Healthcare Law Blog

The Future of DEI in Healthcare: Navigating Compliance and Risk Under New Federal Policies

The landscape of diversity, equity, and inclusion (DEI) in healthcare is undergoing a seismic shift following recent executive orders (EO) issued by President Donald J. Trump. The order, titled "Ending Illegal Discrimination and Restoring Merit-Based Opportunity," aims to eliminate DEI initiatives within federal government agencies and private companies contracting with the government. This policy shift presents significant legal and operational challenges for healthcare providers, particularly those relying on federal funding.

The Trump Administration and DEI

On March 7, the Department of Health and Human Services (HHS) announced that it is investigating four unnamed medical schools and hospital systems for employment discrimination. These investigations are related to allegations received by the HHS Office of Civil Rights (OCR) that certain medical schools and hospitals receiving HHS funding “may operate medical education, training, or scholarship programs for current or prospective workforce members that discriminate on the basis of race, color, national origin, or sex.”

Since taking office, President Trump has issued multiple executive orders aimed at dismantling DEI initiatives across the federal government and targeting DEI programs in the private sector. These include:

• Executive Order 14173: This order rescinds affirmative action requirements under EO 11246, mandates federal contractors certify they do not operate “illegal” DEI programs, and directs the U.S. attorney general to identify enforcement targets in the private sector. This EO carries False Claims Act (FCA) implications for noncompliance. It also orders the Office of Federal Contract Compliance Programs (OFCCP) to halt enforcement of EO 11246, including all active litigation and audits related to affirmative action policies.

• Executive Order 14168: Defines “sex” as an “individual’s immutable biological classification as either male or female,” eliminating protections for gender identity and seeking legislative action to overturn the Supreme Court’s decision in Bostock v. Clayton County, the landmark United States Supreme Court civil rights decision in which the Court held that Title VII of the Civil Rights Act of 1964 protects employees against discrimination because of sexuality or gender identity.

• Executive Order 14151: Orders the removal of DEI offices and programs across the federal government, including eliminating DEI-related personnel, halting celebrations of certain demographic groups, and prohibiting the use of preferred pronouns in government email addresses.

• DOJ memorandum on DEI enforcement: U.S. Attorney General Pam Bondi has directed the Department of Justice (DOJ) Civil Rights Division to investigate and penalize DEI initiatives in the private sector, including potential criminal investigations.

• EEOC leadership overhaul: President Trump appointed Andrea Lucas as Acting EEOC Chair, who has stated her intent to enforce the administration’s priorities in rooting out DEI-based discrimination and defending single-sex workplace policies.

What constitutes an “illegal” DEI program or policy?

EO 14173 does not define what constitutes a DEI program or what the government believes may be an “illegal” DEI program. Instead, EO 14173 indicates that “preferences” and “workforce balancing” based on race, gender, and other protected characteristics are unlawful. It is unclear whether the Trump administration will issue guidance to clarify EO 14173.

Heightened FCA Scrutiny for Healthcare Providers

The False Claims Act remains a formidable tool for enforcing compliance in federal contracts. In 2024, federal authorities secured over $2.9 billion in FCA settlements and judgments.

Key concerns under the new executive orders include:

• False certification liability: Contractors must attest that they do not run DEI programs that violate anti-discrimination laws, exposing them to whistleblower lawsuits and DOJ enforcement if their programs are found non-compliant.
• Regulatory uncertainty: The withdrawal of FDA guidance on clinical trial diversity complicates compliance for healthcare institutions engaged in research and drug development.
• Government investigations: With an explicit mandate for federal agencies to target non-compliant organizations, healthcare providers could face increased scrutiny from enforcement bodies like the Office of Federal Contract Compliance Programs (OFCCP)  and DOJ.

Impact on Healthcare Providers and Federal Contractors 

Hospitals and other health systems have long embraced DEI principles, viewing them as vital to improving patient care, employee retention, and workforce representation. However, these executive orders could upend recruitment efforts aimed at fostering a healthcare workforce reflective of the communities they serve. The sticking point here is whether hospitals and other healthcare entities will be classified as federal contractors and thus subject to these EO mandates.

