Health Headlines – April 21, 2025

Ways and Means Committee Seeks Information Regarding OPO Activities

On April 16, 2025, the Committee on Ways and Means in the U.S. House of Representatives issued a letter to the public requesting information regarding Organ Procurement Organizations (OPOs)—the nonprofit, tax-exempt entities responsible for procuring and preserving transplantable organs and directing them to hospital transplant centers. The Committee’s inquiry follows public reporting, congressional investigations, and ongoing federal investigations that raise questions as to whether OPOs are operating in a manner consistent with the laws and regulations that govern such organizations and whether taxpayer funds are paying for activities that are outside these organizations’ tax-exempt purpose. The request for information seeks to solicit input from stakeholders and the public to more effectively evaluate the conduct of certain tax-exempt OPOs under Section 501(c)(3) of the Internal Revenue Code.

By statute, qualified OPOs must operate as nonprofit entities, and all fifty-five OPOs currently hold tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. OPOs also receive reimbursement from Medicare at 100% of cost for certain costs classified as allowable under program regulations.  Specifically, the Medicare program reimburses OPOs for the cost of procuring kidneys.  OPOs do not bill Medicare directly for organ procurement services related to kidneys. Instead, they are paid a standard acquisition charge from the transplant center (or other OPO) that acquires that kidney. The payment of the standard acquisition charge from the transplant center also serves as an interim payment to the OPO until the end of the cost year. At the end of the cost year, the OPO will submit its Medicare cost report to reconcile the interim payments and the OPO’s kidney-related costs. Any overpayments or underpayments relative to the kidney costs are settled and the Medicare contractor will either recoup or make a payment to the OPO.  In sum, Medicare will cover 100% of the OPO’s costs of procuring kidneys, but will not reimburse an OPO for more than its kidney procurement costs.

The Committee’s public letter states that it is aware of several reports and investigations alleging that certain OPOs are engaging in non-mission critical activities, seeking Medicare reimbursement for those activities, and misallocating financial resources in ways that undermine their core mission and harm patient care. The Committee purportedly seeks to ensure that taxpayer dollars allocated to organ transportation and donation services are not subject to waste, fraud, and abuse or otherwise directed to the private benefit of OPO executives and donors.

The Committee’s letter identifies the following wide-ranging questions related to OPO activities:

1. Are you aware of any OPOs that are reporting unallowable costs?
   1. For example, are you aware of any OPOs that have received Medicare reimbursement for organs that were sent to foreign countries?
2. Are you aware of OPOs that have used organ-transport jets for personal use?
   1. If so, are you aware if the OPO(s) included the trip(s) on their MCRs?
   2. If so, are you aware of whether the individual(s) who benefited from the use of the jet is affiliated with the organization?
   3. If so, are you aware of whether the individual(s) who benefited from the use of the jet paid a reasonable value for the use of the jet?
   4. If so, are you aware of whether the private use of the jet made the OPO(s) unable to properly deliver organs for transplant?
3. Do you have knowledge of OPOs that have used the organization’s assets to provide private benefit(s) to executive officers, employees, or donors?
   1. If so, are you aware of whether the OPO(s) included the use of the asset(s) on their MCRs?
   2. If so, are you aware of whether the individual(s) who benefited from the use of the asset(s) is affiliated with the organization?
   3. If so, are you aware of whether the individual(s) who benefited from the use of the asset(s) paid a reasonable value for the use of the asset(s)?
4. Does the private use of an asset controlled by a 501(c)(3) organization, such as an OPO, correlate to an excess benefit or excess benefit transaction under 26 U.S.C. § 4958?
5. Does the IRS sufficient authority to oversee and collect information from OPOs related to the use of assets for non-mission-critical activities?
6. Are you aware of any OPO that provides benefits to its executive officers that are unreported in the organization’s Form 990?
7. Are you aware of any OPOs whose CEO or other executives received reported income that would cause the OPO to be taxed under 26 U.S.C. § 4960?
   1. If so, does that income correlate to a well-run OPO? Does that CEO provide a reasonable benefit to the OPO to call for that specific salary?
8. Are you aware of the executive salary for tax-exempt organizations that are similarly situated to OPOs, with the same educational and experiential requirements?
9. Should the salary of an OPO executive officer be subject to the performance of the OPO as a whole?
   1. If so, is the CMS tier rating system for OPOs the appropriate metric for determining salary caps for OPO CEOs?
   2. If so, and if the CMS tier rating system for OPOs is insufficient, what recommendations can you provide related to what would be the appropriate metric to connect CEO salary to an OPO’s performance?
10. Are you aware of OPOs that are organized as 501(c)(3) tax-exempt entities that have made asset purchases or other transactions that would raise concern regarding their tax-exempt status?
11. Are you aware of OPOs that are organized as 501(c)(3) tax-exempt entities that have been approved for a merger by CMS, while failing to comply with the merger standards set by CMS, the requirements for OPO designation, or to enrich the organization, board members, or executives or otherwise operating outside of the purpose of their tax-exempt status?
12. Are you aware of OPOs that perform business dealings or activities that could be considered financial conflicts of interest?
    1. Specifically, do any of these financial conflicts of interests directly conflict with an OPOs standing goal to procure organs for patients in need?
    2. Are there any requirements in the IRC or federal tax regulations that prohibit tax-exempt organizations from taking part in activities that create financial conflicts of interest for the organization?
13. Are you aware of the business structure of OPOs that operate independent donor care units or organ recovery centers and whether those are separate entities that receive the OPO’s tax-exempt status?

Comments are due to the Committee by May 16, 2025.

The Committee’s letter is available here.

Reporter, Michael L. LaBattaglia, Washington, D.C., +1 202 626 5579, mlabattaglia@kslaw.com.

Second Circuit Holds No FCA Violation Where Defendant Relied on Favorable OIG Advisory Opinions 

On April 14, 2025, the Second Circuit issued a summary order holding that the relator failed to plead scienter, a necessary element under the Anti-Kickback Statute (AKS) and the False Claims Act (FCA), where the defendant company, an online platform that allows users to find healthcare providers and schedule appointments with them, sought and relied on two favorable OIG advisory opinions. The defendant sought two advisory opinions, and both opinions addressed the same facts as the relator alleged in the complaint. The Second Circuit reasoned that the defendant had not misled the OIG and implemented the at-issue structure in a manner consistent with the advisory opinions.

The defendant operates an online platform for patients to search providers and schedule appointments. The defendant’s platform charges providers an annual listing fee, as well as an additional fee for any new patient who books an appointment on the platform. The new patient fee varies based on provider specialty. Additionally, providers who do not pay the new patient fee or who have reached a monthly fee cap are subject to altered search rankings. All fees were assessed by a third-party fair market value assessor. The defendant described the fee structure and provider ranking process to the OIG in connection with two separate advisory opinions. OIG concluded that the proposed arrangements implicated the AKS but did not violate the statute and that favorable opinions were warranted because the arrangements presented low risks of fraud and abuse.

Relator, a New York doctor enrolled with the online platform, filed a qui tam complaint in the U.S. District Court for the Southern District of New York alleging the new patient booking fee was a “success fee” pushing federal healthcare program beneficiaries to medical providers willing to pay the fee over other providers who do not pay the new patient fee. Relator further alleged that the defendant was not wholly forthcoming with the OIG about the specific structure of the fees and provider listings. The court dismissed the relator’s complaint on a motion to dismiss, and the relator appealed to the Second Circuit.

The U.S. Court of Appeals for the Second Circuit upheld the district court’s opinion. The court rejected the relator’s theories and held the relator did “little more than apply conclusory labels to the exact practices and fees discussed by the OIG[.]” In light of the OIG’s advisory opinions, the court held the complaint failed to allege a factual basis for a strong inference of defendant’s fraudulent intent.

