Health Law Advisor

Those in the tech world and in medicine alike see potential in the use of AI chatbots to support mental health—especially when human support is unavailable, or therapy is unwanted. Others, however, see the risks—especially when chatbots designed for entertainment purposes can disguise themselves as therapists.

So far, some lawmakers agree with the latter. In April, U.S. Senators Peter Welch (D-Vt.) and Alex Padilla (D-Calif.) sent letters to the CEOs of three leading artificial intelligence (AI) chatbot companies asking them to outline, in writing, the steps they are taking to ensure that the human interactions with these AI tools “are not compromising the mental health and safety of minors and their loved ones.”

The concern was real: in October 2024, a Florida parent filed a wrongful death lawsuit in federal district court, alleging that her son committed suicide with a family member’s gun after interacting with an AI chatbot that enabled users to interact with “conversational AI agents, or ‘characters.’” The boy’s mental health allegedly declined to the point where his primary relationships “were with the AI bots which Defendants worked hard to convince him were real people.”

On May 2, 2025, the National Science Foundation (“NSF”) issued a “Policy Notice: Implementation of Standard 15% Indirect Cost Rate” (NSF 25-034) (hereinafter “Policy Notice”) adopting a uniform 15% Indirect Cost Rate (“IDC”) for all new NSF grants and cooperative agreements awarded to Institutions of Higher Education (“IHEs”). The Policy Notice, which became effective May 5, 2025, sets forth a new policy by which NSF will now apply a single, standard IDC “not to exceed 15%” to all future grants and cooperative agreements awarded to IHEs for allowable indirect costs. Currently, IHEs have reported IDCs ranging from 50% to 65%. The Policy Notice allows the awardee organization to “determine the appropriate rate up to this [15%] limit.”

Rationale for the New Policy

Indirect costs, also referred to as “facilities” and “administrative” costs (“F&A”), encompass costs not directly assignable to a specific project or activity but necessary to support the overall research infrastructure of the recipient organization. Historically, awardees seeking to recover indirect costs related to NSF awards have negotiated IDCs on an institution-by-institution basis. These rates were included in Negotiated Indirect Cost Rate Agreements (“NICRAs”), binding upon the institution and the agency, and applied against the Modified Total Direct Costs (“MTDC”) for the project. In contrast to the new uniform 15% rate, NICRAs represent a formally negotiated rate based on an exchange of information with NSF concerning the institution’s general costs and expenditures, including historical cost information, and regularly updated by the institution, often annually. 

On May 12, 2025, the U.S. Department of Justice’s Criminal Division released a new guidance memo on white-collar enforcement priorities in the Trump Administration entitled “Focus, Fairness, and Efficiency in the Fight Against White-Collar Crime.” In this memo, and the accompanying speech by Matthew R. Galeotti, the Trump  Administration’s appointed Head of the Criminal Division, the DOJ reiterated its previously stated commitment to prosecuting illegal immigration, drug cartels, and transnational criminal organizations. For the first time in the new Administration, however, the DOJ clearly articulated new white-collar enforcement priorities, directing Criminal Division white-collar prosecutors to follow three core tenets: focus, fairness, and efficiency. As detailed below, the new memo sets forth the following three priorities:

1. Focus on High-Impact Waste, Fraud, and Abuse Harming Vulnerable Taxpayers

It should be no surprise that the administration is targeting actors that profit through “waste, fraud, and abuse.” The memo sets clear priorities for its prosecutors to investigate, listing as the #1 priority health care fraud and federal program and procurement fraud.  The memo goes on to provide a top 10 list of “high-impact areas”, with “trade and customs fraud, including tariff evasion” as #2.  Heavy focus is given to fraud perpetrated by foreign actors and conduct threatening U.S. national security. Also listed is fraud victimizing U.S. investors, including elder fraud and Ponzi schemes. Appearing as #8 on the list is violations of the Controlled Substances Act and the Federal Food, Drug and Cosmetic Act, including the creation of counterfeit pills laced with fentanyl and the “unlawful distribution of opioids by medical professionals and companies.”

On May 9, 2025, the Departments of Labor, Health and Human Services, and Treasury (collectively, “the Departments”) asked the D.C. federal court to suspend litigation while they consider whether to rescind or modify the 2024 Rule implementing the Mental Health Parity and Addiction Equity Act (MHPAEA). As part of the request, the Departments indicated that they will suspend enforcement of the 2024 Rule.

The 2024 Rule was issued to implement revisions to the MHPAEA statute that were passed as part of the Consolidated Appropriations Act of 2021 (“CAA”) to add specific requirements for the development and enforcement of comparative analyses for non-quantitative treatment limits (“NQTLs”). The Departments’ enforcement suspension was announced as a part of a motion to hold in abeyance a legal challenge to the statutory basis for the 2024 Rule that was filed by the ERISA Industry Committee (“ERIC”) on January 17, 2025.

On May 17, 2024, Colorado Governor Jared Polis signed Colorado’s historic artificial intelligence (AI) consumer protection bill, SB 24-205, colloquially known as “Colorado’s AI Act” (“CAIA”), into law. As we noted at the time, CAIA aims to prevent algorithmic discrimination in AI decision-making that affects “consequential decisions”—including those with a material, legal, or similarly significant effect with respect to health care services and employment decision-making. The bill is scheduled to take effect February 1, 2026.

