backCMS Issues Interim Final Rule Implementing the New Medicaid Work Requirements
On June 3, 2026, CMS published an interim final rule with comment period (the “Rule”) implementing a new Medicaid work and community engagement requirement. This Rule carries out a provision in the One Big Beautiful Bill Act (Pub. L. No. 119-21) to generally require non-pregnant adults applying for or enrolled in Medicaid to work, attend school, perform community service, or participate in a work program as a condition of Medicaid eligibility. The regulations take effect July 31, 2026, comments are due the same day, and States must implement the requirements by January 1, 2027.
Background on the Community Engagement Requirement
Unlike other Federal means-tested public assistance programs, such as the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF), Medicaid historically has not made community engagement or work an eligibility condition, although some States previously used section 1115 demonstrations. The Rule generally makes community engagement a federal eligibility condition in Medicaid expansion states.
The Rule targets the group of people who gained Medicaid coverage through expansion: adults between 19 and 64 years old who are not pregnant, not on Medicare, and not otherwise eligible for Medicaid. These individuals generally must show 80 hours of qualifying activity for the required month(s) or qualify through half-time education or sufficient monthly income. States must review at least one month of applicant work or community activities before approving an application and must check one or more months at renewal time. If the state cannot verify compliance, it must issue a notice of noncompliance to the Medicaid beneficiary and give the individual 30 calendar days to make a satisfactory showing before denial or disenrollment.
The Rule clarifies that not all Medicaid expansion beneficiaries must meet work or community engagement requirements and puts Medicaid applicants into two groups: (1) those that are completely exempt and (2) those who are subject to work requirements but may get a pass for certain months. These passes can come in two forms: automatic exceptions that every state must honor, and short-term hardship exceptions that states can choose to offer.
Inpatient Psychiatric and IMD Exceptions
The Rule is particularly relevant for behavioral health providers because inpatient psychiatric care, including care in an institution for mental diseases (IMD), can qualify as a short-term hardship event. If a person spends any part of a month as an inpatient for psychiatric treatment, they are treated as having met the requirement for that whole month.
States may choose whether to offer this short‑term hardship exception. A state need not elect the short-term hardship exception, but if it does, it must make all statutory hardship circumstances available rather than selecting only some.
Two caveats matter for providers. The institutional services hardship generally must be requested by the individual or someone acting on the individual’s behalf. Separately, if an inpatient psychiatric or IMD patient qualifies as medically frail or otherwise having special medical needs, the specified exclusion is mandatory and, if it applies, the state does not assess community engagement.
Interplay with Existing Work Requirements
The Rule also explains how the federal requirement interacts with existing section 1115 work-requirement demonstrations and SNAP/TANF work requirements. CMS notes that only Georgia and Arkansas launched prior Medicaid community engagement programs, and Georgia is the only state that continues to operate one as an eligibility condition.
For section 1115 demonstrations, the central point is that the new requirements cannot be waived. CMS will not approve any demonstration that waives the community engagement provisions in whole or in part, and any state using section 1115 authority must comply with all requirements of section 1902. Demonstration populations that meet the applicable-individual definition may be subject to the requirement unless excluded.
The Rule also coordinates with TANF and SNAP through exclusions. If someone is complying with their state’s TANF work rules, they are in the “specified excluded” group and do not have to separately meet Medicaid’s community engagement requirement. The same is true for a member of a SNAP household who is not exempt from a SNAP work requirement.
CMS notes the standards are not identical: TANF requires proof of actual compliance, while SNAP focuses on household status and non‑exempt status.
Administrative Burden on Providers
The Rule places most direct administrative and compliance burdens on states and beneficiaries, not providers.
Before a state asks someone to submit documents, it must first try to verify community engagement using reliable information it already has (sometimes called “ex parte” verification), including eligibility records, adjudicated claims and encounter data, and payroll data.
