HHS Proposes Medicare and Medicaid Participation Consequences for Hospitals Offering Gender-Affirming Care

Footnotes for this article are available at the end of this page.

Key Takeaways

• The Declaration. Secretary Kennedy’s declaration concludes that pediatric gender-affirming care does not constitute a “safe and effective treatment” and that practitioners who furnish such services fall outside professionally recognized standards of care. While the declaration does not impose new legal obligations, the use of a Cabinet-level pronouncement to define standards of medical care is unprecedented and raises several questions about the scope of the Secretary’s authority and the role of HHS in defining clinical standards absent formal rulemaking.
• The Proposal. The Centers for Medicare & Medicaid Services’ proposed hospital Condition of Participation bars hospitals from providing gender-affirming care to minors. Historically, CoPs establish baseline health, safety, and quality standards that healthcare providers and suppliers must meet to receive Medicare reimbursement. This represents a significant shift from facility safety to clinical content. Public comments are due February 17, 2026.
• The Exclusion Risk. The Office of Inspector General has discretionary authority to exclude individuals and entities that furnish items or services that fail to meet professionally recognized standards of care, commonly referred to as “quality-of-care” exclusions. Although quality-of-care exclusions are rare, the declaration lays the groundwork for OIG to investigate and potentially pursue permissive exclusions against providers that furnish pediatric gender-affirming care. The declaration also coincides with the confirmation of Thomas Bell as Inspector General, who has publicly emphasized a more aggressive enforcement posture that promotes the administration’s policy priorities.

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On December 18, 2025, U.S. Department of Health and Human Services (“HHS”) Secretary Robert F. Kennedy Jr. issued a formal declaration on the “Safety, Effectiveness, and Professional Standards of Care for Sex-Rejecting Procedures on Children and Adolescents.”¹ The declaration aligns with a broader HHS policy approach that increasingly questions the safety, effectiveness, and clinical justification for pediatric gender-affirming care.

In parallel with Secretary Kennedy’s declaration, HHS announced it will propose a series of regulatory actions to bar hospitals from providing “sex-rejecting procedures” to minors.² HHS coined the term “sex-rejecting procedures” to describe care commonly referred to in the healthcare industry as “gender-affirming care.”³ Among these actions, the Centers for Medicare & Medicaid Services (“CMS”) proposed a new hospital condition of participation (“CoP”) to bar hospitals from performing “sex-rejecting procedures” on minors.⁴ HHS invites public comment on the scope of the proposed CoP by February 17, 2026.

This alert focuses on the implications of Secretary Kennedy’s declaration and the CMS proposal and examines the potential OIG exclusion risk for providers furnishing gender-affirming care.

HHS announced other regulatory actions, including:

• Medicaid and CHIP funding: A separate proposed rule prohibits the use of Medicaid and Children’s Health Insurance Program (“CHIP”) funds for “sex-rejecting procedures” provided to minors. ⁵
• FDA warning letters: The Food and Drug Administration issued warning letters to 12 manufacturers and retailers marketing breast binders to transgender children.⁶
• Section 504 reinterpretation: The Office for Civil Rights (“OCR”) proposes redefining “disability” to exclude gender dysphoria, reversing a Biden-era rule and clarifying that policies limiting or prohibiting gender-affirming care would not violate Section 504’s disability nondiscrimination requirements for recipients of HHS funding. ⁷

The Declaration

Secretary Kennedy’s declaration deems “sex-rejecting procedures”⁸ for minors to be neither safe nor effective treatment modalities for gender dysphoria, gender incongruence, or related disorders. Although the declaration recognizes that many researchers and major U.S. medical organizations endorse gender-affirming care, it nevertheless characterizes these interventions as experimental and concludes that existing clinical guidelines lack reliable long-term evidence of safety and effectiveness for minors.

The declaration is best understood not as a standalone policy pronouncement, but as a legal predicate intended to reframe how multiple HHS components regulate pediatric gender-affirming care. HHS asserts that when it declares a treatment modality unsafe or ineffective, that treatment is no longer deemed to meet professionally recognized standards of healthcare. The position represents a novel and consequential expansion of departmental involvement in defining standards of care, an area historically governed by state licensing boards and professional associations.

The declaration stands out not only for its substance, but also for its function. The declaration attempts to preemptively resolve the standard-of-care question by characterizing pediatric “sex-rejecting procedures” as categorically outside of professionally recognized standards. This approach departs from the traditional model under which clinicians develop professional standards through case-specific clinical judgment and evidentiary review.

The declaration also raises threshold questions regarding the scope and durability of the Secretary’s asserted authority. In support of its position, HHS relies on a regulatory definition of “professionally recognized standards of health care,” raising questions about how a definitional provision is being operationalized to reclassify the appropriateness of an entire category of care.⁹ The approach is unprecedented, as HHS has not previously invoked its definitional authority to categorically classify care provided to a specific group as inherently substandard, unsafe, or ineffective.

