Notable cases and enforcement resolutions
NINTH CIRCUIT INVALIDATES CALIFORNIA DIALYSIS STATUTE
On April 7, 2026, the US Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a district court decision addressing the constitutionality of California Assembly Bill 290, which regulates financial relationships between dialysis providers and nonprofit charities offering premium assistance to dialysis patients.
The Ninth Circuit held that several core provisions of the law, including a reimbursement cap placed on providers who donate to such charities, violate the First Amendment because they impermissibly burden providers’ and charities’ associational rights. The Court concluded that although California identified legitimate state interests for maintaining the law, such as protecting insurance risk pools and preventing potentially abusive practices, the challenged provisions were overbroad and therefore could not survive the “exacting scrutiny” standard of review relied upon by courts in this and other similar cases. The Court also struck down requirements that applicable charities disclose patient identities to insurers and refrain from conditioning financial assistance on certain eligibility criteria.
Although the Court ruled that it was constitutional for California to require charities to inform patients of “all available health coverage options” on an annual basis, it ultimately concluded that this provision could not be severed from the rest of the statute and therefore invalidated it along with the law’s other provisions.
SIXTH CIRCUIT INVALIDATES TENNESSEE PBM LAW UNDER ERISA PREEMPTION
On April 7, 2026, the Court of Appeals for the Sixth Circuit affirmed a district court’s ruling that the Employee Retirement Income Security Act of 1974 (ERISA) preempts certain Tennessee laws regulating pharmacy benefit managers (PBMs).
The challenged state laws attempt to curtail PBMs’ efforts to steer patients to their own PBM-managed pharmacies by requiring PBMs to include any pharmacy “willing to accept the same terms and conditions” in their preferred and non-preferred networks and prohibiting PBMs from offering financial or other incentives to patients to influence their choice of pharmacy. The Court held that because these provisions interfere with employers’ ability to structure their self-funded plans in a particular way, govern central matters of plan administration, and interfere with nationally uniform plan administration requirements, they maintain an “impermissible connection” to ERISA and are therefore preempted.
FTC TARGETS HEALTH INSURANCE TELEMARKETING SCHEME
On April 15, 2026, the Federal Trade Commission (FTC) obtained a temporary restraining order halting a nationwide health insurance marketing operation, demonstrating that FTC enforcement remains a key risk area for healthcare-related business arrangements. According to the FTC’s complaint, several entities operated a telemarketing scheme that impersonated government agencies, insurance carriers, and state health insurance marketplaces to sell purported comprehensive health coverage that did not provide meaningful benefits.
The defendants allegedly marketed products as “state issued” low-cost preferred provider organization plans with no deductibles and broad coverage while offering limited discount programs and capped payouts that exposed consumers to significant out-of-pocket costs. Telemarketers allegedly used deceptive scripts, impersonated Medicaid and private insurers, and targeted both uninsured individuals and consumers with existing coverage, sometimes claiming that payment was required to maintain current insurance.
This action demonstrates that alongside US Department of Justice (DOJ) enforcement, the FTC continues to actively police deceptive marketing practices in the healthcare space, reinforcing the need to carefully assess representations and sales practices directed towards consumers.
INSURANCE BROKER, PARENT COMPANY PAY $135M+ TO RESOLVE ALLEGED FALSE CLAIMS IN ACA ENROLLMENT SCHEME
A Florida-based insurance brokerage and its former parent company, a national partnership of insurance brokers, agreed to a settlement of $135 million related to fraudulent enrollment practices involving subsidized Patient Protection and Affordable Care Act (ACA) health insurance plans. The insurance brokerage pleaded guilty to criminal charges and will pay more than $27.6 million in restitution for its role in the scheme. In a parallel civil resolution, the former parent company agreed to pay $107.3 million to resolve FCA allegations that the brokerage and its parent company submitted or caused to be submitted false claims for advance premium tax credits to the ACA health insurance exchanges.
