The Eliminating Kickbacks in Recovery Act (EKRA), enacted in 2018 as part of the SUPPORT Act, established a criminal statute prohibiting payments for patient referrals related to recovery homes, clinical treatment facilities, and laboratories. EKRA mostly mirrors the Anti-Kickback Statute (AKS) but extends its reach to commercial health insurance as well as federal programs like Medicare and Medicaid. Despite limited regulations and slow enforcement, some guidance emerged in 2025, though significant questions remain unresolved.

National Fraud Takedown and EKRA

EKRA drew some attention but generally remained a secondary focus. That changed in 2025, when an increase in allegations and indictments for EKRA violations occurred. During the 2025 National Fraud Takedown, several cases involved alleged breaches of both EKRA and the AKS. Kimberly Mable Sims, owner of a laboratory company, Francine Sims Super, office manager at a substance abuse treatment facility in North Carolina, and Keke Komeko Johnson, the Compliance Officer, were all indicted. In addition to accusations about gift cards, it was claimed that the substance abuse clinic routinely sent orders to Sims’s lab, which then performed urine drug tests on its patients and billed Medicaid. Allegedly, employees at the treatment center received kickbacks from the lab, while profits from referred specimens were equally split among the office manager, lab owner, and a biller. Earlier in 2025, Sims admitted guilt for EKRA violations. On August 25, 2025, Johnson and Super also pleaded guilty to paying kickbacks, resulting in a six-year sentence for Super.

Ninth Circuit Clarifies EKRA

In July 2025, in United States v. Schena, No. 23-2989 (9th Cir. July 11, 2025), the Court of Appeals for the Ninth Circuit upheld Mark Schena’s conviction for violating EKRA. Schena, who owned a laboratory, had paid marketing intermediaries to encourage referrals for questionable allergy tests. During the original trial, there was disagreement between Schena and the Department of Justice (DOJ) over how EKRA should be interpreted, particularly regarding whether the district court had correctly applied EKRA in S&G Labs Hawaii, LLC v. Graves, No. 1:2019cv00310 (D. Haw. 2021), aff’d, No. 24-823 (9th Cir. Jul 11, 2025) (unpublished).

The Ninth Circuit panel considered two main issues: (1) whether marketing intermediaries were covered by 18 USC § 220(a)(2)(A); and (2) if payments to these intermediaries constituted “inducement” under EKRA. The court concluded that marketing intermediaries who interact with ordering providers can fall under EKRA, further clarifying that payments do not have to go directly to the provider to violate EKRA. Finally, the court addressed the confusion created by the district court’s  interpretation of EKRA was incorrect in S&G Labs Hawaii and realigned the Ninth Circuit’s reading of EKRA with other circuits’ approaches to the AKS.

Regarding what “to induce” a referral means, the Ninth Circuit found that simply paying percentage-based compensation is not automatically a violation of EKRA. There must be intent to improperly influence providers’ referrals through false or fraudulent means. However, the court did not define exactly which situations would show wrongful attempts to sway medical professionals’ decisions.

The case isn’t finished yet. Mark Schena has asked the United States Supreme Court to determine whether paying healthcare marketers a commission counts as “remuneration…to induce a referral” under EKRA. The Supreme Court has not yet decided whether it will hear the case.

Other Notable EKRA cases

A relator brought a False Claims Act case against a laboratory consortium of four interrelated companies (one investment firm and three executive), but the government declined to intervene.  The relator has proceeded with the case, and the amended complaint alleges violations of the False Claims Act based, in part, on violations of EKRA and the AKS. It is alleged that the laboratory consortium paid sales representatives based on the volume and profitability of laboratory testing specimens based on a percentage of its reimbursement. 

The laboratory consortium argued:

[U]nder Fifth Circuit precedent, Thompson’s allegations that defendants paid sales representatives volume- and profitability-based commissions is insufficient to plead a violation of the AKS and the EKRA, and Thompson must allege instead that the sales representatives improperly influenced the clinicians who sent samples to Apollo Labs and Arbor, such as by paying them a kickback or substituting their own judgment for that of the clinician.

U.S. ex. rel Thompson v. Apollo Path LLC, No. 3:20-cv-02917, Dkt. 77, at 8 (N.D. Tex. Mar. 5, 2025). The court agreed, relying on U.S. v. Marchetti¸ 96 F.4th 818(5th Cir. 2024), and stated:

In sum, a defendant’s payments to a third party to procure referrals from clinicians are made with the intent “to induce referrals” within the meaning of the AKS and the EKRA when there is evidence that the defendant intended for the third party to improperly influence the clinicians. Examples of improper influence include exploiting personal access and making the final decision about patient care.

