McDermott Will & Schulte, a global law firm

In late May 2026, the Office of Management and Budget (OMB) issued a proposed rule that would significantly revise the regulations governing federal financial assistance, including federal grant awards. The proposed rule would condition use of federal awards funds on authorized public purposes and prohibit use for activities viewed as unrelated to program goals or inconsistent with federal policy. Although framed as a broader effort to enhance transparency, accountability, and oversight of federal grantmaking, the proposal also reflects a continued federal policy focus on restricting the use of federal funds in connection with gender-affirming care, particularly for minors.

The proposal does not impose immediate changes. However, it strongly signals that federal agencies should take more coordinated and consequential action to align funding requirements with executive policy priorities. If finalized, the rule could have material implications for healthcare providers, academic medical centers, and other organizations that rely on federal funding to support clinical, research, and programmatic activities.

Providers and other stakeholders can submit comments on the proposed rule through July 13, 2026.

Government-wide applicability and a structural shift in grants regulation 

The proposed rule would apply across all federal financial assistance programs, including major funding streams such as National Institutes of Health grants. As a result, it would not operate as a program-specific restriction, but instead as a uniform baseline condition applicable to all federal awards issued after the rule’s effective date, if finalized.

More significantly, the proposal would convert OMB’s long-standing Uniform Guidance into a binding “Uniform Grants Regulation” with government-wide effect. Under this structure, OMB-imposed requirements would apply automatically across agencies, without the need for separate agency rulemaking. In practice, this would centralize grants policy and reduce variability across agencies while also expanding compliance exposure for recipients. The proposal clarifies that the new requirements would apply to the full life cycle of federal financial assistance, including program design and eligibility criteria; award conditions and funding restrictions; and post-award administration, monitoring, and auditing.

Proposed restrictions on the use of federal funds

The most significant provision for healthcare providers furnishing gender-affirming care is the proposed revision to 2 CFR § 200.300, which would impose explicit limitations on the use of federal funds. Under the proposal, recipients would be prohibited from using federal funds to “fund, promote, encourage, subsidize, or facilitate” certain categories of activity, including:

• Activities described as “gender ideology” (as defined by Executive Order 14168)
• Medical “transition” procedures for individuals under age 19
• Certain diversity, equity, and inclusion (DEI)-related practices that are deemed inconsistent with federal anti-discrimination laws

These requirements are framed as funding conditions rather than direct prohibitions on clinical care. However, the proposed restrictions would apply to all federal financial assistance, extending beyond reimbursement for services and reaching a broad range of grant-funded activities. The proposed rule emphasizes that federal funds must be used only for authorized public purposes and not for activities viewed as unrelated to program goals or inconsistent with federal policy. This broad requirement would have the effect of granting agencies greater discretion to assess and enforce compliance with these requirements.

Embedded compliance model and agency discretion

The proposed rule would not establish a standalone certification requirement. Instead, it would adopt an embedded compliance model, under which compliance obligations would be incorporated directly into award conditions and agency oversight processes. Under this approach, federal agencies would be required to evaluate, at the time of award and throughout the life of the grant, whether proposed and actual uses of funds:

• Align with congressional intent
• Serve authorized public purposes
• Avoid supporting activities inconsistent with federal policy or executive orders

Impact on gender-affirming care programs

Providers offering gender-affirming care to minors may face the most immediate exposure if the proposed rule is enacted. To the extent federal funds support such programs, whether through clinical services, training, or research, the rule would limit available funding. Because the restrictions would apply broadly to federal financial assistance, organizations would need to assess whether funds are used, directly or indirectly, in connection with these activities.

The proposed rule’s impact would extend beyond patient care into core operational functions. Federal funding commonly supports:

• Medical education and residency programs
• Community outreach and public health initiatives
• Clinical research and data collection
• Administrative and compliance infrastructure

To the extent these activities relate to gender-affirming care programs, providers may need to assess whether they could be viewed as “supporting” or “promoting” restricted activities under the proposed standard.

Increased oversight and enforcement

The proposed rule would expand federal agencies’ ability to monitor compliance and take enforcement action. Under the proposed framework:

• Agencies may impose additional conditions on awards
• Funding may be modified, suspended, or terminated for noncompliance
• Agencies may seek recovery of funds where requirements are not met

The proposal would also heighten expectations around internal controls, reporting, and documentation, which may increase audit exposure. The rule references the US Department of Justice’s (DOJ) July 2025 guidance on unlawful discrimination for federal funding recipients, which identifies a range of DEI-related practices that DOJ views as potentially violative of federal civil rights laws. While nonbinding, that guidance reflects DOJ’s enforcement posture and warns that such practices may result in the loss of federal funding. Its inclusion in the proposed rule suggests that agencies may rely on these interpretations when assessing compliance, including in the context of gender-affirming care programs that may be characterized as implicating broader civil rights or equity considerations.

Litigation landscape

The proposed rule emerged against a backdrop of ongoing litigation related to federal policies on gender-affirming care. Existing preliminary injunctions in federal cases have limited certain agency actions that directly condition or threaten funding tied to clinical practices. However, those injunctions are unlikely to directly bar implementation of the OMB rule if finalized, since the rule is framed as a condition on federal funding rather than a regulation of medical standards of care. Historically, courts have afforded the federal government broader authority in attaching conditions to the use of federal funds. That said, the distinction may not fully insulate the rule. If implemented in a way that effectively pressures providers to alter medically accepted standards of care, the rule could face future legal challenges, particularly on coercion or administrative law grounds.

Key takeaways

The proposed rule points toward a more centralized and enforcement-driven federal grants framework, with standardized requirements applied across agencies; expanded oversight throughout the full funding life cycle; and broader, more interpretive limits on how funds may be used. While the proposed rule does not require immediate operational changes, it signals that providers engaged in activities viewed as unrelated to program goals or inconsistent with federal policy are likely to face increased scrutiny and potential funding impacts if the rule is finalized. In anticipation, organizations that receive federal financial assistance may wish to begin reviewing how funds are deployed across programs, whether any activities could be viewed as supporting restricted categories, how grant-funded and non-grant-funded functions are structured, and whether existing compliance frameworks are sufficient for a more oversight-intensive environment.