Category: Healthcare Contracting

Domestic Production of Pharmaceuticals: Are the Administration’s Efforts Enough?

Merle M. DeLancey, Jr. ●

The Administration issued Executive Order (“EO”) 14293: Regulatory Relief to Promote Domestic Production of Critical Medicines on May 5, 2025 (whitehouse.gov/presidential-actions/2025/05/regulatory-relief-to-promote-domestic-production-of-critical-medicines). The EO seeks to ease obstacles for drug manufacturers to establish or expand domestic production facilities. For example, it streamlines Food and Drug Administration (“FDA”), Environmental Protection Agency, and Army Corps of Engineers reviews and inspections associated with building or expanding manufacturing facilities. These accelerated processes are intended to reduce a manufacturer’s cost to build or expand a facility with the intended result being lower prices for domestically produced drugs.

The EO also calls for enhanced FDA inspections of foreign manufacturing facilities. The inspections will be funded through increased fees imposed on foreign drug manufacturers. The likely result will be an increase in foreign drug production costs, which would lead to increased prices of foreign-produced drugs. Further, adding to the price of foreign drugs are the Administration’s proposed tariffs. If imposed, the tariffs could start at 15 percent and ratchet up to 150 percent and 250 percent over time.

The goal of increasing the prices of foreign-produced drugs is to enable domestically produced drugs to compete. Only time will tell whether the EO’s efforts will be enough to level the playing field. However, there are at least two obstacles that could prevent the Administration from reaching its goal.

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CMS Proposes New Rules for Calculating Average Sales Price for Medicare Part B Drug Reimbursement


Merle M. DeLancey, Jr. ●

The Centers for Medicare & Medicaid Services (“CMS”) released the Calendar Year 2026 Medicare Physician Fee Schedule (“PFS”) proposed rule on July 16, 2025. (See cms.gov/newsroom/fact-sheets/calendar-year-cy-2026-medicare-physician-fee-schedule-pfs-proposed-rule-cms-1832-p). The proposed rule includes potentially significant changes to what is considered a bona fide service fee (“BFSF”) when calculating average sales price (“ASP”) under Medicare Part B.[*]

Under Medicare Part B, most drugs are reimbursed based on ASP plus six percent. Manufacturers report ASPs to CMS quarterly. With certain exceptions, ASP is defined as a weighted average price to commercial customers in the United States. Drug manufacturer price concessions are deducted when calculating ASP but BFSFs are not. To support a higher ASP, which increases a drug’s reimbursement, manufacturers seek to avoid price concessions and instead classify programs as BFSFs. Improperly classifying a price concession as a BFSF increases a manufacturer’s ASP, which results in Medicare overpayments and higher coinsurance amounts for Medicare beneficiaries.

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VHA and DLA Enter Into Another Interagency Agreement: Déjà Vu All Over Again?

Merle M. DeLancey, Jr. ●

In March 2025, the Defense Logistics Agency (“DLA”) and the Veterans Health Administration (“VHA”) entered into another interagency agreement. The agencies announced that the purpose of the 10-year, $3.6 billion agreement is to align supply chain requirements and centralize logistical support DLA will provide to all VHA healthcare facilities nationwide.

The 2025 agreement follows three DLA and VHA interagency agreements entered into between 2018 and 2020. In 2018, DLA and VHA entered into an agreement under which VHA began transitioning its medical supplies purchasing to DLA’s Electronic Catalog (“ECAT”). In 2019, the agencies entered into another interagency agreement which allowed VHA to access medical and surgical items by leveraging the DLA supply chain and provided for creating a centralized ordering system, rather than using the separate VHA and DLA systems.