Id. at 14. In April 2025, the Court dismissed both the federal and state law claims. Id., Dkt. 94 (Apr. 30, 2025).

Throughout 2025, there have been several indictments involving EKRA that have not necessarily involved laboratories but have been focused on substance abuse facilities, brokers, and marketing for sober homes and substance abuse facilities. A number of these actions are focused on California. See, e.g., United States v. Patton, No. 2:25-cr-00489 (C.D. Cal. June 17, 2025) (owner of a marketing company was indicted for allegedly referring patients with commercial health insurance to substance abuse treatment facilities); United States v. Mahoney, No. 8:21-cr-00183 (C.D. Cal. Mar. 21, 2025) (owner of addiction treatment facility sentenced to 41 months for violating EKRA) (appeal filed Mar. 2025); United States v. Simons, No. 3:25-cr-02444 (S.D. Cal. June 18, 2025) (CEO of multiple substance use disorder treatment facilities and sober homes was indicted for allegedly paying entities for marketing services).  Each of these focus on payment that varies based on referral quotas, a lesson that can be instructive for clinical laboratories navigating EKRA too. 

Conclusion

These recent developments in EKRA enforcement and judicial interpretation highlight the statute’s evolving scope and its increasing impact on laboratories, substance abuse facilities, and associated marketing practices.

  • New Jersey expanded its patient brokering act to revise the law to specifically address substance user disorder treatment facilities and clinical laboratories. (Approved P.L. 2025, c.121).
  • The Ninth Circuit clarified that EKRA can apply to payments made to sales representatives and that intent plays a critical role in determining whether such payments constitute improper inducement. However, Schena applied for certiorari at the Supreme Court.
  • Texas dismissed a False Claims Act focusing on the lack of allegations regarding improper influence.

Ultimately, the trajectory of recent cases signals that both regulators and courts are committed to upholding the integrity of clinical decision-making and preventing undue influence through financial incentives.

This post was co-authored by Paul Palma, legal intern at Robinson+Cole. Paul is not admitted to practice law.

The final quarter of 2025 saw continued enforcement actions against clinical labs and other related healthcare entities. The Office of Inspector General (OIG) and Department of Justice (DOJ) heavily focused on False Claims Act (FCA) violations, Anti-Kickback Statute (AKS) violations, conspiracies, and COVID-19 related fraud. Below are highlights of these enforcement actions.

Across Q4 2025, federal enforcement actions against clinical laboratories and related entities reflected consistent patterns of fraudulent genetic testing schemes, kickback arrangements, telemarketing‑driven referrals, and billing misconduct. Many cases involved medically unnecessary cancer genetic (CGx) and respiratory pathogen panel (RPP) testing, often ordered without patient contact, physician-patient relationships or proper clinical oversight. Enforcement also targeted laboratories that concealed ownership, shifted billing to evade scrutiny, or paid marketers, recruiters, and physicians to induce referrals. The DOJ and OIG continued to pursue individuals and entities that exploited Medicare beneficiaries—particularly older adults—through telemarketing campaigns, data harvesting, and fraudulent COVID‑19 test claims. Collectively, these actions underscore the government’s intensified focus on schemes that capitalize on vulnerable patient populations and exploit gaps in laboratory oversight. Enforcement agencies are also scrutinizing financial arrangements that mask kickbacks—whether framed as consulting fees, MSAs, or commission‑based compensation—as well as billing practices designed to maximize reimbursement through unbundling or duplicative claims

