In ACA Section 1557 Litigation, Fifth Circuit Affirms Ruling Barring HHS from Requiring Health Provider to Perform Abortions or Gender-Reassignment Surgeries

Practical Law Legal Update w-036-7475 (Approx. 6 pages)

In ACA Section 1557 Litigation, Fifth Circuit Affirms Ruling Barring HHS from Requiring Health Provider to Perform Abortions or Gender-Reassignment Surgeries

by Practical Law Employee Benefits & Executive Compensation

Provider Objects to Performing Abortions and Gender-Reassignment Surgeries

As background, this litigation involves HHS final regulations issued in May 2016 to implement Section 1557's nondiscrimination requirements. The final regulations prohibited covered entities from, among other things, discriminating on the basis of gender identity and abortion (81 Fed. Reg. 31375 (May 18, 2016)). Several states and health providers sued HHS, challenging the May 2016 regulations under the APA and the Religious Freedom Restoration Act (RFRA) (42 U.S.C. § 2000bb-1(b)). In December 2016, a district court issued a nationwide preliminary injunction that prohibited HHS from enforcing the challenged provisions (227 F. Supp. 3d 660 (N.D. Tex. Dec. 31, 2016); see Practice Note, June 2020 Final Regulations Under ACA Section 1557: Nondiscrimination in Health Programs and Activities: Franciscan Alliance Litigation). In the district court's view, the May 2016 final regulations:

Violated the APA by contradicting existing law and exceeding statutory authority under the ACA.
Likely violated RFRA.

In December 2019, the Texas district court formally vacated portions of the May 2016 final regulations (see Legal Update, Texas District Court Vacates Parts of ACA Section 1557 Final Rules).

Also during this time, the Trump administration's HHS issued reproposed Section 1557 regulations that repealed, redesignated, or replaced numerous aspects of the May 2016 final regulations. For example, the reproposed regulations repealed the definition of "on the basis of sex" that included discrimination on the basis of gender identity.

HHS finalized the Trump administration's reproposed regulations in June 2020, just days before the Supreme Court ruled that the phrase "because of sex" for Title VII purposes prohibits employers from terminating employees on the basis of their sexual orientation or transgender status (Bostock v. Clayton County, GA, 140 S. Ct. 1731 (2020)). For more information, see:

In August 2020, a federal district court stayed the repeal of the definition of discrimination on the basis of sex (Walker v. Azar, 480 F. Supp. 3d 417, 430 (E.D.N.Y. 2020)). Subsequent litigation has challenged various other aspects of the June 2020 regulations.

Upon taking office in January 2021, the Biden administration issued an executive order directing the federal agencies to review agency actions that prohibit discrimination on the basis of sex for consistency with the Supreme Court's Bostock ruling (Executive Order 19888 (Jan. 20, 2021)).

In April 2021, the Fifth Circuit remanded the Franciscan Alliance case to the district court in light of developments (including those referenced above) occurring after the district court's earlier decision.

In May 2021, HHS issued an updated enforcement position regarding Section 1557 that was intended to be consistent with the Bostock ruling and Title IX (Bostock Notification). Under the Bostock Notification, HHS took the position that—effective May 10, 2021—it would interpret and enforce Section 1557's prohibition on discrimination on the basis of sex to include discrimination on the basis of sexual orientation and gender identity.

On remand, the district court issued a permanent injunction to prohibit HHS from interpreting or enforcing Section 1557 (or its implementing regulations) against the provider in a way that would require the provider to perform gender-reassignment surgeries or abortions. HHS appealed.

After HHS filed its appeal, the agency issued:

A notice indicating that entities' attempts to restrict gender-reassignment surgeries would likely violate Section 1557.
Reproposed regulations that would reinstate certain requirements from the May 2016 final regulations, including provisions that define discrimination on the basis of sex to include discrimination based on gender identity (see Legal Update, Re-Proposed Section 1557 Regulations Would Apply to Many Health Insurers and Require Adoption of Policies and Procedures).

Fifth Circuit Allows District Court's Permanent Injunction to Stand

On appeal, the Fifth Circuit dismissed the provider's APA claim as moot but otherwise affirmed the district court's ruling. As a result, HHS will continue to be barred from requiring the provider to perform gender-reassignment surgeries or abortions in violation of its religious beliefs.