Notably, the Second Circuit issued its decision as a summary order, meaning that the decision will not have precedential effect. However, the decision may be cited as persuasive authority and is still strong support for any defendant facing an FCA action after receiving a supportive advisory opinion.

The Second Circuit summary order is available here.

Reporter, Alana Broe, Atlanta, +1 404 472 2720, abroe@kslaw.com.

CMS Will Likely Stop Funding Certain State Medicaid Programs

CMS announced this month that it does not anticipate using federal funds to match state funds for designated state health programs (DSHP) and designated state investment programs (DSIP) under its section 1115 demonstration authority. These programs are designed to support healthcare delivery system changes that are not usually covered by Medicaid. Upon review, CMS concluded that these programs operated without federal funds before being approved under CMS’s section 1115 demonstration authority. Based on this rationale, CMS has concluded that federal funds are not necessary and that these programs are not “integral components of section 1115 demonstration programs.”

CMS also noted that these programs would not have qualified for federal funding without receiving CMS’s approval under its section 1115 demonstration expenditure authority. Unlike other federal matching programs, the federal funds provided to these programs did not have to be tied to Medicaid beneficiary services but instead supported infrastructure and health delivery system transformations such as funding for high-speed internet and equipment for telehealth providers.

DSHP federal matching under CMS’s section 1115 demonstration expenditure authority began in 2005. In 2017, CMS told states that it would not approve new DSHP funding requests. Then, in 2021, CMS reversed course and began approving requests for DSIP matching programs that were state-funded but not eligible for federal funding. CMS also began approving DSHP federal funding requests with certain limitations, including restricting the scope of the DSHP funding, capping DSHP funding, placing time-limitations on federal matching, and requiring states to contribute funding to the programs.

In its latest announcement, CMS opines that these programs have become state financing programs because these programs already existed and were not being used “to test innovative approaches to promote the objectives of Medicaid.” Several of the initiatives that receive DSHP funding are health-related social need initiatives such as a New York program providing non-medical, in-home services, a grant for high-speed internet in rural North Carolina, and New York diversity in medicine initiative. These state programs will need to find other sources of funding once the federal matching program period sunsets.

The CMS announcement is available here.

Reporter, Taylor Whitten, Sacramento, +1 916 321 4815, twhitten@kslaw.com.

Executive Order to Deliver Lower Prescription Drug Prices

On April 15, 2025, President Trump issued an Executive Order (the EO) titled, “Lowering Drug Prices By Once Again Putting Americans First,” directing HHS to take action on a list of specific proposals with the goal of lower prescription drug costs for Americans. Notably for hospitals, the EO directs the Secretary to conduct a survey to determine the hospital acquisition costs of drugs at hospital outpatient departments and to propose regulations to ensure that Medicare payments do not drive drug administration volume away from physician offices to hospital outpatient departments.

One of the focuses of the EO includes plans to make changes to the Inflation Reduction Act, including seeking comments on the Medicare Drug Price Negotiation Program to improve its transparency and prioritize selection of prescription drugs with high costs to Medicare while trying to minimize negative impacts of imposing a maximum fair price on pharmaceutical innovation.  The EO also directs HHS to prepare, within one year, a rulemaking plan to create a payment model to improve the ability of the Medicare program to obtain better value for high-cost prescription drugs and biological products covered by Medicare (including those not subject to the Medicare Drug Price Negotiation Program).

Within ninety days of the EO, the Secretary of HHS is directed to take action to ensure grants under the Public Health Service Act Section 330(e) are conditioned on health centers establishing practices to make insulin and injectable epinephrine available at or below the discounted price under the 340B Prescription Drug Program to low-income individuals.  The EO also directs the Secretary to take steps, within ninety days, to streamline and improve the Importation Program under section 804 of the Federal Food, Drug, and Cosmetic Act to make it easier for states to obtain approval without sacrificing safety or quality.