Case Highlights

  • On October 23, 2025, a New York doctor was sentenced to seven years in prison for participating in a scheme where he ordered CGx and other laboratory tests despite never treating, speaking to, or examining the patients in exchange for kickbacks. Specifically, he ordered CGx testing on Medicare beneficiaries who attended COVID-19 testing events at assisted living facilities, adult day care centers and retirement communities.
  • On October 23, 2025, a lab owner that operated several laboratories out of Louisiana and Texas was sentenced to ten years in prison for orchestrating a scheme in which he conspired with telemarketers and call centers who implemented aggressive campaigns to induce beneficiaries to receive CGx and cardiovascular genetic testing. The orders were then signed by purported telehealth physicians who did not consult with, treat, or follow up with the beneficiaries receiving the testing. The owner also shifted billing between laboratories to evade scrutiny from Medicare and concealed ownership and control of the laboratories.
  • On October 29, 2025, a clinical laboratory self-disclosed conduct and agreed to pay $85,000 for allegedly employing an excluded individual in violation of the Civil Monetary Penalties Law.
  • On November 13, 2025, the owners of a telemarketing company were sentenced for their roles in a CGx testing fraud scheme where they targeted and steered Medicare beneficiaries to labs where they would receive medically unnecessary testing. Additionally, during a pending criminal case for genetic testing fraud, one of the owners opened a clinical laboratory and disguised his ownership of the laboratory.
  • On November 17, 2025, an urgent care clinic agreed to pay $2.8 million to settle claims that they allegedly “unbundled” respiratory and urinary tract infection panel tests and billed for each individual component separately resulting in overbilling to federal health care programs.
  • On November 20, 2025, the owner of two clinical laboratories pleaded guilty to one count of wire fraud for a scheme in which he paid his co-conspirators kickbacks to obtain the Medicare numbers and identifiers of patients without their consent. The lab owner then used the information to submit Medicare claims for COVID-19 test kits which were sent to patients who had not requested them. The owner also persisted after patients called stating that they had not requested the test kits.
  • On November 20, 2025, a diagnostic laboratory agreed to pay $1.635 million to resolve allegations that the lab submitted claims for RPPs which were obtained through kickbacks or were medically unnecessary in violation of the FCA and AKS. More specifically, the government alleged that the lab entered into a Marketing Services Agreement (MSA) in which they paid a purported infection prevention company between $4,000 and $4,500 per facility per month for marketing and management services when, in reality, the MSA was a way to cover-up payments for laboratory referrals. Further, the laboratory allegedly combined RPPs with COVID-19 tests when facilities were only seeking COVID-19 tests.
  • On November 24, 2025, it was announced that a diagnostic laboratory agreed to pay over $9.6 million to resolve allegations that it violated the FCA and AKS by submitting claims for RPPs that were medically unnecessary or obtained through kickbacks and by paying commissions to sales and marketing representatives based on volume or value of lab referrals which were later billed to Medicare.
  • On December 2, 2025, a Georgia man was sentenced to 46 months in prison and ordered to pay $7.2 million in restitution for engaging in a scheme where he instructed recruiters to convince Medicare beneficiaries to accept medically unnecessary genetic testing. As part of the scheme, he created sham invoices documenting fabricated numbers of hours worked instead of the per-referral payments he received. As a result of the scheme, the man received $4.3 million in kickbacks and bribes.
  • On December 2, 2025, a man was sentenced to two years in prison for his role in a conspiracy to bill Medicare for COVID-19 tests and RPPs which were never ordered or performed.
  • On December 4, 2025, a clinical laboratory agreed to pay $758,000, plus additional amounts if certain financial contingencies occur, to resolve allegations that they violated the FCA and AKS by paying doctors and marketers illegal kickbacks which were disguised as consulting and medical director fees to induce laboratory testing referrals. In addition, the lab was also alleged to have paid independent contractors marketers’ commissions based on volume and value of referrals. This settlement also resolved an underlying lawsuit raised under the qui tam provision of the false claims act.
  • On December 5, 2025, two Illinois men were indicted in a superseding indictment for their alleged role in a scheme to defraud federal and private health insurers by submitting fraudulent claims for COVID-19 laboratory testing services which were never provided and for participating in a conspiracy to launder the fraudulent proceeds by transferring the funds between laboratories and other businesses under their control.

Takeaways

Clinical labs should take these enforcement actions as warnings. First, conduct internal audits of referral relationships to ensure compliance with the AKS, as kickbacks remain a top enforcement priority and continue to monitor the arrangements in practice. Second, strengthen billing oversight and implement internal controls to avoid FCA exposure, which continues to drive multimillion-dollar settlements. Third, screen employees and contractors against exclusion lists to avoid potential violations of the CMP law. Finally, stay alert to evolving enforcement trends, including scrutiny of genetic testing, telemarketing arrangements, and lingering COVID-related fraud. Proactive compliance is essential for mitigating risk.

The Q4 enforcement trends send a clear message that laboratory enforcement remains a top priority at the federal level. Now is the time for laboratories to review their compliance programs, oversight and monitoring practices and close any potential gaps.

Healthcare providers are currently facing yet another termination of Medicare telehealth flexibilities at the end of the day on January 30, 2026, unless Congress acts on proposals to further extend the COVID-era flexibilities for telehealth. If no legislative action is taken before January 30, 2026, the providers and Medicare patients who have depended on expanded telehealth options will encounter substantial limitations in access beginning January 31, 2026.  

As a reminder, in October-November 2025, in connection with the government shutdown, federal COVID-era telehealth flexibilities for Medicare beneficiaries expired, which led to significant billing challenges and restrictions in access for patients (which we previously discussed here). Those flexibilities were retroactively extended as part of the government funding bill passed in November 2025, through January 30, 2026. Health care providers, and their patients, are now in the same position of looking to Congress to act to further extend those flexibilities to protect continued access to telehealth services.

