On January 21, 2025, President Trump issued an executive order, Ending Illegal Discrimination and Restoring Merit-Based Opportunity (Executive Order), that introduces significant changes for government contractors and grant recipients, including new federal contract provisions requiring counterparties to certify that they do not maintain diversity, equity, and inclusion (DEI) programs. These requirements reverse historic requirements to maintain the very programs the Executive Order seeks to abolish. Federal contractors that fail to comply with the Executive Order risk False Claims Act liability.
While the Executive Order establishes sweeping compliance obligations for all federal contractors, here we focus on implications for the healthcare industry, specifically for plans and providers participating in Medicare—traditional Medicare (Parts A and B), Medicare Advantage (Part C), and Prescription Drugs (Part D). For a general overview of the False Claims Act implications of the Executive Order, see this client alert from our Government Contracts team.
New Risk: False Claims Act Liability Premised on Maintaining DEI Programs
The False Claims Act (FCA) is a powerful tool that punishes fraud against the federal government, imposing treble damages plus significant penalties against any person or entity that knowingly submits, or causes to be submitted, false claims for payment to the government; falsely certifies compliance with applicable laws to obtain payment from the government; or retains government payments premised on false claims or false certifications. The Executive Order introduces a new avenue of potential FCA liability for federal contractors that maintain some form of DEI by prohibiting DEI programs and requiring "every contract or grant award" to require federal contractors to certify that (i) compliance with anti-DEI protocols "is material to the government's payment decisions" and (ii) they do "not operate any programs promoting DEI."
The Executive Order explicitly contemplates enforcing its anti-DEI charge, beyond just federal contractors, and into the private sector. The Executive Order directs the attorney general to submit a "plan of specific steps or measures to deter DEI programs or principles (whether specifically denominated 'DEI' or otherwise) that constitute illegal discrimination or preferences," and identify "up to nine potential civil compliance investigations of publicly traded corporations" and other large nonprofit institutions and associations, as well as "[l]itigation that would be potentially appropriate for Federal lawsuits, intervention, or statements of interest."
Are Medicare Plans and Providers Federal Contractors Under the Executive Order?
The Executive Order's facial application appears to turn on whether Medicare plans and providers are considered "federal contractors." Historically, the answer differed for traditional Medicare providers (Medicare Parts A and B) and Medicare Advantage and Prescription Drug plans (Medicare Parts C and D).
- Traditional Medicare. According to the U.S. Department of Labor Office of Federal Contract Compliance Programs (OFCCP), agreements under which hospitals and healthcare providers receive reimbursement for services covered under Medicare Parts A and B are not considered covered federal contracts for purposes of OFCCP jurisdiction and compliance. The Executive Order purports to rescind prior OFCCP diversity and affirmative action requirements, but it is unclear whether OFCCP's position on Medicare Part A and B providers as non-federal contractors will stand.
- Medicare Advantage and Prescription Drug Plans. In contrast to Medicare Parts A and B, OFCCP has not carved out from its definition of federal contractors private entities that administer Medicare Advantage (Part C) plans and offer prescription drug coverage through Medicare Part D. These entities, therefore, may be more readily viewed as federal contractors under the Executive Order by virtue of contracting with, and receiving reimbursement from, the Centers for Medicare & Medicaid Services (CMS).
How to Prepare
The scope and longevity of the Executive Order remain uncertain. Questions linger about whether it will survive legal challenges and, if it does, how federal agencies will interpret and enforce it. While the full impact of the Executive Order is yet to be seen, Medicare plans and providers can take proactive steps to navigate this evolving regulatory landscape and mitigate risk by considering the following:
- Federal Contractor Status. Determine whether your organization qualifies as a federal contractor by reviewing your contracts with CMS or other federal agencies and evaluating applicable legal precedent.
- DEI Programs and Policies. If the Executive Order might apply, evaluate any existing DEI initiatives, identify potential conflicts with the Executive Order, and consider whether operational changes would be necessary to comply with the Executive Order. Even if your organization appears to be outside the Executive Order's scope, consider the directive for private sector compliance with its spirit.
- Enforcement Readiness. Anticipate federal agency audits that evaluate adherence to the Executive Order's prohibition on DEI programs and the truthfulness of the organization's corresponding certification. Consider exposure to FCA whistleblower qui tam actions alleging that an organization falsely certified compliance despite continuing DEI policies.
