Proposed Legislation Establishes Federal Framework for Healthcare AI

Senator Bill Cassidy (R-LA) has introduced the first comprehensive congressional proposal to establish a federal regulatory framework for clinical artificial intelligence (AI) in healthcare, aiming to encourage innovation while addressing regulatory uncertainty. The legislation would divide oversight responsibilities among the Food and Drug Administration (FDA), the Office of the National Coordinator for Health Information Technology (ONC), and the Centers for Medicare & Medicaid Services (CMS). FDA would establish a risk-based review process and pilot improvements to postmarket surveillance, while ONC would oversee voluntary certification of AI-based health information technology. CMS would launch a five-year program to evaluate coverage and payment models for AI-based services, including payments tied to clinical outcomes. The proposal also addresses patient privacy, workforce training, and transparency but leaves liability questions unresolved, calling for stakeholder recommendations rather than establishing specific standards. This comes as the Trump administration last week eased Biden-era regulations requiring transparency for artificial intelligence tools that integrate with electronic health records (Inside Health Policy, November 2; PoliticoPro, October 27).

Labor Department Finalizes PBM Transparency Rule

The Department of Labor has finalized a rule requiring pharmacy benefit managers (PBMs) to disclose fees and compensation received from drug manufacturers, pharmacies, and other entities to employers sponsoring self-funded health plans. The disclosures include manufacturer rebates, spread pricing arrangements, and payments recouped from pharmacies, giving employers greater insight into prescription drug costs and helping them meet their fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA). Employer groups welcomed the additional transparency, arguing it could strengthen contract negotiations and help reduce prescription drug costs. However, the Pharmaceutical Care Management Association (PCMA) warned that the rule could duplicate transparency requirements enacted by Congress earlier this year and impose additional administrative burdens, particularly on smaller PBMs, potentially reducing competition and increasing costs for employers and patients (Fierce Healthcare, October 29).

HHS Peptide Policy Raises Oversight Concerns

The U.S. Department of Health and Human Services (HHS) has introduced an interim policy allowing 503A pharmacies to compound six non-FDA-approved peptides while the Food and Drug Administration (FDA) considers permanently authorizing their use in compounding. The policy raises concerns about inconsistent requirements across states, as state pharmacy boards are not obligated to follow the federal framework and may maintain existing restrictions or impose additional requirements. The policy also introduces adverse-event, product-quality, and reporting requirements, but questions remain about reporting procedures, timelines, and whether states have the systems needed to collect this information. Patient-safety advocates have raised concerns about limited enforcement resources and the ability to verify ingredient quality and supplier documentation (Inside Health Policy, October 30).

CMS Offers States Flexibility Ahead of Medicaid Work Requirements Deadline

Concerns about states’ readiness to implement Medicaid work requirements by January 1, 2027, have prompted CMS to outline temporary implementation flexibilities. States experiencing technology and operational challenges may request alternative timelines and use strategies such as self-attestation, manual eligibility reviews, and post-enrollment verification. Additional flexibilities include temporarily shortening eligibility review periods from three months to one month, using income data from other government programs to verify eligibility, and allowing post-enrollment verification of exemptions, including for primary caregivers of children younger than 13. CMS will evaluate these requests and determine whether to approve flexibilities or exercise enforcement discretion, with states required to submit quarterly progress updates and timelines for achieving compliance. However, health policy experts caution that some strategies may not be feasible by the deadline or may not adequately address eligibility verification barriers, potentially resulting in coverage losses among eligible beneficiaries. This comes as a federal judge ruled last week that the medical frailty definition in CMS’ interim final rule exceeds the agency’s authority to implement (Modern Healthcare, October 30).

House Democrat Seeks GAO Review of TrumpRx Pricing Agreements

House Energy & Commerce Committee ranking member Frank Pallone (D-NJ) is pushing for the Government Accountability Office (GAO) to begin a probe into TrumpRx’s deals with pharmaceutical companies and ensure consumer benefit. The request comes months after the administration did not respond to a March request from democratic members of the House Ways & Means, Education & Workforce Committees and the Senate Finance Committee for disclosure of its Most Favored Nation (MFN) agreements. In his letter to the GAO, Pallone requests that the office closely examines the data and methodology, pricing agreements, and effectiveness of the platform (Inside Health Policy, October 30).