It remains to be seen whether Congress will be able to pass another extension and, if so, how long the extension may be. There has been at least one proposal passed in the House of Representatives that would extend the telehealth flexibilities through December 31, 2027, but it remains to be seen if that will be taken up by the Senate.

A summary of the existing telehealth waivers and their newly proposed expiration dates is included below.

Key Telehealth Provisions Proposed to be Extended

  • Geographic and Originating Site Flexibility:
    • Without another extension, beginning January 31, 2026, Medicare beneficiaries may only receive telehealth services in approved health care facilities in rural locations (outside of metropolitan statistical areas);
    • Note that the Social Security Act contains exceptions that would permit telehealth services at home (or other locations) for patients in specific circumstances approved by law or regulation, including patients being treated for: (1) symptoms of acute stroke; (2) substance use disorder; or (3) patients with mental health disorder; and (4) patients on home dialysis;
  • Expanded Practitioner Eligibility:
    • If the “cliff” is averted: Medicare patients would be allowed to receive care from approved Medicare-enrolled providers, which under the prior COVID-era waiver includes occupational therapists, physical therapists, speech-language pathologists, and audiologists;
    • If the “cliff” is not averted:  Medicare beneficiaries will lose access to telehealth services provided by PTs, Ots, SLPs, and audiologists, all of whom play a key role in rehabilitation;
  • Telehealth for FQHCs and RHCs:
    • If the “cliff” is averted: Federally qualified health centers (FQHCs) and rural health clinics (RHCs) would be allowed to continue providing telehealth services to patients in other locations;
  • Audio-Only Telehealth:
    • If the “cliff” is averted: Telehealth services could continue to be provided via audio-only communications systems;
    • If the “cliff” is not averted: Substantial limitation on coverage for audio-only services and providers must be technically capable of using audio-video technology;
  • In-Person Requirement for Mental Health Visits:
    • If the “cliff” is averted: Medicare patients may continue to receive mental health services from FQHCs and RHCs via telehealth;
    • If the “cliff” is averted: Medicare patients receiving services for the diagnosis, evaluation, or treatment of a mental health disorder may continue to do so without receiving in-person care;
      • If the “cliff” is not averted:  providers are required to furnish a Medicare-covered item to the beneficiary in-person at least six months prior to furnishing telehealth services. Additionally, the provider must furnish a Medicare-covered item in person at least once a year following each subsequent telehealth service. Note that the annual in-person follow-up requirement may be waived if the provider and beneficiary agree that the risks of receiving an in-person service outweigh the benefits; and
  • Telehealth for the Recertification of Hospice Care:
    • If the “cliff” is averted: Hospice physicians or nurse practitioners may continue having face-to-face encounters to recertify a patient’s eligibility to remain on hospice via telehealth.

With the expiration date for the existing telehealth waivers looming, health care organizations should prepare to comply with additional telehealth restrictions beginning on January 31, 2026, similar to the situation faced in October 2025. We will continue to closely monitor this issue and will provide additional updates as soon as they become available.

On January 14, 2026, Massachusetts Governor Maura Healey announced that the Division of Insurance (DOI) will be promulgating updates to its regulations with the intent of streamlining prior authorization practices for health insurance claims. According to the Governor, the DOI regulations “will reduce unnecessary delays and cut administrative burdens to make it easier, cheaper and faster for people to get the medications and care they need,” including by elimination of prior authorization requirements for routine and essential services.

The forthcoming regulations are likely to be issued by the DOI in the coming weeks and are expected to include:

  • Elimination of prior authorization requirements for routine and essential services, including for patients with diabetes related to any services, devices or drugs related to the chronic disease;
  • A 24-hour response timeframe for urgent prior authorization requests;
  • Continuity of care requirements for patients switching health plans, including honoring previously existing authorizations when a patient switches insurers;
  • Initiatives to increase transparency and reduce provider burden when determining if a prior authorization is necessary.

The announcement also included the establishment of a Health Care Affordability Working Group, composed of industry stakeholders, which will focus on identifying drivers of health care costs and issuing proposals to make health care more affordable in the commonwealth. These DOI regulations are just one of the anticipated legislative and regulatory initiatives in Massachusetts to address health care costs as the “health care industry spent $1.3 billion on administrative costs related to prior authorizations in 2023,” according to the Governor, citing a Council for Affordable Quality Healthcare report.

The forthcoming DOI regulations will be important to health care providers that participate in commercial or state administered health plans in Massachusetts and may lead to changes in existing prior authorization processes, including requiring updates to existing provider participation agreements. We will issue an update when the DOI regulations are released.  

