On December 31, 2016, in Franciscan Alliance v. Burwell, Case No. 7:16-cv-00108-O, the District Court for the Northern District of Texas  issued a nationwide injunction finding that portions of the U.S. Department of Health & Human Services, Office for Civil Right’s (OCR) Final Rule for ACA Section 1557 violated the Administrative Procedures Act and cannot be enforced. The case was brought by eight States, three private healthcare providers and the Christian Medical & Dental Society.

U.S. District Court Judge Reed O’Connor found that OCR’s interpretation of Section 1557 to prohibit discrimination against transgender persons wrongly construed both Title IX and Section 1557. He found that these statutes only prohibit discrimination on the basis of biological sex. He also found that OCR’s Final Rule failed to properly incorporate the exceptions for religious institutions and for abortion services found in Title IX – which he said that Section 1557’s language was intended to incorporate. See 20 USC § 1681(a)(3); § 1688.

Judge O’Connor ultimately issued an injunction prohibiting OCR from enforcing its prohibitions on discrimination on the basis of gender identity and termination of pregnancy. The ruling applies to all Section 1557 covered entities, whether provider or payer. For a health plan, the ruling would mean that OCR (or private litigants using OCR’s regulation) cannot require covered entities to  provide health coverage for abortion or gender transition services based on ACA 1557.  So the ACA 1557 Rules are currently unenforceable to the extent they enforce these concepts. In addition, the Department cannot enforce the specific regulations in 45 CFR § 92.206 requiring equal access to covered services for transgender persons, and in 92.207 prohibiting health plan exclusions for gender transition.

Importantly, the judge left the rest of the Section 1557 Final Rule in place. So covered entities still have to comply with OCR rules requiring them to provide assurances and notices of nondiscrimination on the basis of sex. But these will no longer mean that the entity doesn’t discriminate on the basis of gender identity or termination of pregnancy.

Because this was a nationwide injunction, it applies in all federal jurisdictions. Since it was issued by a Texas District Court, it could be reversed by the 5^th Circuit, as well as by the U.S. Supreme Court.

OCR issued a broadcast email this morning reporting and stating its disappointment with the decision. However, OCR also said that it intended to comply, stating: “HHS’s Office for Civil Rights will continue to enforce the law – including its important 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, as well as other sex discrimination provisions – to the full extent consistent with the Court’s order.”

If you have further questions, please contact David Johnson at davidjohnson@crowell.com or (415) 365-7262.