Two District Courts Block Enforcement of the Trump Administration's October 2017 Contraceptives Rules

Practical Law Legal Update w-012-4120 (Approx. 9 pages)

Two District Courts Block Enforcement of the Trump Administration's October 2017 Contraceptives Rules

by Practical Law Employee Benefits & Executive Compensation

ACA's Contraceptives Mandate

Under the ACA, non-grandfathered group health plans and insurers must provide coverage for certain preventive health services without cost-sharing, including preventive care and screenings for women under guidelines supported by the Health Resources and Services Administration (HRSA) (42 U.S.C. § 300gg-13; Section 2713 of the Public Health Service Act (PHSA); see also Group Health Plans Toolkit). Plans and health insurers must provide coverage for all Food and Drug Administration (FDA)-approved contraceptive methods, sterilization procedures, and patient education and counseling for women with reproductive capacity, as prescribed by a doctor.

In implementing the ACA's contraceptives mandate, the Departments provided an exemption for group health plans of religious employers and an accommodation for certain nonprofit "eligible organizations" that objected to covering contraceptives but were ineligible for the exemption (see Legal Update, Final Contraceptive Rules Include TPA Role for Providing Certain Contraceptive Coverage).

The contraceptives mandate has been the topic of extensive implementing guidance and ongoing litigation, including claims under the Religious Freedom Restoration Act of 1993 (RFRA) (42 U.S.C. § 2000bb-1(a) and (b)). For analysis of this guidance and litigation, see Practice Note, Contraceptives Coverage Under the ACA; see also Legal Updates, Supreme Court Strikes Contraceptives Mandate as Applied to For-Profits with Religious Beliefs, Departments Adjust Contraceptives Rules in Response to Supreme Court Cases, No New Religious Accommodation in ACA Contraceptives Coverage Challenge.

Commonwealth of Pennsylvania v. Trump

In the first preliminary injunction case, a district court in Pennsylvania addressed whether:

The Departments complied with the Administrative Procedure Act (APA) (5 U.S.C. § 551) in issuing the 2017 IFRs.
The 2017 IFRs contradicted the ACA's text, which they were meant to interpret.

(Pennsylvania v. Trump, (E.D. Pa. Dec. 15, 2017).)

Pennsylvania sought to enjoin the Departments from enforcing the 2017 IFRs based on statutory and constitutional violations. For example, Pennsylvania claimed that the 2017 IFRs:

Violated notice-and-comment rulemaking requirements under the APA.
Were arbitrary, capricious, an abuse of discretion, or otherwise inconsistent with the law in violation of the APA's substantive provisions.

The district court noted several significant changes under the 2017 IFRs (relative to the pre-October 2017 regulations), including that the 2017 IFRs:

Greatly expanded the scope of who could opt out of the ACA's contraceptives mandate.
Made the existing accommodation process optional.
Allowed employers to opt out of coverage based on sincerely held religious beliefs and moral convictions.
Eliminated requirements to provide notice of the intent to take advantage of the religious beliefs or moral convictions exemptions.

The court concluded that Pennsylvania had standing to seek a preliminary injunction. The court recognized that an imminent and direct injury to the state's fisc could result from the 2017 IFRs if:

Additional employers stopped providing contraceptive coverage.
More women residents sought contraceptive care through state-funded programs as a result.

Pennsylvania Was Entitled to a Preliminary Injunction

The court concluded that Pennsylvania met the preliminary injunction standard, which required the state to show that:

It was likely to succeed on the merits.
It was likely to suffer irreparable harm in the absence of preliminary relief.
The balance of equities tipped in its favor, and an injunction served the public interest.

(See Practice Note, Preliminary Injunctive Relief: Initial Considerations (Federal).)

Based on the district court's analysis of the preliminary injunction factors, the court granted Pennsylvania's preliminary injunction request and enjoined the Departments from enforcing the 2017 IFRs.

Likelihood of Success on the Merits

The court analyzed the likelihood-of-success-on-the-merits factor based on Pennsylvania's statutory/APA claim and concluded that the state would likely succeed on its claim that the Departments had not followed APA procedures in issuing the 2017 IFRs.

APA Requirements for Administrative Rulemaking

The APA is generally intended to provide the public an opportunity to participate in the administrative rulemaking process. Under the APA, an agency that issues a rule typically must first publish a "general notice of proposed rulemaking" in the Federal Register (5 U.S.C. § 553). Under Section 553 of the APA, the general notice includes:

A statement of the time, place, and nature of public rulemaking proceedings.
Reference to the legal authority under which the rule is proposed.
The terms or substance of the proposed rule or a description of the subjects and issues involved.

