Holland & Knight Health Dose: April 29, 2025

Looking Ahead: Congress Aims to Pass Reconciliation Bill by Memorial Day Amid Budget Savings and Funding Recissions

U.S. Congress returns from a two-week recess this week and has lofty goals to draft, mark up and pass a reconciliation bill by Memorial Day 2025. The U.S. House of Representatives Committee on Energy and Commerce, which was directed by the budget resolution to draft legislative language that identifies $880 billion in savings, is expected to mark up its section of the package as soon as the week of May 7, 2025. President Donald Trump is also expected to share, as soon as this week, a list of up to $9 billion in "recissions," federal funding the Trump Administration would like to pull back on spending.

Hearings This Week: Congressional Hearings and Bill Markups Focus on Veterans' Mental Health, Healthcare Legislation and Biomedical Research

The House Committee on Veterans' Affairs Subcommittee on Oversight and Investigations held a hearing on April 29, 2025, at 10 a.m. titled, "Answering the Call: Examining VA's Mental Health Policies." Several officials from the U.S. Department of Veterans' Affairs (VA) are expected to testify.

The U.S. Senate Committee on Veterans' Affairs held a hearing on April 29, 2025, at 10 a.m. titled, "Hearings to Examine Bridging the Gap, Focusing on Enhancing Outreach to Support Veterans' Mental Health."

The House Energy and Commerce Committee held a full committee markup of six bills on April 29, 2025, at 10 a.m., including:

• H.R. 2483, SUPPORT for Patients and Communities Reauthorization Act of 2025
• H.R. 1520, Charlotte Woodward Organ Transplant Discrimination Prevention Act
• H.R. 2319, Women and Lung Cancer Research and Preventive Services Act of 2025
• H.R. 1669, To Amend the Public Health Service Act to Reauthorize the Stop, Observe, Ask and Respond to Health and Wellness Training Program
• H.R. 1082, Shandra Eisenga Human Cell and Tissue Product Safety Act
• H.R. 2484, Seniors' Access to Critical Medications Act of 2025

The Senate Committee on Appropriations will hold a hearing on April 30, 2025, titled, "Biomedical Research: Keeping America's Edge in Innovation."

Week in Review: Federal Healthcare Workforce Reduction and Agency Actions During Congressional Recess

The House and Senate were both in recess for the past two weeks. However, additional actions to further reduce the size of the federal healthcare workforce were taken by the Trump Administration, as well as several other agency actions, which are summarized below.

Administrative Updates

Executive Order Updates

The Trump Administration has continued to release wide-ranging executive orders (EOs). For brief overviews of the numerous orders published by the Trump Administration, see our "Trump's 2025 Executive Orders: Updates and Summaries" tracking chart.

HHS Walks Back Autism Repository

Last week, U.S. Department of Health and Human Services (HHS) Secretary Robert F. Kennedy Jr. told reporters that the department would use electronic health records and artificial intelligence (AI) to more quickly find the root cause of autism than researchers have in the past. However, an HHS spokesperson walked some of Secretary Kennedy's comments back in stating that HHS is "not creating an autism registry." However, they will move forward with creating a real-world data platform, which will link to existing datasets to research into the causes of autism and treatments. The National Institutes of Health (NIH) is looking into opportunities to work with the Centers for Disease Control and Prevention (CDC), VA and U.S. Department of Defense (DOD) on a dataset. Members of the chronic and rare disease communities have expressed concern with the government pulling mass numbers of electronic medical record data and the implications for patient privacy and autonomy.

HHS Announces Actions to Phase Out Use of Food Additives

The HHS and the U.S. Food and Drug Administration (FDA) announced on April 22, 2025, their intent to phase out the use of certain food additives, including petrochemical-based dyes, from food and drug products in the U.S. by the end of 2026 and replace them with naturally derived alternatives. Removing food additives such as synthetic dyes from food and drug products in the U.S. has been a focus of Secretary Kennedy and is now a key pillar of the Trump Administration's Make America Healthy Again (MAHA) agenda.

Absent congressional action to implement meaningful changes to the FDA's statutory framework for overseeing additive ingredients, the FDA will likely seek to use the full extent of its regulatory capabilities to remove certain additives from food products and initiate changes to long-standing rules for when substances may be considered "generally recognized as safe" (GRAS). (See Holland & Knight's previous alert, "HHS Explores Stronger FDA Oversight for Food Ingredients," March 12, 2025.)

