Questions and Answers About CMS’ Final Medicaid and CHIP Funding Restrictions for Gender-Affirming Care for Minors

On Aug. 13, 2026, the Centers for Medicare & Medicaid Services (CMS) released a final rule restricting Medicaid and Children’s Health Insurance Program (CHIP) payments for certain gender-affirming medical care furnished to minors. The rule will take effect on Oct. 12, 2026.

The final rule largely adopts a proposed rule that CMS issued in December 2025 for which CMS received approximately 11,000 timely comments from individuals, government agencies, medical associations, advocacy organizations and others. CMS reports that more than 90% of the comments opposed the proposed provisions and fewer than 10% supported them. The final rule adopts the proposal with two changes: a six-month transition period for certain beneficiaries already receiving cross-sex hormone therapy and a revision replacing references to “child” with “individual” in the regulatory definition of “sex-rejecting procedure” because the definition itself applies regardless of age.

The following questions and answers address what the rule does, what it leaves unchanged, and some of the legal and operational issues for providers, plans, pharmacy benefit managers (PBMs) and pharmacies.

1. What does the final rule do?

The final rule requires state Medicaid plans to establish as policy that the Medicaid agency will not make payment under the plan for “sex-rejecting procedures” furnished to individuals under age 18. Federal financial participation (FFP) also is unavailable for state expenditures for those services.

For separate CHIP programs, the rule establishes a parallel prohibition for individuals under age 19.

2. What services are covered by the restriction?

The final rule applies to “sex-rejecting procedures,” which CMS defines as a pharmaceutical or surgical intervention undertaken for the purpose of aligning an individual’s physical appearance or body with an asserted identity that differs from the individual’s sex assigned at birth. The definition includes interventions intended to suppress development of sex-based characteristics or alter or remove primary or secondary sex characteristics. As applied to gender-affirming care, the definition includes puberty blockers, cross-sex hormones and surgical interventions when used for the purpose described in the rule.

The definition is based in part on why the treatment is furnished, rather than simply identifying particular drugs or procedures. The same medication or procedure may therefore fall within or outside the payment restriction depending on its medical use.

CMS also excludes several categories from the definition. The rule does not cover procedures undertaken to treat a medically verifiable disorder of sexual development; procedures undertaken for a purpose other than aligning an individual’s appearance or body with an asserted identity different from the individual’s sex assigned at birth; or treatment of complications caused or exacerbated by a covered procedure. CMS cites central precocious puberty, treatment following traumatic injury and hormone therapy for growth hormone deficiency as examples of care that may remain covered.

3. What does the final rule not do?

The rule does not establish a federal prohibition on furnishing gender-affirming care. Providers may continue to recommend or furnish affected services where permitted by state law and where another source of payment is available.

CMS also states that the rule does not regulate what physicians may recommend, dictate how medical services are provided, impose sanctions on providers for furnishing the affected care, exclude providers from federal healthcare programs for furnishing it or alter state scope-of-practice requirements.

Additionally, private insurance and self-pay arrangements are outside the payment prohibition. States also remain free to use state funds outside the federally matched Medicaid or CHIP programs.

This distinction separates the final rule from federal or state measures that prohibit the underlying care. Whether a provider may furnish a particular service remains a separate question governed by applicable federal and state law.

4. Can states continue to pay for the services with state-only funds?

Yes, though the mechanics matter.

CMS repeatedly explains that states may continue funding the affected services with state-only dollars outside the federally matched Medicaid or CHIP programs.

Because the Medicaid component of the final rule also prohibits the Medicaid agency from making payment “under the plan,” the final rule should not be read as merely allowing a state to continue an ordinary Medicaid state plan benefit and decline to claim the federal share. A state that wants to preserve public funding may need a state-only program or another payment mechanism outside the federally matched program.

For providers in states that currently cover this care through either Medicaid or CHIP, the state’s implementation decisions will therefore matter. A state may discontinue public coverage, establish a separate state-funded mechanism or take other action consistent with the rule and state law.

5. What happens to minor patients who are already receiving hormone therapy?

The final rule creates a limited transition period for beneficiaries already receiving cross-sex hormone therapy when the rule takes effect. State Medicaid and CHIP agencies may continue claiming FFP for those hormone therapy medications for up to six months after the effective date.

The transition period applies to beneficiaries actively receiving the therapy when the rule takes effect. It does not apply to patients who begin treatment afterward. There is no comparable transition period for puberty blockers or surgery. CMS describes the six-month provision as a payment transition. The provision does not establish a clinical tapering schedule for an individual patient.