The recent litigation concerning the government’s 340B Rebate Model Pilot Program (the Rebate Program), as further described below, took an unexpected turn as the federal government recently signaled that it intended to revise its approach to the Rebate Program. This change in strategy was previewed by the government in a letter filed with the Court on January 12, 2026—the deadline for briefing regarding the preliminary injunction—stating that the government was considering “returning the approvals challenged [in the lawsuit] to [the Health Resources and Services Administration] for reconsideration,” and that the parties “plan to dismiss the appeal in short order.” The government formally moved to dismiss its appeal on January 16, 2026, and the First Circuit dismissed the appeal on January 20, 2026.

By way of background, just three days before the Rebate Program was set to go into effect, a U.S. District Court issued a preliminary injunction blocking its implementation, which we previously wrote about here. The government swiftly appealed the preliminary injunction to the First Circuit, requesting an administrative stay of the District Court’s decision while the First Circuit deliberated on the preliminary injunction. The First Circuit declined to issue an administrative stay, finding that the federal government had “not carried its burden to justify a stay”—noting specifically that the government did not make a strong showing that it is likely to success on the merits and did not demonstrate that it would suffer irreparable injury should the Court decline to grant the stay. The Court agreed with the District Court’s findings that “the administrative record . . . is devoid of evidence that the federal government considered the hospitals’ significant reliance interests — a critical factor in the analysis of an arbitrary-and-capricious claim.” Absent the stay, the First Circuit requested further briefing on the appeal of the preliminary injunction.

As of this writing, the case will continue to move forward at the District Court level, as the parties have not yet submitted any filings to indicate otherwise, and the District Court’s preliminary injunction prohibiting implementation of the Rebate Program will remain in effect until that litigation is resolved. As discussed in our original post, under the 340B statute, the government can decide to use rebates, but may not bypass APA requirements when modifying the 340B program to implement those rebates. In issuing the preliminary injunction, the District Court indicated that, among other things, the government failed to provide a reasonable explanation for the costs and benefits of the program and the deviation from decades of industry reliance on upfront discounts. Therefore, if the government elects not to pursue reconsideration of the injunction in the First Circuit, the Rebate Pilot Program, as currently contemplated by the government, may not proceed until litigation at the District Court level concludes.

As noted by the District Court, the government would need to satisfy APA requirements to implement a rebate program under the 340B statute, including developing a full administrative record addressing the costs and benefits to the parties. However, it is unclear to what extent the government would incorporate commenters’ suggestions for managing 340B Covered Entities’ implementation costs, which include, for example, delaying the program’s start date to better equip Covered Entities to handle the increased administrative burden, implementing a dispute resolution mechanism that better protects 340B Covered Entities in the event that manufacturers fail to provide timely rebates, and limiting the scope of a future pilot program (as designed, the Rebate Program would apply to all 340B Covered Entities).

We will continue to monitor this litigation and developments concerning the Rebate Program.

On December 31, 2025, the federal Drug Enforcement Administration (DEA) extended current regulatory flexibilities related to tele-prescribing of controlled substances for another year. The DEA issued a fourth temporary extension (2026 Extension) of its pandemic-era telehealth flexibilities, which are now scheduled to end on December 31, 2026. The DEA explained that another extension was necessary “to prevent disruption of care and other problems” likely to arise if it ended the flexibilities before finalizing new tele-prescribing rules intended to appropriately “balance access to care with the necessary safeguards against diversion.”

A third temporary extension of the telehealth flexibilities related to tele-prescribing of controlled substances had been scheduled to expire on December 31, 2025 (see our analysis of that extension, and the previous rulemaking on this issue, here, here, and here). The DEA acknowledged the need to “prevent what has commonly been referred to as the “telemedicine cliff” that could jeopardize access to care, the “potential harms” of which have been emphasized by stakeholders to DEA.

Interestingly, the DEA also cited the recent “abrupt cessation of Medicare’s telemedicine flexibilities” as having a “negative impact” on patient access to care, in support of its decision to extend the tele-prescribing flexibilities once more.

The 2026 Extension temporary rule does not make any substantive changes to the tele-prescribing flexibilities, other than to extend their expiration date until December 31, 2026. As a reminder, the COVID-era tele-prescribing flexibilities, among other things, allow practitioners and patients to form new relationships involving the prescription of controlled substances via telemedicine (i.e., without an in-person medical evaluation), but continue to require that all such prescriptions be issued for a legitimate medical purpose by a DEA-registered practitioner acting in the usual course of professional practice, and be issued pursuant to an interactive audio-video telecommunications system (or audio-only for certain mental health and buprenorphine prescribing if the patient does not consent to video).

