Seventh Circuit Allows ACA Section 1557 Litigation Against Health Provider, as Health Plan Sponsor, to Proceed | Practical Law

Seventh Circuit Allows ACA Section 1557 Litigation Against Health Provider, as Health Plan Sponsor, to Proceed | Practical Law

In litigation addressing the disability nondiscrimination provisions under Section 1557 of the Affordable Care Act (ACA), the Seventh Circuit held that a covered dependent under a health plan could sue the employer/plan sponsor of the plan regarding a plan exclusion for autism treatment. The plan sponsor-defendant in the litigation, a health provider, argued unsuccessfully that the dependent's claim did not fall within the zones of interest protected by ACA Section 1557.

Seventh Circuit Allows ACA Section 1557 Litigation Against Health Provider, as Health Plan Sponsor, to Proceed

by Practical Law Employee Benefits & Executive Compensation
Published on 10 Aug 2022 • USA (National/Federal)
In litigation addressing the disability nondiscrimination provisions under Section 1557 of the Affordable Care Act (ACA), the Seventh Circuit held that a covered dependent under a health plan could sue the employer/plan sponsor of the plan regarding a plan exclusion for autism treatment. The plan sponsor-defendant in the litigation, a health provider, argued unsuccessfully that the dependent's claim did not fall within the zones of interest protected by ACA Section 1557.
The Seventh Circuit has ruled, in litigation addressing the disability nondiscrimination provisions under Section 1557 of the Affordable Care Act (ACA), that a covered dependent under a health plan could sue the plan sponsor of the plan regarding an exclusion for autism treatment (T.S. v. Heart of Cardon, LLC, (7th Cir. Aug. 5, 2022)). The plan in dispute was sponsored by a health provider (in its role as employer), which argued unsuccessfully that the dependent's ACA Section 1557 claim did not fall within the zones of interest protected by Section 1557.
As background, ACA Section 1557 prohibits individuals from being excluded from participation in, being denied the benefits of, or being subject to discrimination under any "health program or activity" that receives federal financial assistance (including grants, credits, and subsidies) on specified grounds that include disability discrimination (see Article, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Overview of Section 1557 and Practice Note, Affordable Care Act (ACA) Overview). Section 1557 has been the topic of several sets of implementing regulations, including:
Section 1557 is also the topic of significant and ongoing litigation.

Health Provider Delivered Health Care and Sponsored Its Own Health Plan

The health provider-defendant in this case:
  • Operated a skilled-nursing and assisted living facility and was, in that capacity, primarily engaged in the business of providing health care to the facility's patients and residents.
  • Was subject to ACA Section 1557 as a result because it received reimbursements for its health care-related services from Medicare and Medicaid.
In its employer capacity, however, the health provider also sponsored a self-funded health plan that offered health coverage (including both major medical and mental health benefits) to its employees and their covered dependents. The plaintiff in this case, a minor and covered dependent under the provider's plan, suffered from autism spectrum disorder for which the dependent's physician had recommended applied behavioral analysis (ABA) therapy (see Practice Note, Mental Health Parity: Nonquantitative Treatment Limitations (NQTLs): Experimental or Investigative Treatments: Autism Spectrum Disorder (ASD)).
Although the plan initially provided coverage for the ABA treatment, a new plan administrator later denied coverage for the treatment—citing the plan's exclusion for ABA therapy. The dependent, through his parents, sued the provider alleging that its plan's coverage exclusion for autism treatment violated Section 1557 by discriminating against him on the basis of disability. Raising a threshold issue in this litigation, the provider argued that the dependent's claim must be rejected because it did not fall within the "zone of interests" protected by Section 1557. Specifically, the provider argued that:
  • Only a person who is an intended beneficiary of federal funding received by the provider (that is, the basis for the provider being a Section 1557 covered entity) was a permissible plaintiff under Section 1557.
  • The dependent, as a beneficiary under the provider's health plan, was not such an individual and therefore could not bring a Section 1557 claim against the provider.
The district court rejected this argument, but allowed the provider to seek immediate review of the question by the Seventh Circuit.

