Health Headlines – March 23, 2026

Court Strikes Down Kennedy Declaration that Restricted Transgender Care For Minors

On March 19, 2026, Judge Kasubhai of the U.S. District Court for the District of Oregon ruled from the bench granting Plaintiff States’ Motion for Summary Judgment and denying the Government’s Motion to Dismiss, announcing his intent to vacate the declaration issued by HHS Secretary Kennedy (the Kennedy Declaration). The Kennedy Declaration stated (1) that puberty blockers, cross-sex hormones, and surgeries are “neither safe nor effective” for treating gender dysphoria in minors and “therefore, fail to meet professional[ly] recognized standards of health care” and (2) that it superseded statewide or national standards of care. Judge Kasubhai issued his ruling at the close of nearly six hours of oral argument addressing the federal government’s authority to establish standards of medical care under the Medicare and Medicaid exclusion framework and the procedural requirements applicable to agency action of this nature.

As background, HHS Secretary Kennedy issued the Kennedy Declaration on December 18, 2025. Less than a week later, on December 23, 2025, a coalition of 19 Attorneys General and one Governor filed suit in the Oregon District Court alleging that the Kennedy Declaration violated the Administrative Procedure Act’s (APA) notice-and-comment requirements, exceeded the scope of HHS’s authority to establish professional standards, and was contrary to federal law that prohibited federal control over the practice of medicine. While the case was pending, HHS agreed to halt exclusion proceedings by HHS Office of Inspector General (OIG).

At oral argument, the court addressed the Government’s motion to dismiss and Plaintiff States’ motion for summary judgment. As a threshold matter, Judge Kasubhai determined that the Kennedy Declaration constitutes final agency action subject to judicial review, rejecting the Government’s argument that it is a non-binding expression of the Secretary’s personal opinion with no legal effect. The court found this conclusion compelled by the Kennedy Declaration’s plain language, including its express statement that it supersedes statewide or national standards of care, and by HHS’s referral of at least 17 medical providers to OIG citing the Kennedy Declaration as the basis for potential exclusion.

Turning to the merits, Judge Kasubhai granted summary judgment to Plaintiff States on three claims. First, the court agreed that the Kennedy Declaration is unlawful and must be set aside because it exceeds HHS’s statutory authority, as Congress has never delegated to the Secretary of HHS the power to establish standards of medical care that supersede existing professional or state standards. Second and third, the court agreed that the Kennedy Declaration constitutes a substantive change to the law that could only be adopted through notice-and-comment rulemaking (which the Declaration did not undergo) in violation of both 42 U.S.C. § 1395hh(a)(2) and the APA’s rulemaking requirements. Judge Kasubhai took under advisement Plaintiff States’ fourth claim that the Kennedy Declaration violates various provisions of the Medicaid Act, including its free choice of provider requirements, describing the claim as “two steps removed” from the more direct ultra vires, Medicare Act and APA grounds on which the court ruled, and finding it required additional analysis before a ruling could be issued.

As to relief, Judge Kasubhai stated he will vacate the Kennedy Declaration and will issue a declaratory judgment clarifying that the Secretary lacks authority to establish a superseding standard of care to exclude providers from federal healthcare programs on the basis of the type of services they provide. The court requested supplemental briefing within 14 days on the scope of Plaintiff States’ request to further enjoin Defendants from enforcing, implementing, or relying on the Kennedy Declaration or any materially similar instrument, noting that the existing standstill agreement provides a window approximately 30 days before OIG enforcement activity could recommence. Judge Kasubhai also instructed that Plaintiffs’ supplemental briefing must include a proposed judgment that includes proposed language for vacatur, declaratory relief, and injunctive relief. A formal written opinion setting forth the court’s full reasoning will follow.

