Trump Administration Seeks Dismissal of Lawsuit Challenging Medicaid Work Requirement IFR

Ahead of the July 28 hearing in the lawsuit that states filed against the Trump Administration regarding the imposition of a “medically frail” exemption and the disallowance of presidential national emergency declarations to count as short-term hardship exemptions for the upcoming Medicaid work requirements, the administration submitted a brief on July 15 in opposition of the plaintiffs’ motion for a preliminary injunction and for the court to dismiss the charges. The plaintiffs ask the court to block certain components of the Interim Final Rule (IFR) ahead of the looming August 31 statutory deadline to inform their beneficiaries. The administration argues that Congress delegated authority to define medical frailty to CMS, and that determining how states can grant short-term hardship also comes under their purview. In the meantime, CMS continues to collect comments on the IFR through July 31 (Inside Health Policy, July 21).

HHS Announces $1B Deferment of Medicaid Payments to CA and MN with Pending FWA Reviews

On July 21, the Department of Health and Human Services announced that it is deferring more than $1B in federal Medicaid payments to California and Minnesota while the states submit additional documentation regarding certain “high-risk” Medicaid claims. CMS is withholding $867.5M from California and $199M from Minnesota. According to the agency, there are claims that need additional review to prove that they meet federal requirements. In California, the state will need to provide additional support for certain in-home care program claims after program growth exceeded national averages. CMS reviewed 14 “high-risk” service areas in Minnesota and found expenditures with eligibility and billing concerns that need continued review. This deferment follows CMS’ new proactive approach to address potential fraud, waste, and abuse in the Medicaid program (HHS Press Room, July 21).

Federal Court Pauses Key ACA Marketplace Rule Provisions

A Maryland federal court temporarily paused eight provisions of a CMS rule that would have changed ACA marketplace enrollment and plan requirements beginning July 20. The lawsuit was brought by Chicago, Baltimore, Columbus, Pima County, Arizona, Doctors for America, and the Main Street Alliance, which argued the rule would create new barriers to coverage and increase uncompensated care costs. The blocked provisions include tighter subsidy and income verification requirements, broader access to catastrophic coverage, changes to bronze plan cost sharing, revised network adequacy standards, and the elimination of standardized plan requirements.

CMS has defended the changes as necessary to reduce fraud and strengthen program integrity, although the agency estimates that up to 2 million people could lose coverage under the rule. In pausing the provisions, the court found the plaintiffs were likely to succeed on the merits of their claims and could face irreparable harm if the policies took effect. The decision comes as ACA marketplace enrollment has declined from 22.2 million in 2025 to 19.2 million as of February 2026. The administration is expected to appeal, while similar restrictions enacted in federal law remain scheduled for 2028 (Fierce Healthcare, July 17; Healthcare Dive, July 17).

CMS Releases Proposed Rule on Medicaid Provider Taxes

On July 21, CMS released the proposed rule, Amending the Indirect Hold Harmless Threshold of Health Care-Related Taxes (CMS-2452-P). The proposal looks to implement Section 71115 of H.R.1 by:

• Establishing a phasedown of provider tax thresholds for Medicaid expansion states beginning in Federal Fiscal Year (FFY) 2028
• Establishing state-specific indirect hold harmless thresholds based on provider tax structures
• Discontinuing the 75/75 test
• Adding health insurers as a new permissible tax class
• Creating new reporting requirements for states

CMS is accepting public comments on the proposed rule through September 21, 2026. For a more detailed overview of the proposal and its potential implications for states and providers, please see our summary.

340B Program Spending Tops $100B According to HRSA

The Health and Services Administration (HRSA) released new data that shows the cost of outpatient drugs purchased under the 340B program totaled $100B in 2025. According to the agency, oncology, immunology, and obesity treatments drive price growth in the program, similar to the national healthcare market. As more complex care is directed to outpatient, ambulatory settings, spending on outpatient drugs has also increased. HRSA notes that oncology drugs, biologics, and other infusion therapies have been the fastest growing segment of 340B program purchases.

For example, specialty drugs make up 38.1% of all 340B drugs purchased but account for 61.9% of spending. Disproportionate share hospitals were the largest purchasers of 340B drugs, totaling nearly $80B. The next largest purchaser of 340B drugs were health center programs, totaling just under $6B in 2025. However, not all 340B drug purchases were included in this data release, only those captured by the Prime Vendor Program. The data from HRSA follows several efforts by the Trump Administration to reform the program, including a stalled pilot to shift discounts at point of sale to rebates after purchase and a proposed rule that would cut Medicare payment for 340B drugs by one third starting in 2027 (HRSA, July 2026; Healthcare Dive, July 16).