Overview
On July 4, 2025, President Trump signed H.R.1, the One Big Beautiful Bill Act (“OBBBA” or the “Act”), into law. Among its numerous healthcare provisions, Section 71113 of the Act bans Medicaid payments that are considered direct spending from being issued to a new category of “Prohibited Entities” for a one-year period beginning July 4, 2025. The category of “Prohibited Entities” relates to reproductive health and family planning services, with important implications for providers of these services and their patients.
Who Are Prohibited Entities?
Section 71113 defines a “Prohibited Entity” as an entity, including any “affiliates, subsidiaries, successors, and clinics” of the entity, that meets the following criteria:
- Is a 501(c)(3) non-profit tax-exempt organization as of the first day of 2025 Q3;
- Is an “essential community provider,” meaning a provider that serves predominantly low-income, medically underserved individuals and is primarily engaged in family planning services, reproductive health, and related medical care, as defined in 45 C.F.R. § 156.235;
- Provides abortion care (except when the pregnancy is the result of incest or rape, or the mother is at risk of dying if the pregnancy proceeds); and
- Received more than $800,000 from Medicaid in FY 2023.
Why Does This Matter to Healthcare Providers and Organizations?
Organizations that meet the definition of a “Prohibited Entity” will not receive any federal funds for any services for a period of one year. Because the definition of a “Prohibited Entity” is so broad, Section 71113 impacts not only nonprofit healthcare provider organizations that provide abortion services, but also any healthcare providers and organizations who are affiliated with or have contractual relationships with these organizations, including managed care plans and health plans.
From a care delivery standpoint, observers have expressed concern that the impact of this ban will be widespread and will put a strain on the U.S. healthcare system, disproportionately affecting access to care for certain communities and impacting healthcare providers’ ability to provide quality care—or in many cases—basic care to patients.
From an operational standpoint, the provision is not only causing panic, but also raising difficult questions for providers who offer family planning services and bill Medicaid. Many state Medicaid agencies have issued emergency guidance to help providers navigate how to proceed with billing for family planning and other related services. For example, the California Department of Health Care Services (“DHCS”), California’s Medicaid agency, has issued guidance clarifying that while Medi-Cal providers that meet the definition of “Prohibited Entity” may continue to submit claims for procedural abortion and medication abortion services that are already covered and reimbursed entirely through State General Funds, they must do so following specific procedures and should “hold” (i.e. not submit) claims for other services rendered on or after July 4, 2025.
What State and Judicial Responses Can We Expect?
Almost immediately, Planned Parenthood Federation of America, Inc. (“Planned Parenthood”), although not named directly in the Act, filed suit to block enforcement of these cuts on behalf of itself, its nearly 50 affiliates, and approximately 600 health centers across the U.S. On July 28, 2025, a federal judge extended a temporary restraining order to prohibit enforcement under the OBBBA for all Planned Parenthood locations. Other non-Planned Parenthood Prohibited entities are still subject to the defunding provision.
On July 29, 2025, Attorneys General of more than 20 states, including California, Connecticut, Colorado, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, New York, Oregon, Rhode Island, Vermont, Washington, Wisconsin, and the District of Columbia, along with the governor of Pennsylvania, filed a lawsuit alleging that Section 71113 is unconstitutional and asking that the provision be blocked. If the Attorneys General are successful, all abortion providers would be protected from the provision.
What Can Prohibited Entities Do?
Leech Tishman recommends that prohibited entities closely follow their state’s policy updates, litigation updates, and forthcoming changes in Medicaid billing guidelines.
***Note: This informational article shall not serve as legal advice and does not constitute the formation of an attorney-client relationship between you and Leech Tishman Nelson Hardiman, Inc.
Leech Tishman Nelson Hardiman’s Healthcare group continues to actively monitor all developments in this area. For more information or questions, please contact Nancy Lam, Phil Kanarsh, or another Leech Tishman Nelson Hardiman attorney.