Reporters, Ahsin Azim, Washington, D.C., +1 202 626 5516, aazim@kslaw.com, Taylor Whitten, Sacramento, +1 916 321 4815, twhitten@kslaw.com

Fourth Circuit Reverses Dismissal of False Claims Act Case Against Drug Manufacturer, Applying Supreme Court’s Subjective Scienter Standard

In a decision issued on March 13, 2026, and amended on March 19, 2026, the United States Court of Appeals for the Fourth Circuit reversed and remanded the dismissal of a qui tam False Claims Act (FCA) suit brought by a former pharmaceutical company employee against his former employer, Forest Laboratories, LLC (now Allergan Sales, LLC). In United States ex rel. Sheldon v. Allergan Sales, LLC, the Fourth Circuit held that the district court erred by dismissing the case because the relator, Troy Sheldon, had adequately alleged that Forest acted with reckless disregard in reporting its Medicaid “Best Price” (the lowest price available from a manufacturer to any purchaser) without aggregating rebates and discounts provided to multiple entities in the same drug distribution chain. The decision is notable as the first time the Fourth Circuit has applied the subjective scienter standard that the Supreme Court unanimously adopted in United States ex rel. Schutte v. SuperValu Inc., 598 U.S. 739 (2023).

The case centers on Forest’s obligations under the Medicaid Rebate Statute, which requires drug manufacturers to report their “Best Price” to CMS. Sheldon, who worked in managerial roles at Forest from the 1990s until his termination in 2014, alleged that Forest routinely “stacked” rebates, where it provided separate discounts to both a wholesaler and a downstream entity such as a pharmacy provider or group purchasing organization for the same drug dispensed to the same patient, but failed to aggregate those rebates when reporting its Best Price to CMS. The result, Sheldon alleged, was that Forest underpaid Medicaid by approximately $686.64 million over nearly a decade.

Prior to the Supreme Court’s Schutte decision, some courts, including the Fourth Circuit, applied an objective scienter standard under which a defendant could escape FCA liability by demonstrating that it acted pursuant to an objectively reasonable interpretation of the relevant statute or regulation. In Schutte, the Supreme Court rejected this approach, holding that the FCA’s scienter element is a subjective one that focuses on the defendant’s own knowledge and beliefs at the time the claim was submitted, not what a hypothetical reasonable person may have believed. In light of Schutte, the Supreme Court vacated and remanded Sheldon for reconsideration under the new standard. When the district court again dismissed the complaint, finding Sheldon’s scienter allegations insufficient under the subjective standard, the Fourth Circuit granted appeal.

On appeal, the Fourth Circuit held that Sheldon plausibly alleged that Forest acted with at least reckless disregard when it reported its Best Price without aggregating stacked rebates. The court pointed to three allegations as supporting an inference of subjective scienter. First, in response to CMS’s 2006 proposed rulemaking, Forest submitted a letter to the agency in which it interpreted the rule as requiring aggregation of rebates. Second, Forest conducted an internal audit to eliminate stacked rebates for most clients, except for a select group of preferred clients. Finally, Forest continued to report the Best Price without aggregation. Taken together, the court found these facts sufficient at the pleading stage to allege reckless disregard of a substantial risk that Forest’s reporting was false.

The dissent would have affirmed the district court’s dismissal on the ground that the unambiguous meaning of the statutory term “best price” does not require stacking rebates. Instead, the “best price” should be considered the lowest price offered by the manufacturer to a single purchaser. As a result, in the dissent’s view, Forest could not have submitted false claims by declining to aggregate rebates across multiple entities. The majority declined to resolve that question, leaving it for the district court to address in the first instance.

A copy of the Fourth Circuit opinion is available here.

Reporter: Marcia Foti, Washington, D.C., +1 202 626 9543, mfoti@kslaw.com

FTC Chairman Andrew Ferguson Announces New Healthcare Task Force to Tackle Anticompetitive Behavior and Consumer Harm

On March 20, 2026, Federal Trade Commission (FTC) Chairman Andrew N. Ferguson issued a directive establishing a new Healthcare Task Force. The directive, addressed to the heads of the FTC’s Bureau of Competition, Bureau of Consumer Protection, Bureau of Economics, Office of Policy Planning, and the Acting Chief Technology Officer, comes in the wake of a presidential executive order calling for a “more competitive, innovative, affordable, and higher quality healthcare system.” Chairman Ferguson emphasized that although healthcare constitutes roughly 18% of the nation’s GDP, he believes that consolidation and anticompetitive conduct have driven up prices, decreased quality, limited access and transparency, and stifled innovation across many healthcare markets.

