [Medicare Advantage] organizations met Medicare coverage criteria.”

Also, while GAO found that prior authorization requirements may save money for Medicare, GAO also found that these requirements create new, substantial burdens for providers.  A 2023 American Medical Association survey found that 35% of physicians “have staff who work exclusively on prior authorization” and that 95% of physicians reported that needing to work on prior authorizations “somewhat or significantly increase[d] burnout.”

GAO Recommendations for Improving CMS Oversight

GAO expressed concern that until CMS directs its oversight efforts on behavioral health services, “the agency lacks reasonable assurance that the use of internal coverage criteria does not compromise access to behavioral healthcare” for the covered population. Therefore, GAO made the sole recommendation that CMS “should target behavioral health services in its program audit reviews of prior authorization denials and planned reviews of internal coverage criteria.” HHS was unconvinced, pointing out (as described above) that “behavioral health services comprise a small percentage of [Medicare Advantage] services” as only “3 percent of MA beneficiaries received behavioral health services in 2023.” 

Despite GAO’s concerns, HHS indicated that its reviews are focused on “the services that were most likely to be denied and negatively impact access for large numbers of beneficiaries,” meaning that the population treated for mental health services under Medicare was simply too small to justify the additional review and was a lower priority item. Some providers of behavioral health care services are concerned that this may be a sign of a negative cycle, whereby behavioral health services are rarer and less accessible because of insufficient oversight, and the oversight does not occur because of how rare the services are.

The full GAO report is available here, and the accompanying press release is available here.

Reporter, Gregory Fantin, Washington DC, +1 202-626-9271, gfantin@kslaw.com.

OIG Releases Audit of Medicare Payments for Evaluation Management Services Billed on the Same Day as Eye Injections

On May 27, 2025, HHS Office of Inspector General (OIG) issued a report outlining its finding that Medicare payments for evaluation management (E&M) services provided on the same day as eye injections were at risk for noncompliance with Medicare requirements. Based on its audit, OIG made three recommendations to CMS, including a recommendation that CMS update Medicare billing requirements.

Generally, an E&M service (which is performed to assess and manage a patient’s health) provided on the same day as an eye injection is included in the payment for the eye injection. However, Medicare may make a separate payment for an E&M service where the service was “significant, separately identifiable, and above and beyond the other service provided or beyond the usual preoperative or postoperative care associated with” the eye injection.

From June 2022 through May 2023, OIG conducted an audit intended to identify Medicare Part B payments for E&M services that were provided on the same day as eye injections that were “at risk for noncompliance with Medicare requirements.” Based on this audit, OIG found that providers billed for E&M services on the same day as 42% of eye injections by using modifier 25 (which allowed the provider to bypass system edits). OIG stated that its “data analysis suggests that providers may have been using the modifier incorrectly” to bill for E&M services on the same day as eye injections.

OIG also concluded that during the audit period, CMS paid $124 million for E&M services provided on the same day as the eye injections “because CMS’s internal controls were not adequate during [the] audit period to detect and prevent potentially improper payments.” 

OIG made three recommendations to CMS, including:

1. Update Medicare requirements to help providers understand the proper use of modifier 25;
2. Conduct medical reviews to determine whether E&M payments made on the same day as eye injections were proper and recover improper payments made during the audit period (and instruct providers to refund any amounts improperly collected from enrollees); and
3. Provide more education to providers regarding billing E&M services provided on the same day as eye injections and the appropriate use of modifier 25.

CMS provided written comments on OIG’s draft report that concurred with OIG’s second recommendation. CMS did not explicitly state its position on the first and third recommendations, though it stated that it had already met the requirements of the third recommendation.

The full report can be found here, and the report highlights can be found here.

Reporter, Lindsay Greenblatt, Los Angeles, +1 213 218 4032, lgreenblatt@kslaw.com.

CMS Announces Heightened Financial Oversight to Detect Misuse of Medicaid Funds Used for Immigrant Care

CMS announced in a letter released on Tuesday, May 27, 2025 (CMS Letter) that it will ramp up financial oversight of states to detect misuse of federal Medicaid funds “[t]o ensure that federal money is not used to pay for or subsidize healthcare for individuals with an unsatisfactory immigration status in a manner contrary to federal law ….” The CMS Letter states that the plain text of “the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (Public Law 104-193) (PRWORA)[ ] generally prohibits illegal aliens from obtaining most taxpayer-funded benefits” “and that ‘it is a compelling government interest to remove the incentive for illegal immigration provided by the availability of public benefits.’”

The CMS Letter takes the position that under federal law, Medicaid funding for noncitizens with unsatisfactory immigration status is generally only available for treatment of emergency medical conditions—including emergency labor and delivery—for those individuals who would otherwise be Medicaid-eligible but for their immigration status.

As part of this heightened oversight, CMS announced that it will conduct focused reviews of each state’s reported Medicaid expenditures and financial management reviews to ensure compliance with federal laws on Medicaid spending. CMS encouraged states to review their policies, internal controls, public assistance cost allocation plans, and IT systems to ensure that medical assistance claimed by the state and administrative expenditures are in accordance with federal law. CMS also stated that it will be reviewing existing eligibility requirements in federal regulations and will, if necessary, propose revisions to such requirements.

