One day before an updated rule of the US Department of Health and Human Services regarding Section 1557 of the Patient Protection and Affordable Care Act took effect, the US District Court for the Eastern District of New York ordered a stay and issued a preliminary injunction precluding the most recent final rules from becoming operative. Entities subject to Section 1557 should — at least until decisions are issued in cases pending in US district courts — be cautious in their approach to their non-discrimination compliance obligations.

IN DEPTH

“When the Supreme Court announces a major decision, it seems a sensible thing to pause and reflect on the decision’s impact.” These words from Senior United States District Judge Frederic Block concisely summarize advice given by the US District Court for the Eastern District of New York in the case of Walker v. Azar. The court issued its order on August 17, 2020, the day before the effective date of the US Department of Health and Human Services’ (HHS) rule regarding Section 1557 of the Patient Protection and Affordable Care Act (ACA) and how “on the basis of sex” should be interpreted in Section 1557. In granting a stay and issuing a preliminary injunction precluding the most recent final rules under Section 1557 from becoming operative, Judge Block cited the US Supreme Court’s landmark 6-3 Bostock decision (see our On The Subject here), which held that discrimination based on sex encompassed discrimination based on both sexual orientation and gender identity in the employment context (Title VII of the Civil Rights Act of 1964).

Background

In 2016, HHS published a final rule that interpreted “sex” broadly, barring providers that receive federal funding from discriminating on the basis of gender identity, gender expression, sex stereotyping and pregnancy-related conditions pursuant to Section 1557 of the ACA (the 2016 Final Rules). Almost immediately, the US District Court for the Northern District of Texas enjoined enactment of that portion of Section 1557, stating that HHS exceeded its authority to define discrimination on the basis of sex in such a way. On May 24, 2019, HHS promulgated new rules repealing the definitions section of Section 1557 “in order to make [HHS’] regulations implementing Title IX through the Section 1557 Regulation more consistent with the Title IX regulations of other Federal agencies.” As we reported previously, on June 19, 2020, HHS published rules under Section 1557 of the Affordable Care Act (the 2020 Final Rules) that, among other things, rescinded certain protections afforded to LGBTQ individuals. However, as part of the 2020 Final Rules, HHS included a lengthy preamble reiterating its position that “Title VII and Title IX do not encompass discrimination on the basis of sexual orientation or gender identity.”

Walker et al v. Azar

On June 26, 2020, the Human Rights Campaign in the US District Court for the Eastern District of New York filed a lawsuit on behalf of two transgender women of color, contesting HHS’s interpretation of “on the basis of sex.” The plaintiffs sought a stay and preliminary injunction, asking the court to declare that the 2020 Final Rules were invalid under the Administrative Procedure Act, to vacate the 2020 Final Rules, to stay the effective date of the 2020 Final Rules and to enjoin HHS from enforcing them preliminarily.

The Walker court’s order found that the plaintiffs had standing and determined that the 2020 Final Rules were contrary to law and that HHS acted arbitrarily and capriciously by promulgating the 2020 Final Rules. The definitions section from the 2016 Final Rules, codified at 45 C.F.R. § 92.4, had defined “because of sex” to include discrimination “on the basis of pregnancy, false pregnancy, termination of pregnancy, or recovery from, childbirth or related medical conditions, sex stereotyping, or gender identity.” But HHS said in the preamble to the 2020 Final Rules that it disagreed with the 2016 Final Rules’ interpretation of “because of sex” and instead followed the position in EEOC v. R.G. & G. R Harris Funeral Homes that “Title VII and Title IX does not encompass discrimination ‘on the basis of’ sexual orientation or gender identity.” Notably, Harris Funeral Homes was ultimately consolidated with Bostock.

HHS argued to the court that Title VII case law often informs Title IX matters involving discrimination because of sex. However, the Walker court articulated a concern that HHS was finalizing the 2020 Final Rules without discussing the impact of the Bostock decision. The court was careful to note that Bostock and other Title VII cases are not dispositive in cases regarding Title IX discrimination “because of sex.” However, by failing to address Bostock, the court “conclude[d] that the proposed rules are, indeed, contrary to Bostock and, in addition, that HHS did act arbitrarily and capriciously in enacting them. Therefore, [the court] grant[ed] plaintiffs’ application for a stay and a preliminary injunction to preclude the rules from becoming operative.”

Application

Ultimately, the court stayed the repeal of the 2016 definition of discrimination on the basis of sex and preliminarily enjoined HHS from enforcing the repeal. As a result, the definitions of “on the basis of sex,” “gender identity” and “sex stereotyping” remain in effect. A plain reading of the court’s decision would indicate that the preliminary injunction only applies to the definition of “on the basis of sex,” meaning that the rest of the 2020 Final Rule will remain in effect, including the rollback of certain regulatory burdens. This sort of surgical relief by courts is not uncommon in lawsuits under the Administrative Procedure Act. However, because of some ambiguity in the court’s holding, some practitioners believe that the preliminary injunction applies to the entirety of the 2020 Final Rule, enjoining the entire rule from taking effect. Entities subject to Section 1557 should be cautious in their approach and interpretation of Walker as it relates to their compliance obligations.

We anticipate that additional clarification will be forthcoming on the current status of Section 1557 and the breadth of the Walker court’s order when decisions are issued for cases currently under review in the US District Court for the District of Columbia and the US District Court for the Western District of Washington.