The settlement resolves allegations that the brokerage targeted vulnerable individuals, such as those experiencing homelessness and substance abuse, to fraudulently enroll them into plans under the ACA by misrepresenting the individuals’ income and eligibility for federal subsidies. The brokerage admitted that it used “street marketers” to recruit these individuals, sometimes offering them cash or gift cards, then inflated individuals’ income information to ensure qualification for government subsidies and higher commissions from insurers. The brokerage also manipulated eligibility processes, including by submitting false information to Medicaid programs to generate denials that would trigger special ACA enrollment periods.
In addition to the alleged financial harm to the government, the brokerage’s conduct allegedly caused significant disruption to consumers’ healthcare coverage, with some individuals being unknowingly removed from Medicaid or other similar programs in favor of plans that imposed unaffordable costs or failed to cover necessary treatments. The former president of the brokerage was convicted at trial in November 2025 and sentenced to 20 years’ imprisonment.
PHARMACY EXECUTIVE SENTENCED FOR ROLE IN COMPOUNDED DRUG FRAUD SCHEME
A senior executive at a New Jersey-based mail order pharmacy was sentenced to 24 months in prison for his role in a $33 million healthcare fraud and kickback operation involving medically unnecessary compounded drugs billed to federal and commercial healthcare programs. From 2014 to 2016, the defendant orchestrated an arrangement in which marketing firms promoted lucrative compounded drug formulas to telemedicine companies and physicians, in exchange for which the marketing firms received kickbacks tied to prescription volume and reimbursement amounts. In addition to the prison sentence, the court ordered the defendant to forfeit $27 million illegally obtained through the scheme and pay an additional $33 million in restitution.
MEDICAL PRACTICE, PHYSICIAN RESOLVE ALLEGATIONS OF IMPROPER BILLING FOR DIAGNOSTIC TESTS
A Florida ophthalmology practice and its former owner agreed to pay $415,000 to resolve FCA allegations arising from improper billing for transcranial doppler tests reimbursed by Medicare and the Veterans Health Administration. The government alleged that from 2018 to 2020, the practice caused the submission of false claims for transcranial doppler tests that were not medically necessary and were improperly justified because the practice falsely indicated that patients suffered from a rare vascular condition. The government further alleged that the practice received per‑referral payments from an independent medical diagnostics company even though the parties’ contractual arrangement included compensation terms that were to be based on fair market value for rent and administrative services.
COMMUNITY HEALTH CENTER RESOLVES ALLEGATIONS OF IMPROPER BILLING FOR MEDICARE ANNUAL WELLNESS VISITS
A federally qualified health center (FQHC) operating six different clinic locations in Virginia agreed to pay more than $500,000 to resolve allegations that it submitted false claims for annual wellness visits provided to Medicare beneficiaries. The government alleged that for a three-year period, the FQHC billed for annual wellness visits furnished to patients by pharmacists without physician oversight or supervision. No physician was present physically or virtually, and the FQHC allegedly billed these visits under the names of physicians who were not involved in their delivery. This settlement appears to have been initiated by an OIG investigation.
PENNSYLVANIA PROVIDER PAYS $1.2M+ TO RESOLVE ALLEGATIONS THAT IT RELIED ON UNQUALIFIED DIRECT SUPPORT PROFESSIONALS
A Pennsylvania home- and community-based services provider agreed to pay more than $1.21 million to resolve FCA allegations that it submitted improper claims to Medicaid by knowingly allowing unqualified and insufficiently trained direct support professionals to provide one‑on‑one services to Medicaid beneficiaries in violation of program rules.
CMS regulatory updates
CMS RELEASES CY 2027 POLICY AND RATES FOR MA AND PART D
On April 2, 2026, CMS issued a final rule setting forth policy and technical changes to the Medicare Advantage (MA) and Part D programs for 2027 and beyond. Key takeaways include:
- CMS finalized its proposal to remove the EHO4all reward (also known as the Health Equity Index) from the 2027 star ratings and to continue applying the existing reward factor.
