On December 31, 2016, the U.S. District Court for the Northern District of Texas issued a nationwide injunction in Franciscan Alliance, Inc. v. Burwell, N.D. Tex., No. 16-cv-108, holding that portions of the final rule issued by the HHS Office for Civil Rights (OCR), which sought to operationalize Section 1557 of the Affordable Care Act (ACA), violated the Administrative Procedures Act (APA). It is important to note that the court did not strike down the entire rule. Going forward, entities covered under Section 1557 will still be required to provide assurances and notices of nondiscrimination on the basis of sex. However, this requirement will no longer include protections against discrimination on the basis of gender identity or termination of pregnancy.

Background

Section 1557 of the ACA prohibits discrimination by a covered entity on the basis of race, color, national origin, sex, age, and disability in certain health programs or activities. The ACA derived its prohibition on sex discrimination from Title IX, a comprehensive federal law that prohibits discrimination on the basis of sex in any federally-funded education program or activity. On May 18, 2016, OCR published a final rule that sought to clarify and codify the nondiscrimination requirements of Section 1557, particularly the prohibition against discrimination on the basis of sex (Final Rule). The first elements of the Final Rule went into effect in July 2016.

Under the Final Rule, sex discrimination is broadly defined to include “gender identity,” which is defined as “an individual’s sense of gender, which may be male, female, neither, or a combination of male and female, and which may be different from an individual’s sex assigned at birth.” The definition also includes “gender expression,” i.e., the way an individual expresses gender identity, whether or not it conforms to social stereotypes associated with a particular gender, as well as an individual whose gender identity is different from the sex assigned to that person at birth, often referred to as “transgender” along with discrimination related to “termination of pregnancy,” i.e., discrimination due to past abortion history.

A complaint brought in August 2016 by the Franciscan Alliance (a Catholic hospital system), a Catholic medical group, a Christian medical association, and several states challenged the Final Rule’s interpretation of “sex discrimination” under Title IX as encompassing “gender identity” and “termination of pregnancy.”

What the Court Found

The court found that HHS’s interpretation of Section 1557 to prohibit discrimination against transgender persons wrongly construed both Title IX and Section 1557. According to the court, “sex” under Title IX is narrowly defined as the immutable biological differences between males and females as acknowledged at or before birth. By incorporating the statutory prohibition of sex discrimination in Title IX into Section 1557, Congress intended to keep the definition of discrimination on the basis of sex narrow in scope, thus not including protections for gender identity or termination of pregnancy. In addition, the court held the Final Rule’s failure to incorporate Title IX’s religious exemptions rendered the Final Rule arbitrary, capricious, and contrary to the law under the APA.

The court also addressed plaintiffs’ argument that the Final Rule violated the Religious Freedom Restoration Act (RFRA). The RFRA provides that the government may only substantially burden the free exercise of religion of a person or organization if the government (1) has a compelling interest to do so, and (2) is using the least restrictive means possible to further that compelling interest. Here, the court found the Final Rule placed substantial pressure on plaintiffs to abstain from a sincere religious exercise (i.e., the refusal to perform, refer for or cover gender transition procedures or abortions). Further, through the threat of enforcement actions, the court found the Final Rule made the practice of religious beliefs more expensive, which imposed an undue burden.

Although the government may burden one’s religious exercise under certain circumstances, it must show that the burden is the least restrictive means of advancing a compelling interest. The court found that HHS failed to prove the Final Rule employs the least restrictive means. According to the court, if the government wished to expand access to transition and abortion procedures, the most straightforward way to achieve this would be for the government to assume the cost of providing them. By requiring the plaintiffs to do so in its place, the judge determined that the Final Rule likely violated the RFRA.

Implications

The implications going forward are less clear as the decision to appeal the court’s ruling will ultimately be left to the Trump administration. The U.S. Supreme Court has already agreed to hear a case on whether an agency is allowed to interpret a federal prohibition on sex discrimination in schools under Title IX to cover discrimination based on gender identity. Of course, should the ACA be fully repealed under the new administration, such decision may prove moot for Section 1557.