6. Can Medicaid and CHIP still pay for mental health treatment for gender dysphoria?

Yes. The rule does not prohibit federal Medicaid or CHIP payment for psychotherapy, mental health counseling or other covered mental and behavioral health treatment, including treatment furnished to beneficiaries diagnosed with gender dysphoria.

For Medicaid beneficiaries under age 21, CMS also addresses the Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) program, which generally requires coverage of services needed to “correct or ameliorate” a condition. CMS concludes that EPSDT does not override the new payment restriction, even where a treating provider considers the affected pharmaceutical or surgical intervention medically necessary to treat gender dysphoria. Other covered services, including mental and behavioral health treatment, remain subject to ordinary EPSDT requirements.

7. How does the rule apply when the same medication has covered and restricted uses?

The rule does not exclude these medications from Medicaid coverage altogether. Instead, coverage depends on the indication for which they are prescribed.

That distinction intersects with the Medicaid Drug Rebate Program under Section 1927 of the Social Security Act (SSA). Commenters argued that Section 1927 generally requires state Medicaid programs to provide coverage for covered outpatient drugs used for medically accepted indications and does not authorize the exclusion adopted by the rule. CMS responds that it is not categorically excluding any covered outpatient drug. Instead, the rule restricts FFP for a specified use of an otherwise covered drug in the population covered by the regulation. States must continue to cover the same drugs for other medically accepted indications, including applicable FDA-approved or compendia-supported uses.

CMS offers a familiar analogy. States may exclude certain drugs when prescribed for weight loss, but a GLP-1 agonist still may need to be covered when prescribed for another covered indication. CMS expects a similar distinction here. A drug used as a puberty blocker for gender transition may be subject to the payment restriction, while the same drug prescribed for central precocious puberty may remain Medicaid-covered.

This creates an implementation issue for Medicaid plans, PBMs, pharmacies and prescribers, because pharmacy claims generally do not identify why a drug was prescribed. CMS anticipates that states may use prior authorization, utilization-management protocols, coding edits or other tools to distinguish restricted uses from covered indications. Plans and PBMs may therefore need to adjust claims and authorization processes, while pharmacies and prescribers may encounter additional documentation requirements when the same drug remains covered for another indication.

8. What statutory authority is CMS relying on?

For Medicaid, CMS relies principally on Sections 1902(a)(19) and 1902(a)(30)(A) of the SSA. Section 1902(a)(19) requires state Medicaid plans to include safeguards to ensure that care and services are furnished in a manner consistent with beneficiaries’ “best interests.” Section 1902(a)(30)(A) requires state plans to establish methods and procedures concerning utilization and payment that, among other things, assure payments are consistent with “quality of care.”

For CHIP, CMS relies on Section 2101(a), which addresses the provision of child health assistance in an effective and efficient manner coordinated with other sources of health benefits coverage. CMS also cites Section 1102, the Health and Human Services secretary’s general authority to issue rules necessary for administration of the SSA.

9. How does United States v. Skrmetti affect the analysis?

CMS cites the U.S. Supreme Court’s 2025 decision in United States v. Skrmetti to address commenters’ Equal Protection objections to the rule.

Skrmetti involved a Tennessee law restricting puberty blockers and hormones for minors when used for gender transition. The Supreme Court held that the law classified individuals based on age and medical use rather than sex. Because it did not impose a sex-based classification, the Court applied rational-basis review rather than heightened scrutiny and upheld the law.

CMS applies the same framework. The final rule applies to males and females and turns on the beneficiary’s age and the medical purpose for which the intervention is furnished. CMS therefore concludes that Skrmetti governs the Equal Protection classification and level-of-scrutiny analysis.

CMS uses the same reasoning in responding to arguments under Section 1557 of the Affordable Care Act. The agency concludes that the payment restriction does not discriminate on the basis of sex because the classification turns on age and medical purpose.

10. What about the existing injunctions against the administration’s executive orders?

CMS addresses the injunctions entered in Washington v. Trump and PFLAG, Inc. v. Trump as part of its final rule analysis.

Those courts enjoined implementation of provisions of Executive Orders 14168 and 14187 that would condition or withhold federal funding based on the fact that a healthcare entity or professional furnishes gender-affirming care. The PFLAG injunction also addresses reinstating the enjoined directives under another name.