Seventh Circuit Allows Section 1557 Claim to Proceed

Affirming the district court, the Seventh Circuit concluded that the dependent plausibly alleged a claim that fell within the zones of interest protected by Section 1557. As a result, the Seventh Circuit agreed with the district court that the dependent was a permissible plaintiff and this his Section 1557 claim against the provider could proceed.
The Seventh Circuit rejected the provider's assertion that the dependent's claim fell outside the zones of interest protected by Section 1557. Under a zones of interest analysis, the Seventh Circuit observed, a court asks whether a particular class of individuals has the right to sue under a statute. The zones of interest analysis requires consideration of:
  • The specific purpose of a statutory provision (to identify the interests that are arguably protected by the statute).
  • Whether the interests asserted by a given plaintiff fall within the identified statutory interests.
In applying this analysis, the Seventh Circuit observed that ACA Section 1557 seeks:
  • To prevent federal resources from supporting discriminatory conduct (that is, by linking Section 1557's prohibited conduct to federal funding).
  • To provide individuals a way to protect themselves from discriminatory conduct, by authorizing a private right of action.
The Seventh Circuit held that the dependent's allegations brought him comfortably within the class of participants intended to be protected by Section 1557. This class, according to the court, consists of individuals who have been subjected, because of their disabilities, to discrimination by health care entities. Specifically, the dependent asserted that the provider (a health care entity) designed and controlled its health plan to exclude the dependent from certain coverage due to the dependent's autism.

Section 1557 Plaintiffs Not Limited to Beneficiaries of Federal Funds

The Seventh Circuit rejected the provider's argument that the only permitted plaintiffs under Section 1557 were intended beneficiaries of federal funds received by a Section 1557 covered entity. In this case, the provider argued, the class of intended beneficiaries included the provider's patients, but not participants and dependents under its health plan. This argument, the court concluded, was not supported by Section 1557's text because:
  • Section 1557 prohibits discrimination against (and provides a private right of action to) individuals generally—as opposed to merely patients of a health program or activity or beneficiaries of federal financial assistance.
  • Congress could have easily used the words patients or beneficiaries if it had intended to restrict the universe of Section 1557 consistent with the provider's argument.
The court also rejected the provider's argument that Section 1557's zones of interest are restricted to the provider's patients to avoid a mismatch between federal funding and intended beneficiaries. According to the provider, this narrower reading was necessary because the only portion of the provider's operations that received federal funds were its patient care segments (which received Medicare and Medicaid funds). This argument was bolstered, the provider contended, by Section 1557's applicability to health programs or activities, any part of which receives federal funding. But citing longstanding definitions of the disability statutes underlying Section 1557, the Seventh Circuit concluded that covered programs or activities for Section 1557 purposes were not limited to the specific portions of an entity's operations that receive Medicare and Medicaid reimbursements. Moreover, the court observed, the Department of Health and Human Services's (HHS's) current interpretation of the term health program or activity included all the operations of entities that are primarily engaged in the business of providing health care that receive federal financial assistance (45 C.F.R. § 92.3(b)).
As a result, the Seventh Circuit held that because Section 1557's prohibition on discrimination is not limited to the specific portion of a covered entity that receives federal financial assistance, the right to sue under Section 1557 is not restricted to plaintiffs who are intended to benefit from that assistance.

Practical Impact

Although the Seventh Circuit's ruling did not address the merits of the dependent's autism coverage claim, potential Section 1557 defendants—including health providers and health insurers—may be disappointed by the court's relatively broad reading of who can sue them under Section 1557 (and under what circumstances). In addition, regarding health insurers, the Biden administration's recently re-proposed regulations would add back a definition of covered "health programs or activities" for Section 1557 purposes that would include:
  • Providing or administering health-related insurance coverage or services.
  • Furnishing assistance in obtaining health-related insurance coverage or services.