Texas District Court Vacates Parts of ACA Section 1557 Final Rules | Practical Law

Texas District Court Vacates Parts of ACA Section 1557 Final Rules | Practical Law

In Franciscan Alliance, Inc. v. Azar, the Northern District of Texas vacated parts of the May 2016 final regulations implementing Section 1557 of the Affordable Care Act (ACA). The ruling follows a 2016 order in which the same district court granted a preliminary injunction enjoining enforcement of parts of the regulations involving gender identity and termination of pregnancy. In the 2019 order, the court adopted analysis from its 2016 order in concluding that the final regulations violate the Administrative Procedure Act (APA). The court also concluded that the plaintiffs—private health providers—demonstrated that the final regulations violated the Religious Freedom Restoration Act of 1993 (RFRA) as applied to them.

Texas District Court Vacates Parts of ACA Section 1557 Final Rules

Practical Law Legal Update w-022-4766 (Approx. 5 pages)

Texas District Court Vacates Parts of ACA Section 1557 Final Rules

by Practical Law Employee Benefits & Executive Compensation
Published on 21 Oct 2019 • USA (National/Federal)
In Franciscan Alliance, Inc. v. Azar, the Northern District of Texas vacated parts of the May 2016 final regulations implementing Section 1557 of the Affordable Care Act (ACA). The ruling follows a 2016 order in which the same district court granted a preliminary injunction enjoining enforcement of parts of the regulations involving gender identity and termination of pregnancy. In the 2019 order, the court adopted analysis from its 2016 order in concluding that the final regulations violate the Administrative Procedure Act (APA). The court also concluded that the plaintiffs—private health providers—demonstrated that the final regulations violated the Religious Freedom Restoration Act of 1993 (RFRA) as applied to them.
In Franciscan Alliance, Inc. v. Azar, the Northern District of Texas vacated parts of the May 2016 final regulations implementing Section 1557 of the Affordable Care Act (ACA) ( (N.D. Tex. Oct. 15, 2019); see Practice Note, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Applicability of Section 1557 Final Regulations). Adopting much of the reasoning of the district court's 2016 order granting a preliminary injunction enjoining enforcement of parts of the regulations (which was issued by the same judge), the court concluded that the final regulations violated the Administrative Procedure Act (APA) and Religious Freedom Restoration Act of 1993 (RFRA).

Nationwide Preliminary Injunction on Parts of Section 1557 Regulations

As background, this litigation involves HHS final regulations issued in May 2016 to implement the nondiscrimination requirements of ACA Section 1557. The final regulations prohibit covered entities from, among other things, discriminating on the basis of:
  • Gender identity.
  • Termination of pregnancy.
(81 Fed. Reg. 31375 (May 18, 2016).)
Several states and private health providers sued HHS, challenging the final regulations under the APA and RFRA. The American Civil Liberties Union (ACLU) and another nonprofit organization (proposed intervenors) sought to intervene in the litigation. In December 2016, the district court granted the plaintiffs' motion for a nationwide preliminary injunction enjoining HHS from enforcing the challenged provisions but did not rule on their motion for summary judgment (227 F. Supp. 3d 660 (N.D. Tex. Dec. 31, 2016); see Practice Note, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Nationwide Injunction of Some Section 1557 Requirements). In the court's view, the final regulations:
  • Violated the APA by contradicting existing law and exceeding statutory authority under the ACA.
  • Likely violated the RFRA (42 U.S.C. § 2000bb-1(b)).
The district court denied the proposed intervenors' request to intervene as of right. In July 2017 (after a change in administrations), the district court stayed proceedings to give HHS an opportunity to reconsider the final regulations. The stay was lifted in December 2018, and:
  • The plaintiffs filed a renewed motion for summary judgment.
  • The proposed intervenors filed a renewed motion to intervene.
In May 2019, HHS issued proposed Section 1557 regulations that omit the challenged provisions (see Practice Note, Re-Proposed Regulations Under ACA Section 1557: Nondiscrimination in Health Programs and Activities). However, the May 2019 regulations are not yet final and the district court – citing principles of "equity and judicial economy"—concluded that it should rule on the pending motions in the case before it.

Court Vacates "Unlawful Portions" of Final Regulations

Granting both motions, the district court ruled that:
  • Intervention was warranted.
  • The final regulations' prohibitions on the basis of gender identity and termination of pregnancy violated the APA and RFRA.

Intervention as of Right Was Warranted

In denying the proposed intervenors' original motion to intervene as of right, the district court had concluded that HHS adequately represented their interests in the litigation. The district court acknowledged in its recent order, however, that—following the change in administration—HHS was no longer defending the final regulations. HHS now conceded that the regulations violated the APA. The court reasoned that HHS had therefore taken action that was "out of step" with its original position that the final regulations were lawful. Accordingly, the proposed intervenors now met the test for intervention as of right.

Final Regulations Violated the APA and RFRA

The district court ruled in the plaintiffs' favor on the merits of their APA and RFRA claims. Regarding the APA claim, the court relied on its reasoning from the preliminary injunction order, namely, that the final regulations conflicted with Title IX of the Education Amendments of 1972 (Title IX) (see Practice Note, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): District Court: Some Aspects of Section 1557 Final Regulations Are Contrary to Law).
Consistent with its decision not to defend the final regulations, HHS did not address the providers' RFRA claim. Ruling for the plaintiffs, the district court held that:
  • The final regulations substantially burdened the providers' free exercise of religion.
  • Even if the government had a compelling interest in ensuring access to gender transition procedures and abortions, there were less restrictive means available (for example, helping individuals find other providers and then covering the cost of procedures).

Appropriate Relief Was Vacatur

The district court concluded that:
  • A permanent injunction was unnecessary at present (though that conclusion could be revisited at a later time).
  • Vacatur of the challenged parts of the regulations (along with a remand to HHS for further consideration) was appropriate under the APA because the regulations conflicted with Title IX.
According to the court, vacatur would address the plaintiffs' claims under both the APA and RFRA, and the plaintiffs could request further relief from the court if HHS attempted to enforce the vacated provisions.

Practical Impact

In arguing to be included in this litigation as a party, an ACLU director indicated that its members have sought transition surgeries and abortions. As a result, it won't be surprising if this latest Texas district court ruling in the ACA space also is appealed to the Fifth Circuit (see also Legal Update, After a Sweeping Decision on ACA Contraceptives, Focus Turns to the Fifth Circuit).
In a footnote, the district confirmed that it is only vacating the portions of the final regulations that are unlawful under the APA and the RFRA. As a result, the non-vacated portions of the final regulations remain in effect—at least for now. However, HHS is presumably at work finalizing its re-proposed Section 1557 regulations, which were issued over the summer. If finalized as proposed, those rules would reduce the compliance obligations under Section 1557 (see Practice Note, Re-Proposed Regulations Under ACA Section 1557: Nondiscrimination in Health Programs and Activities).