We will continue to monitor DEA rulemaking and guidance on tele-prescribing, and health care organizations would be well-advised to review their current telehealth and tele-prescribing practices in light of the extension to ensure continued compliant activities.

A clinical lab in Anderson, South Carolina, and its founder and CEO have agreed to pay a minimum of $6.8 million to settle a federal qui tam case based on allegations for paying illegal kickbacks to physicians in exchange for referrals of laboratory tests. Under the settlement agreement, this figure may increase to approximately $10.1 million if certain financial contingencies are triggered.

The Government alleged that from March 2018 to November 2021, the laboratory and its CEO offered inducements aimed at directing referrals for clinical lab services. As part of the investigation and settlement, the DOJ identified and alleged five distinct types of illegal kickbacks:

  1. Fraudulent Contracts: Payments disguised as office rental, phlebotomy services, or toxicology services and allegedly falsified payments, square footage and hours in certification forms;
  2. Hand-Delivered Money Orders: The CEO personally delivered money orders to referring physicians to mask their intent;
  3. Inflated Equipment Sale: Inflated payment was made to a physician practice for used lab equipment in late 2016 to generate referrals; and
  4. Free Services and Supplies: A pain management practice was provided with free drug-screening services and supplies, securing consistent test referrals.

The government focused on these kickbacks because the government claims it corrupted the impartiality of medical decision-making and improperly induced referrals, thereby violating the False Claims Act.

As we start 2026, this case is another demonstration of the DOJ’s ongoing focus on laboratories and other healthcare providers and executives. It also highlights the importance of thoroughly vetting and asking questions around any arrangements, particularly those related to office rental space and phlebotomists and whether one purpose is to induce referrals. With references to documentation in the case of “certifications” of compliance, this highlights the focus on the “commercial reasonableness” prong of the safe harbor and highlights that purported documentation alone is not sufficient. Overall, this enforcement action underscores the legal and financial risks of non‑compliant referral arrangements. It serves as a strong reminder for laboratories and healthcare organizations to carefully audit and document all arrangements to ensure they are commercially reasonable, properly disclosed, and compliant with federal regulations—both to protect patients and avoid significant penalties.

For a full overview, see the DOJ press release here.

On December 29, 2025—just three days before the 340B Rebate Model Pilot Program (the Rebate Program) was set to begin—the U.S. District Court for the District of Maine issued an order granting a preliminary injunction to block the government’s implementation of the Rebate Program on January 1, 2026, after determining that the Health Resources and Services Administration (HRSA) likely violated the Administrative Procedure Act (APA) during the Rebate Program’s rollout.

Background

Under the 340B Program, drug manufacturers are required to offer their products for sale to certain safety-net health care providers at a discounted price. Since the 340B Program was established, HRSA has required that the discounts be offered to providers as “upfront” price concessions. Safety-net providers often rely on savings achieved from the upfront discounts to support programs to ensure access for the vulnerable patient populations they serve. On July 31, 2025, HRSA announced the Rebate Program, which would permit an approved group of drug manufacturers to offer 340B drug price reductions in rebate form rather than as an upfront discount. The Rebate Program would require safety-net providers to pay the full market cost of the drug and then claim a rebate to realize the discount. HRSA in part contends that the Rebate Program is intended to “de-duplicate” price concessions that certain safety-net providers may obtain via the 340B Program and the Inflation Reduction Act’s Drug Price Negotiation Program. Although only nine drug manufacturers were approved to participate in the Rebate Program, and the Rebate Program covers ten drugs, those manufacturers would be permitted under the Rebate Program to implement the rebate model with respect to all 340B safety-net providers—meaning, all 340B safety-net providers would be required to pay full price and implement the rebate model with respect to the ten drugs. Importantly, the announcement of the Rebate Program appeared to be a reversal of the 340B Program’s prior use of upfront discounts since the 340B Program’s inception in 1992. In fact, late in 2024, HRSA sent violation letters regarding proposed rebate models to some of the very same drug manufacturers who were subsequently approved for participation in the Rebate Program.

Complaint

On December 1, 2025, the American Hospital Association (AHA), the Maine Hospital Association (MHA), and four safety-net providers (collectively, the Plaintiffs) sued the federal government, alleging in their complaint that the rollout of the Rebate Program bypassed the requirements of the APA. The Plaintiffs claimed that HRSA did not address the issues raised by affected stakeholders during the statutorily required comment period, instead going ahead with the implementation of the Rebate Program as planned. On that same day, the Plaintiffs urged the court to temporarily block the January 1 start date for the Rebate Program, citing the potential for “hundreds of millions of dollars in costs” to 340B Program participants as a result of the Rebate Program, as well as “inevitable disruptions to patient care.”