APA Claim Was Moot

HHS argued that the provider's APA claim was moot because the Trump-era June 2020 regulations under Section 1557 vacated the parts of the Obama-era May 2016 regulations (involving abortion and gender identity) that the provider found objectionable. Agreeing with HHS, the Fifth Circuit reasoned that:

The remedy for an APA violation is limited to vacatur of the challenged rule.
The June 2020 final regulations vacated the challenged provisions from the May 2016 final regulations.

The Fifth Circuit acknowledged that the injunctions imposed in Walker and related litigation, along with HHS's enforcement position regarding Section 1557, posed the same harm to providers as did the May 2016 final regulations. The court noted, however, that it could not—under the APA—grant relief regarding those injunctions or Section 1557.

Although the Fifth Circuit concluded that the APA claim was moot, it declined to vacate the portion of the district court's order that vacated the challenged provisions of the May 2016 final regulations. Among other reasons, the Fifth Circuit reasoned that vacating the district court's order was not in the public interest because the old rules could potentially become effective again. The Fifth Circuit noted that district courts had subsequently "reanimated" aspects of the May 2016 final regulations, so courts could also do so regarding those aspects of the regulations addressed in the district court's vacatur order.

RFRA Claim Was Not Moot

Regarding the provider's RFRA claim, however, the Fifth Circuit rejected HHS's argument that issuance of the June 2020 final regulations rendered the RFRA claim moot. In support of this conclusion, the Fifth Circuit pointed to:

The injunctions imposed in Walker and other litigation.
HHS's May 2021 Bostock Notification.
HHS's 2022 notice concerning gender-reassignment surgeries and Section 1557 compliance.
HHS's unwillingness to state that it would not try to enforce Section 1557 against the provider.

These developments, the Fifth Circuit reasoned, threatened the provider in the same way that the challenged portion of the May 2016 final regulations had. As a result, the provider's RFRA claim was not moot.

District Court Did Not Err by Granting Permanent Injunction Regarding Section 1557

The Fifth Circuit also concluded that the district court did not err on remand by granting a permanent injunction regarding Section 1557. HHS argued that the district court should not have granted this relief because the provider's complaint did not expressly seek relief from Section 1557. Instead, the provider sought relief from the May 2016 final regulations. Rejecting this argument, the Fifth Circuit reasoned that a challenge to a regulation also necessarily challenges the statute that the regulation implements.

The Fifth Circuit rejected HHS's argument that the provider lacked standing to seek a permanent injunction against possible future enforcement of Section 1557 because it might make different arguments regarding the heightened scrutiny analysis in the future.

Practical Impact

As the Fifth Circuit observed in this latest ruling, Section 1557 is currently the subject of reproposed regulations—this time issued by the Biden administration. Under the August 2022 reproposals, HHS noted that it is considering including a rule that would specifically address discrimination on the basis of pregnancy-related conditions (which would include termination of pregnancy). In doing so, HHS acknowledged that the district court in Franciscan Alliance vacated the inclusion of the term "termination of pregnancy" from the definition of discrimination on the basis of sex under the May 2016 final regulations. HHS also took the view, however, that the district court's vacatur would not apply to either:

HHS's 2022 rulemaking under Section 1557.
A potential rule prohibiting discrimination on the basis of pregnancy-related conditions.

The Fifth Circuit would appear to disagree with HHS's view, so it will be interesting to see how HHS handles discrimination based on pregnancy-related conditions (including abortion) in finalizing its August 2022 reproposals.

Of course, HHS's Section 1557 rulemaking is also occurring against the backdrop of the Supreme Court's recent Dobbs ruling rejecting a federal right to abortion under the Constitution—making it all the more likely that a Section 1557 rule addressing discrimination on the basis of pregnancy-related conditions would be the topic of litigation (Dobbs v. Jackson Women's Health Org., 142 S. Ct. 2228 (2022); see Abortion and Contraceptives Services for Group Health Plans Toolkit).

In ACA Section 1557 Litigation, Fifth Circuit Affirms Ruling Barring HHS from Requiring Health Provider to Perform Abortions or Gender-Reassignment Surgeries | Practical Law