The federal government provides significant funding to hospitals and other provider networks through Medicare and Medicaid reimbursement, which raises concerns that hospitals may be subject to the executive order's mandates. EO 14173 explicitly names the medical industry as one that has "adopted and actively [used] dangerous, demeaning, and immoral race- and sex-based preferences under the guise of so-called 'diversity, equity, and inclusion' (DEI)." Many leading medical associations have countered this stance, arguing that DEI initiatives are essential to address systemic healthcare disparities and to improve patient outcomes.

Some of President Trump’s actions apply only to the federal government, but several of his executive orders impact the private sector. EO 14173, for example, applies to all companies in the private sector and has additional implications and requirements for federal contractors and grantees. Federal contractors are no longer required to create affirmative action plans for females and minorities. Additionally, it requires all agencies to include the following language in every federal contract and grant:

• (1) A requirement for contractors and grantees to certify that they do not “operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”

• (2) A requirement for contractors and grantees to agree that their “compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions” for purposes of the False Claims Act (“FCA”).

FCA investigations are always areas of concern for healthcare entities even when the entity is unaware of any violation; these investigations are intrusive, time-consuming, burdensome, and expensive. EO 14173 directs the DOJ to investigate and penalize DEI initiatives in the private sector, including potential civil and criminal investigations under the FCA. This executive order instructs the U.S. Attorney General to prepare a strategic enforcement plan to target and end illegal discrimination and preferences, including DEI.

Specifically, the EO directs DOJ to prepare a report detailing specific strategies to “encourage the private sector to end illegal DEI discrimination and preferences and comply with all Federal civil-rights laws,” including requiring each of the over 400 federal agencies to identify “[u]p to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars.”

Many hospitals and healthcare systems may find themselves the target of such an investigation. Key actions for healthcare providers impacted by EO 14173 and the other new executive orders include:

• Regulatory compliance audits: Conduct internal reviews of DEI programs, affirmative action policies, recruitment, and employment practices to ensure alignment with new federal mandates.

• Risk assessment and mitigation: Identify potential FCA vulnerabilities, whistleblower risks, and litigation exposure related to DEI policies.

• Preparation for government scrutiny: Anticipate potential audits and DOJ investigations, particularly for entities identified in strategic enforcement plans.

• Employment policy adjustments: Evaluate and, if necessary, modify hiring practices, employee training programs, and internal policies to comply with new federal requirements.

• Contractual and certification compliance: Ensure legal and compliance teams understand the new certification clauses required for federal contracts and grants.

The Road Ahead: Navigating Corporate Diversity Values in this New Framework

These new executive orders represent a fundamental shift in federal policy regarding DEI. However, many healthcare leaders and providers remain committed to the principle that diversity and inclusion contribute to better patient care and improved health outcomes.

Even more unsettling because of these executive orders is the concern that programs designed to address healthcare disparities in underserved and underrepresented populations may be seen as DEI policies with false claims implications. While the current executive orders seem tailored towards employment and workforce policies, the anti-DEI movement may broaden the impact on healthcare systems and providers.

As legal challenges and further regulatory clarifications emerge, healthcare providers must stay vigilant. Partnering with the experienced healthcare attorneys at McBrayer to proactively assess legal risks will be essential to navigating this new era for every impacted organization. The coming months will determine how these changes reshape the healthcare sector’s approach to DEI and its broader mission of access to equitable and compassionate patient care.

Lisa English Hinkle is a Member of McBrayer and chairs the healthcare law practice. Ms. Hinkle is based in the Lexington office. You can contact her at lhinkle@mcbrayerfirm.com or (859) 551-3668.

Valerie Michael is an Associate at McBrayer's Lexington office. Ms. Michael focuses her area of practice on healthcare law, handling a wide variety of matters, such as healthcare professional licensure defense, compliance, and regulatory issues. Ms. Michael can be reached at vmichael@mcbrayerfirm.com or (859) 551-3624.

Services may be performed by others. This article does not constitute legal advice.