| The Trump administration’s effort to remake federal spending priorities hit another legal obstacle after a federal judge sided with a coalition of 21 states and the District of Columbia — led by New Jersey — challenging its authority to cancel grants awarded under the Biden administration. The dispute centers on President Donald Trump’s executive orders directing agencies to review existing grants and eliminate funding that no longer aligned with the administration’s priorities. Agencies relied on those directives and an existing federal grant regulation to terminate billions of dollars in awards. But U.S. District Judge Indira Talwani ruled that the regulation permitting federal agencies to terminate a grant that “no longer effectuates the program goals or agency priorities” does not allow agencies to cancel existing grants simply because a new administration has adopted different policy priorities. → Instead, the judge said the provision applies to the goals and priorities in place when the grant was first awarded. Why it matters: The ruling narrows one of the administration’s primary legal justifications for terminating existing grants based on shifting policy priorities. The ruling “confirms that the Trump administration defied the law when it embarked on its campaign to gut critical federal funding to the states,” New Jersey Attorney General Jennifer Davenport said in a statement. “The president and his allies cannot hold critical programs hostage to their personal whims and political ideologies, destabilizing the country by yanking essential federal funding that was already awarded to the states,” Davenport said. The Office of Management and Budget did not respond to a request for comment on the ruling — or whether the federal government plans to appeal. The states that filed the suit, including GOP-led Nevada and Vermont, told the court that they feared the Trump administration’s new policies puts $5.4 billion worth of grant funding “at risk of termination.” However, the states did not ask the court to reinstate grants that had already been terminated or any other damages. The ruling also comes as the Trump administration pursues a broader overhaul of the federal grantmaking process that would give political appointees a greater role in reviewing grant applications and tighten oversight of how federal awards are made and managed. The relatively obscure OMB proposal received a record-high level of public comments, my colleague Rebecca Adams, lead health care analyst at WP Intelligence, writes in her latest report. I’ve covered some of the pushback in Health Brief, but Rebecca dives deep. Overall, the proposal garnered a half-million comments — and a large swath from researchers, scientific organizations, the pharmaceutical industry, and other trade groups that argue it would curtail important biotechnology and medical research. → But Rebecca’s report has a potential impact that caught my eye: If the proposal takes effect, the credit ratings of some city and county governments, hospitals, transit agencies, research universities, and nonprofits could be downgraded. Two of the nation’s three credit-rating agencies are monitoring the proposal, Rebecca learned. “The ability to unwind active awards materially increases revenue uncertainty that could disrupt project timelines [and] increase borrowing risk,” according to Moody’s Ratings, which estimates that the threat is especially high for small communities that issue bond notes backed by Department of Agriculture rural development grants. Why it matters: Any organization with downgraded credit could face higher costs when borrowing money, impacting their finances and capacity to carry out their plans. “The proposal is noteworthy because it could reshape the framework governing federal grants and other forms of federal financial assistance,” Jessica Wood, managing director at S&P Global Ratings, told Rebecca. “From a credit perspective, the greatest relevance is likely for sectors with meaningful exposure to federal discretionary grants, including higher education and transportation, as well as entities that rely on or issue debt supported by federal loan programs.” Read the full report: “Industry, academia and local governments warn of federal funding shock.” Patient advocacy group Families USA hosted an event on health care affordability where a top official at the Centers for Medicare and Medicaid Services previewed how the Trump administration plans to leverage its regulatory power to lower costs for patients while reducing federal spending. Alec Aramanda, principal deputy director of the Center for Medicare, pointed to the agency’s recent decision to use a payment rule to cap reimbursements for skin substitutes — high-cost wound-care products often made from placental tissue — as an example of the administration’s approach. → In 2019, Medicare spent about $250 million on the products. By 2025, that amount had grown to about $15 billion. “There wasn’t a revolutionary change in skin substance products over this period of time, but a lot of people saw a payment arbitrage opportunity where skin substitutes — skin graft kind of products — were getting paid as though they were drugs,” Aramanda said during a conversation with Families USA Senior Director of Health Policy Sophia Tripoli. “The short of it is, they set their own price,” he said. “Using some of our authority, we were able to significantly drop the payment … an order of magnitude more,” Aramanda added. Last year, CMS finalized a Medicare payment rule to cap reimbursements at $127 per square centimeter. The industry has been trying to roll some of that back. But here’s what stuck out to me: “There’s more that can be done there. There are other cottage industries that have developed. … [B]ecause of the way that the fee-for-service system is set up, there are definitely opportunities for people to make money at the expense of patients,” Aramanda said. “We’re identifying what those are, within our authority, to try to set more sensible payment policies.” → I’ll have more coverage of the event in the coming days. “Telemedicine company touted by Novo Nordisk stressed profits over patient safety, ex-workers say,” STAT’s Elaine Chen reports. “‘Cancer Doesn’t Care What Party You Belong To’: Poisoned Water Is Turning This Rural State Bluer,” Tom Philpott and Nina B. Elkadi write for Politico Magazine. “Kaiser plan’s $47.5M web tracker settlement to cost $3.63 per class member,” Allison Bell reports at BenefitsPro. This newsletter is published by WP Intelligence, The Washington Post’s subscription service for professionals that provides business, policy and thought leaders with actionable insights. WP Intelligence operates independently from The Washington Post newsroom. Learn more about WP Intelligence. | 