CMS states that those injunctions do not bar the final rule for two reasons. First, CMS states that the rule rests on Section 5(a) of Executive Order 14187 and independent authority under the SSA, rather than the provisions of the executive orders addressed by the injunctions. Second, CMS explains that the rule operates differently. It restricts Medicaid and CHIP payments for specified services rather than withdrawing a provider’s broader federal funding because the provider furnishes gender-affirming care. A hospital or physician does not lose all federal healthcare program funding under this rule merely because the provider furnishes an affected service through another lawful source of payment.

CMS also states at the outset of the final rule that the regulations will not be implemented or enforced in contravention of a court order.

11. How does the final rule address the Kennedy Declaration?

In December 2025, HHS Secretary Robert F. Kennedy Jr. issued a declaration concerning the safety, effectiveness and professional standards associated with the procedures addressed by this rule. The declaration was tied to statutory and regulatory authorities allowing exclusion of providers from federal healthcare programs for furnishing services that fail to meet professionally recognized standards of care.

In Oregon v. Kennedy, the U.S. District Court for the District of Oregon determined that the secretary lacked statutory authority to issue the declaration, vacated it and permanently enjoined HHS from relying on the declaration or a materially similar policy to supersede professionally recognized standards of care in the plaintiff states.

CMS states that the Medicaid and CHIP final rule does not rely on the Kennedy Declaration. CMS draws a distinction based on legal mechanism: the Kennedy Declaration addressed provider exclusion based on professional standards of care, while this rule addresses whether Medicaid and CHIP may pay for specified services under separate provisions of the SSA. The rule does not purport to exclude providers from federal healthcare programs for furnishing the care.

12. What happened to the separate Hospital Condition of Participation proposed rule?

That proposal has not been finalized.

CMS separately proposed in December 2025 to establish a new hospital Condition of Participation (CoP) that would prohibit Medicare- and Medicaid-participating hospitals from performing “sex-rejecting procedures” on children. Unlike this final payment rule, the CoP proposal operates through the requirements a hospital must satisfy to participate in Medicare and Medicaid. The two rulemakings therefore use different regulatory mechanisms. The final rule discussed here governs payment for specified services under Medicaid and separate CHIP programs. The proposed CoP would govern hospital participation requirements.

Commenters also raised questions about differences between the two proposals, including the Hospital CoP proposal’s treatment of the procedures as outside “health care” for purposes of CMS’s discussion of the federal prohibition on controlling the practice of medicine. CMS acknowledges the comments in this final rule and states that the Medicaid/CHIP rule and proposed Hospital CoP operate independently.

CMS states in this final rule that it is continuing to review comments on the hospital proposal. Hospitals therefore should treat the CoP proposal as a separate pending rulemaking.

13. What happens if a state does not follow the new requirements?

The rule operates through the existing Medicaid and CHIP state-plan and federal oversight framework.

Specifically, CMS may approve or disapprove state Medicaid plans and CHIP program benefits, and the secretary may withhold federal funds, in whole or in part, for noncompliance with SSA requirements. Accordingly, states will need to conform their Medicaid and CHIP programs to the new payment requirements, and states may need to coordinate with managed care plans, providers, legal counsel and agency leadership as part of their compliance processes.

For providers, the consequences are more likely to appear through the state or plan payment process than through a new federal provider penalty. Claims may be denied, prior authorization may be unavailable for a restricted use or additional documentation may be required to establish that a medication was prescribed for another indication. The final rule itself does not establish a new exclusion or program-wide funding penalty for a provider that furnishes the affected care using another lawful payment source. Existing federal and state false claims laws may nevertheless apply if a provider knowingly submits or causes the submission of a claim that misrepresents the purpose for which a service was furnished in order to obtain Medicaid payment.

14. When does the rule take effect, and what should providers and plans be looking at now?

The final rule becomes effective 60 days after publication, which is Oct. 12, 2026. The six-month transition period for qualifying beneficiaries already receiving cross-sex hormone therapy runs from the effective date.

For providers and plans, implementation will depend in part on existing state coverage policy. Organizations should identify Medicaid and separate CHIP patients receiving affected services; determine whether the state will establish a state-only funding mechanism; identify patients who may fall within the hormone-therapy transition period; and review pharmacy, prior-authorization and claims processes for drugs whose coverage depends on the indication for which they are prescribed.

The final rule also should be read alongside, rather than as a substitute for, applicable state law. While the final rule determines when Medicaid and separate CHIP may pay for the covered services, state law continues to govern whether those services may be furnished, and other sources of coverage may remain available.

Attorneys in McGuireWoods’ Healthcare Compliance, Regulatory & Policy Practice Group have the knowledge and experience healthcare providers, investors and innovators need to assess and achieve compliance with the regulatory requirements that affect their businesses.