On December 10, 2025, several drug manufacturers, including AbbVie, AstraZeneca, Boehringer Ingelheim, Novo Nordisk, and the trade group Pharmaceutical Research and Manufacturers of America (PhRMA), moved to intervene in the suit as a matter of right, claiming the government could not adequately represent their interests in the case—namely, the potential for financial losses from duplicative discounts, as well as the government’s contrary position regarding 340B rebate models in other ongoing litigation. The Court, however, rejected the drug manufacturers’ bid to intervene in the case, noting that because the case (which consists of five alleged violations of the APA) “turns entirely” on the administrative record, the drug manufacturers would not feasibly be able to illuminate that record better than the government. Additionally, the Court stated that although the government does not itself face the financial implications alleged by the drug manufacturers, this does not inherently mean that the government cannot adequately represent the drug manufacturers’ interests.

Court’s Decision

In its decision to grant the preliminary injunction, the Court examined whether HRSA adhered to the APA’s arbitrary and capricious standard in its rollout of the Rebate Program. The Court explained that when a federal agency introduces new programs or policies impacting the rights and privileges of the public, those actions must be “reasonable and reasonably explained” in order to satisfy the arbitrary and capricious standard.

The Court noted that the Rebate Program represented a “departure from [HRSA’s] decades-long practice of requiring upfront discounts on 340B eligible drugs” and that the administrative record—which is central to the issue of whether HRSA violated the APA—was “rather threadbare.” The decision went on to conclude that the government “failed to follow the APA’s basic blueprint in assembling” the Rebate Program, thereby warranting a preliminary injunction to prevent its implementation nationwide.

The Court’s analysis centered on the following factors:

  1. Substantial Likelihood of Success on the Merits. The Court noted that there was a paucity of information in the administrative record. In reviewing what information was produced, the Court indicated that HRSA must stand by its reasoning at the time it decided to establish the Rebate Program rather than relying on post-hoc rationalizations or documentation from manufacturers—i.e., they must “do their own homework” vis-a-vis building an administrative record demonstrating the thought process behind the Rebate Program. The Court also found that HRSA failed to provide a reasonable explanation regarding the design of the Rebate Program, and that there was no evidence that HRSA weighed the Plaintiffs’ decades of industry reliance on the upfront discount model against the stated goals of the Rebate Program and approach favored by manufacturers, or evaluated Plaintiffs’ costs to float the full cost of the drugs until receiving the 340B rebate. Further, the Court found “fatal” the HRSA’s failure to consider the costs and benefits of the Rebate Program, as it was only now reviewing administrative costs of the Rebate Program.
  2. High Likelihood of Irreparable Harm. The Court concluded that Plaintiffs demonstrated irreparable harm if the Rebate Program were to be implemented, even without relying on “speculative concerns” about delays and denials of rebates for claims involving 340B drugs. Instead, the Court relied on Plaintiffs’ “estimate[d] $400 million in compliance costs, the downstream effect causing them to cut back services and suspend partnerships with drug distributors.”
  3. Balance of Equities/Public Interest. The Court found that there was strong public interest in preserving the status quo and the reach of 340B covered entities to provide critical medical services, particularly in light of the Court’s conclusion that Plaintiffs would likely succeed on the merits of their APA claims.

Implications and Next Steps

Importantly, the Rebate Program is not impermissible under this Order, and in fact, the government has discretion under the 340B Program to opt for 340B rebates. However, any Rebate Program imposed on the public as a final agency action must withstand the requirements of the APA. In this regard, the decision indicates a more fulsome administrative record would need to be established addressing the basis for the Rebate Program compared to the prior policy, its design, and how it weighed Plaintiffs’ reliance interests and administrative costs of compliance. Although the Court declined to weigh in on policy arguments related to what would be less costly alternatives, dispute resolution mechanisms for rebate models, and the use of the rebate database, these questions will also likely need to be addressed in any future iteration of the Rebate Program. Finally, the Court was clear that the preliminary injunction is not limited to the Plaintiffs, and that the Court was authorized to preliminarily enjoin the whole agency action on a national level.

The federal government immediately appealed the order to the First Circuit seeking an emergency stay of the preliminary injunction, and it remains to be seen whether that appeal will prove successful on such a short timeline, as the Rebate Program was to begin January 1, 2026. The drug companies have separately appealed the denials of their motions to intervene, the resolutions of which may impact the suit’s timeline and progression. We will continue to monitor the Rebate Program litigation and implications for 340B compliance.