- CMS finalized provisions aimed at reducing existing regulatory requirements, including several focused on health equity. Examples include exempting account-based plans from creditable coverage disclosure requirements and rescinding the requirement for MA plans to send mid-year notices about unused supplemental benefits.
- CMS finalized several changes to rules governing marketing and communications, including reducing restrictions on beneficiary outreach and third-party marketing organizations and removing state health insurance programs as a recommended source of information for enrollment assistance. It also modified the requirement related to retention of marketing and sales calls.
- CMS finalized proposals to codify several changes to the Part D benefit design, as required by the Inflation Reduction Act of 2022, including elimination of the coverage gap phase and the annual out-of-pocket threshold, removing cost sharing for enrollees in the catastrophic phase, and implementing the Manufacturer Discount Program.
On April 6, 2026, CMS also released the final Announcement of Calendar Year (CY) 2027 MA Capitation Rates and Part C and Part D Payment Policies. The policies in this announcement are projected to result in a net average increase of 2.48% (more than $13 billion) in MA payments to plans in CY 2027. This compares with a projected net increase of 0.09% in the advance notice. CMS declined to finalize proposed changes to its Part C risk adjustment model that would have updated the underlying risk adjustment data to reflect more current costs. However, CMS finalized policies to exclude diagnosis information from “unlinked chart review records” (diagnosis information that is not associated with a specific beneficiary encounter) and diagnoses from audio-only encounters.
CMS RELEASES FY 2027 IPPS, LONG-TERM CARE HOSPITAL PROPOSED RULE
On April 10, 2026, CMS issued the fiscal year (FY) 2027 proposed rule for the Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital (LTCH) Prospective Payment System. CMS proposed a 2.4% increase in operating payment rates for general acute care hospitals paid under the IPPS that successfully participate in the Hospital Inpatient Quality Reporting Program and are meaningful electronic health record users. CMS also proposed a 2.4% increase in payments to LTCHs that submit quality reporting data.
CMS proposed to expand the Care for Joint Replacement (CJR) model nationwide and to refer to this new expanded model as Comprehensive Care for Joint Replacement Expanded (CJR-X). The CJR-X model is proposed to start October 1, 2027. Each acute care hospital that initiates lower extremity joint replacement episodes and is paid under either IPPS or the Outpatient Prospective Payment System would be required to participate, unless the hospital participates in the current Transforming Episode Accountability Model or is located in Maryland.
CMS also proposed narrowing the criteria for off-campus provider-based departments located more than 35 miles from the main provider. Under the Medicare provider-based regulation at 42 C.F.R. § 413.65, a facility or organization located more than 35 miles from the main provider may still qualify as “provider-based” if, among other requirements, it “serves the same patient population as the main provider.” To satisfy that requirement, the off-campus facility or organization must demonstrate that it meets at least one of two tests during rolling 12-month periods. Specifically, the facility or organization must demonstrate one of the following:
- “At least 75 percent of the patients served by the facility or organization reside in the same zip code areas as at least 75 percent of the patients served by the main provider.”
- “At least 75 percent of the patients served by the facility or organization who required the type of care furnished by the main provider received that care from that provider.”
CMS has proposed limiting the application of the latter test so that it would be available only to outpatient departments seeking provider-based status. This would limit the establishment of new off-campus inpatient departments more than 35 miles from the hospital’s main campus.
Comments are due on June 9, 2026. For additional information, consult the McDermott+ summary.
CMS RELEASES FY 2027 SNF PROPOSED RULE
On April 2, 2026, CMS issued a proposed rule containing changes and updates to the policies and payment rates used under the Skilled Nursing Facility (SNF) Prospective Payment System (PPS) for FY 2027. CMS proposed to increase SNF PPS rates in 2027 by 2.4%. It also proposed to refine the Patient-Driven Payment Model and shorten data submission deadlines for the SNF Quality Reporting Program.
CMS RELEASES FY 2027 INPATIENT REHABILITATION FACILITY AND INPATIENT PSYCHIATRIC FACILITY PROPOSED RULES
On April 2, 2026, CMS released a proposed rule to update the PPS for inpatient rehabilitation facilities for FY 2027 and another proposed rule to update the PPS for inpatient psychiatric facilities for FY 2027. CMS proposed to increase the PPS rate for the former by 2.4% and the latter by 2.3% for FY 2027.