The six major actions the HHS will take to phase out the use of synthetic dyes from food and drug products in the U.S. include:

• establishing a transition timeline to phase out the use of petrochemical-based dyes
• initiating a process to revoke the authorization for the use of Citrus Red No. 2 and Orange B from products in the U.S.
• accelerating the review of naturally derived additive ingredients, specifically calcium phosphate, Galdieria extract blue, gardenia blue and butterfly pea flower extract
• eliminating the use of six other synthetic dyes by the end of 2026: Green No. 3, Red No. 40, Yellow No. 5, Yellow No. 6, Blue No. 1 and Blue No. 2
• initiating comprehensive research in coordination with the NIH on how food additives impact the health and development of children, potentially through creation of a new federal grant program
• requesting that food companies voluntarily remove Red Dye No. 3 from products earlier than the 2027-2028 deadline set by the Biden Administration's order revoking authorization for its use

Legislative Updates

Status of the Budget Resolution and Next Steps

The House passed a revised budget resolution by a vote of 216-214 on April 10, 2025. The Senate previously passed the same resolution following a series of overnight votes on the Senate floor. The budget resolution sought to bridge the divide between the Senate's and House's differing visions for reconciliation, ultimately settling on a path that allows both chambers to pass "one big, beautiful bill."

The budget resolution maintained the direction for the House Energy and Commerce Committee to identify $880 billion in savings within programs in its jurisdiction. The budget resolution also directed the Senate Committee on Health, Education, Labor and Pensions (HELP) and Senate Committee on Finance to identify $1 billion and $1.5 trillion in savings, respectively. Given the large gaps in spending targets that remain even after passage of the compromise budget resolution, the next several weeks will be critical for the Republican conference in the House and Senate to solidify their vision for savings and answer key questions such as how much spending to cut and where to cut from, and whether additional reductions above the $880 billion will be required based on the tax provisions included by other committees of jurisdiction.

Recently, 12 moderate Republican members of the House sent a letter to Speaker Mike Johnson (R-La.) and Energy and Commerce Committee Chair Brett Guthrie (R-Ky.) outlining their concerns with cutting Medicaid benefits for beneficiaries. It is possible that reductions in funding for Medicaid may ultimately be narrowly tailored to enhance program integrity and program eligibility, as well as implement work requirements for certain states, to ensure savings can be achieved without limiting beneficiary access to care.

Markups in committees will begin this week, with multiple committees planning to hold hearings on provisions that may be included in the reconciliation bill. Though the budget resolution provided a deadline of May 9, 2025, for committees to complete their work on their respective sections, the deadline is not binding and is likely to be missed. However, Speaker Johnson maintains his aim is to consider and pass the reconciliation bill by Memorial Day 2025.

Federal Hiring Freeze Extension and Removal of Certain Civil Service Protections

The White House announced on April 17, 2025, an extension of the federal hiring freeze through July 15, 2025. Additionally, the administration also announced a potential pathway to restore accountability to policy-influencing positions within the federal workforce through an EO published April 18, 2025. The EO referred to the U.S. Office of Personnel Management (OPM) proposed rule Improving Performance, Accountability and Responsiveness in the Civil Service, which, if finalized as proposed, would remove long-time civil service protections.

Ways and Means Committee Seeks Additional Information on Tax Status of Organ Procurement Organizations (OPOs)

The House Ways and Means Committee issued a request for information on April 16, 2025, regarding the tax status of OPOs, which are nonprofit entities that play a key role in the nation's organ donation and transplantation system. The request for information asks the public to submit comments regarding OPO operations, resources and the existing rules and regulations that govern them. The request highlights the nonprofit status of OPOs, indicating additional scrutiny of their tax structure may follow in the form of hearings before the Ways and Means Oversight Subcommittee or others.