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Five Practical Tips for Government Contractors Navigating the Executive Order Chaos

Merle M. DeLancey, Jr. ●

Federal government contractors are living in a climate of uncertainty. Executive orders affecting government contracts are being issued at a rapid pace. The executive orders tend to be broad and high-level with regulatory guidance to follow. This is not abnormal. However, the sheer number of executive orders and the magnitude of the regulatory changes they seek to impose is a new phenomenon. Contractors are left to determine what they should be doing, if anything, and when. Set forth below are practical suggestions for contractors to consider during this unsettling time.[1]

  1. Communicate with your Contracting Officer

During the chaos, it is important to communicate with your contracting officer. Only contracting officers are authorized to modify contracts. Do not blindly accept direction from contract specialists or others who purport to be speaking on behalf of the government. Direction received from anyone other than a contracting officer should be immediately relayed to your contracting officer with a request for clarification or guidance. 

Also, be prepared for unclear responses from your contracting officer. Like you, contracting officers also are living through this chaos. They may not have received clear direction to pass on to contractors. Aim to keep your communications with your contracting officer respectful. 

  1. Executive Orders are not Contract Modifications

Remember that executive orders are not contract modifications. Contractors should not change their contract performance or their compliance with, for example, socioeconomic programs unless or until a contract modification signed by a contracting officer. This may be difficult for contractors when they think they can see the writing on the wall. But regulatory and policy changes can occur and, thus, even well-intentioned contractors might make changes they did not need to make or that are different from what is required from a formal contract modification.

  1. Continue Contract Performance

Along the same lines, contractors need to continue contract performance in accordance with the four corners of the contract unless or until a contract is modified. Failure to do so could be considered breach of contract. With the plethora of contract terminations being reported, contractors should not put themselves in the crosshairs by failing to comply with the terms and conditions of their contract, thereby giving the government a basis to terminate for default.  And remember, if you believe the government has breached or improperly changed a contract, a contractor is required to continue performance and seek relief in accordance with the FAR Disputes clause.

  1. Communicate with your Subcontractors

Just as a prime contractor craves concrete guidance from a contracting officer regarding what to do, subcontractors also need guidance and oftentimes more so, because they are unable to communicate directly with the government. Thus, a good practice for prime contractors is to pass along any guidance received from a contracting officer to its subcontractors. Prime contractors also should remind their subcontractors about their obligations to continue contract performance.

  1. Prepare to Defend Your Contract

Contractors also should be prepared to explain the importance of their contracts to the government. To be proactive, contractors should draft narratives explaining the importance of their work and how their performance exceeds contract requirements. Contracts that are considered to “add value” are less likely to be found on the so-called “chopping block.” If appropriate, a contractor should consider including recommendations, for example, regarding how its work can be performed more effectively or efficiently. 

We hope this practical advice will help you navigate the government contracting chaos until the dust settles. 

[1] See our previous related blog posts: Understanding President Trump’s Executive Orders on DEI: Implications for Federal Contractors;  What Contractors Facing Terminations, Stop-Work Orders, and Suspension of Work Orders Directed by the Trump Administration Need to Know;  Fixed Price Contracts: Government Contractors Beware;  What GSA Contractors Need to Know About the New FAR Deviation for Revoked Executive Order 11246, Equal Employment Opportunity;  Preliminary Injunction Granted Related to DEI-Related Executive Orders—Takeaways for Government Contractors;  President Trump Signs New Executive Order: “Implementing the President’s ‘Department of Government Efficiency’ Cost Efficiency Initiative”—What Federal Contractors Need to Know.

Today’s General Counsel referenced this post in an article on March 17, 2025. Read the article here: Risk Management for Federal Contractors During Regulatory Changes.

Fixed Price Contracts: Government Contractors Beware

Merle M. DeLancey, Jr. ●

Many predict that, among other procurement and regulatory reforms, the new administration will implement policies favoring the award of fixed-price government contracts and grants. Throughout the years, the procurement pendulum has swung back and forth in favor of and against fixed-price contracting. For example, in 2017, the Department of Defense (“DoD”) implemented a preference for fixed-price contracting and required approval of cost-reimbursement contracts in excess of $25 million by the head of the contracting agency. In 2022, DoD reversed course and removed both the preference and approval requirement. 