CMS RELEASES FY 2027 HOSPICE PROPOSED RULE
On April 2, 2026, CMS released a proposed rule to update the hospice wage index, payment rates, and aggregate cap amount for FY 2027. CMS proposed to increase the hospice payment rate by 2.4%. It also proposed to introduce the service and spending variation index, which would use claims data to identify potential inappropriate utilization and other concerns. CMS proposed to make the hospice election statement addendum mandatory for all Medicare beneficiaries at the time of hospice election and add an icon to the Medicare.gov Care Compare Tool to flag hospice facilities that fail to meet hospice outcomes and patient evaluation reporting requirements.
CMS, ONC RELEASE PROPOSED RULE ON INTEROPERABILITY, PRIOR AUTHORIZATION FOR DRUGS
On April 10, 2026, CMS and the Office of the National Coordination for Health Information Technology (ONC) released a proposed rule setting out interoperability standards and electronic prior authorization requirements for drugs. This rule would impact MA organizations, Medicaid and Children’s Health Insurance Program programs, and qualified health plan issuers on the federally facilitated exchanges. The agencies proposed to require impacted payors to support electronic prior authorization, to make decisions on requests within shorter timeframes, and to increase transparency for the prior authorization of drugs. The agencies also proposed to require impacted payors to update health information technology standards and to report interoperability authorization application programming interface endpoints and usage metrics to CMS.
Comments are due on June 15, 2026.
OIG updates
OIG ISSUES FAVORABLE AO ON WAIVER OF COST-SHARING BY STATE-DESIGNATED DOMESTIC CRISIS PROVIDER
In Advisory Opinion (AO) 26-06, OIG analyzed a proposal by a state-designated domestic violence crisis provider to bill Medicare and Medicaid for therapy services while continuing its long-standing practice of not charging patients any cost-sharing amounts (e.g., copays or deductibles). Because routine waivers of cost-sharing can constitute remuneration to beneficiaries, the arrangement would implicate both the federal Anti-Kickback Statute (AKS) and the beneficiary inducement statute.
OIG issued a favorable opinion, emphasizing the unique, mission-driven context in which the services are furnished. The provider serves a highly vulnerable population, namely survivors of domestic violence, who often face significant financial, safety, and access barriers. The waiver of cost-sharing was not newly introduced to attract federally insured patients; rather, it reflected a preexisting policy of providing free services regardless of insurance status, and patients were not informed of the waiver as a marketing tool or inducement. The services were also clinically appropriate and not conditioned on the receipt of other reimbursable services, reducing concerns about overutilization.
OIG highlighted several risk-limiting safeguards supporting its conclusion:
- The absence of any link between the cost-sharing waiver and referrals or generation of other federal healthcare program business.
- No advertising or promotion of “free” services to influence patient choice.
- The provider’s narrow, specialized service line focused on crisis and recovery support rather than broad, revenue-generating care.
- The fact that many patients would be unable to access care at all without the waiver, supporting a legitimate access-to-care rationale.
OIG reiterated, however, that its approval is highly fact-specific and that routine or commercially motivated waivers of cost-sharing remain subject to OIG’s long-standing concern about blanket waivers and significant enforcement risk outside the narrow facts of the opinion.
OIG ISSUES FAVORABLE AO ON COST-SAVINGS-SHARING ARRANGEMENT BETWEEN MA ORGANIZATION, EMPLOYER GROUP WAIVER PLANS
In AO 26-07, OIG reviewed a proposal by an MA organization offering employer group waiver plans (EGWPs) to employers, trusts, and union groups (collectively, groups) pursuant to which the requester would share a set percentage of its cost savings with the groups (gainshare payment).
