Critical Insights for Healthcare Investors and Stakeholders amid HHS Layoffs and OGC Consolidation

The U.S. Department of Health and Human Services (HHS) is undergoing a major transformation that healthcare industry stakeholders, together with their legal counsel, should monitor for impacts. Possible effects could include delays or disruptions to transaction approvals and other regulatory, administrative, and enforcement processes.

In a March 11, 2025 press release, HHS announced that it would soon be closing six of its ten regional offices for the Office of the General Counsel (OGC). HHS also issued a revised Statement of Organization to OGC including an updated organizational structure and a reallocation of the responsibilities of the four remaining regional offices. Finally, HHS announced that it would reduce its workforce by 20,000 employees, and layoffs took effect on April 1, 2025.

Under the previous administration, HHS had a $1.8 trillion annual budget, the largest of any cabinet agency, which was mostly used to fund federal programs including Medicare and Medicaid, the National Institutes of Health, the Centers for Disease Control and Prevention, and others. OGC houses in-house lawyers who advise HHS on formulation, implementation, and enforcement of standards for the Centers for Medicare & Medicaid Services (CMS) and other federal health programs-in essence, regulating the U.S. healthcare ecosystem.

The Dechert Healthcare Team is monitoring this significant consolidation of the OGC regional offices, along with certain updates to OGC's authority and functions, for its import to the healthcare industry and its stakeholders. The current climate creates significant considerations to navigate for healthcare providers and suppliers, as well as sponsors and other investors active in this space.

Disruptions to Change of Ownership Determinations and Approvals

Change of Ownership (CHOW) approvals are critical for healthcare investors, suppliers, and providers undergoing mergers, acquisitions, or other structural changes. Transactions that require CHOW approval from these agencies include sales or leases of healthcare facilities, new management agreements that impact ownership structures, mergers or consolidations of healthcare facilities, and other significant transfers of ownership interests of such facilities. OGC regional offices provide support to CMS to manage any challenges to CHOW approvals or denials that are contested. Timely CHOW approvals are critically important to any healthcare transactions that contemplate shifts in ownership, as they impact providers' ability to secure financing, complete transactions, and continue seamless operations. Investors, providers, and suppliers seeking CHOW approvals or contesting denials should take proactive steps to minimize disruption due to the consolidation of offices, such as consulting with counsel to determine which of the four remaining offices will be reviewing their application.

Interruptions and Delays in Administrative, Enforcement and Compliance Actions

By way of background, OGC regional offices hold numerous roles, including conducting investigations into potential regulatory violations and compliance issues, making immediate jeopardy determinations as to patient health and safety, and managing the process of excluding providers from enrollment in federal healthcare programs due to non-compliant or fraudulent activities. The consolidation of offices could lead to uncertainty surrounding timelines for the completion of these determinations, as fewer attorneys will be available to conduct investigations and make determinations. Seasoned healthcare attorneys can assist in navigating these uncertain waters by conducting risk assessments to identify potential legal and regulatory risks associated with interruptions and delays, enabling investors to make informed decisions.

Changes in Regulatory and Legal Oversight

Historically, legal and regulatory oversight of healthcare companies was administered by an OGC and a CMS office both serving the same geographic area. The remaining four OGC regional offices will redistribute their workload to cover larger geographic areas, creating new challenges for remaining HHS employees that could have downstream effects on investors and other stakeholders. One such impact could be a loss of localized expertise and understanding of region-specific issues when working with newly reallocated employees. Uncertainty or negative impacts from resulting regulatory changes could lead to valuation fluctuations. By leveraging their expertise, attorneys can help healthcare investors navigate the complexities of the regulatory landscape, ensuring comprehension of and compliance with new and existing regulations.

Impacts on Medicare Administrative Contractors, Unified Program Integrity Contractors, and Supplemental Medical Review Contractors

Medicare Administrative Contractors (MACs), Unified Program Integrity Contractors, and Supplemental Medical Review Contractors play crucial roles in administering and ensuring the integrity of the Medicare program. The consolidation of OGC regional offices will impact the oversight provided to these contractors, as fewer attorneys will be available to train and support them. Delays in enforcement actions could affect the efficiency and effectiveness of MACs in processing claims to ensure compliance with Medicare coverage, coding, and billing requirements. Delays could also affect contractors working to investigate and prevent fraud, waste, and abuse. Investors should prepare for these delays that could make real-time liability estimations more difficult. Ultimately, these delays might impact the reimbursement process for healthcare investors, providers, and suppliers by increasing investment risks and altering market dynamics.

Conclusion

As a result of the OGC regional office consolidation and other structural changes, healthcare investors, providers, and suppliers could see potential delays and disruptions in regulatory, administrative, and enforcement processes. Stakeholders should take proactive steps and consult with experienced healthcare attorneys to assess how upcoming changes with OGC may impact transaction approval processes.