The EO contains several directions to the Secretary that must be accomplished within 180 days of the EO, including to:

1. Publish in the Federal Register a plan to conduct a survey to determine the hospital acquisition cost for covered outpatient drugs at hospital outpatient departments with the purpose of making adjustments to Medicare payments;
2. Issue a report providing administrative and legislative recommendations to accelerate approval of generics, biosimilars, combination products, and second-in-class brand name medications; and improve the process through which prescription drugs can be reclassified as over-the-counter medications, including recommendations to better identify prescription drugs that can be safely provided to patients over the counter;
3. Propose regulations to ensure that payment within the Medicare program is not encouraging a shift in drug administration volume away from less costly physician office settings to more expensive hospital outpatient departments;
4. Propose regulations under ERISA to improve employer health plan fiduciary transparency into the direct and indirect compensation received by pharmacy benefit managers; and
5. Conduct joint public listening sessions, including individuals from the DOJ, FTC, and Department of Commerce, and then issue a report with recommendations to reduce anti-competitive behavior from pharmaceutical manufacturers.

The full text of the Executive Order, “Lowering Drug Prices By Once Again Putting Americans First,” is available here.

Reporter, Kasey Ashford, Washington D.C., +1 202 626 2906, kashford@kslaw.com.

Texas Bills Introduce New Requirements for Healthcare Transactions

On February 12, 2025, the Texas House of Representatives introduced Texas House Bill 2747 (H.B. 2747), which requires healthcare entities to submit written notice to the Texas attorney general ninety days prior to a material change transaction. On February 25, 2025, the Texas Senate introduced Texas Senate Bill 1595 (S.B. 1595), which requires certain healthcare entities to report ownership and control information, and establishes civil penalties and fees related to this process. If passed, both H.B. 2747 and S.B. 1595 are set to take effect on September 1, 2025.  

H.B. 2747 

The purpose of H.B. 2747 is to “promote competitive markets by strengthening the state’s ability to enforce laws and prevent anti-competitive behavior” and provides for civil penalties of up to $10,000 per violation for the failure to comply with the notice requirements.  

H.B. 2747 requires that healthcare entities (defined in both bills as “a healthcare provider, healthcare facility, provider organization, pharmacy benefit manager, or health carrier that offers a health benefit plan in th[e] state”) provide ninety days’ notice to the Texas attorney general prior to a material change transaction (defined in both bills as “a transaction that entails a material change to ownership, operations, or governance structure of a legal entity”). Additionally, H.B. 2747 authorizes the attorney general to conduct studies on health care markets and request documents and information from healthcare entities. An administrative penalty of up to $1,000 per day may be assessed for failing to provide the requested information within thirty days.  

S.B. 1595 

S.B. 1595 requires that healthcare entities follow certain reporting requirements to the secretary of state both annually and during a material change transaction. The reporting requirements outline the required information, including information relating to identification, ownership and control, organizational structure, affiliated facilities, and financial reports.  

The reporting requirement for a material change transaction only applies to material change transactions involving Texas healthcare entities with total assets and revenue of at least $10 million. This includes both in-state and out-of-state transactions and includes new entities that are anticipated to have at least $10 million in revenue. There are a few exemptions to this requirement, including where a healthcare entity is controlled by (or under common control with) all parties involved. The annual reporting requirement includes a few exemptions as well. 

S.B. 1595 also imposes penalties for failing to comply with reporting requirements. For entities with less than $10 million in annual revenue (with ten or fewer physicians and no third-party control), a penalty of up to $50,000 per violation could be imposed. A penalty of up to $500,000 per violation could be imposed for all other healthcare entities.  

Texas House Bill 2747 can be found here. Texas Senate Bill 1595 can be found here. 

Reporter, Lindsay Greenblatt, Los Angeles, +1 213 218 4032, lgreenblatt@kslaw.com.