HELP 340B Report Released

On April 24, 2025, the Majority Staff of the Senate HELP Committee released a report titled, "Congress Must Act to Bring Needed Reforms to the 340B Drug Pricing Program." The report builds on a multiyear effort led by Sen. Bill Cassidy (R-La.) to identify reforms to the 340B Drug Pricing Program, which requires drug manufacturers to provide discounted prices on certain drugs to hospitals, clinics and others that serve low-income patients. The investigation requested information from a sampling of program participants to gather information on how funding from the program was used to serve low-income patients. Covered entities such as health clinics and healthcare facilities, as well as pharmaceutical companies and pharmacies that participate in the program, were asked to provide requested information.

The report makes five recommendations for Congress to consider as it looks to potentially reform the program, though it is notable that none of the recommendations direct consideration of new requirements for pharmaceutical manufacturers:

• Requiring covered entities to provide detailed annual reporting on how 340B revenue is used to ensure direct savings for patients, providing a more transparent link between program savings and patient benefit
• Addressing potential logistical challenges caused by increased administrative complexity, leading to burdens that may impede patient benefit from the program
• Investigating the types of financial benefits contract pharmacies and Third-Party Administrators (TPAs) receive for administering the 340B Program to ensure that increasing fees do not disadvantage covered entities and patients
• Requiring transparency and data reporting for entities supporting participants in the 340B Program (i.e., contract pharmacies and TPAs)
• Providing clear guidelines to ensure that manufacturer discounts actually benefit 340B-eligible patients, including examining legislative changes to the definition of eligible patient and contract pharmacies' use of the inventory replenishment model

It is likely the report and the corresponding recommendations will lay the foundation for legislative activity later in 2025 and 2026.

AI Legislation Introduced To Establish Payment Pathway for AI Enabled Medical Devices

Sens. Mike Rounds (R-S.D.) and Martin Heinrich (D-N.M.), co-chairs of the Senate AI Caucus, introduced the Health Tech Investment Act on April 10, 2025. The legislation would amend the Social Security Act to include a "new technology ambulatory payment classification of algorithm-based healthcare services" and would require the HHS Secretary to modify the application process and criteria for such services. Further, the bill establishes a definition of algorithm based healthcare service. The legislation would codify payment for software as a service (SaaS) under the Hospital Outpatient Prospective Payment System (OPPS) per a previously codified as part of 2022 final rule.

Regulatory Updates

CMS Releases IPPS Proposed Rule

The Centers for Medicare & Medicaid Services (CMS) issued the proposed fiscal year (FY) 2026 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Acute Care Hospital (LTCH) Rule (CMS-1833-P) on April 11, 2025. CMS released a corresponding press release and fact sheet. The proposed rule includes a range of significant policy changes that are expected to affect hospital financial performance and administrative procedures starting Oct. 1, 2025. Stakeholder comments on the IPPS proposed rule are due no later than 5 p.m. ET on June 10, 2025. A final rule is expected around Aug. 1, 2025. (See Holland & Knight's previous alert, "CMS Releases Fiscal Year 2026 IPPS and LTCH Proposed Rule," April 24, 2025.)

MACPAC and MedPAC April Meetings

MACPAC April Meeting
The Medicaid and CHIP Payment and Access Commission (MACPAC) April Meeting held on April 10-11, 2025, covered various aspects of Medicaid, including key statistics and trends, demographic characteristics of enrollees, and enrollment and spending patterns. The meeting highlighted the continuous coverage requirement under the Families First Coronavirus Response Act (FFCRA), which led to higher growth in Medicaid enrollment. The Commission attested that Medicaid spending is largely driven by the disability and new adult group populations. The meeting also discussed the importance of Medicaid coverage for maternity care services and long-term services and supports (LTSS), with Medicaid being the largest single payer of maternity care services and LTSS. The coverage of behavioral health services was addressed, noting that these services are an optional benefit under Medicaid.

The meeting also included a panel on automation and AI. The panel discussed the potential of AI and automation to improve Medicaid services, streamline administrative processes and enhance patient care. Experts shared insights on the latest advancements in AI technology and its applications in healthcare, emphasizing the importance of ethical considerations and data privacy.

