On August 4, 2022, the Department of Health and Human Services (“HHS”) issued its proposed rule on Section 1557 of the Affordable Care Act (“ACA”). Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age or disability in certain health programs or activities, if any part of the program or activity receives Federal financial assistance. Section 1557 incorporates Title IX of the Education Amendments of 1972 (“Title IX”), which provides that “[n]o person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subject to discrimination under any education program or activity receiving Federal financial assistance…, or under any program or activity that is administered by an Executive Agency or any entity established under [Title I of the ACA].” The 2022 Proposed Rule reflects a significant departure from the 2020 Final Rule’s narrow definition of discrimination on the basis of sex, and enlarges the 2016 Final Rule’s already expansive definition of discrimination on the basis of sex. The 2022 Proposed Rule specifically includes sex stereotypes, sex characteristics, sexual orientation, gender identity and pregnancy or related conditions as bases for sex discrimination. HHS is soliciting public comments on the 2022 Proposed Rule through October 3, 2022. The Section 1557 implementing regulation would be effective 60 days after HHS publishes a final rule.

Under the 2022 Proposed Rule, a covered health program or activity includes any project, enterprise, venture or undertaking to (1) provide or administer health-related services, health insurance coverage or other health-related coverage; (2) provide assistance to persons in obtaining health-related services, health insurance coverage, or other health-related coverage, (3) provide clinical, pharmaceutical, or medical care; (4) engage in health research; or (5) provide health education for health care professionals or others. The 2022 Proposed Rule would apply to all of the operations of any entity principally engaged in the activities described above, if any part of the activity or program receives Federal financial assistance. Such entities include, but are not limited to, state or local health agencies, hospitals, health clinics, health insurance issuers, physician’s practices, pharmacies, community-based health care providers, such as home health agencies, nursing facilities, residential or community-based treatment facilities, or other similar entities. The 2022 Proposed Rule may also apply to health insurance issuers acting as third party administrators that develop group health plan documents or policies for self-insured plans, group health plans that receive Federal financial assistance, medical centers, and hospital systems. The 2022 Proposed Rule also applies to health insurance market places and health programs administered by HHS, such as Medicare Parts A-D.

Covered entities with 15 or more employees will need to develop and implement, or update, their nondiscrimination policies and civil rights grievance procedures to facilitate compliance with Section 1557 rules, in addition to hiring or appointing a Section 1557 coordinator to oversee compliance. Covered entities are also required to develop record-retention procedures for grievances that allege discrimination, training programs to educate relevant employees on Section 1557 policies and procedures, and provide nondiscrimination notices to the public, among other things.

The following paragraphs illustrate how HHS’ rule on Section 1557 has changed since 2016 with respect to its interpretation of discrimination on the basis of sex.

The 2016 Final Rule Sets an Expansive Definition of Discrimination On the Basis of Sex

The 2016 Final Rule defined on the basis of sex to include “discrimination on the basis of pregnancy, false pregnancy, termination of pregnancy, or recovery therefrom, childbirth or related medical conditions, sex stereotyping, and gender identity.”

The 2016 Final Rule derived its expansive interpretation of on the basis of sex from a number of authorities: (1) the HHS Title IX regulations, which included pregnancy as a form of discrimination on the basis of sex; (2) the Price Waterhouse v. Hopkins, 490 U.S. 228, 250-251 (1989), opinion in which the US Supreme Court analyzed sex discrimination under Title VII of the Civil Rights Act of 1964, noting that in prohibiting discrimination on the basis of sex “Congress intended to strike at the entire spectrum of disparate treatment of men and women resulting from sex stereotypes”; and (3) the fact that as of 2016, a number of federal courts had recognized discrimination based on gender identity as a basis for sex discrimination.

Gender Identity and Termination of Pregnancy Protections Are Vacated from the 2016 Final Rule

In December 2016, the district court in Franciscan Alliance, Inc. v. Burwell, 227 F. Supp. 3d 660 (N.D. Tex 2016), enjoined HHS from enforcing the 2016 Final Rule’s prohibition against discrimination on the basis of gender identity or termination of pregnancy. The district court noted that gender identity and termination of pregnancy conflicted with Title IX because “Congress intended to prohibit sex discrimination on the basis of the biological differences between males and females.” Also, the district court found that HHS failed to incorporate into Section 1557 Title IX’s religious exemptions.