The same day he signed CAIA, however, Governor Polis addressed a “signing statement” letter to Colorado’s General Assembly articulating his reservations. He urged sponsors, stakeholders, industry leaders, and more to “fine tune” the measure over the next two years to sufficiently protect technology, competition, and innovation in the state.

As the local and national political climate steers toward a less restrictive AI policy, Governor Polis drafted another letter to the Colorado legislature. On May 5, 2025, Polis—along with Attorney General Phil Weiser, Denver Mayor Mike Johnston, and others—requested that CAIA’s effective date be delayed until January 2027.

The U.S. Court of Appeals for the Eleventh Circuit has concluded that a successful False Claims Act (FCA) claim should “allege not just a scheme, but a scheme that actually led to false claims being submitted to the government”—and must do so with particularity.

This heightened pleading standard cost the qui tam relators in United States ex rel. Vargas v. Lincare, Inc. et al., 24-11080, 2025 WL 1122196 (11th Cir. Apr. 16, 2025), three out of the four claims in their fourth amended complaint. The U.S. District Court for the Middle District of Florida had dismissed the entire complaint for failing to plead sufficient facts under Federal Rule of Civil Procedure 9(b) (“Rule 9(b)”).

The Eleventh Circuit reversed in part, holding that certain allegations of upcoding were adequately pleaded under Rule 9(b) to survive a motion to dismiss. The complaint alleged that the defendants, a medical supplier and its subsidiary, improperly coded the accessories (i.e., batteries, chargers, and cables) of continuous positive airway pressure (CPAP) machines as ventilator accessories. Ventilator accessories are covered by TRICARE, a health insurance program for military personnel and their families; CPAP accessories are not.  

From our Thought Leaders in Health Law video series: On March 31, 2025, the U.S. District Court for the Eastern District of Texas ruled that the Food and Drug Administration (FDA) lacks the statutory authority to regulate laboratory-developed tests (LDTs).

The court’s judgment vacates the agency’s controversial final rule of May 6, 2024 (the “Final Rule”), regulating LDTs as medical devices, just weeks before the Final Rule’s initial implementation deadline and remands the issue back to the FDA for further consideration.

When Congress adopted the Inflation Reduction Act (IRA) in 2022, creating the Medicare Drug Price Negotiation Program (MDPNP), the bill did not receive support from any Republican senators. In 2025, the question remains what Congress and the current administration will do with the MDPNP, and we are starting to find out.

On April 15, 2025, President Trump issued Executive Order 14273, entitled “Lowering Drug Prices by Once Again Putting Americans First.” This comes on the heels of the release of the Final CY 2026 Part D Redesign Program Instructions (“Program Instructions”) by the Centers for Medicare and Medicaid Services (CMS) on April 7—concurrent with the CY 2026 Announcement of Medicare Advantage Capitation Rates and Part C and D Payment Policies (see our recent blog post on the latter.) 

Executive Order 14273 includes a number of provisions addressing the IRA, including:

Hospitals that serve a high number of indigent patients are faced with a dilemma: they must provide high-quality care but fixed Medicare reimbursement rates often do not take into account the higher operating costs that they incur when treating certain low-income patients.  That problem was made more difficult when the Supreme Court ruled 7-2 in favor of the Secretary of HHS in an appeal brought by over 200 hospitals that depend on disproportionate share hospital (“DSH”) payments. Advocate Christ Medical Center v. Kennedy, No. 23-715 (Apr. 29, 2025).

Congress recognized that hospitals that serve a high number of low-income or indigent patients may incur additional costs that are not captured in the regular Medicare inpatient prospective payments.  Congress provided a remedy for these hospitals in the form of a complex formula that sums two fractions.  The first fraction, known as the Medicare fraction, is the total of all of the hospital’s inpatient days attributable to “patients who (for such days) were entitled to benefits under part A of [Medicare] and were entitled to supplementary security income [SSI] benefits[under Title XVI of the Social Security Act]” and the denominator is the number of all inpatient days attributable to all Medicare beneficiaries. The DSH payment is made as a supplement to the Medicare DRG bundled payment for each discharge. The larger the numerator of the fraction, the larger the DSH payment.

On April 22, 2025, U.S. Attorney General Pam Bondi issued a memorandum entitled “Preventing the Mutilation of American Children” (“the AG Memorandum”). Directed to all Justice Department employees, the AG Memorandum sets forth steps that the Department will take to counteract gender affirming care to treat gender dysphoria. This is the most recent step in a series of actions that the Administration has taken targeting care for transgender children and represents a significant escalation in the Administration’s enforcement efforts. 

Background

On January 20, 2025, as one of his first official acts, the president signed Executive Order 14168 entitled “Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government” (the “Gender Ideology EO”). Eight days later, the president issued Executive Order 14187, entitled “Protecting Children from Chemical and Surgical Mutilation” (the “Surgical Mutilation EO”) Broadly, the two Executive Orders (EOs) target laws and practices related to the role of transgender individuals in American society. The Surgical Mutilation EO specially addresses medication and surgical treatment for gender dysphoria and states, “[I]t is the policy of the United States that it will not fund, sponsor, promote, assist, or support the so-called ‘transition’ of a child from one sex to another, and it will rigorously enforce all laws that prohibit or limit these destructive and life-altering procedures.”