Providers are still implicated indirectly. Hospitals making hospital presumptive eligibility (HPE) determinations must assess and obtain an attestation from applicants in the Medicaid expansion group regarding whether the applicant appears excluded, applicable, or eligible for a mandatory or optional exception. CMS estimates that 39 jurisdictions must update presumptive eligibility and HPE applications, provider training materials, and eligibility notices.
Providers may also supply verification documents. If reliable state information is unavailable, individuals may need medical bills, admission or discharge paperwork, medical records, or practitioner documentation to support a short-term hardship exception or medically frail exclusion. CMS expects this documentation generally to be reasonably available and minimally burdensome.
Implementation Timing and Next Steps
The regulations take effect July 31, 2026. States generally must implement the requirement by January 1, 2027, although they may implement earlier. The requirement applies to applicants on or after the implementation date and to enrolled beneficiaries at the first renewal initiated on or after that date. States unable to meet the deadline may seek a good faith effort exemption, which expires no later than December 31, 2028, and must conduct pre-implementation outreach.
Reporter, Francis Han, New York, NY, +1 212 556 2154, fhan@kslaw.com
DOJ Health Care Fraud Unit Ties Conviction Record With Six Trial Wins in Under Three Weeks
On June 3, 2026, the Department of Justice (DOJ) announced that its Health Care Fraud Unit secured six jury trial convictions between May 13 and June 2, 2026, matching the unit’s prior monthly record. The cases collectively involved more than $1.1 billion in alleged fraud losses.
The Health Care Fraud Unit now operates within the DOJ’s newly created National Fraud Enforcement Division, which was established in April 2026.
The Six Convictions
First, a federal jury in Florida convicted Brett Blackman, founder and CEO of HealthSplash, in connection with a scheme involving more than $1 billion in fraudulent Medicare billings. The government alleged that Blackman and his co-conspirators generated falsified physicians’ orders and prescriptions to obtain reimbursement from Medicare and other federal healthcare benefit programs.
Shortly after, a federal jury in California convicted a Los Angeles physician, Violetta Mailyan, for a scheme in which Medicare was billed approximately $45 million for Botox injections that were either not administered to patients or were medically unnecessary. That investigation originated from the Health Care Fraud Unit's use of data analytics, which identified Mailyan as having collected more than $24 million in Medicare payments for Botox injections over a four-year period, more than any other physician in the country.
Furthermore, the government won a Medicare-related fraud conviction in Michigan of a nurse and home healthcare agency owner.
Federal prosecutors also secured convictions in two separate Medicare fraud cases in New York involving a clinic owner and a clinic manager.
Most recently, a federal jury in Tennessee convicted a nurse practitioner of unlawfully dispensing opioids to pain clinic patients.
Enforcement Trends
The DOJ recently announced funding for 27 additional prosecutors dedicated to healthcare fraud enforcement, characterizing the investment as a direct result of the “historic success of the program.”
So far in 2026, the Health Care Fraud Unit has brought nine cases to trial, securing convictions in all of them. In 2025, the Health Care Fraud Unit tried 17 cases involving alleged fraud losses that exceeded $14 billion and seized more than $550 million in assets. The Health Care Fraud Unit’s increasing reliance on data analytics to proactively identify billing outliers, as reflected in the recent California Mailyan conviction, may suggest a continued emphasis on detection-driven enforcement. Together, the unit’s reorganization, additional prosecutorial resources, and unbeaten trial record indicate that healthcare fraud enforcement will remain a DOJ priority.
The Department of Justice’s press release is available here.