Court Blocks CMS Definition of “Medical Frailty” in Medicaid Work Requirements Rule

On October 29, US District Court of MA Judge Richard Stearns sided with a coalition of 25 democratic-led states (AZ, CA, CO, CT, DE, IL, KY, MA, MD, ME, MI, MN, NC, NJ, NM, NV, NY, OR, PA, RI, VA, VT, WA, and WI), barring the implementation of CMS’ definition of “medical frailty” for critical exemptions through a permanent injunction, citing the potential hardships states may face through the enforcement of an unlawful definition that may lead to the disenrollment of otherwise eligible vulnerable enrollees. The ruling strikes down the rule’s definition of medical frailty, agreeing with plaintiffs that the two-part test, which required individuals to prove that they had a qualifying medical condition and that that condition impaired their ability to work, exceeded what was allowable under statute. Under the ruling, Judge Stearns also issued a six-month stay on enforcing frailty determinations under H.R. 1, giving states time to work through errors and delays as they update their verification systems. Although the judge sided with the plaintiff states for violations related to the Administrative Procedure Act (APA), Stearns sided with CMS on two counts relating to the one-year lookback period and limits on self-attestations (Inside Health Policy, October 29; Fierce Healthcare, October 29).

MACPAC October 2026 Meeting

On October 29 and 30, MACPAC commissioners met for their October public meeting. Topics discussed included:

Hospital Cost Drivers: Literature Review Findings

• MACPAC staff presented findings from a literature review examining factors contributing to rising hospital costs and spending and their implications for Medicaid payment policies.

  Key takeaways: Cost ≠ spending: MACPAC separates what hospitals expend from what payers pay, and finds different drivers on each side: labor, supplies, and administration on cost; acuity, site of care, and prices on spending. Labor shock: Hospital labor expense per discharge rose 30% in January 2021 versus the prior year. Market power shows up in prices: Mergers raised hospital prices, but evidence linking concentration to underlying costs is thinner. State spending growth benchmarks did not slow hospital price growth. Staff will present a review of state hospital payment policies in January 2027, followed by a descriptive chapter in its March 2027 report to Congress to inform further examination of Medicaid hospital reimbursement

Panel on Medicaid Work Requirements: State Implementation

• MACPAC staff convened a panel featuring Medicaid officials from Colorado and Indiana and a representative from Nebraska’s health center association to discuss state implementation of Medicaid work requirements. The panel brought together perspectives from state Medicaid agencies and healthcare providers as states prepare for the January 1, 2027, implementation deadline. Participants included Colorado Medicaid Director Adela Flores-Brennan, Indiana Medicaid Director Audrey Frenzel, and Health Center Association of Nebraska CEO Amy Behnke.

Intensive Community-Based Behavioral Health Services: Findings from Stakeholder Interviews and Administrative Claims Analysis

• Findings from MACPAC’s analysis highlight persistent gaps in access to intensive community-based behavioral health services for children and youth with serious mental health conditions. An analysis of 2024 Medicaid claims found that approximately one-third of behavioral health service use among children with serious mental illness or serious emotional disturbance involved emergency department visits resulting in outpatient care, with the highest utilization among Black adolescents ages 12-18. Although states can cover these services through existing Medicaid authorities and waivers, workforce shortages, restrictions on respite care, fragmented care coordination, and inadequate reimbursement continue to limit access and increase reliance on residential treatment. Gaps in service utilization data also make it difficult to assess whether community-based services reduce unnecessary institutional care.

Adult Medicaid Enrollees with Intellectual and Developmental Disabilities (I/DD): Access to Behavioral Health Services

• MACPAC staff presented findings showing that adults with intellectual and developmental disabilities (I/DD) experience higher rates of behavioral health conditions and Medicaid spending but face significant barriers to accessing appropriate care. Medicaid enrollees ages 19–64 with I/DD were 1.6 times more likely to have a behavioral health diagnosis than those without I/DD, while per-enrollee spending was nearly four times higher ($24,974 compared with $6,582). Fragmented service delivery systems, limited provider training, transportation challenges, and inconsistent behavioral health assessments contribute to gaps in care. Federal Medicaid policies also provide limited requirements for coordinating behavioral health and disability services, leaving states considerable flexibility in coverage and care coordination.

Medicaid Hospice: Policy, Utilization, and Oversight

• MACPAC staff presented findings highlighting disparities in Medicaid hospice utilization, rising spending, and gaps in state oversight and quality reporting. Medicaid beneficiaries are less likely to receive hospice care than Medicare beneficiaries with similar conditions, with particularly low enrollment among Black and Hispanic beneficiaries. Children also face barriers to accessing hospice services despite federal provisions allowing concurrent curative treatment, including limited awareness and unclear coverage policies. Medicaid hospice spending increased from $2.4B in fiscal year 2020 to $3B in 2024, while federal reviews identified weaknesses in state oversight of hospice providers. Although CMS imposed a nationwide Medicare hospice provider enrollment moratorium in May 2026, the restriction does not apply to Medicaid, prompting some states to establish separate moratoria. The absence of Medicaid-specific hospice quality reporting further limits oversight and evaluation of patient care. MACPAC will conduct stakeholder interviews and analyze Medicaid data to further examine hospice access, utilization, and oversight (MACPAC, October 30).