Courts are likely to scrutinize whether the declaration alone can redefine professional standards, particularly when used to inform CMS CoPs or OIG exclusion authority. Nineteen states have already filed suit, alleging that the Secretary’s action exceeded his statutory authority and that the declaration would “effectively ban, by fiat, an entire category of healthcare.”¹⁰

The Proposal

CMS proposes to establish a new hospital CoP that conditions Medicare and Medicaid participation on hospitals agreeing to not perform “sex-rejecting procedures” on minors. The Proposal defines key terms and provides limited exceptions.^11,12 CMS maintains that the rule does not regulate the practice of medicine, reasoning that “sex-rejecting procedures” for minors fall outside healthcare due to unacceptable risks.

CoPs are baseline health and safety requirements that hospitals and other healthcare providers must satisfy in order to participate in Medicare and Medicaid. For hospitals, CoPs address a wide range of basic operational and clinical requirements, including governing body oversight, medical staff credentialing and privileging, patient rights, quality assessment and performance improvement programs, nursing services, and compliance with federally recognized standards of care.¹³

The proposal translates the policy position reflected in the declaration into a concrete participation requirement tied to Medicare and Medicaid. It prohibits hospitals from furnishing gender-affirming care to minors as a condition of continued participation in federal healthcare programs. CMS seeks to significantly expand the role CoPs play in the healthcare ecosystem, which have traditionally focused on facility-level safety, governance, and quality systems rather than categorical prohibitions on providing specific types of clinical services.

CMS monitors compliance with CoPs through surveys and inspections. If a healthcare provider fails to satisfy CoPs, CMS can require corrective actions — and in serious cases, could even terminate the provider’s participation in Medicare or Medicaid, cutting off federal and/or state reimbursement revenue. In the hospital context, termination is a death sentence for most hospitals that depend on federal funding. Accordingly, enforcement of Medicare CoPs usually emphasizes correction rather than removal from the program. In the vast majority of cases, CMS addresses CoP deficiencies through corrective action plans, follow-up surveys, or targeted remedies.

Because CoPs apply at the institutional level, noncompliance jeopardizes a hospital’s ability to participate in Medicare and Medicaid across all service lines, not merely the specific departments or clinicians involved in the affected care. Indeed, under mounting pressure, Denver Health and Children’s Hospital Colorado recently announced they are suspending gender-affirming care for minors over concerns about potential impacts to their federal funding streams.¹⁴

For hospitals and health systems, submitting comments by February 17, 2026, is critical to preserving administrative and litigation positions. Given the novel use of CoPs and CMS’ reliance on the declaration as the underlying policy rationale, operationally and legally grounded comments will likely carry particular weight. Areas of potential challenge include the structure and scope of the proposed CoP, the definitional framework and exceptions, and the legal and factual bases on which CMS relies in asserting that the proposal does not regulate the practice of medicine.

The Exclusion Risk

The declaration raises the question of whether OIG will exercise its permissive exclusion authority against individuals or entities that furnish pediatric gender-affirming care. OIG may pursue permissive exclusion where a provider furnishes items or services that fail to meet professionally recognized standards of care.¹⁵ By characterizing pediatric gender-affirming care as falling outside those standards, the declaration supplies a potential basis for applying that exclusion framework in this context.

Permissive Exclusion

Section 1128(b)(6)(B) of the Social Security Act authorizes OIG to exclude individuals or entities from participation in federal healthcare programs based on quality-of-care concerns, rather than fraud, kickbacks, or other billing misconduct. The provision applies where a provider furnishes, or causes to be furnished, items or services that fail to meet professionally recognized standards of healthcare. Notably, this exclusion authority is unusual in that it does not require a nexus to a specific federal healthcare program, claim, or payment, allowing OIG to assess quality-of-care concerns based on encounters that may occur entirely outside of federal healthcare programs. By grounding the declaration in the definitional provisions of the exclusion regulations, HHS signals that exclusion authority could extend even where the “substandard care” at issue was furnished to individuals not covered by a federal healthcare program.

Exclusions under Section 1128(b)(6)(B) are rare and have historically been grounded in case-specific evidence of substandard care, often supported by expert testimony demonstrating that particular care encounters fell below applicable state or national standards. Based on OIG data reflected in the List of Excluded Individuals and Entities, only 77 such exclusions have been imposed since 1977, representing approximately 0.09% of all active exclusions.¹⁶ Of those exclusions, just 19 were imposed after 1998, and each appears to have resulted from a negotiated settlement. Litigation under Section 1128(b)(6)(B) is even rarer, with only two published decisions addressing the exclusion authority, both issued more than three decades ago.

