On December 31, 2016, the US District Court for the Northern District of Texas issued an opinion and order in Franciscan Alliance, Inc. et al v. Burwell, which preliminarily enjoins the US Department of Health and Human Services (HHS) from enforcing, on a nationwide basis, certain portions of the regulations under Section 1557 (Regulations) of the Affordable Care Act (ACA) that prohibit discrimination based on gender identity and termination of pregnancy. Two similar cases are pending in the US District Court for the District of North Dakota.

The court, in granting the preliminary injunction filed by Christian health care providers and the states of Texas, Wisconsin, Nebraska, Kansas, Louisiana, Kentucky and Mississippi, held that HHS exceeded its statutory authority under the ACA and likely violated the Religious Freedom Restoration Act by interpreting sex discrimination under federal law to include “gender identity” and “termination of pregnancy.”

Section 1557 of the ACA prohibits discrimination on the basis of race, color, national origin, sex, age or disability in health programs and activities that receive federal financial assistance from the federal government or are administered by an executive agency or any entity established under Title I of the ACA. The Regulations took partial effect on July 18, 2016, and the insurance provisions were effective on January 1, 2017.

Plaintiffs contended that HHS exceeded their authority in drafting the Regulations and that Section 1557 does not create new bases of prohibited discrimination, such as on the basis of gender identity, but rather incorporates the rules of four longstanding federal non-discrimination statutes: Title VI of the Civil Rights Act of 1964, Section 504 of the Rehabilitation Act of 1973, Title IX of the Education Amendments of 1972 and the Age Discrimination Act of 1975.

Penalties for violating the Regulations could be steep. Title IX provides the ground rules for prohibited sex discrimination and such rules apply to entities that are subject to Section 1557 (Covered Entities) and violate the Regulation’s prohibition on sex discrimination. In addition, Covered Entities are also subject to penalties associated with violations of Title VI of the Civil Rights Act of 1964. Covered Entities that violate the Regulations also face the loss of federal funding, debarment from doing business with the government and potential liability under the False Claims Act. Covered Entities are required to record and submit compliance reports upon request to HHS’s Office of Civil Rights and post public notices of compliance. The Regulations also provide for enforcement proceedings by the US Department of Justice and private lawsuits for damages and attorneys’ fees.

What does the ruling mean for Covered Entities under Section 1557 of the ACA? HHS has indicated that it intends to enforce the remaining provisions of the regulations, including protections against discrimination on the basis of race, color, national origin, age, or disability and its provisions aimed at enhancing language assistance for people with limited English proficiency. It is uncertain whether HHS will appeal the decision in light of the incoming Trump administration’s stated goal to repeal the ACA.