During the meeting, there was a favorable vote on the following four recommendations for the June Report to Congress:

• Recommendation 1.1: Congress should require that all states develop and implement a strategy for transitions from pediatric to adult care for children and youth with special healthcare needs, including but not limited to children enrolled in Medicaid through supplemental security income-related eligibility pathways and the Katie Beckett pathway for children with disabilities, those eligible for Medicaid under the Tax Equity and Fiscal Responsibility Act, and children who qualify to receive an institutional level of care. The strategy should address the development of an individualized transition of care plan and describe: 1) the entity responsible for developing and implementing the individualized transition of care plan, 2) the transition of care time frames, including the age when the individualized transition of care plan is developed, and 3) the process for making information about the state's strategy and beneficiary resources related to transitions of care publicly available.
• Recommendation 1.2: The HHS Secretary should direct CMS to issue guidance to states on existing authorities for covering transition of care services for children and youth with special healthcare needs, including but not limited to children enrolled in Medicaid through supplemental security income-related eligibility pathways and the Katie Beckett pathway for children with disabilities, those eligible for Medicaid under the Tax Equity and Fiscal Responsibility Act and children who qualify to receive an institutional level of care
• Recommendation 1.3: The HHS Secretary should direct CMS to require states to collect and report data to understand: 1) which beneficiaries are receiving services to transition from pediatric to adult care, 2) utilization of services that support transitions of care and 3) receipt of an individualized transition of care plan. Additionally, CMS should direct states to assess and report beneficiary and caregiver experience with transitions of care.
• Recommendation 1.4: The HHS Secretary should direct CMS to amend 42 CFR 431.615(d) to require that interagency agreements (IAAs) between state Medicaid and Title V agencies specify the roles and responsibilities of the agencies in supporting children and youth with special healthcare needs transitions from pediatric to adult care. The roles and responsibility of the state's Medicaid agency described in the IAA should reflect the agency's strategy for transitions of care.

MedPAC April Meeting
The Medicare Payment Advisory Commission (MedPAC) public meeting held on April 10-11, 2025, highlighted the comparable access to care for Medicare beneficiaries and privately insured individuals, noting that both groups report difficulties in finding new clinicians. According to the Commission, the number of medical school applicants has grown, and the number of clinicians billing the fee schedule has increased. However, the Medicare Economic Index (MEI) growth is projected to exceed fee schedule updates by a larger margin than in the past, which could negatively affect access to clinician care in the future.

The Commission also addressed concerns about the accuracy of relative payment rates, suggesting improvements in the allocation of work, practice expense and malpractice relative value units (RVUs). Additionally, the impact of Medicare Advantage (MA) on rural hospitals was explored, with discussions on prior authorization, denied claims and the financial stability of rural healthcare providers.

The following draft recommendations were voted upon favorably:

• Recommendation 1: Congress should replace the current law updates to the physician fee schedule with an annual update based on a portion of the growth in the MEI (such as MEI minus 1 percentage point).
• Recommendation 2: Congress should direct the HHS Secretary to improve the accuracy of Medicare's relative payment rates for clinician services by collecting and using timely data that reflects the costs of delivering care.

Report Finds China Leads In Biotechnology Advances, U.S. at Risk of Losing Competitive Edge

The National Security Commission on Emerging Biotechnology (NSCEB), established by the 2022 National Defense Authorization Act (NDAA), released its seminal report on April 9, 2025, regarding the status of the U.S. biotechnology industry. In its report, which was directed by statute, the NSCEB concludes that the U.S. is at risk of ceding its competitive advantages within biotechnology to China if the U.S. does not take significant action within the next three years. The NSCEB made several recommendations to ensure the U.S. biotechnology industry remains on the cutting edge of innovation, including:

• establish new entities such as a National Biotechnology Coordination Office or a single coordinating officer at relevant agencies to lead biotechnology policy
• improve existing programs meant to foster innovation within biotechnology such as the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, as well as create new programs to speed biotechnology getting to markets
• create a new public-private biopharmaceutical manufacturing center of excellence to develop and scale production of new medicines
• prohibit companies that work with HHS or national security agencies from using certain Chinese biotechnology companies deemed to be a national security threat

Department of Commerce Announces Section 232 Investigation into Pharmaceuticals

The U.S. Department of Commerce announced on April 14, 2025, that it had initiated, as of April 1, 2025, a Section 232 investigation under the Trade Expansion Act of 1962 to determine the effects on national security of imports of pharmaceuticals and pharmaceutical ingredients, including "finished drug products, medical countermeasures, critical inputs such as active pharmaceutical ingredients, and key starting materials, and derivative products of those items." The notice also requests public comments on several key areas, including:

• the current and projected demand for pharmaceuticals and pharmaceutical ingredients in the U.S.
• the extent to which domestic production of pharmaceuticals and pharmaceutical ingredients can meet domestic demand
• the role of foreign supply chains, particularly of major exporters, in meeting U.S. demand for pharmaceuticals and pharmaceutical ingredients
• the concentration of U.S. imports of pharmaceuticals and pharmaceutical ingredients from a small number of suppliers and the associated risks
• the impact of foreign government subsidies and predatory trade practices on U.S. pharmaceuticals industry competitiveness
• the economic impact of artificially suppressed prices of pharmaceuticals and pharmaceutical ingredients due to foreign unfair trade practices and state-sponsored overproduction
• the potential for export restrictions by foreign nations, including the ability of foreign nations to weaponize their control over pharmaceuticals supplies
• the feasibility of increasing domestic capacity for pharmaceuticals and pharmaceutical ingredients to reduce import reliance
• the impact of current trade policies on domestic production of pharmaceuticals and pharmaceutical ingredients and whether additional measures, including tariffs or quotas, are necessary to protect national security
• any other relevant factors

By law, the Commerce Department must complete investigations initiated under Section 232 and present the findings, as well as any recommendations, to President Trump within 270 days. President Trump has 90 days to determine whether to accept the findings. If President Trump chooses to accept the findings, he has 15 days to implement actions to adjust imports deemed to threaten national security. President Trump must also provide a written notice to Congress within 30 days regarding the actions to be taken.

Expect all steps – the completion of the report, presentation of the findings to President Trump and his determination – to be completed on an accelerated timeline, given President Trump's focus on enhancing domestic manufacturing and reducing U.S. reliance on foreign drug supply chains. Commerce Secretary Howard Lutnick previously said pharmaceutical tariffs would be announced "in the next month or two." President Trump similarly stated pharmaceutical tariffs would be announced "very shortly."

What products will remain exempt from tariffs and the number of tariffs imposed remain to be seen. Several large pharmaceutical companies have announced plans to expand their manufacturing and research footprints in the U.S., with some making sizable investments in states such as New Jersey, North Carolina and Massachusetts. Though the Trump Administration may look favorably upon these investments and potentially provide a lower tariff rate on certain pharmaceutical products, it is seemingly unlikely that entities will be fully exempted from tariffs over the long term. All entities within the drug supply chain are at risk of destabilization if and when tariffs are implemented on pharmaceutical products or ingredients.

Judicial Updates

Federal Court Vacates Part of CMS Minimum Nurse Staffing Rule

The U.S. District Court for the Northern District of Texas vacated part of CMS' rule to require a minimum nurse staffing for nursing homes on April 7, 2025. The provisions of the rule that were vacated include the requirement for a registered nurse to be on-site at a nursing facility 24/7 and the requirement that nursing home residents receive a set number of hours of care per day. The court found that, "CMS lacks authority to issue a regulation that replaces Congress's preferred minimum hours [eight consecutive hours of registered nurse time per day] with its own [24 hours per day]." On the same basis and with the same analysis, the court vacated the rule's Hours Per Resident Day (HPRD) requirement. Judge Matthew Kacsmaryk left the remainder of the final rule intact, the enhanced requirements for the facility assessment process (42 C.F.R. §483.71) and the payment transparency reporting requirement (42 C.F.R. §442.43). Several separate cases involving the staffing rule are pending before federal courts, indicating the matter may end up before the U.S. Supreme Court.

Update in Kennedy v. Braidwood Management Inc.

The Supreme Court heard oral arguments on April 22, 2025, in the case of Kennedy v. Braidwood Management, Inc., a case that may have implications for access to no-cost preventive services under the Affordable Care Act. While the justices seemed inclined to back the government's arguments that the membership structure of the U.S. Preventive Services Task Force (USPSTF) is constitutional, the justices on April 25, 2025, requested the government and the challengers to file new briefs with the court. The court specifically requested that the briefs focus on two previous Supreme Court decisions: the 1868 case United States v. Hartwell and the 1888 case United States v. Smith, both of which involved the question whether government officials were "officers of the United States."

The court is expected to issue a ruling in the case in June or July 2025.

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