Reporter, Priya Sinha, Atlanta, GA, +1 404 572 3548, psinha@kslaw.com
OIG Audit Reveals CMS Potentially Overpaid MAOs $462 Million Based on Certain Unsupported Acute Stroke Diagnosis Codes
On May 28, 2026, the Office of Inspector General (OIG) issued a report regarding an audit of acute stroke diagnosis submissions by Medicare Advantage Organizations (MAOs), finding that CMS potentially overpaid the organizations roughly $462 million. Prior OIG audits of specific MAOs identified acute stroke diagnosis codes submitted on physician data records without an acute stroke diagnosis on an inpatient or outpatient hospital data record during the same service year as a high-risk area for overpayment, and this audit confirmed that this issue presents significant financial impact for the Medicare Program. It is worth noting that this report comes at a time of significant enforcement by DOJ and relators under the False Claims Act questioning MAO practices in identifying diagnoses to increase risk adjustment scores and reimbursement.
The audit focused on whether certain nationwide MAOs’ submissions of certain acute stroke diagnosis codes (from a total of 773,999 enrollees) for the 2020 service year in the agency’s risk adjustment program complied with federal requirements. From a random sample of 97 enrollees, the OIG found that the MAO’s submissions of high-risk stroke diagnosis codes for all 97 sampled enrollees did not comply with federal requirements. The OIG noted that CMS’ procedures for collecting, identifying, and reviewing these codes failed to prevent certain incorrect codes from being used in the risk adjustment program, estimating a total of $461,958,186 in potential overpayments.
As part of its report, the OIG recommended that CMS begin implementing a procedure to prevent overpayments to MAOs when they submit acute stroke diagnosis codes and the enrollee lacks an acute stroke diagnosis on an inpatient or outpatient hospital data record during the same service year. CMS could do so either by filtering Encounter Data System data to spot and address the diagnosis codes or instructing MAOs to implement controls to prevent the submission of inaccurate diagnosis codes.
In response to the OIG report, CMS commented that it has made significant progress in promoting Medicare Advantage payment accuracy and has affirmed its commitment to ensuring MAOs accurately report patient diagnoses for payment. CMS also noted that in 2026, it completed the phase-in of an updated risk adjustment model to support more accurate payments to MAOs. In reply, however, the OIG maintained that prepayment action is still needed to avoid future overpayments to MAOs and will lead to substantial cost savings under CMS’ updated payment model. The report’s highlights can be read here. The full OIG report can be read here.
Reporter, John F. Gilmore III, Chicago, +1 312 764 6959, jgilmore@kslaw.com
Matrix Medical Network, HealthFair, and HealthFair Founder Agree to Pay $56.5 Million to Resolve False Claims Act Allegations Relating to Invalid Medicare Advantage Diagnosis Codes
On June 3, 2026, the Department of Justice (DOJ) announced that Community Care Health Network LLC, doing business as Matrix Medical Network (“Matrix”), DPN USA, doing business as HealthFair (“HealthFair”), and Shahriah “James” Ekbatani have agreed to pay a total of $56.5 million to resolve allegations that they violated the False Claims Act by causing the submission of false or invalid diagnosis codes to the Medicare Advantage program. Matrix will pay $36.5 million to resolve claims in a qui tam action filed in the Southern District of New York, while HealthFair will pay $5 million and Ekbatani will pay $15 million to resolve claims in a separate qui tam action filed in the Eastern District of Texas.
Medicare Advantage Organizations (“MAOs”) receive capitated payments from CMS in exchange for providing Medicare benefits to Medicare Advantage plan enrollees. CMS adjusts these capitated payments based on the health status of each beneficiary as determined through diagnoses submitted by the MAOs. In general, CMS pays more for sicker beneficiaries and less for healthier beneficiaries. Diagnosis codes submitted to CMS must be supported by the beneficiaries’ medical records and be accurate, complete, and truthful.
Matrix contracts with MAOs to provide in-home assessments to Medicare Advantage plan beneficiaries. HealthFair, founded and managed by Ekbatani, operated mobile health care buses staffed by nurse practitioners and medical technicians fitted with certain medical equipment, and contracted with MAOs in several states to provide health assessments to Medicare Advantage plan beneficiaries on HealthFair buses. Matrix acquired HealthFair in 2018.