This letter follows President Donald Trump’s February 19, 2025 Executive Order titled “Ending Taxpayer Subsidization of Open Borders,” which claims that using Medicaid funds to provide unauthorized immigrants with nonemergency care goes against the PRWORA.

A copy of the CMS Letter can be found here, and the related press release can be found here. President Trump’s executive order titled “Ending Taxpayer Subsidization of Open Borders” can be found here.

Reporter, Brittany Tandy, Austin, TX, +1 512 4572071, btandy@kslaw.com.

CMS Reviews Quality Standards on Gender Transition Procedures 

On May 28, 2025, CMS requested comments from hospitals to determine the quality of care being provided for gender dysphoria in children. CMS cites its prior communication and a prior report released by HHS as the basis for the inquiry and concern around the evidence supporting such care.

CMS has specifically requested that hospitals provide their policies and procedures with respect to the following:

• The adequacy of informed consent protocols for children with gender dysphoria, including how children are deemed capable of making these potentially life-changing decisions and when parental consent is required;
• Changes to clinical practice guidelines and protocols that the institution plans to enact in light of the recent comprehensive review of guidance released by HHS; and
• Any adverse events related to these procedures, particularly children who later look to detransition.

CMS is also reviewing the federal payment policies related to gender transition procedures for patients under the age of 19. To assist with this analysis, CMS is requesting that hospitals provide complete financial data for all pediatric sex trait modifications performed and paid for in whole, or in part by the federal government. This data includes:

• All billing codes utilized for pediatric sex trait modifications (and that correspond with pediatric sex trait modification procedures not determined to be medically necessary);
• Facility- and Provider-level revenue – or utilization data – generated, directly or indirectly, from these procedures (2020-present);
• Facility- and Provider-level operating and profit margins for each procedure type (for the institution as well as directly or indirectly owned and / or affiliated providers); and
• Projected revenue forecasts for these service lines.

Comments are due by June 27, 2025. A copy of CMS’s letter is available here.

Reporter, Kimberly Rai, New York, +1 212 556 2198, krai@kslaw.com.

Affordable Care Act Preventative Care Mandate At Risk Pending Supreme Court Decision

A case pending before the Supreme Court could jeopardize the Affordable Care Act’s (ACA) mandate that certain preventive services be provided on a first dollar coverage basis to plan members. Kennedy v. Braidwood Management was heard before the Supreme Court in April and is set for decision this month. If the Supreme Court upholds the Fifth Circuit’s decision that U.S. Preventive Services Task Force Members are not inferior officers, the ACA cost-sharing mandate would be jeopardized. Such a decision could impact the business models of digital health and telemedicine companies whose services are classified as preventive. Significantly, the application of co-payments and deductibles to these services are likely to cause a drop in utilization and plan members will likely be forced to pay for part of the cost.

The ACA mandates that most group health plans and insurers cover certain preventive services without imposing copayments, deductibles, or other cost-sharing charges on patients. 42 U.S.C. § 300gg-13. The list of covered services is based primarily on the Task Force’s recommendations. 42 U.S.C. § 299b-4(a). Services that receive a rating of A or B must be covered without any cost-sharing requirements. Since the ACA’s enactment in 2010, private insurers must cover more than 50 preventive services including breast cancer screening, flu vaccines, behavioral health screenings, colorectal cancer screenings, and HIV prevention medications without charging a patient co-payment. Several telehealth companies have implemented a model based on providing these free preventive services to patients. If the Supreme Court agrees with the Fifth Circuit that the Task Force providing these ratings was improperly appointed under the U.S. Constitution’s Appointment Clause because the Task Force was not appointed by the President with the advice and consent of the Senate, the model that these companies use will be at risk.

The Government argued before the Court that the Task Force were inferior officers because they: (1) are subject to removal, (2) perform limited duties, (3) have limited jurisdiction and (4) serve for a limited time. Respondents argued that the ACA language makes the Task Force principal officers because they are impermissibly independent and not subject to political pressure. Respondents also argued that if the Court found that the Task Force were inferior officers there was still a question whether the appointment power was properly vested in the HHS’ Secretary.

Both parties agreed that if the Court determines that the Task Force are inferior officers,  the question of what to do with the Task Force recommendations from 2010 to 2023 made by the Agency for Healthcare Research and Quality Director would need to be remanded to the lower court to determine if the recommendations are enjoined or can be ratified by the Task Force. The Task Force has determined that more 50 services should be covered as preventive services under the ACA during that time period.

During oral arguments, the Justices focused their questions on the meaning of “independent,” whether removal authority was enough to classify the Task Force as inferior officers, and whether the HHS Secretary was vested with authority to appoint the Task Force. It is expected that the Supreme Court will issue a decision next month.

Reporters, Adam Solander, Washington, D.C., +1 202 626 5542, asolander@kslaw.com; Taylor Whitten, Sacramento, +1 916 321 4815, twhitten@kslaw.com.

Editors:  Taylor Whitten & William Mavity