Although exclusion actions of this type are rare, the declaration elevates the risk of exclusion beyond a theoretical concern. Recent leadership changes signal a heightened enforcement posture. The newly confirmed Inspector General, Thomas Bell, appears ready to advance an aggressive approach under the declaration. Bell previously served as Chief of Staff at the HHS Office for Civil Rights, where enforcement aligned closely with administration policy priorities. Under his leadership, OIG may seek to test its quality-of-care exclusion authority through enforcement, notwithstanding the elevated litigation risks and the absence of meaningful precedent. OIG could also use the declaration as leverage to resolve investigations through negotiated settlements that include enhanced or modified Corporate Integrity Agreements focused on quality-of-care controls, monitoring, and reporting obligations designed to ensure compliance with federal standards regulating pediatric gender-affirming care. The prospect of an exclusion proceeding creates immediate and substantial operational, financial, and reputational exposure for the affected provider, even if the provider ultimately prevails in the administrative process.

What’s Next?

Taken together, the declaration, the proposed hospital CoP, and potential OIG exclusion risk reflect a coordinated federal effort to enforce a uniform policy on pediatric gender-affirming care. Although the declaration is currently the subject of active litigation, the Medicare rulemaking process remains open for public comment until February 17. A final rule is expected in 2026 and will almost certainly face legal challenge. In the interim, the declaration may be used by OIG as a basis for investigating providers and potentially pursuing exclusion actions against those who continue to furnish pediatric gender-affirming care during the pendency of any rulemaking or collateral litigation.

Providers should evaluate their risk exposure and consider the operational implications for their businesses. For questions on regulatory strategy and potential implications of the declaration and associated regulatory actions, please reach out to AGG’s Gender-Affirming Care Investigations Response Team.

 

[1] U.S. Department of Health and Human Services, Declaration on Pediatric Sex-Rejecting Procedures (Dec. 18, 2025), https://www.hhs.gov/sites/default/files/declaration-pediatric-sex-rejecting-procedures.pdf.

[2] HHS, HHS Acts to Bar Hospitals from Performing Sex-Rejecting Procedures on Children (Dec. 18, 2025), https://www.hhs.gov/press-room/hhs-acts-bar-hospitals-performing-sex-rejecting-procedures-children.html.

[3] For clarity, this discussion uses “sex-rejecting procedures” when referring to the terminology used in the proposed actions and “gender-affirming care” when describing the care as it is commonly referenced in the healthcare industry.

[4] Medicare and Medicaid Programs; Hospital Conditions of Participation—Sex-Rejecting Procedures, 90 Fed. Reg. 59,463 (Dec. 19, 2025) (CMS-3481-P), https://www.federalregister.gov/d/2025-23465.

[5] Medicaid Program; Prohibition on Federal Medicaid and Children’s Health Insurance Program Funding for Sex-Rejecting Procedures Furnished to Children, 90 Fed. Reg. 59,441 (Dec. 19, 2025) (CMS-2451-P), https://www.federalregister.gov/d/2025-23464/.

[6] See U.S. Food & Drug Admin., Warning Letters, https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/compliance-actions-and-activities/warning-letters (search for “breast binders” to identify specific FDA warning letters).

[7] Nondiscrimination on the Basis of Disability in Programs or Activities Receiving Federal Financial Assistance, 90 Fed. Reg. 59,441 (Dec. 18, 2025) (RIN 0945-AA27), https://www.federalregister.gov/d/2025-23484.

[8] “Sex-rejecting procedures” are defined as “pharmaceutical or surgical interventions, including puberty blockers, cross-sex hormones, and surgeries such as mastectomies, vaginoplasties, and other procedures, that attempt to align an individual’s physical appearance or body with an asserted identity that differs from the individual’s sex.”

[9] See 42 C.F.R. § 1001.2 for definition of “professionally recognized standards of health care.”

[10] The complaint filed by the 19 state attorneys general can be accessed here.

[11] CMS proposes several definitions for terms central to the implementation of the proposal, including “sex-rejecting procedure,” “child,” “female,” and “sex.”

[12] The proposal carves out several exceptions: (1) for treatment of medically verifiable disorders of sexual development; (2) for procedures performed for purposes other than attempting to align an individual’s physical appearance or body with an asserted identity that differs from the individual’s sex; and (3) for care necessary to treat complications from previously performed procedures.

[13] CoPs range from relatively straightforward operational requirements to highly technical, system-wide obligations. For example, hospitals must maintain an effective infection prevention and control program designed to prevent, control, and investigate infections and communicable diseases. See 42 C.F.R. § 482.42. By contrast, hospitals are also required to design, implement, and continuously evaluate a hospital-wide Quality Assessment and Performance Improvement (“QAPI”) program that uses data to identify quality indicators, track adverse patient events, analyze root causes, implement corrective actions, and monitor the effectiveness of those actions over time. See 42 C.F.R. § 482.21.

[14] Officials for Children’s Hospital Colorado pointed to HHS’ statements and a previously announced investigation into the hospital’s provision of gender-affirming care. A news article from January 2, 2026, is available here.

[15] Pursuant to its discretionary authority under 42 U.S.C. § 1320a-7(b)(6)(B).

[16] These figures reflect only current and active exclusions and do not account for individuals or entities previously excluded under this authority who have since been reinstated to federal healthcare programs.