District Court Vacates HHS Final Rules on Federal Conscience Protections

Practical Law Legal Update w-022-7656 (Approx. 5 pages)

District Court Vacates HHS Final Rules on Federal Conscience Protections

by Practical Law Employee Benefits & Executive Compensation

Final Regulations Enable Greater Enforcement of Federal Conscience Protections

In May 2019, HHS issued final regulations designed to ensure "vigorous" enforcement of federal statutory conscience protections for certain health care entities (84 Fed. Reg. 23170 (May 21, 2019); see Legal Update, HHS Final Rules Expand Enforcement of Federal Conscience Protections for Health Care Entities). The final regulations largely adopted proposed regulations issued in January 2018 (83 Fed. Reg. 3880 (Jan. 26, 2018); see Legal Update, HHS Rule Would Expand Enforcement of Federal Conscience Protections for Health Plans). The final regulations are intended to promote awareness of, and compliance with, numerous federal laws that protect the conscience rights of health care entities (collectively, the federal conscience laws). The final regulations, which include discrimination protections for health care entities that do not wish to cover abortion, had an effective date of July 22, 2019. However, HHS – in litigating challenges to the regulations – agreed to delay the effective date until November 22, 2019.

District Court Decision

The final regulations were challenged in three lawsuits, which were consolidated in June 2019. The plaintiffs, which included several states and Planned Parenthood, argued that the final regulations violated the Administrative Procedure Act (APA) and the Constitution.

Record Did Not Support HHS's Justifications for Final Regulations

Regarding the APA, the plaintiffs asserted that:

HHS exceeded its statutory authority in enacting the final regulations.
The regulations were contrary to law (including the ACA and other statutes).
The regulations were arbitrary and capricious.

The district court held that HHS exceeded its statutory authority in issuing the final regulations. The court concluded that Congress never delegated rulemaking authority to HHS to issue:

Significant portions of the final regulations.
Provisions of the final regulations that terminate all HHS funding to an entity for violating the federal conscience protection laws.

The court also held that the final regulations should be set aside under the APA because they conflict with:

Protections against discrimination on the basis of religion established by Title VII of the Civil Rights Act of 1964 (Title VII).
The Emergency Medical Treatment and Labor Act (EMTALA).

Finally, the court held that the final regulations are arbitrary and capricious under the APA because:

HHS's justifications for the final regulations (for example, lack of awareness of federal conscious provisions and confusion about the provisions) were unsupported by evidence.
HHS failed to supply a reasoned explanation for the final regulations' departure from earlier regulations that largely rescinded conscience protections.
HHS failed to consider important aspects of the final regulations, particularly their conflict with Title VII and the requirements that hospitals receiving federal funds provide care for medical emergencies under EMTALA.

The court held that the final regulations violated the APA because their definition of discrimination was not a logical outgrowth of proposed regulations issued by HHS in January 2018. Therefore, the court concluded that HHS violated the APA by failing to provide adequate notice to the regulated parties that it was considering overriding Title VII's anti-discrimination framework. The court noted that this failure, alone, was sufficient to vacate the final regulations.

Holdings on Constitutional Law Claims

Regarding the plaintiffs' constitutional claims, the court held that the final regulations:

Violated the Constitution's Spending Clause by imposing ambiguous and retroactive conditions and having a coercive impact on state governments.
Did not, on their face, violate the Establishment Clause.
Breached the Constitution's separation of powers requirement because Congress never delegated to HHS the power to entirely terminate HHS funding from an entity as a penalty for violating a federal law protecting individuals' conscience rights.

Remedy

Owing to the final regulations' numerous APA and constitutional violations, the district court concluded that vacating the regulations was the appropriate remedy. Due to what it characterized as the final regulations' "numerous, fundamental, and far reaching" violations of the APA, the court reasoned that it could not sever and vacate only the offending sections of the final regulations. The court therefore vacated the final regulations in their entirety. The court's ruling has nationwide effect and applies to all entities covered by the regulations – not merely to the Southern District of New York or the particular plaintiffs in the consolidated cases.

Practical Impact

In finalizing the regulations at issue in this case, HHS took the view that employers/plan sponsors and third-party administrators (TPAs) of health plans were protected under at least some of the federal conscience and anti-discrimination laws to which the regulations relate (through the regulations' definition of "health care entity"). If the court's vacatur ruling is appealed to the Second Circuit, these regulations will join a growing list of health-related regulations issued under the Trump administration that are the subject of legal challenges, federal district court rulings, and review by circuit courts (see Legal Update, First Circuit Lets Challenge to ACA Contraceptives Rules Proceed; Other Health Plan Litigation Moves Forward: Health Plan Litigation Round-Up).

District Court Vacates HHS Final Rules on Federal Conscience Protections | Practical Law