The memorandum highlighted several recent victories as evidence of the FTC’s active healthcare enforcement agenda. Among them, the agency secured a landmark settlement with Express Scripts, Inc. (ESI), one of the nation’s largest pharmacy benefit managers, requiring fundamental changes to ESI’s business practices; the changes are expected to reduce patients’ out-of-pocket drug costs by up to $7 billion over ten years and bring millions of dollars in new revenue to community pharmacies. The FTC also successfully challenged the Edwards–JenaValve acquisition to preserve competition in the market for transcatheter aortic valve replacement devices and blocked the Alcon–Lensar merger involving laser systems used in cataract surgery. On the consumer protection side, the agency obtained $145 million in redress from companies alleged to have misled consumers seeking health insurance and took action against telehealth companies and substance-abuse facilities engaged in deceptive marketing practices.

The newly created Healthcare Task Force will be co-chaired by representatives from the Bureaus of Competition and Consumer Protection and will include at least three members from each Commission Bureau, along with representatives from the Office of Policy Planning, the Office of Technology, and the Office of General Counsel. The full Healthcare Task Force is required to meet at least monthly and report to the Chairman on a quarterly basis. Among its core responsibilities, the Healthcare Task Force will:

• Share knowledge, resources, third-party sources, market intelligence, case leads, and relationships with other agencies and stakeholders across all participating Bureaus and Offices.
• Identify and lead targeted enforcement and advocacy initiatives focused on key priorities within the healthcare space, in coordination with the Chairman’s office and the Bureau Front Offices.
• Devise coherent agency-wide strategies on new investigations.
• Institute a proactive and strategic approach to identifying amicus and statement of interest opportunities in healthcare-related litigation.
• Conduct ongoing horizon-scanning exercises to identify emerging issues and new priority areas for enforcement and advocacy.
• Seek to expand its membership to include agency and law enforcement partners with complementary expertise, including HHS and the Department of Justice, Antitrust Division (DOJ).

Notably, the Healthcare Task Force is charged with seeking to expand its membership to include agency and law enforcement partners with complementary expertise, including HHS and DOJ, which share jurisdiction with the FTC with respect to healthcare antitrust enforcement. The FTC has a long history of aggressive antitrust enforcement in the healthcare sector. What this recent action indicates, however, is the agency’s intention to leverage both its antitrust and consumer protection mandates, as it appears poised to take a more integrated and aggressive posture in addressing the full spectrum of competitive and consumer-protection challenges facing American patients, healthcare workers and taxpayers. Our healthcare and antitrust teams will be monitoring the work of the Healthcare Task Force and are available to address questions as they arise.

Reporter, Priya Sinha, Atlanta, GA, +1 404 572 3548, psinha@kslaw.com 

DOJ Announces Department-Wide Corporate Enforcement and Voluntary Self-Disclosure Policy

On March 10, 2026, the Department of Justice (DOJ or the Department) announced the first-ever Department-wide Corporate Enforcement and Voluntary Self-Disclosure Policy (the CEP), which applies to all corporate criminal matters handled by the Department, with the exception of antitrust cases. The CEP is designed to incentivize responsible corporate behavior by encouraging companies to voluntarily self-report potential misconduct, invest in effective compliance programs, meaningfully cooperate with law enforcement, and make good-faith efforts to rectify wrongdoing. Healthcare companies subject to DOJ criminal enforcement—including those facing potential False Claims Act criminal referrals, anti-kickback violations, or other federal healthcare fraud matters—will benefit from considering the CEP and its implications in making decisions regarding voluntary disclosure and cooperation.

Background

The CEP creates a tiered framework of incentives for companies that disclose misconduct to the Department. As explained by DOJ, “[t]he policy is designed to: (1) drive early, voluntary self-disclosure of criminal conduct; (2) promote timely and effective enforcement of criminal laws, including holding culpable individuals accountable; (3) reduce harm; (4) facilitate prompt remedial action, including requiring companies to compensate victims and address corporate deficiencies; (5) help ensure consistency across the Department; and (6) transparently describe the Department's policies and decision-making.”