In October 2019, the Franciscan Alliance court issued its final order and determined the appropriate remedy was to vacate the 2016 Final Rule’s inclusion of gender identity and termination of pregnancy in the definition of sex discrimination.

The 2020 Final Rule Limits the Overbroad Definition of Discrimination On the Basis of Sex

HHS issued its 2020 Final Rule on Section 1557 on June 12, 2020. Relying on the October 2019 order from Franciscan Alliance, the 2020 Final Rule repealed the 2016 Final Rule’s definition of on the basis of sex and did not provide a new regulatory definition. In response to public comments, the drafters of the 2020 Final Rule noted that sex based on “its original and ordinary public meaning” refers to “the biological binary of male and female that human beings share with other mammals.” HHS noted that Supreme Court case law on Title IX had “consistently presupposed the biological and binary meaning of [sex].” This position effectively eliminated gender identity and sex stereotyping as a basis for sex discrimination under Section 1557. In keeping with the Franciscan Alliance court order, the 2020 Final Rule also included provisions that provided covered healthcare providers broad abortion and religious objection exemptions from Section 1557’s prohibition on sex discrimination.

Enforcement of the 2020 Final Rule is Stayed

On June 15, 2020, days after HHS published the 2020 Final Rule, the US Supreme Court issued its ruling in Bostock v. Clayton County, 130 S. Ct. 1731 (2020), holding that discrimination on the basis of sexual orientation and gender identity constitutes prohibited discrimination because of sex under Title VII of the Civil Rights Act of 1964. Relying on this ruling, two federal district courts in New York and Washington, D.C. enjoined HHS’ enforcement of certain provisions of the 2020 Final Rule. The district court in New York stayed the 2020 Final Rule’s repeal of certain provisions of the 2016 Final Rule, including the expansive definition of on the basis of sex.

The 2022 Proposed Rule Adds to the Expansive Definition of Discrimination On the Basis of Sex

As articulated by HHS, the 2022 Proposed Rule intends to address nondiscrimination on the basis of sex, including gender identity and sexual orientation, consistent with the holding in Bostock, related case law, and subsequent Federal agency interpretations. In contrast to the 2016 Final Rule, the 2022 Proposed Rule does not define on the basis of sex in the general definitions section. Instead, discrimination on the basis of sex is explicitly referenced amongst the 2022 Proposed Rule’s nondiscrimination provisions. The 2022 Proposed Rule clarifies that “[d]iscrimination on the basis of sex includes, but is not limited to, discrimination on the basis of sex stereotypes; sex characteristics, including intersex traits; pregnancy or related conditions; sexual orientation; and gender identity.”

Thus, while the 2020 Final Rule completely eliminated the 2016 Final Rule’s definition of discrimination on the basis of sex, the 2022 Proposed Rule expands upon the definition to specifically include sex stereotypes, sex characteristics and sexual orientation as bases for sex discrimination. HHS explained that the proposed inclusion of sex stereotypes codifies the Supreme Court’s holding in Price Waterhouse. The proposed inclusion of sex characteristics is based on HHS’ view that discrimination based on anatomical or physiological sex characteristics is inherently sex-based. Finally, HHS relies on Bostock’s reasoning to support the proposed inclusion of sexual orientation and gender identity. In doing so, HHS expressed disagreement with the Franciscan Alliance court’s holding that the inclusion of gender identity in the definition of sex is contrary to Title IX, which adopted the binary definition of sex. HHS noted that in Bostock, the Supreme Court held that discrimination because of sex under Title VII includes gender identity and sexual orientation even assuming that sex refers to the biological distinctions between male and female. Given the similarities between their statutory prohibitions against sex discrimination, the Supreme Court and other federal courts look to interpretations of Title VII to inform Title IX. There will no doubt be legal challenges to the 2022 Proposed Rule’s broad interpretation of discrimination on the basis sex. It will be interesting to see how federal courts continue to develop the statutory definition of sex discrimination and the implications this changing definition has on the provision of health care services.