During the period from 2014 to 2019, Matrix is alleged to have knowingly caused MAOs to submit false and invalid diagnoses of the following chronic medical conditions to CMS for risk adjustment purposes: proliferative diabetic retinopathy, drug-induced polyneuropathy, rheumatoid polyneuropathy, atrial fibrillation, rheumatoid arthritis, chronic obstructive pulmonary disease, and simple chronic bronchitis. The government alleged that Matrix reported these diagnoses to MAOs based on its in-home assessments even though: (a) there was not sufficient information to support the diagnoses; (b) the diagnoses did not conform with the guidelines for coding and reporting diagnoses as required by CMS; and (c) the conditions were frequently not diagnosed by any other healthcare provider who saw the beneficiary during the year in which the home visit occurred or in the preceding two years or subsequent two years. As a result, the MAOs obtained inflated capitation payments from CMS.
Among other admissions, as part of the settlement, Matrix acknowledged that its in-home assessments resulted in diagnoses that frequently had not been reported by any other healthcare provider who treated the plan member during the year of the home visit or during the two years before and after. Matrix further admitted that in numerous instances it reported conditions to MAOs where the health assessment forms did not contain sufficient clinical information to support the diagnosis. Matrix will pay $36.5 million in two installments: $20 million within fourteen business days of the effective date of the agreement, plus a second payment of $16.5 million due on or before July 31, 2026, both subject to interest accruing at a rate of 4.25% from November 13, 2025. The settlement also requires Matrix to enter into a Corporate Integrity Agreement with OIG-HHS.
As to HealthFair and Ekbatani, the United States contended that HealthFair (1) reported unsupported diagnoses, including but not limited to HIV/AIDS, metastatic cancer, and Myasthenia Gravis without documentation establishing or confirming the existence of the condition; (2) made certain diagnoses including but not limited to morbid obesity, rheumatoid arthritis, coagulation defect, drug dependence, major depressive disorder, and chronic obstructive pulmonary disease solely based on patient attestation, claims history, past medical history, or medication; (3) diagnosed congestive heart failure and heart arrhythmia despite contradiction by electrocardiogram and echocardiogram results; and (4) diagnosed thrombophilia solely based on separate diagnoses of atrial fibrillation. HealthFair, acting at the direction of Ekbatani, submitted the diagnoses to its MAO customers, and the MAOs often submitted the diagnoses to CMS for risk-adjusted payments.
Under the HealthFair settlement agreement, HealthFair will pay $5 million, of which $2.5 million constitutes restitution, within fourteen business days of the effective date. Under the Ekbatani settlement agreement, Ekbatani will pay $15 million, of which $7.5 million constitutes restitution. Ekbatani’s payment is structured as a $5 million cash payment within fifteen business days of the effective date, plus the surrender and transfer of a $10 million escrow fund that was established in connection with Matrix’s 2018 acquisition of HealthFair. Interest accrues on the HealthFair settlement amount at 4.25% from October 30, 2025, and on the Ekbatani settlement amount at 4.25% from February 1, 2026.
The settlement with Matrix resolves claims brought under the qui tam provisions of the False Claims Act by Nancy Cahill, a former employee of Matrix, in United States ex rel. Cahill v. Matrix, No. 19-CV-11153 (S.D.N.Y.). The settlements with HealthFair and Ekbatani resolve claims brought by Robert Oristaglio, Jr., D.O., the former chief medical officer of HealthFair, in United States ex rel. Oristaglio v. Community Care Health Network, Inc., d/b/a Matrix Medical Network et al., No. 4:22-CV-00133-SDJ (E.D. Tex.). The settlements provide for Cahill to receive $7.3 million and Oristaglio to receive $3.6 million.
DOJ’s press release regarding the settlements can be found here. The Matrix settlement agreement can be found here, the HealthFair settlement agreement can be found here, and the Ekbatani settlement agreement can be found here.
Reporter, David Tassa, Los Angeles, + 213 443 4335, dtassa@kslaw.com