(5 U.S.C. § 553(b).)

After the general notice is issued, an agency must allow interested persons to participate in the rulemaking process by submitting written data, views, or arguments (with or without an oral presentation). The agency must then consider any relevant matter presented.

The district court observed that if the Departments failed to comply with the APA's notice-and-comment provisions regarding the 2017 IFRs, the court would need to preliminarily enjoin them from enforcing the rules unless an exception applied. Under one exception, for example, the APA's procedures do not apply if Congress expressly or impliedly authorized the Departments to disregard notice-and-comment rulemaking. Under a second exception, the APA's requirements would not apply if the Departments had good cause to find that the notice-and-comment public procedure was "impracticable, unnecessary, or contrary to the public interest" (known as the "good cause exception").

The court rejected the Departments' arguments that these APA exceptions applied, and concluded instead that the Departments improperly bypassed the APA's rulemaking procedures in issuing the 2017 IFRs. The court rejected the Departments' argument that a provision under the Health Insurance Portability and Accountability Act (HIPAA) provided express authorization to bypass the APA's notice-and-comment requirements. The court similarly rejected the Departments' argument that the APA's good cause exception applied, reasoning that:

There was no deadline to implement the 2017 IFRs (so that any delay associated with notice-and-comment rulemaking for the IFRs was not contrary to public interest).
The 2017 IFRs did not resolve any uncertainty and failed to prevent ongoing litigation, as the Departments had asserted they would do.
The large volume of prior comments received by the Departments during earlier rulemaking concerning the ACA's contraceptives mandate demonstrated that further comments were necessary for the 2017 IFRs.

The court also dismissed the Departments' argument that their inclusion of a post-issuance comment period dispensed with the need for pre-issuance notice and comment. The court reasoned that individuals are less likely to influence the government's action in later stages of the agency decisionmaking process.

Lack of Authority Under the ACA for 2017 IFR Exemptions

Also regarding Pennsylvania's likelihood of success on the merits, the district court observed that the 2017 IFRs contradicted the text of the ACA, which the IFRs purported to interpret. According to the court, the 2017 IFRs allowed various entities, on the basis of sincerely held religious beliefs or moral convictions, to elect not to provide contraceptive coverage. Under the ACA's text as previously interpreted, however, this coverage was mandatory (subject to exceptions). The court concluded that the ACA did not contain statutory language permitting the Departments to create the sweeping exemptions to the ACA's contraceptives mandate that were included in the 2017 IFRs (that is, the expanded religious beliefs and new moral convictions exemptions).

In addition, the district court found that the Departments' interpretation of the RFRA (that is, that issuance of the religious beliefs exemption was proper because of the "substantial burden" that the existing accommodation process placed on a person's exercise of religion) was erroneous as a matter of law.

Irreparable Harm, Balance of Equities, and Public Interest Factors

The district court found that the other preliminary injunction factors also weighed in Pennsylvania's favor. First, the court found that the state would likely endure irreparable harm without an injunction due to:

Significant damage to the state's fiscal integrity (that is, because Pennsylvania would shoulder much of the burden of providing contraceptive services to women who lost these services because their health plans opted out of coverage under the 2017 IFRs).
Harm to the health, safety, and wellness of the state's female residents (because as employers took advantage of the 2017 IFRs, access to no-cost contraceptive services for many women would be significantly curtailed).

Second, given Pennsylvania's interest in securing the health and well-being of its female residents and containing its costs for contraceptive services, the court concluded that the balance of equities heavily weighed in the state's favor (particularly given that the Departments would not be prejudiced by a preliminary injunction).

Third, regarding the public interest factor, the court concluded that a preliminary injunction was unquestionably in the public interest because it would maintain the status quo pending the outcome of a trial on the merits.

California v. Health and Human Services

In the second case, a federal district court in California issued a preliminary injunction to enjoin enforcement of the 2017 IFRs (California v. Health & Human Servs., (N.D. Cal. Dec. 21, 2017)). The plaintiffs in this case, the states of California, Delaware, Maryland, New York, and Virginia, also claimed that the Departments failed to comply with the APA's notice-and-comment requirements in issuing the 2017 IFRs. As a result, the plaintiffs asserted that they were denied a chance to comment concerning the IFRs' impact on the states and their residents before the rules became effective in October 2017.