For taxpayers, fixed-price contracting may seem appealing; however, for government contractors, fixed-price contracts present significant risk. Fixed-price contracting is often criticized because it deprives the government from receiving the best solutions and performance and instead results in awards to the lowest price, technically acceptable offeror. The federal government typically prefers fixed-price contracts because of budget and funding certainty, and because a fixed-price contract assigns all performance risk to the contractor. 

Absent actual or constructive changes to the contract requirements, a contractor generally is not entitled to a cost or price increase under a fixed-price contract. This applies to large and small business contractors. A large government contractor recently reported it will recognize a significant loss on fixed-price space and defense programs, which already caused the company years of losses, due to issues such as increased production costs and disruptions from a recent strike. However, the impact on small businesses that cannot absorb the level of losses of a large business can have much more dire consequences. 

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What Contractors Facing Terminations, Stop-Work Orders, and Suspension of Work Orders Directed by the Trump Administration Need to Know

Stephanie M. Harden, Jennifer A. Short, Justin A. Chiarodo, Shane M. Hannon, and Amanda C. DeLaPerriere ●

The Trump administration’s directives to “pause” grant funding and to terminate certain grants and contracts sent shock waves through the government contracts and non-profit sectors. Although the “pause” in grant funding has been temporarily halted by a federal court (as of January 28), other terminations and suspensions have not been blocked. We summarize below the steps entities can take to preserve their rights as they navigate these emerging directives.

But First: What Happened? 

Immediately after his inauguration on January 20, President Trump began ordering federal agencies to pause funding for certain projects or initiatives. A January 20 Executive Order (“EO”) titled “Unleashing American Energy” encouraged energy exploration and production and eliminated electric vehicle mandates. It directed agencies to “immediately pause” all disbursements under the Inflation Reduction Act of 2022 and the Infrastructure Investment and Jobs Act.

Another EO titled “Ending Radical and Wasteful Government DEI Programs and Preferencing” directed the Office of Management and Budget to terminate DEI programs (see our prior analysis of this EO here). Consequently, the new Department of Government Efficiency announced on January 24 that approximately $420 million in current or impending contracts, most of which related to DEI programs, were cancelled.

Consistent with these orders, the Office of Management and Budget (“OMB”) on January 27 directed federal agencies to pause, as of January 28 at 5:00 PM ET, all payments and obligations to disburse any federal financial assistance, including financial assistance for nongovernmental organizations. The two-page OMB policy memo stated that the paused programs will be assessed to determine whether they are consistent with the administration’s new policy objectives. This directive has led to widespread chaos, prompting the administration to issue additional guidance on January 28 regarding the scope and purpose of the January 27 funding freeze. The freeze on grant funding was then temporarily halted by a federal district court later in the day.

Federal contractors performing contracts or projects subject to these EOs or OMB instructions have or likely will soon receive stop work orders or, in some cases, notices that the government is terminating for convenience. A “suspension of work” or “stop-work” order pauses performance for a period of time, after which the government may decide either to resume performance or terminate the contract. A notice of termination for convenience, as its name suggests, is the mechanism by which the government unilaterally terminates the contract as of right.

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More Cases and Expanded Data Analytics: A Closer Look at DOJ’s FY 2023 False Claims Act Statistics


Dominique L. Casimir, Luke W. Meier, and Oliver E. Jury ●


The United States Department of Justice (“DOJ”) recently announced its statistics for False Claims Act (“FCA”) FY 2023 settlements and judgments. DOJ recovered $2.68 billion in FY 2023; as usual, the majority of these recoveries (nearly 70 percent, or $1.8B) came from the healthcare industry. DOJ continues to make use of data analytics to inform its enforcement activity.

Background

Comparing year-to-year variance in the volume of DOJ’s FCA recoveries provides only marginal utility. More telling is the rapid expansion of the non-qui tam matters opened during the past two years. In FY 2022, DOJ opened 305 non-qui tam matters, representing approximately 186 percent of its prior ten-year average (164). In FY 2023, this increase continued, with DOJ opening 500 non-qui tam matters—305 percent of the ten-year average over FY 12–21.