Under the proposed arrangement, the requestor would give the groups the opportunity to receive a gainshare payment. The requestor would enter into agreements with the groups to provide the groups’ enrollees with basic benefits under Medicare Parts A and B, and prescription drug coverage under Part D plans, if applicable. MA organizations offering EGWPs may negotiate with groups with respect to the scope of benefits and any additional premium amounts to be paid by either a group or its enrollees. Accordingly, the agreements between the requestor and the groups would also specify whether the plan would cover any supplemental benefits and whether there would be any additional premium amounts charged.
The contracts between the requestor and the groups would also include the conditions under which a group would be eligible to receive a gainshare payment. The gainshare payment would be determined based on a negotiated medical expense ratio (MER), which would be calculated by dividing certain expenses incurred by the requestor by certain revenues the MA organization received. Each group would negotiate its MER percentage and the terms that must be satisfied to receive the gainshare payment with the requestor. Such terms could include minimum enrollment numbers for the applicable plan year and any renewal requirements. If the final negotiated MER was below the target, then the requestor would pay the group the gainshare payment.
Any group that received a gainshare payment would be contractually obligated to use the payment to benefit enrollees. This could include funding enhanced or additional benefits or other group health-benefit-related expenses, such as administrative expenses, or other benefits not covered by the group plan, such as wellness or retiree support programs.
OIG concluded that the proposed arrangement would implicate the federal AKS because the requestor would offer remuneration (in the form of the gainshare payment) to the groups, which could induce the group to refer its enrollees to the requestor so that the requestor would arrange for the furnishing of items or services reimbursable by a federal healthcare program.
Because no safe harbor would apply, OIG analyzed the proposed arrangement under a facts and circumstances analysis and determined that the arrangement would pose a sufficiently low risk under the AKS. OIG concluded that while the arrangement could result in increased costs to federal healthcare programs or steering concerns, the arrangement nonetheless presented sufficiently low risk for OIG to issue a favorable opinion. OIG noted that costs to federal healthcare programs could increase if the costs associated with the EGWPs were higher than those associated with Medicare fee-for-service, but that such increase would be attributable to program design, not the proposed arrangement. The gainshare payment or the calculations used to arrive at the gainshare payment would not impact the amounts CMS paid to the requestor for the groups’ EGWPs.
OIG also noted that the proposed arrangement would present a risk of patient steering because groups would be given the opportunity to receive a gainshare payment, creating an incentive to choose a particular plan that would arrange for federally reimbursable items and services for its enrollees. However, gainshare payments would not be guaranteed and would not be made if the plan performed as actuarially predicted. OIG also highlighted that any gainshare payment would be used to benefit enrollees. OIG further noted that CMS permits MA organizations to negotiate supplemental benefits and the total cost of EGWPs for groups and their enrollees. OIG determined that the offer and receipt of any potential gainshare payment would be an element of the negotiation between the parties and would be used for the benefit of enrollees. Based on these features, OIG concluded that it would not impose administrative sanctions on the requestor with respect to the proposed arrangement under the civil monetary penalties provision at Section 1128A(a)(7) of the Social Security Act or under OIG’s exclusion authority at Section 1128(b)(7).
The requirement that the groups use the gainshare payment to benefit enrollees appears to have been a significant factor in this favorable AO. In AO 24-08, OIG rendered an unfavorable opinion on a similar arrangement that did not include any restrictions on the use of the proposed gainshare payment.
OIG REVISES FAQS ON CERTAIN FRAUD AND ABUSE AUTHORITIES
On April 23, 2026, OIG made two updates to its General Questions Regarding Certain Fraud and Abuse Authorities page.
First, OIG supplemented and expanded FAQ 4 related to financial arrangements that satisfy an exception under the physician self-referral law (Stark Law). OIG elaborated on the relationship between the Stark Law and the AKS and emphasized that Stark Law exceptions and AKS exceptions are different, even when the exceptions have “similar titles, use similar terms, or include similar conditions.” The revised narrative also includes a new example to illustrate how a financial arrangement that satisfies a Stark Law exception could nonetheless violate the AKS. Specifically, entities that furnish designated health services may furnish tickets to sporting events and other entertainment to physician referral sources. Although these arrangements may be protected under various Stark Law exceptions, OIG cautioned that this would be “unlikely to receive protection under any safe harbor” under the AKS.