On November 21, 2025, the Centers for Medicare & Medicaid Services (CMS) published the CY 2026 Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Final Rule (the Rule), which includes several significant changes to hospital price transparency regulations. The changes follow from Executive Order 14221, entitled “Making America Healthy Again by Empowering Patients with Clear, Accurate, and Actionable Healthcare Pricing Information,” which directs the Department of Health & Human Services (HHS) to take steps to require more uniform, accurate pricing information from hospitals. Key provisions of the Rule’s new requirements are summarized below. Although these new requirements become effective on January 1, 2026, CMS is delaying enforcement until April 1, 2026.

New MRF Data Reporting Requirements

Allowed Amounts

Currently, where a hospital’s standard charge is based on an algorithm or percentage, CMS requires hospitals to report an “estimated allowed amount” in their machine-readable file (MRF). The Rule removes this requirement and instead requires hospitals to report the following four elements:

  1. Median allowed amount (which replaces estimated allowed amount);
  2. The 10th percentile allowed amount;
  3. The 90th percentile allowed amount; and
  4. The number of allowed amounts used to calculate the prior three amounts.

The median allowed amount and the 10th– and 90th-percentile allowed amounts must be calculated based on amounts the hospital has historically received from a third-party payer (less certain contractual adjustments) over the 12 to 15 months prior to posting the MRF. If an allowed amount falls between two amounts, hospitals are required to report the higher amount. To calculate these data points, hospitals must use electronic data interchange (EDI) 835 electronic remittance advice (ERA), or an equivalent, alternative source of remittance data.

Hospital NPI

The Rule also adds a requirement that hospitals encode in their MRF their organizational (i.e., Type 2) National Provider Identifier or NPI.

Modification of MRF Attestation Statement

Current regulations require each hospital to attest to the accuracy and completeness of the information encoded in its MRF. Beginning January 1, 2026, the Rule replaces the existing affirmation statement with a new, strengthened requirement at 45 C.F.R. § 180.50(a)(3)(iii) (reproduced below).

To the best of its knowledge and belief, this hospital has included all applicable standard charge information in accordance with the requirements of 45 CFR 180.50, and the information encoded is true, accurate, and complete as of the date in the file. This hospital has included all payer-specific negotiated charges in dollars that can be expressed as a dollar amount. For payer-specific negotiated charges that cannot be expressed as a dollar amount in the machine-readable file or not knowable in advance, the hospital attests that the payer-specific negotiated charge is based on a contractual algorithm, percentage or formula that precludes the provision of a dollar amount and has provided all necessary information available to the hospital for the public to be able to derive the dollar amount, including, but not limited to, the specific fee schedule or components referenced in such percentage, algorithm or formula.

The Rule also adds a requirement that hospitals include with the attestation statement the name of the hospital’s CEO, president, or senior official designated to oversee the data encoding process for the MRF.

Changes to Civil Monetary Penalties

Finally, the Rule makes available a 35% reduction to Civil Monetary Penalties (CMP) imposed for certain violations of hospital price transparency requirements, which hospitals can request in exchange for the hospital waiving its right to an administrative hearing. However, the 35% reduction will not apply if the CMP is imposed due to the hospital failing to make its MRF or any shoppable services public.

Conclusion

Hospitals would be well advised to proactively assess their price transparency practices and update their processes and disclosures to align with the enhanced requirements of the new Rule.

The recent government shutdown caused multiple Medicare statutory payment provisions to lapse on October 1, 2025, due to the absence of Congressional action. With the passage of the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 (Pub. L. 119-37), (discussed here), Congress has retroactively restored many of these provisions. The looming question at the time of the passage was whether there would be retroactive payments. 

On November 21, 2025, Centers for Medicare and Medicaid Services (CMS) issued a Special Edition to clarify retroactive processing of claims.

Telehealth and Acute Hospital Care at Home Claims

  • On November 6, 2025, CMS instructed Medicare Administrative Contractors (MACs) to return certain telehealth claims submitted on or before November 10, 2025, that were previously non-payable after the lapse of statutory provisions. These claims are now payable if they meet all Medicare requirements.
  • Practitioners should resubmit returned claims and any held telehealth claims. Refund any beneficiary payments for services now retroactively covered. The prior instructions to append the “GY “modifier are rescinded.
  • Similarly, beginning November 10, 2025, MACs returned claims for the Acute Hospital Care at Home initiative for dates of service on or after October 1, 2025. Hospitals may resubmit these claims.

Next Steps for Providers
Facilities, practitioners, and suppliers should expect a return to normal processing operations soon.