On January 20, 2025, President Trump issued an Executive Order that, among other things, paused distribution of federal funds under contracts, grants and agreements providing funding to non-governmental organizations “supporting or providing services, either directly or indirectly, to removable or illegal aliens.”  The Executive Order instructs the Attorney General and Secretary of Homeland Security to review and potentially audit all such agreements and terminate agreements found to be “in violation of law” or “sources of waste, fraud, or abuse.” In addition, they are instructed to “[i]nitiate clawback or recoupment procedures, if appropriate” for any such terminated agreements.

Yesterday, the Executive Office of Management and Budget (“OMB”) distributed a memorandum to all federal agencies designed to facilitate the implementation of the Executive Order described above and many others.  Beginning today, January 28, 2025 at 5:00PM, the memorandum will temporarily pause “all activities related to obligation or disbursement of all Federal financial assistance” and any other agency activity that may conflict with the President’s position on “foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal.”  The White House has clarified that the pause does not apply to Medicare, Medicaid, Social Security, student loans, or student grants, but appears to largely freeze all distribution of federal grant funds, including funds otherwise available to federally qualified health centers and Ryan White HIV/AIDS Program participants.  States are reporting that they are having difficulty accessing the Medicaid payment portal, notwithstanding the White House statements that Medicaid is unaffected.  There is a mechanism for OMB to make case-by-case decisions regarding specific funding streams, but it is unclear what programs might be able to obtain relief in that manner.

Agencies will have until February 10, 2025 to complete a comprehensive report on their Federal financial assistance programs.  In the  instructions that OMB has provided, however, agencies are expected to submit a completed spreadsheet of relevant information by February 7, 2025.  OMB will not provide further guidance to an agency before that agency has submitted its reports.  Among the questions to which agencies must answer “no” pursuant to their reports include:

• Does this program provide Federal funding to non-governmental organizations supporting or providing services, either directly or indirectly, to removable or illegal aliens?
• Does this program provide funding that is implicated by the directive to end discriminatory programs, including illegal DEI and “diversity, equity, inclusion, and accessibility” (DEIA) mandates, policies, programs, preferences, and activities, under whatever name they appear, or other directives in the same EO, including those related to “environmental justice” programs or “equity-related” grants?
• Does this program promote gender ideology?
• Does this program promote or support in any way abortion or other related activities identified in the Hyde Amendment?

OMB’s pause on Federal funding could have a significant impact on 340B program grantees that obtain funding directly from the federal government.  Grantees should not expect to access grant funding before February 10, 2025 at the earliest.  Awards that are in process will likely be delayed.  Federal grantees that heavily depend on drawing down federal grant dollars to cover operating expenses may experience significant hardship until payments are unfrozen.

While the full impact of the Executive Order and OMB Memorandum remains unclear, we anticipate that it will affect numerous existing grants, the announcing and awarding of new grants, and the number of available funding opportunities.  Powers is also concerned that the standards that will be used to review awards are vague.  For example, whether a program is a “source of waste” seems subjective and potentially influenced by the ideology of the reviewer.

Some states have already announced plans to seek an injunction to prevent the freeze from taking effect.  Likewise, a coalition of nonprofit organizations and public health advocates have filed a lawsuit asking for an emergency order to block the pause on federal funding.  This is a rapidly unfolding event, and there are likely to be additional developments in the coming days.

The Powers team will continue to monitor the situation and advocate for our grantee clients.