While components of the DOJ, including the Criminal Division and individual U.S. Attorney’s offices, have had their own corporate enforcement policies, the CEP is the first Department-wide corporate enforcement policy and supersedes all component-specific or U.S. Attorney’s Office-specific corporate enforcement policies.

Part I: Declination under the CEP

Under Part I of the CEP, the Department will decline to prosecute a company for criminal conduct when the following factors are met:

1. The company voluntarily self-disclosed the misconduct to an appropriate Department criminal component;
2. The company fully cooperated with the Department's investigation;
3. The company timely and appropriately remediated the misconduct; and
4. There are no aggravating circumstances related to the nature and seriousness of the offense, egregiousness or pervasiveness of the misconduct within the company, severity of harm caused by the misconduct, or corporate recidivism, specifically, a criminal adjudication or resolution either within the last five years or otherwise based on similar misconduct.

For the purposes of the CEP, the Department defines voluntary self-disclosures as follows:

1. The company must make a good faith disclosure of the misconduct to the appropriate Department component;
2. The misconduct is not previously known to the Department;
3. The company had no preexisting obligation to disclose the misconduct to the Department;
4. The voluntary disclosure occurs “prior to an imminent threat of disclosure or government investigation,” U.S.S.G. § 8C2.5(g)(l); and
5. The company discloses the conduct to the Department within a reasonably prompt time after becoming aware of the misconduct, with the burden being on the company to demonstrate timeliness.

The requirement that a disclosure must be made to the appropriate Department component may be satisfied if a company discloses in good faith to another Department component and the matter is later brought to another appropriate component. The Department also has discretion to determine whether disclosures made to federal regulatory agencies, state and local government, or civil enforcement agencies qualify.

Notably, there is an exception to the requirement that the misconduct not be previously known to the Department when the Department becomes aware of the conduct due to a whistleblower submission.  If a whistleblower made an internal report and the company self-reports the conduct to the Department as soon as reasonably practicable, but no later than 120 days after receipt of the internal report, the exception may apply.

Even where aggravating circumstances exist, prosecutors retain discretion to recommend a CEP declination based on a weighing of the severity of those circumstances against the company’s voluntary self-disclosure, cooperation, and remediation.  As part of any declination, the company will be required to pay all disgorgement/forfeiture as well as restitution/victim compensation payments resulting from the misconduct at issue.  In addition, all declinations under the CEP will be made public.

Part II: “Near Miss” Voluntary Self-Disclosures or Aggravating Factors

Under Part II of the CEP, cooperating companies can still obtain more favorable treatment, including a Non-Prosecution Agreement (NPA), by cooperating and engaging in timely and appropriate remediation, even where a company is not eligible for declination under Part I of the CEP due to (1) a company’s self-report not qualifying as a voluntary self-disclosure, as defined by the CEP, or (2) the company having aggravating factors warranting a criminal resolution.

In such situations, the Department shall:

1. Provide a NPA – absent particularly egregious or multiple aggravating circumstances;
2. Allow a term length of fewer than three years;
3. Not require an independent compliance monitor; and
4. Provide a reduction of between 50% and 75% off the low end of the U.S. Sentencing Guidelines fine range.

Part III: Other Resolutions

Part III of the CEP provides that prosecutors maintain discretion to determine the appropriate resolution for companies not eligible for Parts I or II of the CEP, except that the Department will not recommend to a sentencing court a reduction of more than 50% off the low end of the U.S. Sentencing Guidelines fine range (the minimum reduction provided for by Part II).

Implications for Healthcare Companies

The CEP has meaningful implications for healthcare companies that discover potential criminal misconduct. Companies facing potential DOJ criminal exposure—whether in connection with federal healthcare fraud, kickback schemes, billing irregularities, or other criminal matters—should carefully consider whether prompt voluntary self-disclosure is warranted under the CEP framework, as the benefits of a declination or an NPA with a significant fine reduction can be substantial. Moreover, with the adoption of the CEP, the various components of the DOJ will be taking a more uniform approach in responding to these voluntary self-disclosures.

Reporter, Christopher C. Jew, Los Angeles, + 1 213 443 4336, cjew@kslaw.com.

Editors: Chris Kenny and Ahsin Azim

Issue Editors: Doug Comin and David Tassa