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Biden Administration Prioritizing Domestic Production of Pharmaceuticals . . . Again?

Merle M. DeLancey, Jr. ●

On November 27, the Administration announced another blue-ribbon panel to bolster the domestic manufacturing of pharmaceuticals. This one is called the Supply Chain Resilience Council. Co-chairs of the Council are Lael Brainard, Director of the White House National Economic Council, and Jake Sullivan, the White House National Security Advisor. Among the other 25 Council members are multiple agency Secretaries; the U.S. Trade Representative; the Chair of the White House Council of Economic Advisers; and the Directors of National Intelligence, the Office of Management and Budget, and the Office of Science and Technology Policy. The Council does not include any industry representatives.

A major part of the Council’s plan to bolster domestic manufacturing is providing the Department of Health and Human Services (“HHS”) with expanded authorities under Title III of the Defense Production Act (“DPA”) to invest in domestic manufacturing of essential medicines, medical countermeasures, and other critical inputs deemed crucial for national security. HHS will be granted DPA authority beyond what it was given during the COVID pandemic.

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CMS Proposing Major Changes to Medicaid Drug Rebate Program

Merle M. DeLancey, Jr. ●

While you were at a Memorial Day barbeque, the Centers for Medicare & Medicaid Services (“CMS”) proposed major changes to the Medicaid Drug Rebate Program (“MDRP”). 2023-10934.pdf (federalregister.gov). Comments on the proposed rules are due July 25 but we recommend that you start working now.

The proposed rules are 187 pages and address drug misclassification and drug pricing and product data misreporting by pharmaceutical manufacturers. Also important for manufacturers, the rules propose program integrity and program administration changes, including limiting the time within which a manufacturer can initiate an audit of a State Medicaid Program’s drug utilization for purposes of Medicaid rebate obligations; clarifying requirements to accumulate or “stack” price concessions when a manufacturer determines best price; and providing for drug price verification and transparency through data collection.

Increased Transparency of Prescription Drug Costs

CMS is proposing to verify certain drug prices reported by manufacturers through an annual Medicaid Drug Price Verification Survey. According to CMS, verifying drug prices and publishing non-proprietary information about drug prices will increase public transparency for high-cost drugs allowing state Medicaid agencies to negotiate covered outpatient drug (“COD”) prices more effectively with manufacturers. This sounds eerily similar to the purposes behind a multitude of State drug pricing transparency programs.

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Federal Contractor Vaccine Mandate to End

Merle M. DeLancey Jr. and Samarth Barot ●

Samarth Barot headshot image

After several Federal District Courts issued injunctions against the federal contractor vaccine mandate in December 2021, the Federal Government issued guidance fully suspending its enforcement of the federal contractor mandate. Despite the guidance, the future of the federal contractor vaccine mandate continued to remain in a state of limbo. This was best demonstrated two weeks ago when the Ninth Circuit sided with the Federal Government by lifting the district court’s preliminary injunction of the federal contractor vaccine mandate. The Ninth Circuit’s decision created a split with the Fifth, Sixth, and Eleventh Circuits that have enjoined the mandate. This Circuit split was likely headed to the United States Supreme Court.

On May 1, 2023, all of this changed. The Biden Administration announced its plan to end its federal contractor vaccine mandate on May 11, 2023, the same day the public health emergency ends. Accordingly, the Administration plans to issue an Executive Order “rescinding the vaccination requirement for federal employees and COVID-19 safety protocols for federal contractors, effective at 12:01 am on May 12, 2023.” For Federal Contractors | Safer Federal Workforce. Until then, the guidance suspending the enforcement of the federal contractor mandate remains in effect.

This should be the end of the federal contractor vaccine mandate; however, we will know more by May 11, 2023. Stay tuned for further developments.