In granting the preliminary injunction, the district court observed that the Departments had changed their position dramatically on the question of whether the US government has a compelling interest in ensuring access to contraceptive coverage for women. Whereas the Departments previously took the view, in litigation before the US Supreme Court, that this compelling interest existed, they concluded in issuing the 2017 IFRs that it did not.

The district court therefore found that, at a minimum, the state-plaintiffs were likely to succeed in showing that:

The Departments' process violated the APA.
These violations would cause the states imminent harm if enforcement of the IFRs was not enjoined.

State Were Entitled to a Preliminary Injunction

After concluding that the states had standing to bring their claim (including statutory standing under the APA), the court found that the states were entitled to a preliminary injunction because:

At a minimum, the states were likely to succeed on the merits of their claim that the Departments violated the APA by issuing the 2017 IFRs without advance notice and comment.
They were likely to suffer irreparable harm in the absence of preliminary relief.
The balance of equities tipped in their favor, and the public interest favored granting the injunction.

(See Practice Note, Preliminary Injunctive Relief: Initial Considerations (Federal).)

Regarding the likelihood-of-success-on-the-merits factor, the district court reasoned that the 2017 IFRs, which became effective immediately, violated the APA's notice-and-comment requirement because the Departments:

Failed to publish the required advance general notice of proposed rulemaking (although both IFRs requested public comment until December 5, 2017).
Did not provide the public with an advance opportunity to comment, making it impossible for the Departments to weigh the input of interested parties before enactment.

As a result, the court concluded that issuance of the 2017 IFRs was unlawful unless either:

The APA did not apply.
The Defendants could show that an exception to the APA's requirements applied.

The court rejected the Departments' argument that they had express statutory authority to issue the 2017 IFRs (which would have exempted them from the APA's advance notice-and-comment requirement). The court also disagreed that the good cause exception to the APA applied regarding the 2017 IFRs. The court reasoned that the Departments' justifications for invoking the exception (which included, for example, an asserted interest in curing RFRA violations) did not make it impossible for them to both satisfy the APA's notice-and-comment requirement and carry out their statutory duties under the ACA (regarding the RFRA, see Legal Update, Seventh Circuit Bars Enforcement of Contraceptives Mandate Against For-profit Corporations).

Regarding the other preliminary injunction standards, the district court found that:

The Departments' failure to provide an advance notice-and-comment process for the 2017 IFRs was not harmless error (because, in the court's view, there was no way to conclude that the Departments' violation had no bearing on the procedure used or the substance of rulemaking decision reached).
The states were likely to suffer irreparable harm unless the court enjoined enforcement of the 2017 IFRs (according to the court: "for a substantial number of women, the 2017 IFRs transform contraceptive coverage from a legal entitlement to an essentially gratuitous benefit wholly subject to their employer's discretion").
The balance of the equities tipped in the states' favor, and the public interest favored granting preliminary injunctive relief.

Concerning the last standard, the court reasoned that the states and their residents faced 
"potentially dire public health and fiscal consequences" resulting from a process to which they had no input.

Preliminary Injunction Applies Nationwide

The district court issued a nationwide preliminary injunction, reflecting the fact that no member of the public was permitted to participate in the rulemaking process via advance notice and comment. As a result, the Departments were:

Preliminarily enjoined from enforcing the 2017 IFRs.
Required to continue under the regulatory guidance in place before October 6, 2017, subject to a determination on the merits (that is, to avoid creating a regulatory vacuum).

This means that the ACA contraceptives exemption and accommodation as they existed following the Supreme Court's remand in Zubik remain in effect (including any court orders enjoining the Departments from enforcing those rules against specific plaintiffs) (see Legal Update, Supreme Court Returns Contraceptives Cases to the Courts of Appeals).

Practical Impact

For the moment, the California district court's preliminary injunction, which applies nationwide, turns back the regulatory clock regarding ACA contraceptives to October 5, 2017 (see Practice Note, Contraceptives Coverage Under the ACA). This will not be welcome news for employers that had planned to take advantage of the expanded exemptions under the 2017 IFRs. Given the high stakes involved in this litigation, however, it is almost certain that the outcomes on the merits in these cases will be appealed and that we can expect additional litigation involving the ACA contraceptives mandate during 2018. As a result, one of the Department's stated goals in issuing the 2017 IFRs – bringing to a close the longstanding litigation in this space – will not come to pass in the immediate future.

Two District Courts Block Enforcement of the Trump Administration's October 2017 Contraceptives Rules | Practical Law