Second, OIG added a new FAQ 17 regarding whether “fair market value arrangements” can violate the AKS. The FAQ discusses how an arrangement may violate the federal AKS even where it involves remuneration consistent with fair market value. OIG cautioned that there may be unlawful remuneration under the AKS even where the remuneration offered, paid, solicited, or received in the arrangement is consistent with fair market value. OIG cited to the statutory language, regulatory safe harbors, and both recent and dated OIG guidance in support of this position.
Other notable developments
OIG EXAMINES CMS OVERSIGHT OF COMPOUNDED DRUGS PRESCRIBED TO MEDICARE BENEFICIARIES
OIG issued a report reviewing CMS’s oversight of compounded drugs prescribed to Medicare Part D beneficiaries and recommending actions that CMS could take to strengthen its monitoring efforts.
OIG’s audit found that CMS obtains incomplete data from Part D sponsors on what ingredients comprise compounded drug products and otherwise fails to review these ingredients, limiting its ability to perform effective oversight of Part D sponsors and identify potential medication errors or overutilization. For example, OIG identified instances in which US Food and Drug Administration (FDA)‑approved injectable drugs were incorrectly reported as compounded drugs, patients received compounded drugs containing gabapentin while also receiving separate prescriptions for brand name versions of gabapentin, and compounded drugs included controlled substances that were not reflected on CMS’s data systems.
As a result of its findings, OIG issued three recommendations to CMS, each of which CMS concurred with:
- That CMS work with Part D sponsors, as appropriate, to ensure sponsors’ claims for Part D compounded drugs are accurately reported on prescription drug event records consistent with CMS guidance.
- That CMS provide guidance to Part D sponsors on enhancing their oversight of compounded drugs containing controlled substances and gabapentin, such as ensuring that their quality assurance programs monitor full ingredient lists for compounded drugs.
- That CMS provide guidance to sponsors regarding monitoring active pharmaceutical ingredients in bulk powder form used in compounded drugs.
OIG AUDIT IDENTIFIES IMPROPER PAYMENTS FOR VIRTUAL CHECK-IN AND E-VISIT SERVICES
OIG conducted a data-driven audit of Medicare payments for virtual check-in and e visit services and identified about $2.3 million in potential improper payments for the period between January 1, 2019, and December 31, 2022. As background, beginning in 2019, CMS established separate payment for providers who furnish virtual check-in and e-visit services to patients. These services allow providers to receive reimbursement for communications with patients made through online patient portals, by telephone, or via other communication technology modalities.
OIG identified these potentially improper payments by identifying payments for virtual check-ins and e-visits billed within seven days of evaluation and management services with the same diagnosis. OIG also highlighted the use of modifiers on evaluation and management claim lines that were billed close in time to virtual check-ins and e-visits, which may have been billed inappropriately to circumvent claim edits. OIG did not actually review medical records associated with the reviewed claims data.
OIG issued three recommendations to CMS:
- Develop claims system billing edits for billing communication-technology-based services.
- Strengthen the code descriptions for virtual check-ins.
- Further educate providers on the proper billing requirements for virtual and e-visit services.
CMS agreed with OIG’s recommendations for claims system edits and for additional provider education related to virtual check-in and e-visit services. CMS did not agree with OIG’s suggestion to modify the HCPCS code descriptions for these services but indicated that subregulatory guidance would potentially be more appropriate to further educate providers on appropriate billing for these services.
OIG ANNOUNCES INTENT TO EVALUATE FDA’S EFFORTS TO OVERSEE GLP-1 DRUG COMPOUNDING
On April 15, 2026, OIG announced its plan to assess FDA’s efforts to oversee the compounding of GLP-1 drugs, including the extent to which FDA inspects compounders and leverages available data to identify and address potential risks. OIG’s estimated completion date is FY 2028.
