District Court Stops Implementation of PPACA Section 1557 Regulations Relating to Gender Identity

On Dec. 31, 2016, in Franciscan Alliance, Inc. v. Burwell, the U.S. District Court for the Northern District of Texas (the court) published an opinion preliminarily prohibiting HHS from enforcing the provisions of the regulation implementing PPACA Section 1557 concerning gender identity or termination of pregnancy. As background, PPACA Section 1557 generally prohibits HHS-funded entities from discriminating on the basis of race, color, national origin, sex, age or disability.

HHS previously published regulations that define “sex” to include “gender identity”, thereby prohibiting discrimination against transgender individuals. “Gender identity” is defined as an individual’s internal sense of gender, which may be male, female, neither or a combination of male and female, and which may be different from an individual’s assigned birth sex. In addition, the regulations also added a notice requirement (taglines and translation aids) for those individuals with limited English proficiency. The regulations were effective Jan. 1, 2017 (although the notice requirement took effect earlier). Importantly, another law (Title IX) also prohibits discrimination based on sex, and Title IX includes an exemption for religiously-affiliated entities. In issuing its Section 1557 regulations, HHS declined to incorporate any such religious exemption.

In Franciscan Alliance, the plaintiffs (eight states and three religiously-affiliated private health care provider organizations) argued that HHS overreached in its definition of “sex” in the Section 1557 regulations. Title IX, on which the Section 1557 regulations are based, defines “sex” as the immutable, biological differences between males and females as acknowledged at or before birth. The plaintiffs complained that the alleged overreach pressures providers and plans to deliver health care in a manner that violates their religious freedom (and in some cases, their independent medical judgment), and therefore HHS should not be allowed to enforce the Section 1557 regulations.

The court agreed with the plaintiffs, and in its opinion issued a nationwide preliminary injunction, finding that the gender identity and termination of pregnancy provisions of the Section 1557 regulations exceed statutory authority, contradict existing law (Title IX) and likely violate the Religious Freedom Restoration Act. Since, in the court’s view, implementation of the regulations would likely cause harm to and impose a substantial burden on the plaintiffs’ religious exercise, and since HHS had numerous less restrictive alternatives available to provide access and coverage for gender transition and abortion procedures, the injunction was necessary.

HHS subsequently reminded entities that it will continue to enforce other provisions of Section 1557, including the notice requirements (which were not part of the injunction). It’s unclear at this point whether HHS will appeal the decision or whether the incoming administration will choose to continue to defend the regulation at all.

Ultimately, with President-elect Trump taking office at the end of January 2017, and with other related cases in different levels of federal courts (which may also have an impact on gender identity and sex discrimination), the future of Section 1557 and its related regulations is unclear. We will continue to monitor developments and report in future editions of Compliance Corner.

As for a takeaway for employers, although the district court’s opinion prohibits HHS from enforcing PPACA Section 1557’s rules on gender identity and pregnancy termination, individuals may still be able to sue health plans (or physicians) for gender identity discrimination under Title IX. Thus, discrimination or disparate treatment of transgender individuals may invite litigation and is therefore not recommended. Employers that are considering employment practices or benefits on gender identity should consult with outside counsel.

Franciscan Alliance, Inc. v. Burwell